12. Safety Incentives

SoCalGas and SDG&E both have a safety incentive mechanism in-place, and no party objects to some form of incentive continuing into the test year and post-test years. All parties agree on the use of reportable or recordable events as defined by the California Occupational Safety & Health Agency (OSHA). Applicants propose the following employee safety penalty/reward performance indicators:

SDG&E EMPLOYEE SAFETY (OSHA Recordable Rate)

SOCALGAS EMPLOYEE SAFETY (OSHA Recordable Rate)

Penalty Liveband	Deadband	Reward Liveband	Change Increment	Reward/Penalty Per Change Increment	Maximum Reward/ Penalty
6.53 - 7.72	5.85 - 6.52	5.84 - 4.64	0.01	$50,000	$6,000,000

Both utilities propose that the lower limit of the deadband should be the average of the two best performance years over the past five years, and the upper limit of the deadband should be the average performance over the past five years. Thus, to receive a reward, SoCalGas or SDG&E must exceed the average performance of its two best years ever, and to receive a penalty, SoCalGas' or SDG&E's performance would have to decline below the five-year average from 1999 through 2003.

ORA proposes to sub-divide the mechanism into four broad categories of jobs that it argues face different degrees and types of risks. In addition, ORA would eliminate any reward possibility, creating a penalty-only environment. ORA argues that SoCalGas and SDG&E did not prove the incentive was reasonable from a ratepayer perspective because current rates are supposed to be sufficient to ensure a safe working environment.

ORA Proposal for SDG&E
Employee Safety Penalty Criteria

WORK CATEGORY	DEADBAND	LIVEBAND	INCREMENT	PENALTY PER INCREMENT
Meter Reading	18.90 - 22.64	22.66 - 24.66	.02	$2,500
Customer Field Service	9.40 - 11.20	11.22 - 13.22	.02	$2,500
Distribution Transmission & Storage	7.70 - 11.20	11.22 - 13.22	.02	$5,000
Office	1.95 - 2.79	2.80 - 3.80	.01	$5,000

ORA Proposal for SoCalGas
Employee Safety Penalty Criteria

WORK CATEGORY	DEADBAND	LIVEBAND	INCREMENT	PENALTY PER INCREMENT
Meter Reading	9.60-12.04	12.06-14.06	.02	$5,000
Customer Field Service	7.42-8.24	8.28-10.28	.02	$5,000
Distribution Transmission/ Storage	5.70-8.24	8.26-10.28	.02	$10,000
Office	3.96-4.71	4.72-5.72	.01	$10,000

An interesting feature of ORA's penalty structure is there are disparate impacts depending on which category of worker is injured: CCUE testified that using ORA's proposal, a single recordable accident or injury would cost the company over $68,000 if it happens to a meter reader, but less than $23,000 if it happens to a lawyer.⁹² In its Opening Litigation Brief, ORA proposes to raise the penalty recommendation as a solution to CCUE's objection. TURN recommends that the safety indicators should be subject to either monitoring or penalty only, and points out that SoCalGas has earned a reward annually but did not consistently improve safety. TURN also suggests that we need only monitor injuries by worker category.⁹³

While we agree with CCUE, that a sprained ankle hurts just as much whether it happens to a meter reader or an attorney, no party has addressed whether the same injury affects service reliability or the safety of other workers differently depending on the circumstances of the injury or the nature of the job. That is, is the incentive mechanism solely intended to reduce all injuries, or does it also serve to directly or indirectly affect reliability and the safety of others? We can speculate that a worker's injury in a distribution or transmission environment could directly delay service restoration or lead to a second injury. SoCalGas, SDG&E, and CCUE use a moral argument that there should be no differentiation.

CCUE Proposal for SDG&E
Employee Safety

Benchmark 5.21

Deadband 0.0

Reward liveband 2.0

Penalty liveband 2.0

Incentive rate $8000/.01

Max. reward $1.6 million

Max. penalty $1.6 million

CCUE's constituency is the most likely to be injured on the job and so the CCUE estimate for reward/penalty per measured increment speaks most clearly for the workers' interests. SoCalGas and SDG&E as corporate entities have financial, operational efficiency and corporate image incentives to reduce injuries and improve safety. ORA and TURN share the ratepayers' financial interest in safety issues, as well as the operational and humane concerns.

CCUE points out that SDG&E had an unenviable safety record between 1988 and 1993, the OSHA rate rose from 5.07 to almost 11 in 1991 and was above 9 in 1993 before the first incentive was adopted in 1994. Over the next four years (1994-98), SDG&E's OSHA rate fell slightly from its 1993 level, to 8.65 in 1998.⁹⁴ CCUE argues that only after the incentives were matched to OSHA recordable events did SDG&E's rates fall significantly and improve every year after 1998.⁹⁵ In contrast, of the four major California energy utilities, only PG&E, which has no employee safety incentive mechanism, failed to make a statistically significant improvement.⁹⁶ According to CCUE, the SDG&E and ORA mechanisms suffer from their use of deadbands - intervals over which there would be no incentive mechanism in effect. The result is that each would allow considerable backsliding to occur. CCUE argues for no deadband and a lower benchmark (better performance).⁹⁷

CCUE argues that the SDG&E benchmark should be an OSHA recordable rate of 5.21. This is the 2003 performance by SDG&E⁹⁸ compared to SDG&E's proposal of a benchmark of 5.81 which is the midpoint of its proposed deadband of 5.30 to 6.32.⁹⁹ CCUE acknowledges that this rate exceeded the projected trend for 2003 of 4.87. CCUE also argues against any deadband, but as we discussed with the performance incentives, some results are unavoidable and not attributable to the action or inaction of SDG&E. We believe, as discussed with other mechanisms, a small deadband eliminates unfair rewards or penalties due to random chance, especially in a short one-year measurement cycle. SDG&E proposed a deadband range of 1.02 and ORA's were varied but generally larger for a penalty-only mechanism. CCUE did not address SoCalGas but we can infer a CCUE-like target of 2003 actual, with no deadband.

We generally reject setting rates on one point of data measures because they can so often mislead compared to the trend, or even random events that significantly affect the single data point outcome. We will not adopt the CCUE benchmark with no deadband proposal because it demands perfection. We will also not adopt ORA's penalty-only mechanism because it offers no positive inducement to improve safety. A balance of reward and penalty around a reasonable target is a reasonable tool to enhance service and provide a safer environment.

a. Adopted Safety Incentives

We will halve the deadbands¹⁰⁰ proposed by both companies, there is no evidence that supports the width of the applicant's proposals as necessary and this approach mitigates CCUE's valid concern about backsliding. While every accident is not a failure of the incentive mechanism, chance still plays a role in the outcome. The financial incentives proposed by SoCalGas and SDG&E are too high, especially given recent consistent annual rewards to both companies. We will not adopt CCUE's reward/penalty of $8,000 per 0.1 change in the rates for both companies because it has offered no basis to suggest it would be effective. We will halve applicants' rates to $12,500 and $25,000 per 0.1 change in the rates, because the companies have not convinced us that the incentives need to be at that level. The adopted rates are a reasonable compromise between the applicants' proposals and CCUE's proposal. We expect SoCalGas and SDG&E to focus on safety because it is the right thing to do; the rewards and penalties should be a secondary factor but still an incentive, and as ORA has correctly said, we adopt test year rates that are designed from the start to be sufficient for safe and reliable service.

Adopted for SDG&E
Employee Safety

Benchmark 5.81

Deadband 5.55 - 6.07

Reward liveband 1.75

Penalty liveband 1.75

Incentive rate $12,500/.01

Max. reward $2.18 million

Max. penalty $2.18 million

Adopted for SoCalGas
Employee Safety

Benchmark 6.19

Deadband 6.02 - 6.36

Reward liveband 2.0

Penalty liveband 2.0

Incentive rate $25,000/.01

Max. reward $5.0 million

Max. penalty $5.0 million

We will also direct SoCalGas and SDG&E to track the reportable incidents in the four categories proposed by ORA; meter reading, customer field service, distribution, transmission and storage, and office. ORA proposes that this data should be submitted to the Commission annually.¹⁰¹ We modify this proposal to require the utilities to submit a report in the next rate proceeding. SoCalGas and SDG&E should follow the uniform system of accounts and any personnel not in the first three categories should be in the office category. We welcome parties to propose any sub-division of the mechanism by work category that is fact-based and directly considers the likely costs and means of reducing injuries based on sub-categorizing the employees of SoCalGas and SDG&E.

⁹² Ex. 1100 p. 44; 32 RT 2997-3000, Marcus/CCUE.

⁹³ TURN Opening Litigation Brief, p. 60.

⁹⁴ CCUE Opening Litigation Brief, pp. 4-5, and Ex. 1100, p. 40.

⁹⁵ Ex. 160, p. LL-4, Table LL-2.

⁹⁶ Ex. 166, pp. LL-13 - LL-14, and Table LL.2; Tr. 32:3002, 3015-16, CUE/Marcus.

⁹⁷ CCUE Opening Litigation Brief, p. 23.

⁹⁸ Ex. 1100, p. 42.

⁹⁹ Ex. 160, pp. LL-34.

¹⁰⁰ SoCalGas proposed a deadband range 0.34 above and below the target 6.19; one-half is 0.17. SDG&E proposed 0.52 above and below the target 5.81; one-half is 0.26.

¹⁰¹ ORA Opening Litigation Brief, p. 77.