III. Benefit Sharing Plan

As part of its testimony in the URG Phase, PG&E proposed that a 50/50 sharing mechanism for Diablo Canyon be adopted. PG&E had originally filed this proposal in A.00-06-046.⁶ The benefit sharing mechanism presumed that the rate freeze had ended and proposed that rates be based on a market proxy of $74/kWh. (Exh. URG-11, at p. 3-2.) The URG Decision declined to adopt this proposal, and instead determined that Diablo Canyon's revenue requirement would be based on cost-of-service principles. PG&E proposes three theories why the Commission erred in not adopting its proposed benefit sharing mechanism for ratemaking with respect to Diablo Canyon. All three theories are without merit.

PG&E first contends that the Commission's failure to adopt PG&E's benefit sharing proposal for Diablo Canyon, while approving Edison's Incremental Cost Incentive Pricing (ICIP) mechanism for SONGS, was an abuse of discretion. (Application, at p. 6.) This claim is based on PG&E's assertion that the URG Decision uses the same reasoning to reach two different conclusions with respect to PG&E and Edison's proposed incentive ratemaking methodologies. This claim is without merit. First, PG&E's benefit-sharing proposal is based on a market proxy price, which has no relation to the cost of operating Diablo Canyon. (See, Exh. URG-11, at p. 3.2.) Edison's ICIP mechanism, on the other hand, is based on SONG's cost. (Exh. URG 1, at pp. 46-47.) As discussed previously, market costs are inconsistent with AB 6X and thus cannot be used. Second, PG&E fails to recognize that its proposal was premised on the assumption that the rate freeze has ended, a finding that had not been made when the URG Decision was issued.

Third, the Commission has not discriminated against PG&E in determining the rates for Diablo Canyon in a different manner than for SONGS, since the two facilities are not similarly situated. Edison's ICIP mechanism for SONGS will not end until 2003, whereas PG&E's ICIP for Diablo Canyon ended in 2001. (See, Re Pacific Gas and Electric Company [D.97-05-088] (1997) 72 Cal.P.U.C.2d 561, 588; Re Southern California Edison Co. [D.96-01-011] (1996) 64 Cal.P.U.C. 241, 272.) Thus, we could properly adopt different methodologies for setting rates for these two facilities.⁷

PG&E next maintains that the Commission's decision is in violation of section 1708 because it "rescinds and modifies" Commission decisions 95-12-063 (Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation (1995) 64 Cal.P.U.C.2d 1) and 97-05-088 (Re Pacific Gas and Electric Company (1997) 72 Cal.P.U.C.2d 561) without adequate justification. (Application, at p. 8.) PG&E is mistaken. These prior decisions, issued pursuant to AB 1890, contemplated that once Diablo Canyon's ICIP mechanism concluded, its rates would be priced at market rates. (D.95-12-063, 64 Cal.P.U.C.2d at p. 64.) However, AB 6X eliminated the market valuation provisions for Diablo Canyon's rates after 2001. Thus, AB 6X, not D.95-12-063 and D.97-05-088, governs how rates are to be determined after 2001. Accordingly, section 1708 was not implicated in this decision, since we were not modifying a prior Commission decision.

Finally, PG&E claims that the Commission is equitably estopped from rescinding its prior approval of benefit sharing ratemaking. (Application, at pp. 8-9.) It notes that the elements for finding equitable estoppel, discussed in D.01-10-067, exist here. PG&E is mistaken. First, as discussed above, our prior decisions were superseded by AB 6X. Therefore, contrary to PG&E's belief, it was not necessary for us to take any action to modify or rescind these prior decisions. Second, in D.01-01-061, PG&E was put on notice that URG revenue requirements should be cost-based. (D.01-01-061, at p. 7.) Since benefit sharing ratemaking is based on market value, PG&E should have been aware that it would be not approved. Third, it was impossible for any party to anticipate the events leading to the Legislature's enactment of AB 6X at the time D.95-12-063 and D.97-05-088 were issued. Fourth, PG&E fails to explain how the "injury" it has sustained as a result of the URG Decision exceeds injury to the public interest. Indeed, under the URG Decision, it is arguable that PG&E has not sustained any injury, since it will be compensated for its actual costs for operating Diablo Canyon. (D.02-04-016, at p. 20.) Finally, any claims of expected "lost profits" would be speculative at best, since we had not approved PG&E's original application. (See, e.g., Market Street Railway Co. v. Railroad Commission of California (1945) 324 U.S. 548, 567.) Accordingly, the requirements for equitable estoppel have not been met in this case..