III. Position of the Parties

A. Position of CCUE

CCUE seeks an immediate, interim order preventing PG&E and SCE from implementing employee layoffs in response to the current electricity crisis in California. CCUE asserts that such an order is needed to provide the Commission with sufficient time and opportunity to thoroughly evaluate the effects of employee layoffs before they occur. At the time the motion was filed, SCE's proposed layoffs were to be implemented beginning January 26, 2001.

CCUE contends that eliminating the jobs of utility employees will hurt consumers without improving the solvency of the utilities. CCUE asserts that employee costs have nothing to do with excessive wholesale power costs, and that the savings from the layoff of employees would only pay for a very small portion of ongoing electricity costs. In addition, if layoffs occur, CCUE states that the utilities would incur immediate obligations for severance payments, which will decrease the utilities' limited cash reserves.

CCUE points out that according to SCE's announcement to its employees on January 5, 2001, the proposed layoffs and reductions "will result in reduced service levels" and customers "ultimately may wait longer for service, wait longer to talk to a customer service representative, wait longer to have power restored in an outage, and experience reduced reliability."

According to SCE, the proposed major actions and reductions will affect the following units, among others: Customer Service Business Unit (CSBU), T&D, and the Generation Business Unit (GBU). The following are some of the expected effects on these three business units.

CSBU

· Read residential and small commercial meters bimonthly; continue monthly billing using estimated billing in alternate months.

· Reduce phone center service levels.

· Reduce service levels for processing new connections.

· Reduce/eliminate customer outreach/support programs

· Reduce billing and payment options.

· Reduce service to major customers.

T&D

· Reduce infrastructure replacement work. Halt substation equipment program and all reliability stabilization and improvement programs.

· Lengthen response time for new customer connections.

· Lengthen outage response time, except in life-threatening situations.

· Reduce pole replacement program by 50%.

· Discontinue SCE funding for added facilities/generator interconnections.

· Reduce overtime for emergency and outage call outs.

GBU

· Defer low-priority nuclear betterment projects.

· Defer coal maintenance projects.

· Defer hydro facility enhancements.

· Reduce service levels to internal/external customers.

CCUE contends that the Commission authorized appropriate funding levels for the utilities so that they could provide reliable and safe electric service to consumers. These funding levels are determined, in part, by the appropriate level of employment needed for each utility to provide reliable service. Diverting money for distribution system maintenance or customer service to pay for procurement of energy will reduce reliability.

CCUE contends that due to the high number of outages in January and March 1995 in PG&E's service territory, the Legislature mandated increases in PG&E's base revenue for 1997 and 1998, and required that the money be used to improve system safety and reliability. (Pub. Util. Code § 368(e).) CCUE contends that the utilities should not be permitted to reduce its workforce again, or system reliability will be threatened. CCUE warns that if a typical winter storm hits, the utilities will not have the ability to respond to public safety emergencies in a timely manner if their workforce is drastically cut.

CCUE contends that if the utilities reduce their meter reading force, and meters are read every other month with an estimated bill for one month, that customers will not conserve because they will not be able to see the effect of reduced consumption in a reduced bill.

CCUE warns that if these layoffs occur, SCE and PG&E will lose skilled workers since the employees who are laid off are likely to receive offers elsewhere. CCUE says its will take years of training and an abundance of resources to bring a workforce back up to the same level of skill and competence.

B. SCE's Proposed Plan

1. Overview

SCE states in its January 12, 2001 pleading that, in response to the utility's financial distress, its management has ordered significant reductions in its spending activities. SCE asserts that these reductions will have the least immediate impact on service to its customers. According to SCE, the utility's cost containment and cash conservation (cost cutting) program, which was initiated to respond to the liquidity crisis, requires the utility to take immediate and significant steps, including job reductions, which will result in the severance of some employees. SCE acknowledges that "While service will not be at the high level we have traditionally provided, it will be the best service we are able to provide with the limited resources we have available."

According to SCE, the cost cutting program is part of SCE's efforts to identify areas of spending which could be reduced quickly and significantly, but with the least impact on customer service and without jeopardizing employee and public safety. SCE asserts that the objective of public and employee safety was reiterated to SCE's employees in Attachments B and C of the January 12, 2001 response.

2. Layoffs

SCE states in its January 12 response that it intends to reduce its workforce in a way that is cost effective, and minimizes severance expenses and litigation. SCE intends to use attrition as appropriate, and will eliminate non-SCE positions to achieve reductions. As an example, although SCE has announced a total job reduction of 1,850 jobs,² only approximately 260 of these jobs are represented by two major unions, the IBEW, Local 47, and the UWUA, Local 246. Of the 260 positions, approximately 100 are full-time positions, and of the 100, approximately 98 are expected to be reduced through attrition. SCE states that the balance of the 260 positions are either part-time or temporary positions, some of which will be eliminated as part of the normal turnover of the positions. SCE also points out that the bulk of the positions identified for reduction will be eliminated between April and June 2001.

SCE witness Decker testified on February 5, 2001 that the bulk of the 2,000 planned layoffs involve contractors. SCE does not provide pension benefits to contractors because they are not SCE employees. Approximately 199 people out of the 2,000 persons to be laid off are eligible for a package, but they are nonrepresented employees. The average size of a nonrepresented nonmanagement employee's severance package would be about $56,000. (2 R.T. 111-112, 114; Ex. 302, "Labor Reductions" table.)

SCE witness Grant testified that SCE does not normally call on contract and part time employees in the event of an emergency outage. Instead, SCE uses SCE employees, emergency contracts with contractors, and mutual assistance agreements to obtain additional help. Of the 1,850 planned and implemented layoffs, SCE witness Grant testified that those do not include employees who respond to outage and service calls, nor do they include maintenance personnel. He acknowledged that the layoffs could affect response time if there was a system wide emergency. Grant also acknowledged that if SCE replaces T&D system components less frequently, and does not replace some components until they actually fail, that there may be more failures. (2 R.T. 101-103, 105.)

3. Capital Spending

The January 12, 2001 response states that $465 million in cuts have been made in the capital spending programs. SCE states that management reviewed the budget to determine what cuts could be made that would cause the least damage to serving its customers. Given the magnitude of its financial condition, SCE acknowledges that these cuts in capital spending will have an impact on service, both immediately and in the long term.

Of the $465 million in capital spending reductions, it appears that T&D activities will account for about $314 million. These T&D reductions will include the following actions:

· Significantly reduce infrastructure replacement and eliminate new annual circuit reviews. Components will only be replaced when they actually fail or are judged by SCE's inspection program to be likely to fail immediately.

· Perform repairs only during normal work hours and not use overtime except in very rare circumstances, such as during outage incidents that may involve employee or public safety issues.

· Reduce the priority of new service connection work and perform this work during normal work hours, rather than on overtime, which will cause delay for new customer hookups.

· SCE funded undergrounding projects will be suspended.

· Expanding new circuits and substation capacity will be substantially reduced.

According to Attachment C of SCE's January 12, 2001 response, it is expected that T&D employee reductions will be small, and some may be attained through attrition. It is anticipated that contract crews and workers will be virtually eliminated.

4. Customer Service: Call Centers

SCE acknowledges that its cost cutting program will result in a reduction in the service that they provide to their customers. The response time for non-emergency requests will be longer. Residential and small commercial meters will be read bi-monthly rather than monthly. Requests for new service connections will take longer, and the phone center will not be able to respond to customer calls as quickly. SCE claims that employee and public safety will not be compromised. SCE also claims that it will continue to operate the system safely and in accordance with Commission regulations and sound operating practices.

SCE operates two call centers that operate 24 hours a day, seven days a week. The call centers employ approximately 650 telephone representatives and support personnel. Approximately 550 customer representatives answer the phones, and another 100 offer support. (2 R.T. 91.) SCE currently has no plans to lay off any of its telephone representatives. SCE implemented a hiring freeze in November 2000, which resulted in SCE not being able to replace some of the employees who left the company through normal attrition. SCE witness Hutchison testified that the call center has lost about 30 employees due to attrition since the hiring freeze. SCE expects to partially offset the impacts of the hiring freeze by using technology enhancements to decrease the length of time required to process customer requests and increase the telephone representative's availability. Even with these enhancements, SCE believes that the hiring freeze will increase the average speed of answer (ASA) time for telephone representatives responding to customer calls from 40 seconds to 50 or 60 seconds during peak call volume months.³

Due to the energy situation, Hutchison testified that SCE is experiencing call volume in January 2001 of more than 25% than normal. Hutchison agrees that call volumes typically increase following a rate increase, and when a new rate structure goes into effect. Hutchison states that it will be a challenge to meet the PBR call center service level goals that are referred to on page 3 of Exhibit 302 at lines 6 and 7, but that SCE is committed to meeting those objectives. SCE did meet those goals in January 2001. (2 R.T. 88-89.)

5. Customer Service: Connections, Maintenance and Repair

SCE's Field Services Organization is responsible for turning electric service on and off when customers relocate within SCE's service area. SCE does not foresee reducing this workforce. As a result, SCE does not expect any impact on the time required to provide these customer connections and disconnections.

For the installation of new line and service connections, SCE's T&D organization is responsible. The first priority of T&D is to respond to emergency calls. The second responsibility is outage response and service restoration. The third priority is inspection and maintenance of SCE's facilities. The fourth priority is new line and service connections. These new line and service connections will only be performed during regular work hours, and the expenditures will be less than originally forecast in SCE's 2001 T&D budget.

SCE states that initially, all unplanned outage responses are treated as an emergency until SCE identifies the outage as a non-emergency.⁴ When an unplanned outage is determined to be a non-emergency, it receives a lower priority than an emergency response. Non-emergency unplanned and planned outage restoration is performed primarily during regular work hours. However, worker and public safety remains SCE's highest priority and SCE will not leave a work site in an unsafe condition. The additional time that it will take to restore service depends on the amount and timing of outages and service calls that SCE experiences in the future. SCE anticipates that some outages may be lengthened, but the overall frequency of outages will not be affected in the near term. SCE does not anticipate that the initial response to an emergency situation will be impacted.

SCE states that it has not taken any action that would defer maintenance that is required to be performed. However, SCE has previously instituted a comprehensive infrastructure replacement program and has requested funding to continue this program in its Notice of Intent for the 2002 General Rate Case that was filed with the Commission in July 2000. SCE describes this program as a systematic approach designed to solve the potential issues related to SCE's aging T&D infrastructure. The cost cutting program has significantly reduced and deferred the infrastructure replacement program and eliminated the annual circuit review program. SCE states that it will continue to operate the system in a safe manner, but it will replace components less frequently, and may not replace components before they actually fail. As a result, long-term reliability of the T&D system will degrade, or alternatively, costs to maintain the system will increase, or both. (2 R.T. 105.)

SCE states that it is complying with the inspection and maintenance requirement of General Order (GO) 165 (Pub. Util. Code § 364) for Commission jurisdictional facilities, and with the Independent System Operator (ISO) inspection and maintenance requirements as described in Section 330(i). SCE states it will continue to conduct all required inspections, condition rate the facilities, and repair components consistent with their condition rating.

6. Customer Service: Billing

One of the key elements of SCE's proposed cost cutting program would be to move from a monthly to bi-monthly meter reading for its small customers, primarily residential and small commercial customers. SCE states that prior to 1981, it routinely read most of its meters on a bi-monthly basis. Customers would continue to receive a monthly bill, with the "non-read" month's usage estimated from prior meter reads. SCE claims that this system will produce bills that closely track actual usage month to month for the majority of customers. SCE witness Hutchison estimates that about 3.3 million out of 4.5 million customers would be affected by SCE's reading of meters every other month. (2 R.T. 92.)

Hutchison acknowledges that if there are three levels of variable rates and estimated usage estimates a customer's usage above one of the cutoffs when the actual usage is below, the customer could be overcharged that month. (2 R.T. 90.) Nevertheless, SCE asserts that the change to a bi-monthly meter read will not negatively impact the calculation of the customer's monthly baseline charges. That is because SCE modified its estimation algorithm in 1999 to credit customers for their full baseline allowance. Hutchison testified that if a customer was under baseline at any point in the last 12 months, SCE would not bill them more than the baseline it SCE was basing it on estimated usage. (2 R.T. 89-90.) As a result, SCE anticipates that customers will continue to receive the full benefit of their baseline allocation.

7. Financial Results

SCE witness Fellows agrees that if SCE implements its cash conservation measures, including the layoff of management and reducing the rank and file by an additional 1,000 employees, the total savings would amount to less than one month's worth of power at current prices. However, SCE's cost containment measures is to try and conserve cash in every way that they can, so that the lights can be kept on as long as possible. (2 R.T. 79-83.)

SCE witness Simpson testified that SCE suspended payment on its long term debt and maturing commercial paper, and interest payments on that debt, which amounts to about $640 million. SCE has also suspended payment to its qualifying facility contracts, which amount to about $480 million at present. SCE has also suspended payments to the Power Exchange in the amount of about $300 million, but the accrued amount is significantly greater than that. By the end of March 2001, maturing commercial paper and pollution control bonds will add another $150 million. In addition, there will be ongoing QF payments, accrued amounts for the cost of power, and liability associated with the power that the Department of Water Resources acquired. (2 R.T. 137-139.)

Simpson testified that the cost savings from the layoffs will be used in various ways to make various payments. It could be used to pay SCE's debt obligations, to pay ongoing expenses, for procurement, or for a variety of other matters. (2 R.T. 145, 147-148.)

SCE contends that none of the cases or code provisions that CCUE cite apply to the present circumstances. SCE contends in its response that it can only respond to the current situation it finds itself in by conserving cash, which results in the need for the reducing expenses and for layoffs of employees. SCE also contends that CCUE's motion effectively results in the Commission micromanaging SCE's management efforts to address the present problems. SCE argues that this is a reversal of CCUE's past position, wherein the "unions have aggressively opposed any Commission intervention in labor/management matters."

C. PG&E's Proposed Plan

1. Overview

PG&E states that in Fall 2000, PG&E initiated a series of actions to begin preserving its remaining cash so that it could continue operating the utility so that it could deliver services to its customers. Assuming the crisis continues, PG&E's cash conservation measures will result in over $160 million of savings for the first six months of 2001. These savings will come from reducing department budgets by over $40 million, deferring an additional $118 million of expenditures, and freezing merit increases for management and administrative and technical employees. Some of the savings were also achieved through the release of approximately 180 to 193 contractors and hiring hall employees,⁵ as well as through the deferral of contributions to long-term disability and nuclear decommissioning trust funds and the suspension of charitable contributions. The savings were also achieved by limiting new hires and suspending non-critical travel and expenses.

As PG&E's financial situation worsened, PG&E announced on January 11, 2001, the suspension of its common stock dividend for the fourth quarter on 2000, and its preferred stock dividend. That will save an additional $116 million.

PG&E also announced on January 11, 2001 that it was taking additional steps to save another $180 million over the same six-month period. These savings will come from the deferral of capital expenditures, and the immediate release of 325 contractors and hiring hall employees. If the cash flow situation is not resolved, PG&E plans additional deferrals of capital expenditures, deferring determination of performance incentive payments, and additional potential layoffs of 675 contractors and hiring hall employees. ⁶ As a result of these measures, PG&E acknowledges that some customer services will degrade. However, PG&E states that it will continue to provide all critical services, operate the system safely, and continue to deliver energy to all its customers when it is available.

2. Layoffs

According to PG&E's response, the contract workers supplement PG&E's regular non-bargaining unit workforce. These contract workers are obtained from temporary worker agencies that are under contract with PG&E. Approximately 200 contract workers out of the 325 were released.

The "hiring hall employees supplement the company's regular bargaining unit workforce to help meet both sustained and project-related staffing needs." The hiring hall employees are not guaranteed a duration of employment, and can be released based on changing business needs. According to PG&E, there is no specified notice requirement in the collective bargaining agreement for releasing these hiring hall employees. Approximately 125 hiring hall employees will lose jobs.

Of the 325 positions, 100 of these work in the area of electric and gas transmission and distribution relating to new business, Rule 20A work, work required by others, and gas pipeline replacement and meter protection. Another 75 work in transmission and distribution pole replacement, and 25 in meter reading.

PG&E expects that the other 675 announced reductions will occur over the next three to six months if PG&E's cash flow situation has not been resolved. Of the 675, they will be a mix of T&D workers, as well as technical contractors. PG&E's witnesses do not anticipate that any of the 675 employees will come from the call centers or power generation maintenance. (1 R.T. 13, 47.)

PG&E states in its response that its workforce reductions:

"[W]ill lead PG&E to suspend some activity associated with Rule 20A construction, delay new business connections, delay non-critical work required by others, and delay non-critical gas pipeline replacement and gas meter protection activities. It will also lead to the deferral of some electric transmission work and distribution pole replacements which do not present immediate safety issues. It will delay the implementation of some information technology projects. Finally, it will result in PG&E reading some meters on a bi-monthly, rather than a monthly, schedule.

"PG&E's actions will reduce PG&E's ability to maintain current customer response levels at call centers. They may affect the response time for full restoration of power during outages.

"PG&E's actions will not affect safety, and are not expected to have any immediate effect on reliability. In the long run work deferred must be completed, or the deferral will begin to have an [e]ffect on reliability.

"PG&E's actions will have an effect on customer service quality. Call center response time is likely to increase, as is the time needed to respond to non-safety related service requests."

PG&E's witness acknowledges that if a layoff occurs, and PG&E rehires at a later date to refill the position, there is no guarantee that they will get the same person back. It is whoever is available at the hiring hall at that point in time. (1 R.T. 13.) However, PG&E's experience has been that they do not have problems refilling these jobs with experienced workers. (1 R.T. 33.)

3. Capital Spending

According to PG&E's second supplement, part of the $180 million in savings will result savings in gas transmission capital projects and general services projects. For gas transmission, several projects to replace gas transmission facilities will be deferred, including the replacement of compressor station control systems, and retirement/replacement of several sections of pipeline. PG&E states that these projects are of lower priority in the overall pipeline management program, and are not expected to affect service reliability. Other savings will come from the deferral of the purchase of replacement vehicles, equipment and furniture from general services. These deferrals may increase maintenance costs. Also, lower priority building and common facility projects, including consolidations and scheduled replacement work will also be deferred.

As part of its savings measures, PG&E had originally planned to make capital investments for minor gas pipeline system upgrades and replacement to enhance reliability. Instead, PG&E will perform maintenance and repair work on these facilities to assure safe system operation, and has rescheduled the replacement work for later in 2001 or 2002. For the electric system, PG&E will defer adding protective devices to limit the impact of outages to only the affected areas and underground cable replacement projects to later in 2001 or to 2002. Since the majority of this work was scheduled for the second half of 2001, PG&E expects the impact on system reliability to be minimal. These steps result in a savings of $2.7 million in the near term, and no additional costs are expected to result from rescheduling this work.

PG&E had planned to perform engineering, design and some construction work to complete certain substation equipment replacement and system automation projects in the first half of 2001. PG&E now plans to reschedule this work for the second half of 2001 and possibly 2002. PG&E will continue to perform maintenance and repairs on these facilities as well as perform preliminary engineering work to complete the planned work in 2001. The impact on system reliability is expected to be minimal with no impact on the safe operation of T&D facilities. Rescheduling the work will result in saving approximately $9.6 million in the first part of 2001. Completing the work on the revised schedule may increase costs by approximately $500,000 for continuing maintenance in lieu of replacement and escalation of labor and material costs.

As part of its savings measures, PG&E had planned to perform follow-up inspections in the first half of 2001 to verify locations preliminarily identified by meter reading personnel as candidates for gas meter protection work. PG&E now plans to reschedule these inspections for the second half of 2001. This will result in a savings of approximately $300,000 with no impact on the meter protection program or gas system safety.

PG&E will also defer certain projects relating to power generation from the first and second quarter of 2001 to the second through fourth quarter of the year, including the purchase of tools and equipment, non-critical facility studies, and repair, replacement and improvement work at various facilities. PG&E states that these short-term cash conservation deferrals will not affect the ability of PG&E's generation to produce a reliable supply of electricity this year. However, performing most of this work in the second half of this year or early into 2002 is essential to maintaining utility generation capability beyond 2001.

4. Customer Service: Call Centers

As part of PG&E's Fall 2000 cost cutting measures, it imposed a hiring freeze and limits on overtime at the call centers. The January 11, 2001 layoffs had virtually no impact on call center staffing, with only two hiring hall call center employees being let go. These two employees did not answer the telephones, but instead worked in the paper support portion of the call center operation. At the beginning of January 2001, PG&E lost about 28 customer service representatives through attrition. Fifteen of the 28 positions have been refilled. PG&E is continuing to fill those positions because PG&E wants to maintain the staffing level needed to answer the calls. (1 R.T. 56-57.)

PG&E witness Lytton does not consider the current calling volumes to be normal. (1 R.T. 57.) In January 2000, PG&E answered about 1.3 million calls. In January 2001, PG&E answered 2.3 million calls. This exceeds the number of calls that occurred during other major outages in recent years. (1 R.T. 59-60.)

PG&E typically has between 580 and 600 customer service representatives that answer the phones. Due to the high call volumes, call center representatives were being told to work overtime. PG&E has decided to slowly ramp down its use of overtime for the call center to a normal of about 15 to 25% overtime. (1 R.T. 55-56.)

PG&E states that the cost cutting measures have hampered its ability to respond to the significant growth in call volumes resulting from the present energy crisis. These call volumes have increased by 25% as compared to the same time period last year, and overall call volume (including those answered by the interactive voice response system) of 85%. As a result, PG&E is experiencing longer ASA wait time and a higher potential for "busies." PG&E states, however, that it appears to be meeting the Commission's requirements presently.

PG&E states that any deterioration in customer service and the inability to meet the ASA or busies standard will not affect safety. That is because PG&E has implemented procedures to ensure that emergency and safety related calls receive priority handling and are routed immediately to a customer service representative. This is being accomplished by adding options in the initial voice response menu when calling PG&E.

PG&E states that under D.95-09-073, PG&E is required to achieve a less than 20 second ASA time on a monthly basis during normal conditions. PG&E is also required to have no more than 1% busies during normal conditions and no more than 3% busies during outages. PG&E states that in D.96-11-014, the Commission determined that it is inappropriate to use these technical standards as a measure of acceptable performance when the circumstances affecting that performance are anything but normal.

PG&E also points out that emergency standards for busies are established under GO 166, as amended by D.00-05-002. These emergency standards apply only to emergencies defined as "measured events." A measured event are outages due to "non-earthquake weather related causes affecting between 10% (simultaneous) and 40% (cumulative) of a utility's electric customer base." A "Level 1" standard is less than 30% busies and is presumed reasonable. A "Level 2" is 50% busies and performance is presumed unreasonable if busies exceed this level. Performance between Levels 1 and 2 is not subject to a presumption.

PG&E requests that the Commission temporarily suspend the call center response standards in D.95-09-073 and GO 166 until the present wholesale power crisis is resolved and the cost cutting measures are no longer needed. PG&E states that this level of performance may not be sustainable given the customer calls regarding the energy crisis, increasing energy bills, and the potential for rotating outages. PG&E proposes that the Commission adopt for PG&E the service level standard that was approved for SDG&E in its PBR proceeding. That standard is 80% of calls answered in 60 seconds. PG&E states that it believes it can maintain that standard even if the layoffs announced on January 11, 2001 are implemented.

5. Customer Service: Connections, Maintenance And Repair

PG&E witness Yura testified that PG&E's Exhibit 301 contains six tiers of cost cutting measures. She testified that Tier 1, Tier 2, and some selective items in Tier 3A have been implemented. Additional layoffs beyond the 675 would be necessary if Tiers 3B, 4A and 4B were implemented by PG&E. The layoffs in these tiers are based on the categories of work that would be impacted. Some of those employees would include full time regular employees who are entitled to severance and other benefits. When Tier 3 and above actions are taken, those are actions which impact customers. Tier 4 is when PG&E is trying to keep basic business going, and Tier 4B is where you try to do all you can to maintain safety. (1 R.T. 25-28.)

PG&E states that some of the planned layoffs will result in system lead times for service to new customers increasing to about 30 weeks instead of the current system-wide average lead time of about 24 weeks. Actual lead times vary from a low of about 15 weeks to a high of about 39 weeks. The anticipated increase in time for connection of new customers will not affect safety or reliability. PG&E states that there will be no impact on new customers requesting existing gas or electricity service to be turned on, or on customers requesting that service be turned off.

PG&E states that its outage response has five major elements: receiving reports of outages via the call centers or local offices; responding to and investigating these reports; taking necessary actions to render the condition safe; restoring service; and fully restoring the facilities to normal operation. PG&E states that the announced layoffs, i.e., both the immediate reduction of 325 contract and hiring hall employees and the potential reduction of an additional 675 employees, will not change PG&E's handling of the first three outage response elements, including making the condition safe. The last two elements, restoring service and restoring facilities to normal operation, may be delayed beyond typical time frames if the restoration work involves extensive overtime. The use of extensive overtime will be determined on a case-by-case basis by local emergency response employees. The impact of delayed restoration would most likely be noticed during major storm restoration efforts or other responses involving extensive system repairs or restoration work. PG&E anticipates that the announced layoffs will not likely affect typical emergency response efforts to such things as routine electric outages, gas leaks, or weather related damage.

PG&E witness Dasso testified that PG&E does call upon hiring hall employees when there is an emergency electrical or gas outage. It depends on the type of outage, and the type of facilities that are affected. PG&E does not typically call on contractors for electrical or gas emergencies unless specialty work is needed. Temporary workers are called on for electrical emergencies, depending on where the incident occurs, and who is best able to respond. (1 R.T. 38-39.)

PG&E is not deferring its maintenance work except in the area of pole replacements. The announced employee, contractor and overtime reductions will affect the pole replacement program of the maintenance plan required in response to GO 165. However, none of its trained facilities inspectors have been laid off, or are targeted to be laid off. Cost savings resulting from deferred replacement will save about $13 million in 2001. PG&E states that the cost of deferring the replacement of poles that do not immediately pose a safety risk is that costs may escalate the longer this is deferred. The pole replacements that are being rescheduled are not expected to extend PG&E's five-year pole replacement plan.

PG&E states that the announced layoffs will not affect compliance with the maintenance and inspection rules. All of the required inspections and maintenance will continue to be conducted in accordance with PG&E's existing maintenance and inspection program.

6. Customer Service: Billing

PG&E states that the initial layoff of 325 positions will have a minimal effect on the frequency of meter readings. Of the 325 positions, only seven performed the meter reading function. PG&E has 750 meter reading positions. As a result of the loss of positions, PG&E states that a relatively small number of accounts will either be "estimated" in lieu of actually being read, or will be read a few days outside of the normal 27 to 33 days. Since the total baseline allowance is calculated based on the daily baseline allowance times the number of days in the billing period, the appropriate baseline allowance will be applied to both the estimated and the extended billing period bills.

PG&E witness Lau testified that since about 1% of the meter readers have been reduced, that will result in about 1% of the meters being read outside of the normal 27 to 33-day period. The number of meters will grow to 10% if the additional 675 layoffs are implemented. (1 R.T. 62-63.)

PG&E witness Lau agreed that gas rates do change from month to month. If someone gets an estimated bill, PG&E will estimate the usage for that customer, and then apply the actual rate in effect for that month to the estimated usage. In the following month, PG&E will bill the customer for the actual read, minus what was already estimated for the customer. If there was a change in the rate, Lau believes neither the customer or PG&E gets the benefit if usage is estimated, because PG&E is estimating usage based on what they believe actual usage would have been. (1 R.T. 63-66.)

PG&E points out that under Electric Rule 9 and Gas Rule 9, PG&E is required to read customer meters on a monthly schedule, except when the meter cannot be read due to "unusual conditions" or conditions "beyond the meter reading entity's control." In those case, PG&E states it is authorized to estimate a customer's usage for billing purposes. PG&E requests that the Commission either confirm that the present wholesale power and financial crisis constitutes "unusual conditions" which are "beyond the meter reading entity's control" or the Commission should suspend the requirements of Rule 9 that meters be read every month.

PG&E states that the layoffs do not affect the employee pension plans because none of the laid off employees are eligible to participate in the plan.

If PG&E's financial situation is remedied, all of the projects and items that have been suspended will be reactivated. However, the deferral of these activities will increase costs.

7. Financial Results

In PG&E's testimony in response to the ACR, PG&E states that its cost cutting measures have been undertaken to address short-term liquidity, i.e., to conserve vital cash reserves so that PG&E can meet its day-to-day obligations necessary to keep the lights on and the gas flowing. PG&E states that its borrowing capacity has been exhausted, and its available cash is rapidly being depleted. Given these circumstances, PG&E is trying to preserve enough working cash to continue operating the utility so that it can continue to deliver key services to customers. The cost cutting measures are a short-term measure to conserve scarce cash resources until PG&E's ability to borrow on reasonable terms is restored.

PG&E states that the layoffs and other cash conservation measures that have been undertaken are designed not to immediately affect safety and reliability. However, if the financial crisis continues or worsens, these and other measures could impact reliability over time.

PG&E states that its savings will not materially impact PG&E's overall financial circumstances, nor was it intended to do so. The debt burden and the ongoing electric power costs that PG&E is incurring are too large for any cash reductions to cover. PG&E states that its cash conservation measures will allow PG&E to free up additional cash to allow it to continue delivering critical services to its customers.

D. Other Parties' Positions

The response filed by Adams expressed concern over the reduction in the frequency of meter reading to once every two months while being billed on a monthly basis using an estimated read for one month. Adams contends that an estimated read "can easily push one's billed usage onto the Nonbaseline rate and increase the month's bill by a few dollars." Adams asserts that these actions will also result in more complaints to the utilities, which will have less staff to field the calls, and lead to an increase in calls to the Commission. Adams also expressed concern over the reduction in maintenance of poles and tree trimming and how those factors may affect storm-related outages.

TURN supports the relief that CCUE is seeking, but on other grounds. TURN contends that if the layoffs occur, SCE's customers would be left paying for distribution services that SCE admits it would not be providing. However, under existing ratemaking, SCE would continue to recover distribution-related operating revenues pursuant to the performance based ratemaking mechanism adopted in D.96-09-092. SCE's revenue requirement was established based on a level of service that SCE admits it would no longer be providing after the layoffs. If the excess distribution revenues are used to offset procurement costs, TURN contends that ratepayers will be at risk of paying distribution rates for a level of service that will not provided, and for paying procurement costs that do not reflect that SCE has diverted distribution revenues to cover some portion of those costs. That is, the Transition Revenue Account (TRA) will continue to record procurement costs in excess of the revenues collected from the utility's generation rate component, without reflecting the fact that SCE had diverted distribution revenues to pay for a part of the procurement costs.

TURN contends that the Commission should prohibit the layoffs on an interim basis so that the Commission can consider the associated impacts on utility customers in terms of the quality of service and the ratemaking impact. During this time, TURN states that the Commission can then determine if SCE should be directed to focus on other opportunities to finance its cash flow problems through distribution cost reductions that would not adversely impact service to the utility's distribution customers, or by other savings that would not reduce the quality of service provided to SCE's distribution customers.

If the Commission determines that CCUE's motion should not be granted, TURN contends that at a minimum, the Commission should adopt accounting practices similar to those adopted when the Commission issued the "Workforce Reduction Rate Mechanism" decision in 1993, D.93-03-025 (48 CPUC2d 413). In that decision, the Commission directed PG&E to establish a memorandum account to track the costs and savings associated with a major work force reduction in order to develop an appropriate regulatory response after further consideration. TURN recommends that the Commission adopt a similar mechanism to reduce the likelihood that SCE's customers will be inappropriately double-charged for procurement costs or overcharged for reduced distributions services.

TURN further recommends that if CCUE's motion is not granted, that the Commission should make clear that any reduction in SCE's service quality performance due to the layoffs will not be excused in future reviews of that service quality for purposes of calculating penalties under SCE's PBR mechanism or under any other authority the Commission has to impose such penalties.