V. Refunds
A. Are Refunds Warranted?
PG&E's charges for backbilled amounts due to delayed bills and estimated bills beyond the time limits in Rule 17.1 are, by definition, excessive. Absent sufficient countervailing reasons, we find that refunds are warranted.8
PG&E contends that refunds are not warranted because its backbilling practices did not harm the great majority of customers.9 According to PG&E, customers are only harmed if they were made worse off economically than they would have been had the same bills been issued timely. We categorically reject PG&E's contention. Customer harm for an excessive charge is properly measured against what the charge would have been had the utility complied with its tariff. Pursuant to PG&E's tariffs, PG&E is not entitled to, and customers do not owe, backbilled amounts beyond the three month period provided for in the tariff.10 Paying amounts that are not owed is without question harmful to customers. Although some customers suffered additional harm such as service termination, reconnection fees, and increased security deposits, PG&E's backbilling practices harmed all improperly backbilled customers.
PG&E argues that customers who receive the benefit of utility service for which they were charged are not harmed, even if the charges were unauthorized; PG&E cites to In re Cal. Water Service Co. (D.04-07-033, 2004 Cal. PUC LEXIS 329) as support for this proposition. PG&E misapplies Cal. Water Service to the present case. That decision denied refunds to customers who were charged unapproved rates for service following the utility's unauthorized acquisition of the customers' service territories. In that case, however, the customers benefited from the improper charges in the form of lower rates and higher-quality service than they would have otherwise received; under those unusual circumstances, the Commission concluded that refunds were not warranted. In contrast, in the present case, customers were made worse off by PG&E's unauthorized charges than they would have been had PG&E abided by the tariff restrictions on backbilling.
PG&E asks that we decline to order refunds on the basis that customers were simply charged for the energy they consumed and thus received the benefit of the service for which they were charged. The Commission addressed the question of whether customers should pay for energy use that is backbilled beyond Rule 17.1 time limits when it adopted the rule, after carefully balancing "matters of law, fairness, and customer relations, [...] particularly true in the case of meter error, where the customer may be unaware of the meter's malfunction and may be suddenly confronted with a large backbill" (Retroactive Billing Decision, supra,*5-6) against the utilities' assertion that they have procedures to detect billing and meter errors promptly (id., *21-22). Pursuant to Rule 17.1, the answer is "no." PG&E essentially asks that we revisit the question, and reverse our answer, for purposes of evaluating whether to order refunds. We decline to do so. The considerations that led to our determination that customers should not be charged for energy use beyond Rule 17.1 backbilling time limits apply equally to a determination of whether customers should be refunded for such charges. Denying refunds of amounts charged in violation of Rule 17.1 backbilling time limits, on the basis that customers should pay for energy use even if it is backbilled beyond those time limits, would effectively negate the rule.
B. Who is Responsible for Funding Refunds?
PG&E maintains that paying refunds would strike the wrong balance between the individual customers and the general body of ratepayers who, according to PG&E, are responsible for funding any such refunds. PG&E's argument rests on the premise that ratepayers are responsible for the cost of any refunds, which we reject. Shareholders are responsible for funding any refunds for improperly backbilled amounts in violation of Rule 17.1. PG&E's ability to comply with its tariffs is entirely within its control; it is not the ratepayers' responsibility. Were we to assign ratepayers the responsibility for funding refunds that result from PG&E's tariff violations, the utility management would have no incentive to strive for compliance.
PG&E argues that responsibility for funding refunds should correlate to responsibility for funding the undercollections that would have resulted had PG&E complied with Rule 17.1's backbilling limits. As specified in the Preliminary Statements of PG&E's tariffs, bill adjustments - including undercollections -- are reflected in PG&E's various balancing accounts and, ultimately, passed through to PG&E's customers. PG&E contends that, consistent with this treatment of amounts that never were billed because of Rule 17.1 time limits, any refunds for amounts that should not have been collected should likewise be reflected in PG&E's balancing accounts and, ultimately, collected from PG&E's customers.
We disagree. First of all, "[t]he purpose [of reparations] is to return funds to the victim which were unlawfully collected by the public utility." (Re Standards of Conduct Governing Relationships Between Energy Utilities and Their Affiliates (D.98-12-075) 84 CPUC2d 155, 188 (Affiliate Rulemaking Decision).) Its purpose is not necessarily to place the utility in the position it would have been in had it not charged the unlawful rate in the first place. Consider, for example, a car accident in which one driver negligently damages another driver's car, and is ordered to pay to repair the car: The purpose of ordering the negligent driver to pay for repairs is to make the victim whole, without regard to the fact that the negligent driver is made worse off than if the accident had never occurred.
Secondly, credits for bill adjustments within Rule 17.1 time limits are not the equivalent of refunds of charges in violation of the time limits. By providing a defined period in which billing errors must be collected, Rule 17.1 sets out very specific parameters for what constitutes acceptable billing error, as opposed to unacceptable charges. PG&E may recover or refund, as the case may be, for billing error within the three-month time limit; the collection of charges beyond that time limit is not acceptable.
Finally, the purpose of revenue balancing accounts is to shield utilities from financial risks that are beyond the utility's control. Even assuming that balancing account treatment is appropriate for uncollected amounts due to Rule 17.1's time limits,11 the existence of balancing account protection for lawfully collected revenues does not entitle PG&E to balancing account protection for unlawfully collected revenues.
PG&E points to prior Commission decisions as supporting its position that refunds should be afforded balancing account treatment (i.e., ratepayer funded) if the underlying rates in question were balancing account protected. Three of the cited decisions adopt settlements and therefore, pursuant to Rule 12.5 of our Rules of Practice and Procedure, are without precedential effect regarding any principle or issue.12 The other decision to which PG&E cites, Salz Leathers, Inc. v. Pacific Gas and Electric Co. (D.91-08-009, 1991 Cal. PUC LEXIS 420), is not on point. The Commission ordered PG&E to refund certain amounts to the complainant (id.), and, on rehearing, ultimately ordered that shareholders fund the refunds consistent with PG&E's tariff (Salz Leathers, Inc. v. Pacific Gas and Electric Co. (D.95-06-010) 60 CPUC2d 254, 257). However, the Commission explicitly declined to find PG&E in violation of any contract, Commission order, or statute. (Salz Leathers, supra, 1991 Cal. PUC LEXIS 420, *13-14.) In contrast, the question before us in this proceeding is who should fund refunds in reparation for a tariff violation. Salz Leathers is not determinative of this issue.
We likewise reject PG&E's argument that this issue was previously considered in PG&E's 1999 General Rate Case and resolved in PG&E's favor. In that proceeding, the Commission's Office of Ratepayer Advocates (ORA) initially recommended ratemaking treatment for revenues relating to Rules 17 and 17.1 that would have the effect of placing PG&E's shareholders at risk for variations in these revenues, but withdrew its recommendation after further investigation and reflection. More specifically, as discussed in our decision in that proceeding, "[ORA] agreed that revenue adjustments associated with unbilled streetlights and other unmetered facilities, Rule 17 adjustments, and adjustments for revenues collected through PG&E's revenue assurance program should be reflected in Operating Revenues and not in Other Operating Revenues," and the Commission adopted estimates of Other Operating Revenues consistent with that agreement. (In re Pacific Gas and Electric Company (D.00-02-046) 2000 Cal. PUC LEXIS 239, mimeo. at 235.) The decision did not address the question of who is responsible for funding refunds for violations of the tariff, and so does not inform us here.
PG&E asserts that requiring shareholders to fund refunds, on the basis that it will deter future violations, is punitive. PG&E posits that the question of refunds should therefore be analyzed under the Affiliate Rulemaking Decision, which sets forth the Commission's guidelines for determining whether to impose a fine. We do not endorse PG&E's proposition. Certainly, responsibility for funding refunds creates an incentive to guard against the need for refunds. This does not lead us to the conclusion that utilities should only be responsible for funding refunds if they would likewise be liable for fines. Returning to our earlier analogy of the car accident, although responsibility for negligently-caused damages certainly serves as a deterrent against negligent driving, that fact does not transform damage awards into punitive fines, which are allowable only under a higher standard of law.
PG&E asserts that the Commission's characterization of the reimbursement in CTC Food International, Inc. v. Pac. Gas and Elec. Co. (D.92-10-004, 45 CPUC2d 660) as a "financial penalty" intended to "increase PG&E's incentive" to follow its procedures confirms that shareholder-funded refunds constitute penalties and should be analyzed under the penalty guidelines articulated in the Affiliate Rulemaking Decision. This is not the case. Our use of the term "penalty" in CTC Food International predated the Affiliate Rulemaking Decision, where we undertook to clarify and define the difference between refunds and reparations, on the one hand, and fines and penalties on the other hand. As we explained in the Affiliate Rulemaking Decision,
D.2.a. Reparations
Reparations are not fines and conceptually should not be included in setting the amount of a fine. Reparations are refunds of excessive or discriminatory amounts collected by a public utility. [...]
D.2.b. Fines
The purpose of a fine is to go beyond restitution to the victim and to effectively deter further violations by this perpetrator or others. For this reason, fines are paid to the State of California, rather than to victims. [...] (Affiliate Rulemaking Decision, supra, 84 CPUC2d at 188.)
Notwithstanding its vernacular use of the word "penalty," the payment ordered in CTC Food International was reimbursement, not a "fine" as we clarified that term in the Affiliate Rulemaking Decision.
PG&E further argues that shareholders should not be responsible for funding refunds as matters of policy (e.g., the violation was inadvertent and in good faith; it would be ineffectual as a deterrent measure, it would inappropriately punish PG&E for undertaking important customer service improvements, and it may affect the stability of PG&E earnings and increase the cost of capital) and law (e.g., shareholder funding of refunds before January 1, 2004 is barred by PG&E's bankruptcy settlement). We address these arguments in the context of what refund amounts should be ordered. They do not support reassigning responsibility for funding refunds for tariff violations from shareholders to ratepayers.
For all these reasons, we conclude that shareholders are responsible for funding the required refunds. In order to achieve this result, we direct that PG&E not remove equivalent amounts of revenue from its balancing accounts when it pays the required refunds.
C. What Time Period Should be Used to
Determine Refunds?
In determining the statute of limitations period, if any, applicable here, we must first understand the nature of the relief being considered. The Commission has determined that PG&E over-billed its customers when it backbilled them for more than the three month period allowed by its tariffs. Rule 17.1 requires adjusted bills for undercharges to be "computed" by billing the customer for the amount of the undercharge for a period of three months. That Rule also defines "billing error" to include "an incorrect billing calculation." Nevertheless, PG&E repeatedly submitted adjusted bills covering a period of more than three months. Backbilling for more than three months amounts to "billing error," as it constitutes an "incorrect billing calculation" of the adjusted bill. (PG&E Tariff Rule 17.1.) These billing errors resulted in overcharges, in that PG&E customers were being charged amounts they did not owe. In assessing charges contrary to its tariff, PG&E also violated Public Utilities Code section 532.13
Some parties argue that the three year statute of limitations contained in Public Utilities Code section 736 applies here, while others contend that because this was a Commission-initiated investigation, no statute of limitations applies. Section 736 provides, in relevant part: "[a]ll complaints for damages resulting from the violation of any of the provisions of Sections 494 or 532 shall . . . be filed with the commission . . . within three years from the time the cause of action accrues, and not after." On its face, section 736 does not appear to be germane to the PG&E backbilling OII because section 736 only applies to complaints for damages filed with the Commission. Here, we initiated a broad investigation to determine if PG&E violated any rules and regulations regarding its billing and collection practices from 2000-2005.
There are two seemingly divergent lines of cases regarding whether Section 736 applies to a Commission-initiated investigation. In re Hillview Water Co., D.03-09-072, p. 28 (Hillview), holds that Section 736 does not apply to Commission-initiated investigations. In re Conlin-Strawberry, D.05-07-010, pp. 53-54 (Conlin-Strawberry), and Ridgecrest Heights Water Co., 1978 Cal. PUC LEXIS 1459, *11-12 (1978) (Ridgecrest), however, both state that it does.
In Ridgecrest Heights Water Co., the Commission issued an OII to look into whether Ridgecrest had collected connection fees in violation of its tariff and whether it had violated prior Commission decisions. (D.89961, 84 CPUC 612 (1978), p. 613.) This Commission determined that section 736 and its three-year statute of limitations were applicable in this case. (Id., pp. 616-617.) We disagree with the conclusion of Ridgecrest. We look to the plain language of section 736 and find that it is clearly not applicable to Commission investigations.
The Commission followed Ridgecrest in Conlin-Strawberry, although by tolling the statute of limitations, the Commission reached the same result as if it had determined that section 736 was inapplicable. In Conlin-Strawberry, the Commission issued an OII after years of reported customer service problems with the utility and allegations of financial irregularities and mismanagement. (Conlin-Strawberry, 2005 Cal. PUC LEXIS 294, pp. *5-13.)14 In addressing whether section 736 applied,15 the Commission recognized that "[a]n important distinction should be drawn between these [complaint] decisions (involving non-Commission parties) and an enforcement action brought by the Commission itself to enforce compliance with its own previous order or decision which, arguably, should not be restricted by such a short limitations period." (Id., pp. *82-83.) Nevertheless, relying on Ridgecrest, and with little justification, the Commission held that section 736 applied to Conlin-Strawberry. However, Conlin-Strawberry also determined, in reliance on Toward Utility Rate Normalization v. Pacific Bell(1994) 54 CPUC 2d 122 (Turn v. PacBell),16 that "the cause of action for reparations for illegally collected surcharges from 1983 forward did not accrue until October 16, 2003." (Id., pp. *83-85.) Therefore, the applicability of section 736 and a three-year statute of limitations in Conlin-Strawberry did not limit the time period for affected ratepayers to obtain refunds for illegal charges.17
The Commission reached a different result in Hillview regarding section 736. In Hillview, the Commission initiated an investigation into a water company to determine whether it had violated the California Public Utilities Code and/or the Commission's Rules of Practice and Procedure. (Hillview, p. 4.)18 In discussing whether section 736's three year statute of limitations applies to Commission-initiated investigation, the Commission determined that section 736 did not apply to this case because "[t]his proceeding is about a tariff violation committed by Hillview, not a claim for damages." (Hillview, p. 27.) The Commission further elaborated:
we . . . conclude that Section 736 does not apply to this proceeding because this proceeding is not a complaint case filed by an aggrieved customer seeking damages from the company, but is an investigatory proceeding instituted by the Commission to determine whether or not the company has violated our rules and/or statutes. The Commission has separate rules and procedures for handling and processing complaint cases and OIIs."
(Hillview, p. 28.) We believe that our interpretation of section 736 in Hillview is more consistent with the clear language of the statute, state law and the purpose of a statute of limitations than Ridgecrest and Conlin-Strawberry.
Under California law, there is an assumption that statutes of limitations do not apply to administrative actions, such as this decision here, unless a law specifically imposes a statute of limitations. (3 Witkin Cal. Proc. Actions, § 405 (4th ed. 2006) (citing Bold v. Board of Med. Examiners (1933) 133 C.A. 23, 25, 23 P.2d 826; and see Lam v. Bureau of Sec. & Investigative Services (1995) 34 C.A.4th 29, 37, 40 C.R.2d 137 [criminal statute of limitations not applicable to administrative proceedings]).) A determination that a statute of limitations does not apply to Commission investigations is also consistent with settled law regarding the purpose of a statute of limitations:
"Statutes of limitations are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them."
(3 Witkin Cal. Proc. Actions, § 408 (4th ed. 2006) (quoting &_butType=3&_butStat=2&_butNum=2&_butInlin " target="_top">Order of Railroad Telegraphers v. Railway Express Agency (1944) 321 U.S. 342, 64 S.Ct. 582, 586, 88 L.Ed. 788, 792.) Thus, a finding that the statute of limitations does not apply to the case at hand is consistent with the rationale for a statute of limitations. A decision issued in this Commission investigation is designed to ensure that PG&E's rates, practices and service are reasonable and that violations of law that undermine that goal are properly remedied. Clearly the public interest is not served if the Commission, in a fact-finding investigation of a regulated public utility, must limit the relief it fashions to address violations of state law, as if it were an adversarial litigant.
In conclusion, we decline to apply a statute of limitations to contain the relief awarded in this investigation, and to the extent certain Commission decisions are inconsistent with our approach, we overrule them.19 The reason is simple: this is not an individual adversarial dispute; rather it is a fact-finding proceeding to ascertain whether PG&E's billing and collection activities were consistent with state law and Commission orders and regulations.20 We commenced this investigation in PG&E's General Rate Case because our Consumer Affairs Branch (CAB) staff and TURN, an intervenor in that proceeding, alerted us to the serious billing problems PG&E's customers were encountering. Emphatically, this exercise does not involve an adversarial litigation of individual rights. Rather, it is a broad review focused on whether PG&E's billing and collection activities, on a system-wide basis, were in compliance with the law and applicable Commission's requirements. As stated in the Order Instituting Investigation: "[t]he Commission exercises, in connection with general rate cases and other forums, its constitutionally and legislatively derived jurisdiction to regulate PG&E's rates, practices, service, and the reliability, safety, and adequacy of its facilities."21 Invoking our broad authority under Public Utilities Code section 701, we will order refunds for the entire period of this investigation, an amount approximating $35 million.22 Not only is this the right result legally, it is also the right outcome from a fairness standpoint because it provides a remedy to all customers who were adversely impacted by PG&E's backbilling and collection practices during the investigation period.
There is an issue whether customer refunds for violations of Tariff Rules 9A and 17.1 associated with both estimated bills and delayed bills are due for the period prior to installation of CorDaptix in December 2002. This is the so-called pre-Cordaptix period that runs from January 2000 to December 2002.
PG&E asserts that, as a matter of policy, the Commission should limit the refund period to December 2002 forward because of limitations in the pre-CorDaptix data. With respect to refunds related to delayed bills, PG&E asserts that data limitations in the pre-CorDaptix system result in an inaccurate database of eligible customers. As evidence, PG&E cites to a footnote in the prepared testimony of witness Sharp conceding that a customer, who was not included in the database, should have been (and is now) included. The possibility that not all eligible customers are included in PG&E's old database is not justification for denying refunds to identified eligible customers.
The only further evidence we find on this subject is witness Sharp's additional testimony, in the same footnote, that, "[b]ecause of limitations in the [pre-CorDaptix] data and the absence of certain data, the [pre-CorDaptix] database is both underinclusive and overinclusive," making it "extremely difficult to obtain an accurate list of customers who may have received [illegal] delayed bills for service periods [....]" This statement is vague and conclusory. It does not support the conclusion that it would be unreasonable to rely on the data for purposes of ordering refunds, as the database is all PG&E has in its possession. We find that the pre-CorDaptix data is sufficiently reliable for purposes of ordering refunds related to delayed bills.
With respect to refunds related to estimated bills, pre-CorDaptix data limitations make it difficult to determine if refunds are due. Rule 17.1 time limits on backbills for estimated bills only apply when the cause of estimation is within PG&E's control. The pre-CorDaptix data does not include the reason for the estimation or whether it was caused by factors within PG&E's control. Thus, although it is feasible to calculate the amount that PG&E backbilled for estimated bills, the available data does not provide definitive information that could be used to calculate a precise refund.
Recognizing this data limitation, TURN recommends that the Commission find that roughly 50% of estimated bills are due to reasons within PG&E's control. TURN's 50% proxy is based on data for February to April 2005 for estimated bills beyond tariff limits where roughly 50% were estimated due to factors within PG&E's control and thus constitute billing error.23 TURN suggests that the Commission order PG&E to refund 50% of total amount backbilled for estimated bills in excess of the time limits, either by crediting each affected customer in equal parts or in the amount of 50% of their particular backbills. PG&E challenges the reliability of the 50% factor, and contends that this is a further reason for the Commission to refrain from ordering refunds for the pre-CorDaptix period.
While we find TURN's proposed methodology preferable to CPSD's suggestion that we should assume 100% of the estimates were PG&E's fault, TURN's proxy does have some flaws. For example, the 50% proxy is derived from data for February through April 2005, but omits the month of January 2005; if January were included, more than 80% of the estimates would have been found to have been caused by factors outside of PG&E's control. TURN's witness excluded January based on speculation that PG&E was less rigorous in listing reason codes in January - when the Commission issued Resolution G-3372, and PG&E automated the cancel-and-rebill function in CorDaptix - than after those events. This is not a compelling reason for excluding January from the 2005 data. TURN's witness relied more heavily on the 2003 data as substantiating the 50% factor. However, that data is also flawed: The data for 2003 was negatively affected by the absence of missed meter code information, because TURN treated the absence of missed meter codes as though the cause for the estimate was within PG&E's control.
TURN maintains that PG&E's data limitations should not prevail as an excuse to deny refunds to harmed customers. We agree. The pre-CorDaptix data may well be unreliable for purposes of identifying illegal charges related to estimated bills; however, this is a PG&E problem that should not be shifted to the innocent affected customers. PG&E maintains that the cost of developing a method to accurately calculate the refund amount is approximately $600,000, while the amount of the refund should be in the range of $300,000. TURN agrees that this $300,000 figure is a reasonable estimate of the refund amount.24 Therefore we will order PG&E to refund this amount for illegal charges related to estimated bills in the pre-CorDaptix period. In making these refunds, the burden of proof is on PG&E, not on the customer who was charged in violation of Rule 9A.
PG&E asks that the Commission shorten the refund period to December 2003 forward to allow a one-year grace period following the implementation of CorDaptix. PG&E contends that, because it usually takes one year after implementation for a utility to return to its pre-conversion performance metrics, and in light of PG&E's exemplary performance in implementing CorDaptix, denying this one-year grace period would punish PG&E for its successful improvement of its outdated customer information system. While we do not wish this action to discourage a utility from undertaking an upgrade to an outdated billing system, we deny PG&E's request for reasons set forth below.
In essence, PG&E seeks an after-the-fact exemption from Rule 17.1's implicit requirement that it remedy all estimated and delayed bill problems within three months. This policy and rule has been in effect since 1989. PG&E's practice of backbilling beyond the tariff time limits was in place and well-established pre-CorDaptix and continued during its implementation and beyond.
We recognize that, notwithstanding PG&E's undisputed exemplary performance during the CorDaptix implementation, this undertaking unavoidably caused an increase in the number of delayed and estimated bills. However, the identified causes for this increase did not require delayed bills or estimated bills to persist beyond the tariff time limits. For example, while programming errors caused the rejection of thousands of valid meter reads, and thus the issuance of estimated bills, in December 2002 and January 2003, there is no apparent reason that a timely backbill could not have issued in February or March 2003 after the programming error had been corrected. Even in the case of data errors that went undetected for nearly a year, PG&E could have looked into correcting the problem on a timelier basis; indeed, the purpose of the tariff's time limits on backbilling is to give PG&E an incentive to do just that.
In sum, the implementation of CorDaptix did not cause PG&E to backbill for delayed and estimated bills in excess of Rule 17.1 time limits, and does not excuse PG&E from the responsibility of refunding those illegal charges.
D. Should Refunds be Waived to Avoid Adverse Financial Consequences?
PG&E contends that refunds will lead to more variable earnings, higher risk and potentially a higher cost of capital to be borne by customers. PG&E explains that, because shareholder funding of refunds would represent a retroactive departure from the balancing account treatment specified in its tariffs, the company would have to reassess whether it can rely on the balancing accounts to provide the authorized revenue. If it determines that it cannot, PG&E explains that will be obliged to report actual revenues on its financial statements, which will lead to these adverse financial consequences.
As we discussed previously, refunds for tariff violations are not the equivalent of bill adjustments that were properly made pursuant to tariff and are not entitled to balancing account treatment.
E. Does the PG&E Bankruptcy Settlement Bar Refunds Pre-December 31, 2003?
PG&E contends that the settlement of PG&E's bankruptcy proceeding, adopted in Re Pacific Gas and Electric Company (D.03-12-035, 2002 Cal. PUC LEXIS 1051), is an absolute bar to the Commission ordering refunds of electric revenues accrued prior to December 31, 2003. Paragraph 8a of the settlement provides:
The Commission acknowledges and agrees that the Headroom, surcharge, and base revenues accrued or collected by PG&E through and including December 31, 2003 are property of PG&E's Chapter 11 estate, have been or will be used for utility purposes, including to pay creditors in the Chapter 11 Case, have been included in PG&E's Retail Electric Rates consistent with state and federal, and are not subject to refund. (Id., *266, App. C, para 8(a) (emphasis added).)
We do not interpret this settlement provision as barring refunds of illegally collected revenues, as to do so would constitute a suspension of our police power to protect PG&E's ratepayers from unreasonable and unjust rates. As we explained in our decision adopting the bankruptcy settlement,
In light of the constitutional requirement that the Commission actively supervise and regulate public utility rates (Sale v. Railroad Commission (1940) 15 Cal. 2d 607 at 617) and the statutory requirements under the §§451, 454, 728 that the Commission ensure that the public utilities' rates are just and reasonable (Camp Meeker Water System, Inc. v. Public Utilities Com. (1990) 51 Cal. 3d 850 at 861-862), the Commission must retain its authority to set just and reasonable rates during the nine-year term of the settlement and thereafter.
The regulation of utilities is one of the most important of the functions traditionally associated with the police power of the states." (Arkansas Electric Coop. v. Arkansas Pub. Serv. Comm'n (1983) 461 U.S. 375, 377.) This Commission's authority to regulate public utilities in the State of California is pursuant to the State's police power. (See, Motor Transit Company v. Railroad Commission of the State of California (1922) 189 Cal. 573, 581.) The California Supreme Court has held that "it is settled that the government may not contract away its right to exercise the police power in the future." (Avco Community Developers, Inc. v. South Coast Regional Com. (1976) 17 Cal. 3d 785, 800.)
The Commission cannot be powerless to protect PG&E's ratepayers from unjust and unreasonable rates or practices during the nine-year term of the proposed settlement. "The police power being in its nature a continuous one, must ever be reposed somewhere, and cannot be barred or suspended by contract or irrepealable law. It cannot be bartered away even by express contract." (Mott v. Cline (1927) 200 Cal. 434, 446 (emphasis added).)
(Id., *42.)
Given that we retain the authority and obligation to ensure that PG&E's rates are just and reasonable, a more reasonable interpretation of Paragraph 8a is that it bars refunds of headroom, surcharge, and base revenues amounts that were collected in compliance with Commission orders. The amounts charged to customers in violation of Rule 17.1 time limits, whether before or after December 31, 2003, are excessive, and PG&E collected them in violation of Commission orders. We find the bankruptcy settlement does not bar us from exercising our police power to protect ratepayers from the excessive charges by ordering PG&E to refund the illegal charges.
F. How Should Refunds be Calculated?
We find that the proper methodology for calculating refunds excludes the current month's bill from Rule 17.1's three-month backbilling limit, and is limited to the amount of the undercharges.
CPSD interprets the three-month limit as prohibiting backbilling for service before the three billing periods (or 95 days) preceding the date of the backbill. Thus, for example, assuming that PG&E had issued estimated bills (or no bills) for April, May and June, a bill issued on July 31 could properly charge for service only for July, June, and May. PG&E characterizes the July 31 bill as a "current" bill for purposes of July, and interprets the three-month limit as applying to the number of allowable "backbilled" periods which, in our example, include April, May and June. CPSD contends that the Commission has never previously decided which of these interpretations is correct, and suggests that its interpretation is more in line with Skinner v. Pacific Gas & Electric Co. (D.94-07-050, 55 CPUC2d 408), where the Commission limited backbilling to a three-month period. PG&E contends that Skinner decided this issue in its favor, as it did not include the current month of the bill within the three-month backbill period.
Skinner does not control our determination here, as the decision does not explicitly address the specific question of how to determine the allowable backbilling period. We address it now as a matter of first impression. The more reasonable interpretation of the tariff excludes the current month from the allowable backbill period. Using our previous example, we expect that the error that caused PG&E to issue estimated bills (or no bills) for April, May and June was corrected if it was able to issue an accurate current bill for July. Assuming that backbills generally issue with an accurate current bill, CPSD's interpretation would, for practical purposes, limit backbilling to a two-month period of estimated or no bills. Under PG&E's interpretation, the allowable backbill period is a three-month period of estimated (or no) bills. The latter interpretation better reflects the tariff language's reference to a three-month backbilling period.
In its testimony, CPSD suggests that refunds should include all estimated billings beyond three months, not just illegally backbilled amounts. The effect of CPSD's suggested methodology is to provide the consumer with free utility service, even if PG&E cannot correct a 50 cent billing error within three months, but serves no purpose with respect to protecting consumers from untimely bills. This suggested CPSD methodology is unduly draconian.
G. Should Refunds be Paid with Interest?
We decline to order interest on the refund amounts. Interest payments are generally appropriate in order to compensate customers for the time value of money. (See, e.g., TURN v. Pacific Bell (D.93-05-062) 49 CPUC2d 299, 314.) In this case, although they were illegally charged for it, customers received utility service for the amount of the backbills. Customers who receive refunds will thus have received the benefit of varying amounts of utility service at no cost. This benefit provides adequate compensation, in lieu of interest, to compensate customers for the time value of the illegal charges.
TURN acknowledges Rule 17.1's provision against interest payments on undercharges or overcharges, but argues that it does not apply to refunds for backbilling beyond the rule's time limits. TURN and CPSD also argue that PG&E "clearly erred" in misinterpreting Rule 17.1, and that this constitutes special circumstances that warrant deviation from Rule 17.1's provision against interest pursuant to Zacky Farms, Inc. v. Pacific Gas and Electric Co. (D.93-11-064, 52 CPUC2d 128). Because we decline to order interest on other grounds, we do not address these arguments.
In its reply brief, CPSD asserts that the cases it cited in its opening brief establish that the standard for imposing interest is whether the utility "clearly erred" or was "derelict in its duty." To the contrary, this standard was established in Zacky Farms as a justification for deviating from Rule 17.1's prohibition against interest payments on refunds or undercharges. It does not establish an independent test for determining whether interest should be paid.
H. How Should Eligible Customers be Identified?
PG&E recommends that refunds be limited to customers of record, plus customers identified through the publication of a refund notice in newspapers of general circulation within its service territory in accordance with the procedures used for newspaper notices of PG&E ratemaking applications. PG&E contends that this limitation is consistent with prior Commission-ordered refund plans and straightforward to administer.
TURN recommends that the Commission further require PG&E to make reasonable attempts to locate customers no longer with PG&E, for example by writing to the forwarding address and researching post office records for follow-up addresses, and by issuing press releases to publicize the refunds.25 PG&E does not raise any specific objections to TURN's recommendation in its briefs and, as it appears reasonable and not unduly burdensome, we adopt it.
In its reply brief, CPSD recommends that the Commission require PG&E to use "standard locator techniques (such as putting names through the National Change of Address database)" and that, if PG&E cannot locate a current address, it should then send refund checks to the last known address. In the absence of a record citation allowing us to determine whether CPSD presented this recommendation in the record of the proceeding, it appears that PG&E has not had an opportunity to respond to it. We therefore reject CPSD's recommendation that we direct PG&E to mail refunds to last known addresses if it cannot locate current addresses. Consistent with our direction that PG&E research post office records for follow-up addresses, we direct PG&E to use standard locator techniques in this effort. However, as we cannot conclude from this record what the National Change of Address data base is, whether PG&E can reasonably access it, or whether it qualifies as a standard locator technique, we allow PG&E the discretion to determine whether to use it in its efforts.
I. Should Unclaimed Refunds Escheat to the State?
We direct that any unclaimed refunds for illegal backbilling charges escheat to the State.
PG&E recognizes that, pursuant to Section 1519.5 of the Code of Civil Procedure (C.C.P.), unclaimed reparations generally escheat to the state. However, it cites to the Affiliate Rulemaking Decision for the proposition that the Commission has the discretion to direct otherwise. Specifically, the Commission stated, "Unclaimed reparations generally escheat to the state, unless equitable or other authority directs otherwise, e.g., Public Utilities Code § 394.9." (Supra, 84 CPUC2d at 182.) PG&E asserts that, given the overwhelming evidence of its reasonableness and good faith, there is no reason to provide a windfall to the state's general fund in the event certain customers cannot be located.
The Commission does not have blanket discretion to deviate from C.C.P. § 1519.5. C.C.P. § 1519.5 provides:
Subject to Section 1510, any sums held by a business association that have been ordered to be refunded by a court or an administrative agency including, but not limited to, the Public Utilities Commission, which have remained unclaimed by the owner for more than one year after becoming payable in accordance with the final determination or order providing for the refund, whether or not the final determination or order requires any person entitled to a refund to make a claim for it, escheats to this state.
It is the intent of the Legislature that the provisions of this section shall apply retroactively to all funds held by business associations on or after January 1, 1977, and which remain undistributed by the business association as of the effective date of this act.
Further, it is the intent of the Legislature that nothing in this section shall be construed to change the authority of a court or administrative agency to order equitable remedies.
The statute is mandatory and includes the Commission within its jurisdiction. Unless another statute (e.g., Section 394.9, which allows the Commission to use unclaimed refunds related to electric service providers for consumer protection efforts) or equitable authority requires the Commission to use the unclaimed refunds for another equitable remedy, they escheat to the state. C.C.P. § 1519.5 does not authorize the Commission to excuse the utility from paying the unclaimed refunds. They shall escheat to the state.
8 No party contends that refunds will result in discrimination.
9 PG&E does not oppose partial refunds to CARE customers of 25% of the amounts billed in excess of three months, asserting that those customers were more likely to have been harmed. This percentage represents roughly the CARE discount on rates (20%) and would amount to roughly $50 for the average affected customer. 46 R.T. 4940.
10 Rule 17.1 provides a three-month limit on the backbilling of residential customers and a three-year limit on backbilling non-residential customers in the case of billing error. For simplicity, this decision generally refers to the three-month limit only; however, references to the three-month period generally encompass both time limits.
11 We address this assumption later in this decision, with respect to the issue of prospective ratemaking.
12 Simpson Paper Co. v. Pacific Gas and Electric Co. (D.95-08-023) 61 CPUC2d 58, Miller Brewing Co. v. Southern California Gas Co. (D.91-09-075) 41 CPUC2d 409; California Cogeneration Council v. Southern California Gas Co. (D.94-09-036) 56 CPUC2d 30.
13 [...N]o public utility shall charge, or receive a different compensation for any product or commodity furnished or to be furnished, or for any service rendered or to be rendered, than the rates, tolls, rentals, and charges applicable thereto as specified in its schedules on file and in effect at the time..."
14 The Commission issued its OII after it had adjudicated a 1995 complaint (C.95-01-038) filed by Strawberry Property Owner's Association (Association) and after the Association had prepared, but not filed, a second complaint against the company in 2001.
15 Although the Commission determined that Conlin-Strawberry had waived any statute of limitations defenses by failing to plead them soon after the Commission issued the OII (it waited until its appeal of the Presiding Officer's decision) the Commission nevertheless addressed the substantive matter of whether section 736 and its three year statute of limitation applied to the case. (Conlin-Strawberry, 2005 Cal. PUC LEXIS 294, pp. *79-82.)
16 In TURN v. PacBell, Turn filed a complaint against Pacific Bell alleging that Pacific Bell had unlawfully imposed late payment charges and disconnected customers between 1986 and 1991. In this case, the Commission found that section 736 applied, and that although "the cause of action accrued when consumers were improperly billed . . . the cause of action was delayed (or tolled) until ratepayers became aware of their injury and its negligent cause." (54 CPUC 2d 122, 1994 Cal. PUC LEXIS 313. p. *13.) Turn v. PacBell is inapplicable to the case at hand because Turn v. PacBell was a complaint case, while the case at hand is a Commission-initiated investigation.
17 Practically-speaking, in Conlin-Strawberry, the scope of the investigation is what limited the time period for ratepayer refunds, not the statute of limitations.
18 Customer complaints alerted the Commission's Water Division to irregularities with Hillview's regulatory compliance, and the Water Division requested the Commission's Consumer Services Division (since renamed CPSD) to pursue a formal enforcement action. (Id.)
19 The facts and holding of this decision are consistent with the facts and holding of Peoples Natural Gas Division of Northern Natural Gas Company v. Public Utilities Commission of the State of Colorado (1985) 698 P.2d 255.
20 Assigned Commissioner's Ruling Ruling Granting TURN's Motion for an Investigation into PG&E's Billing and Collection Practices, Feb. 25, 2005, p. 2.
21 Order Instituting Investigation, I.03-01-012, Jan. 21, 2003, p. 1.
22 The February 25, 2005 Assigned Commissioner's Ruling put PG&E on notice that we may issue refunds pursuant to section 701. (Assigned Commissioner's Ruling Granting TURN's Motion for an Investigation into PG&E's Billing and Collection Practices, Feb. 25, 2005, p. 12.)
23 TURN Opening Brief, p. 13.
24 See 48 R.T., 5258 - 5303.
25 This recommendation also appears in TURN's prepared testimony, as cited in TURN's brief.
