VI. Partial Settlements
On December 19, 2003, SoCalGas and SDG&E filed Motions for adoption of partial settlements (hereafter, partial settlements or Proposed Settlements) on Test Year 2004 revenue requirements.13 In addition to the motions, SoCalGas and SDG&E also filed the Settlement Agreements and Joint Settlement Comparison Exhibits. UCAN did not join in either settlement. The Federal Executive Agencies (FEA) filed a late comment14 in which it supported the SDG&E Partial Settlement. UCAN filed joint-testimony with TURN in both applications, but UCAN is a non-settling party to both SoCalGas and SDG&E and the two partial settlements. TURN is also a non-settling party with SDG&E by not settling in compromise with its joint UCAN testimony regarding SDG&E's application. (TURN did settle with SoCalGas.)
By a December 4, 2003 Ruling, the ALJ directed all parties to file and serve as appropriate on January 20, 2004: (1) responses or comments in opposition to the partial settlements or, (2) for the settling parties, opening briefs in support of their positions as litigated without regard to the partial settlements, and (3) non-settling parties were to file opening briefs in support of their positions as litigated on February 4, 2004. All parties were allowed to file replies to the comments in opposition to the partial settlements concurrently with replies to positions as litigated on February 19, 2004.
Some of the settling parties did file briefs on their litigation positions (opening litigation briefs). Applicants SoCalGas and SDG&E, UCAN and ORA filed extensive opening litigation briefs. Coral, Greenlining and Southern California Generation Coalition (SCGC) filed opening litigation briefs limited to the areas of their unique interests but did not address the total test year revenue requirements. TURN, as required for settling parties, filed an opening litigation brief for SoCalGas on its litigation positions but did not address SDG&E in the same brief where it is not a SDG&E settling party. All other settling parties waived filing opening litigation briefs.
Non-settling parties filed responses to the partial settlements. UCAN filed an extensive opposition to the SDG&E Settlement. TURN filed an opening brief as a non-settling party for SDG&E. Because TURN and UCAN jointly sponsored witnesses in both proceedings, and given the numerous similarities between the two applications, UCAN's opposition is broadly applicable to the SoCalGas partial settlement. No other party filed in opposition to the partial settlements. On April 13, 2004, SDG&E filed a motion seeking leave to file minor errata to the SDG&E Partial Settlement. On April 27, 2004, UCAN filed a response to this motion, and on April 29, 2004, SDG&E filed a reply. We accept the errata, and affirm the ALJ's May 12, 2004 ruling granting SDG&E's motion.
A. The Partial Settlements are not Reasonable
All of the active parties to the proceeding were put on notice that neither the Assigned Commissioner Carl Wood, nor that the assigned ALJ would consider a "black box" settlement.
"With respect to these cases in particular, and especially with respect to San Diego Gas & Electric's cost of service, I'm told that that utility has not had a fully-litigated GRC, or its equivalent, since I think 1984. There have been settlements that have been litigated up to a certain point, and I'm certainly not hostile to settlements. I think that is a fine way to conclude proceedings, but the one caveat to that is I, at least, as an Assigned Commissioner, I'm going to insist that any settlement be fully rooted in the record, and fully supported by a record.
"I'm very hostile towards black-box settlements that it is impossible to figure out what the basis for reaching a certain result or conclusion is. I think particularly in light of the fact that this isn't just a renewal of something we did three years ago, but we don't really have a good understanding or analysis of the cost of that company's doing business, then it is going to be particularly important to have a good record.
"So I am going to urge that the Judge ensure that there be a strong record on all the points, all the important points in the case." (Commissioner Wood, Transcript of February 7, 2003, at pp. 5 - 11.)
The parties were advised again about attempting to settle the cases without clearly resolving all of the issues.
"... my concern would be that in order to recommend adoption of the settlement even if it is an all-party settlement, I would need to be able to find the settlement to be reasonable and in the public interest. And I would certainly advise that more detail is better than less, particularly in terms of resolving where in fact there is an agreement on the level of effort to be put into certain programs ... There are a lot of finite issues here as to whether the company should or should not undertake certain tasks or how much of an effort those tasks should entail. And a settlement that doesn't address in detail the expectations of the company's performance in the test year would be possibly problematic." (ALJ Long, Transcript of November 13, 2003, at pp. 2174 - 2175.)
"I probably expressed most of my fundamental concerns, which is (sic) having sufficient detail either to propose a decision based on the litigated position of the parties ...(or) to be able to address a proposed settlement in sufficient detail that it's reasonable to find it in the public interest and also that it would provide sufficient guidance to the utilities of the Commission's expectations for the test year, the level of service, the types of programs that are in fact acceptable to the Commission. So my concern about high level summarization is that it leads directly to a lot of black box outcome that makes it difficult in a subsequent proceeding to determine how well the applicants actually performed compared to expectation, as to the scope and scale of their new programs or maintenance of the system and being a reasonable system operator." (ALJ Long, Transcript of November 13, 2003, at pp. 2183 - 2184.)
"I see our obligation to adopt a revenue requirement for the company that is prescriptive not only to how much money we think they should collect in rates for the test year, but for what purpose. And so that, then, leads to accountability and measurement of corporate stewardship for the next time we have a rate proceeding, because otherwise, we could end up in a process where we never have a good basis for saying: what have they actually accomplished compared to expectations in order to ... set new expectations in subsequent proceedings?" (ALJ Long, Transcript of November 14, 2003, at p. 2203.)
Based on these concerns and following a careful review, we reject the Proposed Settlements because they do not resolve all of the issues, and more importantly the parties failed to provide sufficient detail in stipulating to specific expectations. The proposed Settlements would provide ratepayers no assurance that the money they would pay in rates is the right amount necessary to receive safe and reliable service and no comfort that the applicants would in turn be obligated to perform all reasonable tasks necessary to provide safe and reliable service and to make necessary capital expenditures. As discussed in detail elsewhere in this decision, the disputes concerning the size of the workforce, the compensation of the workforce and the form of compensation are not adequately resolved. Too many settlement provisions are unsubstantiated compromises where the only item settled is a dollar allowance without explaining how, and justifying why, the settlement differs in scope and scale of the work or task to be performed from the applicants' end-of-litigation positions. ORA proposed in its Opening Litigation Brief that the rates adopted here should remain in effect until the next general rate proceeding, which ORA suggests should be in 2008 or 2009.15 These two partial settlements are simply inadequate foundations for the next five or six years.
UCAN aggressively opposed the Partial Settlement for SDG&E in its filing.
"ORA and SDG&E have entered into a Settlement that awards SDG&E excessive increase that is not justified by the evidentiary record and cannot be afforded by a community hit hard by rate increases since the 2000-2001 Energy Crisis. Moreover, the failure of the Settlement to incorporate the many efficiencies that should have been brought by a merger, a reorganization and technology-driven productivity is a fatal flaw that undermines the very foundation of the Settlement.
"One of the primary obstacles presented by the Settlement Agreement is its lack of specificity. Judging from the Settlement and its accompanying exhibits, UCAN is unable to establish the basis for the proposed revenue requirement agreed to by the two primary parties." (UCAN Comments,16 p. 2.)
UCAN also objected that the partial settlement increases SDG&E's distribution revenues by 27.3% over its 2001-recorded costs that, according to UCAN, equates to an annual increase in electric operations costs of almost 7%. We are concerned that any increase (or decrease) needs to be thoroughly supported in the record of the proceeding and that we can set reasonable performance goals for SDG&E, and by logical extension, SoCalGas too.
UCAN identified five basic deficiencies with the SDG&E Partial Settlement:
1. Annual revenue requirement is not supported by the record;
2. Failed to incorporate productivity gains that were ordered by the Commission and/or could be reasonably imputed;
3. Failed to address controversy over corporate center costs allocated to the SDG&E by Sempra Energy;
4. Did not adequately address the specific adjustments proposed by UCAN and FEA and;
5. Imposing costs on ratepayers contrary to Commission policy.
We considered UCAN's five points, and the responses of the settling parties, and other relevant factors as we reviewed both the litigated positions of the parties and the limited justifications that are included in the partial settlements.
ORA and SoCalGas and SDG&E argue that the partial settlements "reflect hundreds of hours of negotiation"17 and the Commission should not "cherry-pick." The settling parties miss the point; the Commission decides issues of fact and policy, not the parties. ORA argued against UCAN's opposition by stating "The Commission can, and should, note that ORA is a signatory to this settlement, and thus from ORA's perspective ratepayers will be better off if this settlement is adopted."18 ORA proceeded to argue that it considered whether the
Commission would adopt various recommendations or not19 and so argued that settling was in the ratepayers' interest.
"Would ORA have liked it if the settlement negotiations had ended up at a lower revenue requirement as UCAN suggests they should have? Yes, of course. However, given the record compiled in this proceeding, and the limited willingness of SDG&E to reduce its revenue requirement, we find the revenue requirement reflected in the settlement to be reasonable, fair, and acceptable." (ORA's February 19, 2004 Response to non-settling parties, p. 22.) (Emphasis added.)
We will not adopt a revenue requirement based upon an assessment of litigation risk and the "willingness" of the utilities to compromise; we will only adopt an appropriate revenue requirement justified as reasonable in light of the entire record, with adequate revenues for the provision of safe and reliable service.
B. The Greenlining Institute and SoCalGas and SDG&E Settlement Agreement
SoCalGas and SDG&E included in the partial settlements an additional agreement with Greenlining addressing Workforce Diversity, Supplier Diversity, and Philanthropy.20 Greenlining and the applicants are the only parties to the agreements. The agreements between the utilities and Greenlining make four commitments on work force diversity, supplier diversity, philanthropy and annual meetings. Appendix G to this decision incorporates the Greenlining/Sempra Settlement Agreement.
1. Workforce Diversity
Under the terms of the proposed settlement, SoCalGas and SDG&E would provide to Greenlining workforce diversity data in the same format as provided to Fortune Magazine for its annual diversity survey, unless the Commission mandates a similar format for reporting to the Commission. SoCalGas and SDG&E would make "their very best good faith efforts to be in the top ten `Best Companies for Minorities'" as measured by Fortune Magazine and to be a leader among California Utilities.
2. Supplier Diversity
Greenlining wanted 25% of SoCalGas and SDG&E's suppliers to be minority businesses. SoCalGas and SDG&E made no specific commitment in the proposed settlements to Greenlining other than to "continue to discuss the viability of this objective" and to comply with the existing obligations of General Order (GO) 156.21
3. Philanthropy
Greenlining proposed in testimony22 that SoCalGas and SDG&E should be ordered by the Commission to make philanthropic contributions equal to either the compensation of the "top ten executives" or 2% of pre-tax earnings, and further, 80% of the contributions should be "allocated to the needy." Under the Settlement Agreement, the Utilities reaffirm their commitment to improve upon their outreach efforts to racial and ethnic minority groups, including low income and underserved communities and to improve upon philanthropic stewardship within each utilities' communities. Additionally, Sempra agrees to provide Greenlining with a detailed reporting of philanthropy with a description of each relevant organization and the total charitable contribution amounts.
4. Annual Meetings
SoCalGas and SDG&E committed in the proposed settlement with Greenlining that the chief executive officer of both companies "and/or" the president, and Sempra's senior vice president of human resources will attend an annual meeting with Greenlining to discuss workforce diversity, supplier diversity and philanthropy.
5. Discussion
We applaud the companies' commitment to improve workforce diversity, supplier diversity and philanthropy. In D.04-07-022, in Edison's GRC, with respect to philanthropy, we acknowledged that the Commission has no jurisdiction to order changes to a utilities giving practices. Unlike in the Edison GRC proceeding, here the Settlement Agreement does not ask the Commission to link executive compensation with philanthropy. As such, we find no reason why we cannot endorse the settlement as agreed upon by Sempra and Greenlining23. We take this opportunity to commend the companies for working to improve in areas this Commission does not have jurisdiction through partnerships and collaboration with groups and organizations. As such, we fully endorse the Sempra/Greenlining Agreement and include it in Appendix G to this decision.
13 Pursuant to Rule 51.1(c) of the Commission's Rules of Practice and Procedure, the first motion was filed by SoCalGas, ORA, TURN, Utility Workers Union of America (UWUA), Local 483 UWUA (Local 483), Southern California Generation Coalition (SCGC) and Greenlining Institute (Greenlining) (collectively the "SoCalGas settling parties") addressing Phase One of the above-captioned SoCalGas Cost of Service (COS) proceeding and the second motion was filed by SDG&E, ORA, Greenlining, Coral Energy Resources, LP (Coral), and the Coalition of California Utility Employees (CUE) (collectively, the "SDG&E settling parties") addressing Phase One of the above-captioned SDG&E COS proceeding. When referring generally to both settlements, the two groups are collectively the settling parties.
14 On January 30, 2004, FEA filed a Motion to file late-filed comments on the SDG&E partial settlement. Its comments were limited to indicating its decision to join the settlement.
15 ORA litigation brief, at p. 13.
16 Comments of UCAN in Opposition to the Partial Settlement of the SDG&E Cost of Service Application dated January 20, 2004.
17 Amongst several cites, see p. 2 of ORA's February 19, 2004 Reply.
18 ORA's February 19, 2004 Response to Non-Settling Parties, p. 11.
19 For example, "ORA reviewed Mr. Woychik's recommendations and concluded that the probability that the Commission would adopt UCAN's position on these issues was nearly zero..." (ORA's February 19, 2004 Response, p. 13.) UCAN's recommendation is discussed in the appropriate section of this decision.
20 Attachment C to both proposed Settlement Agreements.
21 GO 156: Rules Governing the Development of Programs to Increase Participation of Women, Minority and Disabled Veteran Business Enterprises in Procurement of Contracts from Utilities as Required by Pub. Util. Code §§ 8282 - 8286.
22 Exhibit 900, Updated Testimony of John C. Gamboa, pp. 11-12.
23 Appendix G of this decision incorporates the Sempra/Greenlining Settlement Agreement.
