3.2 Effective Date of Adjustments

PG&E contends that ORA's proposal to make the agreed-upon rate base and expense adjustments effective January 1, 1999 violates established principles regarding retroactive ratemaking, and should therefore be denied. ORA takes the position that the interim relief balancing accounts that were created in this proceeding by D.98-12-078 were specifically designed to address the prohibition on retroactive ratemaking, and should be utilized here. D.98-12-078 provides in part that:

The authorization provides PG&E with an opportunity to later recover the authorized test year 1999 revenue requirements that the Commission will adopt in its final decision in this proceeding, now scheduled for issuance in late March of 1999. It also protects the interests of PG&E's customers by ensuring that they are responsible for providing no more in revenues than the amount ultimately authorized by the Commission. (D.98-12-078, p. 1.)

Ordering Paragraph 1 of D.98-12-078 states the following:

Contingent upon [PG&E's] continued waiver of any future argument that the prohibition against retroactive ratemaking precludes any revenue requirement adjustments, including decreases, necessary to reflect the final decision in this GRC as if it had been adopted on January 1, 1999, PG&E may file the advice letters and tariffs further described in Ordering Paragraphs 2 and 3.

PG&E takes the position that the balancing accounts established pursuant to D.98-12-078 are inapplicable here because D.00-02-046 is a final decision. PG&E finds no indication in D.00-02-046 that the revenue requirement adopted for 1999 in that decision was not final.

It is true that to the extent that the relief granted in D.98-12-078 is not operative, ORA's proposal to make the revenue requirement adjustments effective January 1, 1999 would constitute impermissible retroactive ratemaking. However, PG&E is ignoring the clear intent of D.00-02-046, and is elevating form over substance in claiming that the balancing account mechanism established pursuant to D.98-12-078 is inapplicable here because D.00-02-046 did not clearly order that the adopted revenue requirements are subject to further adjustment upon completion of the ORA SAP System verification audit. Contrary to PG&E's assertion, D.00-02-046 was not a "final decision in this GRC," as that term is used in Ordering Paragraph 1 of D.98-12-078, as to issues pertaining to the ORA verification audit of PG&E's SAP business system. Therefore, as to those issues, the relief granted in D.98-12-078 remains operative. Our reasoning is as follows.

We first observe that by operation of Ordering Paragraphs 1 and 2 of D.98-12-078, and by virtue of PG&E's advice letter filings to implement D.98-12-078, PG&E waived any argument that the prohibition against retroactive ratemaking precludes any revenue requirement adjustments, including decreases, necessary to reflect the final decision in this GRC. As noted earlier, Ordering Paragraph 13 of D.00-02-046 provided for the SAP System verification audit, and Ordering Paragraph 21 explicitly stated that the GRC proceeding remains open to consider, among other things, "issues pertaining to the ORA verification audit of PG&E's SAP business system." To understand the Commission's intent in D.00-02-046 with respect to the SAP issues, it is useful to review the portion of the GRC decision that pertains to the SAP System and the verification audit:

PG&E's new SAP business system has been in use since May 1996. In order to meet regulatory reporting requirements, PG&E, with assistance from SAP, designed a "FERC translation module" that allows the corporate financial information kept in the new business system to be presented in FERC account format. At the outset of this GRC proceeding, ORA determined that it needed to have read-only, on-line access to the SAP system in order to follow the audit trail of booked costs and transactions. ORA was not able to gain such access on a timely basis. For example, PG&E did not provide ORA with access to the "controlling" or "CO" module of the system. As a consequence, ORA was not able to complete its audit of the FERC translation module. ORA requests that we require PG&E to conduct further testing of the FERC derivation process in SAP. ORA also recommends that we exercise caution when using 1996 and 1997 recorded numbers submitted by PG&E in its 1999 GRC. (D.00-02-046, p. 452.)

PG&E fully agrees that ORA and the Commission must have confidence that the FERC translation module is accurately translating financial information contained in the new business system to FERC accounts. PG&E and ORA report that they have commenced discussions on the structure, content and timing of a verification effort. PG&E sees the purpose of such an audit as ensuring that data recorded in the new business system are accurately translated into the FERC accounts. PG&E has committed to keeping the Commission and the parties apprised of the status of negotiations with ORA as well as any agreement that may be reached. (Id., pp. 452-53.)

In its discussion of the SAP audit, the Commission stated its intent that ORA's audit be completed, and it explicitly left open the possibility that further formal proceedings on SAP-related issues were possible. (Id., p. 453.) In view of the fact that ORA did not have timely access to the SAP System at the outset of this GRC and therefore could not follow the audit trail of booked costs and transactions, the fact that ORA was not able to complete its audit of the FERC module on a timely basis as a consequence of PG&E's failure to make the system fully accessible at the outset of the proceeding, ORA's request for an order directing further testing, and ORA's admonition to exercise caution when using 1996 and 1997 recorded numbers submitted by PG&E in its 1999 GRC; and in view of PG&E's stated understanding that the purpose of the verification audit was to ensure that data recorded in the new business system are accurately translated into the FERC accounts, it was clearly reasonable and appropriate for the Commission to leave open for further consideration "issues pertaining to the ORA verification audit of PG&E's SAP business system."

Having left open such issues for further consideration, it is not reasonable to conclude, as PG&E does, that the Commission intended to make the revenue requirements associated with those issues final. A fair reading of the GRC decision, including the above quoted language as well as Ordering Paragraphs 13 and 21, reveals that there was clear and effective notice to PG&E that further adjustments to the adopted revenue requirements were possible.

There can be no argument that ORA's initial audit recommendation to remove $10.5 million from recorded 1997 rate base, and the subsequent agreed-upon ratemaking adjustments of $2.0 million in rate base and $1.5 million in expenses are "issues pertaining to the ORA verification audit of PG&E's SAP business system." As to those issues, the interim relief crafted in D.98-12-078 was not extinguished with the issuance of D.00-02-046. Accordingly, ORA's proposal to make the adjustment effective January 1, 1999 is not barred by the prohibition against retroactive ratemaking.