ML20059D224

Intervenor Exhibit I-MFP-220,consisting of Protest of Util

ML20059D224
Person / Time
Site:	Diablo Canyon
Issue date:	08/24/1993
From:	Warner C PACIFIC GAS & ELECTRIC CO.
To:
References
OLA-2-I-MFP-220, NUDOCS 9401070078
Download: ML20059D224 (36)

Text

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,. T- a P/ 220 f[ay'/93 -44P BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA w w , st c a. va. '

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5 Application of Pacific Gas and )

6 Electric Company, For Authorization )

To Establish A Rate Adjustmant )

7 Procedure For Its Diablo Canyon ) Application Nuclear Power Plant; To Increase ) 'No. 84-06-014 8 Its Electric Rates To Reflect The )

Costs Of Owning, Operating, )

9 Maintaining And Eventually )

Decommissioning Unit 1 Of The )

10 Plant; And To Reduce Electric )

Rates Under Its Energy Cost )

11 Adjustment Clause And Annual )

Energy Rate To Reflect Decreased )

12 Fuel Expenses. )

(U 39 E) )

13 )

)

14 And Related Matter. ) Application

) No. 85-08-025 15 - -

PROTEST OF PACIFIC GAS AND ELECTRIC COMPANY 16 TO PETITION BY TOWARD UTILITY RATE NORMALIZATION 17 TO MODIFY DECISION 88-12-083 e

18 Pacific Gas and Electric Company (FG&E) hereby submits its

,19 protest to the petition for modification of Decision 88-12-083 ,

i I

20 filed by Toward Utility Rate Normalization (TURN). For the

'O 21 reasons stated below, PG&E respectfully requests that the 22 California Public Utilities Commission (CPUC) reject TURN's 23 petition because it is contrary to law and because it raises no M ew facts or arguments different from those reviewed and 25 rejected by the CPUC when it unanimously approved the Diablo 26 Canyon rate case settlement agreement less than four years ago.

9401070078 930824 PDR ADOCK 05000275 0 PDR

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't 1 I. INTRODUCTION 2 Contrary to TURN's Petition, the parties to the Diablo 3 Canyon rate case settlement agreement (Settlement 4 Agreement)1/ and the CPUC expressly intended that PG&E 5 benefit when Diablo Canyon performs well and suffer if it 6 performs poorly. Since Diablo Canyon began commercial 7 operation, ratepayers have paid far less than they would have 8 under traditional ratemaking, and PG&E has not earned 9 unreasonable profits from the plant. Modifying the Settlement 10 Agreement as requested by TURN would have a chilling effect on 11 incentive ratemaking and would violate the public policy of 12 this State in favor of comprehensive settlements of difficult 13 and protracted disputes.2/

14 15 1/ The CPUC's decision approving the Settlement Agreement is set 16 forth in D.88-12-083, Apolication of Pacific Gas & Electric Co.

17 (1988), 30 CPUC 2d 189. The decision was subsequently modified in D.89-03-062, Order Modifyina Decision 88-12-083 and Denvina 18 Rha. (f989), 31 CPUC 2d 365, which republished in the min.eo version the modified decision under the original decision 19 number and with the original date. However, the reported version at 30 CPUC 2d 189 is the unmodified version,'and 20 therefore the mimeo version of D.88-12-083 as modified controls to the extent inconsistent. All references herein to "D.88 21 083" are to the mimeo of the modified version. The Settlement Agreement itself, comprised of the settlement agreement and 22 implementing agreement, is published at Appendices C and D of D.88-12-083 but omitted from the reported-version at 30 CPUC 2d 189*

3 2/ TURN's petition also is procedurally defective because it 24 amounts to an untimely application for rehearing barred by 25 Rules 43 and 85 of the CPUC's Rules of Practice and Procedure.

TURN's arguments regarding Diablo Canyon's capacity factor are 26 barred by res iudicata because the same arguments were previously denied by the CPUC and the California Supreme Court in their review of the Settlement Agreement.

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r l NUCLEAR REGULATORY COMMISSION Docket No. bd7h0I k Offici Exh.No.Y[2bh O ln the mattst of h+CJhC. SfS El9 e TKtC 00 Staff __ IDENilfl[D Ar%:rnt _ P!CE!VfD _

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1 II. CONTRARY TO TURN, THE CPUC AND THE PARTIES TO THE SETTLEMENT AGREEMENT FULLY INTEND.PG&E TO BENEFIT {

2 FROM DIABLO CANYON'S EXCEPTIONAL PERFORMANCE 3 It is indeed ironic that the Djablo Canyon nuclear power I

4 plant is under attack because PG&E is operating it so well. It ,l 5 is doubly ironic that Diablo Canyon's " exceptional 6 performance"Il now leads TURN to argue that the Settlemend ,

7 Agreement -- which ended years of controversy an avoided years 8 more of litigation over ratemaking for the plant -- should be 9 overturned less than four years into its 28' year term.

10 TURN alleges that a fundamental assumption of the 11 Settlement Agreement was that Diablo Canyon would only operate 12 at a 58 percent capacity factor. According to TURN, the 13 plant's good performance in the first four yearslof the 14 Settlement Agreement contradicts that assumption. Therefore, 15 TURN argues, the CPUC must modify the Settlement Agreement in 16 order to protect against PG&E's " obscene" profits from the 17 plant and e to allow ratepayers to share more in the benefits of 18 the plant's exceptional performance.S/

19 Contrary to TURN, the assumptions underlying the 20 settlement Agreement have not proven false. In fact, the 21 Settlement Agreement is working exactly as the parties and the 22 CPUC intended.

23 ///

24 ///

25 26 / TURN Petition at 18.

S/ TURN Petition at 5, 7, 12, 17-18.

I e

t 3 A. The Foundation of the Settlement Agreement is Performance Based Pricing, Not a Predicted .!

2 Capacity Factor 3

The cornerstone of the Settlement Agreement is not, as  !

4 TURN claims, a particular prediction or forecast of Diablo 5

Canyon's capacity factor over 28 years or the revenue stream 6 from that capacity factor.I/

i If that had been the case, the I 7

parties and the CPUC simply could have agreed to a particular 8

revenue requirement attributable to a predicted capacity  ;

9 factor, and ratebased the plant to the extent necessary to 10 provide the fixed revenues.

That they did not agree on any 11 predicted capacity factor is obvious from any reading of I 12 Decision 88-12-083 and the extensive record developed in the 13 public hearings on the Settlement Agreement.1/

14 Instead, when PG&E, the Division of Ratepayer Advocates 15 (DRA) and the California Attorney General entered into the 16 Settlement Agreement in 1988, they agreed to a form of 17 ratemaking,

- known as " performance based pricing," that they 18 knew to be one of the most innovative forms of ratemaking in 19 the history of utility regulation. Under the Settlement I 20 Agreement as approved by the CPUC, PG&E's customers pay only 21 1/ I 22 This is not the first time TURN has misstated that the 23 primary capacity assumption factor. of the Settlement Agreement is a 58 percent  !

April 21, 1989; Answer of Respondent California PublicEgg TURN 24 Utilities 26, 1989,Commission to Petition for Writ of Review, at 24, S009895, rev. den. TURN v. Public Utilities Commission, No. May 5 California Supreme Court, July 27, 1989.

F 26 1/ or example, see D.88-12-083, mimeo at 81-82, 84, 90, 96-97, 106, 110-111, 246, 271-275. 164-171; 30 CPUC 2d at 233-234, 237, 240, 244, i fr-' "

-. -. . - - .- - . . - ~ . - . . -

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1 for the power produced by the plant. PG&E's shareholders--not 2 its customers--bear the risks of poor plant performance, rising 3 maintenance costs and expensive capital additions. In~ return 4 for incurring.these additional risks and as an incentive to 5 maintain high plant performance, PGEE's revenues increase if 6 the plant operates well.

l 7 The CPUC cited this shiftina of operatina' risks'from 8 ratenavers to PG&E'as the most important feature'of the l 1

9 Settlement Aareement and the crimary benefit to ratenavers.2/ )

10 According to the CPUC:

t 11 "If the plant operates poorly, PG&E suffers.

If it l

i 12 operates well, PG&E is rewarded with higher revenues....PG&E can-fare well or poorly under the l

13 performance based'pricingLplan of-the settlement; both the risk of poor plant performance and the 14 benefit of good performance are put on-PG&E."I/ ,

15 In agreeing to this innovative ratemaking= settlement, the  ;

16 parties understood that the balance of risks and rewards tcr 9

17 PG&E and e ratepayers would vary over the lifetime of the  !

18 settlement. Notwithstanding these variations, the partias 19 expressly stated their intent that the Settlement Agreement

• 20 t changZ if remain in effect for its full term,w .~ l 21 PG&E consistently testified during the set

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earings,  !

22 that it expected Diablo Canyon to operate in the range of-65 to-23 l 2/ Finding of Fact 10, D.88-12-083, mimeo at 188, 30 CPUC'2d'at-24 282.

25 g/D.88-12-083, mimeo at 165, 173; 30 CPUC 2d at-272,;275.

26 2/D.88-12-083, mimeo at Appendix D, Implementing Agreement, paragraph 2 (omitted from Volume 30, CPUC 2d).'  !

1 a

1 70 percent over the life of the plant,1E/ not the 58 percent 2 capacity factor cited by TURN.11/ Nor did PG&E ever testify 3 that physical limits restricted Diablo Canyon's capacity factor 4 to some level below the plant's rated capacity between l 5 refueling outages or scheduled maintenance.12/

6 It is true that DRA based its estimate of a $2 billion 7 " equivalent disallowance" under the Settlement Agreement on its 8 forecast of future operating performance and costs at Diablo 9 Canyon, and that one element of this forecast included a 58 10 percent capacity factor for the plant over the lona term.12/

11 However, even DRA declined to rely solely on any capacity 12 factor assumption in computing its estimated equivalent 13 disallowance. For example, DRA testified that it was 14 15 16 IE/D.88-12-083, mimeo at 84, 30 CPUC 2d at 234. The CPUC itself believed that PG&E's acceptance of the settlement 17 indicated it expected te operate the plant at an average capacity factor higher than 73 percent. See D.88-12-083, mimeo 18 at 167, 30 CPUC 2d at 272.  ;

19 Diablo Canyon's capacity factor through calendar 1991 was 76%, not 83% as implied by TURN. At the time of the Settlement 20 greemen , Diablo Canyon's historical capacity factor was 70%.

12/ TURN Petition at 3, 9, 21 10, 13; compare PG&E/Maneatis, R.T.

12569-70; DRA/Ahern R.T. 12069; D.88-12-083, mimeo at 168, 30 l

22 CPUC 2d at 273 ("All nuclear plants have downtime for scheduled outages, refueling outages being the-lengthiest, which prevent 23 the capacity factor from exceeding 80% or so.").

Al/

24 It is important to note that DRA derived the 58% capacity factor number from the average of a group of 4-loop I 25 Westinghouse PWR plants with similar characteristics to Diablo Canyon, but otherwise concluded that "it appears most likely 26 that Diablo Canyon will operate in the rance of 50% to 70%."

(D.88-12-083, mimeo at 168-9, 30 CPUC 2d at 273, emphasis I added) l l

1 reasonable to assume a $2 billion equivalent disallowance 2 because, inter alia: .

3 (1) $1.2 billion of the $2 billion equivalent

'isallowance is attributable to PG&E's agree-'nt to 4 immediately forego recovery of $2 billion in ' 7sts l undercollected in the Diablo Canyon Adjustmer.-

l 5 Account that the Company otherwise would have recovered, with interest, if the full cost of the 6 plant had been included in ratebase;1d/

7 (2) The risk-sh3fting alone under the Settlement Agreement is an insurance-type benefit worth 8 "hundro1s of millions of dollars" to ratepayers;11/

I 9 (3) Diablo Canyon O&M expense conservatively is l estimated to only escalate at inflation plus 2 .-

10 percent, compared to the average annual nuclear O&M expense increase of 22 percent;15/

11 (4) Nuclear plants that operate well in the early 12 years may become poor performers in later years;L/ 7 and 13 -

'(5) Nuclear plants have experienced increases in the i 14 costs of capital additions which exceed even the '

l original construction costs of the plants.lE/

l 15 l

l 16 The CPUC itself found that the risk of future unscheduled 17 outages (not scheduled refueling outages as cited in TURN's

• 18 petititn) is a primary determinant of Diablo Canyon's long-run l \

19 capacity factor:

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20 "

...rI1f the olant operates for 28 years, ...it will  !

l operate at well above a 58% capacity factor but it is l 21 this risk of significant [ unscheduled] outages that 22 AA/D .88-12-083, mimeo at 92, 30 CPUC 2d at 238.

4 Al/DRA/Ahern, Ex. 18,000, p. 2. i l

5

/D.88-12-083, nimeo at 107, 30 CPUC 2d at 245.

12/D.88-12-083, mimeo at 96, 30 CPUC 2d at 240.

I II/ .88-12-083, D mimeo at 95-96, 30 CPUC 2d at 239-40.

I reduces the capacity #3ctor and makes ... a 58%

2 capacity factor reasonable."12/

3 TURN's petition conveniently misrepresents what TURN itself 4 knows: Shifting of operating risks, not capacity factor, is the 5 foundation of the Settlement Agreement. In twenty or so years, 6

when the memories of the CPUC and the parties may be less fresh 7

than they are now, TURN's attempt to rewrite history might be 8 understandable. But today, barely three years after the 9

California Supreme Court rejected TURN's attempt to overturn-10 the CPUC's approval of the Settlement Agreement, TURN's 11 misrepresentation of the role-of capacity factor in the 12 Settlement Agreement is outrageous and should be summarily.

13 rejected by the Commission.

14 B.

15 Contrary to TURN, the Settlement Agreement Cannot Be Evaluated on the Basis of a "Snanshot" in Time 16 Even if Diablo Canyon's predicted operating performance 17 were aefundamental assumption in the Settlement Agreement, TURN 18 cannot rely on a " snapshot" of the plant's performance over 19 only three years in order to reevaluate the plant's likely 20 performance over the 28 year term of.the Settlement Agreement.

21 TURN itself seems to recognize the patent nonsense of relying 22 on only three years of plant performance, when'it' argues.

23 defensively that "it is still theoretically possible that 24 25 26 22/Decision 88-12-083 at'168, 30 CPUC 2d at 273.

.- , . . . . ~ . . . _

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_- 1 1 Diablo Canyon could end up with a 58% capacity factor after 28 2 years, [but) it is highly unlikely."2E/

3 As TURN and anyone who follows the performance of nuclear 4 power plants knows, predicting the long-term operating 5 performance of such plants is no more certain today than it was 6 four years ago.21/ TURN may not like the fact of this j l

7 uncertainty, especially in light of Diablo Canyon's current 8 exceptional performance, but it is a fact that all the parties 9 and the CPUC recognized when they agreed to the Settlement 1

10 Agreement. Of course, there is one certainty on which PG&E and 11 TURN may agree: If Diablo Canyon suffers an extended 12 unscheduled outage or lengthy downtime in the future, TURN is 13 not likely to come running into the CPUC requesting that the 14 Settlement Agreement be modified because Diablo Canyon has 15 performed below a 58 percent capacity factor for a year or 16 two.12/

17 Vhewed in the context of a 28 year settlement, then, 18 TURN's analysis of actual 1989-1991 Diablo Canyon performance 19 1

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21 22/ TURN Petition at 5.

22 21/S ee, generally, D.92-08-036, Opinion on SONGS 1 Settlement l

Acreement (1992).

22/ TURN's petition is in error in characterizing the floor 24 payment provision in the Settlement Agreement as an absolute 25 limit on PG&E's downside risks of poor plant performance. In fact, the Settlement Agreement does not permit PG&E to keep l

26 floor payments; they must be repaid, with interest, out of l future revenues when the plant performs well. See Decision 88-12-083 at 138-144, 30 CPUC 2d at 259-62.

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F 1 is a " house of cards" resting on erroneous arguments 12/ that 2 ignore the long-term risks that PG&E shareholders--not PG&E 3 customers--bear under the Settlement Agreement. Risks that 4 TURN ignores include:

• 5 o The risk of unscheduled outages as the plant gets older; 8 6

o The risk of higher thaa expected maintenance anc 7 capital costs as major plant equipment, such as steam generators, is repaired or replaced; and 8

o 9

The risk of reduced plant performance or higher costs in order to comply with new NRC regulatory requirements or new government taxes.2A/

10 11 TURN may wish to gloss over these long-term risks, but it 12 is precisely the shifting of these risks from ratepayers to 13 PG&E that makes the Settlement Agreement, in the words of the 14 California Attorney General, "a good deal for PG&E 15 customers."21/ Conversely, the Commission staff has pointed 16 out that revisiting the Settlement Agreement early in its life 17 might be the worst possible outcome for ratepayers, because 18 19 22/F or example, TURN's assertion that the Settlement Agreement 20 assumed refueling outages would last four months is in error; PG&E projected during the Settlement Agreement hearings that 21 refueling outages would average three months and in fact such outages at Diablo Canyon have ranged between 56 and 129 days l

22 since commercial operation. Eeg Exhibit 524, Answers of Pacific )

Gas and Electric Company to Data Requests of the Commission l 23 Advisory and Compliance Division, Response to Question 2, October 21, 1988.

24 21/Se e e . g . , testimony of Richard A. Clarke, summarized in D.88-12-083, mimeo at 82, 30 CPUC 2d at 233.

26 21/Comments of California Attorney General John K. Van de Kamp, on Proposed Decision, A.84-06-014, A.85-08-025, December 8, 1988, at 2.

1 PG&E might end up enjoying the benefits of good plant 2 performance early in the life of the settlement while facing 3 less risk under more traditional ratemaking in later years--a 4 situation which would be just the opposite from what the CPUC 5 was trying to achieve with the Settlement Agreement.lil 6 Thus, TURN's " snapshot" approach to the Settlement i Agreement is not only fallacious, it also ignores the 8 substantial, long-term benefits to ratepayers which anchor the 9 CPUC's original evaluation of the Settlement Agreement. The 10 CPUC should reject TURN's analysis as erroneous and contrary to 11 Decision 88-12-083.

12 III. CONTRARY TO TURN, PG&E HAS NOT MADE " UNREASONABLE 13 PROFITS" UNDER THE SETTLEMENT AGREEMENT 14 After spending the bulk of its petition on a fallacious 15 analysis of assumptions behind the Settlement Agreement, TURN 16 shifts to an equally wrong assertion that PG&E is making 17 "unreagpnable profits" from Diablo Canyon. Like its fixation 18 on capacity factor predictions, TURN's analysis of PG&E's 19 revenues from the plant misrepresents the facts.

20 First, TURN ignores the fact that ratepayers have paid 21 over $2 billion less under the Settlement Agreement than they 22 ///

23 ///

24 ///

25 26 21/Testimony, CPUC Commission Advisory and Compliance Division, California Senate Energy and Public Utilities Committee, December 2, 1991.

4 1 would have under traditional ratemaking without a

^

2 disallowance.Ill 3 Second, TURN ignores the fact that initial rates under the 4 Settlement Agreement were half what they would have been under 5 traditional ratemaking, and ratepayers avoided an overall 25 6 percent "rateshock."2E/ Diablo Canyon's current prices are 7 consistent with this " phase-in" period expressly agreed to by 8 the parties and the CPUC.

9 Third, TURN ignores the fact that after 1994, Diablo 10 Canyon p<!ces are likely to decline in real terms under the 11 pricing formula set by the Settlement Agreement.1El For 12 example, as the following graph depicts, if inflation averages 13 5' percent over the remainder of the Settlement A'greement 14 beginning in 1995, Diablo Canyon prices will decline nearly.

15 thirty percent in real terms.lEl 16 17 22/See* testimony of Raymond J. Czahar, summarized at D.,88 I 18 083, mimeo at 101-106, 30 CPUC 2d 242-244.

9 2E/D .88-12-083 at 83, 175, 30 CPUC 2d at 234, 276.

20 22/U nder paragraph 4 of the Settlement Agreement (D.88-12-083, Appendix C), the fixed component of the Diablo Canyon price 21 does not escalate, and after 1994 the variable component escalates at a factor which is the average of 2.5 percent and 22 the previous year's increase in the Consumer Price Index (CPI).

If the previous year's CPI increase is greater than 2.5 23 percent, Diablo Canyon prices decline in real terms. This is 4 why the parties' own evaluation of the settlement Agreement I 24 concluded that Diablo prices are likely to decline in real terms after 3994. See D.88-12-083, mimeo at 131, 30 CPUC 2d at 25 26 IE/Egg e.g., A.91-11-036, PG&E Ex. 13, Ch.4, Table 4-9, p.

4-20, projecting GNP deflator escalation rates averaging over 5 percent annually for the period 1995-2016.

v i

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2 Diablo Canyon Real Energy Prices 3

120 Settlement Price Schedule 4 i i

5 100 --

6 7 80 --

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! 15 EEEEbERkkkkkRkRRRRRRRR 16 17 Ecurth, TURN ignores the value of Diablo Canyon's good 18 performance to all ratepayers under the Settlement Agreement.

19 Diablo Canyon has proven itself to be a safe and-reliable 20 source of electricity for Northern and Central Californians, 21 representing over 17 percent of their electricity needs on l l

22 PG&E's system over the last 3 years.21/ Through expert j l 23 management, the plant has been recognized by the Nuclear l

\

24 Regulatory Commission (NRC) as among the five best run nuclear j 25 facilities in the United States.

26 21/P acific Gas and Electric Company, Annual Report 1991, p. 42.

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Fifth, TURN ignores the fact that PG&E immediately wrote 2 off $2 billion in the Diablo Canyon Adjustment Account and made 3

a one-time charge of $1.022 billion against earnings as a 4 result of the Settlement Agreement.12/ PG&E's annual 5 dividend payment was reduced from $1.92 to $1.40 and still has 6 not returned to pre-settlement levels.

7 Sixth, for a reputed advocate of ratepayers, TURN exhibits 8 surprising ignorance of the differences between traditional 9 ratemaking and incentive ratemaking as embodied in the 10 Settlement Agreement. For example, under the Settlement 11 Agreement, unlike traditional ratemaking, PG&E's revenues are 12 constantly at risk. Therefore, contrary to TURN, any 13 comparison of the Settlement Agreement to revenues and returns 14 under traditional ratemaking is an " apples vs. oranges" 15 comparison. It is precisely because of'this fact that the 16 Settlement Agreement forbids PG&E from recovering a premium on 17 its authorized return on non-Diablo utility operations by 18 reason of the increased risks it is bearing on its Diablo 19 Canyon operations.II/

20 TURN's references to the parties and the CPUC " betting" 21 and " gambling"li/ on the Settlement Agreement are likewise 22 ludicrous. Incentive ratemaking is an ambitious and 23 24 22fPacific Gas and Electric Company, Annual Report 1988, p. 21.

25 22/D.88-12-083, Appendix D, Implementing-Agreement, paragraph 12(C).

Ai/

TURN Petition at 5, 16.

1 sophisticated effort to reinvigorate the regulatory compact by 2 incorporating marketplace or performance based incentives into 3 utility rates. In this respect, the Diablo Canyon Settlement 4 Agreement is a prime example of incentive ratemaking at its 5 best, v.id overshadows in its breadth and 'S yea duration the 6 examples of alternative ratemaking in which TURN cloaks its 7 Petition.

8 Under any objective standard, PG&E has not earned 9 " unreasonable profits" under the settlement Agreement. The 10 CPUC should summarily reject this part of TURN's petition.

11 IV. CONTRARY TO TURN, THE CPUC AND THE PARTIES INTEND THE SETTLEMENT AGREEMENT TO BE BINDING FOR ITS 12 FULL 28 YEAR TERM. ANY MATERIAL MODIFICATION WOULD HAVE A CHILLING EFFECT ON INCENTIVE RATEMAKING AND 13 WOULD VIOLATE PUBLIC POLICY IN FAVOR OF SETTLEMENTS 14 In the end, TURN's petition can be reduced to a single 15 sentence, stark in its exposure of true motive:

16 "

...Just as there is no reason to base today's investment decisions on a copy of the Wall Street 17 , Journal from 1988, there is no reason for basing  ;

ratemaking decisions on equally outdated sources of '

18 information."D/

19 PG&E is hard pressed to find a more cynical insult to i

20 the public policy in favor of settlementslk/ anywhere in the I 21 M/ TURN Petition at 16.

23 SE/S ee Nearv v. Recents of Univ. of Calif. (1992) 3 Cal. 4th 273, 277-278; Datatronic Systems Coro,

v. Speron. Inc. (1986) 24 176 Cal. App. 3d 1168, 1173-74; Casa De Vallev View Owners' Ass'n v. Stevenson (1985) 167 Cal. App. 3d 1182, 1190. The 25 policy favoring settlement extends to administrative matters.

Egg Rule 51, CPUC Rules of Practice and Procedure; D.87-11-053, 26 26 CPUC 2d 96, 97 (1987); Georaia-Pacific Coro. v. California Coastal Com. (1982) 132 Cal. App. 3d 678, 693; Kirby v.

(continued...)

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I recent history of utility regulation. It is incredible that 2 years of litigation over Diablo Canyon, years of negotiation, 3 thousands of pages of testimony and public hearings, a 36 page  ;

4 settlement and a 200 page CPUC decision are reduced in TURN's 5 eyes to mere " outdated sources of information." For this 6 argument alone, TURN's petition should be soundly rejected.

7 However, because TURN is asking the CPUC to reopen the 1

8 entire Diablo Canyon rate case and modify the Settlement 9 Agreement, PG&E must respond. As TURN knows, the Settlement 10 Agreement was a hard-bargained, thoroughly scrutinized 12 settlement ending years of controversy and litigation over 12 ratemaking for Diablo Canyon. Before the settlement, the 13 parties were far apart in their respective positions, with the 14 DRA advocating a $4.4 billion disallowance and PG&E arguing for 15 no disallowance. In addition, the California Attorney General 16 was a powerful party adverse to PG&E's position.

17 As, Decision 88-12-083 describes in detail, none of the 18 parties -- PG&E, DRA or the Attorney General -- believed that 19 their position was guaranteed to prevail in the lengthy, 20 contentious prudence hearings which would have been required 21 without the Settlement Agreement. It was in this atmosphere of 22 extreme uncertainty and polarization that the parties 23 negotiated the Settlement Agreement. Each of the parties 24 recognized that the Settlement Agreement was, as DRA described 25 26 li/(... continued)

Alcoholic 255, 260. Beverace Control Anneals Bd. (1971) 17 Cal. App. 3d

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1 it, "a package of provisions each of which entails different 2 advantages and disadvantages to the different parties to the ,

3 agreement. When taken together as an integrated whole, the 4 different provisions of the settlement represent a balance 5 between terms favorable to ratepayers and to 6 shareholders."21/ Moreover, the Settlement Agreement was the 7 subject of extensive public hearings and evaluation before an 8 Administrative Law Judge and the full CPUC. In Decision 88 9 083, the CPUC reviewed and approved the settlement Agreement 10 and found that it was in the public interest and would produce 11 just and reasonable rates. The CPUC then reviewed and denied 12 TURN's request for rehearing, and the California Supreme Court 13 denied TURN's challenge to the CPUC's orders approving the 14 Settlement Agreement.

15 In light of the breadth of the Settlement Agreement and 16 the CPUC's review, it is not surprising that the CPUC and the 17 parties agreed precisely on their mutual intent regarding 18 future modifications. The Settlement Agreement expressam the 19 intent of the parties that, although "the advantages and 20 disadvantages for them of the Settlement Agreement may vary 21 during its effective period," nevertheless, "the parties

• tend 22 that the Settlement Agreement remain in effect for its ull 23 t'erav . . . "2E/ The Settlement Agreement also provides that, 24 s_,

25 22/Comments of DRA on Proposed Decision, A.84-06-014, A.85 025, December 8, 1988, at 7.

26 21/D.88-12-083, mimeo at Appendix D, Implementing Agreement, paragraph 2.

1 except as agreed to by the parties, any material change in the 2 Settlement Agreement shall render it " null and void."All 3 Thus, one effect of granting TURN's petition, intended or 4 unintended by TURN, would be the rescission of the entire 5 Settlement Agreement and the reopening of the Diablo Canyon 6 rate case, with an opportunity by PG&E and the parties to seek i

7 and oppose, respectively, the full ratebasing of Diablo Canyon 8 under traditional ratemaking.

9 In addition to the express provisions of the Settlement l

10 Agreement, the CPUC in Decision 88-12-083 expressed its intent 11 regarding future efforts to modify the Settlement Agreement:

12 "This Commission cannot bind future Commissions in fixing just and reasonable rates for PG&E.

j 13 Nevertheless:

14 To the extent permitted by law, the Commission ,

15 intends that this decision be binding upon future I Commissions.

16

...[T]his Commission intends that all future 17 Commissions should recognize and give all possible consideratios. and weight to the fact that this 18 settlement has been approved based upon the expectations and reasonable reliance of the parties 19 and this Commission that all of its terms and conditions will remain in effect for the full term of 20 the agreement and be implemented by future

Commissions."S2/

21 This CPUC commitment contrasts with TURN's assertion that the 22 Settlement Agreement may be thrown out 4 years after its 23 l

adoption because it is "an inappropriate method of regulation" 24 25 21/D.88-12-083, mimeo at Appendix D, Implementing Agreement, paragraph 1(G).

l 26 l 3p/D.88-12-083, Conclusions of Law 4, mimeo at 192-3, 30 CPUC L

2d at 284.

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1 and an " injustice."S1/ Contrary to TURN's desires, tr : CPUC l l

1 2 in Decision 88-12-083 correctly and appropriately committed to 3 uphold the Settlement Agreement "as it would any decision, 4 including those based on traditional ratebasing...."ill The 5 reasons for this commitment are obvious.

6 First, it is a sound principle of public policy that 7 judicial bodies and regu.- ors should uphold and support the 8 integrity of comprehensive settlements that have been found to 9 be in the public interest. The California Supreme Court

! 10 recently reaffirmed the public, policy in favor of settlements:

l 11 "This court recognized a century ago that settlement

! agreements '"are highly favored as productive of peace and 12 good will in the community,"' as well as '" reducing the expense and persistency of litigation."' [ citation 13 omitted] The need for settlements is greater than ever before. 'Without them our system of civil adjudication 14 would quickly break down.' (Lynch, California Negotiation and Settlement Handbook (1991), p. vii [ foreword by 15 16 17 11/TUR4 Petition at 17.

18 32/D .88-12-083, mimeo at 3, 138, 154. Any modification of the Settlement Agreement, of course, must comply with 19 constitutional standards applicable to both traditional and non-traditional ratemaking. Egg D.85-08-046, 18 CPUC 2d 592, 20 599 (1985) ("[Humboldt Bay] Unit 3 was entered into rate base under the assumption that it would serve customers for 30 21 years. Shareholders were entitled to a return and ratepayers were liable for the full ownership cost as long as Unit 3 22 operated as expected."); Public Utilities Code 455.5 (Effect of out of service facilities). Also agg D.82-12-120 (pricing 23 provisions in QF contracts not subject to future modification by CPUC); D.92-08-036 (1992), mimeo at 18 ("As a general 24 matter, the ongoing cost-effectiveness of an existing generation resource is properly considered at such time as a 25 utility proposes substantial capital expenditures for'that resource....We do not intend to continually consider premature 26 retirement of all existing generation resources, or of a class of such resources that some parties might want to shut down.")

l l

1 i

l s

1 California Supreme Court Chief Justice Malcolm M.

Lucas) . ) "il/

2 i

3 The CPUC itself echoed this public policy when it promulgated l 4 its rules governing stipulations and settlements in CPUC l

5 proceedings: "

...[S)ettlements can provide useful methods for l

6 resolving public utility proceedings, and these methods can 7 achieve mutually acceptable solutions, reduce uncertainty, 8

expedite regulatory review and conserve public and private 9 resources."SS/ A failure by the CPUC to uphold the 10 Settlement Agreement here would have an extremc " chilling 11 effect" on the willingness of parties to negotiate s.ch 12 settlements or even to trust the CPUC in its consideration of 13 such settlements under constitutional' guidelines.dl/

14 Second, by its nature, the Settlement Agreement here is a 15 long-term, multi-year arrangement whose full bene nd risks 16 are borne by ratepayers and the utility over the tull te of 17 the settlement. J Such an arrangement by design can be judged 18 "just ind reasonable" and in the public interest only in its 19 20 21 31/

277 N earv v. Recents of Univ. of Calif. (1992) 3 Cal.4th 273, 22

/

23 D.F7-11-053, 26 CPUC 2d 96, 97 (1987).

$1/E_g; Ducuesne Licht Co.

24 v. Barasch (1988) 488 U.S. 299, 315; 102 L Ed.2d 646; 109 S.Ct. 609, 619 ("[A] State's decision to 25 arbitrarily switch back and forth between methodologies in a way which required investors to bear the risk of bad 26 investments at some times while denying them the benefit of ,

I good investments at others would raise serious constitutional questions.").

i

s 1 entiretv, not based on its balance of benefits and burdens in ,

2 any given year.dl/

1 3 Third and most importantly, any material modification'of l l

4 the Settlement Agreement along the lines suggested by TURN 5 would constitute the very worst type of " heads I win, tails you I 6 lose" public policymaking. Such a decision could tear the 7 regulatory compact apart in California and set back for years 8 the efforts of regulators and utilities alike to find common-9 ground on new methods of incentive and market-based regulation.

I 10 For these reasons, PG&E urges ~the CPUC to reject TURN's 11 petition because it violates the intant of the parties and'the 12 CPUC that the Settlement Agreement be upheld without change for 13 its full term.

l-

! 14 V. TURN'S PETITION IS AN UNTIMELY APPLICATION FOR REHEARING 15 TURN's petition is no minor request'for clarification'of 16 Decision 88-12-083; it is a major request to reopen and 17 overtugn the Settlement Agreement long after the time'for 18 rehearing has passed. As such, it is; barred'by Rules 43 and 85 19 of the Commission's Rules of Practice and Procedure.II/ TURN 20 cannot circumvent the CPUC's deadlines for rehearing by simply l

21 l

22 SI/D.88-12-083, mimeo at 64-65, 30 CPUC 2d at 226 ("It is not l

enough to say, as some parties do, 'Let future Commissions decide.' We must make the decision now in order-to make the 23 finding that the settlement is in the public interest;,and~so that the parties understand their rights and obligations.")

l 25 S2/R ule 43 prohibits petitions for modification other than for i

minor changes to a CPUC decision or order, and requires other 26 changes to be requested by application for rehearing under Rule.

85. Rule 85 bars applications for rehearing not filed'within-30 days of issuance of the order or decision. .

I i

1 l j l

1 labeling its pleading a " petition to modify." As the CPUC j 2 recently reaffirmed, "'Having failed to apply for a rehearing 3 within the time limit fixed by the code [the petitioner) cannot 4 accomplish the same purpose by a petition to reopen, that.

5 petition differing in form only, not in its. substance, from a 6 petition for rehearing.'"iEl This is even more applicable 7 where, as here, the petition to modify makes the same arguments 8 raised and rejected by the CPUC in a previous application for 9 rehearing.SA/ Such arguments are not only untimely, they are 10 barred by res iudicata. See Public Utilities Code 5 1709.

11 VI. CONCLUSION l 12 PG&E intends to continue to operate and manage Diablo l 13 Canyon as safely and reliably as it has previously, and the l 14 performance based incentives in the Settlement Agreement will 15 no doubt play a positive role in assuring that good 16 performance. At the same time, PG&E and its shareholders are 17 commitjed to continue to bear the substantial risks of 18 unscheduled outages, uncontrollable cost escalation and 19 unforeseen regulatory requirements that the Settlement 20 Agreement imposes on them and not ratepayers. .For these 21 22 33/D.92-09-054 (September 2, 1992), mimeo at 3, citing Northern Cal. Assn. v. Public Util. Com. (1964) 61 Cal. 2d 126, 134.

A2/

24 TURN's arguments regarding Diablo Canyon's capacity factor were previously denied by the CPUC and the California Supreme 25 Court. Egg Appl. of TURN for Rehearing of Decision 88-12-083 (January 23, 1989, at 4-8; appl. den. D.89-03-062 (March 22, 26 1989); TURN Petition for Writ of Review, at 49 (April 21, 1989) ; rev. den. TURN v. Public Util. Com., No. S009895, California Supreme Court (July 27, 1989).

I reasons, PG&E concludes that the Settlement Agreement is. has 2 been, and will continue to be "a good deal" for ratepayers and 3 PG&E alike. Therefore, PG&E respectfully requests that the 4 CPUC find that TURN has presented no facts which would warrant 5 reopening the Settlement Agreement, and dismiss TURN's petition 6 with prejudice.

7 RE factfu]ly submitted, 8 HOWARD V. GOLUB CHRISTOPHER J. WARNER 9

By M

11 CHRIsTOPHtR J. WARNER 12 Attorneys for PACIFIC GAS AND ELECTRIC COMPANY 13 Post Office Box 7442 San Francisco, CA- 94120 14 Telephone: (415) 973-6695 15 October 16, 1992 16 17 e

18 19 r

20 21 22 23 -

24 25 26 f - - _ .. -- . . - . - . .

l CERTIFICATE OF SERVICE I hereby certify that I have this day caused a copy of the l foregoing document to be mailed to each of the parties.on'the 1

official service list.

Executed at San Francisco, California, this 16th day of October, 1992.

l

). /

VJUDY HUM f~

l l

l 5/CoS-10.16

. 4

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Mcro Lowning

!- ABALONE ALLIANCE ^

l

. 2940 16th Street. Suite 510

. Sen Francisco. CA 94100 l

l Roger Herried l

ABALONE ALLIANCE 2940 16th Street. Suite 310 San Francisco, CA 94103 l James D. Squeri l ARMOUR. GOODIN. SCHLOTZ 6 MAC BRIDE 505 Sansome St., Suite 900 San Francisco. CA 941'1 1 i

Barbare R. Bartovict.

BAREDVICH & YAF 1915 University Ave.. Suite !A Berkeley. CA 94704 Reed V. Echmidt BARTLE WELLS ASSOCIATES e

1606 Bush Street San Francisco. CA 94109 Ronald Lampson BERRENDA MESA WATER DISTRICT 2100 F Street. Suite 100 Batersfield. CA 90001 Laurie McDermott CODES 731 Pacific Street. Suite 42 i San Luis Obispo. CA 93401 i

l i

i

Ph11io C. Presbar CALIFORNIA ASSOCIATION OF UTILITY .

SHAREHOLDERS 2CS Montgomery St., Suite 1068 San Francisco, CA 94104 .

Mar 6. J. Urban CALIFORNIA ATTCRNEY GENERAL 1515 K Etreet. Euste 511 Sacramento, CA 95814 Steven M. Cohn CALIFORNIA ENERGY COMMISSION 1516 Ninth Street. MS-14 Sacremento. CA 95314-5512 Eteven A. Geringer CALIFORNIA FARM BUFEAU FEDERATION 1601 Exposition blvd.

Sacramento. CA 9b51S Bryor. D. Sher CALIFORNIA LEGISLATURE ASSEMBLY e

P.O. Bo:: 942849 State Capitol Sacremento. CA 95814 Robert E. Burt CALIFORNIA MANUFACTURERS ASSOCIATION P.O. Box 1198 Sacramento. CA 95806-1198 Edward W. O'Nei11 CALIFORNIA PUBLIC UITILITIES COMMISSION 505 Van Ness Ave.. Rm. 5032 San Francisco, CA 94102

~

Arocles Aouilar CALIFORNIA PUBLIC UTILITIEE

. COMMISSION SOS Van Ness Ave.. Rm. 5137 San Francisco. CA 94192 Robert A. Barnett. ALJ (2)

CALIFORNIA PUBLIC UTILITIES COMMISSION SOS Van Ness Ave. R n. . 503?

Sen Francisco, CA G4102 Psymond J. C:ahar CALIFORNIA PUBLIC UTILITIES COMMI55ICU 505 Van Ness' Ave.. Rn. 4103 San Francisco, CA 94102 Eruce liebr,rr y CALIFORNIA PUBLIC UTILITIEE COMMISSION SOS Van Ness sve.. Rm. 2003

5en Francisco. CA 9a102 D. Dics.ev CALIFORNIA PUBL K U1ILITILS COMMISSION SOS Van Ness Ave.. Rm. 502S San Francisco. CA 94102 Robert T. Feraru CALIFORNIA PUBLIC UTILITIES COMMISSION SOS Van Ness Ave. Rm. S303 San Francisco. CA 94102 Herb C. Maufman CALIFORNIA PUBLIC UTILITIES COMMISSION SOS Van Nes? Ave.. Rm. 4105 San Francisco. CA 94102

1 Albert Porter .

{

CALIFORNIA PUBLIC UTILITIES .

COMMISSION SOS Van Ness Ave.. Rm. 5116 San Francisco, CA 9410~-  ;

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James Pretti CALIFORNIA PUBLIC UTILITIES COMMISSION 505 Van Ness Ave.. Rm. 4007 San Francisco, CA 94102 Joel Tolbert CALIFORNIA PUBLIC UTILITIES COMMISSION 505 Van Ness Ave.. Re. 4-E Sen Francisco. CA 94102 James Well. A.L.J.

CALIFORNIA PUBLIC UTILITIES COMMISSION 505 Van Ness Ave.. Rm. 5005 San Francisco. CA 94102 Robert Weissman CALIFORNIA PUBLIC UTILITIE5 COMMISSION

• 505 Van Ness Ave., Rm. 5007 San Francisco, CA 94102 Patrick L. Gileau CALIFORNIA PUBLIC UTILITIES COMMISSION LEGAL DIVISION 505 Van Ness Ave.. Rm. 5002 San Francisco. CA 94102 l

l I

Dan Hauser ,

CALIFORNIA STATE ASSEMBLY  !

State Capitol. P.O. Box 942849 l Sacramento, CA 94249-0001 i

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. Gwen' Moore- < ^

CALIFORNIA ETATE ASEEMBL't:  ; 1- ,

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l i l .? State Capitol. Rm. 2117

! Socramento. CA 95E14 . ,

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c Harrison Call CALL COMPANY. LTD.

71 East 15th Ave. ,

Eugene. OR 97401 I .

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C. Hayden Ames CHICt.ERING & GREGORY, P.C. ,

v 200 Green Street San Francisco. CA 94131 ,

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Leonerd Sneider l C11i & COUN1Y OF 5.,N FhsNCI500

.i 214 Van Ness Ave.. Rm. 20s  ;

San Francisco. CA 94102 i e l

1 Wavr.e W. T ru >:i l l o CITY OF SANTA QLAFA 1500 Werburton Avenue Santa Clara. CA 95'.160 Kenneth L. Haggard t CONCERNED CAL POLY FACULTY AND STAFF t

Star Route Bo:: 238 Santa Margarita, CA 90453  ;

i l

l

l. D. E. Coker  ;

l DEPARTMENT OF ARMY OFFICE OF THE -

JUDGE ADVOCATE GENERAL 5611 Columbia Pike. JAL-RL (3260)

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DEF ARTMENT OF THE NAVN FEDERAL

• EXECUTIVE AGENCIES ,

l 900. Commodore Drive (Codo 09C)

San Eruno, CA 94101-2402 5-!

I Kathleen Maloney DIVISION OF RATEPAYER ADVOCATES 505 Van Ness Ave.. Room'5024 Sen Francisco, CA 94102

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'I Philip A. Stohr ,

DOWNEY, BRAND, SEYMOUR & ROHWER 555 Capitol Mell, Suite 1050 Sacramento. CA 95E'14  ;

Bryan Gaynor ENERGY AND RESOURCE ALVDCATLS 1701 G Street. Suite C Arcata. CA 95521 I

f Thomas J. Vergo FEDERAL EXECUTIVE AGENCIEE .

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P.O. Bo: 727 San Bruno. CA 94066 t

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Judith Alper l INDEPENDENT PDWER CORPORATION .

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> 2101 Webster Street, Suite 1650 '

l Oakland. CA 94612 ~ j t

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l Thomas P. Corr

! INDEPENDENT POWER CORPORATION 2101 Webster St., Suite 1650 l Oakland, CA 94612 l

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. ChrtG J. Pillo ,

J ACF. EON. LEWIS. SCHIJITILER 0 LRUPMAN 525 MarFet Street San Francisco. CA 94104 l

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l Jeff Nahigler, JOS ENERGi l 1

011 D Street 1 West S44cramento.- CA (So0*

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William E. Mercus JDS ENERGY. INC.

311 D Street. Suite A West Sacramento, CA 95d0 Metthe.s V. Eredy 6NOX. LEMMO!J. BRADi. ANM G_Si y e SHERIDAN 000 Cepitol Mell. Evite 1170 Sacramente. CA 95314 .

A. Vir6 meted 22n LAW OFFICES OF A. V I F. F' MCF.ENZIE e

425 Cel21ornia Etreet. 19th Floor San Francisco, CA 94104 Henry Hemmer LIFE ON EARTH Star Route, Bo:: 235 Santa Margerita. CA 93453 L. 6.y ri a cou MORRISON & FOERETER 345 California Street San Francisco. CA 94104-2105 l

t

Feter H. Feufman OFFICE OF THE ATTORNE( GENERAL .

jio West A Street. Suite 700 Sen Francisco. CA 92101

• Steven Pasac PUBLIC MONITORING PROJECT 828 Tor Cr. Road Atascadero. CA 90422 Harvey M. Eder PUBLIC SOLAR POWER COALITION

$27 S. Hobert. Eulte 104 Los Angeles. CA 9v0ZO James Adams REDWODE ALLIANCE l

P.O. Bo, 293 Arcata. CA 95521 Jerry W. Greer.

RESOURCE MANAGElgNT INTERNATIONAL 1010 Hurley Wa/. Suite 500 Sacramento, CA 95825 Beth A. Bowman SAN DIEGO GAS & ELECTRIC COMPANY P.O. Bo:: 1831 San Diego. CA 92112-4150 l I

l l

i l AI2ce Loo SAN FRANCISCO E AY AREA RAPID TRANSIT l

800 Medison Avenue l Dolland. CA 94607 l l i 1

__ __ ._. _ _ _ _ _ _ . . . . _ . . . _ _ . . _ _ . _ _ . _ . _ ~ _ . ___. . _ _ . _ - . .._ _ ._ _ . __

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. SAM LUIS OB1SPO MOTHERS FOR PEACE ..

• F.O. Bou 164

• Pismo Beach. CA 93448 James M. Lehrer SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut-Grave Ave.

Rosemesc. CA 91770 Stephen E. Pictett SOUTHERN CALIFORNIA EDISOt1 COMPANY' 2244 Welnut Grove Ave.

Rosemead. CA 91770 l

3 1

i Tom Bant: }

STANFORD UNIVERSITN t 027 Bone.ir ,

Stanford...CA 94005 l Octavio Les  ;

6 TATE BOARD OF EQUALIZATION. FROFERTY -i TAX DEPARTMENT P.O. Bo:: 94287$

Sacramento. CA 94279-0001 e Legal Department THERMAL POWER' COMPANY ,

717 North Harwood Street Dallas. TX 75201 Peter V. Allen TOWARD UTILITY RATE NORMALIZATION 625 Polk Street. Suite 403 San Francisco, CA 94102 F

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625 Polt Streat. Suite 40!

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Michael L. McQueen UNION OIL COMPANY OF CALIFORNIA 1:01 West Fifth St.

Los Angeles. CA 90051 Harry F. Winters UNIVERSITY OF CALIFORNIA 500 Lakeside Drive. 23st Floor Oalland, CA 94621-0550 7homis R. Sparks UNOCAL 1201 West Fifth Street Los Angeles. CA 90051 Linda J. Dondanv111e UNOCAL GEOTHERMAL DIVISION F.O. Bo:. 6854 Zenta Rosa. CA 95406 Rochelle Becker 1007 Ritchie Grover City. CA 9043; William M. Bennett 1000 N Street Sacramento. CA.95814 1

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,< ' 'Gordon Bruno -.. , .

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.* 11711 Green Vallev ~ Reed j Sebastopol, CA 95472 l

2 Ra:.:e Fleming 1500 1/2 Broad Street ,

San Luis Obispo. CA 95401-4002 ,

i Eleanor Gagliardi l 4072 Wini.le Ave. .

Ssnta Cruz. CA 9506*.

'l Ron Johnston  ;

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115 David Way Grass Valley, CA 95949 .

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'le Craig Meagher t

P.O. Bo: 930 >

Arroyo Grande. CA 93420 Thomes B. Robinson i 2511 Lawton Avenue b San Luis Obispo. CA 93401 Donald G. Salow

.i 3211 Bajament Way ,

4 Carmichael. CA'95608

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240 Stockton. "!. r d Floor '

San Francisco, CA 94108

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