IV. Estimated Cost of Decommissioning HPPP

In accordance with D.98-10-029 and D.97-11-074, PG&E presented updated site-specific cost estimates for the decommissioning of HPPP. PG&E requests approval to replace both the non-environmental and the environmental decommissioning estimates currently being amortized in the TCBA with these new site-specific cost estimates.

A. PG&E's Estimate

PG&E retained Stone and Webster Engineering Corporation (SWEC) to perform a site-specific non-environmental decommissioning cost analysis. In addition, PG&E also retained IT Corporation (IT) to revise the previous Phase II Environmental Site Assessment (ESA), and to reflect the limitation on the use of the site for power generation by evaluating potential future land uses consistent with current land use policies and zoning ordinances. In its original testimony, PG&E planned to dismantle the HPPP site and restore the bulk of the site to an industrial/commercial level. However, in its supplemental testimony PG&E adopted the recommendation of CCSF, that the entire site be restored to a residential level cleanup and adjusted its estimate accordingly.

PG&E requests the Commission to adopt the cost estimates set forth below:

Summary of Estimated Costs

Project Phase	Total NPV of Estimated Cost
1. Non-environmental Decommissioning 2. Environmental Decommissioning 3. Total for Decommissioning	$39,296,760  25,768,625 $65,065,385

Based on these cost estimates, and what has been accrued as of June 30, 1999, PG&E recommends that the following debits be recorded in the TCBA:³

Summary of Net Debits to the TCBA

	Environmental	Non-Environmental	Total
1. Updated Estimate 2. Accrual as of June 30, 1999 3. Estimate Exceeds Accrual	$25,768,625   2,698,613 $23,070,012	$39,296,760  13,892,980 $25,403,780	$65,065,385  16,591,593 $48,473,792

B. Position of CCSF

According to CCSF, there is at least $1 million to be saved in PG&E's non-environmental decommissioning estimate. CCSF argues that the level of uncertainty in PG&E's non-environmental decommissioning estimate is at least 25%-35%, based on the "allowance for indeterminates" of 10% or 20% applied to each factor and an overall contingency of 15%. CCSF believes that given the long-time period before remediation will occur, it is possible that the costs of cleanup will differ significantly from the amounts authorized by the Commission.

CCSF argues that given the current ratemaking framework and the need to predict costs which will not be incurred for at least five years, the only way to increase certainty is through additional investigations, including soil and groundwater sampling. However, CCSF acknowledges that such additional sampling could increase the cost estimate but would not necessarily resolve all uncertainties.

C. Position of SAEJ

SAEJ criticizes PG&E's estimate as uncertain and not based on a thorough, informed analysis. SAEJ argues that beyond a screening evaluation, no risk assessment has been done for bay sediments adjacent to the site; for purposes of soil and groundwater contamination the site has not been "fully characterized;" soil sampling sites were too far apart; seasonal variations were not taken into account when groundwater sampling was done; responsibility of offsite-sources for groundwater contamination at HPPP had not been evaluated for possible financial recovery from third parties; and, the cost of removal of subsurface structures did not allow for remediation to a 10-foot depth to meet residential level clean-up standards. Therefore, SAEJ contends that adoption of PG&E's estimate by the Commission would shortchange the needed cleanup and create a de facto remediation goal for HPPP that will endanger future residents at the site.

D. Position of ORA

ORA has concerns regarding the uncertainty as to the level of remediation to be undertaken, the timing of the remediation effort, and the specific activities associated with the remediation. Although ORA recognizes that SAEJ would advocate for the most thorough cleanup possible, irrespective of price, ORA has concerns about this approach. ORA believes further hearings are necessary to address, among other things, the appropriate level of remediation of the property. In the meantime, ORA recommends that PG&E's original estimate for an industrial level cleanup be adopted.

E. Response of PG&E.

PG&E argues that CCSF and SAEJ are under the misimpression that the purpose of this proceeding is to address a decommissioning remediation plan for HPPP. According to PG&E, not only are CCSF's and SAEJ's recommendations outside the scope of this proceeding, they are premature and lack the evidentiary basis needed to determine the level of remediation at HPPP since a remediation plan has neither been developed nor presented to the governing regulatory agencies for consideration. Nevertheless, PG&E agrees that a full remedial action plan, as a matter of law, must and will in due course be presented to the appropriate regulatory agency, and the public will have ample opportunity throughout the remediation planning process to participate and voice their concerns. (California Health and Safety Code, Sections 25356 et seq.)

Addressing CCSF's contention that PG&E's non-environmental decommissioning cost estimate should be reduced by $1 million, PG&E points out that CCSF bases this proposed reduction on the claim that PG&E could reduce its costs by applying "generally accepted practices to improve cost-effectiveness." However, when asked how this million dollar savings estimate was arrived at, CCSF states that it "performed no detailed quantification" and from the few alleged findings of possible inflated estimates listed in its testimony, CCSF "draws the conclusion that other costs may be inflated as well." PG&E submits that this kind of speculation is inappropriate.

Regarding ORA's proposed reduction to PG&E's non-environmental decommissioning cost estimate of $170,933 based on its belief that PG&E's cost estimates of transporting and disposing of asbestos waste are overstated by this amount, PG&E points out that ORA's recommendation fails to take into consideration the need to remove not only the asbestos-containing materials, but the materials that became contaminated through the removal process. PG&E contends that its estimate appropriately includes these expanded volumes in its cost estimate for transporting and disposing of asbestos waste.

PG&E reiterates that the main purpose of the Phase II ESA was to develop a reasonable approach to any required remediation and to estimate the costs of the approach for ratemaking purposes. A reasonable approach was defined as being a cost-effective approach having a high likelihood of being accepted by regulatory agencies having jurisdiction over the remediation process. PG&E readily agrees that complete site characterization involving more sampling may be needed to develop the ultimate remediation plan accepted by agencies for HPPP, but PG&E believes that effort is not needed now to develop a cost estimate for ratemaking purposes.

Further, PG&E points out that the preparation of the Phase II ESA is consistent with the guidelines established by the American Society for Testing and Materials (ASTM) for accelerated site characterization for confirmed or suspected petroleum releases. PG&E also points out that guidelines issued by the United States Environmental Protection Agency for remedial investigations, feasibility studies and data quality objectives were used, and the San Francisco Bay Regional Water Quality Control Board Basin Plan was also used. And, generally accepted industry, state, and federal regulatory standards were also employed. PG&E submits that this same preparation methodology was used to prepare Phase II ESAs for PG&E's Wave 1 and Wave 2 power plant divestitures, which were uncontested and adopted by the Commission.⁴ Accordingly, PG&E disputes the claims of both CCSF and SAEJ that additional testing would significantly change the cost estimate presented by PG&E.

F. Discussion

The purpose of this phase of the ATCP is to adopt an estimate of HPPP decommissioning costs for ratemaking purposes. As with all cost estimates adopted in ratemaking proceedings, the actual costs will likely differ from those forecasted. While the estimate would reflect the best information available, it would not dictate the eventual remediation plans that will be required for HPPP.

As all the parties have pointed out, the task of developing a specific cost estimate for work to be done 5-10 years in the future is inherently difficult. In this case, neither PG&E nor any of the parties can say with certainty when the decommissioning will commence. This fact alone creates significant uncertainty regarding the cost of this project. This uncertainty is exacerbated by the likelihood that environmental clean-up standards applicable to this project will change in the interim.

CCSF, SAEJ and ORA all criticize PG&E's estimate as being too uncertain and recommend that it not be adopted either because: (1) it does not reflect an adequate investigation; or (2) it is premature to adopt an estimate for decommissioning when the activity will not commence for at least five years.

However, CCSF, SAEJ and ORA have differing views on the reasonableness of PG&E's $65.1 million estimate. CCSF and ORA argue that PG&E's estimate is too high and reflects a self-serving propensity to overestimate costs. On the other hand, SAEJ is concerned that PG&E's estimate is too low, it will shortchange the needed cleanup, and costs could skyrocket. In fact, SAEJ recommends that PG&E's estimate should be increased by 25% if the Commission should choose to impose a one-way balancing account and cost cap. According to SAEJ, the 25% contingency factor reflects the United States Protection Agency's determination as to the potential variation expected in remediating hazardous waste sites.

Recovering decommissioning costs based on estimates may sometimes be less desirable than recovering the actual costs, but we believe PG&E's cost estimate is adequate for ratemaking purposes. As demonstrated in the volumes of evidence presented in this proceeding, PG&E's environmental decommissioning cost estimate employed- generally accepted industry, state, and federal standards.

Furthermore, as stated by PG&E, the Supplemental Risk Assessment, and the Phase I and II studies on which it relies, are based on an analysis of the physical site, the records associated with the site, comprehensive sampling of soil (191 samples) and groundwater (32 samples), and screening-level sampling of sediments (10 samples). The methodologies used in analyzing this site for purposes of developing a cost estimate for environmental decommissioning incorporate existing state and federal regulations, as well as generally accepted practices in the industry. These same methodologies were used and approved in the development of environmental decommissioning cost estimates for PG&E's Wave 1 and 2 divested power plants.

We believe that CCSF, SAEJ, and ORA, have overlooked the fact that there already is an estimate for HPPP decommissioning currently being amortized through rates in the TCBA, and the purpose of this proceeding is to true-up that estimate, rather than formulate a decommissioning plan for HPPP.

CCSF will most likely be the Lead Agency, and CCSF with the support of SAEJ will ensure a residential level cleanup, when it occurs. The purpose of this proceeding is to develop as solid a ratemaking estimate as possible for an activity that will necessarily commence in future years. Furthermore, it is unreasonable to delay or refuse to true-up an existing estimate because the activity will occur sometime in the future. Thus, we adopt PG&E's estimate of $65.1 million as reasonable for purposes of truing up the decommissioning estimate, because the estimate has been prepared in accordance with generally accepted industry, state, and federal standards.