PG&E's Position

PG&E takes the position that cotton ginning is a type of agricultural processing that results in a change of form of the seed cotton, and therefore is not eligible for agricultural rates. PG&E's witness, Renee Jolivette, summarizes her position as follows:

"While cotton growing and cotton ginning are industries that are closely linked from an economic standpoint, they are nevertheless two distinctly different enterprises and activities. Cotton growing is agricultural production. Cotton ginning is agricultural processing. Ginning changes the form of the harvested cotton crop and is therefore not an agricultural end use for the purpose of applying the agricultural rates." (Ex. 14, p. 1.)

Jolivette begins by describing how PG&E's agricultural tariffs have evolved over the years. She points out that from 1952 to 1986, most agricultural service was furnished under tariffs known as PA-1 and PA-2, which contained an eligibility statement limiting them to "reclamation service and to general agricultural service on the farm." In mid-1986, a task force including representatives of major California farm organizations was formed for the purpose of reviewing the eligibility statement. (Ex. 13, p. 2.) Jolivette summarizes the results of the task force's work as follows:

"D.88-12-031 specifically eliminated from the agricultural rate classification any processing enterprises, by excluding enterprises which `change the form of the agricultural product.' Prior to D.88-12-031, PG&E's agricultural rates were only applicable to `general agricultural service on the farm.' D.88-12-031 resolved inequities created by the previous language, by allowing parity for enterprises, such as those engaged in the cleaning, packing, and storage of fresh produce, regardless of whether or not these activities occurred on the farm." (Ex. 13, p. 3.)⁸

PG&E argues that its interpretation of its agricultural tariff is supported by the Standard Industrial Classification (SIC) Manual of the U.S. Occupational Safety and Health Administration (OSHA). According to Jolivette, the SIC Manual draws a clear distinction between agricultural production (such as the growing of crops or livestock) and agricultural services, a category that includes post-harvest crop services such as bean cleaning, corn shelling, grain grinding and seed cleaning (as well as soil and veterinary services). (Id. at 8-9.) Although Jolivette acknowledges that PG&E's treatment of agricultural services began to diverge from the SIC Manual with the elimination of the on-the-farm/off-the-farm distinction (id. at 10-11), she argues that "cotton ginning is a post-harvest crop service, which, like corn shelling, changes the form of the product and therefore is not considered an agricultural end-use." (Id. at 11.) She maintains that cotton ginning is akin to the removal of seeds from flowers or plants, an activity the SIC Manual treats as a post-harvest agricultural service:

"Establishments which grow crops for the ultimate use of the seeds from the crop are classified in the 'Crop Production' group of the SIC code system. However, the removal of seeds from a flower or vegetable is a post-harvest process. Establishments which remove seeds from flowers and vegetables, thereby changing the form of the flower or vegetable, are not considered agricultural for the purpose of applying agricultural rates. They are classified in the SIC Code Manual as post-harvest 'Agricultural Services'." (Id. at 9; footnote omitted.)⁹

PG&E dismisses complainants' argument that ginning merely results in the separation of cotton fiber from cottonseed, without changing the form of either. On this question, PG&E states:

"[Complainants concede that] cottonseed is contained within the seed cotton mass . . . [They also acknowledge that] cotton fiber and cottonseed are attached and the cotton fiber grows from the exterior of the cottonseed . . . The Complainant claims that the gin saws `do not intrude into either the seed or the fiber' . . . It is difficult to imagine how this is accomplished since [complainants also concede that] `cottonseed is not even visible as it sits in the seed cotton mass' . . . The corpus of the seed cotton must be invaded to tear the cottonseed from the seed cotton mass. One can hardly question whether removing the interior or core of a plant product changes its form. This is a drastic change in form, analogous to the pitting of a peach, and was clearly intended to be excluded from the agricultural rates." (PG&E Reply Brief, p. 8.)

PG&E also argues that complainants are ignoring the relevant issue when, based on their reading of Producers, they contend that the cotton fiber and cottonseed that emerge from ginning are the same "in all respects" as the fiber and seed that enter the gin. In PG&E's view, both the discussion in Producers and the differences between milk processing and cotton ginning demand a different conclusion:

"The Complainant still makes the false assumption that the relevant comparison in the `change in form' analysis is between the cotton fiber before and after ginning and the cottonseed before and after ginning . . . This is not the proper comparison. The only comparison that gives the tariff meaning is between the harvested object, seed cotton, and the products of cotton ginning, cotton fiber and cottonseed.

* * *

"Cotton ginning cannot be analogized to milk processing. Every element present in raw milk is present in the various milk products, the only difference being the level of fat content. Conversely, the elements of seed cotton are completely disassociated from one another during the ginning process. Cotton ginning separates cotton into its component parts, cotton fiber and cottonseed. Neither cotton fiber nor cottonseed are [as the Commission said of the milk products in Producers,] `identical to portions of the raw product.'" (PG&E Reply Brief, pp. 3-5.)

PG&E also argues that complainants' reliance on the discussion of practical marketability in Producers is misplaced, and that the absence of a market for unginned cotton is irrelevant in deciding whether agricultural rates should apply to ginning. On this issue, Jolivette states:

"While [complainants] testif[y] that the seed cotton itself is not traded commercially, this does not alter the fact that ginning is not an agricultural end-use because it changes the form of the seed cotton. The point at which a processed commodity is sold is not a consideration when applying the agricultural rates. The applicability statement does not define agricultural end-uses as all activities which take place prior to the commercial sale of a processed product. It does define agricultural end-uses as activities which are involved in the production for sale of a crop which do not change the form of the agricultural product. Just because the crop in this case -- the seed cotton -- is not itself sold commercially does not change the applicability of the agricultural rate." (Ex. 14, pp. 1-2.)¹⁰

Finally, PG&E argues that it is not acting inconsistently by refusing to apply agricultural rates to cotton ginning while extending them to activities such as waxing apples, removing the tops from carrots, de-stemming raisins, and removing leaves and stems from various fruits and vegetables. Each of these activities can be "meaningfully distinguished" from cotton ginning, according to PG&E:

"As decided by the Commission in Producers Dairy, standardizing milk does not change the form of the milk . . . Cutting the green leafy top from a carrot is simply a cleaning process. Removing leaves from bunches of grapes, removing the stem from the raisin, and removing stems from fruits and vegetables are also debris removal and cleaning processes. Waxing apples, like de-stemming and cleaning, is merely a cosmetic function which does not change the form of the apple. Cotton ginning is not analogous to these processes. Unlike these examples, the ginning process is not merely a cleaning or de-stemming process, but involves the physical separation of two separate and distinct products, one located inside the other, cotton fiber and cottonseed." (PG&E Reply Brief, p. 9.)

"The purpose of the working group was to address the definition of agricultural uses to eliminate customers who are not agricultural, and those commercial enterprises who process an agricultural product for commercial sale. The latter are usually stand-alone operations that purchase agricultural commodities and change their form, such as processors of tomato sauce, tomato paste, and tomato juice." (43 CPUC2d at 238.)