10. Safety Incentives and Settlements

10.1. Summary

We expect SDG&E and SoCalGas to use the best practices available to ensure the safety of the workers and the general public. We therefore find that the expense levels adopted in this proceeding (as proposed in settlements by the applicants) are sufficient to provide safe service. The purpose of a safety incentive is to improve upon the already existing levels of worker safety. The targets are different for SDG&E and SoCalGas because of the historical difference in accident rates for the two service territories. In this instance we adopt for SDG&E the CCUE target recommendation modified for the entire rate case cycle, and the proposed settlement between Local 132 and SoCalGas, as discussed below. The safety targets measure the rate of injuries which are reportable to the Occupational Safety and Health Administration (OSHA), as a rate per hundred: thus, a rate of five would be five reportable injuries per hundred workers per year.

10.2. Proposed SDG&E and CCUE Settlement (Appendix 5)

The terms of the proposed incentives as litigated and as settled are shown below:

SDG&E Safety Incentive Proposals
OSHA Recordable Rate	Target	Penalty Live Band	Dead Band	Reward Live Band	Change Increment	Reward Penalty per Increment	Maximum Reward Penalty
Application	5.09		4.45/5.61		+/- 0.01	$12,500	$1.5 million
DRA	4.90		4.26/5.54		+/- 0.01	$2,500 Reward $12,500 Penalty	$0.560 million reward $2.8 million penalty

SDG&E SAFETY - Ex. CCUE-4 Settlement
	2008	2009	2010	2011*	2012*	2013*
OSHA Rate	5.11	4.92	4.74	4.55	4.55	4.55
Deadband	4.45-5.61	4.34-5.50	4.21-5.37	3.87-5.03	3.87-5.03	3.87-5.03
Reward Band	2.44-4.44	2.33-4.33	2.20-4.20	1.86-3.86	1.86-3.86	1.86-3.86
Penalty Band	5.62-7.62	5.51-7.51	5.38-7.38	5.04-7.04	5.04-7.04	5.04-7.04
Increment	0.01	0.01	0.01	0.01	0.01	0.01
Reward/Penalty Per Increment	$12,500	$12,500	$12,500	$12,500	$12,500	$12,500
Maximum Reward penalty	$2.5 million	$2.5million	$2.5 million	$2.5 million	$2.5 million	$2.5 million

* Assuming a six-year rate cycle.

The lower limit of SDG&E's proposed dead band in its application is its best performance in the period 2003 to 2005, while the upper limit of its proposed dead band is its worst performance in that period.³⁰ DRA argues that it used the Commission's prior calculation methodology (unlike SDG&E) where the lower limit of the dead band was the average of the best two performance years over the past five years and the upper limit of the dead band was the average of the past five years.³¹ Further, DRA proposes a live band, and a reward/penalty calculated in .01 increments at a rate of $2,500 and $12,500, respectively, with a maximum allowable reward of $560,000 and penalty of $2.18 million. (DRA Opening Brief, § 28.3.1.) Thus, DRA would penalize failures to meet the target more severely than it would reward exceeding the target. We have consistently rejected DRA's unbalanced incentive/penalty proposals and we do so here.

By the end of evidentiary hearings, CCUE states that "SDG&E's proposed employee safety incentive measure had evolved to be nearly identical to CCUE's proposal." Subsequently, SDG&E and CUE reached a settlement³² (Ex. CCUE-4). We will adopt the CCUE agreement with SDG&E. We note that it begins with a slightly higher target in 2008 (compared to DRA) but quickly moves to ever-lower targets. The annual adjustment to the rate is approximately 0.19 reportable events per 100 employees per year for 2009 - 2011, and is then constant for 2012 and 2013. We propose a Test Year 2012 in this decision, but we can adopt the targets through 2013, subject to modification by a later proceeding.

10.3. Proposed SoCalGas and Local 132 Settlement (Appendix 6)

The following table summarizes the proposals by SoCalGas and DRA, as well as the proposed settlement between SoCalGas and Local 132:

SoCalGas Safety Incentive
OSHA Recordable Rate	Target	Penalty Live Band	Dead Band	Reward Live Band	Change Increment	Reward Penalty per Increment	Maximum Reward Penalty
Applicant	6.26		6.02/5.53		+/- 0.01	$25,000	$5.0 million
DRA	5.98		5.71/6.25		+/- 0.01	$2,500 Reward $12,500 Penalty	$5.0 million penalty $1 million reward
Local 132 Settlement	6.10	6.28/7.48	5.93/6.27	4.72/5.92	+/- 0.01	$25,000	$3.0 million

Local 132 did not submit prepared testimony for a safety incentive with SoCalGas and so we must consider the proposed settlement in contrast to the company's proposal, DRA's proposal, and the CCUE proposal for SDG&E. This consolidated proceeding is unusual in that five separate labor organizations were parties.³³ Unlike the rejected settlement with Local 483, there was testimony by both applicant and an active intervenor, DRA, directly addressing the issue. We will therefore consider the proposed settlement with the DRA position as a reference point. As a matter of policy, we are concerned that there is a settlement without testimony by the settling party - thus we have no litigation position from this party to serve as a benchmark for comparative analysis. However, we do have the testimony of DRA and we can consider that proposal in contrast to the proposed settlement with Local 132. We adopt base rates expecting the company to operate safely and in compliance with all laws and regulations and adopt the Local 132 settlement with SoCalGas because we believe a balanced incentive/reward mechanism is reasonable.

The target measures the number of reportable events per 100 workers. As the number declines, the rate improves, i.e., there are fewer injuries. Surrounding the adopted Local 132's target is a dead band (+/- 0.17 from target) where there is no penalty or reward. The next increment of 1.2 above or below the dead band earns an annual penalty or reward. The Local 132/SoCalGas settlement will annually penalize or reward SoCalGas $25,000 for each 0.01 change in the OSHA reportable rate up to a maximum of $3,000,000. ((1.2/0.01) x $25,000.)

We find that the Local 132 settlement reduces the ratepayer exposure by $2 million for the maximum incentive, as compared SoCalGas' proposal, and sets the target almost mid-way between DRA and SoCalGas, (mid-way would be 6.12) and does not adopt DRA's unbalanced reward/penalty rate per 0.01 increment of change.

We will defer to the union, for the appropriate target to be set, because it represents a significant number of workers whose injuries are the embodiment of a "rate" of injury. We note there is no annual adjustment factor to stretch SoCalGas to improve annually. For SDG&E, the stretch factor to the rate is an approximate 0.19 improvement annually through 2011. With a maximum reward or penalty of $3 million, we believe we should have an annual improvement to the target. We will adopt an annual improvement factor of 0.15, which is the difference between the original request by SoCalGas for a 2008 rate of 6.26, and the settlement rate for 2008 of 6.10. We note that SDG&E will begin 2008 with a lower target (5.11) than SoCalGas (6.10) but nevertheless provides for an annual improvement of 0.19 reportable events. Thus, we will continue to make the same compromise as the annual adjustment. Without an adjustment SoCalGas would have a static target which would not require continued improvement.

³⁰ Ex. DRA-24, p. 24-9.

³¹ D.05-03-023, p. 42.

³² Joint Motion filed by CCUE and SDG&E on October 10, 2007.

³³ Local 132, Local 483, International Chemical Workers Union, ICWUC Local 350, and CCUE.