5. Discussion
PG&E must prove that the costs incurred in responding to the hot weather in July 2006 are eligible for CEMA recovery. The record for this application is composed of all filed documents and pleadings and the exhibits identified at the prehearing conference.13
5.1. PG&E Must Comply with Resolution E-3248 and PG&E's Tariff
To receive CEMA recovery PG&E must comply with Resolution E-3238 and its effective tariff. As discussed below, we disagree with PG&E's assertion that § 454.9 supersedes Resolution E-3248 and PG&E's tariff.
The legislative intent of SB 1456, which added § 454.9, was primarily to address the concern expressed by regulated water utilities that the Commission's process was untimely. The California State Assembly's floor bill analysis for SB 1456, dated August 13, 1994, stated:
This bill seeks to make the CPUC procedures for rate recovery of expenses incurred by water utilities during disasters more predictable and certain. Sponsored by the California Water Association, this bill responds to uncertainty and inconsistency in the CPUC decisions about cost recovery expenses incurred during and after the Loma Prieta and Northridge earthquakes. Since the bill's initial introduction, the CPUC has adopted regulations which are not in conflict with the bill's current provisions. ( http://www.leginfo.ca.gov.)
The identical language above was in the Senate's analysis dated August 16, 1994. The Senate analysis further noted:
Following the 1989 Loma Prieta earthquake, the PUC issued a resolution authorizing public utilities to establish special accounts to record the costs of restoring utility service, repairing or replacing damaged facilities, and complying with government agency emergency response orders. Almost all utilities adversely affected by the 1994 Northridge earthquake will be establishing these special accounts. A number of utilities have indicated that the PUC's special disaster account system may not be sufficiently flexible to address utility emergency response concerns, and does not ensure expeditious approval action on the part of the PUC. (Ibid.)
Indeed, all the bill analyses emphasize the issue of speedy review. The Senate's analysis differs slightly on speedy review. The Assembly analysis said: "(SB 1456) Provides for immediate recovery of those utility costs upon a request and a finding of reasonableness..." The Senate's analysis stated: "The bill would allow utilities, on an expedited basis, to recover catastrophic event costs, including capital costs, in rates upon a commission finding of their reasonableness, and approval by the PUC."
The Legislature was aware that the Commission's existing ratemaking mechanism and Resolution E-3248 were effective at the time the Legislature enacted SB 1456 and added § 454.9 to the Pub. Util. Code. If the Legislature had intended to specifically prohibit or modify the Commission's threshold requirement of a disaster declaration by a competent state or federal authority, it could have done so in the text of the bill and could have disclosed the intention in the various analyses. Instead, the analyses indicate that the Commission had already adopted regulations which were not in conflict with the bill's provisions, i.e., there was nothing in the current provisions (Resolution E-3248) to eliminate or modify.14
The Commission first adopted a CEMA procedure for water utilities in Resolution W-3474 dated November 22, 1989 after the 1989 Loma Prieta earthquake. This resolution predates Resolution E-3248. Then, in 1992 the Legislature enacted § 325 (Stats 1992 ch 752 § 1 (AB 2919)) directing the Commission to "...review existing rules, regulations, and orders and develop and adopt new rules, regulations, or orders, as may be appropriate or necessary to establish expedited procedures to be followed in the event that a determination is made by the President of the United States that an emergency exists ..." Section 325 also directed the Commission to consider expeditious treatment. As a result, the Commission adopted D.93-11-071 (52 CPUC 2d 223) finding: "[b]ased upon the comments received, we determine that existing authority, regulations, and procedures already permit and encourage the Commission and affected utilities to respond in the most expeditious fashion to emergency situations, whether or not declared by the President of the United States. We therefore do not modify our existing regulations or procedures." And finally, in 1994 while SB 1456 was pending, the Commission adopted D.94-06-03315 that found the water utilities were protected from financial risk as a result of the CEMA tariff (Finding 25, (55 CPUC 2d 158, 193)). Thus, by 1994, the legislature was assured that the water utilities were protected from financial risk by the Commission's existing practices which were not in conflict with the SB 1456 provisions, except for the need for expeditious treatment, which was included in § 454.9(b) discussed below.
The most important plain language impact of the enactment of SB 1456 and the addition of § 454.9 to the Code is found in this provision of § 454.9(b): "The commission shall hold expedited proceedings in response to utility applications to recover costs associated with catastrophic events."
PG&E argues that the "plain language" of § 454.9, enacted after the Commission adopted Resolution E-3248, supersedes the resolution and its provisions. Specifically, according to PG&E, § 454.9 eliminates the requirement of a disaster declaration by a competent state or federal authority. (PG&E Brief, pp. 5-6.) But the statute is silent on this point. We find the statute did not mandate that we eliminate anything in the Commission's existing CEMA process.
We note PG&E did not seek authority to modify its CEMA tariff upon the 1994 enactment of SB 1456. PG&E only proposed to change its tariff when it filed Advice Letter 2771-G/2918-E on October 18, 2006. This was 12 years after the enactment of SB 1456, one month before it filed this application, and three months after the hot weather of July 2006. Because we reject PG&E's argument that SB 1456 superseded Resolution E-3248 to eliminate the disaster declaration requirement, we will direct the Commission's Energy Division to reject Advice Letter 2771-G/2918-E without prejudice. 16 Consistent with our prior policy, we find no merit to eliminating or modifying the trigger mechanism for CEMA. A disaster declaration by a competent state or federal authority is required.
In the years following the adoption of Resolution E-3248, the Commission has rendered many decisions pursuant to the CEMA tariffs of several jurisdictional utilities, including several by PG&E (see Appendix A). Catastrophic event costs are recoverable only after the Commission makes a finding of their reasonableness and approves them following an expedited proceeding in response to the utility's filed application (§ 454.9(b)).
All of the approved CEMA applications have two common features: (1) a disaster declaration by a competent state or federal authority; and (2) citations to both Resolution E-3238 and § 454.9 for authority to recover reasonable costs on an expedited basis. (See a partial list of CEMA applications in Appendix A.) PG&E, for example, recovered CEMA costs for seven separate disasters in D.00-04-050, all of which had been declared disasters, for events between 1991 and 1998.17 Thus, while several occurred after the enactment of § 454.9, PG&E relied on both its original tariff and the declarations. Two other examples include the responses by San Diego Gas & Electric Company (SDG&E) and Edison to declared disasters where the Governor's disaster declaration requested that the Commission direct the utilities to remove dead, dying, and diseased trees due to a catastrophic infestation of bark beetles and thereby invoke § 454.9(a)(3), to comply with a governmental order. In these cases the Commission allowed them to invoke the CEMA. (D.06-10-032 and D.06-10-038.)
5.2. Disaster Declaration by a Competent State or Federal Authorities
Resolution E-3238 and PG&E's effective tariff require a declaration by a competent federal or state authority, so we must determine if a qualifying declaration was made relating to the July 2006 Heat Storm.
A review of the Commission's decisions18 reveals that each event for which the Commission has authorized recovery of CEMA costs has been declared a disaster or state of emergency by the Governor of California and/or the President of the United States. Prior to this application, no utility has requested authorization to recover CEMA costs for events declared disasters by other state or federal governmental entities.
For July 2006, PG&E maintains that we should accept the USDA September 7, 2006 disaster declaration (Ex. PG&E-2, p. 1-14), the SBA declaration, and the eight county declarations included in Ex. PG&E-2.
Governor Schwarzenegger sought the USDA relief by letter dated August 1, 2006. (Ex. PG&E-2, p. 1-12.) He cited the "record setting heat wave that caused severe damage and tragedy to our state's agricultural industry." The governor did not issue a declaration of emergency himself or request a declaration from any federal and state governmental entity due to broader impacts. The USDA's declaration only refers to agricultural impacts of the heat wave. The USDA declaration states, "This designation makes farm operators in both primary and contiguous counties eligible to be considered for low-interest emergency loans. ..." (Ex. PG&E-2, p. 1-15.) The Governor's request and the USDA's declaration make no reference to more general property damage that could be expected to include damage to utility property. We find no direct link between the agricultural impacts that led to the USDA's declaration and the costs that PG&E incurred to restore service. Furthermore, the sixteen counties designated by the USDA as primary natural disaster areas did not include the Bay Area counties where PG&E claims to have incurred the greatest costs.19 The lack of a geographic nexus further weakens the argument that the USDA declaration constitutes a declaration by a competent federal authority for the purposes of triggering CEMA. Thus, we cannot accept the USDA declaration as a reasonable trigger to invoke CEMA.
The SBA's declaration related solely to financial impacts to small businesses and covered the same inland counties that were covered by the USDA declaration. There is no direct link between the impacts to small businesses that were covered by the SBA's declaration and the costs that PG&E incurred. Thus, we cannot accept the SBA's declaration as a reasonable trigger to invoke CEMA.
The counties exercised discretionary judgment within their jurisdictions to address primarily agricultural impacts and the need to temporarily exempt livestock producers from required carcass disposal practices.20 For example, Merced County waived various rules to expedite removal and burial of animal carcasses. (Ex. PG&E-2, pp. 1-54 & 1-55.) The counties where PG&E incurred the greatest costs were not covered by county disaster declarations. We cannot accept these county declarations as a reasonable trigger to invoke CEMA because there is no direct link between the county's declarations and the costs that PG&E incurred to restore service.
We therefore reject PG&E's argument that for July 2006 there was a declaration by a competent state or federal authority to invoke CEMA as prescribed in PG&E's tariff and Resolution E-3248. Accordingly, we deny the application to recover under the CEMA procedures the costs associated with the hot weather in July 2006. This proceeding remains open to consider PG&E's request to recover any incremental costs for the 2005-2006 New Year's storms pursuant to its CEMA tariff.
13 On January 4, 2007, at the prehearing conference, the assigned ALJ identified five documents as exhibits: Ex. PG&E-1, Prepared Testimony; Ex. PG&E-2, Workpapers Supporting Chapter 1; Ex. PG&E-3, Workpapers Supporting Chapters 2 through 6; Ex. 4, Resolution E-3238; and, Ex. 5, September 12, 2006 letter, Commission Executive Director to PG&E. PG&E's CEMA Tariff is included in Ex. PG&E-2 at pp. 1-1 and 1-2. Resolution E-3238 was marked as Ex. 4.
14 This conclusion is consistent with Pub. Util. Code § 454.9 which provides the Commission "shall authorize public utilities to establish catastrophic event memorandum accounts...". The Commission had already authorized such accounts and the statute does not require the Commission to amend these existing CEMA tariffs.
15 Investigation on the Commission's own motion into the financial and operational risks of Commission regulated water utilities, and whether current ratemaking procedures and policies require revisions.
16 We note that, due to the important policy issues presented, the correct vehicle for PG&E to request a change to an industry-wide CEMA policy would be to file a petition for a rulemaking, and not an informal advice letter.
17 PG&E's qualified CEMA events included: (1) the February 1998 Storms, (2) the 1997 New Year's Flood, (3) the March 1995 Storms, (4) January 1995 Storms, (5) January 17, 1994 Northridge Earthquake, (6) the 1992 Calaveras and Shasta County Fires, and (7) the October 20, 1991 Oakland/Berkeley Hills Fire. (5 CPUC 3d, 663, 665-667.)
18 See as specific examples the decisions cited in Appendix A.
19 Butte, Calaveras, Fresno, Glenn, Imperial, Kern, Kings, Madera, Merced, San Bernardino, Solano, Sonoma, Stanislaus, Sutter, Tehama, and Tulare Counties were designated as primary disaster areas. PG&E's costs were concentrated in counties adjacent to San Francisco Bay, including Contra Costa, Alameda, and Santa Clara.
20 Kern County's proclamation of local emergency only refers to electrical outages in connection with the use of county facilities "as cooling facilities during these periods of extreme heat." It also addresses livestock carcass disposal. (Ex. PG&E-2, p. 1-56.)
