19. Memorandum Accounts
19.1. Summary
This proceeding has been delayed, and part of the delay is the result of the discovery of two reports entitled "Utility of the Future Program" and "Managing Costs Initiative," collectively referred to as "Utility of the Future." We do not find that the delay in our decision is primarily due to the actions of the Applicants. In D.07-12-053, the Commission adopted memorandum accounts but deferred to here the determination of the effective date for the change in revenue requirements to affect rates. We find the effective date of the revenue requirement changes to be January 1, 2008.
19.2. Background
The assigned Commissioner's Scoping Memo, dated February 27, 2007, set forth a schedule which could likely have resulted in a final decision before January 1, 2008, based on a scheduled submittal on September 21, 2007. (Scoping Memo, p. 9.) On April 16, 2007, SDG&E and SoCalGas filed a motion to establish memorandum accounts in the event a final decision was delayed beyond the nominal starting date of January 1, 2008 for changed test year revenue requirements.
On May 15, 2007, pursuant to Rule 11.1 of the Commission's Rules of Practice and Procedure (Rules), UCAN, TURN, Aglet, and California Farm Bureau Federation (collectively, Moving Parties) requested a ruling directing SDG&E and SoCalGas to serve supplemental testimony. They also requested schedule modifications as necessary to enable intervenors to fully account for that supplemental testimony, and subsequent related discovery, in their own testimony, then scheduled for service on June 1, 2007.
According to Moving Parties, on May 7, 2007, in response to discovery dated February 28, 2007, SDG&E and SoCalGas produced copies of two reports titled "Utility of the Future Program" and "Managing Costs Initiative" and approximately 2,500 pages of documents (collectively, Utility of the Future). On May 22, 2007, in consultation with the assigned Commissioner, the assigned ALJ issued a ruling modifying the schedule and requiring SDG&E and SoCalGas to serve substantial additional testimony. The ALJ's ruling found that Utility of the Future was an existing program or programs that may have both costs and benefits within the proposed test year and post-test year ratemaking cycle, i.e., within the scope of the consolidated applications and investigation.
If approved and implemented, the most current projections indicate the OpEx 20/2054 net benefits on an annual basis begin in 2011, but true breakeven for the 15-year project is estimated to occur in 2015. There would be costs involved in implementing the project and the hope is there would be savings as well. (Applicants' Reply, p. 4.)
It is also likely, based on Moving Parties' motion, that the Commission might have otherwise adopted test year and post-test year rates and mechanisms without knowing of this program. (Ruling, p. 4.) The ruling required detailed specific testimony and allowed time for parties to complete discovery. Rejecting the applicants' bifurcation scheduling proposal, the ALJ found:
Applicants acknowledge that some impact is inevitable to allow intervenors time to review the new materials and testimony. Two factors contribute to the delay - the time taken to provide a response to UCAN, and the failure to explicitly address the program in the rate case. Therefore the burden of the delay should fall primarily on SDG&E and SoCalGas. (Ruling, p. 6.)
By compressing the schedule and eliminating one mandatory settlement conference, the modified schedule still allowed for submission on September 21, 2007 and a likely decision before January 1, 2008.
Following service of the testimony on Utility of the Future issues, parties again sought either a delay or bifurcation and other changes to the post-test year ratemaking schedule. By Ruling dated June 21, 2007, the assigned ALJ determined that the new testimony was not easily dissected in order to identify and separate the likely operational impacts (Ruling p. 6). That ruling, again issued after consulting with the assigned Commissioner, adopted a further schedule delay and required specific testimony by all parties on Utility of the Future issues so as "to provide parties with further schedule relief in order to develop an adequate record." (Ruling, p. 7.) Submission was scheduled for October 19, 2007. Following the end of evidentiary hearings, the ALJ granted parties further schedule relief, twice extending the schedule for briefs with submission ultimately occurring on November 5, 2007.
19.3. D.07-12-053
The Commission determined in D.07-12-053 that there is no statutory obligation to grant SDG&E and SoCalGas, or their customers, any relief for the revenue requirement shortfall or over-collection which may result from an effective date after the nominal January 1 date used as a part of the ratemaking exercise of forecasting test year rates.55 The issue of an effective date for the revenue requirement change arose because of the delays encountered in the consolidated proceedings.
19.4. Discussion
This decision is not timely for a test year beginning January 1, 2008. Therefore, parties were directed to address when the memorandum account should be effective and they were allowed to file specific factual and legal argument on this question.
D.07-12-053 adopted memorandum accounts to record the difference between the rates currently in effect for natural gas and electrical service and the final rates adopted in these consolidated proceedings based on these conclusions of law:
1. SDG&E and SoCalGas have no automatic right to rate relief under the schedule of the rate case plan.
2. The Commission has discretionary authority to establish memorandum accounts to refund or collect the revenue requirement difference between existing rates and the rates to be adopted in these consolidated proceedings. (Mimeo., 10.)
D.07-12-053 also concluded that the effective date of the revenue requirement change recovered by memorandum accounts was a discretionary act relying on this conclusion of law:
4. The Commission has the discretionary authority to determine the reasonable effective date of the revenue requirement change. (Id. at 10.)
SDG&E and SoCalGas argued that the effective date should be January 1, 2008 and that any other date was an unfair punishment because intervenors and ratepayers were not harmed by the omission of the Utility of the Future from the applications or by the delay in providing the information during protracted discovery. Intervenors argue there was harm, and regardless, SDG&E and SoCalGas should not benefit from the delay. D.07-12-053 made the following Findings of Fact:
6. SDG&E and SoCalGas did not disclose the existence of the Utility of the Future in A.06-12-009 and A.06-12-010 as filed.
7. Utility of the Future was not disclosed until provided in response to discovery requests on May 7, 2007, five months after the filing of these applications. (Id. at 9.)
There is no factual dispute that SDG&E and SoCalGas did not disclose the Utility of the Future reports in their initial filings and data production as part of their case in chief. Applicants argue the program was not sufficiently developed to warrant its inclusion in the initial filings and data production. The Utility of the Future reports were produced in response to the eleventh set of data requests on SDG&E and SoCalGas from UCAN. The data response from SDG&E and SoCalGas was extensive, consisting of 132 documents and totaling over 2,500 pages. According to Applicants' opening comments, many pages of the response to UCAN's 11th data request pertained to the Utility of the Future program, which was then in the conceptual stages of development at the utilities. According to testimony, some senior officers at the utilities were involved in the development of this program, while others were not involved. 56
It is clear that the Utility of the Future program became a substantial and important matter in the proceeding. Despite the protestations of SDG&E and SoCalGas, if the reports had been produced at the beginning of production, it is likely they would not have become the center of focus and possible delay in the outcome of the case. As TURN points out:
Even if everything the utilities have subsequently alleged concerning the [Utility of the Future] program is true - that the program was sufficiently uncertain and incomplete to include its costs and benefits in the rate case - there is absolutely no doubt that a major cost cutting initiative was well underway in 2006 and would significantly impact cost and rates during the six-year rate case period proposed by the utilities. (TURN Comments, p. 2, dated December 10, 2007.)
There were other reasons for delay in this proceeding, including schedule relief from the initial calendar, which proved too ambitious. We do not find that SDG&E's and SoCalGas' delay in providing discovery on the Utility of the Future program is specifically responsible for any determinable amount of the delay in these consolidated proceedings.
19.5. Conclusion
We recognize that we must take into account an important omission when considering rate relief in the form of a memorandum account intended to offset the effect of procedural delay. We conclude that that there were many causes of delay in these consolidated proceedings. Even with these delays, these consolidated proceedings have been processed in less time than most other recent energy general rate cases. Therefore, we will adopt the effective date of January 1, 2008, as the effective date for the memorandum account.
While we do not conclude that SDG&E's and SoCalGas' delay in disclosing the Utility of the Future program was the cause of delay in these consolidated proceedings, we are mindful that that in a general rate case, utilities must address and justify their cases in direct testimony.57 Specifically, as noted in a recent Commission decision, ". . . when there is a proposed rate change, new policy proposals or ideas, business changes that could or should influence the treatment of historic data, dramatic regulatory or environmental events and/or significant additions to the employee base or the capital budget, the burden is particularly obvious."58 We remind SDG&E and SoCalGas that they have the burden of addressing and justifying significant issues in their cases in direct testimony. Failure to do so in the future may result in a fine or other remedy the Commission deems appropriate.
54 As the projects evolved, SDG&E and SoCalGas use the term OpEX 20/20 for the current versions of the programs identified by the ALJ's rulings as Utility of the Future. Both terms are interchangeable as a collective term for various programs.
55 D.07-12-053, mimeo., p. 8.
56 Several witnesses testified they had no knowledge of the Utility of Future when they prepared their testimony and we believe this to be true. Other witnesses, however, and numerous officers of the company responsible for these applications, did know of the program and chose not to disclose the program in the rate case applications.
57 See D.07-11-037, pp.115-118; D.99-04-060, 86 CPUC2d 54, 62, quoting Suburban Water Co., 60 CPUC 183, 200 (1962) (emphasis added); Southern California Edison Company and San Diego Gas and Electric Company, FERC Docket No. EC89-5-000, 50 FERC ¶ 63,012, p. 65,065.
58 D.07-11-037, Opinion Granting Rate Increases for the Region II Service Area and General Office Operations of Golden State Water Company, p. 122.
