III. Procedural Background

In 1986, the Commission issued In re Retroactive Billing (D.86-06-035, 21 CPUC2d 270 (Retroactive Billing Decision)), a decision which established procedures for retroactive billing by gas and electric utilities to correct alleged under-billings. These rules form the basis for the utilities' tariff rules relating to rendering of bills, meter testing and adjustments for meter and billing error, and adjustment of bills for unauthorized use. Among other things, the Retroactive Billing Decision found that "a three month limitation period for backbilling residential customers [for undercharges due to meter error or billing error] is sufficient in view of the utilities' assertion that they have procedures to detect billing and meter errors promptly." (Id., 278.)

PG&E's Rule 9 governs the rendering of bills.⁴ It provides that bills will be rendered at regular intervals, typically once a month. Rule 9 also provides that, if for reasons beyond the meter reading entity's control, the meter cannot be read, PG&E will bill the customer for estimated consumption. Rule 17.1 defines billing error and allows PG&E to adjust residential bills for undercharges due to billing error for a period of three months; for nonresidential customers adjustments may be made for a period of three years.

As noted above, in 2003 and 2004, the Commission's Consumer Affairs Branch received a significant number of complaints from PG&E customers claiming that PG&E failed to bill them for actual gas or electric usage on a regular monthly basis as specified in Rule 9. In some cases PG&E failed to issue a bill for several months longer than a three-month period and subsequently issued a single bill covering all the previous months not billed ("backbill"). In other cases, PG&E estimated a customer's bill (including for reasons within PG&E's control) for several months and later rendered a backbill for undercharges associated with the difference between estimated usage and the actual usage during the months usage was estimated. In either event, PG&E failed to treat estimated bills or months of no bills ("delayed bills") as billing errors for purposes of Rule 17.1 and its limits on backbilling.

By letter to PG&E dated October 12, 2004, the Commission's Executive Director noted the numerous customer complaints related to delayed and estimated bills. The Executive Director stated that if PG&E is experiencing circumstances requiring it to estimate so many bills each month, it should proactively address the situation. The Executive Director requested that PG&E stop collecting overdue amounts from residential customers that dated back more than 90 days and referred to Rule 17.1.

In response to the Executive Director's letter, PG&E filed Advice Letter 2581-G/2568-E on October 15, 2004, proposing revisions to its gas and electric tariff to indicate, among other things, that billing error includes failure to issue a bill, but does not include the issuance of an estimated bill.

By Resolution G-3372 dated January 13, 2005, the Commission granted PG&E's proposal in part and denied it in part, finding that failure to issue a bill, as well as issuing an estimated bill due to circumstances within the utility's control, constitutes billing error "consistent with existing CPUC policy, tariffs, and requirements, including the requirements of D.86-06-035." (Resolution G-3372, Finding of Fact 10.)

In the interim, by Assigned Commissioner's Ruling dated February 25, 2005, the Commission undertook this investigation into PG&E's billing and collection practices as a second phase of Investigation (I.) 03-01-012, the companion to PG&E's Test Year 2003 general rate case. The Assigned Commissioner's Ruling, as confirmed by the May 26, 2005, Assigned Commissioner's Scoping Memo and Ruling, provided that the investigation would determine whether, pursuant to Sections 701, 734, and 1702 of the Public Utilities Code,⁵ PG&E should be required to refund any amounts collected in violation of Rules 9 and 17.1 and/or be fined pursuant to Sections 2107 and 2108 for violations of the Commission's orders and rules. I.03-01-012 is an adjudicatory matter and ex parte contacts are prohibited, pursuant to Public Utilities Code section 1701.2. The period of the investigation is January 2000 to May 2005.

⁴ Unless otherwise indicated, all references to "Rules" are to PG&E's tariff rules.

⁵ Unless otherwise specified, all other references to "Sections" are to the Public Utilities Code.