VI. Comments on Proposed Decision
The proposed decision of the ALJ Bytof in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(d) and Rule 77.1 of the Rules and Practice and Procedure. Comments were filed on ______________, and reply comments were filed on _____________.
1. A substantial amount of rain fell throughout California during the winter of 1998, attributed to El Niño, a natural, recurring and phenomenon that routinely brings heavy rains to Southern California, generally with advance warning.
2. The Governor of California and President of the United States declared various counties in which SoCalGas incurred pipeline and facility damage disaster areas during the 1998 El Niño-driven storms, effective February 2, 1998.
3. During February and March of 1998, SoCalGas sustained damage to pipelines and facilities in Ventura, Orange, Los Angeles, San Bernardino, Riverside, Kern, San Luis Obispo, and Santa Barbara counties, with the most serious damage to the pipelines occurring near the coastlines of Ventura and Orange counties.
4. SoCalGas's and ORA's stipulation allows SoCalGas to recover in rates incremental El Niño storm-related expense and capital costs through the CEMA consisting of a revenue requirement of $4,713,616 through 2002 with the remainder of the revenue requirement to be capitalized in SoCalGas' next rate case. The stipulation provides that SoCalGas will forego interest on the unamortized balance in the CEMA and will not seek future cost recovery for any damage attributed to the 1998 El-Niño driven storms.
5. Because TURN, an active party, did not join in the proposed stipulation, we will evaluate it under the criteria set forth under Rule 51.1(e). However our analysis under the "all-party settlement" criteria would lead to the same result based on an independent assessment of the public interest criteria.
6. Neither SoCalGas' application nor the stipulation contain sufficient facts from which to determine whether the El Niño-driven storms qualify as a disaster for CEMA purposes, and if so, the scope of the disaster, whether the damage for which cost recovery is sought was related to that disaster, whether the costs could have been avoided or reduced, or whether the costs for which recovery is sought are reasonable and incremental to normal pipeline and facility repair activity.
7. An evidentiary hearing was necessary to obtain necessary information to fully evaluate the application for coverage under the CEMA, the reasonableness of the costs sought for recovery, and the reasonableness of the stipulation.
8. SoCalGas had advance notice of the impending 1998 storms and made some preparations for it.
9. The CEMA was established after the 1989 Loma Prieta earthquake specifically for the purpose of promoting quick repairs for unexpected events.
10. Heavy winter rains, including El Niño-caused rains, regularly occur in California and cannot reasonably be viewed as unexpected events; at the most, El Niño-caused rains can be considered unusual or infrequent. Damage sustained from unusual or infrequent events is generally not appropriate for recovery under the CEMA.
11. The CEMA is subject to abuse where the disaster is not easily quantified, occurs regularly, with advance warning, and may be used as an expensive substitute for good resource planning.
12. Substantial rains fell in the Ventura/Hall Canyon area from January through May of 1998, with the greatest concentration falling in February of 1998.
13. In February and March of 1998 SoCalGas sustained damage to portions of pipelines 404, 406, 1004, 1005, and 1011 situated in the slopes, ridges, and canyons of the Ventura mountains. The pipelines were either exposed or ruptured due to landslides.
14. Of the costs sought for recovery under the stipulation, almost twice as much is sought for capital costs as for operating and maintenance expenses, with a substantial amount reflecting costs expended to relocate pipelines that were exposed as a result of landslides or to relocate ruptured pipelines.
15. The portions of the pipelines 404, 406, 1004, 1005, and 1011 exposed or ruptured during the 1998 storms were relocated as a preventative measure.
16. Relocating pipelines raises questions regarding the appropriateness of the initial siting of the pipeline, the nature of the company's actions to monitor and reduce or avoid predictable damage before it occurs, and the appropriateness of assigning costs for preventative measures on an emergency basis to the CEMA account.
17. The Ventura mountains area is geologically described as having an underlying pico formation, which consists of fine-grained sedimentary rocks that are weak and prone to earth movement, including landslides and soil creep.
18. SoCalGas had prior knowledge that these pipelines were situated in a geologically unstable area prone to earth movement and soil creep.
19. SoCalGas had prior knowledge that many of the pipelines were located adjacent to active landslides, that they were susceptible to future damage from such landslides, particularly from future rains, and that there were feasible and recommended ways to mitigate the risks.
20. After the pipelines ruptured or were exposed during the 1998 rains, SoCalGas relocated most of the portions of the damaged pipelines as previously recommended on the geologic maps and in the geologic reports.
21. The rainfall in February of 1998 and the total rainfall for January through May of 1998 in the Ventura/Hall Canyon area was excessive. This area also experienced excessive rainfall in several prior years, including almost identical rainfall totals in the January through May time period in 1995 and 1978 as in 1998. January of 1995 was almost as wet as February of 1998.
22. Landslides are particularly sensitive to rainfall and once the earth becomes saturated and the land begins to move, it will continue moving until movement is blocked by a resisting force.
23. The naturally weak and unstable ground was saturated and subject to continuous creep for a substantial time prior to the 1998 rains. It is likely that the 1995 rains contributed to the 1998 landslides.
24. SoCalGas' testimony that the pipeline damage was caused solely by rainfall occurring during the winter of 1997-98 is not credible.
25. We have insufficient evidence upon which to determine whether relocation of these at-risk pipelines prior to 1998 would have been cost-effective for ratepayers.
26. The work performed on all pipelines except for Lines 404 and 1011, performed under work order 94377, was close enough after the occurrence of the damage to be considered a reasonable response to an emergency situation created by the 1998 storms.
27. SoCalGas did not include a request for recovery for the work performed on Lines 1011 and 404 under Work Order 94377 in its application despite the fact that it sought recovery for "forecasted damages."
28. According to SoCalGas, in February or March of 1998, landslides on both sides of the portions of Lines 1011 and 404 covered under Work Order 94377 became very saturated and moved but did not encompass the pipelines. The pipelines did not suffer any damage during the 1998 storms.
29. SoCalGas gave the earth movement adjacent to the portions of Lines 1011 and 404 covered under Work Order 94377 a low priority and did not undertake to remediate the situation for almost one-year. SoCalGas undertook "permanent remediation" work, which was to elevate the pipelines on caissons, beginning in January or February of 1999 and continuing through March or April of 1999.
30. An investigation into the proper treatment of future El Niño storm repairs would not likely lead to the establishment of a reasonable generic rule to govern recovery of costs attributed to storm damage; these issues are more appropriately considered in a factual context, on a utility-by-utility basis in conjunction with the utility's cost-of-service ratemaking proceeding. A proceeding generic to all utilities to revise the purpose of the CEMA and to consider amendment to § 454.9 or the adoption of guidelines regarding the types of repairs authorized, the proximity of the damage to the declared disaster, and the timing of the repairs to the discovery of the damage, however, may be appropriate.
31. The stipulation is reasonable given the agreement of SoCalGas to forego interest on the unamortized balance in the CEMA and its agreement to forego future recovery of costs attributed to the El Niño-driven storms of 1998 if it is modified to exclude $110,000 of costs incurred under Work Order 94377 and to clarify the stipulation to forever preclude future cost recovery for damage attributed to the 1998 storms.
32. We have a sufficient evidentiary record based upon SoCalGas' supplemental evidence in support of its application to support this decision if SoCalGas and ORA do not agree with the modification and clarification to the stipulation.
33. ORA and SoCalGas together represent the long-term interests of all utility consumers and SoCalGas shareholders.
34. No party has opposed the stipulation.
35. SoCalGas' proposed cost allocation using the Equal Percent of Marginal Costs (EPMC) method allocates 86.9% to core customers, 10.75% to noncore/wholesale customers, and 2.4% to unbundled storage.
36. TURN's proposed "functional" cost allocation method, providing that costs be recovered for facility replacement and repair from customer classes according to the function the facility performed, in proportion to the use of those facilities by customer class, allocates 55.5% to core customers, 32.8% to noncore customers, and 11.7% to unbundled storage.
37. 80% of the costs incurred were for repairing or replacing transmission lines and storage facilities, which benefit noncore customers more than core customers.
38. It would be inequitable to allocate the CEMA costs on the basis of EPMC given the substantial adverse impact on the core customer class, contrary to actual cost causation.
39. CEMA is a special category of ratemaking cases and should be treated separately.
40. We have deviated from the use of the LRMC in different cases and often vary our application of the LRMC to take into account the facts of the case before us.
41. TURN's functional allocation, based on the record, is reasonable.
1. The burden of proving that the settlement is fair is on the proponents.
2. It is the Commission's responsibility to independently assess and protect the public interest.
3. The Commission may reject a stipulation if it is not in the public interest, hold hearings on the underlying issues, allow the parties to renegotiate the settlement, or propose alternative terms.
4. The disaster declarations issued by the Governor and the President effective February 2, 1998 in the various Southern California counties in which SoCalGas suffered pipeline and facility damage during the El Niño-driven storms constitute events declared disasters by competent state or federal authorities for purposes of § 454.9.
5. Use of the CEMA for recording and recovering costs for restoring utility service to customers, repairing, replacing or restoring damaged facilities, and complying with governmental agency orders for damage caused by the 1998 El Niño-driven storms as of February 2, 1998 and through May of 1998 is reasonable and appropriate.
6. We should allow SoCalGas to recover the costs for repairing, replacing, and relocating pipelines 404, 406, 1004, 1005, and 1011 referenced in Work Orders 94190, 94191, 94192, 94194, 94195, 94197, and 94198 from the CEMA although we remain concerned that it may have been appropriate for SoCalGas to mitigate the known risk to these pipelines at a prior time.
7. We should exclude the $110,000 in costs associated with the elevation of Pipelines 404 and 1011 under Work Order 94377 undertaken to prevent damage to Lines 404 and 1011 from future threatened continued earth movement because this delayed activity cannot reasonably be viewed as incremental to normal pipeline repair activity, necessary action to restore services or make repairs after a declared disaster, or costs incurred immediately after the disaster, and as such is not the type of damage or emergency repair that is reasonably charged to the CEMA.
8. We should clarify the stipulation to make it clear that SoCalGas is precluded from recovering any costs resulting from damage traceable to the 1998 El Niño storms, including future damage caused by further earth movement resulting from the removal of "resisting forces" occurring during the 1998 landslides and in the areas weakened by the 1998 storms, in any future rate proceeding.
9. We should consider and resolve the issues regarding the appropriateness and desirability of taking mitigation measures to reduce the risk of pipeline damage before they are damaged in SoCalGas' next cost-of-service or PBR proceeding, whichever occurs first. The Commission should be presented with the appropriate data and have the opportunity to make a reasoned determination whether such costs should be forecast in the cost-of-service proceeding as a part of baseline expenditures or whether they should be subject to recovery as extraordinary events after-the-fact through the CEMA. SoCalGas should review the location and geological characteristics of all its pipelines in the mountainous coastal areas, particularly those situated on unstable ground or adjacent to active landslides, and provide appropriate evidence to allow the Commission to develop a full record on these issues and make an appropriate determination whether SoCalGas should include funds to relocate, repair, or otherwise mitigate further exposure or rupture which may be caused by landslides.
10. Strict application of the statutory language in § 454.9 appears inconsistent with our intent in Resolution E-3832.
11. In the future, the Commission should consider whether to open a proceeding generic to all utilities to revisit the purpose of the CEMA and to consider whether to seek amendment of § 454.9 or to enact guidelines governing implementation of the statute, on such issues as the type of repairs authorized, the proximity of the damage to the declared disaster, and the timing of the repairs to the discovery of the damage, to ensure that the CEMA is not used as an expensive substitute for good resource planning.
12. The stipulation, as modified, is reasonable as a compromise between strongly held interests in light of SoCalGas' determination to forego accrued interest and waiver of the costs of recovery of El Niño-caused storm damage subsequent to entering into the stipulation, as clarified above.
13. The stipulation as modified and clarified herein is reasonable in light of the whole record, is consistent with the law, and is in the public interest.
14. The Commission should adopt the stipulation as modified and clarified herein if SoCalGas and ORA agree to the modification and clarification. If SoCalGas and ORA do not agree to the modification and stipulation, we should reject the stipulation and render this decision on the basis of the evidentiary record, which produces the same result.
15. While the EPMC cost allocation method may be reasonable for reconciling the revenue requirement with marginal cost revenues, it should not be used for the purpose of allocating costs which were excluded from base margin where it produces an inequitable result.
16. We have full discretion in the cost allocation area, particularly with respect to the allocation of costs excluded from the base margin proceeding, and are guided by equitable considerations.
17. The primary goal of ratemaking is to achieve rates which reflect the costs that the customer imposes on the system.
18. TURN's functional cost-causation allocation method is best suited to achieve rates which reflect the costs the customer imposes on the system, is equitable, and should be adopted.
19. The functional cost-causation allocation method is adopted for this case only.
20. This order should be effective today so that the stipulation may be implemented expeditiously.
1. The Joint Motion of Southern California Gas Company (SoCalGas) and the Office of Ratepayer Advocates (ORA) for approval of the stipulation is granted as modified and clarified. SoCalGas is authorized to recover $4,713,616, reduced by $110,000 in disallowed costs, through 2002, as well as future carrying costs for the capital investments, and is precluded from recovering any costs resulting from damage traceable to the 1998 El Niño storms, including future damage caused by further earth movement resulting from the removal of "resisting forces" occurring during the 1998 landslides and in the areas weakened by the 1998 storms, in any future rate proceeding.
2. If SoCalGas and ORA reject the modification and clarification to the stipulation, the stipulation is rejected and SoCalGas is authorized to recover $4,713,616, reduced by $110,000 in disallowed costs, through 2002, as well as future carrying costs for the capital investments, and is precluded from recovering any costs resulting from damage traceable to the 1998 El Niño storms, including future damage caused by further earth movement resulting from the removal of "resisting forces" occurring during the 1998 landslides and in the areas weakened by the 1998 storms, in any future rate proceeding.
3. Within 30 days after the effective date of this decision, SoCalGas shall file a revised revenue requirement reflecting the exclusion of $110,000 in costs.
4. We should consider and resolve the issues regarding the appropriateness and desirability of taking mitigation measures to reduce the risk of pipeline damage before they are damaged in SoCalGas' next cost-of-service or performance-based ratemaking proceeding, whichever comes first. SoCalGas shall present the Commission with the appropriate data so that the Commission has the opportunity to make a reasoned determination whether such costs should be forecast in the cost-of-service proceeding as a part of baseline expenditures or whether they should be subject to recovery as extraordinary events after-the-fact through the Catastrophic Event Memorandum Account (CEMA). SoCalGas should review the location and geological characteristics of all its pipelines in the mountainous coastal areas, particularly those situated on unstable ground or adjacent to active landslides, and provide appropriate evidence to allow the Commission to develop a full record on these issues and make an appropriate determination whether SoCalGas should include funds to relocate, repair, or otherwise mitigate further exposure or rupture which may be caused by landslides.
5. In the future, the Commission should consider whether to open a proceeding generic to all utilities to revisit the purpose of the CEMA and to consider whether to seek amendment of § 454.9 or to enact guidelines governing implementation of the statute, on such issues as the type of type of repairs authorized, the proximity of the damage to the declared disaster, and the timing of the repairs to the discovery of the damage, to ensure that the CEMA is not used as an expensive substitute for good resource planning.
6. SoCalGas shall allocate the costs recorded in the CEMA account among customers using the functional cost allocation method advocated by The Utility Reform Network.
7. Application 99-03-049 is closed.
This order is effective today.
Dated ______________________, at San Francisco, California.
************ APPEARANCES ************
Marcel Hawiger ********** STATE EMPLOYEE *********** Donna-Fay Bower Linda R Bytof |
********* INFORMATION ONLY ********** Kathleen H. Cordova Bruce Foster |
