Comments on Proposed Decision
PG&E, Edison, SDG&E, ORA, CUE, and Aglet filed timely opening comments on the proposed decision. Edison, ORA, Aglet, and TURN filed reply comments. We have changed the proposed decision in several respects in response to comments.
We have deleted the requirement for interest to be recalculated on the TCBA because we are convinced that these adjustments will not benefit ratepayers and could extend the rate freeze. We also find that PG&E and Edison recorded depreciation for economic assets.
We discuss the TCBA Guidelines in relation to applying Edison's overcollection to the acceleration of other assets and find that we must consider the effect of full record period. We therefore determine that Edison has appropriately applied its TCBA overcollection as of June 30, 1998 to reduce subsequent undercollections.
We adopt PG&E's settlement without modification, having gained a better understanding of the audit and verification of actual expenditures included in the Settlement Agreement.
We are convinced that costs associated with PG&E's QF Buyout Regulatory Asset should be recorded in the TCBA and trued-up for any final decision in A.95-04-002. In addition, PG&E's amortization of the generation portion of the HSM through the TCBA is correct.
As we discuss in the body of this decision, several parties filed briefs and reply briefs on the proposal to credit the TCBA for estimated market value. We will adopt these accounting changes.
1. The sole issue in dispute between ORA and SDG&E relates to employee transition costs.
2. ORA was the only active party to dispute any entries to SDG&E's TCBA and related memorandum accounts and subaccounts.
3. On July 9, ORA and SDG&E requested that the Commission adopt a settlement agreement that would resolve or otherwise dispose of all issues raised by ORA in SDG&E's 1998 ATCP.
4. We review SDG&E's settlement under the settlement rules provided in Rule 51 et seq. and the criteria we have developed for all-party settlements.
5. Proceedings such as this ATCP, which address issues that are primarily factual in nature, are likely candidates for the settlement process.
6. The SDG&E and ORA settlement is a reasonable compromise that fairly serves the interests of SDG&E, its shareholders, customers, and employees.
7. ORA generally found the majority of Edison's requests in this proceeding reasonable, but made specific recommendations regarding FF&U, QF shareholder incentive amounts, employee-related transition costs, and pension and long-term disability regulatory assets.
8. Aglet served rebuttal testimony on PG&E's application addressing employee transition costs. Aglet is a group whose members include one or more customers of Edison.
9. On July 6, Edison, ORA, and Aglet filed a motion for approval of a stipulation resolving several of the issues in this proceeding. Aglet joins in the stipulation only with regard to employee transition costs. At hearings, ORA and Edison presented a joint recommendation with a compromise agreement of their differences regarding Edison's request for a shareholder incentive related to a particular QF contract.
10. Edison, ORA, and Aglet were the only active parties to dispute any of the entries to Edison's TCBA and related memorandum accounts and subaccounts.
11. Edison and ORA have reached a compromise and now agree that we should approve a QF contract restructuring shareholder incentive of $1.18 million (1999$).
12. The joint recommendation represents a departure from our recent actions in D.99-06-089, in which we denied PG&E's request for a similar shareholder incentive because we concluded that PG&E's tariff language had not been authorized.
13. Edison distinguishes its request from the facts recited in D.99-06-089 because it did not record the incentive in its QFCRSI until that account had been approved.
14. No party has opposed the joint recommendation.
15. Edison's calculation of the net regulatory liability associated with its pension costs results in a net credit of $13.485 that is then multiplied by a factor to derive the generation-related portion to be credited to the TCBA. Edison's approach is consistent with our determinations in D.97-11-074.
16. In D.97-11-074, we authorized transition cost recovery for the long-term disability regulatory asset only for those claims made prior to 1998 and precluded Edison from using the pay-as-you-go methodology. Edison has complied with these orders and should recover the long-term disability regulatory asset.
17. PG&E has entered into a settlement with ORA and CUE that resolves the contested issues regarding costs recorded in its TCBA during the record period and also resolves issues related to employee transition cost recovery for PG&E employees at divested fossil and geothermal plants.
18. The proposed settlement does not address employees assigned to hydro or nuclear plants.
19. Aglet opposes the PG&E settlement, stating that it does not meet the fairness standard the Commission articulated in D.88-12-038 and that the scope of the settlement is too broad.
20. For the record period, the settlement results in a 13% disallowance as compared to the $3.78 million requested for employee transition cost recovery. The settlement provides for specific programs related to employee transition costs and caps ratepayers' exposure for the costs of various programs.
21. We are concerned about the cost caps vis-à-vis employee programs for PG&E's hydro and nuclear plant employees and will be mindful of additional impacts on ratepayers as we review other such programs and potential settlements.
22. We will require an affirmative showing that costs incurred for these programs in future record periods consistent with the terms of the settlement.
23. We do not intend to interfere in the collective bargaining process, nor do we find that employee retention bonuses are strictly eliminated from eligibility as employee-related transition costs.
24. Several of Energy Division's recommendations point out the need for clarifications of our decisions.
25. Cost allocation and firewall issues were addressed in D.99-06-058.
26. Issues related to transition cost rate group memorandum accounts are being considered in A.99-01-016 et al.
27. It appears that SDG&E estimated the market value of their generation plants at zero and recorded accelerated amortization over the 48-month transition period to recover transition costs. This approach does not comply with the guidelines established in D.97-12-039, in which we determined that estimated market value should be set equivalent to net book value and authorized depreciation should be recorded in the TCBA.
28. Some of PG&E's, Edison's, and SDG&E's generation assets divested thus far have been market valued at amounts greater than book value. The net result is that the utilities have recovered economic costs through the TCBA.
29. While it appears that SDG&E did not comply with our guidelines, the gain on sale to the TCBA when the divestiture transactions close would be less than it would have been had the market value been estimated at a value greater than zero. Over time, there is no net effect on the TCBA.
30. On a prospective basis, PG&E, Edison, and SDG&E should estimate market value for each asset and should record authorized depreciation in the appropriate memorandum account for those assets with market value estimated to be greater than net book value. Authorized depreciation through the TCBA will then cease.
31. If estimated market value results in an amount less than net book value, accelerated amortization should continue until actual market valuation occurs, at which point, a recalibration of amortization is appropriate, consistent with our findings in D.97-12-039.
32. On a prospective basis, PG&E, Edison, and SDG&E should credit the TCBA for estimated market value, as described herein.
33. SDG&E, Edison, and PG&E should work closely with the Energy Division to ensure that our staff has access to all necessary data and information to understand the flow of data and accounting for the ATCPs.
34. In Resolution E-3577, we have approved SDG&E's accounting for crediting transmission rates subject to refund.
35. In Resolution E-3603, we approved the refund plan associated with SDG&E's FPIM.
36. SDG&E is entitled to recover the difference between actual payments under eligible purchase power contracts and the corresponding revenues from the Power Exchange, ISO, or other markets for comparable energy.
37. SDG&E cannot continue to recover carrying costs on the PGE/AMAX costs as transition costs, because the TCBA itself earns a rate of return.
38. SDG&E's entries to the TCBA for embedded cost of debt are reasonable; however, SDG&E should track the interest income on the investments against the interest expense on the IDBs and credit the difference to the TCBA until the IDBs are brought back to the capital structure for ratemaking purposes.
39. SDG&E's nuclear material and supply inventory is eligible for recovery through the TCBA.
40. In A.99-09-006 et al., Edison should provide an update providing information on the accuracy and interface between its new billing and revenue reporting systems and for the accounting corrections related to the minimum charge billing defect. Edison should work with the Energy Division to ensure that our staff approves of all such billing and accounting system changes.
41. Edison's jurisdictional allocation factors will be resolved in its 1999 Revenue Adjustment Proceeding, A.99-08-022 et al.
42. The TCBA is an account that requires monthly entries and monthly determinations of transition cost recovery.
43. Edison's calculation of the TCBA for the record period is consistent with both Guideline 3 and Guideline 8, and Edison has appropriately applied the overcollection as of June 30, 1998 to the subsequent undercollection. We will continue to review this approach in future periods.
44. Costs related to fuel oil tanks and associated land should be included in the TCBA, since Edison is holding these assets until the ISO makes a final determination regarding their need for reliability.
45. To the extent that the training equipment, Steam Division's chemical facilities, mechanical service shop equipment, Steam Division's central warehouse equipment are stranded or being used to service Edison's remaining generation facilities, they should be recovered through the TCBA.
46. To the extent these assets are used to "support other activities required under AB 1890," (Exhibit 13, p. 25), Edison has not demonstrated that such assets are either generation-related or that it has used its best efforts to find alternative uses. Therefore, recovery through the TCBA is denied and Edison should make the appropriate adjustments.
47. Issues regarding the "buffer" land that Edison did not sell at its various generation sites were considered in D.99-06-078.
48. Edison agrees with Energy Division's adjustments regarding its pension transition benefit obligation and its allocation factor for generation-related pension, long-term disability, and unrecognized PBOP amounts. The allocation factor should be 23.4% rather than 24%.
49. The Mitchell-Titus report concludes that headroom revenue has been properly accounted for and that balances in the balancing accounts and memorandum accounts as of December 31, 1997 were properly transferred to the TCBA. We accept these findings for PG&E, Edison, and SDG&E.
50. We accept PG&E's accounting for unbilled revenue entries related to the TRA and RRB regulatory asset accounts.
51. We accept PG&E's methodology for the RRB Memorandum Account, but will review its procedures at the end of the rate freeze to determine if the oversizing credit is properly calculated. However, our Energy Division staff may choose to review this account before the end of the rate freeze.
52. PG&E's Diablo Canyon audit costs should be included in the 1999 ATCP record period, because the advice letter authorizing these amounts was not approved until November 15, 1999. The amount amortized through the TCBA should exclude the additional cost for work performed after the independent auditors issued a qualified opinion.
53. The Diablo Canyon costs should be recorded using the annual revenue requirement and the Commission-approved tariff providing for a monthly entry to the TCBA equal to one-twelfth of the annual revenue requirement.
54. If necessary, PG&E should adjust its TCBA to reflect plant additions and depreciation accruals consistent with D.99-10-046.
55. PG&E must comply with D.99-06-089 and must reverse all entries in connection with the $2.47 million in estimated shareholder savings disallowed by D.99-06-089. This adjustment should be reviewed in the ATCP for the record period in which it is recorded.
56. PG&E must adjust its TCBA to reflect the withdrawal of the Mt. Poso restructuring application confirmed in D.99-12-088.
57. PG&E may record the balance and amortize the QF Regulatory Buyout Asset in the TCBA, subject to later true-up, if necessary.
58. The Angels/Utica Regulatory Asset is eligible for recovery as a transition cost, but cannot continue to earn the interest rate adopted in D.96-06-061 because the TCBA earns interest.
59. PG&E should use the December 31, 1997 WAPA balance approved by FERC to amortize the WAPA regulatory asset. PG&E should adjust the WAPA amortization prospectively.
60. PG&E's Humboldt Regulatory Asset Special Assessment amortization, Helms Regulatory Asset amortization, and Helms Adjustment Account amortization are allowed to be recorded in the TCBA. No carrying costs should continue to be accrued for these accounts.
61. The HSM account reflects those environmental compliance costs incurred, spent, and allocated to generation-related projects and these costs are appropriately recovered through the TCBA.
62. PG&E's fossil/geothermal decommissioning accrual is correctly recorded.
63. No jurisdictional factor should be applied to costs associated with the Angels/Utica Regulatory Asset and the Helms Adjustment Account.
1. SDG&E's and ORA's settlement is reasonable in light of the whole record, consistent with the law and in the public interest, and should be approved.
2. The settlement meets the criteria set forth in D.92-12-019 for the review of all-party settlements. ORA and SDG&E are the only active parties to take positions on SDG&E's application; the sponsoring parties reflect the affected interests; the settlement contravenes nor statute or applicable Commission decisions; and the settlement amply informs the Commission of the circumstances addressed and the basis on which parties agreed.
3. The public interest is served by granting SDG&E's and ORA's settlement because the active parties agree on a mutually beneficial outcome, while representing the major interests in the proceeding.
4. The proposed stipulation for Edison is reasonable in light of the whole record, consistent with the law, and in the public interest
5. The Edison stipulation meets the criteria set forth in D.92-12-019 for the review of all-party settlements, as delineated in Conclusion of Law 2. Edison represents the interests of its shareholders and employees; ORA represents all ratepayers; and Aglet represents residential ratepayers.
6. The public interest is served by granting the Edison stipulation because the active parties agree on a mutually beneficial outcome, while representing the major interests in the proceeding.
7. The Edison and ORA joint recommendation is a reasonable compromise of the dispute regarding the QF shareholder incentive related to the Imperial contract.
8. We are satisfied that Edison has avoided the retroactive ratemaking concerns we expressed in D.99-06-089 and we will approve the joint recommendation as reasonable in light of the whole record, consistent with the law, and in the public interest.
9. The PG&E settlement is reasonable in light of the whole record, consistent with the law, and in the public interest.
10. In §§ 330(u), 363, and 375, the Legislature has clearly expressed its intent to protect utility employees from potential negative impacts related to electric restructuring and divestiture of generating plants.
11. Although we recognize that shareholders and new plant owners benefit from a stable work force, the law clearly provides that ratepayers bear the burden of offsetting potential negative impacts by defining these costs as transition costs in § 375.
12. Section 367(b) requires a netting of the market valuation process.
13. Because we must ensure that the rate freeze ends when transition costs are recovered, pursuant to § 368, it is important that accounting in the TCBA be accurate and consistent with the law.
14. As of January 1, 1998, it is reasonable to assume that PG&E, Edison, and SDG&E were aware that their generation plants were likely to sell above net book value. At that point, PG&E, Edison, and SDG&E had filed their divestiture applications and relevant Commission decisions had been issued.
15. On a prospective basis, it is reasonable to modify our ratemaking accounting provisions established prior to the beginning of the transition period and prior to the Commission's experience with market valuation and divestiture, to ensure that transition cost ratemaking is consistent with the law.
16. It is reasonable to propose that PG&E and Edison credit the TCBA based upon estimated market value on an aggregate basis.
17. These ratemaking provisions are consistent with §§ 367 and 368 and our findings in D.99-10-057. Crediting the TCBA for the aggregate net book value of remaining non-nuclear generating assets is a simple accounting procedure that manages the netting procedure required by Pub. Util. Code § 367(b) during the transition period, rather than waiting for the conclusion of the transition period.
18. The determination of economic plant must be made in terms of market valuation.
19. There are no "takings" issues related to the modified accounting approach. For economic assets, the utilities are allowed to recover authorized depreciation, return, and taxes through the memorandum accounts.
20. It is not reasonable to allow carrying costs and interest on particular regulatory assets to continue to accrue in the TCBA when the TCBA itself earns interest. Carrying costs are allowed to compensate the utility for recovering these assets over time. Allowing such carrying costs when interest on a new balancing account is applied would result in double recovery of such costs.
21. One purpose of the TCBA guidelines is to apply additional revenues to further accelerate those transition cost assets with the highest rate of return is to maximize the interests of both ratepayers and shareholders, as we determined in D.97-06-060. At the same time, another purpose is to recover transition costs so as to match revenues to current costs and to apply additional revenues to accelerate depreciation of other assets after those current costs are recovered.
22. In D.99-02-085, we confirmed that shareholders receive the benefit of the 10% QF shareholder incentive at the time the contract is signed, subject to a true-up when the Commission acts on the application to approve the restructured contract.
23. This order should be effective today, so that the settlements and adjustments may be implemented expeditiously.
IT IS ORDERED that:
1. The Joint Motion for the Office of Ratepayer Advocates (ORA) and San Diego Gas & Electric Company (SDG&E) for Adoption of Settlement Agreement in Application No. 98-09-009, filed on July 9, 1999, is adopted, as set forth in Appendix B.
2. The Joint Motion for Adoption of Stipulation Among ORA, Southern California Edison Company (Edison), and Aglet Consumer Alliance (Aglet) in Application No. 99-09-008 Regarding SCE's 1998 Annual Transition Cost Proceeding, filed on July 6, 1999, is adopted, as set forth in Appendix C.
3. The Joint Recommendation of Edison and ORA, entered into the record on August 5, 1999, is adopted. Edison shall reverse the $2.37 million entry recorded in Edison's Qualifying Facility Contract Restructuring Shareholder Incentive Memorandum Account (QFCRSI), plus accumulated interest and shall record the $1.18 million negotiated incentive, which shall then accrue interest at the three-month commercial paper rate, beginning on the date the negotiated amount is recorded.
4. The Motion of Pacific Gas and Electric Company (PG&E), ORA, and the Coalition of California Utility Employees for Approval of Settlement Agreement, filed on July 2, 1999, and set forth in Appendix D, is granted.
5. On a prospective basis, for those assets currently retained, PG&E, Edison, and SDG&E shall estimate market value each plant asset and shall record authorized depreciation in the appropriate memorandum account for those assets with market value estimated to be greater than net book value. Authorized depreciation through the TCBA will cease at that point. If estimated market valuation results in an amount less than book value, accelerated amortization shall continue until actual market valuation occurs, at which point a recalibration of amortization is appropriate. PG&E, Edison, and SDG&E shall adjust their prospective monthly TCBA reports and 2000 ATCP filings accordingly.
6. PG&E and Edison shall credit the TCBA appropriately for estimated market value on an aggregate basis and for not less than net book value for non-nuclear assets, including the land surrounding such assets and Helms pumped storage plant. Assets jointly owned with other utilities shall be excluded from this approach. These credits shall be reflected in the monthly TCBA reports and Annual ATCP reports. PG&E and Edison shall include a list of all assets over $500,000 in the first TCBA report in which these changes are implemented.
7. Carrying costs and interest on the various regulatory assets discussed herein shall not be allowed to accrue in the TCBA because the TCBA earns the three-month commercial paper rate of return. These amounts shall be adjusted.
8. SDG&E shall track the interest income on the investments against the interest expense on its Industrial Development Bonds (IDBs) and shall credit the positive difference to the TCBA until the IDBs are brought back to the capital structure for ratemaking purposes. SDG&E shall show this entry separately in its monthly TCBA report under Competition Transition Charge (CTC) Revenue Account beginning January 1, 2000.
9. Within 21 days of the effective date of this decision, SDG&E shall file and serve a compliance advice letter to confirm the adopted settlement and adjusted entries in its TCBA and related memorandum accounts. The advice letter shall become effective after appropriate review by the Energy Division. In addition, SDG&E shall update its TCBA for the adjustments required herein, which shall be reviewed in the appropriate ATCP.
10. To the extent that the training equipment, Steam Division's chemical facilities, mechanical service shop equipment, Steam Division's central warehouse equipment are stranded or being used to service Edison's remaining generation facilities, they shall be recovered through the TCBA. To the extent these assets are used to support other activities. Recovery through the TCBA is denied and Edison shall make the appropriate adjustments.
11. Within 21 days of the effective date of this decision, Edison shall file and serve a compliance advice letter to confirm the adopted settlement and adjusted entries in its TCBA and related memorandum accounts. The advice letter will become effective after appropriate review by the Energy Division. In addition, Edison shall update its TCBA for the adjustments required herein, which shall be reviewed in the appropriate ATCP.
12. Edison shall use the generation-related allocation factor of 23.4% rather than 24% to apply to its pension, long-term disability and unrecognized post-employment benefits other than pensions.
13. PG&E shall remove the Diablo Canyon audit costs from the 1998 ATCP and include these costs in the 1999 ATCP. The amount amortized through the TCBA shall exclude the additional cost for work performed by the independent auditors that PG&E agreed to pay for after the auditors issued a qualified opinion on the Diablo Canyon audit.
14. Decision (D.) 99-10-045 was issued in A.98-07-058 on October 21, 1999; therefore, if necessary, PG&E shall adjust its TCBA to account for the capital additions and accrued depreciation addressed in that decision.
15. PG&E shall comply with D.99-06-089 and shall reverse all entries in connection with the $2.47 million in estimated shareholder savings disallowed by D.99-06-089.
16. The adjustment related to the Mt. Poso contract buyout (A.98-10-030 which was withdrawn at parties' request in D.99-12-088) shall be made in the 1999 ATCP filing. The 10% shareholder incentive shall be applied without including a jurisdictional factor.
17. PG&E may record the costs associated with QF restructuring in A.95-04-002 and A.98-04-003 QF Buyout Regulatory Asset in the TCBA and amortize the amounts ratably over the time remaining until the end of the transition period, subject to true-up. When we issue a decision in A.95-04-002 and A.98-04-003 approving the QF Buyout Regulatory Asset, no true-up is required for the Midsun restructuring approved in the decision issued in A.98-04-003.
18. PG&E shall prospectively adjust the amortization of the Western Power Administration Regulatory Asset to reflect the December 31, 1997 balance approved by the Federal Energy Regulatory Commission.
19. PG&E shall recover amortization for the following regulatory assets: Angels/Utica Regulatory Asset; Humboldt Regulatory Asset Special Assessment; Helms Regulatory Asset, the Helms Adjustment Account, QF Regulatory Asset, and Generation Related Hazardous Substance Mechanism. The unamortized balance on these assets shall not continue to earn a return. No jurisdictional factor shall be applied to the Angels/Utica Regulatory Asset or the Helms Adjustment Account. PG&E shall adjust subsequent ATCP filings accordingly.
20. Transition cost recovery is granted for the generation-related portion of the Hazardous Substance Mechanism, along with amortization and return. PG&E shall make the appropriate adjustments which shall be reviewed in future ATCP filings.
21. Amortization of fossil/geothermal decommissioning is allowed.
22. Within 21 days of the effective date of this decision, PG&E shall file and serve a compliance advice letter to confirm the adjusted entries in its TCBA and related memorandum accounts. The advice letter will become effective after appropriate review by the Energy Division. In addition, PG&E shall update its TCBA for the adjustments required herein, which shall be reviewed in the appropriate ATCP.
23. This proceeding is closed.
This order is effective today.
Dated February 17, 2000, at San Francisco, California.
RICHARD A. BILAS
President
HENRY M. DUQUE
JOSIAH L. NEEPER
CARL W. WOOD
LORETTA M. LYNCH
Commissioners
(SEE CPUC FORMAL FILES FOR APPENDICES A THRU D.
THESE APPENDICES ARE NOT AVAILABLE
IN MICROSOFT WORD.)
