12. Issues Related to After-the-Fact Reasonableness Review
12.1. Proceeding in Which the Review Should Take Place
PG&E recommends conducting the review as part of the annual ERRA proceeding because it would be more efficient than establishing a separate proceeding, and would ensure that the review will take place.
DRA recommends that the review take place in a successor proceeding to the annual Revenue Adjustment Proceeding (RAP), and not in the ERRA proceeding because that proceeding already has a significant number of issues to address in a short period of time.
MID states that the review should not take place during the ERRA proceeding because that proceeding already has a significant number of issues to address in a short period of time. MID recommends a separate proceeding for reasonableness reviews.
The ERRA proceeding has a significant number of issues and a limited time frame. An annual reasonableness review would entail a separate review of the incentive for each development and the dollar value of the incentives would likely be far less than the value to ratepayers of the issues addressed in the ERRA proceeding. Thus, inclusion of the reasonableness review in the ERRA proceeding would either reduce the parties' ability to address the issues already in the ERRA proceeding, or result in the parties paying little attention to the reasonableness review. Since neither of these outcomes is desirable, the reasonableness review should not be conducted in the ERRA proceeding. Since there is no other available proceeding, the reasonableness review would have to be conducted in a separate proceeding.
As discussed previously, a reasonableness review proceeding would likely be controversial and complex even though it would address relatively small amounts of money. Thus, the reasonableness review could be costly to the Commission, PG&E and the other parties and a drain on their resources. The record does not demonstrate that initiation of such proceedings would be the best use of the parties or the Commission's resources. These facts tend to support denial of the application.
12.2. Consequences of a Finding of Unreasonableness
PG&E states that, if the Commission were to find that an incentive was warranted but PG&E had paid too large an incentive, its shareholders will be responsible for any portions of the incentive the Commission finds unreasonable. PG&E proposes that any disallowed amount would be subject to interest at an appropriate rate.
PG&E states that shareholders would be responsible for the entire amount of the incentive if the Commission were to find that no incentive should have been offered. In addition, if the development has not been connected to PG&E by the end of the compliance period, the applicant would be entitled to reconsider whether it wants to connect with PG&E under PG&E's standard tariffs or with the POU.
DRA states that the shareholders should fund any negative CTM.
TURN agrees with PG&E that PG&E should pay the excessive incentive amount. TURN also agrees that PG&E should pay the entire amount of the incentive if no incentive should have been offered.
CCSF says PG&E's proposal, that the unreasonable incentive amount would be disallowed, is insufficient and would merely be viewed by PG&E as a cost of gaining new customers and would not discourage PG&E from acting unreasonably.
Hercules states that if the excessive incentive is due to a misrepresentation by the developer in the affidavit, PG&E should be required to pursue collection against the developer.
Hercules recommends that, if an excessive amount of incentive was negligently or willfully offered by PG&E, or the incentive should not have been offered at all, the incentive should be recovered from the developer in the same manner as a billing error by PG&E. Hercules also recommends that the applicant have the option of rescinding the line extension agreement, taking service from the POU, and receiving a full refund of the amounts paid to PG&E for the line extension. Hercules recommends shareholders pay for any refunds. Additionally, Hercules represents that PG&E should be barred from earning a return on the facilities installed because of the improper incentive.
MID states that any disallowance should include interest at 10% per year.
MID states that, if PG&E or the developer is at fault, they should be penalized and any issue regarding perjury would be addressed by the courts. MID also recommends that the developer should not be allowed more than the tariffed compliance period.
MID recommends, in the event the incentive should not have been offered at all, the customer or developer should have the ability to take POU service immediately as opposed to at the end of the contract term. If a resulting customer is already connected to PG&E, that customer should have the option of taking service from the POU as if the customer was never connected to PG&E.
NCPA states that PG&E has made no showing as to how customers would be made whole if the incentive was improperly offered.
If the incentive should have been offered, but in a lower amount, PG&E proposes that the excess incentive be paid by its shareholders. Under this proposal, if the development provides a positive contribution to margin, the ratepayers would be made whole by PG&E's shareholders paying the excess incentive.
If the incentive should not have been offered at all, PG&E's shareholders should pay for it as recommended by PG&E. However, because the incentive was offered, PG&E may be serving new customers who provide a negative CTM and who otherwise would have taken service from the POU rather than PG&E. Therefore, existing ratepayers could be worse off. However, PG&E has not addressed this possibility or proposed a way to do so.
Under PG&E's proposal, if the incentive should not have been offered and the development has not been connected to PG&E by the end of the compliance period, the applicant would be entitled to reconsider whether it wants to connect with PG&E under PG&E's standard tariffs or with the POU. The reasonableness review would take place in the year following contract signing, but the compliance period could be as long as five years after signing. As a result, the applicant could be bound by the contract for as many as four years after it has been found unreasonable. PG&E has not justified this proposal and we find it unreasonable.
In either of the above instances of PG&E offering an inappropriate incentive, if PG&E's error was intentional or part of a pattern indicating negligence, the Commission would have to consider a penalty to deter further transgressions. Consideration of a penalty would make the reasonableness review more complex, controversial and costly.
If the error is due to a misrepresentation by the applicant and PG&E was not at fault, there is no reason ratepayers should indemnify shareholders for such costs. As a result, PG&E shareholders should still be responsible for any resulting costs as if PG&E were at fault. PG&E could seek cost recovery from the applicant through the courts, at shareholder expense, if it chooses to do so.
Overall, PG&E has not demonstrated that its proposal regarding the consequences of a finding of unreasonableness appropriately addresses the range of possible outcomes. In addition, the record is insufficient to remedy the shortcomings of PG&E's proposal. Thus its proposal regarding findings of unreasonableness is not practical to implement.
