BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 900 - Hill Hearing Date: April 1, 2014
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As Introduced: January 15, 2014 FISCAL B
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DESCRIPTION
Current law requires that the California Public Utilities
Commission (CPUC) and each gas corporation place safety of the
public and gas corporation employees as the top priority and
further requires that CPUC take all reasonable and appropriate
actions necessary to carry out safety as a priority consistent
with the principle of just and reasonable cost-based rates.
(Public Utilities Code § 963)
Current law requires, in any ratemaking proceeding in which the
CPUC authorizes a gas corporation to recover expenses for the
maintenance and repair of transmission pipelines, that the CPUC
require the gas corporation to establish and maintain a
balancing account for the recovery of those expenses. (Public
Utilities Code § 969)
This bill requires the CPUC to adopt formal procedures to
consider safety in general rate case applications (GRC) filed by
electrical and gas corporations (investor-owned utilities or
IOUs). In association with those cases the CPUC staff would be
required to produce specified reports on IOU safety performance,
evaluations of the quality of the IOU's incremental
safety-related revenue requests, and to monitor the
safety-performance of the IOUs on an ongoing basis. With
approval of a GRC the CPUC would be required to make
risk-informed findings as to the safety benefits of incremental
funding requests of safety-related proposals.
Current law defines quasi-legislative proceedings as those that
establish policy including rulemakings and investigations which
may establish rules affecting an entire industry. (Public
Utilities Code § 1701.1)
This bill requires the CPUC to develop safety risk management
procedures, as specified, in consultation with any state entity
that shares regulatory safety authority, for use in
quasi-legislative proceedings to assist the CPUC in determining
whether a proposed policy or rule change will affect safety.
BACKGROUND
What is a General Rate Case? - GRCs are a traditional regulatory
proceeding in which a utility files a revenue requirement
request based on its estimated operating costs and capital needs
for a particular test year. The CPUC determines the reasonable
amount of revenue requirement necessary to provide safe and
reliable service, to cover costs, and to permit the utility an
opportunity to make reasonable earnings.
For electrical and gas utilities, GRCs now generally cover gas
distribution and transmission, electric distribution, and/or
electric generation. These cases aim to strike a proper balance
between risks the utilities take and reasonable opportunity for
returns, taking into account changing economic, operational and
policy conditions. The GRC plays an important part in effective
regulation of the electrical and gas industries. Among other
things, the GRC promotes:
Utility viability in changing economic conditions;
An appropriate balance of risks and rewards for
utilities;
Utility management accountability through regular
performance review;
Timely implementation of legislative and regulatory
policies by utilities;
Participation by intervenors such as customers, public
interest groups, and state and local government bodies in
the CPUC's regulatory process; and
Predictability for investors, bond-holders, and others
in the financial community.
The assigned commissioner and administrative law judge (ALJ)
have significant discretion and flexibility in each GRC to
define the scope of relevant issues, as well as the nature and
extent of supporting evidence required, including those issues
relating to safety and reliability requirements. The scoping
memo issued by the assigned Commissioner offers an important
tool to define and guide development of the record on safety and
reliability issues.
CPUC Safety Rulemaking - The CPUC opened a rulemaking on
November 14, 2013 to examine how to change the rate case plan
for energy utilities with a focus on addressing how best to
consider safety. The CPUC intends that the rulemaking will
determine whether and how they should formalize rules to ensure
the effective use of a risk-based decision-making framework to
evaluate safety and reliability improvements presented in GRC
applications, develop necessary performance metrics and
evaluation tools, and modify the documentation requirements for
the IOUs. The goal is to prioritize safety and reliability
issues in GRC applications of the IOUs, clarify the rate case
review process, and more efficiently manage the complexity and
duration of the GRC proceedings, while ensuring consistency and
uniformity among GRC applications of IOUs.
COMMENTS
1. Author's Purpose . The author reports that since the
2010 PG&E natural gas transmission pipeline explosion in
San Bruno, individuals within and outside of the CPUC have
discussed the need and the means by which safety should be
considered in an energy utility's general rate case. The
discussion has generally presupposed a connection between
the amount of money spent on safety and safety outcomes, an
assumption with limitations. Additionally, disagreements
about the role of ratepayer advocates - particularly the
Office of Ratepayer Advocates - undermine the Commission's
ability to develop processes to address safety.
This proposed legislation approaches safety from a holistic
point of view, recognizing that managing risk in
decision-making is only part of the CPUC's safety
portfolio, and information gained in other oversight
activities should inform ratemaking and be informed by it.
It recognizes that the management of safety needs to be
addressed not because it could have prevented the disaster
in San Bruno, but because utilities are now making rate
increase requests that focus on safety and the CPUC
currently doesn't have processes to evaluate those
requests.
2. General Rates Cases & Safety . The broad policy proposed
by this bill is warranted and the need acknowledged by the
CPUC and others. The report of an independent review panel
after the San Bruno tragedy opined that "it is incumbent on
the entire organization - safety and ratemaking branches -
to understand the need for investments in safety and
reliability, the goals expected from the investments, the
alternatives considered, and the progress in system
improvements." In 2012 staff of the CPUC commented in a
legislative hearing that without a mechanism to consider
safety in ratemaking, "we can't tell you when a rate case
is approved whether or not the amount of money allocated
toward reliability and safety is the right amount of
money."
Finally in the fall of 2013, the CPUC initiated a
proceeding to "modify or update the current rate case plan
for energy utilities to more purposefully and appropriately
prioritize safety, reliability, and security considerations
and related revenue requirements, with the goal of
developing a risk-based decision-making framework and
related evaluation tools."
The author intends to "provide policy guidance to the CPUC
on the nature of safety and to ensure safety considerations
are included in the CPUC's ratemaking and rulemaking
proceedings" but the framework detailed by this bill to a
certain extent jumps ahead of the CPUC's rulemaking and
defines an outcome. That rulemaking may produce a similar
rubric, may result in another framework, or may fall flat
but now that the CPUC appears to be making a good faith
effort to address the issue, it may be appropriate for the
proceeding to conclude and then evaluate its quality. In
the meantime, the author and committee may wish to consider
amending the bill to ensure that the safety proceeding is
required and continue on its course but delay proposing a
framework until the rulemaking has concluded and the
outcome can be evaluated. Moreover, the bill inadvertently
identifies two different types of rate cases - a general
rate case and a separate rate case that considers a subset
of issues. A generic reference to rate cases would be more
inclusive. The author and committee may wish to consider
striking both case references and instead simply refer to
"rate cases."
3. Quasi-Legislative Proceedings & Risk Management . The
author also intends by this bill that policy-making
proceedings follow an analysis of risk management involving
a prospective assessment of possible risks and the
development of strategies to minimize them.
The complexity added to the broad policy work of the CPUC
would be significant as a result of this proceeding. The
types of rulemakings that would be affected by this bill
include program development of Renewable Portfolio Standard
(RPS) procurement requirements, net energy metering
tariffs, the Self Generation Incentive Program, funding
parameters for broadband deployment, implementation of feed
in tariffs, and implementation of legislation modifying or
establishing new programs.
Safety is always important but not necessarily germane to
every proceeding managed by the CPUC to the level specified
by this bill. As an example, if the CPUC were to open a
proceeding to consider whether the 33% RPS requirement for
electrical corporations should be increased, this bill
would mandate an extensive analysis of safety for
generation facilities and the distribution and transmission
grids, the identification and analysis of the hazards of
those facilities, whether hazards and risks were
acceptable, and the inclusion of risk controls, among other
factors. Those hazards are all managed in the siting of
generation, transmission, and distribution facilities
separate from CPUC rulemakings. Additionally, the analysis
would require an exhaustive speculation of procurement
decisions by the IOUs that would not be productive.
The Legislature has expressed its intent that the CPUC
assesses the economic effects or consequences of its
decisions as part of each ratemaking, rulemaking, or other
proceeding. In order to ensure that the CPUC evaluate
whether safety impacts should be considered as a part of
any work of the commission, and to allow the CPUC to set
the parameters of the necessary analysis for each unique
proceeding, the author and committee may wish to consider
adding customer, public and employee safety to existing law
to replace section two of the bill.
POSITIONS
Sponsor:
Author
Support:
The Utility Reform Network, if amended
Concerned:
California Association of Small and Multi-jurisdictional
Utilities
Oppose:
Pacific Gas and Electric Company
Kellie Smith
SB 900 Analysis
Hearing Date: April 1, 2014