11. Comments on Draft Decision

The draft decision of the ALJ in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g) and Rule 77.1 of the Rules of Practice and Procedure. Comments were filed on April 10, 2000, by ORA and Weil, PG&E, San Diego Gas and Electric Company, Southern California Gas Company (Sempra Utilities), and Southern California Edison Company (SCE). Reply comments were filed by PG&E.

The draft decision noted the fact that PG&E's request included $12.3 million in accrued interest related to the seven CEMA events. Also, the draft decision proposed to modify Resolution E-3238 to allow a limit of 18 months of interest to be accrued from the date of the last entry into the CEMA. The purpose of the recommendation was to motivate utilities to file CEMA applications quickly after the conclusion of repairs. The fact that the oldest CEMA event included in PG&E's 1999 application dates back to 1991, the Oakland/Berkeley Hills fire, was the basis for the recommendation.

ORA and Weil support the draft decision proposal for a limit of 18 months of interest to be accrued from the date of the last entry into the CEMA.

PG&E states that it made its last entry into CEMA for the 1991 Oakland/Berkeley Hills fire in March, 1998. The CEMA application was filed in January 1999, some nine months after the last entry. But, to conserve utility and Commission resources, PG&E combined seven separate disasters into one filing, since it seemed that PG&E's service area was suffering about a disaster a year between 1991 and 1998. The last disaster included in Application 99-01-011 occurred in February 1998, and at the time of the filing in January 1999, some of the repairs for the February 1998 storms, the 1997 New Year's storm and flood, and the 1994 Northridge earthquake had not yet been finished and entered into CEMA. PG&E thought then that it was better to combine the repairs for multiple diasters into a single filing instead of seven separate filings.

Also, PG&E points out that interest accrues at the 90-day commercial paper rate, an interest rate that was chosen not to compensate ratepayers or shareholders over time, but simply to make ratepayers and shareholders indifferent to the time value of money.

The Sempra Utilities and SCE (utilities) submit that it would be contrary to the public interest to set an arbitrary time limit for the accrual of interest in the CEMA. The utilities suggest that the Commission should instead simply require any utility seeking relief through the CEMA, in the future, to explain why the amount of interest accrued is reasonable. Also, the utilities point out that there is nothing in Section 454.9 that would limit the Commission's ability to include in its reasonableness determination whether or not the utility completed projects as expeditiously as possible, and whether or not the utility prepared and submitted an application to the Commission as expeditiously as possible under the circumstances. Further, the utilities point out that in any case where the Commission might conclude that the utility acted imprudently and thereby caused the accrual of excess interest that could and should have been avoided, the Commission clearly has the authority to deny recovery of imprudently-accrued interest based upon all of the facts and circumstances of a particular CEMA application.

The utilities do not dispute that an 18-month period might be appropriate to repair and seek recovery of the costs of a single clean break to a gas transmission pipeline or an electric transmission line caused by an earthquake declared to be a natural disaster. However, the utilities disagree that the same time limitations should apply to utility facilities damaged following a major earthquake in a metropolitan area. The utilities state that since public roads frequently have utility facilities running under or near them, the utility might be able to effectuate a temporary repair pending final completion of repairs to the thoroughfare, but might not be able to implement permanent repairs until the thoroughfare itself has been completely repaired or reconstructed. According to the utilities, in such a situation, a project can legitimately take more than 18 months "to close out."

Furthermore, the utilities state that from an accounting perspective, it can take several months to sort through thousands of individual invoices to ensure that they are properly chargeable to the proper CEMA work orders and are not duplicative of other invoices or charges. The utilities submit they should not be penalized for legitimate delays necessary to ensure that the CEMA accounting is correct before submitting an application.

We agree with the utilities that because the nature of CEMA events can vary considerably, it would not be reasonable to set a time limit for interest accrual for all projects. Section 454.9 states that utilities shall recover in rates the costs that the Commission finds reasonable. One of the factors the Commission will consider in determining reasonable costs is the length of time it took to repair and restore facilities, the timing of the application, and the interest costs associated with that period of time. In that regard, we agree that PG&E acted reasonably in deferring its application for recovery of costs for the Oakland/Berkeley Hills fire, and combining CEMA costs up to May 31, 1999, for the seven declared disasters into one application. We have modified the draft decision accordingly.

Findings of Fact

1. As set forth in the Settlement Agreement, the active parties reached settlement on all issues in this proceeding.

2. The Settling Parties intend that PG&E recover all of the settled revenue requirements during 2000, in accordance with the provisions of Section 454.9, which provides that reasonable CEMA costs approved by the Commission shall be recoverable in rates.

3. Following signing of the Settlement Agreement, the Commission issued D.99-10-057 in the Post-Transition Electric Ratemaking proceeding, which could affect full recovery by PG&E of reasonable CEMA costs approved by the Commission in this proceeding.

4. To address this possibility of non-recovery of approved CEMA costs by PG&E, the Settling Parties filed an Amendment to the Settlement Agreement.

5. The Amendment allows: (1) the Settling Parties to revisit the collection period in the event the rate freeze ends during 2000, and (2) PG&E to collect CEMA revenue requirements over the months remaining in the year 2000.

6. The Settling Parties request Commission approval of the Settlement Agreement and the Amendment.

7. There is no opposition to the Settlement Agreement or the Amendment.

Conclusions of Law

1. To the extent that Rule 51.1(b) and Rule 51.2 may apply to the Amendment, these rules should be waived.

2. The Settlement Agreement and the Amendment taken together: (1) meet the Commission's criteria for approval of all-party settlements; and (2) are reasonable in light of the whole record, consistent with law and in the public interest, as required by Rule 51.1(e).

3. Consistent with D.99-10-057, no CEMA costs can be carried over for recovery past the rate freeze.

4. The motions filed by the Settling Parties requesting approval of the Settlement Agreement and the Amendment should be granted.

ORDER

IT IS ORDERED that:

1. The Settlement Agreement, attached as Appendix A, agreed to by Pacific Gas and Electric Company (PG&E), the Office of Ratepayer Advocates, and James Weil is approved.

2. The reasonable total revenue requirement resulting from this Catastrophic Event Memorandum Account (CEMA) application is $69.8 million ($59.3 million in electric revenue requirements and $10.5 million in gas distribution revenue requirements)7 to be collected in rates during the year 2000. The $59.3 million in electric revenue requirements includes $1.5 million related to electric generation. This $1.5 million includes electric generation costs from the January and March 1995 storms and a portion of the costs incurred as a result of the 1997 New Year's Flood. The electric generation costs shall be recorded directly to the Revenue

Section of the Transition Cost Balancing Account (TCBA) on a one-time basis. The remaining $57.8 million in electric revenue requirements shall be recorded into the distribution revenue requirement of the Transition Revenue Account (TRA). The $10.5 million in gas distribution revenue requirements shall be collected during the year 2000 through the gas Customer Class Charge. Upon Commission approval of this settlement agreement, PG&E shall file an advice letter to change the gas Customer Class Charge.

3. As set forth in the Joint Motion filed on February 11, 2000, Amendments A, B and C set forth below shall be incorporated into the Settlement Agreement:

This order is effective today.

Dated April 20, 2000, at San Francisco, California.

(See Formal Files for Appendix .)

7 The allocation between electric and gas is based on the electric and gas split in PG&E's July 30, 1999, Update Testimony. The portion allocated to electric generation takes into consideration the $1.7 million error identified by Weil.

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