Conclusion

For the reasons discussed above, Complainants do not qualify to receive electric service at an agricultural rate under the PG&E tariff, they are not entitled to a refund or an award of interest, and their complaint must be dismissed.

Appeal of Presiding Officer's Decision (POD)

Complainants filed a timely appeal to the POD on November 23, 2004. PG&E filed a timely response to the appeal on December 8, 2004.

Complainants' appeal consists mostly of reargument of issues that were previously raised in their opening and reply briefs and that have been considered in the POD.³¹ We therefore need not recite these issues here. However, we have made changes throughout this decision as appropriate in response to Complainants' appeal.

Complainants also argue that the assigned Administrative Law Judge (ALJ) erred by denying Complainants' motion to strike PG&E's rebuttal testimony or, in the alternative, to continue the hearing (motion to strike) so that Complainants could respond to PG&E's rebuttal testimony. Complainants state that although PG&E's opening testimony referred to the almond as the agricultural product, PG&E's rebuttal testimony took a new position by asserting that hulling and shelling results in three agricultural products: the almond meat, the hull, and the shell.

PG&E's opening testimony states:

In the instant case, the "agricultural product"...is not the almond meat, nor the meat in the shell, but is instead the original harvested item that leaves, the farm, i.e., the unhulled almond which includes the almond meat, shell, and hull ...

Therefore, it is PG&E's contention that the Complainants' hulling and shelling operations do not qualify for agricultural rate treatment under PG&E's tariffs, since they change the form of the agricultural product, the unhulled almond. (Emphasis added).³²

PG&E's opening testimony also states that "there is a substantial market for the hulls and shells themselves."³³ Thus, PG&E's position is already stated in its opening testimony and is not a new theory raised only on rebuttal.

PG&E's rebuttal testimony states that since there is a market for almond hulls, almond shells, and in-shell almonds, these constituent parts of the in- hull, in- shell almond are also agricultural products, the form of which is changed during hulling and shelling because they are "severed, crushed, and cut into."³⁴ This testimony further clarifies that:

For simplicity of analysis in this testimony, PG&E analyzes the issues associated with the in-hull, in-shell almond's constituent parts - the hull, the shell, and the in-shell almond - as "agricultural products." PG&E has already addressed the in-hull, in-shell almond as being an "agricultural product" in its opening testimony.³⁵

Since PG&E's opening testimony had already stated that the agricultural product which leaves the farm, e.g., the unhulled, unshelled almond, consists of three constituent parts, the almond meat, the hull, and the shell, and that a viable market exists for the hulls and shells, we find that Complainants had adequate notice of PG&E's position that hulls and shells are also agricultural products. Moreover, PG&E's rebuttal testimony responded to the Complainants' direct testimony that "an almond in a hull or shell is completely useless - it cannot be consumed or used for any purpose" and that "hulling and shelling does not change the appearance of the almond in any way. Its appearance, texture, taste and smell are unchanged by hulling and shelling.³⁶

Therefore, the assigned ALJ did not err in denying Complainants' motion to strike.

Complainants further argue that because of the ALJ's ruling, they did not have an opportunity to present expert witnesses at the hearing to rebut PG&E's testimony that the almond hulls and shells are agricultural products in their own right. However, Complainants' motion to strike did not ask to present additional expert witness testimony at the hearing, but only requested either an opportunity to present additional rebuttal testimony before the hearing or a continuance. At the hearing, the ALJ permitted Complainants to testify directly on the issue of whether the almond hulls and shells constitute agricultural products³⁷ and extended the hearing for an additional half day to permit the parties sufficient time for examination of witnesses. In addition, Complainants were permitted to admit voluminous documentary evidence, which was not previously included in Complainants' exhibit list, at the hearing. Under these circumstances, we find that Complainants were not prejudiced by the ALJ's denial of Complainants' motion to strike and received a fair hearing.

Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and Myra J. Prestidge is the assigned ALJ and the presiding officer in this proceeding.

Findings of Fact

1. Almonds grow commercially in orchards and are enclosed by a hard shell, which is enclosed in a fuzzy hull.

2. Almonds must generally be hulled within 90 days of removal from the tree and must be both hulled and shelled for human consumption.

3. There is no market for in-hull almonds. Although the primary market is for hulled and shelled almonds, a smaller market exists for in-shell almonds.

4. Almond hulls can be sold as cattle feed in California.

5. California annually produces approximately 800,000 tons of almond hulls, which have a market value of approximately $100 per ton, or $80 million.

6. Almond shells can be sold as cattle bedding in California.

7. Complainants produce approximately 190,000 tons of almond shells annually, which may be sold for at least 1 cent per pound, or approximately $3,800,000 per year.

8. Almond growers may join a hulling and shelling cooperative or may contract with a private operator to have the almonds hulled and shelled.

9. Hulling and shelling cooperatives usually require almond growers to pay a fee to join, but sometimes return all or part of the value of the hulls and shells to the grower.

10. Hullers and shellers may also receive the hulls and shells, which may then be sold, as payment for their work.

11. Hulling and shelling is a highly mechanized process, which generally includes the following steps:

a. Removal of the almonds, still in their hulls and shells, from almond trees with a "shaker."

b. Drying of the almonds on the orchard floor for at least 7 to 10 days.

c. Sweeping of almonds from the almond floor using large mobile bins, which either have rotating paddle-like appendages to sweep the almonds into the bins or vacuums which suck the almonds into the bin.

d. Transportation of the almonds to the huller/sheller.

e. Separation of the almonds from dirt, twigs, leaves, etc., by putting the material through the series of vibrating screens.

f. Placement of the almonds on conveyor belts.

g. Moving the almonds through a series of shear rolls and/or a hulling cylinder to gradually crack, break open, fracture, or splinter the hulls and shells.

h. Movement of the almonds to a series of vibrating screens, which separate the unhulled, unshelled almonds from loose hulls and shells or pieces of hulls and shells.

i. Use of aspirators to blow away lighter pieces of hulls and shells as the almonds move along the conveyor belt.

j. Separation of unhulled/unshelled almonds from hulled and shelled almonds by gravity tables.

k. Putting any unhulled or unshelled almonds back through the shear rolls or hulling cylinders until the hull and shell are completely removed.

12. Hullers and shellers must generally put the almonds
through 14 to 22 shear rolls before the hulls and shells are fully removed.

13. In the small percentage of cases in which the almonds are hulled but not shelled, the almonds generally go through only 7 or 8 shear rolls so that the shell remains intact.

14. The hulling and shelling process breaks, cuts into, cracks, fractures, and splinters the hulls and shells.

15. The PG&E tariff in relevant part states that a customer is entitled to an agricultural rate for electricity if at least 70% or more of the electricity used is for an "agricultural end-use."

16. The PG&E tariff defines "agricultural end uses" to include "growing crops, raising livestock, pumping water for irrigation, or other uses which involve production for sale, and which do not change the form of the product."

17. The parties do not dispute that Complainants use at least 70% of the electricity at their facilities for hulling and shelling operations.

18. Hulling and shelling changes the form of the almond because the almond is separated into three agricultural products, i.e., the almond meat, the hull, and the shell.

19. Hulling and shelling differs from the processing of raw milk found eligible for an agricultural rate in Producer's Dairy, because the processing of raw milk does not significantly change the appearance of the milk.

20. Hulling and shelling changes the form of the almond, as well as the hull and the shell because the hulling and shelling equipment cuts into, cracks, breaks open, splinters, and fractures the hulls and shells.

21. Hulling and shelling differs from certain other agricultural activities that qualify for an agricultural rate under PG&E's tariff, such as removing the stems from raisins, cutting the leafy tops off of carrots, and removing the outer leaves of cabbage and lettuce, because these processes involve separating the agricultural product from extraneous plant matter, and therefore more closely resemble removing the almond from the almond tree.

22. Since there is a viable market for almond hulls to be used as cattle feed, and for shells to be used as cattle bedding, almond hulls and shells are agricultural products in their own right, not merely agricultural residue.

23. Even if almond hulls and shells were not agricultural products in their own right, hulling and shelling changes the form of the almond because the appearance of the almond is dramatically altered by the removal of the almond meat from the hull and shell, and hulling and shelling involve cracking, cutting, splintering and breaking open the hull and shell.

24. Our finding that hulling and shelling changes the form of the almond does not force almond producers to forego profitable markets in order to qualify for agricultural rates because there are viable markets for in-shell almonds, almond hulls and almond shells, in addition to the well-established market for hulled and shelled almond meats.

25. The existence of markets for almond hulls and shells enables hullers and shellers to operate viable businesses and may reduce hulling and shelling costs for almond growers.

26. PG&E's opening testimony gave Complainants adequate notice of PG&E's position that almond hulls and shells are agricultural products, rather than merely agricultural residue.

27. At the evidentiary hearing, the assigned ALJ permitted Complainants to testify directly on whether almond hulls and shells are agricultural products and to introduce voluminous documentary evidence that was not previously included in Complainants' exhibit list.

Conclusions of Law

1. Utility tariffs are administrative regulations that are subject to the same rules that govern the interpretation of statutes.

2. Ambiguities in a tariff must generally be resolved in favor of the ratepayer, but the Commission retains discretion to determine whether an interpretation of a tariff sought by a party is reasonable.

3. Eligibility for an agricultural rate under PG&E's tariff does not depend on whether the activity for which the electricity is used occurs on or off the property at which the agricultural product was raised or grown.

4. In determining whether an agricultural activity, other than raising crops or livestock or pumping water for irrigation, qualifies for an agricultural rate under PG&E's tariff, the Commission must determine whether the activity changes the form of the agricultural product.

5. Under Producer's Dairy, whether the appearance of an agricultural product is changed is a relevant consideration in determining whether a particular activity changes the form of the agricultural product.

6. Under Air Way Gins, whether an agricultural product has undergone a change in form due to processing is based on a before-and-after comparison of the constituent parts of the agricultural product, rather than the before-and-after comparison of the raw product as it is harvested from the field.

7. Under Air-Way Gins, the separation of an agricultural product into two or more constituent agricultural products, without damaging, tearing or cutting into, any of the products does not constitute a change in form under PG&E's tariff.

8. Under Air-Way Gins, some kinds of processing of an agricultural product, such as animal slaughtering and peach pitting, change the form of the product.

9. Under Air-Way Gins, severing, crushing or cutting into an agricultural product generally falls within a common-sense definition of a change in form.

10. Under Producer's Dairy and Air-Way Gins, the Commission must consider the existence of actual markets for the agricultural products, rather than theoretical markets, in determining whether a particular activity qualifies for an agricultural rate.

11. The Legislature did not intend agricultural customers to be forced to forego profitable markets for their products in favor of less viable markets in order to qualify for an agricultural rate.

12. The role of an agricultural tariff is to provide discounted rates for customers engaged in truly agricultural activities.

13. Eligibility for an agricultural rate under PG&E's tariff must be based on the particular use of electricity involved and a reasonable, common-sense interpretation of the tariff based on its language, or if the language is ambiguous, the regulatory or legislative intent behind the tariff.

14. Under PG&E's tariff, a reasonable, common-sense definition of "change in form" would generally include, but would not be limited to, cutting into, breaking open, crushing, fracturing, splintering, or slicing the agricultural product.

15. Regarding the relevant agricultural products, Complainants' almond hulling and/or shelling operations effect a "change in form" within the meaning of the PG&E tariff. Consequently, Complainants' electricity consumption for these operations does not qualify for the agricultural rate under the PG&E tariff.

16. In Pub. Util. Code § 740.11, the Legislature urged the Commission to consider providing the option for agricultural commodity processors to be eligible for discounted agricultural rates, as consistent with other constitutional and statutory objectives, if to do so would not result in cost-shifting to other customer classes.

17. The assigned ALJ did not err in denying Complainants' motion to strike, and Complainants were not denied a fair hearing on the issue of whether almond hulls and shells should be considered agricultural products in their own right.

18. Complainants are not entitled to relief. Their complaint should be dismissed, and this proceeding should be closed, effective immediately.

ORDER

IT IS ORDERED that:

1. The complaint is denied.

2. Case 04-01-020 is closed.

This order is effective today.

Dated _____________________, at San Francisco, California.