Assignment of Proceeding
Michael R. Peevey is the Assigned Commissioner and Julie M. Halligan is the assigned Administrative Law Judge in this proceeding.
1. On July 31, 2003, after conclusion of evidentiary hearings, Pacific Gas and Electric Company (PG&E), ORA, TURN, Aglet, CCSF filed a joint motion for a Settlement Agreement resolving disputed issues related to PG&E's TY 2003 generation revenue requirement request.
2. On September 15, 2003, PG&E, ORA, TURN, Aglet, MID, NRDC, and AECA filed a joint motion for a Settlement Agreement resolving all but one of the disputed issues related to PG&E's forecast TY 2003 electric and gas distribution and generation revenue requirements.
3. The Commission reviews the Distribution Settlement and the Generation Settlement pursuant to Rule 51.1(e) of the Commission's Rules of Practice and Procedure, which provides that the Commission must find a settlement reasonable in light of the whole record, consistent with the law, and in the public interest.
4. The Settling Parties represent all parties who contested or otherwise expressed an interest in the issues subject to the Settlements.
5. The Settlements represent a compromise of the strongly-held views of the sponsoring parties.
6. The Settling Parties fairly reflect the affected interests in this proceeding.
7. An attrition rate adjustment adjusts some elements of the utility's cost of service during the course of the rate case cycle to account for inflation.
8. The ARA mechanism was designed to provide utilities with the reasonable opportunity of achieving their authorized rates of return during years in which they are not permitted under the Commission's rate case plan procedures to file for general rate relief but in which they still face volatile economic conditions.
9. The record supports the Settling Parties agreement to grant attrition adjustments for the years 2004, 2005, and 2006 tied to the level of inflation, as measured by CPI-All-Urban Consumers, to provide PG&E the opportunity to earn its authorized rate of return in the attrition years.
10. The record supports an additional 1% adder to the CPI-based attrition adjustment for the third attrition year, 2006, to reflect the difficulty of forecasting expenses for a third attrition year.
11. The record does not support a finding that a minimum attrition adjustment is necessary for years 2004, 2005, and 2006, regardless of the level of inflation.
12. A minimum attrition adjustment is inconsistent with the Commission's attrition policy.
13. Allowance of a minimum attrition adjustment regardless of the level of inflation is unreasonable.
14. Section 5.3 of the Distribution Settlement is unreasonable and not in the public interest because it would provide for a minimum attrition adjustment irrespective of the rate of inflation.
15. Sections 9 and 10 of the Generation Settlement are unreasonable and not in the public interest because they provide for a minimum attrition adjustment irrespective of the rate of inflation.
16. As modified to remove the minimum attrition adjustment, the Settlements are fair, just and in the public interest.
17. With the modification to eliminate the minimum attrition adjustment, no term of the Settlements contravenes statutory provisions or prior Commission decisions.
18. The need for ratepayer contributions to the Retirement Plan trust should be determined based on the funding status of the Retirement Plan trust.
19. PG&E has not provided sufficient evidence demonstrating that its requested $128.6 million contribution to the Retirement Plan trust is necessary.
20. In the absence of clear and convincing evidence that a contribution of $128.6 (total company) million is needed, it is unreasonable to adopt PG&E's request for a $128.6 million contribution to the Retirement Plan Trust.
21. On November 29, 2001, Mothers for Peace filed its Petition to Modify D.88-12-083.
22. Attachment A of Appendix C to D.88-12-083 contains all the pertinent details regarding the composition and operations of the Diablo Canyon Independent Safety Committee (DCISC).
23. The Stipulation resolving certain issues associated with the Diablo Canyon Independent Safety Committee (DCISC) is in the public interest because it provides for a mutually acceptable outcome to the issue of whether the DCISC should continue to exist and no party opposes it.
24. The petition fails to provide any evidence that the DCISC members or their consultants have any conflict of interest, or that the nomination and appointment process has resulted in biased committee members.
25. Mothers for Peace's proposed change to the nominating procedures for establishing the composition of the DCISC is a reasonable improvement to the existing process because it would both streamline the process and remove any perceived conflict of interest.
26. Modifying the DCISC nomination process in response to a reasonable request is an appropriate exercise of our oversight responsibilities with respect to the operation of Diablo Canyon.
27. The experience requirements for individuals serving on the DCISC should reflect the stated purpose for which the DCISC was created - assessing the safety and operations and suggesting any recommendations for safe operations.
28. DCISC nominees should be required to have knowledge, background and experience in the field of nuclear power facilities and nuclear safety issues.
29. There is nothing to prevent a resident of the San Luis Obispo area, with the requisite background and experience in nuclear issues, from seeking nomination and appointment to the DCISC.
30. As reflected by the record in this case, the public meetings it holds in the San Luis Obispo area, the annual reports that it prepares, the recommendations that it makes to PG&E, and other activities of the committee member, the DCISC has been actively fulfilling its duties.
31. In the absence of any evidence that DCISC's compensation or funding has not been used to promote an additional assurance of safety at Diablo Canyon, Mothers for Peace's request for an investigation into the use of ratepayer funds for the DCISC is not necessary.
32. An office in San Luis Obispo would make the DCISC more accessible to the residents of the area surrounding Diablo Canyon.
33. Since it is not clear whether the work scope of the DCISC as established in D.88-12-083, was intended as a full-time operation, the issue of whether or not to establish a full-time office should be left to the discretion of the DCISC.
34. Requiring PG&E to continue funding the videotaping for DCISC meeting is a low-cost and efficient method of providing information to the public on Diablo Canyon and the DCISC, especially for members of the public who cannot attend meetings.
35. Based on the results of the Towers Perrin Total Compensation Study, PG&E's TY 2003 forecast request for executive compensation is either at or slightly below market levels.
36. The Towers Perrin Total Compensation Study evaluates total compensation, defined as the combination of cash compensation (base salary plus short-term incentives73) and benefits (medical, dental, vision, life insurance, disability, pension, and savings plans).
37. The Commission's policy does not allow funding for philanthropic contributions in regulated utility rates.
38. Greenlining's request that the Commission encourage PG&E to link executive compensation to philanthropic contributions, workforce diversity, or supplier diversity is not adequately supported by the evidence.
39. Requiring PG&E to justify increases in compensation above the labor escalator in the next GRC will provide the Commission with additional information on which to consider compensation requests.
40. TURN's request that PG&E be required to justify increases in compensation above the labor escalator with evidence beyond that provided by market comparison studies is reasonable because it will allow the Commission to effectively evaluate the potential "wage creep" arguments associated with total compensation studies.
41. In January 2004, PG&E Corporation awarded $84.5 million in retention bonuses to 17 key executives pursuant to the SrERP.
42. None of the $84.5 million in SrERP awards has been charged to ratepayers.
43. Adopted TY 2003 rates do not include any amounts for retention programs, and program costs are not included in the regulatory asset or calculation of headroom.
44. PG&E Corporation shareholders have funded, and will fund, the entire $84.5 million in SrERP awards.
45. Many members of society are frustrated with corporate executives taking excessive compensation.
46. The goal of the SrERP bonuses was to retain top officers during a difficult period, linking retention to time and performance.
47. Between 1992 and 2002, PG&E's workforce diversity has increased in all but one category of PG&E's workforce.
48. PG&E has in place formal, effective programs designed to increase workforce diversity.
49. Greenlining has not demonstrated that an additional annual report of diversity statistics is necessary or preferable to our current approach of reviewing workforce diversity statistics as part of the utility's GRC.
50. The revenue requirements set forth in Attachment D to this decision are reasonable.
1. As modified, the Settlements are in the public interest, consistent with the law, and should be approved.
2. The Motion to Adopt a Stipulation (Stipulation) filed by PG&E, DCISC, ORA, Mothers for Peace, California Energy Commission (CEC) and TURN regarding the DCISC is in the public interest and should be granted.
3. The Stipulation between PG&E, DCISC, ORA, Mothers for Peace, CEC and TURN filed a under which the DCISC would continue to exist and be funded through cost-of-service rates at least through the next rate case cycle should be approved.
4. Mothers for Peace's revised petition to modify D.88-12-083 should be addressed in this proceeding.
5. The DCISC should retain the discretion to determine how best to accomplish its mandate.
6. Greenlining's proposal to link executive compensation to philanthropic contributions should not be adopted.
7. We have no basis upon which to address the level of PG&E's philanthropic contributions.
8. Additional accounting and reporting measures should be adopted to ensure that the $84.5 million is charged to shareholders, not ratepayers.
9. Even though about $973,000 in SrERP accruals booked to Account 923 in 2001 and 2002 did not affect rates, PG&E should adjust these amounts to ensure "below-the-line" treatment.
10. Consistent with our expectations and orders regarding retention bonuses, the $84.5 million of SrERP expenses in general-and the $53.2 million charged to PG&E in particular-should be, and are, ineligible for recovery from ratepayers via existing rates, the TY 2003 revenue requirement, TY 2003 rates, headroom, the regulatory asset, or any other ratemaking tools or rates that involve ratepayer funds.
11. PG&E's advice letter filing to demonstrate compliance with Ordering Paragraph 4 of D.03-12-035 should also (a) show the adjustments from Account 923 of about $973,000, (b) show the accounting of all SrERP payments (including those made in January 2004, whether or not the cash distributions were deferred) to demonstrate that they were not charged to ratepayers, and (c) include anything else reasonably necessary to ensure that ratepayers have not paid, and will not pay, any portion of the $84.5 million in SrERP expenses.
12. PG&E and PG&E Corporation should fully cooperate with a Commission staff audit of the accounting and treatment of the $84.5 million in SrERP expenses.
13. PG&E should list all SrERP awards in its 2003 GO 77-K Report and indicate the FERC account to which the payment will be billed, with PG&E providing that information in a separate table listing only SrERP recipients to the extent necessary to clearly identify the persons, amounts and FERC account.
14. PG&E should file an advice letter within 10 days of the date that PG&E Corporation announces that it will reinstate the payment of dividends and knows its total earnings and dividend rate to show the retained earnings (total and per share) before and after the award of the $84.5 million SrERP, and the effect, if any, on dividends (total and per share), with the $84.5 million applied in the same period as the earnings and dividends.
15. PG&E should file a report with the Commission within 90 days after its next annual shareholders meeting that states whether or not any or all officers returned some or all of their retention bonus awards, and identifies the specific individuals and amounts returned, if any.
16. In order to verify that the Senior Executive Retention Bonus program was not paid for by ratepayers, the Commission's Energy Division should conduct an audit of the accounting transactions related to this program.
17. In its next GRC, PG&E should provide an update of its workforce diversity statistics.
IT IS ORDERED that:
1. The Joint Motion of Pacific Gas and Electric Company (PG&E), Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Aglet Consumer Alliance (Aglet), Modesto Irrigation District (MID), Natural Resources Defense Council (NRDC), and the Agricultural Energy Consumers Association (AECA) for Approval of a Settlement Agreement, filed on September 15, 2003, and as forth in Attachment A, is granted. The Settlement Agreement, as modified to eliminate the minimum attrition adjustment, is approved. .
2. The Settlement Agreement shall be construed as leaving intact all policy determinations adopted in D.00-02-046.
3. The Motion of PG&E, ORA, TURN, the City and County of San Francisco, and Aglet for Approval of a Settlement Agreement, filed on July 31, 2003, and as set forth in Attachment B, is granted.
4. The Settlement Agreement sponsored by PG&E, ORA, TURN, Aglet, MID, and NRDC, and attached to the opinion as Appendix B is adopted, subject to the modification discussed in this opinion.
5. PG&E shall, within 10 days of this effective date of this order, file revised tariff sheets to implement the revenue requirements, accounting procedures, and charges set forth in this decision.
6. Subject to verification of compliance by the Energy Division, the revised tariff pages shall become effective on January 1, 2003.
7. PG&E is authorized to adjust its rates pursuant to D.04-02-062 and this order. PG&E is authorized to consolidate rate changes authorized here with any rate changes authorized in the Commission's decision on the Storm and Reliability phase of this proceeding.
8. PG&E is authorized to increase its NSF fees to $8.00.
9. The Motion of PG&E, Diablo Canyon Independent Safety Committee (DCISC), ORA, TURN, the California Energy Commission (CEC), and Mothers for Peace to Adopt a Stipulation is granted, and the Stipulation as set forth in Attachment C to this decision, is approved.
10. Mothers for Peace's Petition to Modify D.88-12-083 is granted in part and denied in part as discussed in Section 10.2 of this decision.
11. The following accounting and reporting measures are adopted to ensure that the $84.5 million in Senior Executive Retention Program (SrERP) awards were not, are not, and will not be charged to ratepayers.
a. PG&E shall file and serve an advice letter regarding compliance with Ordering Paragraph 4 of D.03-12-035. The advice letter shall also show:
i. Adjustments to Account 923 for 2001 and 2002 to reverse accruals for the SrERP;
ii. The accounting of all SrERP payments, including those made in January 2004 (even if cash distributions were deferred), to demonstrate that the payments were and are not charged to ratepayers; and
iii. Anything else reasonably necessary to ensure that ratepayers have not paid, and will not pay, any portion of the $84.5 million in SrERP expenses.
b. If the advice letter has already been filed, PG&E shall file and serve a supplemental advice letter within 10 days of the mailing date of this order to include this additional information. The Executive Director shall direct Commission staff to audit the accounting and treatment of the $84.5 million as reported in the advice letter or supplemental advice letter. PG&E and PG&E Corporation shall fully cooperate with the Commission staff audit.
c. PG&E shall list all SrERP awards in its 2003 General Order (GO) 77-K Report and indicate the Federal Energy Regulatory Commission (FERC) account to which the payment was or will be billed. If applicant's 2003 GO 77-K Report (as filed by March 31, 2004) did not include a list of the $84.5 million retention bonus awards and show the FERC account to which they were or will be charged, applicant shall provide that information by filing an amendment to its 2003 GO 77-K Report within 10 days of the mailing date of this decision. Further, if the 2003 GO 77-K report did not clearly identify the persons, retention bonus amounts and FERC account, PG&E shall provide that information in a separate table that lists only SrERP recipients by the filing an amendment to its 2003 GO 77-K Report within 10 days of the mailing date of this decision.
d. PG&E shall file and serve an advice letter within 10 days of the date that PG&E Corporation announces that it will reinstate the payment of dividends and knows its total earnings and dividend rate. The advice letter shall show retained earnings (total and per share) before and after the award of the $84.5 million in SrERP bonuses, and the effect, if any, on dividends (total and per share). If the earnings, payment of dividends and the charges for the $84.5 millionaire not in the same period, the advice letter shall apply the $84.5 million in the same period covered by the earnings and dividends. PG&E shall serve a copy of the advice letter or a notice of availability on the service list for Phase 1 of this proceeding.
12. G&E shall file a test year 2007 general rate case applications in accordance with the Rate Case Plan.
This order is effective today.
Dated _____________________, at San Francisco, California.
Halligan Comment Dec Attachment A-E Opinion Phase 1 Issues
73 For PG&E, short-term incentives are represented by the Performance Incentive Plan and are calculated based on a target incentive award of 50 percent of the maximum potential payout.
