Resolution G-3336 DRAFT January 16, 2003
SoCalGas/AL 3033/LOS
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ID #1526
ENERGY DIVISION RESOLUTION G-3336
January 16, 2003
RESOLUTION
Resolution G-3336. Southern California Gas Company (SoCalGas) requests approval of its sharable earnings filing, which reports SoCalGas’ Performance-Based Ratemaking (PBR) Mechanism results for 2000. Advice Letter (AL) 3033 is approved, effective today.
By Advice Letter 3033 filed on June 25, 2001.
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Summary
This resolution approves SoCalGas’ AL 3033. That AL requests approval of SoCalGas’ 2000 sharable earnings results under its PBR Mechanism and states SoCalGas’ customer count adjustments, performance indicator results, and Core Pricing Flexibility Program results for 2000.
Under its PBR Mechanism, SoCalGas calculates that its actual rate of return (ROR) in 2000 was 11.82%, which is 2.33% above its authorized ROR, resulting in $54.2 million of sharable earning. Of that amount, $34.2 million is allocated to SoCalGas’ shareholders and $20.1 million is assigned to SoCalGas’ ratepayers.[1]
The actual number of customers that SoCalGas provided service to in 2000 was 251 higher than the amount that SoCalGas had forecasted to provide service to on October 1, 1999. SoCalGas’ authorized revenue requirement, as a result, was increased by $69,055 on January 1, 2001, in order to reflect the actual number of customers serviced by SoCalGas in 2000.
SoCalGas’ authorized revenue requirement will also be increased by $143,643 in order to reflect the additional 833 mobilehome park master meter conversions that occurred in SoCalGas’ service territory in 1999 and 2000.
SoCalGas reports that its 2000 customer satisfaction and service quality performances have exceeded the established targets it strives to meet under its PBR Mechanism, resulting in no service quality, customer satisfaction, or safety performance penalties.
No notable differences exist between the 2000 customer satisfaction and service quality performance measures and the 1999 customer satisfaction and service quality performance measures, with the exception of the employee safety measure. The employee safety measure for 2000 increased to an Occupational Safety and Health Administration (OSHA) frequency of 7.9 incidents per 200,000 hours worked by SoCalGas’ employees, compared to the 1999 OSHA frequency of 6.9 incidents per 200,000 hours. Nonetheless, the employee safety results beat the established lowest deadband of 8.3 incidents for every 200,000 hours worked by SoCalGas employees, resulting in an $80,000 reward to SoCalGas’ shareholders.
SoCalGas’ Core Pricing Flexibility Program allows SoCalGas to offer optional tariffed rates and to negotiate discounted rates with its core customers. SoCalGas’ shareholders are responsible for any reduction in core revenues that may occur as a result of tariffed and discounted rates, while revenue gains are shared between ratepayers and shareholders. These rates are applied to the base rate portion of the default PBR rate. The Core Pricing Flexibility Program produced incremental revenues of $361,715 in 2000, which are included in SoCalGas’ net operating revenues.
Background
The Commission adopted SoCalGas’ PBR in D.97-07-054, establishing a mechanism that provides SoCalGas’ management with the incentive to run its system more efficiently while providing safe, reliable service to SoCalGas’ customers. D. 97-07-054 also required that SoCalGas file an annual AL by July 10th of each year summarizing the prior year’s PBR performance results.
SoCalGas’ PBR mechanism uses a revenue-indexing formula that calculates SoCalGas’ authorized base rate revenue requirement for the particular PBR year. SoCalGas’ ratepayers benefit from the PBR mechanism’s revenue sharing scheme if SoCalGas exceeds the revenue sharing tiers set above its authorized ROR. When SoCalGas’ actual ROR falls below its authorized ROR, ratepayers do not share any of these “losses.”
SoCalGas’ PBR mechanism also incorporates performance standards associated with SoCalGas’ customer satisfaction, service quality, and employee safety performance, along with financial incentives to meet these performance standards.
On June 25, 2001, SoCalGas filed AL 3033 detailing SoCalGas’ PBR performance results, its 2000 customer count adjustments, and the 2000 Core Pricing Flexibility Program results, in compliance with D. 97-07-054.
Notice
Notice of AL 3033 was made by publication in the Commission’s Daily Calendar. SoCalGas states that a copy of the Advice Letter was mailed and distributed in accordance with Section III-G of General Order 96-A.
Protests
There were no protests to AL 3033.
Discussion
Revenue Sharing
SoCalGas’ authorized ROR of 9.49% was adopted in D. 96-11-060 and has been effective during the time SoCalGas’ PBR mechanism has been in operation.
SoCalGas’ revenue sharing scheme allocates Net Operating Income (NOI) that exceeds its authorized return between shareholders and ratepayers according to a set of sharing tiers that awards shareholders with an increasing portion of the earnings as the actual ROR increases above the authorized ROR. SoCalGas’ shareholders are at risk for all of the recorded NOI associated with an actual ROR that is below the authorized ROR.
SoCalGas’ actual ROR of 11.82% in 2000 exceeded its authorized ROR by 2.33%, and it bettered SoCalGas’ 1999 actual ROR of 10.13%.
The SoCalGas PBR mechanism’s revenue sharing scheme resulted in a shareholder reward of $34,150,805 and a ratepayer reward of $20,067,515 in 2000. After the ratepayers’ reward is grossed-up in order to incorporate the sharing of tax benefits and FF&U, the ratepayers’ reward portion increases to $23,751,000. These amounts have been calculated correctly.
2000 Customer Count Adjustment
SoCalGas’ forecasted customer count is multiplied by the revenue requirement per customer that results from the PBR indexing formula in order to update SoCalGas’ revenue requirement for the upcoming year. This revenue requirement is later adjusted based on the actual number of customers that received service from SoCalGas.
SoCalGas filed AL 2856 on October 1, 1999, forecasting that it would provide natural gas service to 5,005,993 customers in 2000. On June 25, 2001, SoCalGas updated the actual number of customers it provided service to in 2000 via AL 3033, based on the average recorded number of active meters in SoCalGas’ service territory in 2000. The average recorded number of active meters in SoCalGas’ service territory in 2000 was 5,006,244, requiring a 251 customer count adjustment to SoCalGas’ initial customer count estimation.
SoCalGas’ 2000 revenue requirement increased by $69,005 as a result of its customer count adjustment.
Mobile Master Meter Conversion Allowance
Assembly Bill (AB) 622 permitted the transfer of a mobilehome park’s master meter operational responsibilities from the owner of the mobilehome park to the natural gas company whose service territory encompasses the mobilehome park.
In 2000, SoCalGas gained 480 meters as a result of taking over the operational responsibilities of mobilehome parks’ master meters. These 480 meters were added to the 353 meters from prior conversions through 1999, per AL 2938, filed on July 10, 2000, totaling 833 additional meters. These master meter conversions were not included in SoCalGas’ 2000 meter true-up described above. These conversions, however, result in base margin customer allowances of $172.44 per year per meter, based on the authorized avoided costs of submetering credits. This increases SoCalGas’ authorized revenue requirement by $143,643 (833 meters multiplied by $172.44).
We grant SoCalGas’ request to increase its base margin by $143,643.
Customer Satisfaction
SoCalGas’ PBR Mechanism includes performance targets for customer satisfaction based on SoCalGas’ average performance in this area in 1994 through 1996.
These performance targets are associated with customer satisfaction survey results pertaining to SoCalGas’ telephone service representatives, appointment scheduling practices, field service representatives, and on-time arrival for service representatives. Performance results are gathered from customers that respond to a telephone survey (called The Residential Transaction Program) conducted by Walker Information, a third party contracted by SoCalGas since 1995.
Each day, SoCalGas provides Walker Information with a pool of customers to randomly interview. Walker Information asks 44 closed-ended questions, six partially open-ended questions, in addition to one open-ended question that is only asked to respondents that provide an overall satisfaction rating of five or lower (based on a 10 point scale) for the service received. These open-ended responses are forwarded to SoCalGas by 12:00 p.m. PST on a daily basis, or as received, providing SoCalGas with the opportunity to resolve the particular issue that led to this low rating expeditiously.
Overall survey results are provided to SoCalGas on a monthly basis. Quota targets for the number of customers surveyed by region and transaction type are maintained each quarter. A year-end residential customer survey quota target of 30,000 exists in SoCalGas’ service territory. In 2000, Walker Information conducted 30,123 surveys of SoCalGas customers.
A reward is not provided to SoCalGas if its customer satisfaction performance exceeds the established targets. SoCalGas is penalized if its performance falls below the deadband associated to these targets. In 2000, SoCalGas’ performance exceeded its targets in all four of these service areas.
Telephone Response Time
SoCalGas’ PBR Mechanism includes a telephone response time performance standard, which requires 80% of regular calls to be answered within 60 seconds, and 90% of emergency calls to be answered within 20 seconds. SoCalGas is assessed a $20,000 penalty for each 0.1 percent decline in performance below each performance standard.
SoCalGas reports that in 2000 it was able to answer 84.6% of all regular telephone calls in less than 60 seconds and 93.4% of all emergency telephone calls in less than 20 seconds.
SoCalGas’ average telephone response time performance related to regular calls in 2000 is almost identical to last year’s performance. Its average telephone response time performance regarding emergency calls in 2000 improved by nearly a full percent from last year.
SoCalGas’ 2000 telephone response rate performance does not result in penalties being assessed on its shareholders.
Employee Safety
The Employee Safety benchmark is set at an OSHA frequency of 9.3 with a deadband of plus or minus 1.0. For each tenth of a point SoCalGas scores above or below the deadband, it is penalized/rewarded $20,000.
SoCalGas experienced 448 OSHA recordable injuries, resulting in an OSHA frequency of 7.94 and a reward of $80,000 in 2000. In 1999, SoCalGas reported an OSHA frequency of 6.9, which resulted in a reward of $280,000.
The OSHA frequency standard is calculated by multiplying the number of recordable injuries (448) by 200,000 (100 employees at 2,000 hours/year) and dividing this figure by the total number of OSHA working hours, which in 2000 totaled 11,290,250.
The employee safety performance rewards have been calculated correctly.
Core Pricing Flexibility Adjustment
Under the Core Pricing Flexibility Program, SoCalGas may offer optional tariff rates and negotiate discounted tariff rates with new or existing core customers for the purpose of load growth and load retention.
The Commission authorized a Core Fixed Cost Account (CFCA) adjustment mechanism in order to protect core customers from the risk of revenue shortfalls associated with optional tariff rates and negotiated discounted tariff rates. This adjustment mechanism calculates revenues that represent base revenues, which would have been credited to the CFCA in the absence of optional or negotiated tariff rates.
SoCalGas’ Core Pricing Flexibility Program produced incremental revenues of $361,715, which are included in SoCalGas’ net operating revenues.
Evaluation of SoCalGas’ Overall PBR Performance
SoCalGas’ authorized ROR under its PBR mechanism is 9.49%. In 1998, the first year that SoCalGas’ PBR mechanism was implemented, SoCalGas’ actual ROR was 8.50%. In 1999, SoCalGas’ actual ROR improved to 10.13%. In 2000, it increased further, to 11.82%.
SoCalGas’ three-year PBR performance results have resulted in approximately $75 million in sharable earnings. This entire sharable earnings amount, however, was achieved in 1999 and 2000. In 1999, shareholder received approximately $8.8 million in sharable earnings, while ratepayers received approximately $8.2 million in sharable earnings. In 2000, shareholders received approximately $34.2 million in sharable earnings, while ratepayers received approximately $23.8 million in sharable earnings.
The fact that SoCalGas has been able to exceed its authorized ROR in 1999 and 2000 is notable because the productivity factors that are included in its PBR update formula are relatively high, compared to the factors adopted for San Diego Gas & Electric (SDG&E) and Southern California Edison (Edison). The productivity factors used in the SoCalGas update formula were 2.2% in 1999 and 2.3% in 2000. SDG&E incorporated productivity factors of 1.08% for its gas department and 1.32% for its electric department in its 2000 update formula.[2] Edison has incorporated productivity factors of 1.2%, 1.4%, 1.6% and 1.6% in its respective 1997, 1998, 1999, and 2000 update formulas.[3]
SoCalGas’ PBR mechanism provides performance indicator rewards only for its employee safety performance. Still, SoCalGas met or exceeded all of its service quality benchmarks in 1998, 1999, and 2000. In addition, the level of SoCalGas potential rewards for the employee safety indicator is much smaller than the potential rewards for employee health and safety employee safety under SDG&E’s and Edison’s respective PBRs. SoCalGas has received a performance indicator reward total of only $380,000 for the past three years.[4]
In contrast, SDG&E has received a two-year performance reward total of approximately $21.4 million dollars for 1999 and 2000 and is requesting a reward of $12,210,000 in 2001. SDG&E’s has received $4,550,000 in employee safety rewards for 1999 and 2000, and is requesting an employee safety reward of $3,000,000 for 2001. Edison has reported a five-year reward total of approximately $74 million from 1997 through 2001 for meeting or exceeding most of their respective quality of service targets. Edison has reported employee safety rewards of $25,000,000 over the last five years.
SDG&E’s and Edison’s total service quality rewards are higher than SoCalGas’ rewards, in part, because SDG&E’s and Edison’s respective PBR mechanisms include electric reliability standards, which SoCalGas obviously does not incorporate into its PBR mechanism.
As shown in the table below, however, customer satisfaction, telephone response time (SDG&E only), and employee safety incentives are all much greater for SDG&E and Edison.
1999 to 2000 Actual Performance RewardsSoCalGas / Edison / SDG&E
Customer Satisfaction / $0 / $20,000,000 / ($225,000)
Telephone Response / $0 / N/A / $810,000
Employee Safety / $360,000 / $10,000,000 / $4,550,000
Electric Reliability / N/A / $6,000,000 / $16,275,000
Yearly Maximum Allowable Performance Rewards
SoCalGas / Edison / SDG&E
Customer Satisfaction / $0 / $10,000,000 / $1,500,000
Telephone Response / $0 / N/A / $1,500,000
Employee Safety / $1,660,000 / $5,000,000 / $3,000,000
Electric Reliability / N/A / $18,00,000 / $8,500,000
In summary, SoCalGas’ ratepayers have received revenue sharing benefits in two out of the three years that SoCalGas’ PBR Mechanism has been effective. SoCalGas’ ratepayers have also benefited from above standard service quality provided by SoCalGas, while paying relatively small rewards for this above standard service quality when compared to the rewards that SDG&E ratepayers and Edison ratepayers have had to pay for similar service performance. SoCalGas actual 1999 and 2000 ROR has exceeded SDG&E’s and Edison’s respective actual ROR, in spite of the fact that SoCalGas incorporates a relatively high productivity factor to its PBR update formula.