Discussion

In D.05-11-031, we expressed our appreciation for the parties' collaborative efforts. The collaborative spirit has continued, and at the preliminary meetings we explored the possibility of avoiding a formal proceeding altogether. However, our quick review of the data sets suggests that they leave open several questions; in addition, issues have arisen regarding the circumstances recognized in D.05-11-031 as justifying an increase particular to an individual representative. Consequently, we are instituting this rulemaking as originally planned.

Thanks to the preliminary meetings, however, we have a focused set of proposals well-suited to resolution through notice-and-comment rulemaking. The proposals are described below.

1. Should the Commission adopt a general cost-of-living adjustment for intervenor rates for work performed in 2006?

As noted earlier, the Commission in D.05-11-031 did not approve a general increase for 2005 rates compared to 2004 rates. Several factors suggest a general increase, on the order of 3%, may be appropriate for 2006.

One factor is that the rate of inflation in the economy as a whole was higher in 2005 compared to the 2004 data relied on in D.05-11-031.⁴

Another, possibly more significant factor is an apparent flaw in our methodology for considering the rates paid by utilities. In D.05-11-031, we examined those rates on the basis of year-over-year total cost; we did not consider how rates paid to individual representatives varied from year to year. The Utility Reform Network (TURN) argued that our methodology could mask actual increases in rates depending on the fortuity of which representatives a utility might use in given years. Accordingly, the utilities were directed to prepare two rate analyses, one analysis replicating that used for D.05-11-031, and a sensitivity analysis tabulating rates paid to individual representatives actually used by the reporting utility in each of the past three calendar years (2003, 2004, 2005).

The results tend to confirm TURN's argument. The sensitivity analysis tracking individual representatives shows modest increases in rates. In contrast, the analysis based on our original methodology produces anomalous results in some cases. For example, a utility might report a decrease in rates paid its senior attorneys as a group, but the decrease may result from a large number of attorneys moving up that year from the intermediate level to the senior level: The attorneys moving up received pay increases but the infusion of lower-paid attorneys caused a drop in the range of rates within the senior level. In this example, the utility may (or may not) be incurring lower overall costs of representation, but it is not actually paying lower rates.

In light of these factors, a general 3% cost of living adjustment (COLA) to the 2005 ranges adopted for attorneys and experts seems reasonable. The table below shows the ranges adopted in D.05-11-031 and the ranges as modified by the proposed COLA (with rounding to $5 increments).

Hourly Intervenor Rate Ranges for 2006
(2005 Ranges from D.05-11-031 x 3%, rounded to nearest $5)

Parties are invited to comment on the proposed COLA and any implementation issues they see.

2. Should the Commission specify experience levels for experts as it does for attorneys?

In collecting data on experts' rates for purposes of D.05-11-031, we did not generally disaggregate by levels of experience, nor did we distinguish on the basis of expertise (economists, engineers, etc.). As a result, D.05-11-031 adopted a single broad range of rates ($110-360) for all experts. To achieve greater precision, we ordered the utilities, in their new data sets, to disaggregate expert rates by job classification and by three levels of experience relevant to the classification (0-2 years, 3-9 years, and 10 or more years).

The consensus at the preliminary meetings was that the new data sets did not achieve greater precision. Defining job classifications was difficult, might vary from utility to utility, and might or might not reflect the expert's academic training. Moreover, even for large companies such as the reporting utilities, the degree of disaggregation we required could result in categories with a tiny number of data points. In short, the results were not what we hoped.

The Union of Concerned Scientists (UCS) made a proposal at the June 1, 2006 meeting regarding rates for experts. The proposal, in essence, is a simple method for establishing experience levels and rate ranges for experts using the experience levels adopted for attorneys in D.05-11-031. UCS' proposal is detailed in a follow-up letter to the meeting participants on June 15, 2006; we reproduce the letter in Appendix A to this Order Instituting Rulemaking (OIR).

As a preliminary analysis of the UCS proposal, we reviewed all intervenor compensation award decisions issued in the 12-month period July 2005 to June 2006 that adopted hourly rates for experts who performed work in 2005. We found 35 experts whose experience could be identified, and we then compared the adopted rates to rates that would result from using the UCS proposal. As summarized in the following table, we found that under the UCS proposal, rates for eight experts would remain unchanged, while rates for the other 27 experts would increase from 2% to 86%, with a median increase of about 33%. Appendix B lists all 35 experts and relevant rates.

Rate Increase Resulting from UCS Proposal

	# Experts	% Increase
	8	0%
	2	2%
	6	10-20%
	13	25-50%
	6	60-85%
	Total 35	Median 33%

These increases result primarily from the establishment of floor rates for each rate range (compared to the single floor rate of $110/hour for all experts in D.05-11-031). Additionally, the proposed UCS adjustments appear to be based on total work experience; they are unrelated to the individual expert's education, applicable experience (for purposes of the work that is the subject of the compensation requests), and services provided. Since education and services provided (in addition to experience) are basic criteria for setting hourly rates under the statute, a proposal that would result in large changes to hourly rates without reference to those criteria is unreasonable. Consequently, the UCS floor rates are unacceptable.

The UCS proposal, however, includes some points worth further review, particularly the development of the five experience levels and establishment of ceiling rates for each level. We think the UCS proposal could be combined with a requirement that an intervenor requesting compensation perform a "peer group analysis" for the expert(s) the intervenor plans to use in 2006. For the peer group analysis, the intervenor would refer to (1) the adopted 2005 rates for the 35 experts mentioned earlier and shown in Appendix B, (2) the ceiling rates⁵ for the relevant level per the UCS proposal, and (3) various other factors. These other factors include, but are not limited to: whether the experience is relevant to the work performed by the representative; the complexity of the work performed for the subject proceeding; the representative's level of responsibility (e.g., principal vs. associate in a consulting firm); the degree of specialization needed to complete the work; membership in professional organizations or societies; and any honoraria awarded. Finally, the intervenor would identify comparable experts (the "peer group") and suggest a rate for its representative in relation to that group.

These analyses could be performed and submitted for review and approval in this rulemaking, or they could be performed in the various proceedings where substantial contribution is claimed. We suggest the former, as it is likely to lead to more consistent results, lower administrative costs for everyone, and greater assurance for intervenors. In either case, the analyses would be subject to comment by utilities. We recognize that researching previous decisions awarding intervenor compensation would be necessary for this analysis, that these decisions vary regarding the description of each expert's qualifications, and that such research could become a laborious task.

In brief, we invite comment on the UCS proposal, as modified above, and on the development of an hourly rate database. Although the modifications complicate the proposal considerably, we must balance the desire for simplicity against the requirements to abide by the statutory criteria and to achieve reasonable consistency in the treatment of comparable intervenor representatives.

3. Should the Commission allow a representative without an approved rate for several years to request a rate as a new representative?

We discussed earlier the limited circumstances provided in D.05-11-031 under which an individual representative might seek to have a rate increase approved particular to that representative. There have been a few, rare instances where these limitations may result in anomalies.⁶

Specifically, a senior representative whose hourly rate was last set by the Commission, say, four years ago, is limited to 3% annual increases to 2005. On the other hand, a comparably qualified and experienced representative who had no previous rate set by the Commission might get a considerably higher rate (based in the levels and rate ranges in D.05-11-031) than the representative with prior practice before the Commission.

Parties are invited to comment on whether we should allow a representative without a recently authorized rate to request the Commission to set a rate as it would in the case of a representative new to Commission proceedings (and on the basis of a showing appropriate to a new representative). For purposes of this proposal, we suggest the proposal apply to a representative whose last authorized rate was for work performed in a calendar year four or more years earlier than the work for which compensation is sought.

4. What adjustments to methodology should be made for the next hourly rate analysis (2007 rates)?

Based on the information we have gathered, adopting a 3% COLA to apply to hourly rates for 2006 work appears reasonable. Nevertheless, we continue to seek a methodology that relies less on government indices for inflation in the general economy. Current information does not give us much confidence that we yet have a clearly superior methodology.

The tracking of individual rates, as suggested by TURN, appears to give more reasonable results than the year-over-year total expense comparison we used for setting hourly rates for 2005. The tracking results also align fairly closely with the inflation indices. But other factors suggest that the much desired apples-to-apples comparison still eludes us.

TURN's June 16 letter discusses the results of a study, performed at TURN's request, that tracked compensation for 10 Pacific Gas and Electric Company (PG&E) attorneys over a three-year period (2002-2004):

In the current PG&E GRC, TURN sought data that tracked the rates associated with PG&E attorneys who had performed PUC-related work during each of the three years in question. The substantive portion of the data request follows:

Please select the ten attorneys that have been employed on a full-time basis by PG&E in each year from 2002 through the present, and that devoted the most hours to representing the utility in CPUC proceedings during that period. For each such attorney, please provide the information reported in the utility's General Order 77-K report (G.O. 77-L for reports after
D.04-08-055 issued), broken into the following categories:

a. Base pay or base compensation;

b. Incentive payments; and

c. Other pay (includes overtime, performance rewards, vacation buybacks, imputed incomes, and any other miscellaneous accounts).

PG&E's response consisted of a table setting forth the requested information. The table below replicates that response, with the three components merged into a total for each year.

Attorney No.	2002 Total	2003 Total	2004 Total
Attorney 1	$295,982.49	$357,766.31	$330,732.30
Attorney 2	$219,440.07	$209,953.35	$242,168.03
Attorney 3	$221,173.92	$255,922.15	$247,763.40
Attorney 4	$281,737.17	$313,763.71	$302,248.78
Attorney 5	$219,829.96	$271,262.50	$247,882.50
Attorney 6	$142,187.28	$139,227.93	$152,111.88
Attorney 7	$213,234.76	$195,484.08	$221,217.66
Attorney 8	$264,931.38	$300,022.00	$285,215.70
Attorney 9	$278,855.28	$307,735.10	$294,744.18
Attorney 10	$261,295.20	$246,385.19	$272,924.96

Dividing the total of the three categories reported for each year by the 1747.2 "productive hours" used in the utility calculations in R.04-10-010 would produce an equivalent hourly rate for each attorney. Those rates can then be compared year-to-year to determine the rate increases for each individual. ... the "rates" for these attorneys increased from 4 to 12 percent from 2002 to 2004, with an average increase of 8 percent. TURN submits that such individual-specific information is a more valid indicator of changes to the rates paid by the utilities than are the ranges developed in D.05-11-031.

As TURN notes, the compensation for all 10 attorneys is indeed higher in 2004 than it was in 2002. But this increase is not steady: Four attorneys in the sample had lower compensation in 2003 than in 2002, and six different attorneys had lower compensation in 2004 than in 2003. This instability may be explained in various ways besides a change in base compensation. Bonuses may vary from year-to-year, and a representative may be away from work for an extended period, for example on parental leave.⁷

These observations suggest that we may be able to draw more robust conclusions about the escalation of hourly rates by looking at data for a substantial period, say, the last four years. We can continue for now to apply both TURN's approach and our own approach in analyzing the data.⁸ Conceivably, by developing a long-term trajectory for hourly rates, error on the high or low side will even out over time. This seems an attractive possibility, and we invite the parties to comment on the suggestion generally, and how to implement it if they consider it worth exploring.

5. The hourly rate charged by "outside" representatives does not establish the market rate for their services.

In its June 16 letter, TURN argues that the market rate the Commission has established for pricing the services of an "in-house" attorney or expert (that is, a representative on the intervenor's own staff) is not necessarily appropriate for pricing the services of an outside attorney or expert. For these outside representatives, TURN proposes that the Commission consider using their actual rate as billed, even when the billed rate exceeds the hourly rates otherwise approved by the Commission.⁹ We reject this proposal for reasons discussed below.

First, the intervenor compensation statute (§ 1806) instructs us to consider three factors, namely, a representative's training, experience, and services. The statute does not indicate we should adopt two sets of hourly rates further differentiating between representatives solely on the basis of whether or not they are on the intervenor's staff. Instead, we have adopted a single set of "blended" rates (combining hourly rate data for in-house and outside representatives). TURN cannot have it both ways: a blended rate for its staff representatives and the as-billed rate for its outside representatives.

Second, the § 1806 compensation standard consists of two parts, a "may not exceed" part, which refers to the rate actually paid by the Commission or utilities, and a part which refers to market rates generally. The Commission need only "take [these rates] into consideration." Neither of these parts compels us to set intervenors' hourly rates at levels that reach the highest rates to be found in the relevant specialities, whether or not a utility on occasion pays such rates. To the contrary, § 1802(a), in defining "compensation," refers to reasonable advocate's and expert witness fees. Reading §§ 1802(a) and 1806 together, we conclude that the statute contemplates our establishing a reasonable range of rates for representation. The range should not be so low as to effectively preclude intervenors from hiring qualified representatives, nor so high as to remove the incentives for intervenors to negotiate vigorously for representation and to carefully manage their litigation budgets.

We acknowledge that utilities sometimes use representatives whose hourly rates may exceed the high end of our ranges for attorneys and experts. Such use is uncommon, though now we do not have data on how often the utilities exceed the high end. We therefore direct the utilities to submit data showing: 1) the total number of utility representatives (in-house and outside) in the data sets submitted this spring; 2) the number and percent of those representatives who were paid hourly rates in excess of the established ranges for work performed in 2005; and 3) the percent of total hours worked by representatives in 2005 paid in excess of the ranges.

We also invite parties to comment on TURN's proposal. Comments should include what types or standards of justification would be necessary to demonstrate where and when the requested (higher than maximum) rate is reasonable.

⁴ We found inflation for 2004 running at about 2.7% on the basis of reports by the Social Security Administration, the U.S. Department of Labor, and the Federal Reserve Bank. The same sources report a 2005 range of 3.6% to 4.1% depending on the reporting period (which varies slightly by source and generally does not coincide with the calendar year).

⁵ If a COLA is approved as proposed in this OIR, the ceiling rates would be adjusted accordingly.

⁶ TURN raised this issue at the June 1 preliminary meeting and in a follow-up letter to meeting participants dated June 16, 2006.

⁷ It would be interesting to see how the same 10 attorneys fared in 2005, and specifically whether their average compensation continued to rise, with as many individual exceptions as before. Since the 2005 data should now be available, PG&E is invited to supplement the GRC table, and all parties are invited to comment generally on TURN's tracking approach as exemplified here.

⁸ We note that when the utility data for 2006 is collected, we will already have four years' worth of compensation available to us.

⁹ TURN specifically proposes, "If the intervenor can demonstrate that the agreed-upon hourly rate is the same as that charged to other hourly-fee-paying clients during the same period, there should be at least a rebuttable presumption that the rate meets the `market rate' standard of Section 1806. And particularly where the intervenor's outside attorney or expert works on a matter for which the utility is also relying (in whole or in part) on an outside attorney or expert, and the market rate for the intervenor's outside attorney or expert compares favorably with the rate the utility paid, reducing the authorized rate based on the `blended' rate ranges of D.05-11-031 is inappropriate (at least in TURN's view)."