5. Substantial Contribution
In evaluating whether a customer made a substantial contribution to a proceeding we look at several things. First, did the ALJ or Commission adopt one or more of the factual or legal contentions, or specific policy or procedural recommendations put forward by the customer? (See § 1802(i).) Second, if the customer's contentions or recommendations paralleled those of another party, did the customer's participation materially supplement, complement, or contribute to the presentation of the other party or to the development of a fuller record that assisted the Commission in making its decision? (See §§ 1801.3(f) and 1802.5.) As described in § 1802(i), the assessment of whether the customer made a substantial contribution requires the exercise of judgment.
In assessing whether the customer meets this standard, the Commission typically reviews the record, composed in part of pleadings of the customer and, in litigated matters, the hearing transcripts, and compares it to the findings, conclusions, and orders in the decision to which the customer asserts it contributed. It is then a matter of judgment as to whether the customer's presentation substantially assisted the Commission.3
Should the Commission not adopt any of the customer's recommendations, compensation may be awarded if, in the judgment of the Commission, the customer's participation substantially contributed to the decision or order. For example, if a customer provided a unique perspective on a complex issue of great public import thus enriching the Commission's deliberations and the record, the Commission could find that the customer made a substantial contribution. With this guidance in mind, we turn to the claimed contributions to the proceeding made by Aglet, Greenlining and TURN.
5.1. Aglet
Aglet claims substantial contribution for each of the issues that it addressed in this proceeding, as summarized in the following sections.
SCE requested approval of its proposed post-test year ratemaking mechanism for 2007 and 2008 in order to "continue SCE's return to financial health." Aglet was the only party to focus on SCE's claims regarding financial health. Consistent with Aglet's position, the Commission found that SCE had substantially recovered from the financial effects of the 2000-2001 crisis, and it was not necessary to consider further financial recovery in resolving specific issues in this proceeding.
SCE requested approval of $61,190,000 in refueling expenses per outage at SONGS, Units 1 and 2. Aglet recommended an expense level of $56,808,000, based on elimination of an unjustified non-labor escalation premium, and removal of Unit 3 main generator rotor repair costs from historical recorded costs. The Commission adopted Aglet's positions regarding the non-labor escalation premium and the main generator rotor repair.
SCE originally requested a test year 2006 uncollectible factor of 0.288%. DRA recommended a factor of 0.271%. Aglet recommended a factor of 0.220%, equal to a two-year average of 2002 and 2003 recorded adjusted uncollectibles. The Commission found, "Aglet's proposal to average the 2002 and 2003 recorded uncollectible factors is reasonable and will be adopted." (D.06-05-16, mimeo., p. 104.)
SCE requested $2,499,000 in test year expenses for economic and business development (E&BD) expenses. Aglet was the only party that specifically addressed SCE's proposed expenses and recommended disallowance of ratepayer funding. Aglet repeated points that it made in A.04-04-008 and A.04-06-018, the consolidated applications of SCE and PG&E for approval of economic development rate discounts.
Aglet states that, at the time this general rate case was submitted for decision, the Commission had not acted in A.04-04-008 and A.04-06-018. (Reply briefs were filed September 2, 2005.) The Commission later approved a joint proposal submitted by SCE and Pacific Gas and Electric Company (PG&E) in A.04-04-008 and A.04-06-018. (D.05-09-018, reversing the ALJ proposed decision, signed September 8, 2005.) The joint proposal allowed full ratepayer funding of E&BD discounts. In response to Aglet's application for rehearing, the Commission granted limited rehearing of D.05-09-018. (D.06-05-042, signed May 25, 2006.) Consistent with the rate recovery allowed for E&BD costs in D.05-09-018, the Commission in the GRC rejected Aglet's recommendation and adopted SCE's funding request.
Although Aglet did not prevail, it argues that it made a contribution to the adopted outcome. First, it assisted in developing a full record on the issue. DRA's decision not to participate encouraged Aglet to litigate E&BD expenses. Second, Aglet's participation was completed prior to Commission policy determinations made in A.04-04-008 and A.04-06-018, and some of those issues remain unresolved pending rehearing. (Specifically, floor prices for E&BD discounts, and shareholder benefits from utility efforts to promote economic development.) Third, Aglet's participation was efficient in that it was based on testimony and arguments made in A.04-04-008 and A.04-06-018.
For these reasons, Aglet requests compensation for its efforts related to E&BD issues at one-half of the professional hours allocated to E&BD expenses from its compensation request. This request is reasonable.
SCE requested approval of $1,817,000 in expenses for a Customer Technology Application Center and an Agricultural Technology Application Center. The test year request was $500,000 more than recorded 2003 expenses of $1,317,000. Aglet opposed rate recovery of the additional $500,000 requested by SCE. The Commission adopted Aglet's position.
SCE used a five-year average of recorded customer deposits, for the years 1999 through 2003, to estimate this offset to rate base. SCE's test year estimate was $114,919,000. Aglet recommended an estimate of $139,979,000, based on 2004 recorded deposits as a percent of test-year lagged revenues. Aglet cited the increasing trend of customer deposits as justification for reliance on recent data. If the Commission continued to rely on a five-year average, Aglet and TURN jointly recommended updating SCE's average to cover the years 2000 through 2004. The resulting back-up recommendation was for test year deposits of $127,433,000. Citing "the continuing upward trend" in recorded deposits, the Commission adopted test year customer deposits of $159,650,000, equal to recorded 2004 deposits without consideration of the relationship between recorded deposits and lagged revenues.
The Commission also revised the discussion of customer deposits in the proposed decision, in response to comments filed by Aglet. The proposed decision discussed a distinction between "total" and "permanent" customer deposits, and recommended the back-up position of Aglet and TURN. (Proposed decision, p. 264, Finding of Fact 174 at 379.) Aglet argued that there is no meaningful distinction between those terms. The final decision rejected the "total" and "permanent" analysis, eliminated proposed Finding of Fact 174, and adopted a level of customer deposits even higher than that recommended by Aglet or TURN.
SCE requested approval of an attrition mechanism that built on the mechanism approved in SCE's test year 2003 general rate case. It included adjustment of operating and maintenance expenses based on utility-specific labor and nonlabor escalation factors, adjustment of capital-related revenue requirements based on budgeted construction expenditures, adjustment of SONGS costs based on the expected number of refueling outages in each year, and allowance of adjustments following major exogenous events. DRA proposed adjustment of prior year revenue requirements by forecast changes to the CPI, a method that Aglet introduced in a previous general rate case for PG&E. Aglet also recommended reliance on CPI changes.
The final decision approved SCE's request for escalation of expenses, but adopted attrition year adjustments to capital-related revenue requirements based on escalation of adopted test year plant additions. The Commission limited capital escalation to 2.5% based on evidence that included Aglet's showing on use of the CPI. Aglet did not prevail, but asserts that its showing on use of the CPI substantially contributed to the record.
Aglet states that the Commission rejected SCE's request for budget-based capital attrition adjustments, in part because no party other than SCE had the resources to analyze SCE's 2007 and 2008 capital budgets. This point was argued by DRA, Aglet and TURN. The Commission also mentioned Aglet's point that SCE supported only $40 million of post-test year capital spending with cost-effectiveness analysis, compared to more than $1.8 billion of capital additions for each of the years 2007 and 2008.
Aglet also asked the Commission to disregard SCE's one-sided study of the benefits of SCE capital spending on the economy in its service territory. D.06-05-016 does not address the study.
SCE first proposed no reward or penalty for system reliability performance during the test year 2006 rate case cycle. SCE later stipulated to the adopted RIIM, with TURN and the Coalition of California Utility Employees. The RIIM will have the effect of requiring SCE to spend certain minimum amounts on electric system reliability and to add electric linemen and groundmen to its work force. The RIIM does not include specific financial rewards or penalties. DRA and Aglet opposed the stipulation. Aglet's opposition was based on policy considerations and the complexity of the RIIM.
The Commission adopted the RIIM. In doing so, the Commission found that "it is reasonable to discontinue the use of a reliability incentive mechanism that is based on rewards and penalties." (D.06-05-016, Finding of Fact 192.) Aglet states that the Commission responded to its concern about complexity by: (1) indicating that the RIIM "does add a level of complexity;" (2) requiring the settling parties to determine attrition year expenditure levels, and (3) ordering that SCE's compliance filing "should include ... jointly determined information, with supporting workpapers." (D.06-05-016, mimeo., pp. 34-35.)
Aglet submits that it made a substantial contribution to resolution of reliability incentive issues by providing record support for Finding of Fact 192, on which Aglet prevailed, and by highlighting the complexity of the RIIM, which led to the requirement for attrition calculations and workpapers.
Aglet also addressed several other issues, which it considered to be of lesser importance. Aglet asserts substantial contribution in varying degree as explained below:
Customer Accounts Nonlabor Costs: DRA and Aglet opposed SCE's reliance on a three-year trend of nonlabor costs for various customer accounts expenses. The Commission rejected use of the trend for some but not all related expenses. Aglet's showing supplemented and complemented DRA's showing by pointing out additional reasons why the use of a three-year trend was incorrect.
SONGS Cost Allocation: Aglet pointed out the uncertainty of the ownership share of SONGS by SDG&E. No party disputed the uncertainty, and the Commission did not explicitly discuss it.
Four Corners Attrition: Aglet opposed a specific attrition provision that would allow SCE to recover forecast costs for a major overhaul at the Four Corners Generating Station in 2008. Aglet argued that there is no precedent for such a mechanism, and the amount at stake is not large. The Commission agreed with Aglet that the amount at risk does not justify a new mechanism, although it allowed SCE to recover the costs at issue by amortizing them over the entire rate case cycle.
Project Development Expense: Along with several other parties, Aglet opposed rate recovery of $4,950,000 of project development expenses. Late in the proceeding, Aglet argued that project development costs should be separated into general costs and costs related to specific projects. The proposed decision would have included project development costs in rates, subject to refund. The final decision excluded the costs from rates, but allowed SCE to record them in a memorandum account. Aglet argues that its comments on the proposed decision caused the revision.
Public Affairs Expense: Aglet supported DRA's proposed 25% disallowance of administrative and general expenses for public affairs activities. The Commission rejected the 25% disallowance, but disallowed 14% of incremental expenses over the 2003 recorded adjusted level.
Depreciation: Aglet supported TURN's position regarding protection of current revenues collected for future costs of removal of certain assets. The Commission agreed with TURN, and recognized collected funds as a regulatory liability.
Escalation Factors: The proposed decision would have authorized attrition year escalation of prior year plant additions "escalated for inflation." (Proposed Decision, p. 285.) Aglet commented that without further specification the proposed decision was vague and ambiguous. SCE commented that there was no support for capital escalation rates that the proposed decisions used in results of operation tables. SCE argued for escalation rates in the range of 2.8% to 3%. Aglet recommended use of Consumer Price Index (CPI) forecasts and states that the adopted value of 2.5% appears to be a compromise of SCE and Aglet positions. Aglet asserts that it made a substantial contribution to the adopted outcome as it was the only party other than SCE to comment on this issue.
Minor Corrections and Revisions: Aglet suggested 13 minor corrections and revisions to the proposed decision. The Commission adopted 10 of them, and rejected two. One became moot when the underlying text was deleted.
A review of the record confirms Aglet's assertions regarding its substantial contributions to D.06-05-016, including that related to E&BD expenses. As Aglet indicates, it was the only party to address SCE's E&BD request, although D.06-05-016 did not adopt any factual or legal contentions, or specific policy or procedural4 recommendations put forward by Aglet. For E&BD issues, D.06-05-016 merely reflected the outcome of D.05-09-018 in A.04-04-008/A.04-06-018, wherein Aglet did not prevail. For theses reasons, Aglet reduced its request by 50% of its estimated costs related to this issue. We note that Aglet estimated those costs by allocating time to specific issues based on the number of pages of testimony, briefs and comments for each issue compared to the total pages for all issues. In general, this is a reasonable method for allocating time to specific issues, and we will reflect Aglet's self imposed reduction in determining its award.
5.2. Greenlining
Greenlining indicates that its role in this proceeding focused on four issues, all related to corporate responsibility. The issues are: supplier diversity, management diversity, philanthropy, and transparency of executive compensation. Greenlining did not ask the Commission to take punitive action against SCE on any of these issues, but instead urged the Commission to highlight SCE deficiencies and Commission policy in regard to these matters.
Greenlining's claims regarding substantial contribution are summarized below.
D.06-05-016 cites Greenlining throughout the discussion in Section 15.51.3. For example, Greenlining recommended that SCE be urged, but not ordered, to demonstrate its commitment to supplier diversity by honoring its 1989 General Order (GO) 156 diversity target of 22.5%. As evidence of its contribution, Greenlining cites the following:
During the proceeding, Greenlining provided a copy of its annual supplier diversity report for major utilities regulated by this Commission. The 2004 report, rates utility efforts with respect to contracting practices with Minority Business Enterprises (MBEs). With 16.4% of its contracts going to minorities, SCE ranked 5th with a C+ rating. When compared to [the ratings for other utilities], SCE's efforts are barely adequate. We urge SCE to increase its efforts in this area, and will look favorably at performance and ratings that demonstrate greater SCE leadership in contracting with minorities. Consideration of the 1989 22.5% contracting goal for MBEs, even though the conditions regarding exclusions have changed, would be a significant step in that direction. While utilization of MBE suppliers may be dependent on the utilities' needs and the availability of MBE vendors to fulfill those needs, the variance in MBE utilization between utilities does suggest that there may be MBE opportunities that some utilities are overlooking. Practices and plans related to the utilization of [diverse] suppliers are the subject of annual utility and Commission reports required by GO 156. If potential improvements in supplier diversity can be identified through this process, they should be considered for implementation. (D.06-05-016, mimeo., pp. 180-181, emphasis added.)
In its opening brief, Greenlining proposes that SCE be required to track its supplier diversity achievements for small and medium sized minority businesses and to report to its [management] the dollar amount of its supplier diversity that is awarded to minority owned businesses with revenues of $10,000,000 or less .... If deemed appropriate, such a requirement can be developed generically, in the future. (D.06-05-016, mimeo., pp. 181-182.)
Greenlining claims substantial contribution to the Commission's determinations regarding SCE's management diversity, citing the following:
During the proceeding, Greenlining developed information that showed among SCE's top 100 managers, 10% were African American, 4% were Latino and 4% were Asian American. While Greenlining commends SCE for its achievements regarding African Americans, it criticizes that for Latinos and Asian Americans whose population is larger than that of African Americans by six times and two times, respectively. We agree in both respects. SCE has shown that it can achieve significant African American representation in its management through internal development and outside hiring. SCE also recognizes the need to make solid progress in the workforce diversity and cites its strategies and programs to do so. We urge SCE to immediately implement such mechanisms to increase the representation of Latino and Asian American managers and look forward to seeing the results of its efforts. As part of its next GRC filing, SCE should provide information on its workforce diversity achievements, similar to that provided by Greenlining in Exhibit 505. (D.06-05-016, mimeo, p. 182, emphasis added)
Greenlining raised the issue of philanthropy, particularly in the context of executive compensation packages, with a focus on underserved communities. In 2004, Greenlining noted, $1,300,000 in philanthropy was given by SCE to the poor, versus $10,300,000 in compensation given to SCE's Chief Executive Officer. With regard to its contribution to the issue of philanthropy, Greenlining cites the following:
During the proceeding, Greenlining developed information that compared SCE's philanthropy to bonuses to top executives. For example, in 2004, while bonuses to the CEO amounted to approximately $8,700,000 and bonuses to the top 30 executives amounted to approximately $30,200,000, SCE's philanthropy consisted of $80,000 to African Americans, $237,000 to Latinos, $142,000 to Asian Americans, and $1,266,000 to the poor. According to SCE, it has committed to a philanthropy goal of 1% of pre-tax income with 60% going to nonprofit and community based organizations that support the underserved community. While Greenlining would commend that goal, it urges SCE to consider President Peevey's urging of utilities to develop strategic long-term philanthropic programs where cash philanthropy equals or exceeds 2% of pre-tax profits and at least 80% is committed to underserved and poor communities.
For many reasons, including good corporate citizenship, social responsibility, and public perception, philanthropy is an important consideration for SCE/EIX [Edison International - parent company of SCE] and corporations in general. ... We urge EIX/SCE to give due consideration to President Peevey's stated opinions and preferences in this area when determining its philanthropic goals. (D.06-05-016, mimeo., pp. 182-183, emphasis added.)
Greenlining also urged that SCE be ordered to provide full executive compensation transparency, as provided by PG&E, and transparent and understandable information on the present and future market value of retirement severance benefits of its top executives. As evidence of its contribution, Greenlining cites the following:
For purposes of the General Order 77-L report, SCE should follow the PG&E model for reporting executive compensation. Also, in its next GRC, SCE should provide full transparent and understandable information on the present and future market value of the retirement severance benefits of its top executives. (D.06-05-016, mimeo., p. 184, emphasis added.)
Greenlining also recommended that the Commission urge SCE to consider linking large top executive bonuses ($73 million over the last three years to the top 30 executives) to issues of concern to this Commission, including philanthropy to the poor, supplier diversity, management diversity and quality consumer services. As evidence of its contribution, Greenlining cites the following:
... in order to enhance its efforts in these areas, we encourage SCE to consider the inclusion of supplier diversity, workforce diversity and quality consumer service results in determining incentive compensation for the responsible employees or executives. (D.06-05-016, mimeo., p. 184.)
Finally, Greenlining recommended that SCE be put on notice that top executive compensation, even if technically absorbed by the shareholders, directly affects ratepayer costs (since unions now carefully monitor top executive compensation packages). According to Greenlining, while the Commission did not take action on this recommendation, it is cited in the final decision.
Greenlining was the only party that addressed the issues of supplier diversity, management diversity, philanthropy and transparency of executive compensation. As indicated above, D.06-05-016 incorporated much of the information provided by Greenlining in developing discussions that urged SCE to perform at a higher level in each of the areas, as recommended by Greenlining. We find that Greenlining substantially contributed in each of the areas as previously described.
5.3. TURN
As support for its compensation request, TURN provided the following table that shows, by issue, the resolution and dollar impact of each of its positions in this case.
Table 1: Summary of TURN positions and Commission decision
As described in the above table, TURN substantially contributed to the resolution of a large number of issues in D.06-05-016. Where SCE agreed to certain TURN proposals and where the decision specifically adopted other TURN proposals, at least in part, the "substantial contribution" requirement as stated in § 1802(i) has been met.
Also, in most cases where TURN's proposals were not adopted, TURN provided a substantial contribution in the form of information and analysis that assisted the Commission in the decision process. For instance, regarding Mohave expenses and capital costs, TURN demonstrated the potential for excessive and unnecessary spending while Mohave is shut down. The Commission, while not specifically adopting TURN's Mohave cost forecasts, noted TURN's concerns and adopted Mohave expenses and capital costs subject to memorandum account treatment and reasonableness review. (D.06-05-016, Ordering Paragraph 8.) Similarly, TURN's depreciation proposals for calculating cost of removal rates were not adopted, but TURN did provide information and analysis which demonstrated the sensitivity of historic and future cost inflation in calculating the cost of removal rates. D.06-05-016 concluded:
In its next GRC, SCE should, as part of its account-by-account analysis for depreciation, analyze the effects of past inflation on its proposed cost of removal rates and justify the implicit inflation rates reflected in its proposed rates. (D.06-05-016, Conclusion of Law 32.)
Also, for workers' compensation reserve, TURN's forecast using 2004 recorded data plus 10% as well as its recommendation for a two-way balancing account were not adopted. However, TURN's analysis of 2004 recorded costs, including its argument that 2004 was the only recorded year that reflected certain workers' compensation reform, provided useful information in deciding this issue. The Commission adopted an average of 2001 and 2002 recorded costs, specifically indicating the adopted amount is close to that recorded in 2004, which to a certain extent reflects recent workers' compensation reforms. (D.06-05-016, mimeo., p. 169.)
There are, however, three instances where TURN's proposals were not adopted, and the Commission did not incorporate TURN's analyses or provided information in deciding the issues. First, TURN noted that the current pool of direct access (DA) customers can decrease but cannot increase under the Commission's current rulings. For customer accounts expenses related to DA customers, TURN therefore recommended that the 2006 DA costs be capped at the 2003 recorded/adjusted level with no increase to 2006. The Commission rejected TURN's proposal noting costs can increase for reasons other than customer growth. (D.06-05-016, mimeo., p. 109.) The Commission also found:
Since DA-related costs in Accounts 901, 902 and 903 are no longer tracked separately, the forecast of those DA-related costs are embedded in SCE's forecasts for all customers. Forecasting separate DA-related costs is not appropriate at his time due to the uncertainties associated with such estimates. (D.06-05-016, Finding of Fact 65.)
Second, TURN recommended that costs of leased meters be excluded from plant-in-service and rate base, since the costs should either be paid for through special facilities agreements or should be paid up front by the customer. Based on evidence that meter leasing revenue is reflected in rates through several operating revenue accounts, TURN's recommendation to exclude leased meter costs from rate base was rejected. (D.06-05-016, mimeo., p. 231.) Third, TURN recommended the inclusion of uncollectible reserves for other accounts receivable aside from claims to reduce working cash. However, the Commission found:
It is reasonable to exclude atypical uncollectible accounts receivable for non-claims as an offset to working cash, since this particular uncollectible account is not funded in rates. (D.06-05-016, Finding of Fact 182.)
We find that TURN did not substantially contribute to the resolution of these three issues, specifically, limiting customer account costs for DA customers, excluding leased meters from plant-in-service and rate base, and including uncollectible reserves for other accounts receivable aside from claims to reduce working cash. TURN should not be compensated for the costs it incurred with respect to theses three issues. As a result, we reduce the TURN's award by 21.5 hours for Nahigian, 1.3 hours for Marcus, 4.25 hours for Suetake and 9.75 hours for Hawiger.5 For all other issues contained in the table above, we find that TURN made substantial contributions to D.06-05-016.
3 D.98-04-059, 79 CPUC2d, 628 at 653.
4 Aglet did alternatively recommend that the Commission defer ruling on SCE's funding request until the Commission acted on E&BD policy issues in A.04-04-008/A.04-06-018. While D.06-05-016 did reflect the outcome of that consolidated proceeding, Aglet's contribution cannot be considered substantial solely for that reason, since such action would have occurred as a matter of course.
5 Reductions assume the following:
For DA customer accounts - Suetake 1 page of 177 page opening brief (0.56%) and total attorney time of 754.75 hours (excluding compensation) and Nahigian 2 pages of 18 pages of testimony (11.11%) and 193 total hours.
For leased meters - Hawiger 2 pages of 177 page opening brief (1.13%) and total attorney time of 754.75 hours (excluding compensation) and Marcus 0.5 pages of 78 pages of testimony (0.64%) and 136.81 total hours.
For uncollectible reserves - Hawiger 0.3 pages of 177 page opening brief (0.17%) and total attorney time of 754.75 hours (excluding compensation) and Marcus 0.25 pages of 78 pages of testimony (0.32%) and 136.81 total hours.
