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SENATE COMMITTEE ON ENERGY, UTILITIES AND

COMMUNICATIONS
Senator Ben Hueso, Chair
2017 - 2018 Regular

Bill No: SB 1088 Hearing Date: 4/17/2018


Author: Dodd
Version: 4/9/2018 Amended
Urgency: No Fiscal: Yes
Consultant: Nidia Bautista

SUBJECT: Safety, reliability, and resiliency planning

DIGEST: This bill would require each electrical corporation or gas corporation,
to submit a safety, reliability, and resiliency plan to the CPUC every two years,
require the CPUC to approve the submitted plan by December 31st of the year in
which the plan is submitted, and authorize recovery of the costs of implementing
the plan through rates. This bill would require the CPUC to conduct an annual
proceeding to review all electrical corporation’s and gas corporation’s compliance
with their plan, as provided, and if the CPUC determines that the corporation is in
substantial compliance with its plan, that the CPUC deem the performance,
operations, management, and investment addressed in the plan to be reasonable
and prudent. Additionally, this bill would prohibit an electrical corporation from
delegating, transferring, or contracting out any of its distribution safety or
reliability performance obligations. This bill would also require OES to adopt
standards for reducing risks from a major event and require the office to update the
standards at least once every two years.

ANALYSIS:

Existing law:

1) Provides that the California Public Utilities Commission (CPUC) has regulatory
authority over public utilities, including electric corporations and gas
corporations. (California Constitution, Article 3 and 4)

2) Requires the CPUC if, after a hearing, it finds that the rates charged or collected
by any public utility are insufficient, unlawful, unjust, unreasonable,
discriminatory, or preferential, to determine and fix, by order, the just,
reasonable, or sufficient rates, classifications, rules, practices, or contracts to be
thereafter observed and in force. (Public Utilities Code §728)
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3) Requires the CPUC to develop formal procedures to incorporate safety in a rate


case application by an electrical corporation or gas corporations. (Public
Utilities Code §750)

4) Authorizes the CPUC, after a hearing, to require every public utility to


construct, maintain, and operate its line, plant, system, equipment, apparatus,
tracks, and premises in a manner so as to promote and safeguard the health and
safety of its employees, passengers, customers, and the public. (Public Utilities
Code §768)

5) Requires the CPUC to establish standards for disaster and emergency


preparedness plans, as specified, and requires an electrical corporation to
develop, adopt, and update an emergency and disaster preparedness plan, as
specified. (Public Utilities Code §768.6)

6) Requires each electrical corporation to annually prepare and submit a wildfire


mitigation plan for the next compliance period to the CPUC for review, and
requires specified elements to be included in the plans. (Public Utilities Code
§8386)

7) Establishes the California Emergency Services Act, among other things,


establishes the Office of Emergency Services (OES) for the purpose of
mitigating the effects of natural, manmade, or war-caused emergencies and
makes findings and declarations relating to ensuring that preparation within the
state will be adequate to deal with those emergencies. (Government Code
§8550, et seq.)

This bill:

1) Makes 27 findings and declarations concerning the effects of climate change,


wildfires, catastrophic incidents and natural disasters, the need for climate
adaptation, California’s efforts related to adaptation, the need for protocols to
deenergize electric lines and disable reclosers, directing the CPUC to require
electrical and gas corporations to harden their systems, and other findings
related to the language in this bill.

2) Establishes the Utility Infrastructure, Safety, Reliability, and Accountability Act


which requires each electrical corporation and gas corporation to prepare, on or
before January 15, 2019, and on or before January 15 every two years
thereafter, to prepare and submit to the CPUC for review and approval a safety,
reliability, and resiliency plan. Requires the plan submitted on or before
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January 15, 2019, to be limited to addressing fire risks, with subsequent plans
addressing risks associated with routine operation and all major events.

3) Requires the plan to include specified elements, including all relevant safety
rules, regulations, standards, and practices adopted by the CPUC and those
adopted by the OES, per this bill, wildfire mitigation plans, and several other
elements.

4) Requires the CPUC to review the plans of the utilities in a single consolidated
proceeding. Requires the CPUC to verify that the plans comply with all
applicable rules, regulations, and standards, including those adopted by the OES
pursuant to this bill. Requires the CPUC to evaluate the reasonableness of the
elements of the plans considering the risks involved and the costs to implement
the plan.

5) Requires the CPUC, in reviewing the plans, to make safety and reliability of
electric or gas services the highest priority.

6) Requires the CPUC to approve, or approve with modification, the submitted


plans on or before December 31, 2019, and on or before December 31 of each
year in which the utilities have submitted plans. If the CPUC fails to issue a
decision on a plan on or before December 31, requires the utility to implement
the submitted plan until the time the CPUC approves the plan, at which time the
utility must implement the plan as approved by the CPUC. Requires the CPUC
to authorize the recovery in rates of the costs incurred by the utility in
implementing its submitted plan prior to the approval by the CPUC without a
reasonable review.

7) Requires the CPUC to authorize rate recovery of the reasonable revenue


requirements to implement plans approved by the CPUC in the proceeding
reviewing the plans. Prohibits authorized revenue from the plan to be reviewed,
adjusted, or authorized in a utility’s general rate case (GRC).

8) Provides that forecasted costs deemed outside the scope of the plan by the
CPUC may be requested and considered in a utility’s GRC or other appropriate
proceeding.

9) Prohibits utilities from diverting revenues authorized to implement the plan to


any activities or investments outside their plans.

10) Requires each utility to establish a memorandum account to track costs


incurred for fire risk mitigation from January 1, 2019, until the CPUC’s
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approval of the utility’s plan submitted on or before January 15, 2019, that are
not otherwise covered in the utility’s revenue requirements.

11) Requires, on or after January 1, 2019, each utility’s Risk Assessment


Mitigation Phase (RAMP) filing to exclude risks addressed in the plan required
pursuant to subdivision (b).

12) Prohibits an electrical corporation from delegating, transferring, or


contracting out any distribution safety or reliability performance obligation.
Prohibits the CPUC from permitting, authorizing, or directing an electrical
corporation to delegate, transfer, or contract out, or authorize any other entity to
perform, a utility distribution safety or reliability performance obligation.
Explicitly authorizes contracting out line clearance tree trimming under the
supervision of the electrical corporation, the purchase of materials or
equipment, contracting for construction or infrastructure owned by the electrical
corporation, contracting for pole test and treat services, contracting for bulk
electricity capacity, energy, or storage that is not for purposes of distribution
safety and reliability, or contracting for information technology services.

13) Requires the CPUC to conduct an annual proceeding to review each utility’s
compliance with its plan, including a factual analysis of any major events that
occurred.

14) Beginning March 1, 2020, and each March 1 thereafter, requires each utility
to file with the CPUC a report addressing compliance with the plan during the
prior calendar year. Requires the CPUC to make available a list of qualified
independent evaluators with experience in assessing electric and gas operations.
Requires each utility to engage an independent evaluator to review and assess
the utility’s compliance with its plan. Requires the independent evaluator to
consult with and operate under the direction of the Safety and Enforcement
Division of the CPUC. Requires the evaluator to issue a report on July 1 each
year and authorizes the utility to recover in rates the cost of the evaluator.

15) Requires the CPUC to assess penalties if a utility fails to substantially


comply with its plan. In determining an appropriate amount of the penalty, the
CPUC must consider specified criteria.

16) If the CPUC determines, after completing the review, that a utility was in
substantial compliance with its plan, the utility’s performance, operations,
management, and investments addressed in the plan must be deemed reasonable
and prudent for all purposes.
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17) Requires OES, on or before September 30, 2019, and on September 30 th of


every two years thereafter, in consultation with the Department of Forestry and
Fire Protection (CalFire), the CPUC, and other appropriate state and local
agencies, to adopt or update standards for reducing risk from a major event.

18) Requires the standards OES adopts to include both: model policies to be
undertaken by local governments regarding zoning, defensible space, fire-
resistant materials and others; and actions to be undertaken by electrical
corporations, gas corporations, local publicly owned electric utilities, local
publicly owned gas utilities, and water utilities to reduce the risk of fire during a
major event.

Background

CPUC efforts to address wildfires. After the 2007 fires ravaged several areas of
the state, in 2008, the CPUC initiated a rulemaking proceeding to address fires
related to utility poles. The CPUC’s efforts have resulted in additional
requirements on utilities to reduce the likelihood of fires started by or threatening
utility facilities, including improved vegetation management, as well as, requiring
the utilities to develop electric utility fire prevention plans. The first phase also
adopted fire hazard maps of high-risk areas in Southern California. In May 2015,
the CPUC opened a new rulemaking proceeding to develop and adopt fire-threat
maps and fire-safety regulations (R. 15-05-006). The CPUC tasked CalFire to
oversee and select outside experts to develop a more refined statewide fire hazard
map. Additionally, the CPUC has held at least two safety en bancs related to
utility pole safety and wildfires. The CPUC’s rulemaking efforts to address
wildfires and electric systems have been active since 2008, with several phases, in
two separate proceedings. These efforts have resulted in the adoption of over 70
proposed rule changes with often prescriptive standards – such as dictating
clearances between power lines and trees. More recently, the CPUC has embarked
on an effort to incorporate wildfire mitigation analysis into the RAMP filings of
the utilities. The RAMP filing is meant to incorporate a risk-informed approach
into the GRC.

SB 1028 (Hill, Chapter 598, Statutes of 2016). In 2016, SB 1028 (Hill) was signed
into law. The bill requires electric utilities regulated by the CPUC to submit
wildfire mitigation plans for review and comment by the CPUC and for POU to
have their governing board adopt wildfire mitigation plans, if the utility believes
the operate in an area where there is a threat of wildfires. SB 1028 is an effort to
establish more performance or risk-based safety rules that focus on identification
of hazards and goal setting, while providing utilities flexibility in achieving the
goals. The intent is to have performance-based goals compliment the prescriptive
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rules related to wildfire prevention, including the multitude of general orders (such
as GO-95) related to safety.

Other emergencies and disasters. Additionally, the CPUC has a number of other
general orders and requirements of utilities to submit disaster and emergency
response plans. Not to mention the numerous safety requirements regarding gas
pipelines, including those adopted after the San Bruno explosion.

General Rate Case. All utilities that are regulated by the CPUC are required to
undergo a GRC whereby the utility requests funding for distribution, generation
and operation costs associated with their service. The GRCs are major regulatory
proceedings and provide the CPUC an opportunity to perform an exhaustive
examination of a utility’s operations and costs with input from all stakeholders,
representing consumers, business and other interests, including the Office of
Ratepayer Advocates (ORA) whose accountants and analysts closely exam the
requests of the utilities. Usually performed every three years and conducted over
roughly 18 months, the GRC allows the CPUC to conduct a broad and detailed
review of a utility’s revenues, expenses, and investments in plant and equipment to
establish an approved revenue requirement. Through the GRC, a utility forecasts
how they will structure their operations and make investments for the next three
years.

Safety Spending and Accountability Reporting. As the CPUC continues its effort
to better incorporate safety risk assessment into its rate case decision making as
part of the on-going Safety Model Assessment Proceeding (S-MAP), required
under SB 900 (Hill, Chapter 552, Statutes of 2014), aspects of the new risk
management approach are being incorporated into GRCs. Recent GRC filings
from PG&E and SCE for the first time included extensive testimony on utility
management of identified safety risks, development of risk mitigation programs
and projects, and prioritizing infrastructure and operational spending to enhance
safety. In the first full application of the new S-MAP paradigm, San Diego Gas &
Electric and Southern California Gas Company in November 2016, made their
initial RAMP filings in advance of their 2018 GRC applications due in September
2017 (I.16-10-015/I.16- 10-016). CPUC Safety and Enforcement Department
(SED) staff and intervenors will assess how well the utilities are incorporating risk
mitigations into their GRC spending proposals. Also, as part of the June 2016
decision on the Sempra utilities’ previous GRC (D.16-06-054), the CPUC ordered
a first-of-its kind accountability reporting requirement to ensure that utility
spending comports with approved activities and that the safety impacts can be
meaningfully assessed. SED staff have been deeply involved in the development
of these new policies, conducting data requests, issuing evaluation reports, and
convening working groups to develop safety performance metrics and
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accountability report templates, as well as providing advisory support for the S-


MAP proceeding (A.15-05-002, et al.).” In 2016, SB 549 (Bradford, Chapter 284,
Statutes of 2016) was signed into law and requires an electrical or gas corporation
to annually notify the CPUC of each time that capital or expense revenue
authorized by the CPUC for maintenance, safety, or reliability was redirected by
the electrical or gas corporation to other purposes.

This bill. SB 1088 proposes require a single consolidated proceeding to address


new all-encompassing safety, reliability and resiliency plans for all CPUC-
regulated utilities outside the GRC and incorporate additional new requirements
adopted by OES. This bill establishes a one year timeline by which the CPUC
would be allowed to approve or modify and approve a plan. If a plan is not
approved by December 31st , the utility would be allowed to implement the yet
unapproved plan. Moreover, this bill authorizes rate recovery for the plan. The
proponents of the bill state their desire to reform the CPUC process for planning
and approving critical investments. The Coalition of California Utility Employees
(CCUE) states that for two decades they have “often been the lone voice
petitioning the CPUC to invest in electric and gas system safety and reliability.
CCUE contends that SB 1088 will help utilities realign their priorities to place
safety and reliability as their number one primary focus. CCUE argues that the
current GRC cycle provides very little time for the discussion and consideration of
critical infrastructure and safety needs. According to them, SB 1088 forces the
CPUC to review these safety and resiliency plans to be the subject of their own
proceeding outside the GRC process.

While the intent of this bill for improved safety is universally supported by
commenters, those in opposition also state some of the following concerns with
thee bill:

Circumventing GRC. Many of those opposed to the bill take issue with the attempt
by this bill to circumvent the GRC proceeding into a separate proceeding that does
not encompass the evidentiary record requirements of GRCs, thereby limiting the
ability of parties to thoroughly review the plans. Moreover, those opposed raise
concerns about the feasibility of such all-encompassing plans to be reviewed in one
proceeding under a year’s time, when GRCs generally take 18 months to 2 years
for each utility. Additionally, many of those opposed believe the end result will be
a blank check to benefit utilities and their shareholders at the expense of
ratepayers, without the outcome of improved safety. Some of the opposition
contends that the new all-encompassing proceeding with a limited under a year
timeline will allow utilities to game the process by not providing full and detailed
information.
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Ratepayer impacts. Several of the opponents to the bill state their concern for
potential substantial increases to rates. Specifically, those oppose contend that the
bill’s threshold that guarantees full cost recovery of the resiliency plans so long as
the utility is found to be “substantially in compliance” for plans that, as TURN
states, “can never be sufficiently detailed and complete to serve as meaningful
blueprints for prudent utility decision-making.”

Liability and accountability. Some opposed to this bill are concerned with the
language in Section 2899.6 which requires the plan to be “deemed reasonable and
prudent for all purposes.” The sponsor and author have stated their intent not to
limit civil liability. However, they also note their desire to limit civil action should
a utility be in substantial compliance with the plan. Therefore, it is unclear what
“all purposes” is intended to encompass.

Third-party contracting. The bill includes provisions prohibiting third-party


contracting of the distribution system, with specified exceptions. In discussions
with the sponsor and author’s office, both acknowledge that the language may be
broader than is intended, as the language would prohibit rearrangements on utility
poles by communications providers, vegetation management, and perhaps a larger
universe of unintended activity that may be routinely done by third-parties.

Double referral. Should this bill be approved by this committee, it will be re-
referred to the Senate Committees on Governmental Organization.

Prior/Related Legislation

SB 819 (Hill, 2017) would prohibit an electrical corporation from recovering a fine
or penalty through a rate approved by the CPUC. This bill would also prohibit an
electrical corporation or gas corporation from recovering through a rate approved
by the CPUC an uninsured expense from damages caused by the utility’s electric
facilities or gas facilities, if the CPUC determines that the electrical corporation did
not reasonably construct, maintain, manage, control, or operate the facility. The
bill is scheduled to be heard by this committee at this hearing.

SB 901 (Dodd, 2017) would require a wildfire mitigation plan prepared by an


electrical corporation, and wildfire mitigation measures prepared by a local
publicly owned electric utility or electrical cooperative, to include protocols the
utility or cooperative may use to determine when it may be necessary to deenergize
its electrical lines and deactivate its reclosers. The bill is scheduled to be heard by
this committee at this hearing.
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SB 549 (Bradford, Chapter 284, Statutes of 2016) requires an electrical or gas


corporation to annually notify the CPUC of each time that capital or expense
revenue authorized by the CPUC for maintenance, safety, or reliability was
redirected by the electrical or gas corporation to other purposes.

SB 900 (Hill, Chapter 552, Statutes of 2014) requires the CPUC to develop formal
procedures, as specified, to consider safety in a rate case application by an
electrical corporation or gas corporation.

AB 56 (Hill, Chapter 519, Statutes of 2011) required the CPUC, in any ratemaking
proceeding in which the CPUC authorizes a gas corporation to recover expenses
for a federal transmission pipeline integrity management program, or for related
capital expenditures for the maintenance and repair of transmission pipelines, to
require the gas corporation to establish and maintain a balancing account for the
recovery of those expenses.

SB 879 (Padilla, Chapter 523, Statutes of 2011) among its provisions, included the
same provision related to maintaining a balancing account for gas pipeline safety
maintenance and repair as in AB 56.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No


SUPPORT:

Coalition of California Utility Employees (Source)


California State Association of Counties
California State Association of Electrical Workers
California State Pipe Trades Council
Sonoma County Board of Supervisors

OPPOSITION:

Agricultural Energy Consumers Association


Alliance for Nuclear Responsibility
Asian Pacific Environmental Network
California Environmental Justice Alliance
California Large Energy Consumer Association
Center for Community Action & Environmental Justice
Communities for a Better Environment
Consumer Attorneys of California
Consumer Federation of California
People Organizing to Demand Environmental & Economic Rights
SB 1088 (Dodd) Page 10 of 11

Silicon Valley Leadership Group


The Utility Reform Network
Vote Solar

ARGUMENTS IN SUPPORT: According to the author:

“Investment in reducing the risk of wildfires has a proven cost savings of at


least 3:1, but the CPUC has not established adequate standards to reduce the
risk of wildfires caused by utility equipment and to make electric and gas
utility equipment more resilient and resistant to damage from major events.
This bill would require the Office of Emergency Services, along with other
agencies, to establish standards for utilities to protect against damage from
natural disasters. IOUs will file safety, reliability and resilience plans with
the CPUC which provide for hardening the utility infrastructure. The plans
would include all costs to implement the safety, reliability and resilience
measures. The CPUC would review, modify and approve the plans,
including the costs to implement the plans. Establishing a stand-alone
rulemaking would require Investor Owned Utilities and the CPUC to give
greater attention and care to safety and reliability, and the bill would
establish strong accountability requirements.”

ARGUMENTS IN OPPOSITION: The arguments in opposition to the bill can


be categorized under three general areas: concern about increased and unjustified
costs to ratepayers, undermining the existing liability and accountability, an
infeasible timeline and process, lack of metrics related to resiliency, and concerns
regarding broad prohibitions against utilities contracting.

With regards to ratepayer costs, TURN states the bill is based on a one-sided
bargain that would benefit utilities at the expense of ratepayers, without improving
safety. TURN states that “rather than enhancing safety, SB 1088 would reduce
current energy utility incentives to operate their systems safely and prudently and
would effectively grant the utilities a blank check.

The Consumer Attorneys of America oppose the bill because ‘as written the bill
gives utilities a “get out of jail free” card for all civil liability simply because the
utility was in “substantial compliance” with some obscure and yet to be determined
CPUC utility plan.’

The Consumer Federation of America states that the bill’s regulatory review
timeline “undermines the possibility for a review that is fully vetted by the
regulator and the public” and “leaves almost no room for the regulator to reject a
utility plan.”
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The Silicon Valley Leadership Group opposes the bill’s “requirement for exclusive
investor-owned utility performance of distribution safety and reliability work”
which SVLG states “has nothing to do with being prepared for cataclysmic natural
events. The provision would, however, squelch competition in a number of areas
where third party distributed energy solutions currently flourish, areas like behind
the meter solar, storage, and demand response.”
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