4. Position of the Parties

4.1. PG&E

PG&E seeks to recover $44.58 million in electric distribution and generation revenue requirements for the period 2005 - 2010 due to the $61.96 million in costs it claims to have incurred or expects to incur to respond to these two events ($22.86 million for the New Year's storms and $39.1 million for the July 2006 heat wave). (See Application, p. 3. A subsequent update served on June 6, 2007 reduces the request to $41.69 million.) PG&E states that the persistent high temperatures during the July 2006 heat caused a large number of distribution transformer failures in its service territory. The most damage occurred in Contra Costa, Alameda and Santa Clara counties. Damage was also experienced in Alpine, Amador, Calaveras, Colusa, Fresno, Glenn, Marin, Napa, Placer, Sacramento, San Joaquin, Solano, Sonoma, Stanislaus, Sutter and Yolo counties. (Application, p. 10.) PG&E's costs were incurred in restoring service and repairing the utility's electric distribution facilities. (Application, p. 11.)

PG&E's January 31, 2007 brief asserts why the hot weather of July 2006 is a CEMA-eligible event:

1. By the plain language of the statute, Public Utilities Code § 454.9 already permits the Commission to authorize recovery of the reasonable costs of restoring service and repairing damage to utility facilities in the wake of any catastrophic event.

2. The July 2006 "heat storm" also meets the requirements of Resolution E-3238 in that it was the subject of disaster declarations by competent state and federal authorities.

3. PG&E's costs meet the legal standard for recovery and should be recoverable on a public policy basis, as both PG&E and the Commission want PG&E to be able to provide the best possible service to customers. The costs are eligible for CEMA recovery.

4.2. Edison

Edison supports PG&E's position. Edison argues that the hot weather of July 2006 was a statewide problem, and it cites operational impacts on its own system as well as the statewide electric transmission system operated by the California Independent Operating System (CAISO). (Edison Reply, pp. 3 - 4.) Edison notes that the CAISO declared several Stage 1 Emergency conditions and one Stage 2 condition, both of which have prescribed impacts on the transmission system and customers.

4.3. DRA

DRA opposes applying CEMA to PG&E's July 2006 weather-related problems. DRA makes the point that PG&E must establish CEMA-eligibility based on the tariff that was in effect at the time of the event. DRA also argues that the disaster declarations by county governments, SBA, and USDA do not constitute disaster declarations by competent federal or state authorities. DRA asserts that the types of disaster declarations that are issued by these entities are for limited purposes and do not qualify as declarations by competent state or federal authorities for CEMA purposes. Furthermore, the language of the declarations bears no meaningful nexus to utility facility damage.

In the case of the county declarations, DRA emphasizes that because the county declarations primarily related to the removal of livestock carcasses, the county declarations do not qualify as competent declarations for CEMA purposes. Additionally, recognizing county declarations as CEMA declarations would lower the standard for CEMA.

The SBA's disaster declarations trigger the availability of loans for small businesses. DRA does not believe that the type of disaster that triggers small business loans is a CEMA-related disaster. Similarly, the USDA declarations trigger certain federal loans. (DRA Reply, pp. 6-8.)

Furthermore, DRA emphasized in its reply that the Commission should establish a high standard for CEMA eligibility:

If there were no specific criteria for the type of catastrophic events that implicate CEMA-eligibility, such as disaster declarations by competent state or federal authorities, then PG&E could file for recovery of costs between rate cases any time it merely alleges that a catastrophic event occurred. Thus, after a Commission decision approving a rate case settlement or a ruling in favor of DRA or other consumer advocates on various issues in a litigated decision, PG&E could file to recover costs it simply had not forecasted, attempt to double recover costs, or not spend ratepayer-funded amounts on certain items, and then claim these items in a CEMA account for repairing, replacing or restoring damaged utility facilities. Consequently, absent this specific criteria for a catastrophic event, PG&E could nullify the benefit to PG&E's ratepayers of a compromise, which PG&E agreed to in a rate case settlement, or the favorable rulings for ratepayers in a litigated rate case. Conversely, there is no remedy for ratepayers between rate cases for decreasing PG&E's rates if it forecasted higher costs than what it subsequently incurred. (DRA Reply, p. 13.)

4.4. TURN

TURN opposes PG&E's application of CEMA to the events of July 2006. First, TURN argues the Commission has always interpreted § 454.9 as requiring a declaration by state or federal officials. TURN contends § 454.9 did not remove or override the declaration requirement.

TURN makes this argument about the purpose of CEMA:

It is not the purpose of CEMA to allow cost recovery for damaged properties. For example, if a fire destroyed only PG&E's building and damaged very expensive computer equipment, such damage would not at all qualify for CEMA cost recovery. Just because the heat wave resulted in local emergencies does not, likewise, qualify such costs for CEMA purposes. PG&E, as always, can repair and replace transformers and add those to rate base; it just cannot change its approved revenue requirement until after the next rate case review of the reasonableness of its capital additions. (TURN Reply, p. 12.)

TURN also argues (Reply, p. 10) that PG&E did not have Commission approval of the pending Advice Letter 2771-G/2918-E¹² and therefore it would constitute retroactive ratemaking to allow PG&E to invoke CEMA without a competent declaration of an emergency.

TURN is opposed to expanding the definition of a competent declaration for CEMA purposes to include the county, SBA, and USDA declarations. TURN points out that the Governor's request that the Secretary of Agriculture declare a disaster only referred to agricultural impacts. TURN sees no rationale to expand the definition of a competent authority for CEMA-purposes to include financial disasters that impact a particular industry, such as the agricultural industry. (Reply, pp. 14-15.) TURN argues that the Commission should require a direct link between the nature of a declared emergency and the utility response. In this case TURN sees no direct link between the disaster declarations and the transformer replacements made by PG&E. For example, the counties that declared emergencies were primarily in hot valley climates while transformer outages were concentrated in the Bay Area counties of Santa Clara, Contra Costa, Alameda, and Sonoma. TURN maintains that CEMA recovery is intended for events that are highly likely to damage utility facilities. The Commission should have to find a nexus between the disaster and costs incurred by the utility. TURN sees no such nexus here. (Reply, pp. 15-16.)

¹² PG&E filed Advice Letter 2771-G/2918-E on October 18, 2006 to change the terms of its CEMA tariff, after these two events.