WEBVTT

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<v ->The evidentiary hearing in Investigation 1909016,</v>

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Administrative Law Judge Peter Allen.

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And I do believe that this will be the last day

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of evidentiary hearings. Am I correct?

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(laughter)

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<v Mr. Weisman>Yes, Your Honor.</v>

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<v ->Yes, thank you Mr. Weisman (laughs)</v>

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everyone now, yes Your Honor.

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(laughter)

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So the order of witnesses we have for today

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is Dalzell, Beach, Gorman,

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and then Long and Orf Finkelstein.

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I know parties were looking at some of their cross estimates

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are there any revisions on the cross estimates?

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Mr. Bloom?

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<v ->Yes, Your Honor.</v>

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We think Gorman, Long, and Beach,

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we're going to try to keep it to about 20 minutes.

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<v Judge>Okay, Gorman, Long,</v>

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and Beach 20 minutes for TCC, okay.

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<v ->I'll make it a little bit,</v>

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but that should accommodate and knocks it down quite a bit.

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And according to what other obviously people are asking,

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we may be even to tighten I down.

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<v Judge>I don't see that you had cross for Gorman.</v>

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<v ->It should have been in your--</v>

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<v Judge>I had you listed as,</v>

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what I have listed is 60 for Long,

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and 60 for Finkelstein.

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<v ->I thought we had 60 for Gorman also, Your Honor.</v>

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<v ->That's what I show too, Your Honor.</v>

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<v Judge>Is which?</v>

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<v ->According to my record,</v>

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TCC reserves 90 minutes for Gorman.

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<v Judge>Okay, so you'd have 20 minutes for Gorman?</v>

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<v ->Yeah, I think we should be able to keep it down</v>

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to about 20. It might be a little bit longer.

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<v ->And then do you still have 60 for Finkelstein?</v>

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<v ->I said none for Finkelstein.</v>

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<v ->None for Finkelstein, okay.</v>

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Any other modifications?

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<v ->And I let them know last night.</v>

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<v ->Okay.</v>

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<v ->Last night, sir.</v>

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<v Judge>Off the record.</v>

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<v ->God bless you, Your Honor.</v>

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<v ->On the record. Any other house keeping to do</v>

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before we call the first witness?

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Seeing none, Ms. Cass?

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<v ->Good morning, Your Honor.</v>

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Q would like to call Tom Dalzell.

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<v Judge>Thank you, off the record.</v>

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On the record.

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Do you swear to tell the truth, the whole truth,

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and nothing but the truth?

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<v ->I do.</v>

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<v ->Thank you, please be seated.</v>

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State your full name, and spell your last name.

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<v ->Tom Dalzell, D-A-L-Z-E-L-L.</v>

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<v Judge>Ms. Cass.</v>

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<v Ms. Cass>Good morning, Dr. Dalzell.</v>

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Do you have in front of you what has been marked

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as exhibit Q1, which is the testimony of Tom Dalzell

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on behalf of the Coalition of California Utility Employees?

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<v ->Yes.</v>

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<v Ms. Cass>And was that testimony prepared by you,</v>

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or under your direction?

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<v ->Yes.</v>

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<v ->And is it true and correct to the best of your knowledge?</v>

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<v ->Yes.</v>

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<v ->And are you sponsoring that testimony?</v>

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<v ->Yes.</v>

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<v Ms. Cass>Thank you.</v>

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Mr. Dazell is available for cross examination.

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<v Judge>Thank you.</v>

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I believe the cross on Mr. Dazell is by Mr. Geesman.

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<v Mr. Geesman>Thank you, Your Honor.</v>

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Morning, Mr. Dazell.

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<v ->Morning.</v>

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<v ->My name is John Geesman,</v>

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I represent the Alliance for Nuclear Responsibility.

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Our interest in this proceeding is focused on the impact

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of PG&E's plan of reorganization on ratepayers.

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Besides your extensive background

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as the business manager of IBW Local 1245,

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you also serve as the chair

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of the California Citizens Compensation Commission,

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do you not?

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<v ->Yes, I'm appointed by the Governor to that position.</v>

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<v ->Could you describe what the Commission does?</v>

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<v ->It sets the wages for members of the Legislature</v>

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and the constitutional officers.

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<v ->How many members are on the Commission?</v>

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<v ->(laughs) When it's completely staffed,</v>

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there are five of us.

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<v ->And how long have you been on the Commission?</v>

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<v ->Seven or eight years.</v>

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<v ->When does your term end?</v>

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<v ->I don't know.</v>

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<v ->Your testimony at page four, lines one through eight,</v>

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describes a concern about, and I'm quoting,

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"Instability within the bargaining unit,"

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related to the high level of compensation for PG&E lineman

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in the Bay Area. Do you see that?

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<v ->So the lines were what?</v>

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<v ->One through eight on page four.</v>

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<v ->I see lines one through eight.</v>

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<v ->Okay. How many of your members</v>

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would you categorize as PG&E lineman in the Bay Area?

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<v ->Well, I can't tell you exactly, perhaps 300.</v>

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The definition of the Bay Area

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sort of shifts for different purposes.

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For the purposes of the lineman compensation

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that we negotiated, it does not include Concord,

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for other purposes that it would.

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<v ->So how many lineman then would be included</v>

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in the Concord area?

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<v ->In the Concord area? 20, 30.</v>

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<v ->And how does that overall number compare</v>

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to the number of members you have at Diabolo Canyon?

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<v ->Diabolo Canyon is around 500,</v>

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so you can do the arithmetic.

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<v ->Do you recall in 2018 when several of the signatories</v>

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to the Diabolo Canyon Retirement Joint Proposal,

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including the IBW and A4NR, my client,

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successfully co-sponsored Senator Monning's SB 1090,

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which significantly augmented the employee retention package

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approved by this Commission for your members

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at Diabolo Canyon?

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<v Ms. Cass>Objection Your Honor,</v>

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outside the scope of the testimony.

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<v Judge>Foundational, over ruled.</v>

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<v ->I'm answering?</v>

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<v ->Do you recall that?</v>

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<v ->I would not describe it that way,</v>

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but I know what you're talking about.

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<v ->What would your characterization be?</v>

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<v ->I would say that the legislation reinstated</v>

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the collectively bargained agreement for retention

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at Diabolo Canyon.

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<v ->I stand by your clarification sir, thank you.</v>

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In terms of tensions over compensation

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within the bargain unit,

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are the situations with the Bay Area Lineman

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and the Diabolo Canyon Workforce similar?

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<v ->The overriding concern in both situations was retention.</v>

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So in that regard, yes.

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<v ->Would it be correct to assume that your strategy</v>

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in dealing with the PG&E bankruptcy

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has been to prioritize the common interests

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of the entire 12,000 members?

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<v ->I think so.</v>

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<v ->Please take a look at the cross examination</v>

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exhibit A4NRX8.

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Your Honor, I'd ask that that be marked.

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<v Judge>So, an exhibit Alliance for Nuclear Responsibility</v>

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cross examination exhibit 2019 joint proxy statement

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is identified as A4NRX8.

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<v ->Thank you very much, Your Honor.</v>

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Mr. Dazell, that's--

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<v Judge>X8.</v>

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<v ->That's an excerpt from PN&Es joint proxy statement</v>

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from last year.

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And on the last page of the exhibit,

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you'll see a section identified as

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principle executive officers pay ratio 2018.

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Do you see that?

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<v ->I do.</v>

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<v ->I'm going to read the second sentence</v>

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of that section to you,

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and ask if I've read it correctly.

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And the sentence reads,

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the total compensation of a median employee was $177,765.

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Did I get that accurate?

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<v ->You read it.</v>

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I have no idea how that number was determined, but...

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<v ->But I did read it correctly?</v>

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<v ->You did.</v>

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<v ->Thank you.</v>

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I know it's hard to generalize

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about your 12,000 PG&E members,

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but what proportion of those 12,000 members

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do you think earns above the PG&E median,

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and what proportion falls below the median.

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<v ->The trouble with your question</v>

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is that this refers to total compensation,

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and that's a pretty tricky concept.

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In general rate case proceedings,

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we've gone back and forth with

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the Division of Ratepayer Advocates,

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Office of Ratepayer Advocates,

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about what is total compensation,

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what's included and what's not.

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So, I really can't answer the question

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without knowing how they calculated

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the total compensation of 188,000.

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<v ->Well you must calculate it in some fashion</v>

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in your collective bargaining strategy, do you not?

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<v ->We generally go, with wages we certainly do,</v>

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with benefits we're aware of the cost,

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but we are negotiating the value

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of the benefit to the employee, rather than the cost.

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If that makes sense.

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It's sort of like a defined benefit

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versus a defined contribution pension plan.

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We have some sense of what the cost is,

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although especially with a pension,

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I mean that moves around quite a bit.

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<v ->Without trying to be too specific,</v>

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just in terms of order of magnitude,

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would it be correct to assume

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that the majority of your members

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are most likely above the median level

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for the PG&E workforce?

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<v ->No. That might be true,</v>

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but I'm not comfortable saying it's probably true.

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I mean a customer service representative

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makes around $80,000 a year in straight time wages.

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And so for them to get over that

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would have to be $100,000 in other benefits,

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and I don't think that that's true.

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I mean I could maybe try to figure this out,

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but off the top of my head,

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certainly there are employees whose wages,

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or their wage earnings including over time alone

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are above that.

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But there's significant numbers that are below that.

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<v ->Thank you.</v>

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Why did you find it necessary

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to include in the IBW agreement

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attached to PG&Es plan of reorganization

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a commitment to operate Diabolo Canyon

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until its licenses expire?

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<v Ms. Cass>Your Honor, objection.</v>

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Outside the scope of testimony.

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<v Judge>Overruled.</v>

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<v ->We were concerned about any possible split off</v>

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or break up of the company.

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Whether it be a line of business such as gas,

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a line of business such as hydro,

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an asset such as Diabolo Canyon, or municipalization.

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So in that general category

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of wanting to keep the company whole,

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we included it in our agreement.

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<v ->But Diabolo Canyon is the only plant specified,</v>

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is it not, in your agreement?

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<v ->Yes.</v>

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<v ->And why is that?</v>

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<v ->It's about the only one we have.</v>

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We have a couple little combined cycles that don't have 10%

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of the number of employees as Diabolo Canyon.

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And there's very little chance of them being sold off,

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Humboldt or the other two.

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<v ->And would you say the same about the hydro system?</v>

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<v ->There are segments of the hydro system</v>

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that we recognize are no longer economically feasible,

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especially as relicensing happens, Potter Valley being one,

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an example that I heard a lot about yesterday

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in Washington DC from Congressman Huff.

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But, to some extent with hydro.

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But I think that, yeah.

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<v Mr. Geesman>So in the hydro setting you recognize</v>

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the possibility that economics may cause the company

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to jut the plant?

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<v ->Well, it's licensing concerns, yeah.</v>

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<v ->How do you envision the commitment</v>

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that you've successfully negotiated in the IBW agreement,

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attached to PG&Es plan,

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how do you envision that commitment being enforced?

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<v ->Are you talking about the wages and the medical,</v>

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and the layoff, that entire language?

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<v ->No, I'm sorry, let me be clear.</v>

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The commitment to operate Diabolo Canyon

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until the end of its licenses.

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<v ->Well, I think that commitment is there</v>

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in the agreement that you are part of.

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I think that upon emergence from bankruptcy,

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assuming that the plan is confirmed,

00:15:10.260 --> 00:15:12.500
all of our agreements would be reduced

00:15:12.500 --> 00:15:17.500
to a letter of agreement, or a memorandum of understanding

00:15:19.090 --> 00:15:20.910
in the context of collective bargaining,

00:15:20.910 --> 00:15:22.710
and that's how it would be enforced.

00:15:26.180 --> 00:15:27.860
<v Mr. Geesman>Would that commitment still apply</v>

00:15:27.860 --> 00:15:31.030
if PG&E lost so much bundled load

00:15:31.030 --> 00:15:33.480
that its customers no longer had any use

00:15:33.480 --> 00:15:37.020
for most of the electricity generated at Diabolo Canyon?

00:15:37.020 --> 00:15:38.955
<v Ms. Cass>Your Honor, objection.</v>

00:15:38.955 --> 00:15:40.050
This is far outside the scope.

00:15:41.328 --> 00:15:42.995
<v Judge>Sustained.</v>

00:15:44.280 --> 00:15:46.190
<v Mr. Geesman>Under the commitment made by PG&E</v>

00:15:46.190 --> 00:15:49.212
in the IBW agreement, would there be any cap

00:15:49.212 --> 00:15:54.212
on the amount to be spent subsidizing any above market costs

00:15:55.350 --> 00:15:56.300
at Diabolo Canyon?

00:15:57.570 --> 00:15:58.948
<v Ms. Cass>Objection.</v>

00:15:58.948 --> 00:16:00.390
<v Judge>Sustained.</v>

00:16:00.390 --> 00:16:02.238
<v Mr. Geesman>Thank you, Your Honor.</v>

00:16:02.238 --> 00:16:03.619
That's all my questioning.

00:16:03.619 --> 00:16:04.452
Thank you very much, Mr. Dazell.

00:16:04.452 --> 00:16:07.400
<v ->I'm a little disappointed, because I thought</v>

00:16:07.400 --> 00:16:09.540
you were going to get into executive compensation,

00:16:09.540 --> 00:16:11.460
and I was ready with my claw marks,

00:16:11.460 --> 00:16:16.460
and my Gilford Plantation covenant, and the New Testament.

00:16:19.550 --> 00:16:22.070
<v Mr. Geesman>If we had more hearing time.</v>

00:16:22.070 --> 00:16:23.080
(laughing)

00:16:23.080 --> 00:16:23.913
<v ->I was ready.</v>

00:16:25.110 --> 00:16:27.719
<v Judge>Thank you. Is there any redirect?</v>

00:16:27.719 --> 00:16:30.100
<v Ms. Cass>No, Your Honor.</v>

00:16:30.100 --> 00:16:31.640
<v Judge>Okay, thank you.</v>

00:16:31.640 --> 00:16:33.590
Thank you, Mr. Dazell. You are excused.

00:16:38.430 --> 00:16:42.600
Did you want to move, you had one exhibit for Q, correct?

00:16:42.600 --> 00:16:44.060
<v ->Yes, thank you Your Honor.</v>

00:16:44.060 --> 00:16:47.870
Q would like to move what has been marked as exhibit one

00:16:47.870 --> 00:16:50.980
into the record, sorry exhibit Q1 into the record.

00:16:50.980 --> 00:16:51.870
<v ->Is there any objection</v>

00:16:51.870 --> 00:16:53.700
to the receive of exhibit Q1?

00:16:54.557 --> 00:16:58.950
Seeing none, Q1 is received.

00:17:30.954 --> 00:17:33.204
(laughing)

00:17:41.649 --> 00:17:42.920
<v ->Can we just have that offline?</v>

00:17:44.410 --> 00:17:46.870
<v ->Your Honor, may I move the Q in our exhibit?</v>

00:17:50.200 --> 00:17:52.453
One through eight. Bust across.

00:18:03.590 --> 00:18:05.140
Excuse me, I couldn't hear you.

00:18:07.396 --> 00:18:10.891
<v Judge>Okay, I don't think I've identified</v>

00:18:10.891 --> 00:18:15.891
five, six, and seven on the record yet.

00:18:50.155 --> 00:18:51.993
<v ->We're off the record right Your Honor?</v>

00:18:51.993 --> 00:18:53.306
<v Judge>Yes.</v>

00:18:53.306 --> 00:18:54.711
<v ->Can we just be true and clear</v>

00:18:54.711 --> 00:18:55.989
on what exhibit we're talking about?

00:18:55.989 --> 00:18:56.990
<v ->Yes.</v>

00:18:56.990 --> 00:19:00.073
(background chatter)

00:20:09.556 --> 00:20:13.920
<v ->Okay, let's go on the record with some A4NR exhibits.</v>

00:20:16.474 --> 00:20:21.474
So, A4NR1, which has been identified for the record,

00:20:23.080 --> 00:20:25.370
is the prepared testimony of David Lochbaum.

00:20:29.090 --> 00:20:34.090
A4NR2 is the reply testimony of John Geesman.

00:20:38.260 --> 00:20:39.697
I also have A4NR2C,

00:20:44.200 --> 00:20:49.200
which is a confidential replacement of page 18 of A4NR2.

00:20:49.970 --> 00:20:51.670
That has also already been marked.

00:21:10.860 --> 00:21:11.693
Off the record.

00:21:18.060 --> 00:21:19.953
There's 2E, F, A, I and X8.

00:21:29.660 --> 00:21:31.827
(mumbles)

00:22:28.554 --> 00:22:29.670
<v ->Would you like another copy, Your Honor?</v>

00:22:37.070 --> 00:22:37.903
<v ->On the record.</v>

00:22:40.550 --> 00:22:45.550
A4NR2E is an eroded to A4NR,

00:22:47.710 --> 00:22:50.130
that had not been previously marked in the record,

00:22:50.130 --> 00:22:54.590
so I'm identifying the hearing exhibit

00:22:54.590 --> 00:22:58.930
eroded A4NR2 as A4NR2E.

00:23:11.540 --> 00:23:16.540
A4NRX3 is cross examination exhibit form 10K.

00:23:20.500 --> 00:23:22.650
That was already identified for the record.

00:23:28.198 --> 00:23:33.198
A4NRX4 is cross examination exhibit advice letter 5700E,

00:23:39.210 --> 00:23:43.627
and that was previously identified for the record.

00:23:56.819 --> 00:24:01.819
A4NRX5 had not been previously identified,

00:24:02.670 --> 00:24:07.150
so this is cross examination A4NR protest

00:24:07.150 --> 00:24:12.150
of advice letter 5700E.

00:24:12.650 --> 00:24:15.220
So that will be A4NRX5.

00:24:24.380 --> 00:24:27.460
Cross examination exhibit PG&E reply

00:24:27.460 --> 00:24:31.360
to A4NR protest of advice letter 5700E

00:24:33.520 --> 00:24:36.590
will be identified as A4NRX6.

00:24:42.420 --> 00:24:44.340
Alliance for Nuclear Responsibility

00:24:44.340 --> 00:24:49.340
a cross examination exhibit PG&E January 31st 2020,

00:24:49.650 --> 00:24:52.420
safety culture and governance quarterly report

00:24:54.000 --> 00:24:58.960
is being identified as A4NRX7.

00:25:02.410 --> 00:25:07.410
And the cross examination exhibit used today,

00:25:10.700 --> 00:25:15.700
2019 joint proxy statement, is identified as A4NRX8.

00:25:20.525 --> 00:25:21.600
Did I get that correct Mr. Geesman?

00:25:21.600 --> 00:25:23.240
<v Mr. Geesman>Yes, Your Honor, you did.</v>

00:25:23.240 --> 00:25:27.210
<v ->Thank you. And I take it you are moving the admission</v>

00:25:27.210 --> 00:25:28.740
of these exhibits, is that correct?

00:25:28.740 --> 00:25:29.600
<v Mr. Geesman>Yes, I am.</v>

00:25:29.600 --> 00:25:32.670
<v ->Okay. Is there any objection</v>

00:25:32.670 --> 00:25:35.270
to the receipt of the A4NR exhibits?

00:25:36.430 --> 00:25:41.430
Seeing none, exhibits A4NR1 through X8R admitted.

00:25:44.103 --> 00:25:45.530
<v ->Thank you, Your Honor.</v>

00:25:45.530 --> 00:25:46.780
<v ->Thank you, Mr. Geesman.</v>

00:25:53.070 --> 00:25:57.380
And Mr. Fox will you be presenting the next witness?

00:25:57.380 --> 00:26:00.020
<v Mr. Fox>Yes, I will. Excuse me, yes I will Your Honor.</v>

00:26:00.020 --> 00:26:01.811
<v ->Call your witness please.</v>

00:26:01.811 --> 00:26:04.813
<v Mr. Fox>The joint CCA parties call Mr. Tom Beach.</v>

00:26:04.813 --> 00:26:05.730
<v ->Thank you.</v>

00:26:08.361 --> 00:26:10.010
Do you swear to tell the truth, the whole truth,

00:26:10.010 --> 00:26:11.480
and nothing but the truth?

00:26:11.480 --> 00:26:12.313
<v Mr. Beach>I do.</v>

00:26:12.313 --> 00:26:13.590
<v ->Thank you, please be seated.</v>

00:26:13.590 --> 00:26:14.423
State your full name

00:26:14.423 --> 00:26:17.760
and spell your last name for the record.

00:26:17.760 --> 00:26:22.250
<v ->My name is first initial R. Thomas Beach, B-E-A-C-H.</v>

00:26:25.750 --> 00:26:27.700
<v Mr. Fox>Mr. Beach, would you please state your employer</v>

00:26:27.700 --> 00:26:29.790
and position for the record?

00:26:29.790 --> 00:26:32.760
<v ->I'm a Principal Consultant at Cross Border Energy.</v>

00:26:32.760 --> 00:26:35.390
<v Mr. Fox>And Mr. Beach, will you please state</v>

00:26:35.390 --> 00:26:37.870
on whose behalf you are testifying today?

00:26:37.870 --> 00:26:40.260
<v ->Yes, I am testifying on behalf of</v>

00:26:41.220 --> 00:26:43.360
The Joint Community Choice Aggregator.

00:26:44.320 --> 00:26:47.670
For the purposes of this proceeding there are five of them

00:26:47.670 --> 00:26:49.630
listed on page two of my testimony.

00:26:50.820 --> 00:26:53.770
<v ->And Your Honor, I do want to clarify</v>

00:26:53.770 --> 00:26:57.100
that one of those parties is the city of San Jose.

00:26:57.100 --> 00:27:00.440
The city of San Jose is represented by Ms. Elkins

00:27:00.440 --> 00:27:02.730
from the San Jose City Attorneys Office.

00:27:02.730 --> 00:27:05.710
And Ms. Elkins has asked me to handle the cross examination

00:27:05.710 --> 00:27:07.640
and redirect for Mr. Beach today.

00:27:07.640 --> 00:27:08.990
<v Judge>Thank you, Mr. Fox.</v>

00:27:10.480 --> 00:27:13.780
<v ->Mr. Beach, do you have what has been marked as JCCA1?</v>

00:27:18.179 --> 00:27:19.012
<v ->Yes.</v>

00:27:20.142 --> 00:27:21.330
<v ->Your prepared testimony?</v>

00:27:21.330 --> 00:27:22.163
<v ->Yes.</v>

00:27:23.080 --> 00:27:25.460
<v ->Was it prepared by you or under your supervision?</v>

00:27:25.460 --> 00:27:26.590
<v ->Yes, it was.</v>

00:27:26.590 --> 00:27:28.450
<v ->And do you have any corrections that you'd like to make</v>

00:27:28.450 --> 00:27:30.430
to that testimony, Mr. Beach?

00:27:30.430 --> 00:27:33.310
<v ->Yes, I have one correction,</v>

00:27:33.310 --> 00:27:36.190
or actually maybe two corrections.

00:27:36.190 --> 00:27:41.190
On page 23 of the testimony lines 12 through 15,

00:27:46.040 --> 00:27:50.010
there is a section there that in my original testimony

00:27:50.010 --> 00:27:54.890
was confidential. But I believe PG&E has agreed

00:27:54.890 --> 00:27:57.781
that that information is no longer confidential.

00:27:57.781 --> 00:28:02.781
So the sentence there starting on line 12

00:28:03.360 --> 00:28:06.860
and ending on line 15, the words begin confidential

00:28:06.860 --> 00:28:09.970
and end confidential should be removed.

00:28:11.110 --> 00:28:15.159
And then on line 14 on page 23

00:28:15.159 --> 00:28:19.592
in the formerly confidential sentence,

00:28:19.592 --> 00:28:24.592
the figure 163 million should be revised.

00:28:25.855 --> 00:28:26.830
<v Judge>Hold on, off the record.</v>

00:28:29.770 --> 00:28:32.190
I think Mr. Dazell was trying to reference

00:28:32.190 --> 00:28:33.090
the New Testament.

00:28:35.420 --> 00:28:37.450
Okay, on the record.

00:28:38.520 --> 00:28:43.520
<v ->Yes, on line 14 of page 23 the figure 163 million</v>

00:28:46.560 --> 00:28:50.190
should be changed to 154 million

00:28:50.190 --> 00:28:53.480
based on some updated information from PG&E.

00:28:53.480 --> 00:28:55.680
<v Judge>I'm sorry, could you repeat that correction again?</v>

00:28:55.680 --> 00:29:00.182
<v ->Yes. The correction is on line 14 of page 23,</v>

00:29:00.182 --> 00:29:04.460
the testimony the figure 163 million

00:29:04.460 --> 00:29:08.590
that appears on that line should be changed to 154 million.

00:29:14.070 --> 00:29:16.680
<v ->Mr. Beach with those corrections,</v>

00:29:16.680 --> 00:29:19.459
if I was to ask you the same questions today

00:29:19.459 --> 00:29:21.670
that appear in your testimony,

00:29:21.670 --> 00:29:22.890
would your answers be the same?

00:29:22.890 --> 00:29:24.210
<v ->Yes, they would.</v>

00:29:24.210 --> 00:29:25.650
<v ->And is your testimony true and correct</v>

00:29:25.650 --> 00:29:27.260
to the best of your knowledge and belief?

00:29:27.260 --> 00:29:28.750
<v ->Yes.</v>

00:29:28.750 --> 00:29:31.370
<v ->Your Honor, Mr. Beach is available for cross examination.</v>

00:29:31.370 --> 00:29:33.580
<v ->[Judge} Thank you.</v>

00:29:33.580 --> 00:29:34.670
<v ->Your Honor before you proceed,</v>

00:29:34.670 --> 00:29:37.260
can I just get some clarification on the correction

00:29:37.260 --> 00:29:39.231
just made by Mr. Beach?

00:29:39.231 --> 00:29:42.140
The copy I have is blank. There's nothing there.

00:29:42.140 --> 00:29:46.300
There's no sentences between begin confidential

00:29:46.300 --> 00:29:47.300
and end confidential.

00:29:47.300 --> 00:29:50.570
So you've substituted a number in a sentence I take it?

00:29:50.570 --> 00:29:51.650
<v ->Yes.</v>

00:29:51.650 --> 00:29:53.020
<v ->Could you read the sentence for us?</v>

00:29:53.020 --> 00:29:54.440
Maybe that would help.

00:29:54.440 --> 00:29:55.970
<v ->Sure. The sentence reads,</v>

00:29:55.970 --> 00:29:59.580
"In addition PG&Es confidential financial projections

00:29:59.580 --> 00:30:04.580
for 2020 to 2024 appear to assume that ratepayers

00:30:04.720 --> 00:30:09.720
will bear 154 million in costs for the exit financing

00:30:09.720 --> 00:30:12.630
required for PG&E to emerge from chapter 11."

00:30:13.520 --> 00:30:16.244
And then there was a footnote that footnoted

00:30:16.244 --> 00:30:21.244
PG&Es financial package released on February 14th

00:30:23.400 --> 00:30:26.903
at tab 11 rows 21 to 24.

00:30:26.903 --> 00:30:29.280
<v ->Thank you.</v>

00:30:30.116 --> 00:30:31.760
<v Judge>Mr. Fox, can you make sure that you distribute</v>

00:30:31.760 --> 00:30:35.123
to the parties, or make sure the parties have who don't have

00:30:35.123 --> 00:30:38.600
the public version, or confirm that they got it?

00:30:38.600 --> 00:30:39.700
<v Mr. Fox>They do.</v>

00:30:39.700 --> 00:30:41.890
The public version was served on the service list

00:30:41.890 --> 00:30:43.910
the morning of February 26th, Your Honor.

00:30:43.910 --> 00:30:48.510
<v Judge>I guess the currently public version,</v>

00:30:48.510 --> 00:30:50.450
which includes that sentence.

00:30:50.450 --> 00:30:52.660
<v Mr. Fox>That was served on the morning of the 26th</v>

00:30:52.660 --> 00:30:53.800
on the service list.

00:30:53.800 --> 00:30:55.000
<v Judge>Okay, thank you.</v>

00:31:03.094 --> 00:31:05.150
Off the record.

00:31:09.619 --> 00:31:11.426
Okay who's going first, you going first?

00:31:11.426 --> 00:31:16.426
Okay, as I have PG&E Q and TCC is that correct?

00:31:19.929 --> 00:31:24.929
<v ->Your Honor, I have my little possible moment as well.</v>

00:31:25.050 --> 00:31:27.130
<v ->Oh maybe he should go first.</v>

00:31:28.430 --> 00:31:29.930
<v Judge>Sure, why don't we let,</v>

00:31:29.930 --> 00:31:31.620
we'll start with Mr. Craig.

00:31:32.798 --> 00:31:33.631
What were you going--

00:31:34.653 --> 00:31:37.150
<v ->We were just gonna offer, like yesterday for convenience</v>

00:31:37.150 --> 00:31:39.360
we create a binder that has the materials

00:31:39.360 --> 00:31:41.610
that I plan to refer to in cross examination,

00:31:43.002 --> 00:31:45.360
both for Beach and for Gorman actually, same binder.

00:31:45.360 --> 00:31:48.830
So I was hoping we could just leave it with the witness

00:31:48.830 --> 00:31:51.460
and if Your Honor would like a copy, certainly.

00:31:51.460 --> 00:31:52.870
<v Judge>Leave it with the witness, that's fine.</v>

00:31:53.766 --> 00:31:56.870
<v ->Okay.</v>

00:31:56.870 --> 00:31:57.870
It's the same thing.

00:31:59.500 --> 00:32:01.493
<v ->Right, but we didn't get it.</v>

00:32:02.342 --> 00:32:04.509
(mumbles)

00:32:11.094 --> 00:32:15.100
<v Judge>Okay so we'll start with Mr. Craig</v>

00:32:15.100 --> 00:32:16.400
and then we'll go to PG&E.

00:32:18.559 --> 00:32:20.142
<v Mr. Craig>Sure.</v>

00:32:29.730 --> 00:32:31.450
<v Judge>On the record.</v>

00:32:31.450 --> 00:32:34.220
First cross examination will be by Mr. Craig.

00:32:35.100 --> 00:32:36.320
<v ->Thank you, Your Honor.</v>

00:32:36.320 --> 00:32:37.810
I'm Brian Craig representing

00:32:37.810 --> 00:32:40.390
The Independent Energy Producers Association.

00:32:41.380 --> 00:32:44.320
At this point I would ask for the identification

00:32:44.320 --> 00:32:48.340
of a three page exhibit entitled joint community choice

00:32:48.340 --> 00:32:52.380
aggregators February 28th 2020 responses.

00:32:53.686 --> 00:32:55.000
To the first set of data requests of

00:32:55.000 --> 00:32:58.930
The Independent Energy Producers Association.

00:32:58.930 --> 00:33:02.540
<v Judge>Thank you, Mr. Craig. That is marked as IEP1.</v>

00:33:07.790 --> 00:33:10.520
<v ->I would also ask for the admission</v>

00:33:10.520 --> 00:33:12.900
of exhibit IEP1 at this point.

00:33:15.160 --> 00:33:16.620
<v Judge>Why don't you do your cross first</v>

00:33:16.620 --> 00:33:18.575
and then you can move again?

00:33:18.575 --> 00:33:19.933
<v ->Okay, Your Honor.</v>

00:33:19.933 --> 00:33:21.190
Unless there is testimony that is inconsistent

00:33:21.190 --> 00:33:23.720
with the content of IEP1,

00:33:23.720 --> 00:33:26.150
I have no cross examination for Mr. Beach.

00:33:28.100 --> 00:33:30.560
<v Judge>Okay, run that by me one more time.</v>

00:33:32.610 --> 00:33:37.349
<v ->As long as the testimony elicited in cross examination</v>

00:33:37.349 --> 00:33:40.850
is consistent with the testimony, or the answers

00:33:40.850 --> 00:33:44.770
that Mr. Beach provided in exhibit IEP1,

00:33:44.770 --> 00:33:47.380
I have no additional cross examination.

00:33:47.380 --> 00:33:49.580
In other words, I expect to have no cross.

00:33:49.580 --> 00:33:53.152
Presumably, unless somehow inconsistent information

00:33:53.152 --> 00:33:55.020
comes up in cross examination.

00:33:56.310 --> 00:33:58.950
<v Judge>Maybe I should have had you go last.</v>

00:33:58.950 --> 00:34:01.153
<v ->I'm happy to do that as well, Your Honor.</v>

00:34:01.153 --> 00:34:02.840
(laughs)

00:34:02.840 --> 00:34:05.710
<v Judge>Well let me ask you this,</v>

00:34:05.710 --> 00:34:08.605
Mr. Beach, have you had a chance to look at IEP1?

00:34:08.605 --> 00:34:10.370
<v ->Yes, I prepared it.</v>

00:34:11.571 --> 00:34:13.620
<v Judge>Do you anticipate answering any questions</v>

00:34:13.620 --> 00:34:17.230
differently than what is contained in IEP1?

00:34:17.230 --> 00:34:20.460
<v ->Not at this time. (laughs)</v>

00:34:20.460 --> 00:34:22.540
<v Judge>Is there any objection to the receive</v>

00:34:22.540 --> 00:34:24.340
of IEP1 into the record?

00:34:26.130 --> 00:34:28.640
Seeing none, IEP1 is admitted.

00:34:31.940 --> 00:34:32.980
Thank you, Mr. Craig.

00:34:32.980 --> 00:34:34.993
<v ->Thank you, Your Honor.</v>

00:34:34.993 --> 00:34:37.893
<v Judge>I appreciate the very concise cross examination.</v>

00:34:38.800 --> 00:34:39.633
Mr. Weisman?

00:34:39.633 --> 00:34:40.820
<v ->Thank you, Your Honor.</v>

00:34:41.740 --> 00:34:43.560
Good morning, my name is Henry Weisman.

00:34:43.560 --> 00:34:46.966
I'm one of the lawyers representing PG&E in this proceeding.

00:34:46.966 --> 00:34:47.799
<v ->Good morning.</v>

00:34:47.799 --> 00:34:51.930
Please turn to your testimony, page 18 lines 16 to 18.

00:34:58.360 --> 00:34:59.193
<v ->Okay.</v>

00:35:00.820 --> 00:35:03.200
<v ->So here you recommend that the Commission</v>

00:35:03.200 --> 00:35:06.520
should condition approval on the adoption of a goal

00:35:07.870 --> 00:35:12.870
of a majority residing in the service territory, right?

00:35:13.530 --> 00:35:14.430
<v ->Yes.</v>

00:35:14.430 --> 00:35:16.540
<v ->By using the word goal, you're not suggesting</v>

00:35:16.540 --> 00:35:18.590
that it would be a strict quota, correct?

00:35:22.190 --> 00:35:27.190
<v ->I didn't propose for example a specific number</v>

00:35:27.593 --> 00:35:30.380
of board members that should reside.

00:35:30.380 --> 00:35:33.760
But that should be, and a goal also means

00:35:33.760 --> 00:35:37.040
that it could be accomplished over a period of time.

00:35:37.040 --> 00:35:40.050
<v ->[Mr. Weisman} Okay. So the process</v>

00:35:40.050 --> 00:35:44.900
of assembling a board requires consideration

00:35:44.900 --> 00:35:47.444
of a number of different skills, correct?

00:35:47.444 --> 00:35:48.277
<v ->Yes.</v>

00:35:49.750 --> 00:35:51.490
<v Mr. Weisman>And you need to make sure that the board</v>

00:35:51.490 --> 00:35:54.448
has the right mix of those skills?

00:35:54.448 --> 00:35:55.281
<v ->Sure.</v>

00:35:56.910 --> 00:35:58.270
<v Mr. Weisman>Have you reviewed</v>

00:35:58.270 --> 00:35:59.750
Ms. Brownelle's testimony?

00:36:00.750 --> 00:36:02.280
<v ->Yes, I did read that.</v>

00:36:02.280 --> 00:36:04.230
<v ->So if you'll take a look please</v>

00:36:10.220 --> 00:36:11.820
at tab five in the binder.

00:36:11.820 --> 00:36:15.370
This is what's been previously marked for identification

00:36:15.370 --> 00:36:16.670
as PG&E one.

00:36:19.219 --> 00:36:22.040
And I'll ask you to turn to pages 4-11 and 4-12.

00:36:30.292 --> 00:36:32.430
<v ->Okay.</v>

00:36:32.430 --> 00:36:37.430
<v ->So here in the bullet points, starting on 4-11 line 14,</v>

00:36:39.590 --> 00:36:44.262
Ms. Brownelle sets forth a number of attributes

00:36:44.262 --> 00:36:48.860
that PG&E intends to use in composing its board, correct?

00:36:50.663 --> 00:36:52.480
<v ->Yes.</v>

00:36:53.570 --> 00:36:56.380
<v ->Do you agree that these are important attributes</v>

00:36:56.380 --> 00:36:57.550
for PG&E to consider?

00:36:58.740 --> 00:36:59.573
<v ->Yes.</v>

00:37:09.977 --> 00:37:14.977
<v ->Do you agree that a strict inflexible requirement of 50%</v>

00:37:15.270 --> 00:37:18.110
residence in the service territory could conflict

00:37:18.110 --> 00:37:20.710
with the need to bAllence the range of skills needed?

00:37:24.730 --> 00:37:29.730
<v ->I think that given the service territory that PG&E serves,</v>

00:37:31.800 --> 00:37:36.800
which is large, and diverse, and is if you will

00:37:42.440 --> 00:37:45.400
one of the business and intellectual capitals

00:37:45.400 --> 00:37:49.740
of the United States, with lots of talented people,

00:37:51.600 --> 00:37:56.600
I would hope that PG&E could find individuals who have

00:37:59.030 --> 00:38:02.620
relevant expertise who reside in its service territory.

00:38:02.620 --> 00:38:04.640
<v Mr. Weisman>Well I certainly share your hope.</v>

00:38:04.640 --> 00:38:06.952
But my question was is there a possibility

00:38:06.952 --> 00:38:10.560
that limiting it to that geography

00:38:10.560 --> 00:38:15.560
could conflict with the objective of obtaining a board

00:38:15.870 --> 00:38:17.360
with this mix of skills?

00:38:20.400 --> 00:38:22.710
<v ->You know, I would doubt that that would be</v>

00:38:22.710 --> 00:38:25.000
a limiting factor.

00:38:25.000 --> 00:38:26.570
<v Mr. Weisman>Okay, well first of all</v>

00:38:26.570 --> 00:38:29.360
have you conducted a search for directors?

00:38:30.800 --> 00:38:33.570
<v ->Not for utility, no.</v>

00:38:34.760 --> 00:38:37.120
<v ->Let me give you a hypothetical.</v>

00:38:37.120 --> 00:38:40.740
Let's say that PG&E assembled a board,

00:38:40.740 --> 00:38:44.740
it selected board members,

00:38:44.740 --> 00:38:49.740
45% of which were residents of a service territory.

00:38:50.310 --> 00:38:52.060
And they had one final spot to fill

00:38:52.904 --> 00:38:54.810
to compose the full slate.

00:38:56.040 --> 00:38:57.620
And there are two candidates,

00:38:57.620 --> 00:39:02.620
one who has wildfire preparedness and mitigation expertise,

00:39:02.700 --> 00:39:04.780
who lives in the state of Washington.

00:39:04.780 --> 00:39:09.211
And one who has business and technology expertise

00:39:09.211 --> 00:39:11.400
and lives in Silicon Valley.

00:39:11.400 --> 00:39:12.350
What should happen?

00:39:13.990 --> 00:39:16.210
<v ->You know, it's kind of, your hypothetical</v>

00:39:16.210 --> 00:39:18.320
I don't know what the skills

00:39:18.320 --> 00:39:20.050
of the remaining board members are.

00:39:20.050 --> 00:39:22.630
So if there are other people on the board

00:39:22.630 --> 00:39:24.860
with wildfire skills,

00:39:24.860 --> 00:39:28.460
then I would say for sure you should take the local resident

00:39:28.460 --> 00:39:31.160
whose got business and technology background.

00:39:31.160 --> 00:39:31.993
<v ->And if not?</v>

00:39:34.290 --> 00:39:37.095
<v ->You know, I think that that would be,</v>

00:39:37.095 --> 00:39:40.670
this is as I've put down here,

00:39:40.670 --> 00:39:42.930
45% residing in PG&E's territory

00:39:42.930 --> 00:39:46.490
would be a significant improvement over the situation today.

00:39:46.490 --> 00:39:51.490
So PG&E certainly would be making progress

00:39:51.730 --> 00:39:54.200
towards its goal in those circumstances.

00:39:54.200 --> 00:39:56.670
<v ->Let's turn to page 18 of your testimony please.</v>

00:39:58.320 --> 00:39:59.220
<v ->Okay, I'm there.</v>

00:40:04.977 --> 00:40:07.217
<v ->You site CalPERS here right?</v>

00:40:07.217 --> 00:40:08.750
<v ->Yes.</v>

00:40:09.710 --> 00:40:11.990
<v ->And CalPERS says that board members should</v>

00:40:11.990 --> 00:40:14.410
become and remain independently familiar with

00:40:14.410 --> 00:40:16.040
company operations, right?

00:40:16.910 --> 00:40:18.070
<v ->Yes.</v>

00:40:18.070 --> 00:40:20.410
<v ->And your assertion is that the most effective way</v>

00:40:20.410 --> 00:40:23.880
to obtain independent information is to be a resident

00:40:23.880 --> 00:40:25.200
of the service territory?

00:40:25.200 --> 00:40:27.200
<v ->Well I think it's very helpful</v>

00:40:27.200 --> 00:40:29.020
if you are a resident and a customer,

00:40:29.020 --> 00:40:34.020
and you have friends, and neighbors, and associates

00:40:34.080 --> 00:40:38.190
who also are customers of PG&E.

00:40:38.190 --> 00:40:41.000
It would give you a source of, readily available source

00:40:41.000 --> 00:40:43.840
of independent information about the company.

00:40:43.840 --> 00:40:46.440
<v ->Sure. About certain things about the company?</v>

00:40:46.440 --> 00:40:47.273
<v ->Yes.</v>

00:40:48.205 --> 00:40:50.890
<v ->But there are other ways that board members</v>

00:40:50.890 --> 00:40:53.980
can become independently familiar

00:40:53.980 --> 00:40:56.830
with a companies operations, correct?

00:40:56.830 --> 00:40:57.663
<v ->Sure.</v>

00:41:01.080 --> 00:41:02.175
<v ->Okay, I'm going to turn to another subject.</v>

00:41:02.175 --> 00:41:04.360
Please turn to page 25 starting at line 24.

00:41:14.112 --> 00:41:14.945
<v ->Okay.</v>

00:41:14.945 --> 00:41:19.270
<v ->So here you say the Commission cannot make the necessary</v>

00:41:21.240 --> 00:41:25.380
determination that the plan is neutral on average,

00:41:25.380 --> 00:41:29.680
unless it answers neutral compared to what, correct?

00:41:29.680 --> 00:41:30.690
<v ->Yes.</v>

00:41:30.690 --> 00:41:34.370
<v ->And then you state, "The comparison that must be made</v>

00:41:34.370 --> 00:41:36.510
is to what ratepayers would have paid

00:41:37.560 --> 00:41:39.980
without the bankruptcy." Correct?

00:41:39.980 --> 00:41:40.813
<v ->Yes.</v>

00:41:43.540 --> 00:41:48.470
<v ->So in your opinion in future cost of capital proceedings,</v>

00:41:48.470 --> 00:41:51.160
a Commission would have to compare PG&Es

00:41:51.160 --> 00:41:53.500
actual financing costs

00:41:53.500 --> 00:41:55.800
to that hypothetical baseline, correct?

00:41:55.800 --> 00:41:56.633
<v ->Yes.</v>

00:41:59.660 --> 00:42:03.080
<v ->So the Commission would have to look at the cost</v>

00:42:03.080 --> 00:42:05.580
ratepayers would pay compared to the costs

00:42:05.580 --> 00:42:07.860
they would have paid in a hypothetical world

00:42:07.860 --> 00:42:09.960
in which there was no bankruptcy. Correct?

00:42:11.550 --> 00:42:13.200
<v ->Yes.</v>

00:42:13.200 --> 00:42:16.370
<v ->So how would the Commission determine the cost</v>

00:42:16.370 --> 00:42:19.490
that PG&E ratepayers would pay in that hypothetical world?

00:42:21.530 --> 00:42:24.621
<v ->Well, now you can certainly look at</v>

00:42:24.621 --> 00:42:27.510
what PG&E paid before the bankruptcy.

00:42:28.842 --> 00:42:32.436
You can look at what other California utilities

00:42:32.436 --> 00:42:35.170
cost of capital is.

00:42:35.170 --> 00:42:37.580
Utilities that face the same

00:42:37.580 --> 00:42:42.580
regulatory and statutory structures as PG&E.

00:42:46.180 --> 00:42:50.660
And operate in the same state with similar wildfire risks.

00:42:50.660 --> 00:42:53.380
You can look at what their cost of capital,

00:42:53.380 --> 00:42:55.930
the trajectory of that over time.

00:42:55.930 --> 00:43:00.930
And from that information, you can construct

00:43:02.685 --> 00:43:05.080
the counterfactual if you will baseline

00:43:05.080 --> 00:43:07.950
for what PG&Es cost of capital would have been

00:43:08.785 --> 00:43:10.136
absent the bankruptcy.

00:43:10.136 --> 00:43:15.136
<v ->Have you quantified the costs that PG&E ratepayers</v>

00:43:16.100 --> 00:43:19.130
would have paid in a world without bankruptcy?

00:43:20.630 --> 00:43:22.100
<v ->Not for this testimony, no.</v>

00:43:22.100 --> 00:43:23.450
I recommend that it be that

00:43:24.565 --> 00:43:26.110
in the cost of capital update proceeding

00:43:26.110 --> 00:43:29.520
that the Commission is planning to conduct.

00:43:29.520 --> 00:43:32.140
That would certainly be a much more appropriate proceeding

00:43:32.140 --> 00:43:36.440
to gather that kind of detailed information.

00:43:36.440 --> 00:43:38.190
<v ->Okay. So as you sit here today</v>

00:43:38.190 --> 00:43:40.980
you don't have any opinion as to what the cost of capital

00:43:40.980 --> 00:43:44.480
would have been in the absence of the bankruptcy, correct?

00:43:44.480 --> 00:43:47.490
<v ->Not on a quantitative basis, no.</v>

00:43:48.500 --> 00:43:52.000
<v ->Did you hear Ms. Meel's testimony yesterday?</v>

00:43:52.000 --> 00:43:54.140
<v ->I did not, I've read her testimony.</v>

00:43:54.140 --> 00:43:54.973
<v ->You read it?</v>

00:43:54.973 --> 00:43:56.951
<v ->I read her written testimony.</v>

00:43:56.951 --> 00:43:58.700
<v ->Okay, but you didn't hear her testify live yesterday?</v>

00:43:58.700 --> 00:44:00.200
<v ->No I didn't.</v>

00:44:00.200 --> 00:44:03.820
<v ->Okay. I'll represent to you that she testified</v>

00:44:05.320 --> 00:44:09.170
that for the Commission to determine what PG&Es

00:44:09.170 --> 00:44:10.610
cost of capital would have been

00:44:10.610 --> 00:44:14.668
had it not declared bankruptcy would be highly speculative.

00:44:14.668 --> 00:44:15.590
Do you agree with that?

00:44:16.830 --> 00:44:18.130
<v ->I don't agree with that.</v>

00:44:33.440 --> 00:44:36.380
<v ->PG&Es currently authorized cost of debt is lower</v>

00:44:36.380 --> 00:44:39.130
than it would have been absent the bankruptcy, correct?

00:44:45.430 --> 00:44:47.690
<v ->No, I think that's one of the things</v>

00:44:47.690 --> 00:44:50.090
that would need to be determined

00:44:50.090 --> 00:44:52.790
in the cost of capital update proceeding

00:44:52.790 --> 00:44:57.790
is what is the relationship between PG&Es

00:44:58.820 --> 00:44:59.890
current cost of debt,

00:44:59.890 --> 00:45:02.390
and what it would have been absent the bankruptcy.

00:45:04.970 --> 00:45:09.013
<v ->PG&Es current authorized cost of debt is 5.16, right?</v>

00:45:12.940 --> 00:45:15.220
<v ->Their currently authorized cost of debt,</v>

00:45:17.930 --> 00:45:20.520
it's I believe that that number,

00:45:20.520 --> 00:45:22.140
if that number is from the most recent

00:45:22.140 --> 00:45:23.580
cost of capital decision,

00:45:23.580 --> 00:45:27.070
then I don't remember the decimal points of that,

00:45:27.070 --> 00:45:28.770
but that sounds about right.

00:45:31.010 --> 00:45:35.060
<v ->Would PG&Es authorized cost of debt,</v>

00:45:35.060 --> 00:45:38.740
sorry a net 5.16 is based on the cost

00:45:38.740 --> 00:45:43.290
of the debtor in possession financing right?

00:45:43.290 --> 00:45:45.190
<v ->I don't know how that was developed.</v>

00:45:46.452 --> 00:45:48.216
I haven't looked at the record of that case.

00:45:48.216 --> 00:45:50.260
<v ->Is it your opinion that PG&Es authorized cost of debt</v>

00:45:50.260 --> 00:45:53.950
would be lower than 5.16 had it not filed for bankruptcy

00:45:53.950 --> 00:45:55.220
in January 2019?

00:45:56.330 --> 00:45:57.950
<v ->It could have been.</v>

00:45:59.470 --> 00:46:02.260
<v ->Well, if PG&E had not filed for bankruptcy,</v>

00:46:02.260 --> 00:46:03.093
it could not have gotten

00:46:03.093 --> 00:46:04.830
debtor in possession financing, right?

00:46:04.830 --> 00:46:07.570
<v ->It wouldn't have needed debtor in possession financing</v>

00:46:07.570 --> 00:46:08.838
by definition.

00:46:08.838 --> 00:46:11.800
<v ->It would have had to borrow those funds</v>

00:46:11.800 --> 00:46:13.580
without debtor in possession financing, right?

00:46:13.580 --> 00:46:15.500
<v ->Right, it would have presumably undertaken</v>

00:46:15.500 --> 00:46:18.204
ordinary utility financing,

00:46:18.204 --> 00:46:21.170
the way it does in the normal course of business.

00:46:21.170 --> 00:46:25.870
<v ->Right. And normal course financing for PG&E</v>

00:46:27.890 --> 00:46:32.890
in January 2019 would have been higher than the cost

00:46:33.150 --> 00:46:35.450
of the debtor in possession financing, correct?

00:46:35.450 --> 00:46:36.450
<v ->I don't know that.</v>

00:46:37.675 --> 00:46:39.760
<v ->Do you have an understanding</v>

00:46:39.760 --> 00:46:42.490
of how debtor in possession financing works?

00:46:42.490 --> 00:46:45.130
<v ->Not in any depth, no.</v>

00:46:46.029 --> 00:46:47.870
<v ->Do you understand that it's a first priority lien?</v>

00:46:49.700 --> 00:46:51.140
<v ->Yes, I think that's true.</v>

00:46:51.140 --> 00:46:53.950
<v ->So logically would not a first priority lien</v>

00:46:53.950 --> 00:46:57.330
be cheaper than borrowing--

00:46:58.447 --> 00:47:00.710
<v ->Again, I'm not an expert in financing bankruptcy, so--</v>

00:47:00.710 --> 00:47:02.500
<v Judge>Let's make sure that we have</v>

00:47:02.500 --> 00:47:03.780
just one person speaking.

00:47:03.780 --> 00:47:06.380
So make sure the question's complete

00:47:06.380 --> 00:47:07.780
before you give your answer.

00:47:28.960 --> 00:47:31.200
<v ->I'll direct your attention to what's been marked</v>

00:47:31.200 --> 00:47:35.970
for identification as PG&E X7,

00:47:35.970 --> 00:47:40.730
which is the joint CCA response to our data request.

00:47:40.730 --> 00:47:42.420
It's tab two in your binder.

00:47:50.990 --> 00:47:53.240
So first let's just establish a foundation,

00:47:53.240 --> 00:47:55.290
are you familiar with this document?

00:47:55.290 --> 00:47:56.843
<v ->Yes.</v>

00:47:56.843 --> 00:47:57.990
<v ->Were you involved in its preparation?</v>

00:47:57.990 --> 00:47:58.823
<v ->Yes.</v>

00:47:59.677 --> 00:48:04.677
<v ->And do you agree with what's stated in PG&EX7?</v>

00:48:07.390 --> 00:48:08.616
<v ->Yes.</v>

00:48:08.616 --> 00:48:09.643
<v Judge>Let me just,</v>

00:48:09.643 --> 00:48:10.476
I'm not sure that's actually been identified

00:48:10.476 --> 00:48:12.043
on the record yet.

00:48:12.043 --> 00:48:13.239
<v ->I'm sorry, Your Honor.</v>

00:48:13.239 --> 00:48:16.932
<v Judge>So this is PG&E hearing room exhibit JCCA</v>

00:48:16.932 --> 00:48:20.350
response to PG&E data request number 001,

00:48:20.350 --> 00:48:23.073
and review of debt savings from PG&E plan.xlsx

00:48:25.600 --> 00:48:28.150
is identified as PG&EX7.

00:48:29.010 --> 00:48:30.510
Sorry about that, go ahead Mr. Weisman.

00:48:30.510 --> 00:48:31.700
<v ->Thank you, Your Honor.</v>

00:48:31.700 --> 00:48:34.000
So looking at the response to question two,

00:48:34.000 --> 00:48:35.560
are you there?

00:48:35.560 --> 00:48:36.430
<v ->Yes.</v>

00:48:36.430 --> 00:48:40.846
<v ->And here you say PG&Es overall cost of debt upon emergence</v>

00:48:40.846 --> 00:48:43.430
may be somewhat lower than PG&Es overall cost of debt

00:48:43.430 --> 00:48:45.760
before PG&E filed for bankruptcy,

00:48:46.850 --> 00:48:49.570
due in part to the interest rate savings

00:48:50.450 --> 00:48:53.260
that PG&E has negotiated as part of its plan.

00:48:54.521 --> 00:48:56.440
And in part to interest rate changes over time

00:48:56.440 --> 00:48:58.040
in the normal course of business

00:48:58.040 --> 00:49:00.310
that are not related to the plan or to the bankruptcy.

00:49:00.310 --> 00:49:01.440
Do you see that?

00:49:01.440 --> 00:49:02.520
<v ->Yes.</v>

00:49:02.520 --> 00:49:07.520
<v ->And the interest rate savings that PG&E has negotiated</v>

00:49:08.950 --> 00:49:11.750
as part of its plan, that refers to the note holder RSA?

00:49:13.175 --> 00:49:14.910
<v ->Yes.</v>

00:49:18.290 --> 00:49:21.820
<v ->And in that agreement PG&E was able to refinance</v>

00:49:21.820 --> 00:49:23.410
pre-petition high coupon debt

00:49:23.410 --> 00:49:25.440
at lower interest rates, right?

00:49:25.440 --> 00:49:27.120
<v ->That's my understanding.</v>

00:49:27.120 --> 00:49:28.980
<v ->And PG&E could not have done that</v>

00:49:28.980 --> 00:49:31.090
absent the bankruptcy, correct?

00:49:33.270 --> 00:49:35.580
<v ->Yes, I'll agree that that was the result</v>

00:49:35.580 --> 00:49:36.420
of the bankruptcy.

00:49:36.420 --> 00:49:41.420
<v ->So the direct rate impact is, withdrawn.</v>

00:49:44.030 --> 00:49:46.970
The direct rate impacts of the plan are those

00:49:46.970 --> 00:49:49.800
that would result from the cost of capital update

00:49:49.800 --> 00:49:51.650
that would follow emergence, correct?

00:49:53.510 --> 00:49:55.790
<v ->Well that's where the first time</v>

00:49:55.790 --> 00:49:58.970
that those savings would be incorporated into rates.

00:49:58.970 --> 00:50:01.170
<v ->And that would result in a rate reduction?</v>

00:50:02.780 --> 00:50:04.590
<v ->Yes, I'll agree with that.</v>

00:50:04.590 --> 00:50:05.423
<v ->Okay.</v>

00:50:15.020 --> 00:50:17.710
Please take a look at what's been previously marked

00:50:17.710 --> 00:50:20.870
for identification as PG&E 11.

00:50:20.870 --> 00:50:24.040
Which is tab eight of your binder.

00:50:34.060 --> 00:50:39.060
And this is a PG&E data response to a request from Turn.

00:50:42.416 --> 00:50:45.740
And directing your attention to the third page

00:50:45.740 --> 00:50:48.990
of that document, which has a table.

00:50:48.990 --> 00:50:51.067
Let me know when you're there.

00:50:51.067 --> 00:50:51.920
<v ->Yeah, I'm there.</v>

00:50:51.920 --> 00:50:54.284
<v ->So this reflects PG&Es calculation</v>

00:50:54.284 --> 00:50:58.250
of the estimated 2021 revenue requirement savings,

00:50:58.250 --> 00:51:00.300
resulting from the plan, right?

00:51:00.300 --> 00:51:01.900
<v ->Yes.</v>

00:51:01.900 --> 00:51:03.630
<v ->And do you have any reason to disagree</v>

00:51:03.630 --> 00:51:06.750
with this estimated revenue requirement savings?

00:51:06.750 --> 00:51:11.260
<v ->Well I think as I was asked this in data response</v>

00:51:11.260 --> 00:51:12.920
that we just referenced.

00:51:12.920 --> 00:51:17.920
And I haven't had a chance to verify the source

00:51:20.660 --> 00:51:22.510
and accuracy of all of these numbers.

00:51:23.680 --> 00:51:27.530
But assuming that they're, but I have no reason

00:51:27.530 --> 00:51:29.450
sitting here to believe that they're incorrect.

00:51:31.760 --> 00:51:35.720
<v ->So this spreadsheet shows a 4.3% post-merging</v>

00:51:35.720 --> 00:51:36.940
cost of debt, right?

00:51:38.064 --> 00:51:39.710
<v ->Yes.</v>

00:51:39.710 --> 00:51:43.030
<v ->And that factors in the amortization of the debt financing</v>

00:51:43.030 --> 00:51:45.630
related fees that PG&E is seeking to recover, right?

00:51:46.580 --> 00:51:47.413
<v ->Yes.</v>

00:51:51.590 --> 00:51:53.980
<v ->And if I understood, well let me just ask you,</v>

00:51:53.980 --> 00:51:57.320
do you have an opinion as to whether PG&Es cost of debt

00:51:57.320 --> 00:52:00.690
would lower than 4.31 had it not filed for bankruptcy?

00:52:02.500 --> 00:52:04.520
<v ->Well it's my recommendation</v>

00:52:04.520 --> 00:52:06.630
that that's what the Commission should take a look at.

00:52:06.630 --> 00:52:09.150
<v ->Right. You don't have an opinion one way or the other?</v>

00:52:09.150 --> 00:52:10.500
<v ->Not sitting here I don't.</v>

00:52:11.880 --> 00:52:16.880
<v ->I think you said before, if I wrote it down correctly,</v>

00:52:17.560 --> 00:52:22.560
that in determining the baseline mission should consider

00:52:25.650 --> 00:52:29.260
the cost of debt of other California utilities, correct?

00:52:29.260 --> 00:52:30.110
<v ->Yes.</v>

00:52:30.110 --> 00:52:33.130
<v ->And if we look at your testimony page 26,</v>

00:52:33.130 --> 00:52:34.290
lines eight through 12.

00:52:47.471 --> 00:52:48.470
Are you there?

00:52:48.470 --> 00:52:49.303
<v ->Yeah.</v>

00:52:49.303 --> 00:52:52.540
<v ->So here you say that, you say that the baseline</v>

00:52:52.540 --> 00:52:54.310
should consider the financing cost

00:52:54.310 --> 00:52:56.510
for the other California utilities, right?

00:52:56.510 --> 00:52:58.110
<v ->Yes.</v>

00:52:58.110 --> 00:53:03.110
<v ->So SCEs cost of debt for 2020 is 4.74%, correct?</v>

00:53:03.233 --> 00:53:08.233
<v ->Again, I have to look at the cost of capital decision.</v>

00:53:11.750 --> 00:53:13.210
<v ->Okay, take my word for it.</v>

00:53:13.210 --> 00:53:17.140
<v ->If that's where you got it from I subject to check.</v>

00:53:17.140 --> 00:53:21.780
<v ->Yeah, take my word for it per decision 1912056,</v>

00:53:21.780 --> 00:53:23.280
which we'll cite in the brief,

00:53:24.410 --> 00:53:28.650
SCEs cost of debt for 2020 is 4.74%.

00:53:30.100 --> 00:53:34.440
<v ->Well that's what it was estimated to be at the time</v>

00:53:34.440 --> 00:53:36.970
of that cost of capital case.

00:53:36.970 --> 00:53:38.930
<v ->It's the authorized amount.</v>

00:53:38.930 --> 00:53:41.050
<v ->Yes.</v>

00:53:41.050 --> 00:53:46.050
<v ->And SDG&Es authorized cost of debt for 2020 is. 4.59%.</v>

00:53:47.160 --> 00:53:49.153
<v ->Again, subject to check.</v>

00:53:49.153 --> 00:53:54.010
<v ->Okay. And we just established that PG&Es</v>

00:53:54.010 --> 00:53:57.880
anticipated cost of debt on exit is 4.3%, correct?

00:54:00.310 --> 00:54:01.143
<v ->Yes.</v>

00:54:02.931 --> 00:54:05.570
<v ->So PG&Es cost of debt would be lower</v>

00:54:05.570 --> 00:54:09.030
than the authorized cost of debt for Edison and San Diego.

00:54:09.030 --> 00:54:13.430
<v ->Well again that was, the San Diego and Edison</v>

00:54:13.430 --> 00:54:17.580
cost of debt were figures that were estimated some time ago.

00:54:19.121 --> 00:54:22.743
And you're comparing that to a PG&E cost of debt

00:54:23.610 --> 00:54:26.080
that was estimated very recently.

00:54:26.080 --> 00:54:31.080
So, that's something you would have to look at

00:54:31.870 --> 00:54:34.520
in the cost of capital proceeding.

00:54:34.520 --> 00:54:35.490
I'm not going to agree

00:54:35.490 --> 00:54:39.270
that that's an apples and apples comparison.

00:54:39.270 --> 00:54:41.770
That may be an apples and oranges comparison

00:54:41.770 --> 00:54:46.100
because the Edison and San Diego numbers

00:54:46.100 --> 00:54:48.870
may have been estimated several years ago,

00:54:48.870 --> 00:54:53.190
and their actual cost of debt today,

00:54:53.190 --> 00:54:55.180
because of lower interest rates,

00:54:55.180 --> 00:54:57.934
may be something lower than that.

00:54:57.934 --> 00:55:01.190
<v ->Okay this decision was issued in December of 19.</v>

00:55:02.440 --> 00:55:07.370
<v ->Yes, but the cases were filed quite a bit before that,</v>

00:55:07.370 --> 00:55:10.040
and the information was prepared even earlier.

00:55:15.680 --> 00:55:20.680
<v ->Let's say that, so let me step back,</v>

00:55:21.160 --> 00:55:24.590
you're suggesting that there be this baseline established,

00:55:24.590 --> 00:55:28.800
and then Commission will compare PG&Es actual cost of debt

00:55:28.800 --> 00:55:31.320
to that baseline, correct?

00:55:31.320 --> 00:55:32.153
<v ->Yes.</v>

00:55:32.153 --> 00:55:34.290
<v ->And then make some adjustment of some kind</v>

00:55:34.290 --> 00:55:37.030
if there's a deviation from the baseline?

00:55:37.030 --> 00:55:40.660
<v ->Well my recommendation would be that the cost of capital</v>

00:55:40.660 --> 00:55:43.340
for rates would be set based on the baseline.

00:55:43.340 --> 00:55:46.860
<v ->Okay. So if PG&E actual cost of debt</v>

00:55:46.860 --> 00:55:49.000
is below the baseline,

00:55:49.000 --> 00:55:50.600
would PG&E recover the baseline?

00:55:52.950 --> 00:55:55.580
<v ->Well again, and this is what the Commission</v>

00:55:55.580 --> 00:55:57.680
needs to have a proceeding for.

00:55:57.680 --> 00:56:02.680
If it turns out by some that PG&E can show

00:56:03.490 --> 00:56:06.510
that its cost of capital is actually lower

00:56:06.510 --> 00:56:09.000
than it would have been without the bankruptcy,

00:56:09.000 --> 00:56:11.240
then I would assume the Commission would say,

00:56:11.240 --> 00:56:13.255
"Okay you've met the rate neutrality provision,

00:56:13.255 --> 00:56:17.930
and we'll go forward based on your actual cost of capital."

00:56:17.930 --> 00:56:19.530
<v ->Ah, so it's a one way ratchet?</v>

00:56:20.739 --> 00:56:25.739
<v ->Yes, because that's certainly the way I interpret AB1054,</v>

00:56:26.720 --> 00:56:29.760
is you have to achieve neutrality.

00:56:31.455 --> 00:56:33.130
And once you've achieved neutrality,

00:56:33.130 --> 00:56:38.130
then you've satisfied that portion of the statute,

00:56:39.230 --> 00:56:44.230
and you can move forward on a business as usual basis.

00:56:44.700 --> 00:56:49.700
<v ->Ah, so once PG&E cost of debt is below the baseline,</v>

00:56:49.950 --> 00:56:52.300
then this comparison ends?

00:56:53.640 --> 00:56:57.001
<v ->Well once the Commission has found</v>

00:56:57.001 --> 00:57:02.001
that PG&Es costs are neutral on average,

00:57:02.660 --> 00:57:05.560
and the Commission has to determine what on average means,

00:57:06.400 --> 00:57:08.360
and over what time period.

00:57:08.360 --> 00:57:10.460
Once that has been satisfied,

00:57:10.460 --> 00:57:12.990
then you've met the condition for the statute.

00:57:12.990 --> 00:57:14.800
<v ->Yeah, I'm asking you what the end date is</v>

00:57:14.800 --> 00:57:15.730
for your proposal.

00:57:15.730 --> 00:57:17.400
<v ->Well I don't know what the end date is.</v>

00:57:17.400 --> 00:57:19.920
The Commission needs to sit down and set a baseline

00:57:19.920 --> 00:57:21.990
and see where we are.

00:57:21.990 --> 00:57:23.970
<v ->Right, but my question is</v>

00:57:23.970 --> 00:57:28.502
does the proposal that you're setting forth end

00:57:28.502 --> 00:57:32.873
when PG&Es cost of debt is at or below the baseline?

00:57:32.873 --> 00:57:37.873
<v ->Well that would certainly be a time for the Commission,</v>

00:57:39.030 --> 00:57:42.110
in other words if PG&Es costs have been above the baseline,

00:57:42.110 --> 00:57:47.110
if rates have been set at the baseline

00:57:48.636 --> 00:57:53.636
and after several years PG&Es costs fall below the baseline,

00:57:53.840 --> 00:57:55.620
then that would probably be the right time

00:57:55.620 --> 00:57:57.040
to end the mechanism.

00:57:57.040 --> 00:58:00.456
<v ->Okay. What if PG&Es costs are below the baseline on exit?</v>

00:58:00.456 --> 00:58:03.102
<v ->Well, that's what we need to figure out.</v>

00:58:03.102 --> 00:58:05.020
<v ->I understand we need to figure out</v>

00:58:05.020 --> 00:58:07.190
whether that's the case. My question is,

00:58:07.190 --> 00:58:09.469
if PG&Es costs were below the baseline on exit,

00:58:09.469 --> 00:58:14.469
would that mean that your recommendation would not apply?

00:58:14.730 --> 00:58:15.600
<v Mr. Fox>Your Honor, objection.</v>

00:58:15.600 --> 00:58:18.440
I believe this has been asked and answered.

00:58:18.440 --> 00:58:19.690
<v Judge>Overruled for now,</v>

00:58:19.690 --> 00:58:21.640
but let's not go too much more on this.

00:58:24.540 --> 00:58:29.540
<v ->I think that would be for the Commission to determine</v>

00:58:30.370 --> 00:58:35.370
if the rate neutrality on average condition of AB1054

00:58:37.150 --> 00:58:38.100
had been satisfied.

00:58:39.370 --> 00:58:42.440
<v ->Please turn to page 24, lines 13 to 17.</v>

00:58:49.660 --> 00:58:50.493
<v ->Okay.</v>

00:58:55.980 --> 00:58:59.440
<v ->Here you posit higher financing costs, correct?</v>

00:59:02.467 --> 00:59:04.460
<v ->Yes.</v>

00:59:04.460 --> 00:59:05.780
<v ->But you've not quantified</v>

00:59:05.780 --> 00:59:07.680
those higher financing costs, correct?

00:59:09.250 --> 00:59:14.180
<v ->No, I'm positing them because PG&Es witnesses</v>

00:59:14.180 --> 00:59:17.020
seem to suggest that there will be a path

00:59:17.020 --> 00:59:19.110
to improving its credit ratings.

00:59:19.110 --> 00:59:22.780
And while you're on that path it would stand to reason

00:59:22.780 --> 00:59:25.110
that you would have higher financing costs.

00:59:25.110 --> 00:59:27.710
<v ->And there are many factors that contribute</v>

00:59:27.710 --> 00:59:30.020
to those higher financing costs, correct?

00:59:39.410 --> 00:59:42.000
<v ->Yeah, I would agree that there are a number of factors</v>

00:59:42.000 --> 00:59:44.870
that contribute to what a utilities financing costs are.

00:59:44.870 --> 00:59:47.090
<v ->Like a fire risk exposure in the future?</v>

00:59:49.610 --> 00:59:50.580
<v ->Yes.</v>

00:59:54.715 --> 00:59:55.777
But these factors, now that is a risk that's faced

01:00:02.220 --> 01:00:04.080
by all California utilities.

01:00:04.080 --> 01:00:07.300
<v ->Correct, so it's not a result of the bankruptcy right?</v>

01:00:08.350 --> 01:00:13.350
<v ->Generally I would agree that so long as its a risk</v>

01:00:15.920 --> 01:00:18.490
that's also faced by Edison and San Diego,

01:00:18.490 --> 01:00:20.540
that it would not be due to the bankruptcy.

01:00:20.540 --> 01:00:23.760
<v ->Right. And another risk is rating agencies perception</v>

01:00:23.760 --> 01:00:26.160
of the California regulatory environment, right?

01:00:27.060 --> 01:00:29.920
<v ->Sure, that is a factor, yes.</v>

01:00:29.920 --> 01:00:33.396
<v ->Including its being fair and bAllenced, correct?</v>

01:00:33.396 --> 01:00:34.460
<v ->Yes.</v>

01:00:34.460 --> 01:00:36.510
<v ->And not have one-way ratchets, correct?</v>

01:00:38.686 --> 01:00:40.180
<v ->(laughs) I'm not sure I would agree</v>

01:00:40.180 --> 01:00:41.780
one-way ratchets are unfair.

01:00:44.010 --> 01:00:48.040
<v ->So, do you have a methodology for separating</v>

01:00:48.040 --> 01:00:50.310
the potential impacts of the bankruptcy

01:00:50.310 --> 01:00:53.030
versus other factors?

01:00:53.030 --> 01:00:55.258
<v ->Well that's why I suggest comparing,</v>

01:00:55.258 --> 01:00:59.300
bringing in information on the financing costs

01:00:59.300 --> 01:01:01.320
for Edison and San Diego.

01:01:01.320 --> 01:01:04.790
Because those utilities are subject to,

01:01:04.790 --> 01:01:08.600
as we just discussed, many of these same considerations.

01:01:08.600 --> 01:01:11.360
<v ->Okay. Please turn back to the data responses,</v>

01:01:11.360 --> 01:01:16.080
which have been marked as PG&EX7, tab two in your binder.

01:01:17.320 --> 01:01:21.060
And take a look at question and answer eight.

01:01:28.410 --> 01:01:29.243
<v ->Okay.</v>

01:01:30.755 --> 01:01:34.200
<v ->So here you recommend a baseline that should start</v>

01:01:34.200 --> 01:01:39.200
with PG&Es cost of capital in this 24 month period,

01:01:40.610 --> 01:01:44.400
from November 16 to October 18, correct?

01:01:44.400 --> 01:01:45.290
<v ->Yes.</v>

01:01:45.290 --> 01:01:47.350
<v ->Where did this period come from?</v>

01:01:48.680 --> 01:01:50.230
How did you invent that period?

01:01:55.468 --> 01:02:00.468
<v ->I was asked in these data responses what the pre-petition,</v>

01:02:04.234 --> 01:02:09.234
about how to establish this baseline,

01:02:10.300 --> 01:02:15.300
and to consider what PG&Es financial situation was

01:02:17.510 --> 01:02:20.540
before chapter 11.

01:02:20.540 --> 01:02:22.830
You need to look at it over a certain period of time,

01:02:22.830 --> 01:02:25.861
and it seemed to me that those two years

01:02:25.861 --> 01:02:30.083
were a reasonable period of time to assess

01:02:33.170 --> 01:02:35.630
PG&Es financial condition before bankruptcy.

01:02:35.630 --> 01:02:39.320
<v ->Why didn't you extend it to January 28th, 2019,</v>

01:02:42.490 --> 01:02:44.660
the day before PG&E filed for bankruptcy?

01:02:46.610 --> 01:02:50.140
<v ->It seemed to me that sort of the precipitating factor</v>

01:02:50.140 --> 01:02:52.510
in PG&Es bankruptcy was the campfire.

01:02:52.510 --> 01:02:57.510
So I chose the two years prior to that incident.

01:02:57.890 --> 01:03:02.510
<v ->Ah, so actually the baseline is a world</v>

01:03:02.510 --> 01:03:04.090
in which there was no campfire?

01:03:05.578 --> 01:03:08.000
<v ->Yes.</v>

01:03:08.000 --> 01:03:09.940
<v ->So it's not the bankruptcy,</v>

01:03:09.940 --> 01:03:13.310
it's the bankruptcy plus the campfire is the baseline?

01:03:13.310 --> 01:03:16.910
<v ->Well, I think that there's certainly, seems to me,</v>

01:03:17.827 --> 01:03:19.390
to be a pretty close connection between the two.

01:03:22.220 --> 01:03:23.970
I don't think PG&E would be bankrupt today

01:03:23.970 --> 01:03:25.590
without the campfire.

01:03:25.590 --> 01:03:28.950
<v ->Okay. Well what about the 2017 fires,</v>

01:03:28.950 --> 01:03:30.380
are you excluding those?

01:03:30.380 --> 01:03:32.000
<v ->No, they're part of this period</v>

01:03:32.000 --> 01:03:36.820
because PG&E did not declare bankruptcy after those fires.

01:03:36.820 --> 01:03:39.670
<v ->But if the 17 fires had not occurred,</v>

01:03:39.670 --> 01:03:42.370
and the campfire did occur, would PG&E have filed?

01:03:45.534 --> 01:03:48.510
No way to answer that question right?

01:03:48.510 --> 01:03:50.060
<v ->Yeah, there's no way to answer that,</v>

01:03:50.060 --> 01:03:51.310
that's not what happened.

01:03:52.287 --> 01:03:54.387
<v ->But your methodology is camp in, 17 out?</v>

01:03:56.613 --> 01:04:00.190
<v ->Well again, it certainly yeah it's my opinion</v>

01:04:00.190 --> 01:04:04.380
that the campfire was the precipitating in PG&Es bankruptcy.

01:04:04.380 --> 01:04:05.530
<v ->What's that based on?</v>

01:04:06.692 --> 01:04:07.525
What's your opinion based on?

01:04:08.471 --> 01:04:10.971
<v ->Well, the campfire happened in November of 2018,</v>

01:04:14.340 --> 01:04:17.270
and PG&E declared bankruptcy a couple months later.

01:04:17.270 --> 01:04:18.950
<v ->Yeah, you have the chronology correct,</v>

01:04:18.950 --> 01:04:20.360
but you're attributing the filing,

01:04:20.360 --> 01:04:23.773
you're saying the precipitating factor is the campfire.

01:04:23.773 --> 01:04:24.770
I'm asking what's your basis?

01:04:25.910 --> 01:04:30.890
<v ->Well I think it was PG&Es liabilities after the campfire</v>

01:04:30.890 --> 01:04:34.230
that caused it, from the campfire, that caused it

01:04:34.230 --> 01:04:35.380
to file for bankruptcy.

01:04:37.695 --> 01:04:39.810
<v ->So let's just get some facts clear.</v>

01:04:39.810 --> 01:04:44.690
The rating agency's downgraded PG&E to sub-investment grade

01:04:44.690 --> 01:04:46.840
on January 10th, 2019, correct?

01:04:48.460 --> 01:04:50.400
<v ->I accept that subject to check.</v>

01:04:52.843 --> 01:04:53.700
<v ->That was before it filed for bankruptcy right?</v>

01:04:55.270 --> 01:04:56.103
<v ->Yes.</v>

01:04:57.053 --> 01:04:59.850
<v ->So, had PG&E not filed for bankruptcy,</v>

01:04:59.850 --> 01:05:04.850
any borrowings after it was sub investment grade

01:05:07.070 --> 01:05:09.613
would have reflected that rating. Right?

01:05:18.152 --> 01:05:19.751
<v ->Sure, presumably yeah.</v>

01:05:19.751 --> 01:05:22.420
<v ->Okay. So let's look at your 24 month period.</v>

01:05:24.339 --> 01:05:26.390
So, PG&E had different credit ratings

01:05:26.390 --> 01:05:28.558
throughout this period, correct?

01:05:28.558 --> 01:05:29.540
<v ->Yes.</v>

01:05:30.400 --> 01:05:32.500
<v ->So for the starting point,</v>

01:05:33.650 --> 01:05:38.650
are you using an average of the costs over that period,

01:05:39.060 --> 01:05:40.710
or a point and time?

01:05:41.960 --> 01:05:43.420
Or how are we to understand the starting point?

01:05:48.800 --> 01:05:51.930
<v ->Yes, I would generally think</v>

01:05:51.930 --> 01:05:54.330
that you would use the average over that period.

01:05:57.100 --> 01:06:01.070
<v ->So the average implies that you're not permitting</v>

01:06:01.070 --> 01:06:04.290
the cost of capital baseline to reflect the full effects

01:06:04.290 --> 01:06:07.890
of the 2017 fires, right?

01:06:07.890 --> 01:06:08.940
<v ->Well they reflect,</v>

01:06:10.410 --> 01:06:15.410
since the period includes the 2017 fires, so it does,

01:06:15.770 --> 01:06:18.330
it reflects time both before and after those fires.

01:06:18.330 --> 01:06:21.500
<v ->Right. So the average does not fully reflect</v>

01:06:21.500 --> 01:06:23.320
the effects of the fires?

01:06:24.460 --> 01:06:26.230
<v ->I suppose if you had wanted to do that,</v>

01:06:26.230 --> 01:06:29.430
you would just take a one year period after the 2017 fires.

01:06:29.430 --> 01:06:32.150
<v ->Yeah, the lowest point. But you're not doing that.</v>

01:06:32.150 --> 01:06:34.239
<v ->I'm not doing that, right.</v>

01:06:34.239 --> 01:06:35.490
<v ->Okay.</v>

01:06:35.490 --> 01:06:37.900
So let's continue with your response to the data request.

01:06:40.178 --> 01:06:44.297
And question and answer eight, I'm in PG&EX7.

01:06:46.540 --> 01:06:48.990
So you're saying the baseline should be adjusted,

01:06:51.040 --> 01:06:54.600
sorry step back, we're starting out with an average

01:06:54.600 --> 01:06:55.720
over this time period.

01:06:57.072 --> 01:06:57.930
And then the next thing that you say is,

01:06:58.800 --> 01:07:01.440
adjust that baseline or debt an equity

01:07:01.440 --> 01:07:05.530
PG&E would have raised after November 18,

01:07:05.530 --> 01:07:07.740
had it not been in chapter 11.

01:07:09.040 --> 01:07:11.840
Based on its credit ratings during the pre-petition

01:07:11.840 --> 01:07:15.230
baseline period, that's the average right?

01:07:19.210 --> 01:07:20.043
<v ->Yes.</v>

01:07:20.043 --> 01:07:23.932
<v ->And adjusted for interest rate changes over time, right?</v>

01:07:23.932 --> 01:07:25.410
<v ->Yes.</v>

01:07:27.194 --> 01:07:28.610
<v ->So, when you begin the sentence</v>

01:07:28.610 --> 01:07:30.460
the baseline should be adjusted,

01:07:31.560 --> 01:07:34.040
are you saying it should be adjusted in terms of

01:07:34.040 --> 01:07:36.560
the quantum of debt, or the cost of the debt?

01:07:43.720 --> 01:07:45.170
<v ->You probably consider both.</v>

01:07:46.880 --> 01:07:49.330
<v ->So you're asking the Commission to determine</v>

01:07:49.330 --> 01:07:52.220
the debt and equity PG&E would have raised

01:07:53.204 --> 01:07:55.780
had it not been in bankruptcy,

01:07:55.780 --> 01:07:57.830
how much and how much it would have cost?

01:07:59.460 --> 01:08:00.350
<v ->Generally, yes.</v>

01:08:03.380 --> 01:08:06.340
<v ->And you're asking the Commission to assume that PG&E</v>

01:08:06.340 --> 01:08:11.340
had the average credit rating for the period

01:08:11.481 --> 01:08:15.180
when determining what it would have done after October 18

01:08:15.180 --> 01:08:17.080
absent the bankruptcy?

01:08:17.080 --> 01:08:17.990
<v ->Generally, yes.</v>

01:08:18.897 --> 01:08:21.630
And again, you can bring in information

01:08:21.630 --> 01:08:24.900
about what was going on with the other utilities

01:08:24.900 --> 01:08:26.690
during this period would be useful

01:08:26.690 --> 01:08:29.011
in establishing that baseline as well.

01:08:29.011 --> 01:08:30.575
<v ->Let's talk about that next.</v>

01:08:30.575 --> 01:08:32.480
So continuing with your response,

01:08:32.480 --> 01:08:33.830
you say in establishing the baseline

01:08:33.830 --> 01:08:37.392
Commission should also consider the cost of capital

01:08:37.392 --> 01:08:42.392
both for the 24 month period and after November 19

01:08:44.639 --> 01:08:48.740
for the Edison and San Diego, right?

01:08:48.740 --> 01:08:49.710
<v ->Yes.</v>

01:08:49.710 --> 01:08:53.740
<v ->So when you say the Commission should consider</v>

01:08:55.760 --> 01:08:57.900
Edison and San Diego's cost of capital,

01:08:57.900 --> 01:08:59.590
what does it mean to consider?

01:09:01.270 --> 01:09:04.500
<v ->Well again, I think you're trying to read</v>

01:09:04.500 --> 01:09:07.150
a mathematical formula into testimony

01:09:07.150 --> 01:09:10.080
that is not proposing a mathematical formula.

01:09:10.080 --> 01:09:14.430
I'm simply proposing the type of information

01:09:14.430 --> 01:09:16.180
that the Commission should look at

01:09:16.180 --> 01:09:18.810
in the cost of capital update proceeding

01:09:18.810 --> 01:09:20.680
in order to establish this baseline.

01:09:22.608 --> 01:09:27.608
The Commission considers such information as it sees fit.

01:09:28.516 --> 01:09:31.330
<v ->Yeah, I'm just seeking your opinion sir.</v>

01:09:32.340 --> 01:09:34.250
So you don't have a specific recommendation

01:09:34.250 --> 01:09:36.400
about how they should consider in your testimony today?

01:09:36.400 --> 01:09:37.233
<v ->No, I don't.</v>

01:09:38.660 --> 01:09:41.220
<v ->You would acknowledge that decreases in credit rating</v>

01:09:41.220 --> 01:09:42.870
not attributable to the bankruptcy

01:09:42.870 --> 01:09:44.470
are part of the baseline, right?

01:09:46.820 --> 01:09:50.190
<v ->Yeah, if there are other things going on</v>

01:09:50.190 --> 01:09:53.020
that affect credit ratings that should be considered

01:09:53.020 --> 01:09:55.600
in establishing the baseline, that would be fine.

01:09:55.600 --> 01:09:57.770
<v ->And all of the, sorry.</v>

01:09:58.910 --> 01:10:02.050
Edison and San Diego's credit ratings went down

01:10:02.050 --> 01:10:04.020
during this timeframe, correct?

01:10:05.100 --> 01:10:06.560
<v ->I don't know that.</v>

01:10:06.560 --> 01:10:08.560
I haven't reviewed their credit ratings.

01:10:12.700 --> 01:10:17.700
<v ->So, let me ask you to accept</v>

01:10:19.270 --> 01:10:22.660
that Edison had a credit rating one notch higher than PG&E

01:10:22.660 --> 01:10:24.620
during the proposed baseline period.

01:10:27.050 --> 01:10:28.940
<v ->Subject to check, I'll accept that.</v>

01:10:31.330 --> 01:10:35.250
<v ->So would that mean that in conducting</v>

01:10:35.250 --> 01:10:37.820
this analysis that you're proposing,

01:10:37.820 --> 01:10:41.250
we would expect PG&Es baseline to be a credit rating

01:10:41.250 --> 01:10:42.430
one notch below Edison?

01:10:45.460 --> 01:10:48.710
<v ->Again, that would certainly be one way to do it.</v>

01:10:48.710 --> 01:10:51.986
I'm not presenting a detailed recommendation here.

01:10:51.986 --> 01:10:55.791
The intent here was to broadly outline

01:10:55.791 --> 01:10:58.720
how this process would work, and the kind of information

01:10:58.720 --> 01:11:01.050
that the Commission could look at.

01:11:01.050 --> 01:11:01.883
<v ->All right.</v>

01:11:01.883 --> 01:11:03.890
The same exhibit, page four, question nine.

01:11:13.990 --> 01:11:18.500
And here you make reference to a chart or figure

01:11:18.500 --> 01:11:23.060
from Ms. Meel's testimony, correct?

01:11:23.060 --> 01:11:23.893
<v ->Yes.</v>

01:11:23.893 --> 01:11:27.020
<v ->So are you saying the baseline should be triple B plus?</v>

01:11:29.600 --> 01:11:33.280
<v ->Well that was the average of PG&E credit rating</v>

01:11:33.280 --> 01:11:35.330
over those 24 months.

01:11:35.330 --> 01:11:36.930
<v ->Right, that's not my question.</v>

01:11:39.000 --> 01:11:40.260
<v ->It sounded like it was your question.</v>

01:11:40.260 --> 01:11:44.276
<v ->The question is in your submission, is it your opinion</v>

01:11:44.276 --> 01:11:48.340
that baseline should be set at triple B plus?

01:11:53.140 --> 01:11:56.510
<v ->Again, that's my recommendation for a baseline period,</v>

01:11:56.510 --> 01:11:59.130
and over that period PG&Es average credit rating

01:11:59.130 --> 01:12:00.330
was triple B plus.

01:12:00.330 --> 01:12:05.330
So that certainly would be probably where I would start.

01:12:06.500 --> 01:12:08.230
<v ->Right, and then there's adjustments after that.</v>

01:12:08.230 --> 01:12:09.865
<v ->That's right.</v>

01:12:09.865 --> 01:12:11.100
<v ->Including decreases that the other utilities</v>

01:12:11.100 --> 01:12:12.520
in California experience?

01:12:12.520 --> 01:12:13.930
<v ->Possibly, yes.</v>

01:12:13.930 --> 01:12:17.070
<v ->You're not aware that other utilities experience--</v>

01:12:17.070 --> 01:12:19.130
<v ->Again, I'm not aware of what the trajectory</v>

01:12:19.130 --> 01:12:21.140
of their credit rating has been.

01:12:21.140 --> 01:12:22.160
<v Mr. Fox>Your Honor, I have to object</v>

01:12:22.160 --> 01:12:23.340
to this line of questioning.

01:12:23.340 --> 01:12:25.270
I believe that Mr. Beach has testified

01:12:25.270 --> 01:12:27.650
that he is not offering a specific proposal

01:12:27.650 --> 01:12:30.900
for how to calculate this in this proceeding.

01:12:30.900 --> 01:12:33.424
That he has merely proposed a way to go about

01:12:33.424 --> 01:12:37.326
a procedural mechanism that the Commission can use

01:12:37.326 --> 01:12:40.100
to establish a baseline.

01:12:40.100 --> 01:12:41.300
<v Judge>I think we have some clarity</v>

01:12:41.300 --> 01:12:43.402
as to where we are on here.

01:12:43.402 --> 01:12:44.735
<v ->I'm moving on.</v>

01:12:45.781 --> 01:12:48.330
<v Judge>So if you could move onto the next,</v>

01:12:48.330 --> 01:12:49.540
that would be good.

01:12:49.540 --> 01:12:53.480
<v ->So given the lack of specificity around your proposal,</v>

01:12:53.480 --> 01:12:56.290
this sounds fairly uncertain about how the Commission

01:12:56.290 --> 01:12:58.660
would implement it, correct?

01:13:02.330 --> 01:13:03.840
<v Judge>I think the parties will stipulate</v>

01:13:03.840 --> 01:13:05.930
that there's often uncertainty as to how the Commission

01:13:05.930 --> 01:13:06.980
will consider things.

01:13:07.961 --> 01:13:10.044
(laughs)

01:13:13.220 --> 01:13:16.120
<v ->And creating more uncertainty around</v>

01:13:16.120 --> 01:13:20.860
the Commissions rate making is not a positive

01:13:20.860 --> 01:13:22.840
for the rating agency's perception

01:13:22.840 --> 01:13:24.790
of the regulatory environment, correct?

01:13:26.550 --> 01:13:29.280
<v ->Well, it is what it is.</v>

01:13:29.280 --> 01:13:33.670
This is a case where the Commission has a statute

01:13:33.670 --> 01:13:35.760
that it has to satisfy.

01:13:35.760 --> 01:13:40.760
And I simply do not see that you can satisfy that condition

01:13:41.260 --> 01:13:45.057
of ratepayer neutrality on average without doing

01:13:45.057 --> 01:13:48.860
a counterfactual but for a comparison.

01:13:50.190 --> 01:13:54.600
PG&Es witnesses in their testimony say the same thing,

01:13:54.600 --> 01:13:56.940
so I think that's what needs to be done

01:13:56.940 --> 01:13:58.310
to satisfy this statute.

01:14:16.020 --> 01:14:18.220
<v ->Turn to page 23 of your testimony please.</v>

01:14:23.450 --> 01:14:24.283
<v ->Okay.</v>

01:14:26.840 --> 01:14:29.540
<v ->So here you're talking about PG&Es</v>

01:14:29.540 --> 01:14:34.540
interest cost savings calculation, right?

01:14:35.533 --> 01:14:37.320
<v ->Yes.</v>

01:14:37.320 --> 01:14:39.720
<v ->And you note that PG&Es calculation</v>

01:14:39.720 --> 01:14:44.720
is at the present value of the interest cost savings

01:14:44.770 --> 01:14:47.320
is approximately $1 billion, right?

01:14:48.690 --> 01:14:50.292
<v ->Yes.</v>

01:14:50.292 --> 01:14:52.740
<v ->And you calculate it at a lower amount, correct?</v>

01:14:52.740 --> 01:14:53.730
<v ->Yes.</v>

01:14:53.730 --> 01:14:55.610
<v ->And you provided us a spreadsheet</v>

01:14:55.610 --> 01:14:57.580
that set forth your calculation?

01:14:58.470 --> 01:15:00.044
<v ->Yes.</v>

01:15:00.044 --> 01:15:02.680
<v ->So directing your attention to that spreadsheet,</v>

01:15:08.650 --> 01:15:11.840
which is I believe part of PG&EX7.

01:15:13.320 --> 01:15:16.970
Which is tab two of your binder.

01:15:21.350 --> 01:15:22.200
It's at the back.

01:15:32.690 --> 01:15:34.331
<v ->Okay.</v>

01:15:34.331 --> 01:15:35.860
<v ->You prepared this spreadsheet, right?</v>

01:15:37.600 --> 01:15:39.350
<v ->Well it was prepared under my direction.</v>

01:15:39.350 --> 01:15:41.440
<v ->You adopt it as your testimony?</v>

01:15:41.440 --> 01:15:42.273
<v ->Yes.</v>

01:15:43.130 --> 01:15:46.440
<v ->Okay, so looking at the right-hand side,</v>

01:15:56.066 --> 01:16:00.540
so the far right column is PG&Es analysis, correct?

01:16:01.590 --> 01:16:02.859
<v ->Yes.</v>

01:16:02.859 --> 01:16:03.709
<v ->That's the 943.</v>

01:16:05.777 --> 01:16:08.260
And then your responsive one is one over to the left,

01:16:08.260 --> 01:16:10.960
which is labeled savings/costs, correct?

01:16:10.960 --> 01:16:12.570
<v ->Yes.</v>

01:16:12.570 --> 01:16:15.790
<v ->And that's 796?</v>

01:16:15.790 --> 01:16:16.623
<v ->Yes.</v>

01:16:17.750 --> 01:16:22.590
<v ->And to do this calculation you did the present value</v>

01:16:22.590 --> 01:16:25.410
of the interest and principle, correct?

01:16:25.410 --> 01:16:26.243
<v ->Yes.</v>

01:16:36.203 --> 01:16:41.203
<v ->Okay.</v>

01:16:48.454 --> 01:16:53.454
Going back to page two of exhibit PG&EX7,

01:16:59.210 --> 01:17:00.630
response to question five.

01:17:06.730 --> 01:17:07.563
<v ->Okay.</v>

01:17:08.437 --> 01:17:11.020
<v ->So here you talk about various discount rates,</v>

01:17:11.860 --> 01:17:15.040
10.25 and 7.81, right?

01:17:15.040 --> 01:17:15.990
<v ->Yes.</v>

01:17:15.990 --> 01:17:19.780
<v ->And in your opinion are 7.81 and 10.25</v>

01:17:21.060 --> 01:17:25.120
standard discount rates used in rate making analysis?

01:17:25.120 --> 01:17:25.953
<v ->Yes.</v>

01:17:27.260 --> 01:17:28.900
<v ->Okay. Just taking a step back,</v>

01:17:28.900 --> 01:17:33.200
all of these various calculations show interest cost savings

01:17:33.200 --> 01:17:35.000
resulting from the plan, correct?

01:17:35.000 --> 01:17:35.833
<v ->Yes.</v>

01:17:40.723 --> 01:17:43.520
<v ->That's all I have, Your Honor.</v>

01:17:43.520 --> 01:17:45.810
<v Judge>Thank you, Mr. Weisman.</v>

01:17:45.810 --> 01:17:46.643
Off the record.

01:17:52.040 --> 01:17:56.460
So we have Q and DCC, any preference of order?

01:18:01.684 --> 01:18:05.058
Sure, any objection to, actually no this is a good time.

01:18:05.058 --> 01:18:06.810
On the record,

01:18:06.810 --> 01:18:10.310
we will take a recess until 10:30 by the wall clock.

01:18:25.406 --> 01:18:27.480
Ms. Cass?

01:18:27.480 --> 01:18:30.720
<v ->Thank you. Good morning, Mr. Beach.</v>

01:18:30.720 --> 01:18:32.194
<v Mr. Beach>Good morning.</v>

01:18:32.194 --> 01:18:33.434
<v ->My name is Rachel Cass,</v>

01:18:33.434 --> 01:18:34.636
I'm here on behalf of

01:18:34.636 --> 01:18:35.700
Coalition of California Utility Employees.

01:18:35.700 --> 01:18:37.450
It's nice to see you again.

01:18:37.450 --> 01:18:38.570
<v Mr. Beach>Nice to see you.</v>

01:18:40.210 --> 01:18:44.990
<v ->In your testimony, you recommend that PG&E</v>

01:18:44.990 --> 01:18:48.410
phase out its electric generation service

01:18:48.410 --> 01:18:51.200
and associated procurement by 2025,

01:18:51.200 --> 01:18:55.210
so that PG&E can focus on safety.

01:18:57.170 --> 01:18:58.970
You understand that Diabolo Canyon

01:18:58.970 --> 01:19:03.220
is scheduled to be closed in 2024 and 2025, right?

01:19:03.220 --> 01:19:04.053
<v ->Yes.</v>

01:19:05.020 --> 01:19:07.220
<v ->And so that will end the largest portion</v>

01:19:07.220 --> 01:19:09.470
of PG&Es generation. Is that right?

01:19:13.944 --> 01:19:17.610
<v ->Well I mean the hydro system probably has more</v>

01:19:17.610 --> 01:19:19.230
mega watts than Diabolo Canyon.

01:19:20.969 --> 01:19:22.620
So I'm not sure what you mean by largest.

01:19:22.620 --> 01:19:24.910
<v ->Let's rephrase, the single largest.</v>

01:19:24.910 --> 01:19:26.736
<v ->Single largest, yes.</v>

01:19:26.736 --> 01:19:29.200
<v ->Okay.</v>

01:19:29.200 --> 01:19:33.000
I provided to you a chart,

01:19:35.240 --> 01:19:39.837
it has been marked as TURN exhibit X2.

01:19:45.550 --> 01:19:49.240
This is a 42-page chart, it was provided by PG&E to TURN

01:19:49.240 --> 01:19:54.240
in response to data request TURN 17 question three.

01:19:57.490 --> 01:20:00.070
It shows the organizational structure

01:20:00.070 --> 01:20:03.280
of the corporation and the utility.

01:20:05.770 --> 01:20:08.150
Have you had the chance to review that chart?

01:20:10.370 --> 01:20:12.580
<v ->Very briefly, yes I've looked through it.</v>

01:20:12.580 --> 01:20:14.890
<v ->Okay. Do you have any reason to dispute</v>

01:20:14.890 --> 01:20:17.670
the information in the chart?

01:20:17.670 --> 01:20:18.503
<v ->No.</v>

01:20:25.149 --> 01:20:28.706
<v ->Let me go off the record for a moment.</v>

01:20:28.706 --> 01:20:30.086
<v Judge>Off the record.</v>

01:20:30.086 --> 01:20:31.357
<v ->Would you like a copy of it?</v>

01:20:31.357 --> 01:20:32.352
<v Judge>I have one somewhere,</v>

01:20:32.352 --> 01:20:33.830
I'm familiar with the org chart though, so you can go ahead.

01:20:33.830 --> 01:20:34.663
On the record.

01:20:37.803 --> 01:20:41.130
<v ->And approximately what percentage of PG&E</v>

01:20:41.130 --> 01:20:43.658
including the corporation and the utility

01:20:43.658 --> 01:20:46.180
according to this 42-page chart

01:20:46.180 --> 01:20:48.170
is dedicated to electric generation?

01:20:50.200 --> 01:20:52.836
<v ->Are you looking for a percentage?</v>

01:20:52.836 --> 01:20:57.836
<v ->There's 42-pages, can you identify about how many of them</v>

01:20:59.150 --> 01:21:02.730
are dedicated to electric generation?

01:21:31.440 --> 01:21:33.710
<v Judge>Ms. Cass, does that exhibit,</v>

01:21:34.930 --> 01:21:39.930
is that a complete org chart of PG&E or is that excerpts?

01:21:40.240 --> 01:21:44.009
<v ->My understanding is that it is a complete work chart</v>

01:21:44.009 --> 01:21:46.380
of the organizational structure.

01:21:46.380 --> 01:21:47.540
<v Judge>Okay, thank you.</v>

01:22:15.599 --> 01:22:17.780
<v ->I mean basically it looks like there's three pages</v>

01:22:17.780 --> 01:22:18.910
that are on generation,

01:22:18.910 --> 01:22:23.490
and there's I think another one on electric procurement.

01:22:24.500 --> 01:22:29.500
<v ->So four pages of the organization of the 42</v>

01:22:29.500 --> 01:22:32.600
are dedicated to generation and procurement?

01:22:34.540 --> 01:22:37.130
<v ->I mean obviously there's a lot of shared services</v>

01:22:37.130 --> 01:22:41.180
in here too where people would support

01:22:42.250 --> 01:22:43.710
those functions in PG&E.

01:22:45.440 --> 01:22:49.240
<v ->And PG&E has about 24,000 employees, right?</v>

01:22:49.240 --> 01:22:50.073
<v ->Yes.</v>

01:22:51.450 --> 01:22:53.160
<v ->And how many of those employees do you know</v>

01:22:53.160 --> 01:22:56.020
are dedicated to electric procurement?

01:22:56.020 --> 01:22:58.110
<v ->I don't know the answer to that.</v>

01:22:58.110 --> 01:23:00.210
<v ->Would you agree that it's a small number?</v>

01:23:01.460 --> 01:23:03.200
<v ->In the context of 24,000,</v>

01:23:03.200 --> 01:23:05.200
I'm sure it's a relatively small number.

01:23:06.860 --> 01:23:09.800
<v ->And because it's losing so much load to CCAs,</v>

01:23:09.800 --> 01:23:12.940
PG&E is over-procured for renewables, right?

01:23:13.790 --> 01:23:15.230
<v ->Yes.</v>

01:23:15.230 --> 01:23:19.370
<v ->And much of what PG&Es procurement department is now doing</v>

01:23:20.370 --> 01:23:23.680
is selling off its excess procurement. Is that right?

01:23:25.420 --> 01:23:27.920
<v ->That's certainly something that's going on, yes.</v>

01:23:29.160 --> 01:23:31.930
<v ->And that revenue is then credited back</v>

01:23:31.930 --> 01:23:33.230
to ratepayers, right?

01:23:34.298 --> 01:23:36.580
<v ->Yes.</v>

01:23:38.140 --> 01:23:42.490
<v ->You're not suggesting that PG&E end that activity</v>

01:23:42.490 --> 01:23:45.510
depriving ratepayers of that revenue, are you?

01:23:45.510 --> 01:23:46.343
<v ->No.</v>

01:23:47.580 --> 01:23:49.860
<v ->Have you performed a quantitative analysis</v>

01:23:49.860 --> 01:23:53.630
of safety improvements from PG&E phasing out

01:23:53.630 --> 01:23:55.630
its electric generation service?

01:23:58.887 --> 01:24:00.310
<v ->I have not,</v>

01:24:01.571 --> 01:24:06.450
but if you look at the history of the last 10 years,

01:24:06.450 --> 01:24:11.450
most of the safety related issues have arisen

01:24:11.620 --> 01:24:15.880
with the delivery of energy by PG&E,

01:24:15.880 --> 01:24:18.930
either gas or electricity, not with the generation.

01:24:20.610 --> 01:24:24.010
<v ->But you yourself have not performed an analysis</v>

01:24:24.010 --> 01:24:28.410
of safety improvements from PG&E phasing out procurement?

01:24:28.410 --> 01:24:30.070
<v ->No.</v>

01:24:30.070 --> 01:24:32.590
<v ->Thank you, Your Honor. I have no further questions.</v>

01:24:32.590 --> 01:24:34.390
Thank you, Mr. Beach.

01:24:34.390 --> 01:24:36.300
<v Judge>Thank you Miss Cass.</v>

01:24:36.300 --> 01:24:37.133
Mr. Bloom?

01:24:40.117 --> 01:24:40.950
<v Mr. Bloom>Good morning, Mr. Beach.</v>

01:24:40.950 --> 01:24:43.270
My name is Jerry Bloom, and I'm here on behalf

01:24:43.270 --> 01:24:44.870
of the Tort Claimants Committee.

01:24:46.560 --> 01:24:48.500
In your testimony on page three,

01:24:48.500 --> 01:24:53.270
you express you're concerned with how the plan complies

01:24:53.270 --> 01:24:58.270
with AB1054 in both the short-term and in the long-term,

01:24:58.580 --> 01:24:59.670
is that correct?

01:24:59.670 --> 01:25:01.090
<v ->Yes.</v>

01:25:01.090 --> 01:25:06.090
<v ->And assuming that the CPUC approves the plan</v>

01:25:06.173 --> 01:25:07.951
with or without changes,

01:25:07.951 --> 01:25:12.150
your testimony is that you believe the CPUC

01:25:12.150 --> 01:25:14.847
needs continuing active oversight

01:25:14.847 --> 01:25:17.637
of PG&E's safety and reliability

01:25:17.637 --> 01:25:20.483
to assure safety and reliability?

01:25:20.483 --> 01:25:24.040
<v ->Yes, I agree with that.</v>

01:25:24.040 --> 01:25:26.196
<v ->And that all tools are needed</v>

01:25:26.196 --> 01:25:31.196
to assure that outcome again, a safe and reliable system?

01:25:32.540 --> 01:25:33.373
<v ->Yes.</v>

01:25:34.830 --> 01:25:37.450
<v ->And the focus if I understand your testimony</v>

01:25:38.410 --> 01:25:43.410
is as to potential changes that may be needed

01:25:43.810 --> 01:25:47.430
in the scope and structure of the business. Is that correct?

01:25:47.430 --> 01:25:48.870
<v ->Yes.</v>

01:25:48.870 --> 01:25:51.500
<v ->Would you accept that there are other reasons</v>

01:25:51.500 --> 01:25:55.419
besides potential changes to scope

01:25:55.419 --> 01:25:57.960
and structure of the business

01:25:57.960 --> 01:26:00.193
that might need to be adjusted

01:26:00.193 --> 01:26:03.140
in this interim or this continuum period

01:26:03.140 --> 01:26:05.070
that you're talking about from moving

01:26:06.029 --> 01:26:07.780
as we move from the short-term to the long-term?

01:26:07.780 --> 01:26:10.269
<v ->Are you saying are there other reasons</v>

01:26:10.269 --> 01:26:15.269
why the scope and structure of PG&E as an organization

01:26:15.590 --> 01:26:18.000
might need to be adjusted over time?

01:26:18.000 --> 01:26:20.085
<v ->No, that there are other things besides</v>

01:26:20.085 --> 01:26:23.430
corporate structure and the scope of the business

01:26:23.430 --> 01:26:26.280
that also may need to be adjusted over time

01:26:26.280 --> 01:26:31.280
in order to assure or move toward safety and reliability?

01:26:31.567 --> 01:26:36.500
<v ->Sure, I mean obviously there are a lot of</v>

01:26:36.500 --> 01:26:39.990
ongoing initiatives in that direction, yes.

01:26:41.210 --> 01:26:44.310
<v ->And can you explain or clarify,</v>

01:26:44.310 --> 01:26:47.800
given the plan gets adopted or approved by the Commission

01:26:47.800 --> 01:26:49.500
in the timeframe we're looking at,

01:26:50.350 --> 01:26:51.400
how does this work?

01:26:51.400 --> 01:26:54.110
Where does this oversight or where do these things come,

01:26:54.110 --> 01:26:57.143
what's the mechanism to make these adjustments or changes

01:26:57.143 --> 01:27:01.870
be they broader things or more narrow things,

01:27:01.870 --> 01:27:03.250
but course corrections if you will

01:27:03.250 --> 01:27:04.680
as we go through the process?

01:27:04.680 --> 01:27:05.980
How does that work?

01:27:05.980 --> 01:27:07.828
<v ->Well the Commission has,</v>

01:27:07.828 --> 01:27:12.828
they have still open the safety culture OII.

01:27:14.420 --> 01:27:17.000
And one of our recommendations

01:27:17.000 --> 01:27:21.450
is that that case needs to remain open,

01:27:23.311 --> 01:27:27.690
and that that certainly the Commission

01:27:27.690 --> 01:27:32.690
has held several workshops,

01:27:33.210 --> 01:27:38.160
and taken a lot of thoughtful and important comments

01:27:38.160 --> 01:27:40.400
in that process.

01:27:40.400 --> 01:27:44.650
And that some of the recommendations

01:27:44.650 --> 01:27:46.840
that have been made in that process

01:27:46.840 --> 01:27:49.630
need to remain on the table

01:27:49.630 --> 01:27:54.630
and remain something that if necessary

01:27:54.650 --> 01:27:58.370
the Commission could use in the future.

01:27:59.370 --> 01:28:03.464
<v ->So in addition to that proceeding that you've just cited,</v>

01:28:03.464 --> 01:28:07.630
there's a number of other parts and plans of limitation

01:28:07.630 --> 01:28:09.390
that aren't part of the record yet,

01:28:09.390 --> 01:28:11.490
aren't part of the actual plan, is that correct?

01:28:11.490 --> 01:28:14.000
For example, the regional reorganization plan

01:28:14.000 --> 01:28:16.320
that's yet to be developed or brought to the Commission?

01:28:16.320 --> 01:28:20.850
<v ->Yes, I mean that is in extremely skeletal form,</v>

01:28:22.208 --> 01:28:25.500
and there are going to be a lot of important details

01:28:25.500 --> 01:28:26.900
about how that's going to work

01:28:26.900 --> 01:28:30.660
that the Commission's going to need to review going forward.

01:28:30.660 --> 01:28:33.960
<v ->So the Commissions decision that will be made</v>

01:28:33.960 --> 01:28:37.200
pursuant to this proceeding will be on the existing plan,

01:28:37.200 --> 01:28:40.110
but there's a number of other things that will occur

01:28:40.110 --> 01:28:43.740
as we move through immediately to the longer term,

01:28:43.740 --> 01:28:46.080
such as the restructuring plan,

01:28:46.080 --> 01:28:48.500
number of other things that are going to be filled

01:28:48.500 --> 01:28:51.680
in the details that will be filed as we move through this,

01:28:51.680 --> 01:28:52.640
that's correct?

01:28:52.640 --> 01:28:54.090
So beyond the safety proceeding,

01:28:54.090 --> 01:28:55.840
there may be a number of other proceedings?

01:28:55.840 --> 01:28:59.860
<v ->Yes, and I think we had a lot of discussion this morning</v>

01:28:59.860 --> 01:29:02.250
about the ratepayer neutrality aspect,

01:29:02.250 --> 01:29:05.151
which in our view is something that

01:29:05.151 --> 01:29:08.470
it's not just a snapshot in time.

01:29:08.470 --> 01:29:11.070
We're not just going to take one snapshot

01:29:11.070 --> 01:29:13.900
as of the moment PG&E emerges from its plan

01:29:13.900 --> 01:29:17.460
and decide that it's ratepayer neutral.

01:29:18.460 --> 01:29:20.710
<v ->So just using that again for clarification,</v>

01:29:21.888 --> 01:29:23.020
at the time we're going to make this decision

01:29:23.020 --> 01:29:25.720
to move forward and get PG&E out of bankruptcy

01:29:25.720 --> 01:29:28.480
and get them into the Wildfire Fund.

01:29:28.480 --> 01:29:31.305
There will be a snapshot right now that we have to look at

01:29:31.305 --> 01:29:33.230
as the plan is developed,

01:29:33.230 --> 01:29:35.855
as the plan is now sitting before the Commission,

01:29:35.855 --> 01:29:38.410
saying this meets the standard.

01:29:38.410 --> 01:29:40.070
And we're going to have to make that determination.

01:29:40.070 --> 01:29:42.366
We can't make the long-term determination yet,

01:29:42.366 --> 01:29:44.040
lots of things aren't known,

01:29:44.040 --> 01:29:46.351
lots of other things that will come later,

01:29:46.351 --> 01:29:48.960
but you agree that for right now we have to look

01:29:48.960 --> 01:29:50.460
at the plan and what's before the Commission,

01:29:50.460 --> 01:29:52.170
they're going to make a decision

01:29:52.170 --> 01:29:54.795
on what's here in front of us right now?

01:29:54.795 --> 01:29:59.795
<v ->Yes. For better or for worse the Legislature</v>

01:30:00.055 --> 01:30:04.280
put a deadline, and that's why we're in this

01:30:04.280 --> 01:30:09.280
sort of rocket docket to get us to June 30th.

01:30:10.353 --> 01:30:15.353
But this is also a really important moment for the long-term

01:30:16.058 --> 01:30:21.058
and it's important for the Commission to at least indicate

01:30:21.280 --> 01:30:26.280
an outline of what it wants PG&E to look like going forward.

01:30:26.430 --> 01:30:29.020
We're not going to be able to fill in all of the details

01:30:29.020 --> 01:30:31.990
of what that picture should be,

01:30:31.990 --> 01:30:35.398
but it is a really important moment to provide

01:30:35.398 --> 01:30:37.880
some kind of outline.

01:30:37.880 --> 01:30:40.020
<v ->And your testimony, if I understand it,</v>

01:30:40.020 --> 01:30:44.020
would be as you develop later in your testimony

01:30:44.020 --> 01:30:47.940
that that includes the metrics and the measurements,

01:30:47.940 --> 01:30:50.850
and if you will even the milestones that might be needed

01:30:50.850 --> 01:30:54.230
to be considered, or met, or looked at as we move forward

01:30:54.230 --> 01:30:56.690
after they exit from bankruptcy?

01:30:56.690 --> 01:30:57.523
<v ->Yes.</v>

01:31:05.290 --> 01:31:09.740
<v ->And do those metrics, milestones things,</v>

01:31:10.680 --> 01:31:12.350
how and where do they get developed,

01:31:12.350 --> 01:31:13.830
or how does that get adjusted,

01:31:13.830 --> 01:31:15.720
or as these filings get made,

01:31:15.720 --> 01:31:18.470
how does the Commission use those tools,

01:31:18.470 --> 01:31:20.740
or develop those tools and criteria?

01:31:22.210 --> 01:31:24.030
<v ->Well I think we've had some discussion</v>

01:31:24.030 --> 01:31:25.670
about the financial metrics.

01:31:25.670 --> 01:31:29.210
And there's the cost of capital update proceedings

01:31:29.210 --> 01:31:32.430
has been established for that.

01:31:34.510 --> 01:31:39.340
And again, there's the ongoing safety culture proceeding,

01:31:41.025 --> 01:31:43.080
and it's our recommendation that that should stay open

01:31:43.080 --> 01:31:45.776
and that the Commission should retain

01:31:45.776 --> 01:31:50.776
its full jurisdictional flexibility to take any action

01:31:53.700 --> 01:31:56.430
in that proceeding that's necessary going forward

01:31:56.430 --> 01:31:58.670
as circumstances evolve.

01:31:58.670 --> 01:32:00.460
<v ->So from a victim's perspective</v>

01:32:00.460 --> 01:32:03.530
particularly as to safety and reliability,

01:32:03.530 --> 01:32:07.920
the ability to make these course corrections in your opinion

01:32:07.920 --> 01:32:12.070
would be necessary to optimize the outcome

01:32:12.070 --> 01:32:15.140
of maintaining a safe and reliable system and avoiding

01:32:15.140 --> 01:32:19.614
the catastrophic or other unacceptable events going forward?

01:32:19.614 --> 01:32:21.840
<v ->Yes, I mean if nothing,</v>

01:32:21.840 --> 01:32:24.460
if the last few years have taught us anything,

01:32:24.460 --> 01:32:29.460
it's that there may be additional shocks in the future.

01:32:30.860 --> 01:32:35.480
Hopefully not, but you have to prepare for that.

01:32:35.480 --> 01:32:38.211
And the Commission needs to be able to respond

01:32:38.211 --> 01:32:40.810
to what happens in the future

01:32:40.810 --> 01:32:42.760
with all of the tools it has available.

01:32:43.740 --> 01:32:44.573
<v ->Thank you Mr. Beach.</v>

01:32:44.573 --> 01:32:46.250
I have no further questions Your Honor.

01:32:47.310 --> 01:32:48.700
<v Judge>Thank you, Mr. Bloom.</v>

01:32:52.050 --> 01:32:53.850
My understanding is this completes

01:32:53.850 --> 01:32:57.260
the cross examination of Mr. Beach. Is that correct?

01:32:58.280 --> 01:32:59.500
Is that correct Mr. Craig?

01:32:59.500 --> 01:33:00.400
<v ->Yes, Your Honor.</v>

01:33:01.339 --> 01:33:03.530
<v Judge>Thank you. Is there any redirect?</v>

01:33:05.800 --> 01:33:09.130
Okay, thank you Mr. Beach. You are excused.

01:33:11.740 --> 01:33:12.940
Let's go off the record.

01:33:15.660 --> 01:33:20.170
So, next up is Mr. Gorman,

01:33:20.170 --> 01:33:22.610
did you want to move exhibits at this time?

01:33:23.500 --> 01:33:25.030
<v ->Yes, Your Honor.</v>

01:33:25.030 --> 01:33:29.054
<v Judge>The only one we have is just the joint CCA one.</v>

01:33:29.054 --> 01:33:31.461
<v ->Yes, I believe that's correct--</v>

01:33:31.461 --> 01:33:36.461
<v ->Once we go back on the record we can move that in.</v>

01:34:10.933 --> 01:34:11.930
<v ->Can I ask you a question?</v>

01:34:11.930 --> 01:34:12.932
<v ->Sure.</v>

01:34:12.932 --> 01:34:16.028
<v ->Would this be marked, Mr. Gorman's testimony,</v>

01:34:16.028 --> 01:34:21.028
as the (mumbles)

01:34:24.873 --> 01:34:29.873
<v ->Gorman's, right here.</v>

01:34:31.679 --> 01:34:33.846
(murmurs)

01:34:51.483 --> 01:34:56.483
<v ->It's identified for the record</v>

01:34:58.539 --> 01:35:03.539
and it's marked as TURN ebook IS two.

01:35:03.827 --> 01:35:07.850
<v ->So over the last several days (mumbles)</v>

01:35:07.850 --> 01:35:12.665
my colleague (mumbles) has been helpful

01:35:12.665 --> 01:35:15.984
in trying to decipher some documents

01:35:15.984 --> 01:35:18.948
that we want to enter into the record today.

01:35:18.948 --> 01:35:22.647
The first of those is a public document,

01:35:22.647 --> 01:35:27.647
we marked it yesterday at EPC1 (mumbles)

01:35:29.758 --> 01:35:32.125
It did not contain attachments

01:35:32.125 --> 01:35:34.122
that we were still discussing,

01:35:34.122 --> 01:35:36.802
we've now resolved that and I would care to substitute

01:35:36.802 --> 01:35:39.544
what we gave you yesterday for a now complete version

01:35:39.544 --> 01:35:43.949
with attachments, while noting the document itself

01:35:43.949 --> 01:35:48.397
has exceptions to a complete set of attachments.

01:35:48.397 --> 01:35:53.397
In part because (mumbles)

01:35:55.600 --> 01:35:57.717
<v ->So I'm replacing (murmurs)</v>

01:35:57.717 --> 01:36:02.717
<v ->There's three of those.</v>

01:36:04.174 --> 01:36:07.257
(background chatter)

01:37:22.545 --> 01:37:24.972
<v ->Two is fine, as is.</v>

01:37:24.972 --> 01:37:29.972
What we need to do in addition to the public version of one

01:37:31.216 --> 01:37:35.377
is to also identify and introduce a confidential version

01:37:35.377 --> 01:37:39.537
of one, because it contains one sheet

01:37:39.537 --> 01:37:44.537
which is (mumbles)

01:37:46.157 --> 01:37:51.157
I should also advise this document (mumbles)

01:37:52.694 --> 01:37:57.694
does reflect several credit agency reports

01:37:57.787 --> 01:38:00.158
that are subscription reports,

01:38:00.158 --> 01:38:05.158
however PG&E has consented to allow those to (mumbles)

01:38:06.924 --> 01:38:10.041
There is one summary (mumbles)

01:38:10.041 --> 01:38:12.133
<v ->So that's the only that's confidential is that one page?</v>

01:38:12.133 --> 01:38:13.769
<v ->This is the confidential document.</v>

01:38:13.769 --> 01:38:16.217
<v ->Why don't we, do me a favor, take that one page</v>

01:38:16.217 --> 01:38:21.217
put it in an envelope, and then we can mark that one page

01:38:25.835 --> 01:38:30.835
as essentially it'll be like EPUC1A

01:38:32.853 --> 01:38:36.419
because it's an attachment, C so it's confidential.

01:38:36.419 --> 01:38:39.330
So they know it's not here and it's confidential.

01:38:39.330 --> 01:38:42.274
Are you going to need to refer to that at all

01:38:42.274 --> 01:38:43.765
during cross examination?

01:38:43.765 --> 01:38:45.361
<v ->That document?</v>

01:38:45.361 --> 01:38:47.123
<v ->Yeah.</v>

01:38:47.123 --> 01:38:49.177
<v ->Not the numbers in that document.</v>

01:38:49.177 --> 01:38:52.059
I think that there were some questions to Mr. Gorman

01:38:52.059 --> 01:38:56.084
whether he feels (mumbles)

01:38:56.084 --> 01:38:57.914
<v ->Okay.</v>

01:38:57.914 --> 01:39:00.602
<v ->The other thing I want to be clear for Mr. Weisman,</v>

01:39:00.602 --> 01:39:02.825
and all the parties, I do have other copies

01:39:02.825 --> 01:39:04.818
of that confidential copy.

01:39:04.818 --> 01:39:07.448
We have not served it, we're not going to serve it.

01:39:07.448 --> 01:39:11.687
(mumbles) We can provide them a copy,

01:39:11.687 --> 01:39:16.285
but otherwise we're not going to.

01:39:16.285 --> 01:39:18.717
<v ->That's fine.</v>

01:39:18.717 --> 01:39:21.640
(background chatter)

01:39:21.640 --> 01:39:23.468
<v ->Yes, I did want to clarify that.</v>

01:39:23.468 --> 01:39:28.468
The highlighted text in there was Mr. Gorman's highlights,

01:39:29.020 --> 01:39:31.894
and they are there to reflect the passages

01:39:31.894 --> 01:39:36.894
that he was particularly focusing on (mumbles)

01:39:39.308 --> 01:39:41.343
<v ->Yeah, when we go on the record.</v>

01:39:41.343 --> 01:39:44.426
(background chatter)

01:39:55.784 --> 01:39:57.167
<v ->Are those documents if we've signed</v>

01:39:57.167 --> 01:39:58.982
that confidentiality agreement,

01:39:58.982 --> 01:40:02.279
can they be made available for us?

01:40:02.279 --> 01:40:05.362
(background chatter)

01:40:09.128 --> 01:40:14.128
Yes, I have. Thank you.

01:40:15.053 --> 01:40:19.717
Thank you.

01:40:19.717 --> 01:40:24.527
<v ->Okay, so what I'll do is when I go on the record,</v>

01:40:24.527 --> 01:40:27.128
let me do a little housekeeping with Mr. Fox.

01:40:27.128 --> 01:40:30.286
And then once we do that, we'll have you call Mr. Gorman.

01:40:30.286 --> 01:40:34.588
Then I'll swear you in and cross on Mr. Gorman

01:40:34.588 --> 01:40:39.542
is by PG&E and TCC, correct? Okay.

01:40:39.542 --> 01:40:44.542
And PG&E you would go first? Okay.

01:40:46.194 --> 01:40:50.634
On the record. Mr. Fox?

01:40:50.634 --> 01:40:52.876
<v ->Your Honor, the joint CCAs would like to move</v>

01:40:52.876 --> 01:40:56.013
what has been marked as exhibit JCC1,

01:40:56.013 --> 01:40:59.212
the prepared reply testimony of R. Thomas Beach,

01:40:59.212 --> 01:41:00.673
into the record.

01:41:00.673 --> 01:41:04.064
<v ->Is there any objection to the receipt of the exhibit?</v>

01:41:04.064 --> 01:41:09.064
Seeing none, joint CCA1 is received.

01:41:11.607 --> 01:41:15.431
Thank you, Mr. Fox.

01:41:15.431 --> 01:41:17.570
Mr. Alcantar, please call your witness.

01:41:17.570 --> 01:41:19.040
<v Mr. Alcantar>Your Honor,</v>

01:41:19.040 --> 01:41:23.165
at this time EPUC and Indicated Shippers

01:41:23.165 --> 01:41:25.646
calls Michael Gorman to the stand.

01:41:25.646 --> 01:41:29.003
<v ->Thank you. Do you swear to tell the truth,</v>

01:41:29.003 --> 01:41:31.072
the whole truth, and nothing but the truth?

01:41:31.072 --> 01:41:32.336
<v Mr. Gorman>I do.</v>

01:41:32.336 --> 01:41:33.788
<v ->Would you please be seated. State your full name,</v>

01:41:33.788 --> 01:41:35.371
and spell your last name for the record.

01:41:35.371 --> 01:41:37.080
<v ->My name is Michael Gorman,</v>

01:41:37.080 --> 01:41:40.244
M-I-C-H-A-E-L G-O-R-M-A-N.

01:41:40.244 --> 01:41:41.739
<v Judge>Thank you, Mr. Alcantar.</v>

01:41:41.739 --> 01:41:43.306
<v ->Your Honor, as we discussed off the record</v>

01:41:43.306 --> 01:41:45.827
there are a few documents that have been

01:41:45.827 --> 01:41:50.827
marked for identification, EPUC1 and EPUC1C.

01:41:56.894 --> 01:41:59.677
I want to make sure that it is clear

01:41:59.677 --> 01:42:01.655
as the council has requested,

01:42:01.655 --> 01:42:04.503
that we note that of the attachments

01:42:04.503 --> 01:42:08.294
that are the public version

01:42:08.294 --> 01:42:13.294
as well as the confidential version of these exhibits,

01:42:13.840 --> 01:42:17.408
there are some yellow highlights attachments.

01:42:17.408 --> 01:42:22.376
These highlights were made by Mr. Gorman,

01:42:22.376 --> 01:42:24.984
a review of these documents to highlight areas

01:42:24.984 --> 01:42:29.375
we're replying upon particular passages.

01:42:29.375 --> 01:42:31.276
<v Judge>Let me just make sure we're clear</v>

01:42:31.276 --> 01:42:34.262
on which is what.

01:42:34.262 --> 01:42:39.262
So previously prepared testimony of Mr. Gorman

01:42:40.655 --> 01:42:45.228
was marked as TURN EPUCIS2, correct?

01:42:45.228 --> 01:42:46.885
<v ->Yes, thank you Your Honor.</v>

01:42:46.885 --> 01:42:49.217
<v Judge>And then you've presented me</v>

01:42:49.217 --> 01:42:54.217
with exhibits in the hearing room.

01:42:54.401 --> 01:42:58.089
One is an EPUC response to PG&E

01:42:58.089 --> 01:43:02.495
and use data set one in accompanying attachments.

01:43:02.495 --> 01:43:04.266
And my understanding is that would be marked

01:43:04.266 --> 01:43:06.783
as just ECUC1.

01:43:06.783 --> 01:43:08.677
<v ->Correct, that is a public version.</v>

01:43:08.677 --> 01:43:10.769
<v Judge>And that's a public version of that document.</v>

01:43:10.769 --> 01:43:14.724
And then you have provided there's a one page

01:43:14.724 --> 01:43:19.724
attachment to that document that is confidential?

01:43:20.255 --> 01:43:22.833
<v ->Correct, the so called attachment 13.</v>

01:43:22.833 --> 01:43:25.409
<v Judge>And what I have done is I have marked that</v>

01:43:25.409 --> 01:43:30.409
as EPUC1AC, since that's an attachment that's confidential.

01:43:33.332 --> 01:43:38.332
And that is identified as yes, EPUC1AC.

01:43:43.203 --> 01:43:46.885
And then the other document that was provided

01:43:46.885 --> 01:43:51.706
is attachment to PG&E omnibus supplemental data response,

01:43:51.706 --> 01:43:54.836
set two on February 29th,

01:43:54.836 --> 01:43:58.117
excuse me, on February 19th, et cetera.

01:43:58.117 --> 01:44:02.560
And that would be identified as EPUC2, correct?

01:44:02.560 --> 01:44:03.824
<v ->Correct.</v>

01:44:03.824 --> 01:44:08.824
<v ->Okay that one is identified as EPUC2.</v>

01:44:11.834 --> 01:44:13.580
Okay, go ahead Mr. Alcantar.

01:44:13.580 --> 01:44:17.236
And then the highlighted text that you were discussing

01:44:17.236 --> 01:44:20.728
are in which exhibit?

01:44:20.728 --> 01:44:23.167
<v ->EPUC1.</v>

01:44:23.167 --> 01:44:25.229
<v Judge>Okay, thank you. Go ahead.</v>

01:44:25.229 --> 01:44:28.190
<v ->I should also I think point out to you that EPUC2</v>

01:44:28.190 --> 01:44:33.190
has also a confidential version, or materials,

01:44:33.550 --> 01:44:38.550
that are confidential.

01:44:39.471 --> 01:44:41.196
I'm not sure how many of those documents

01:44:41.196 --> 01:44:43.471
still remain confidential to be perfectly blunt

01:44:43.471 --> 01:44:46.629
with you this morning from a PG&E standpoint.

01:44:46.629 --> 01:44:51.629
But there was a previously marked identified addition

01:44:51.718 --> 01:44:56.718
of C2 (mumbles)

01:44:57.917 --> 01:44:59.444
<v ->Yeah, I'm not sure.</v>

01:44:59.444 --> 01:45:02.636
Okay, I'm not sure that that has been marked for the record.

01:45:02.636 --> 01:45:07.636
Just to be clear that EPUC2C is a confidential version

01:45:09.133 --> 01:45:11.865
of EPUC2.

01:45:11.865 --> 01:45:15.556
<v ->Correct.</v>

01:45:15.556 --> 01:45:18.072
<v ->Okay. Thank you.</v>

01:45:18.072 --> 01:45:21.413
<v ->Lastly to be somewhat efficient, PG&E has agreed</v>

01:45:21.413 --> 01:45:26.413
that these documents as identified by stipulation.

01:45:29.555 --> 01:45:33.499
<v ->And which, is that everything that we've talked about,</v>

01:45:33.499 --> 01:45:38.499
including TURN EPUCIS, or just the EPUC1, 1AC, 2, and 2C?

01:45:43.444 --> 01:45:46.242
<v ->The latter, the EPUC testimony</v>

01:45:46.242 --> 01:45:51.201
that Mr. Gorman is supporting in conjunction with TURN

01:45:51.201 --> 01:45:54.716
and IS is still across.

01:45:54.716 --> 01:45:56.455
<v ->Okay.</v>

01:45:56.455 --> 01:46:01.147
So, is there any objection to the receive into the record

01:46:01.147 --> 01:46:06.147
of EPUC1, EPUC1AC, EPUC2, or EPUC2C?

01:46:12.286 --> 01:46:13.852
<v ->May we be off the record for just a moment please?</v>

01:46:13.852 --> 01:46:15.921
<v ->Yes, off the record.</v>

01:46:15.921 --> 01:46:19.004
(background chatter)

01:46:47.729 --> 01:46:51.063
We can do this later if you want.

01:46:51.063 --> 01:46:52.358
<v ->Could we?</v>

01:46:52.358 --> 01:46:54.527
<v Judge>Why don't we just readjust that.</v>

01:46:54.527 --> 01:46:57.688
<v ->I don't anticipate a problem (mumbles)</v>

01:46:57.688 --> 01:47:02.680
<v ->On the record. We'll hold that motion in abeyance for now</v>

01:47:02.680 --> 01:47:07.514
while parties may examine and confer.

01:47:07.514 --> 01:47:10.089
Mr. Alcantar, you may present your witness.

01:47:10.089 --> 01:47:11.272
<v ->Thank you, Your Honor.</v>

01:47:11.272 --> 01:47:12.906
Mr. Gorman, do you have before you

01:47:12.906 --> 01:47:14.960
what's been marked for purposes of identification

01:47:14.960 --> 01:47:19.960
TURN TTC IS exhibit two?

01:47:22.530 --> 01:47:26.754
Which is your prepared direct testimony in this case,

01:47:26.754 --> 01:47:29.524
prepared replied testimony in this case, excuse me.

01:47:29.524 --> 01:47:31.198
<v ->I do.</v>

01:47:31.198 --> 01:47:34.140
<v ->Was that information or testimony prepared</v>

01:47:34.140 --> 01:47:36.137
under your direction?

01:47:36.137 --> 01:47:38.428
<v ->It was.</v>

01:47:38.428 --> 01:47:40.304
<v ->Do you adopt it as true and correct?</v>

01:47:40.304 --> 01:47:43.167
<v ->I do.</v>

01:47:43.167 --> 01:47:45.844
<v ->Witness is available for cross examination.</v>

01:47:45.844 --> 01:47:48.149
<v Judge>Thank you Mr. Alcantar. Mr. Weisman?</v>

01:47:48.149 --> 01:47:51.004
<v Mr. Weisman>Thank you, Your Honor. Good morning.</v>

01:47:51.004 --> 01:47:52.878
<v ->Good morning.</v>

01:47:52.878 --> 01:47:54.318
<v Mr. Weisman>My name is Henry Weisman,</v>

01:47:54.318 --> 01:47:56.731
I'm one of the attorneys representing PG&E in this matter.

01:47:56.731 --> 01:47:58.337
<v ->Good morning.</v>

01:47:58.337 --> 01:48:03.337
<v Mr. Weisman>Please turn your testimony page 20.</v>

01:48:07.605 --> 01:48:09.775
<v ->I'm there.</v>

01:48:09.775 --> 01:48:11.281
<v Mr. Weisman>Directing your attention</v>

01:48:11.281 --> 01:48:14.905
to lines 15 through 18.

01:48:14.905 --> 01:48:16.191
<v ->I'm there.</v>

01:48:16.191 --> 01:48:18.539
<v Mr. Weisman>You state, "Approximately $5.8 billion</v>

01:48:18.539 --> 01:48:23.207
of RSA debt will be subject to financing

01:48:23.207 --> 01:48:28.207
at the companies post exit credit rating and cost of debt.

01:48:28.995 --> 01:48:33.650
The change in interest rate for this other RSA debt

01:48:33.650 --> 01:48:37.314
has simply not been estimated by PG&E in its testimony."

01:48:37.314 --> 01:48:38.784
do you see that?

01:48:38.784 --> 01:48:39.781
<v ->I do.</v>

01:48:39.781 --> 01:48:40.780
<v ->So is it your understanding</v>

01:48:40.780 --> 01:48:42.675
a portion of the debt under the note holder RSA

01:48:42.675 --> 01:48:45.691
would be issued at market interest rates?

01:48:45.691 --> 01:48:47.556
<v ->Well, at the time I wrote this testimony</v>

01:48:47.556 --> 01:48:50.024
it was unclear to me

01:48:50.024 --> 01:48:52.695
whether or not that was going to be repriced.

01:48:52.695 --> 01:48:55.079
And data submittals by the company since then

01:48:55.079 --> 01:48:59.787
it appears as though I may be reinstated at the coupon rates

01:48:59.787 --> 01:49:02.651
that previously existed.

01:49:02.651 --> 01:49:05.787
But it was unclear to me at the time

01:49:05.787 --> 01:49:07.822
I filed this testimony.

01:49:07.822 --> 01:49:09.583
<v ->All right. And at the time you filed this testimony,</v>

01:49:09.583 --> 01:49:11.355
you had Mr. Wells testimony right?

01:49:11.355 --> 01:49:12.828
<v ->I did.</v>

01:49:12.828 --> 01:49:16.664
<v ->All right. Would you please turn to Mr. Wells testimony?</v>

01:49:16.664 --> 01:49:21.664
So you have a binder there that you might want to look at.

01:49:22.947 --> 01:49:26.557
It's in tab five.

01:49:26.557 --> 01:49:28.336
<v ->I'm there.</v>

01:49:28.336 --> 01:49:33.336
<v ->Turn to page 2-28.</v>

01:49:41.558 --> 01:49:43.610
<v ->I'm there.</v>

01:49:43.610 --> 01:49:47.568
<v ->So, there's subsections A, B, and C</v>

01:49:47.568 --> 01:49:50.027
on pages 20 and then 29. Do you see that?

01:49:50.027 --> 01:49:52.260
<v ->I do.</v>

01:49:52.260 --> 01:49:55.798
<v ->And these passages describe the terms of the debt</v>

01:49:55.798 --> 01:49:59.917
being issued pursuant to the note holder RSA, correct?

01:49:59.917 --> 01:50:03.459
<v ->That's correct.</v>

01:50:03.459 --> 01:50:07.789
<v ->So if we look at A,</v>

01:50:07.789 --> 01:50:12.789
it states, I'm reading from page 2-28 starting at line five.

01:50:14.770 --> 01:50:19.770
1.949 million, sorry 1,949 million in new notes

01:50:23.682 --> 01:50:28.131
bearing an interest rate of 3.15%. Do you see that?

01:50:28.131 --> 01:50:29.164
<v ->I do.</v>

01:50:29.164 --> 01:50:31.766
<v ->And then a little further down, starting around line 10,</v>

01:50:31.766 --> 01:50:35.730
it refers to another 1,949 million of notes

01:50:35.730 --> 01:50:38.210
bearing an interest rate of 4.5, correct?

01:50:38.210 --> 01:50:41.311
<v ->Correct.</v>

01:50:41.311 --> 01:50:45.433
<v ->And then if we turn to page 2-29,</v>

01:50:45.433 --> 01:50:49.735
we have the medium term notes

01:50:49.735 --> 01:50:53.814
and referencing around line three it's stated

01:50:53.814 --> 01:50:55.906
that the interest rate on that issue

01:50:55.906 --> 01:50:58.170
would be 3.45%, correct?

01:50:58.170 --> 01:50:59.314
<v ->Correct.</v>

01:50:59.314 --> 01:51:01.687
<v ->And then on line A, 3.75%, correct?</v>

01:51:01.687 --> 01:51:03.534
<v ->Yes.</v>

01:51:03.534 --> 01:51:08.534
<v ->And are these the notes that you are referencing</v>

01:51:14.811 --> 01:51:19.811
that add up to the 5.8 billion?

01:51:24.939 --> 01:51:26.499
<v ->Appear to be.</v>

01:51:26.499 --> 01:51:31.499
<v ->So your testimony was in error?</v>

01:51:50.410 --> 01:51:52.694
<v ->Well, there was a stated interest rates,</v>

01:51:52.694 --> 01:51:57.694
I don't know if I could have articulated it more clearly.

01:51:59.426 --> 01:52:02.504
There was a lot of information to consume in this,

01:52:02.504 --> 01:52:05.506
the interest rates were firmly stated

01:52:05.506 --> 01:52:10.506
than what I was originally understood.

01:52:10.736 --> 01:52:12.702
But I don't know whether or not the state interest rates

01:52:12.702 --> 01:52:16.592
in any way reflects the credit standing of the utility

01:52:16.592 --> 01:52:21.011
as it exits bankruptcy.

01:52:21.011 --> 01:52:25.518
From that standpoint, it will not be refinanced

01:52:25.518 --> 01:52:28.626
at market rates, but the stated interest rates

01:52:28.626 --> 01:52:33.626
on these notes has been identified exiting bankruptcy.

01:52:35.307 --> 01:52:38.694
But I can't say for certain whether or not

01:52:38.694 --> 01:52:41.791
those interest rates were impacted by the credit standing

01:52:41.791 --> 01:52:43.226
and the utility.

01:52:43.226 --> 01:52:44.623
<v ->Yeah, that wasn't my question.</v>

01:52:44.623 --> 01:52:46.391
<v Judge>Well your question was he made an error,</v>

01:52:46.391 --> 01:52:51.391
so I think he's explaining why maybe he didn't--

01:52:51.519 --> 01:52:52.737
<v ->Well--</v>

01:52:52.737 --> 01:52:54.127
<v Judge>Go ahead, Mr. Weisman.</v>

01:52:54.127 --> 01:52:59.094
<v ->Your testimony on page 20 was that the interest rate</v>

01:52:59.094 --> 01:53:02.025
for this other RS state debt

01:53:02.025 --> 01:53:05.922
simply has not been estimated by PG&E in its testimony.

01:53:05.922 --> 01:53:09.260
That was an error?

01:53:09.260 --> 01:53:14.260
<v ->It had been estimated, so that's correct.</v>

01:53:14.421 --> 01:53:19.421
<v ->Turn to page 12 of your testimony.</v>

01:53:22.733 --> 01:53:27.686
<v ->I'm there.</v>

01:53:27.686 --> 01:53:32.686
<v ->Lines five through eight.</v>

01:53:33.040 --> 01:53:38.040
So, here you assert that costs directly associated

01:53:39.629 --> 01:53:42.102
with the bankruptcy should not be included

01:53:42.102 --> 01:53:46.538
in the development of perspective rates, correct?

01:53:46.538 --> 01:53:49.214
<v ->Yes.</v>

01:53:49.214 --> 01:53:54.214
<v ->And turning to page 21, lines five through six.</v>

01:54:08.075 --> 01:54:09.103
Are you there?

01:54:09.103 --> 01:54:10.212
<v ->Yes, I am.</v>

01:54:10.212 --> 01:54:14.405
<v ->And here you reference other aspects of PG&Es</v>

01:54:14.405 --> 01:54:19.405
at interest cost that may result in increased interest costs

01:54:20.325 --> 01:54:24.101
as a result of PG&E filing for bankruptcy, correct?

01:54:24.101 --> 01:54:27.977
<v ->I do.</v>

01:54:27.977 --> 01:54:30.869
<v ->So is it your recommendation that the Commission</v>

01:54:30.869 --> 01:54:34.822
examine the costs that ratepayers pay

01:54:34.822 --> 01:54:37.893
compared to the cost they would have paid,

01:54:37.893 --> 01:54:42.893
in a world in which there had been no bankruptcy?

01:54:45.997 --> 01:54:48.459
<v ->In measuring whether or not the bankruptcy</v>

01:54:48.459 --> 01:54:50.883
led to debt interest rate savings,

01:54:50.883 --> 01:54:52.912
I would recommend that the Commission consider

01:54:52.912 --> 01:54:55.868
whether or not there were increases in interest rates

01:54:55.868 --> 01:55:00.868
cost associated with the bankruptcy

01:55:01.020 --> 01:55:03.079
in determining whether or not the net impact

01:55:03.079 --> 01:55:05.585
from the bankruptcy had the effect of producing

01:55:05.585 --> 01:55:07.951
interest rate savings to customers,

01:55:07.951 --> 01:55:09.885
or interest rate costs.

01:55:09.885 --> 01:55:12.175
<v ->Right. And to determine if there were increased costs,</v>

01:55:12.175 --> 01:55:14.401
you would compare the actual costs

01:55:14.401 --> 01:55:19.146
to the costs that would have existed

01:55:19.146 --> 01:55:24.146
had there not been a bankruptcy, correct?

01:55:26.672 --> 01:55:29.026
<v ->To the extent there was increased interest costs</v>

01:55:29.026 --> 01:55:31.889
that can be attributable to the bankruptcy filing.

01:55:31.889 --> 01:55:34.689
<v ->Right, I'm asking you how you would determine that.</v>

01:55:34.689 --> 01:55:37.691
So my question is increased compared to what?

01:55:37.691 --> 01:55:39.178
Increased compared to a world

01:55:39.178 --> 01:55:41.210
in which there was no bankruptcy?

01:55:41.210 --> 01:55:42.512
<v ->There would be an increased cost</v>

01:55:42.512 --> 01:55:44.922
associated with the companies actual interest cost are

01:55:44.922 --> 01:55:49.330
having then exiting bankruptcy compared to what

01:55:49.330 --> 01:55:51.350
the interest rates would have been

01:55:51.350 --> 01:55:53.264
had it not filed for bankruptcy.

01:55:53.264 --> 01:55:55.625
<v ->Thank you.</v>

01:55:55.625 --> 01:55:58.128
And in that hypothetical world

01:55:58.128 --> 01:56:03.128
in which there was no bankruptcy,

01:56:08.427 --> 01:56:10.723
are you assuming that there would have been

01:56:10.723 --> 01:56:15.723
wildfire claims costs?

01:56:17.639 --> 01:56:19.631
<v ->I haven't made the assumption yet,</v>

01:56:19.631 --> 01:56:24.631
but it would be an estimate based on the financial condition

01:56:25.290 --> 01:56:29.802
and the borrowing cost of utility,

01:56:29.802 --> 01:56:32.898
that would exclude any financial consequences

01:56:32.898 --> 01:56:35.366
of costs that are not appropriate for recovering

01:56:35.366 --> 01:56:37.593
from retail ratepayers.

01:56:37.593 --> 01:56:38.867
<v ->Let me try the question again.</v>

01:56:38.867 --> 01:56:41.735
So you're saying we should compare the actual costs

01:56:41.735 --> 01:56:46.735
that PG&E will incur to the costs it would have incurred

01:56:47.052 --> 01:56:50.300
without a bankruptcy, correct?

01:56:50.300 --> 01:56:54.162
<v ->Well I'm not really following your methodology, I guess.</v>

01:56:54.162 --> 01:56:55.907
It's similar, but a little different.

01:56:55.907 --> 01:56:59.075
I think there might be identifiable interest cost

01:56:59.075 --> 01:57:02.541
the utility would incur that attributable to it

01:57:02.541 --> 01:57:04.547
having filed for bankruptcy,

01:57:04.547 --> 01:57:07.411
or having incurred certain cost

01:57:07.411 --> 01:57:10.203
that may not be recoverable from retail customers.

01:57:10.203 --> 01:57:11.810
<v ->Okay.</v>

01:57:11.810 --> 01:57:14.439
<v ->In either interest, there may be increased interest cost</v>

01:57:14.439 --> 01:57:16.363
that would not be appropriate

01:57:16.363 --> 01:57:17.732
for recovering from retail customers.

01:57:17.732 --> 01:57:21.951
<v ->So a few minutes ago I thought we set this premise,</v>

01:57:21.951 --> 01:57:23.777
maybe I need to go back over it.

01:57:23.777 --> 01:57:27.620
I think you said it's increased costs,

01:57:27.620 --> 01:57:30.054
to determine if there are increased costs,

01:57:30.054 --> 01:57:33.673
we compare the actual costs to a world

01:57:33.673 --> 01:57:37.020
in which there was no bankruptcy. Correct?

01:57:37.020 --> 01:57:39.862
<v ->Yeah, but I wasn't limiting it to that.</v>

01:57:39.862 --> 01:57:42.315
<v ->Ah, so it's increased cost that would have existed</v>

01:57:42.315 --> 01:57:47.315
in a world without bankruptcy and without wildfire claims?

01:57:47.485 --> 01:57:49.985
<v ->It's any increased costs that are associated</v>

01:57:49.985 --> 01:57:53.581
with imprudent or unreasonable, imprudent actions

01:57:53.581 --> 01:57:55.283
of the utility or unreasonable cost incurred--

01:57:55.283 --> 01:57:57.585
<v ->I'm sorry.</v>

01:57:57.585 --> 01:58:02.227
<v Judge>Whose phone? Whose is that?</v>

01:58:02.227 --> 01:58:05.701
Who has a phone or machine?

01:58:05.701 --> 01:58:08.814
Make sure it's turned off please.

01:58:08.814 --> 01:58:10.138
<v ->I'm sorry Your Honor I lost the train.</v>

01:58:10.138 --> 01:58:11.743
<v Judge>You can back up.</v>

01:58:11.743 --> 01:58:15.650
On the record, go ahead Mr. Weisman.

01:58:15.650 --> 01:58:18.883
<v ->I apologize, let me go back over this.</v>

01:58:18.883 --> 01:58:22.092
So you're referencing increased costs,

01:58:22.092 --> 01:58:24.391
and to determine if they're increased costs

01:58:24.391 --> 01:58:26.526
you would compare the actual costs

01:58:26.526 --> 01:58:31.526
to a world in which there was no bankruptcy and no fires?

01:58:33.998 --> 01:58:38.091
<v ->I'm describing a situation where we identify</v>

01:58:38.091 --> 01:58:40.593
increased costs that are not appropriate

01:58:40.593 --> 01:58:43.354
to recover from retail customers.

01:58:43.354 --> 01:58:45.245
Those increased costs can be attributable

01:58:45.245 --> 01:58:47.844
to imprudent actions of the utility or cost

01:58:47.844 --> 01:58:49.662
that simply are unreasonable.

01:58:49.662 --> 01:58:52.622
Factors that could have resulted in the utility incurring

01:58:52.622 --> 01:58:56.628
unreasonable cost include its bankruptcy filing,

01:58:56.628 --> 01:59:01.259
and certain consequences that deal with wildfire

01:59:01.259 --> 01:59:06.259
damage claims imposed on the utility in 2017 and 2018.

01:59:08.075 --> 01:59:11.106
<v ->So to implement your recommendation,</v>

01:59:11.106 --> 01:59:13.698
would the Commission need to conduct a review

01:59:13.698 --> 01:59:17.560
into the prudence of PG&E actions

01:59:17.560 --> 01:59:21.797
relative to the 2017 and 2018 fires?

01:59:21.797 --> 01:59:26.367
<v ->If the utility makes a claim that the cost</v>

01:59:26.367 --> 01:59:29.381
related to those fires were prudent and reasonable,

01:59:29.381 --> 01:59:31.475
then I think the Commission would want a record

01:59:31.475 --> 01:59:34.998
on whether or not the utilities claim was accurate.

01:59:34.998 --> 01:59:39.036
<v ->Sorry, let me back up.</v>

01:59:39.036 --> 01:59:40.734
Let me see if I can define some terms

01:59:40.734 --> 01:59:42.339
that will maybe make this easier.

01:59:42.339 --> 01:59:45.317
You're comparing the actual costs to the baseline,

01:59:45.317 --> 01:59:48.330
and we'll define the baseline as a world in which

01:59:48.330 --> 01:59:53.330
there were no bankruptcy, and I think you're saying

01:59:54.008 --> 01:59:59.008
no fire claims costs that are deemed imprudent.

01:59:59.767 --> 02:00:00.941
Is that correct?

02:00:00.941 --> 02:00:02.940
<v ->Well I haven't completely designed the analysis</v>

02:00:02.940 --> 02:00:05.237
I think that would be necessary in order to identify

02:00:05.237 --> 02:00:06.988
whether or not costs are inappropriate

02:00:06.988 --> 02:00:09.249
for recovering from customers.

02:00:09.249 --> 02:00:11.941
But the basic objective would be to identify costs

02:00:11.941 --> 02:00:15.585
which were incurred as a result of imprudent management,

02:00:15.585 --> 02:00:19.334
or costs which are found to be unreasonable.

02:00:19.334 --> 02:00:23.656
And based on this record, I would suggest

02:00:23.656 --> 02:00:25.786
that the cost related to the bankruptcy filing,

02:00:25.786 --> 02:00:28.896
which in part was triggered by the 2017 and 2018

02:00:28.896 --> 02:00:31.748
wildfire damage claims against the utility

02:00:31.748 --> 02:00:34.880
would fall into that imprudent and unreasonable category.

02:00:34.880 --> 02:00:38.637
<v ->Well there's been no determination of whether PG&Es</v>

02:00:38.637 --> 02:00:42.309
conduct was imprudent or unreasonable, correct?

02:00:42.309 --> 02:00:45.941
<v ->I haven't reviewed whether or not</v>

02:00:45.941 --> 02:00:47.680
there's been a determination of that.

02:00:47.680 --> 02:00:50.576
I do know that the 2017 and 2018 settlements

02:00:50.576 --> 02:00:53.317
are part of the reorganization plan

02:00:53.317 --> 02:00:55.812
that deal with the bankruptcy filing.

02:00:55.812 --> 02:00:58.821
<v ->Right, but there was no finding or admission</v>

02:00:58.821 --> 02:01:00.724
of imprudence or unreasonableness.

02:01:00.724 --> 02:01:03.233
<v ->I'm not aware of the utility asserting in any way</v>

02:01:03.233 --> 02:01:07.235
that the cost incurred for 17 and 18 wildfire damage claims

02:01:07.235 --> 02:01:09.131
is prudent and reasonable.

02:01:09.131 --> 02:01:11.950
So I'm not aware of any utility responding to an assertion

02:01:11.950 --> 02:01:14.714
the utility hasn't yet made.

02:01:14.714 --> 02:01:18.744
<v ->To implement your recommendation, to define the baseline,</v>

02:01:18.744 --> 02:01:20.818
the Commission would have to make a determination,

02:01:20.818 --> 02:01:23.279
with respect to prudence and reasonableness

02:01:23.279 --> 02:01:25.408
of utilities conduct, right?

02:01:25.408 --> 02:01:27.821
<v ->They would if the utility sought recovery of those costs</v>

02:01:27.821 --> 02:01:30.749
from customers, yes. I presume they would.

02:01:30.749 --> 02:01:32.251
That's really a legal question,

02:01:32.251 --> 02:01:34.251
but I presume that would be a finding that Commission

02:01:34.251 --> 02:01:37.146
would use in order to determine whether or not

02:01:37.146 --> 02:01:40.267
they're appropriate from recovering from retail customers.

02:01:40.267 --> 02:01:42.299
<v ->Yeah but if the utility doesn't seek the recovery</v>

02:01:42.299 --> 02:01:46.778
of the costs, we're just implementing your baseline concept,

02:01:46.778 --> 02:01:51.778
they would still need to make that finding, right?

02:01:51.795 --> 02:01:54.417
<v ->When? I mean when they file rates,</v>

02:01:54.417 --> 02:01:56.423
if the utility doesn't seek recovery of those costs,

02:01:56.423 --> 02:01:58.370
the Commission wouldn't need to assess

02:01:58.370 --> 02:02:01.285
whether or not the company is seeking to recover costs

02:02:01.285 --> 02:02:03.589
which are the results of imprudent actions,

02:02:03.589 --> 02:02:05.448
or costs that are unreasonable.

02:02:05.448 --> 02:02:07.072
<v ->Right, but to implement your baseline,</v>

02:02:07.072 --> 02:02:10.418
they would have to make that finding, correct?

02:02:10.418 --> 02:02:14.110
<v ->My baseline is to not include costs</v>

02:02:14.110 --> 02:02:16.979
in the development of rates which the Commission finds

02:02:16.979 --> 02:02:18.680
to be imprudent or unreasonable

02:02:18.680 --> 02:02:20.921
to the extent the utility doesn't seek recovery

02:02:20.921 --> 02:02:24.870
of such costs, then the Commission would not need

02:02:24.870 --> 02:02:27.141
to make a finding of the unreasonable or imprudence

02:02:27.141 --> 02:02:30.719
of the cost if they're not subject of costs the utility

02:02:30.719 --> 02:02:35.719
is seeking to recover in rates.

02:02:41.521 --> 02:02:44.941
<v ->Okay. So in your hypothetical world</v>

02:02:44.941 --> 02:02:49.941
without bankruptcy, without imprudent costs,

02:02:50.254 --> 02:02:55.212
would we also posit that inverse condemnation exists,

02:02:55.212 --> 02:02:58.701
as a legal doctrine?

02:02:58.701 --> 02:03:00.855
<v ->I think you would look at the actual circumstances</v>

02:03:00.855 --> 02:03:04.720
facing the risk of utility as it actually stood.

02:03:04.720 --> 02:03:08.677
As well as legislation, which mitigated the risk

02:03:08.677 --> 02:03:11.613
of utility investors of inverse condemnation.

02:03:11.613 --> 02:03:13.612
So yes, those would be factors

02:03:13.612 --> 02:03:15.187
that would be considered, yes.

02:03:15.187 --> 02:03:18.978
<v ->And so we're talking about the world before the bankruptcy</v>

02:03:18.978 --> 02:03:22.620
or the world in the future?

02:03:22.620 --> 02:03:25.293
<v ->We would be talking about the world in which the utility</v>

02:03:25.293 --> 02:03:28.115
files a test year proceeding seeking certain cost

02:03:28.115 --> 02:03:31.030
to be included in the development of its revenue requirement

02:03:31.030 --> 02:03:33.985
and recovering retail rates.

02:03:33.985 --> 02:03:35.751
So it would be based on that context,

02:03:35.751 --> 02:03:37.792
and whether or not any of those costs included

02:03:37.792 --> 02:03:40.915
and cost to service should be excluded on the basis

02:03:40.915 --> 02:03:43.381
of imprudence or unreasonableness.

02:03:43.381 --> 02:03:48.381
<v ->So we would consider the risks associated with wildfires?</v>

02:03:48.547 --> 02:03:53.092
<v ->If it were relevant in that future test year</v>

02:03:53.092 --> 02:03:55.808
to the extent inverse condemnation

02:03:55.808 --> 02:03:59.849
and other regulatory practices by the Commission

02:03:59.849 --> 02:04:02.658
are a factor in establishing the utilities credit standing

02:04:02.658 --> 02:04:04.589
and access to capitaling.

02:04:04.589 --> 02:04:07.784
<v ->Now have you set forth an analysis of the costs</v>

02:04:07.784 --> 02:04:10.927
that PG&Es ratepayers would have paid

02:04:10.927 --> 02:04:13.027
in a world without the bankruptcy?

02:04:13.027 --> 02:04:15.460
<v ->Not in this case.</v>

02:04:15.460 --> 02:04:19.142
<v ->But you would ask the Commission to catalog those costs?</v>

02:04:19.142 --> 02:04:21.153
<v ->I would ask the Commission to set a standard</v>

02:04:21.153 --> 02:04:23.973
that costs that are imprudent or unreasonable

02:04:23.973 --> 02:04:27.797
would be included in the development of perspective rates.

02:04:27.797 --> 02:04:29.437
And those costs in this case would include

02:04:29.437 --> 02:04:32.274
bankruptcy related costs, which include

02:04:32.274 --> 02:04:37.274
the settlement claims for 2017 and 2018 wildfire damage.

02:04:37.385 --> 02:04:42.385
<v ->Well those, okay.</v>

02:04:46.411 --> 02:04:48.796
But what we're talking about here

02:04:48.796 --> 02:04:51.498
is the cost of debt, correct?

02:04:51.498 --> 02:04:53.211
<v ->What we're talking about here is whether or not</v>

02:04:53.211 --> 02:04:56.833
the bankruptcy has resulted in debt interest rates savings.

02:04:56.833 --> 02:04:58.786
<v ->Right. So we have to posit</v>

02:04:58.786 --> 02:05:02.727
what the cost of debt would have been.

02:05:02.727 --> 02:05:05.099
<v ->We have to respond to the utilities claim</v>

02:05:05.099 --> 02:05:07.031
that there was interest rates savings

02:05:07.031 --> 02:05:09.295
that was produced by the bankruptcy filing.

02:05:09.295 --> 02:05:10.876
And in doing that, I've acknowledged

02:05:10.876 --> 02:05:13.140
that there may have been interest rate savings

02:05:13.140 --> 02:05:15.670
associated with high coupon debt

02:05:15.670 --> 02:05:18.067
that you were able to refinance down to market levels,

02:05:18.067 --> 02:05:20.952
that you may not have been able to economically refinance

02:05:20.952 --> 02:05:23.968
absent the bankruptcy.

02:05:23.968 --> 02:05:27.084
And whether or not those debt interest rate savings

02:05:27.084 --> 02:05:30.241
were offset by increased interest costs

02:05:30.241 --> 02:05:32.177
that were related to the bankruptcy filing.

02:05:32.177 --> 02:05:34.147
<v ->Right. So let's talk about that.</v>

02:05:34.147 --> 02:05:39.097
So to determine what the increased costs may have been,

02:05:39.097 --> 02:05:43.204
we have to limit it as you've said,

02:05:43.204 --> 02:05:48.204
to actions of PG&E right?

02:05:50.827 --> 02:05:53.500
<v ->Would have been factors that would have led</v>

02:05:53.500 --> 02:05:56.338
to the degradation in its bond writing,

02:05:56.338 --> 02:05:58.708
that may have been avoided had it not needed

02:05:58.708 --> 02:06:02.413
to file bankruptcy.

02:06:02.413 --> 02:06:05.351
<v ->Well certainly changes,</v>

02:06:05.351 --> 02:06:08.013
would you agree that the actual approved cost of debt

02:06:08.013 --> 02:06:13.013
for Edison and San Diego are reasonable comparators?

02:06:13.100 --> 02:06:16.011
<v ->Not necessarily to PG&E. Their cost of debt would reflect</v>

02:06:16.011 --> 02:06:18.698
their contractual provisions, and the time period

02:06:18.698 --> 02:06:20.918
where they went to the market to issue debt,

02:06:20.918 --> 02:06:24.078
and the contractual limits to refinance that debt.

02:06:24.078 --> 02:06:26.730
I think both of their embedded debt structures

02:06:26.730 --> 02:06:29.254
are reasonable, but they may or may not be

02:06:29.254 --> 02:06:31.015
an appropriate benchmark for comparing

02:06:31.015 --> 02:06:33.511
the reasonableness of PG&Es embedded debt.

02:06:33.511 --> 02:06:36.128
<v ->In fact PG&E cost of debt coming out of bankruptcy</v>

02:06:36.128 --> 02:06:39.957
will be lower than Edison and San Diego's

02:06:39.957 --> 02:06:42.645
authorized cause of debt, it that correct?

02:06:42.645 --> 02:06:44.015
<v ->Well you've estimated that, yes.</v>

02:06:44.015 --> 02:06:48.512
So that is my understanding, I have no reason to dispute it.

02:06:48.512 --> 02:06:50.995
My dispute is whether or not you've considered

02:06:50.995 --> 02:06:54.196
all factors that support your assertion

02:06:54.196 --> 02:06:57.489
that the bankruptcy has produced interest rate savings.

02:06:57.489 --> 02:06:59.825
<v ->Were you here yesterday for Ms. Meel's testimony?</v>

02:06:59.825 --> 02:07:01.982
<v ->I was not.</v>

02:07:01.982 --> 02:07:03.721
<v ->Ms. Meel, I'll represent to you,</v>

02:07:03.721 --> 02:07:05.811
testified that it would be highly speculative

02:07:05.811 --> 02:07:07.778
to try to construct a world in which

02:07:07.778 --> 02:07:12.196
PG&E had not declared bankruptcy. Do you agree?

02:07:12.196 --> 02:07:16.457
<v ->I think you could produce a reasonable proxy</v>

02:07:16.457 --> 02:07:18.588
looking at what has occurred

02:07:18.588 --> 02:07:22.092
with other California utilities.

02:07:22.092 --> 02:07:25.925
<v ->What has occurred with other California utilities</v>

02:07:25.925 --> 02:07:28.362
but not their authorized cost of debt?

02:07:28.362 --> 02:07:30.376
<v ->Well again, there's an apples an oranges</v>

02:07:30.376 --> 02:07:33.536
comparison of that because of the contractual terms

02:07:33.536 --> 02:07:36.258
and the time periods they went to the market to sell debt

02:07:36.258 --> 02:07:38.939
may have produced embedded debt costs,

02:07:38.939 --> 02:07:43.293
which are unique to those specific factors,

02:07:43.293 --> 02:07:45.601
which don't make them reasonable in comparison

02:07:45.601 --> 02:07:48.209
to what PG&Es embedded cost would have been

02:07:48.209 --> 02:07:51.682
had it not been constrained by its bankruptcy filing

02:07:51.682 --> 02:07:54.310
and significant erosion to its credit standing.

02:07:54.310 --> 02:07:55.928
<v ->Yeah, but if PG&E had not declared bankruptcy,</v>

02:07:55.928 --> 02:07:58.140
you said they couldn't have re-negotiated

02:07:58.140 --> 02:08:00.854
their existing debt.

02:08:00.854 --> 02:08:04.166
<v ->Right. But there are other debt issues,</v>

02:08:04.166 --> 02:08:05.639
or even new debt issues,

02:08:05.639 --> 02:08:08.033
that may have been issued at more favorable interest rates

02:08:08.033 --> 02:08:10.840
that would have resulted in a reduction of their debt

02:08:10.840 --> 02:08:15.424
relative to that embedded debt structure they had in 2019.

02:08:15.424 --> 02:08:17.787
<v ->They have been, so have you quantified that?</v>

02:08:17.787 --> 02:08:20.263
<v ->I have, and I attempted to get that kind of information</v>

02:08:20.263 --> 02:08:24.870
from the company to see what debt issues might have been

02:08:24.870 --> 02:08:28.305
subject to refinancing from 2017 forward,

02:08:28.305 --> 02:08:30.839
and a discovery request where I asked them to

02:08:30.839 --> 02:08:34.467
provide the list of embedded debt cost structure

02:08:34.467 --> 02:08:37.757
for utility before and after bankruptcy,

02:08:37.757 --> 02:08:41.844
and the utility was not able to provide that.

02:08:41.844 --> 02:08:43.305
That would have told me whether or not

02:08:43.305 --> 02:08:45.656
there were certain issues,

02:08:45.656 --> 02:08:48.109
bond issues or note issues for the company

02:08:48.109 --> 02:08:52.685
that may have been subject to maturing or refinancing

02:08:52.685 --> 02:08:57.685
during 2018, 2019, which may have resulted

02:08:59.550 --> 02:09:02.059
in a reduction in the embedded debt cost structure

02:09:02.059 --> 02:09:04.422
if there were not constraints

02:09:04.422 --> 02:09:07.305
caused by the bankruptcy filing.

02:09:07.305 --> 02:09:09.578
<v ->Caused by the bankruptcy filing.</v>

02:09:09.578 --> 02:09:11.486
Okay, let's talk about that for a minute.

02:09:11.486 --> 02:09:16.486
So, if PG&E had issued new debt in January 2019

02:09:18.019 --> 02:09:22.144
before it filed for bankruptcy,

02:09:22.144 --> 02:09:27.144
those would have reflected its sub-investment grade

02:09:27.175 --> 02:09:29.986
credit rating at the time, right?

02:09:29.986 --> 02:09:32.851
<v ->Well PG&Es bond rating eroded significantly</v>

02:09:32.851 --> 02:09:37.143
before it actually filed for bankruptcy.

02:09:37.143 --> 02:09:39.738
So I would say that probably through most of 2018

02:09:39.738 --> 02:09:41.568
its bond rating was downgraded

02:09:41.568 --> 02:09:44.655
before Southern Cal and San Diegos.

02:09:44.655 --> 02:09:46.990
Its dividend was suspended at the beginning of the year

02:09:46.990 --> 02:09:48.944
because you were signaling to the market

02:09:48.944 --> 02:09:51.027
of significant liability exposure

02:09:51.027 --> 02:09:54.027
associated with wildfire damage claims.

02:09:54.027 --> 02:09:57.199
So there's many factors which was providing

02:09:57.199 --> 02:09:59.791
clear signals to the market that the wildfire damage claims

02:09:59.791 --> 02:10:02.887
against the utility were causing financial distress.

02:10:02.887 --> 02:10:06.862
And those distresses did not exist at the other utilities.

02:10:06.862 --> 02:10:08.658
So it would--

02:10:08.658 --> 02:10:10.535
<v ->Move to strike Your Honor, as non-responsive.</v>

02:10:10.535 --> 02:10:12.062
I asked a very simple question,

02:10:12.062 --> 02:10:14.592
and he's off on a different topic.

02:10:14.592 --> 02:10:18.357
<v Mr. Weisman>No, that is correctly responding.</v>

02:10:18.357 --> 02:10:19.778
<v ->No my question was--</v>

02:10:19.778 --> 02:10:21.516
<v Judge>Okay, stop.</v>

02:10:21.516 --> 02:10:23.021
Let's go ahead ask another question,

02:10:23.021 --> 02:10:25.286
and allow the witness to answer the question.

02:10:25.286 --> 02:10:28.327
I actually thought there was some interesting material

02:10:28.327 --> 02:10:30.998
in the answer, but I'll allow you to proceed.

02:10:30.998 --> 02:10:32.704
Please ask another question.

02:10:32.704 --> 02:10:37.704
<v ->Had PG&E issued new debt in January 19, withdrawn.</v>

02:10:40.687 --> 02:10:44.287
In January 19, before PG&E filed for bankruptcy

02:10:44.287 --> 02:10:49.287
its credit rating was sub-investment grade, correct?

02:11:01.637 --> 02:11:03.865
<v ->It fell below investment grade based on my notes</v>

02:11:03.865 --> 02:11:06.431
around January 7th, 2019.

02:11:06.431 --> 02:11:09.321
<v ->And had PG&E issued debt at that time,</v>

02:11:09.321 --> 02:11:12.309
the cost of that debt would have reflected

02:11:12.309 --> 02:11:15.240
that credit rating, correct?

02:11:15.240 --> 02:11:17.575
<v ->It would have and the bond rating reflected</v>

02:11:17.575 --> 02:11:20.519
the significant reliability obligations of the utility,

02:11:20.519 --> 02:11:25.519
which ultimately led to the bankruptcy filing.

02:11:27.019 --> 02:11:31.045
<v ->In your opinion, would the interest rate on such debt</v>

02:11:31.045 --> 02:11:36.045
issued in January 2019, have been lower

02:11:36.624 --> 02:11:37.912
than the interest rate on

02:11:37.912 --> 02:11:42.832
the debtor in possession financing?

02:11:42.832 --> 02:11:44.441
<v ->I don't know.</v>

02:11:44.441 --> 02:11:46.682
I presume it would have been reasonably comparable.

02:11:46.682 --> 02:11:49.920
The debtor in possession financing had a senior loan rate,

02:11:49.920 --> 02:11:53.269
which may have given it a more favorable interest rate

02:11:53.269 --> 02:11:57.524
than what PG&E could have issued on a non-secured basis

02:11:57.524 --> 02:12:00.222
at that time.

02:12:00.222 --> 02:12:02.776
But again, the interest rate was caused by the factors

02:12:02.776 --> 02:12:07.776
leading up to the decree and its bond rating.

02:12:18.403 --> 02:12:23.403
<v ->Okay, turning back to your testimony, page 21.</v>

02:12:27.707 --> 02:12:30.695
So starting on line eight you refer to a variety

02:12:30.695 --> 02:12:35.695
of factors that could lead to increased costs.

02:12:42.462 --> 02:12:45.321
Correct?

02:12:45.321 --> 02:12:46.472
<v ->Yes, I'm sorry.</v>

02:12:46.472 --> 02:12:48.744
<v ->As PG&E proposed to increase customer rates</v>

02:12:48.744 --> 02:12:53.744
to reflect any of the items you mentioned?

02:13:06.139 --> 02:13:07.570
<v ->No, they have not.</v>

02:13:07.570 --> 02:13:10.543
The cost of capital is based on the information

02:13:10.543 --> 02:13:12.332
that was available prior to the utility

02:13:12.332 --> 02:13:15.196
filing their restructuring plan.

02:13:15.196 --> 02:13:16.746
<v ->In fact the only change in customer rates</v>

02:13:16.746 --> 02:13:19.432
coming out of the plan of reorganization

02:13:19.432 --> 02:13:21.111
that PG&E has proposed

02:13:21.111 --> 02:13:26.111
is to update the cost of capital, right?

02:13:32.245 --> 02:13:35.698
<v ->I need to review that, but certainly they did ask</v>

02:13:35.698 --> 02:13:37.764
to adjust their cost of capital, yes.

02:13:37.764 --> 02:13:42.764
<v ->Okay. Sticking on page 22, starting on line six.</v>

02:13:46.408 --> 02:13:47.757
<v ->I'm there.</v>

02:13:47.757 --> 02:13:51.374
<v ->You refer to collateral posting.</v>

02:13:51.374 --> 02:13:56.374
And you refer to the interest rate of 4.75%.

02:13:58.844 --> 02:14:00.440
<v ->Yes.</v>

02:14:00.440 --> 02:14:02.914
<v ->So is it your contention that PG&Es</v>

02:14:02.914 --> 02:14:05.669
post bankruptcy interest rate and collateral postings

02:14:05.669 --> 02:14:08.172
would be 4.75%?

02:14:08.172 --> 02:14:10.512
<v ->It's my best estimate that's what you estimated</v>

02:14:10.512 --> 02:14:13.121
your cost of debt to be at that time.

02:14:13.121 --> 02:14:15.421
And what I was looking for was a proxy

02:14:15.421 --> 02:14:20.421
for essentially making deposits for commodity purchases.

02:14:20.943 --> 02:14:22.283
And the interest rate would relate to

02:14:22.283 --> 02:14:25.289
whatever that cost of deposit would be.

02:14:25.289 --> 02:14:28.017
And I estimated it to be 4.75%,

02:14:28.017 --> 02:14:30.430
because that was one estimate you made

02:14:30.430 --> 02:14:32.356
of what your cost of debt would be

02:14:32.356 --> 02:14:35.231
in one of your debt interest rate savings--

02:14:35.231 --> 02:14:36.384
<v ->It's the--</v>

02:14:36.384 --> 02:14:37.382
<v ->Calculations.</v>

02:14:37.382 --> 02:14:40.086
<v ->- Sorry. It's the average interest rate</v>

02:14:40.086 --> 02:14:43.256
under the note holder RSA on the high coupon

02:14:43.256 --> 02:14:45.488
pre-petition debt exchange, right?

02:14:45.488 --> 02:14:48.170
<v ->It is, yes.</v>

02:14:48.170 --> 02:14:50.427
<v ->So, do you have an understanding of how</v>

02:14:50.427 --> 02:14:55.402
short-term debt costs are recovered in rates?

02:14:55.402 --> 02:14:58.158
<v ->Well it depends on what the purpose</v>

02:14:58.158 --> 02:14:59.685
of the short-term debt is.

02:14:59.685 --> 02:15:01.168
Typically short-term debt is used to finance

02:15:01.168 --> 02:15:03.483
construction work and progress.

02:15:03.483 --> 02:15:05.460
And those short-term debt interest rates are capitalized

02:15:05.460 --> 02:15:08.288
along with plant and service.

02:15:08.288 --> 02:15:12.075
If there is any cost, any use of short-term debt

02:15:12.075 --> 02:15:15.060
in providing direct service to customers,

02:15:15.060 --> 02:15:17.363
then they recover that interest cost in line

02:15:17.363 --> 02:15:20.211
with the need for that borrowing instrument

02:15:20.211 --> 02:15:23.368
to provide service.

02:15:23.368 --> 02:15:24.994
<v ->According to the actual cost,</v>

02:15:24.994 --> 02:15:27.517
or according to a prescribe interest rate

02:15:27.517 --> 02:15:29.151
established by the Commission based on

02:15:29.151 --> 02:15:32.222
the commercial pay rate?

02:15:32.222 --> 02:15:35.085
<v ->Well the actual cost would be based on the prescribed</v>

02:15:35.085 --> 02:15:38.367
interest rate in the companies borrowing facility.

02:15:38.367 --> 02:15:41.943
So, it should reflect what the companies actual cost is,

02:15:41.943 --> 02:15:43.896
unless the Commission found that that cost

02:15:43.896 --> 02:15:46.230
was inappropriate for setting rates.

02:15:46.230 --> 02:15:48.074
Then in which case it would be based on

02:15:48.074 --> 02:15:50.377
what the Commission found to be appropriate

02:15:50.377 --> 02:15:51.896
for setting rates.

02:15:51.896 --> 02:15:54.045
<v ->So just to clarify, to your understanding</v>

02:15:54.045 --> 02:15:56.865
of California rate making that the actual cost

02:15:56.865 --> 02:15:59.116
of short-term debt is flowed through into rates,

02:15:59.116 --> 02:16:02.051
as you've described?

02:16:02.051 --> 02:16:03.614
<v ->I think my description related to</v>

02:16:03.614 --> 02:16:07.257
capitalized construction period capital cost,

02:16:07.257 --> 02:16:10.475
and whether or not there was any use of short-term borrowing

02:16:10.475 --> 02:16:13.370
instrument in providing retail service.

02:16:13.370 --> 02:16:16.473
To the extent the utility realized predominantly

02:16:16.473 --> 02:16:19.092
on long-term capital market costs

02:16:19.092 --> 02:16:23.125
to fund working capital and planned investment.

02:16:23.125 --> 02:16:24.387
Then short-term debt

02:16:24.387 --> 02:16:26.130
probably wouldn't be included in base rates,

02:16:26.130 --> 02:16:28.590
but it would be included in construction work

02:16:28.590 --> 02:16:30.783
and progress across plant investments.

02:16:30.783 --> 02:16:33.409
<v ->Yeah for capital projects, but I'm saying for expense,</v>

02:16:33.409 --> 02:16:38.409
like for well collateral postings.

02:16:40.145 --> 02:16:42.198
<v ->That would be part of the working capital requirements,</v>

02:16:42.198 --> 02:16:47.198
which likely would be included in rate base.

02:16:50.868 --> 02:16:54.052
<v ->Are you familiar with treasury operations?</v>

02:16:54.052 --> 02:16:55.264
<v ->Of PG&E?</v>

02:16:55.264 --> 02:16:57.758
<v ->Yes, or generally.</v>

02:16:57.758 --> 02:17:00.151
<v ->I'm not sure what you mean by treasury operations,</v>

02:17:00.151 --> 02:17:03.775
but I'm accustom to measuring utility cost

02:17:03.775 --> 02:17:08.063
for including and developing utilities rates.

02:17:08.063 --> 02:17:11.644
<v ->I know, are you familiar with the financing instruments</v>

02:17:11.644 --> 02:17:15.476
used to satisfy collateral requirements?

02:17:15.476 --> 02:17:17.696
<v ->There's various methods. One can be a pre-payment</v>

02:17:17.696 --> 02:17:19.855
of commodities, which was what I was assuming

02:17:19.855 --> 02:17:22.448
in this example here. Others can be posting bonds,

02:17:22.448 --> 02:17:25.082
other can be revocable letters of credits.

02:17:25.082 --> 02:17:29.986
So there may be ways of supporting that collateralize

02:17:29.986 --> 02:17:34.986
that guarantee for payment that may produce different cost

02:17:36.723 --> 02:17:38.784
than what I've estimated.

02:17:38.784 --> 02:17:40.401
But for this purpose I was assuming

02:17:40.401 --> 02:17:42.848
prepayment of commodity supply.

02:17:42.848 --> 02:17:45.106
<v ->So if a letter of credit were posted,</v>

02:17:45.106 --> 02:17:47.487
what would be the cost?

02:17:47.487 --> 02:17:48.792
<v ->Would typically be stated</v>

02:17:48.792 --> 02:17:51.562
in a letter of credit what the irrevocable line of credit

02:17:51.562 --> 02:17:53.646
would be to the utility.

02:17:53.646 --> 02:17:56.486
<v ->Much lower than this 4.75%, correct?</v>

02:17:56.486 --> 02:17:58.741
<v ->Well it depends on the credit standing of the utility</v>

02:17:58.741 --> 02:18:02.099
and the cost the bank demands for offering

02:18:02.099 --> 02:18:07.099
the irrevocable line of credit. It could be lower.

02:18:15.147 --> 02:18:19.248
<v ->So setting aside in a world in which there had been</v>

02:18:19.248 --> 02:18:24.248
no bankruptcy, PG&E would have required access to short-term

02:18:26.892 --> 02:18:29.543
debt facilities, correct?

02:18:29.543 --> 02:18:30.680
<v ->Yes.</v>

02:18:32.761 --> 02:18:35.425
<v ->And have you analyzed what PG&Es short-term debt needs</v>

02:18:35.425 --> 02:18:36.610
would have been in that world?

02:18:36.610 --> 02:18:37.443
<v ->I have not.</v>

02:18:40.910 --> 02:18:43.790
<v ->So do you have an opinion about, withdrawn.</v>

02:18:45.140 --> 02:18:49.330
In 2018 PG&E asked for an increase in its short-term

02:18:49.330 --> 02:18:51.800
debt authorization to $6 million, correct?

02:18:52.864 --> 02:18:55.630
<v ->That is correct, yes.</v>

02:18:55.630 --> 02:18:59.010
I know they asked for a change, I believe it was $6 million.

02:18:59.010 --> 02:19:01.640
<v ->And that was before the bankruptcy, correct?</v>

02:19:01.640 --> 02:19:02.990
<v ->I believe that's correct.</v>

02:19:05.130 --> 02:19:07.570
<v ->Okay, turn to, well I guess we still are,</v>

02:19:07.570 --> 02:19:11.258
page 21 of your testimony please.

02:19:11.258 --> 02:19:13.350
<v ->Okay.</v>

02:19:13.350 --> 02:19:16.110
<v ->So here you assert that PG&Es financial position</v>

02:19:16.110 --> 02:19:18.780
post emergent should be compared to

02:19:18.780 --> 02:19:22.770
PG&Es financial position in 2017, correct?

02:19:27.086 --> 02:19:28.830
Lines eight through ten.

02:19:30.042 --> 02:19:32.018
<v ->Well I looked at the difference in bond rating</v>

02:19:32.018 --> 02:19:34.480
from the end of 2017 down to what they've estimated

02:19:34.480 --> 02:19:36.580
their bond rating would be post emergence,

02:19:37.610 --> 02:19:39.710
and estimating that change in bond rating.

02:19:41.567 --> 02:19:42.600
I would note that the minus bond rating

02:19:42.600 --> 02:19:44.060
was an unsecured bond rating,

02:19:44.060 --> 02:19:48.890
and the B double A two is a secured bond rating.

02:19:48.890 --> 02:19:52.348
<v ->Right. So are you saying that the relevant comparison</v>

02:19:52.348 --> 02:19:55.340
baseline should be A minus?

02:19:57.600 --> 02:20:00.040
<v ->Well that is the actual change in bond rating</v>

02:20:00.040 --> 02:20:01.640
from a secured down the secured.

02:20:03.210 --> 02:20:05.740
And I think it is probably pretty good,

02:20:05.740 --> 02:20:08.940
and I've continued to review this throughout this hearing.

02:20:11.255 --> 02:20:13.780
And in consideration of the other California utilities

02:20:13.780 --> 02:20:15.160
bond ratings.

02:20:15.160 --> 02:20:17.530
I think the other California Utilities bond ratings

02:20:17.530 --> 02:20:21.080
were decreased in 2019,

02:20:21.080 --> 02:20:23.460
as a result of the wildfire damage claims

02:20:23.460 --> 02:20:25.200
and the inverse condemnation risk.

02:20:27.288 --> 02:20:29.550
I looked at Southern California Edison's bond rating

02:20:29.550 --> 02:20:33.340
the decrease from around Triple B plus from S&P to triple B.

02:20:33.340 --> 02:20:35.690
That's an unsecured bond rating.

02:20:35.690 --> 02:20:38.790
I think the difference between an unsecured

02:20:38.790 --> 02:20:41.070
and a secured bond rating is about a two notch

02:20:41.070 --> 02:20:42.650
rating category.

02:20:42.650 --> 02:20:45.772
And I believe Mr. Plaster of PG&E confirmed that.

02:20:45.772 --> 02:20:50.710
So a triple B for an unsecured bond rating at SCE

02:20:50.710 --> 02:20:52.822
would be equivalent to an A minus

02:20:52.822 --> 02:20:54.900
if it had a secured bond rating,

02:20:54.900 --> 02:20:58.150
which is essentially what PG&Es bond rating was

02:20:58.150 --> 02:20:59.390
at the end of 2019.

02:21:01.660 --> 02:21:05.670
So there's some of the initial assessments I've made

02:21:05.670 --> 02:21:07.240
in changing credit standing

02:21:07.240 --> 02:21:10.410
and potential increase in borrowing cost to PG&E

02:21:10.410 --> 02:21:13.890
as a result of its financial distress

02:21:13.890 --> 02:21:16.350
caused by its bankruptcy filing

02:21:16.350 --> 02:21:19.800
and protecting itself against its wildfire damage claims.

02:21:19.800 --> 02:21:21.670
<v ->So let me just clarify.</v>

02:21:21.670 --> 02:21:23.350
Edison was at triple B plus,

02:21:23.350 --> 02:21:25.890
and then went down to triple B, correct?

02:21:25.890 --> 02:21:27.930
<v ->Correct, that's an unsecured bond rating.</v>

02:21:27.930 --> 02:21:30.552
<v ->And PG&E was at A minus correct?</v>

02:21:30.552 --> 02:21:31.860
<v ->Yes.</v>

02:21:31.860 --> 02:21:34.340
<v ->So you're saying PG&E should stay as A minus</v>

02:21:34.340 --> 02:21:39.340
as the baseline, even though Edison was decreased

02:21:40.260 --> 02:21:41.850
to triple B?

02:21:41.850 --> 02:21:43.802
<v ->Oh I thought you were asking me</v>

02:21:43.802 --> 02:21:48.090
would the proxy of an A minus bond rating for PG&E

02:21:48.090 --> 02:21:51.470
not filing for bankruptcy is that reasonable?

02:21:51.470 --> 02:21:52.841
<v ->Yes.</v>

02:21:52.841 --> 02:21:53.800
<v ->And I was walking through the logic</v>

02:21:53.800 --> 02:21:56.350
under why I think it's a reasonable starting point.

02:22:00.010 --> 02:22:02.040
Without bankruptcy if Southern Cal Edison

02:22:02.040 --> 02:22:04.380
had gone from triple B plus to triple B

02:22:04.380 --> 02:22:06.043
on an unsecured bond rating,

02:22:06.043 --> 02:22:09.250
and if the secured bond rating was two notches stronger

02:22:09.250 --> 02:22:12.000
than triple B, then that would put it at about A minus,

02:22:12.970 --> 02:22:16.720
which is what PG&Es bond rating was at the end of 2017.

02:22:17.970 --> 02:22:18.977
<v ->For unsecured.</v>

02:22:18.977 --> 02:22:22.215
<v ->For unsecured. So if the spread for a secured bond rating</v>

02:22:22.215 --> 02:22:27.215
post emergency is minimum investment grade of triple B minus

02:22:27.900 --> 02:22:31.370
versus an A minus that might be available to it

02:22:31.370 --> 02:22:34.900
on a secured basis had it not filed for bankruptcy,

02:22:34.900 --> 02:22:37.410
then it would be about a full notch downgrade

02:22:37.410 --> 02:22:38.900
in its credit standing.

02:22:38.900 --> 02:22:42.218
<v ->Right. But if you're using Edison as a benchmark,</v>

02:22:42.218 --> 02:22:47.218
my point is, withdrawn.

02:22:52.830 --> 02:22:55.810
Just as a matter of history PG&Es credit ratings

02:22:55.810 --> 02:22:58.410
began dropping in early 2018, correct?

02:23:00.900 --> 02:23:02.501
<v ->They did.</v>

02:23:02.501 --> 02:23:04.990
I think the first downgrade was in February 2018.

02:23:04.990 --> 02:23:09.040
<v ->By July of 2018, PG&E was at a low investment grade.</v>

02:23:14.670 --> 02:23:17.830
<v ->I have it June 13th it was downgraded</v>

02:23:17.830 --> 02:23:22.313
to triple B by S&P and B double A two by Moodys.

02:23:22.313 --> 02:23:23.510
<v ->And--</v>

02:23:24.920 --> 02:23:29.270
<v ->Its minimum investment grade came in November of 2018.</v>

02:23:29.270 --> 02:23:34.270
<v ->Thank you. And so these downgrades,</v>

02:23:35.300 --> 02:23:38.650
and we already established it was below investment grade

02:23:38.650 --> 02:23:40.290
in January 2019, right?

02:23:42.000 --> 02:23:46.440
<v ->Yeah January 7th is when I noted that it was</v>

02:23:46.440 --> 02:23:49.780
downgraded to below investment grade by both S&P and Moodys.

02:23:49.780 --> 02:23:54.730
<v ->So these occurred before PG&E filed for Chapter 11</v>

02:23:54.730 --> 02:23:57.180
on January 29, 2019, correct?

02:23:57.180 --> 02:23:59.130
<v ->They did, yeah but they were all leading up</v>

02:23:59.130 --> 02:24:01.140
to the understanding of the financial distress

02:24:01.140 --> 02:24:05.210
the company was under as a result of 2017 and 2018

02:24:05.210 --> 02:24:06.810
wildfire damage claims.

02:24:06.810 --> 02:24:10.180
<v ->Why are you proposing to use PG&Es 2017 rating</v>

02:24:10.180 --> 02:24:11.828
as opposed to the national average

02:24:11.828 --> 02:24:14.160
for investor owned utilities?

02:24:18.593 --> 02:24:20.600
<v ->Well, the objective here is to attempt to gauge</v>

02:24:26.745 --> 02:24:30.090
what the additional interest expense will be

02:24:30.090 --> 02:24:33.530
as a result of the financial erosion to PG&E,

02:24:33.530 --> 02:24:38.350
and reduction in its credit rating caused by the events

02:24:38.350 --> 02:24:40.850
that led it ultimately file for bankruptcy.

02:24:43.001 --> 02:24:44.630
The California regulatory mechanisms

02:24:44.630 --> 02:24:47.990
are important considerations in assigning bond ratings.

02:24:47.990 --> 02:24:50.800
PG&Es service territory,

02:24:50.800 --> 02:24:53.650
the economic strength of a service territory is relevant.

02:24:55.567 --> 02:24:57.630
The California regulatory mechanisms also apply

02:24:57.630 --> 02:24:59.210
to other California utilities.

02:25:00.602 --> 02:25:03.360
<v ->So I think the question is more limited to</v>

02:25:04.270 --> 02:25:06.030
what the credit rating would be

02:25:06.030 --> 02:25:10.180
for the large electric and gas utility inside California

02:25:11.169 --> 02:25:15.230
that did not suffer this same financial distress

02:25:15.230 --> 02:25:18.860
that PG&E did that ultimately caused it

02:25:18.860 --> 02:25:21.010
to file for bankruptcy.

02:25:21.010 --> 02:25:25.890
So in making that assessment, I think a general guideline,

02:25:25.890 --> 02:25:27.680
and I haven't completed the analysis,

02:25:27.680 --> 02:25:31.860
but a general guideline is the financial distress

02:25:31.860 --> 02:25:34.178
caused by the wildfire damage claims,

02:25:34.178 --> 02:25:38.350
and the filing for bankruptcy probably had the effect

02:25:38.350 --> 02:25:39.800
of reducing the credit rating

02:25:39.800 --> 02:25:41.830
by a full credit rating category.

02:26:01.160 --> 02:26:04.770
<v ->In your opinion, had the 2017 wildfires occurred,</v>

02:26:10.610 --> 02:26:12.710
but the campfire had not occurred,

02:26:12.710 --> 02:26:14.680
would PG&E have filed for bankruptcy?

02:26:16.256 --> 02:26:19.180
<v ->I can't speak to specific events.</v>

02:26:19.180 --> 02:26:22.150
What I really looked at was market responses

02:26:22.150 --> 02:26:25.400
to the financial distress PG&E was under.

02:26:25.400 --> 02:26:29.120
And you suspended your dividend at the beginning of 2018

02:26:29.120 --> 02:26:32.380
your credit rating suffered significant downgrades

02:26:32.380 --> 02:26:35.630
in advance of other California electric utility companies.

02:26:36.540 --> 02:26:40.710
So that was more of my focus than trying to look at

02:26:40.710 --> 02:26:44.110
the actual events that helped contribute

02:26:44.110 --> 02:26:47.300
to the significant financial distress for PG&E

02:26:47.300 --> 02:26:49.413
throughout that time period.

02:26:49.413 --> 02:26:50.830
<v ->And among those events</v>

02:26:50.830 --> 02:26:53.120
included inverse condemnation, right?

02:26:54.440 --> 02:26:59.330
<v ->That was a risk that California utilities have faced</v>

02:26:59.330 --> 02:27:00.400
for quite some time.

02:27:00.400 --> 02:27:02.740
I think it was highlighted with a disallowance

02:27:02.740 --> 02:27:05.040
for San Diego Gas and Electric Company.

02:27:05.040 --> 02:27:06.740
<v ->When did that happen? Remind me.</v>

02:27:08.420 --> 02:27:10.703
<v ->San Diego Gas and Electric disallowance,</v>

02:27:10.703 --> 02:27:13.160
I have to double check that,

02:27:13.160 --> 02:27:17.277
but I believe it was maybe five years ago, 2005?

02:27:22.550 --> 02:27:24.380
<v ->Off the record, just a second Your Honor.</v>

02:27:26.630 --> 02:27:27.850
<v Judge>Off the record.</v>

02:27:31.940 --> 02:27:35.940
Actually Mr. Weisman, I think that's the subject

02:27:35.940 --> 02:27:37.940
in Commission decisions, so it's public record.

02:27:37.940 --> 02:27:40.110
<v ->Okay, I'll move on.</v>

02:27:40.110 --> 02:27:41.170
<v Judge>On the record.</v>

02:27:45.191 --> 02:27:47.950
<v ->And among the other events, was the increased risk</v>

02:27:47.950 --> 02:27:51.680
of wildfires in PG&E service territory, correct?

02:27:58.540 --> 02:28:01.740
<v ->The risk of wildfire damage in PG&E service territory,</v>

02:28:01.740 --> 02:28:05.880
and whether or not the company was doing everything it could

02:28:05.880 --> 02:28:10.880
to avoid containing the risk of those, that natural event.

02:28:17.520 --> 02:28:22.390
<v ->Let's take a look at what's previously been marked</v>

02:28:22.390 --> 02:28:26.590
for identification as PG&EX3, it's tab nine in your binder.

02:28:42.790 --> 02:28:43.623
<v ->I'm there.</v>

02:28:44.625 --> 02:28:46.570
<v ->So this is a Moodys report on Edison</v>

02:28:46.570 --> 02:28:48.820
dated April 11, 2018, correct?

02:28:49.810 --> 02:28:50.660
<v ->That's correct.</v>

02:28:51.693 --> 02:28:54.343
<v ->And it reflects negative outlook for Edison, right?</v>

02:28:56.070 --> 02:28:57.210
<v ->It does.</v>

02:28:57.210 --> 02:29:02.130
<v ->Reflecting or referring to strict liability, right?</v>

02:29:13.732 --> 02:29:15.060
<v ->It says large contingent exposure</v>

02:29:15.060 --> 02:29:17.640
created by application is strict liability standard

02:29:17.640 --> 02:29:19.540
in California, that's right.

02:29:19.540 --> 02:29:20.600
<v ->Why a fire risk?</v>

02:29:22.760 --> 02:29:25.755
<v ->Case of wildfires where utility equipment</v>

02:29:25.755 --> 02:29:27.520
was determined to be in the source of the fire.

02:29:32.870 --> 02:29:35.090
<v ->The tax law changes.</v>

02:29:41.690 --> 02:29:45.030
<v ->Yeah, tax law change did weaken utilities cash flows.</v>

02:29:45.030 --> 02:29:47.500
Not necessarily to the point we're of increased risk,

02:29:47.500 --> 02:29:50.640
but they did produce a reduction in cash flows.

02:29:52.900 --> 02:29:57.510
<v ->So none of these factors is specific</v>

02:29:57.510 --> 02:29:59.370
to PG&Es bankruptcy, right?

02:30:03.938 --> 02:30:05.880
<v ->I think PG&E faced some of the same risks</v>

02:30:05.880 --> 02:30:09.770
associated with both wildfire exposures

02:30:09.770 --> 02:30:12.310
and change in the federal tax law, that's true.

02:30:12.310 --> 02:30:14.890
And those were not related to the bankruptcy filing.

02:30:14.890 --> 02:30:16.520
<v ->Okay. And by the way,</v>

02:30:16.520 --> 02:30:18.720
San Diego Gas and Electric's credit ratings

02:30:18.720 --> 02:30:21.620
have also declined since 2017, right?

02:30:21.620 --> 02:30:22.453
<v ->They have.</v>

02:30:30.750 --> 02:30:35.730
<v ->And that's obviously not due to a chapter 11 filing right?</v>

02:30:35.730 --> 02:30:38.460
<v ->Yeah, their credit rating was downgraded</v>

02:30:38.460 --> 02:30:40.870
by about two notches on an unsecured basis.

02:30:40.870 --> 02:30:43.224
They're triple B plus I believe by S&P

02:30:43.224 --> 02:30:45.590
for electric operations.

02:30:45.590 --> 02:30:47.590
One notch stronger than Southern Cal Ed.

02:30:52.630 --> 02:30:57.583
<v ->So, PG&E would have been subject to similar changes</v>

02:30:58.550 --> 02:31:02.610
in its ratings regardless of bankruptcy right?

02:31:04.528 --> 02:31:05.740
It would have been subject to the same forces

02:31:05.740 --> 02:31:08.050
that were affecting Edison and San Diego?

02:31:08.050 --> 02:31:10.040
<v ->Well I mean it's hard to say definitively.</v>

02:31:10.040 --> 02:31:12.360
I think one thing that kind of put a magnifying glass

02:31:12.360 --> 02:31:15.810
on the state was PG&Es significant exposure

02:31:15.810 --> 02:31:19.640
to wildfire damage claims that highlighted the interest

02:31:19.640 --> 02:31:21.890
in the markets of what those risks are,

02:31:21.890 --> 02:31:26.840
and what the potential exposure would be to the utilities.

02:31:26.840 --> 02:31:30.230
So, if the wildfire events had not occurred,

02:31:31.373 --> 02:31:34.180
and wildfire damage claims had not been made,

02:31:35.150 --> 02:31:37.130
then there may not have been downgrades

02:31:37.130 --> 02:31:40.310
in electric utility companies

02:31:40.310 --> 02:31:42.748
generally in California in that year.

02:31:42.748 --> 02:31:47.748
So had those wildfire events not occurred,

02:31:48.020 --> 02:31:50.070
then I can't say what would have happened

02:31:50.070 --> 02:31:53.880
to all the utilities bond ratings in California.

02:31:53.880 --> 02:31:57.610
But presumably if that risk would have been noted

02:31:57.610 --> 02:32:01.960
by the investment community, and PG&Es exposure

02:32:01.960 --> 02:32:04.610
would have been less to the extent it was

02:32:04.610 --> 02:32:06.640
in seeking bankruptcy protection,

02:32:06.640 --> 02:32:09.240
its bond ratings probably would have been downgraded

02:32:10.551 --> 02:32:12.010
along with Southern San Diego Gas

02:32:12.010 --> 02:32:14.340
and Electric and Southern Cal Edison.

02:32:14.340 --> 02:32:15.970
<v ->Okay. And in the future</v>

02:32:15.970 --> 02:32:20.343
Edison and San Diego's bond ratings may fluctuate

02:32:20.343 --> 02:32:23.530
for circumstances unique to them, correct?

02:32:23.530 --> 02:32:24.363
<v ->Yes.</v>

02:32:25.730 --> 02:32:29.660
<v ->So how is the Commission to isolate any effects</v>

02:32:29.660 --> 02:32:33.040
in the future attributable to the chapter 11 filing,

02:32:33.040 --> 02:32:35.010
as opposed to other factors?

02:32:35.010 --> 02:32:37.006
<v ->I think the Commission should focus on</v>

02:32:37.006 --> 02:32:41.410
ensuring that costs that are imprudent or unreasonable

02:32:41.410 --> 02:32:43.050
should not be included in the development

02:32:43.050 --> 02:32:45.140
of prospective rates.

02:32:45.140 --> 02:32:48.830
So I would encourage the Commission to focus on

02:32:49.740 --> 02:32:51.930
whether or not the utility is seeking to recover

02:32:51.930 --> 02:32:54.610
only prudent and reasonable cost in setting rates.

02:32:56.090 --> 02:33:01.090
<v ->But in determining the cost of capital, the cost of debt,</v>

02:33:03.286 --> 02:33:08.220
you're suggesting that the Commission compare

02:33:08.220 --> 02:33:09.660
the actual cost of debt

02:33:09.660 --> 02:33:13.313
to the cost of debt had the bankruptcy

02:33:15.436 --> 02:33:18.930
and associated events not occurred, correct?

02:33:21.120 --> 02:33:23.490
<v ->At this point I'm disputing the companies finding</v>

02:33:23.490 --> 02:33:25.790
that there are interest rate savings

02:33:25.790 --> 02:33:27.060
coming out of bankruptcy.

02:33:27.060 --> 02:33:29.300
I don't believe the company has accurately measured

02:33:29.300 --> 02:33:31.940
what its total impact on interest expense will be.

02:33:33.486 --> 02:33:37.250
And in terms of setting rates prospectively

02:33:37.250 --> 02:33:40.480
I imagine that, I haven't reviewed this yet,

02:33:40.480 --> 02:33:42.580
and I haven't discussed it with either TURN,

02:33:42.580 --> 02:33:46.770
or Ebook, or IS, what the appropriate method might be

02:33:46.770 --> 02:33:49.730
for establishing the cost of utility debt.

02:33:49.730 --> 02:33:51.270
Would it be appropriate for including

02:33:51.270 --> 02:33:53.350
in the overall rate of return?

02:33:53.350 --> 02:33:55.830
I'll be making that investigation.

02:33:55.830 --> 02:33:58.880
But I'll say at this point that I will object

02:33:58.880 --> 02:34:03.450
and recommend disallowance of any debt interest cost,

02:34:03.450 --> 02:34:06.090
which are the result of imprudent actions of the utility

02:34:06.090 --> 02:34:08.170
or costs that are unreasonable.

02:34:08.170 --> 02:34:10.384
<v ->And to make that determination,</v>

02:34:10.384 --> 02:34:14.410
what debt interest costs are attributable

02:34:14.410 --> 02:34:17.794
to unreasonable or imprudency,

02:34:17.794 --> 02:34:22.794
you would compare your recommendation as the Commission,

02:34:24.040 --> 02:34:26.510
compare the actual interest costs

02:34:26.510 --> 02:34:29.830
to some benchmark, correct?

02:34:33.510 --> 02:34:37.180
<v ->I would look at changes in the companies</v>

02:34:37.180 --> 02:34:39.630
embedded cost of debt and identify whether or not

02:34:41.505 --> 02:34:44.452
there are certain issues that were at higher interest rates

02:34:44.452 --> 02:34:46.550
than maybe they would have otherwise been.

02:34:46.550 --> 02:34:49.095
And encourage the Commission to focus on those

02:34:49.095 --> 02:34:53.015
newly refinanced debt issues to determine whether or not

02:34:53.015 --> 02:34:56.110
there's certain debt issue costs that are not appropriate

02:34:56.110 --> 02:34:57.920
for revering from retail rate payers.

02:34:57.920 --> 02:35:00.000
<v ->Right, I'm just trying to explore</v>

02:35:00.000 --> 02:35:02.080
how this practically would work,

02:35:02.080 --> 02:35:05.004
higher than they would otherwise have been.

02:35:05.004 --> 02:35:06.020
So is the Commission to determine

02:35:06.020 --> 02:35:07.910
what they would otherwise have been

02:35:07.910 --> 02:35:10.030
if it has not conducted a prudence review

02:35:10.030 --> 02:35:12.440
of the 2017, 2018 fire costs?

02:35:14.970 --> 02:35:17.230
<v ->Well I haven't offered any testimony</v>

02:35:17.230 --> 02:35:19.610
specifically adjusting the embedded cost of debt

02:35:19.610 --> 02:35:22.930
for the utility, but the focus would be on prudence

02:35:22.930 --> 02:35:24.200
and reasonableness of cost.

02:35:24.200 --> 02:35:26.820
And that would include an assessment

02:35:26.820 --> 02:35:30.278
of whether or not the credit rating and the interest cost,

02:35:30.278 --> 02:35:33.461
the credit rating at the time of issue and the interest rate

02:35:33.461 --> 02:35:37.801
on the security that is issued at that time

02:35:37.801 --> 02:35:42.400
were negatively impacted because of the companies

02:35:42.400 --> 02:35:46.710
bankruptcy filing, or any other factor that would result

02:35:46.710 --> 02:35:49.930
in part of the cost being imprudent or unreasonable.

02:35:49.930 --> 02:35:52.390
<v ->Right. And so to make that determination,</v>

02:35:52.390 --> 02:35:55.200
the Commission would have to compare the actual cost

02:35:55.200 --> 02:35:58.345
to some hypothetical alternative--

02:35:58.345 --> 02:35:59.620
<v ->I got--</v>

02:35:59.620 --> 02:36:01.894
<v ->Let me finish my question please.</v>

02:36:01.894 --> 02:36:04.004
My question is in doing so,

02:36:04.004 --> 02:36:07.250
are you envisioning that the Commission

02:36:07.250 --> 02:36:11.310
would look to Edison and San Diego's cost of debt?

02:36:12.440 --> 02:36:14.650
<v ->Well I haven't taken the position yet,</v>

02:36:14.650 --> 02:36:17.430
but those would be factors I would consider

02:36:17.430 --> 02:36:20.690
in attempting to estimate what costs would be

02:36:20.690 --> 02:36:23.300
more reasonable had they not been attributed

02:36:23.300 --> 02:36:26.390
to reduction in bond rating caused by the bankruptcy filing.

02:36:36.840 --> 02:36:39.340
<v ->But in the future Edison and San Diego's cost</v>

02:36:39.340 --> 02:36:43.460
could be effected by lots of other factors.

02:36:44.520 --> 02:36:46.810
<v ->But I wouldn't be looking at their embedded debt cost,</v>

02:36:46.810 --> 02:36:48.760
I would be looking at the cost of debt

02:36:48.760 --> 02:36:51.754
that is issued in say a specific month of the year,

02:36:51.754 --> 02:36:56.137
with the market interest rate on debt at that specific time

02:36:56.137 --> 02:37:01.070
and assess whether or not the utilities actual cost of debt

02:37:01.070 --> 02:37:02.890
is above or below markets.

02:37:02.890 --> 02:37:04.770
If it's above markets and it's attributable

02:37:04.770 --> 02:37:09.330
to a weakened credit standing, then those costs associated

02:37:09.330 --> 02:37:10.840
with that weakened credit standing

02:37:10.840 --> 02:37:13.530
may not be appropriate for recovering from retail customers.

02:37:13.530 --> 02:37:17.890
<v ->Okay, so let's say that PG&E in the future issues debt</v>

02:37:17.890 --> 02:37:22.395
at a lower cost than an incremental

02:37:22.395 --> 02:37:25.310
new issuance of debt by San Diego Gas and Electric.

02:37:27.975 --> 02:37:29.120
Do you have that assumption in mind?

02:37:29.120 --> 02:37:30.930
<v ->I wouldn't make that comparison,</v>

02:37:30.930 --> 02:37:33.610
but I'll accept that hypothetical.

02:37:34.810 --> 02:37:37.070
<v ->Okay. Why wouldn't you make that comparison?</v>

02:37:37.070 --> 02:37:38.600
<v ->Because there could be other factors.</v>

02:37:38.600 --> 02:37:42.342
The term of the bond could impact the interest rate.

02:37:42.342 --> 02:37:46.400
I mean the regulatory mechanisms approved by the Commission

02:37:46.400 --> 02:37:50.370
for some specific investment may be different for San Diego

02:37:50.370 --> 02:37:51.750
than it would be for PG&E.

02:37:52.676 --> 02:37:53.800
I think the relevant factor

02:37:53.800 --> 02:37:58.800
is what would the cost of the new bond issue be for PG&E

02:37:58.830 --> 02:38:02.600
at its actual bond rating relative to the bond rating

02:38:02.600 --> 02:38:04.370
that might have existed

02:38:04.370 --> 02:38:08.300
had it not lost its bond rating due to its bankruptcy.

02:38:08.300 --> 02:38:10.150
<v ->Right. And what I'm driving at is</v>

02:38:10.150 --> 02:38:13.294
how could the Commission possibly ever determine

02:38:13.294 --> 02:38:17.530
what that PG&E interest cost would have been?

02:38:19.092 --> 02:38:21.670
<v ->I think it would have to look at average bond yields,</v>

02:38:21.670 --> 02:38:25.510
comparable bond ratings at the time the bond issue was sold.

02:38:25.510 --> 02:38:29.250
<v ->By a company like Edison or San Diego?</v>

02:38:30.170 --> 02:38:32.000
<v ->Just general market interest rates</v>

02:38:32.000 --> 02:38:34.613
on bonds at that rating category, that can include

02:38:34.613 --> 02:38:37.770
any utility company with the same bond rating.

02:38:37.770 --> 02:38:40.178
<v ->Sorry I thought we were saying,</v>

02:38:40.178 --> 02:38:42.270
didn't you say before that what's relevant

02:38:42.270 --> 02:38:44.140
is Edison and San Diego?

02:38:45.200 --> 02:38:48.450
<v ->In establishing what the bond rating target would be,</v>

02:38:49.441 --> 02:38:52.550
that may be one factor I would rely on to establish

02:38:52.550 --> 02:38:54.090
what that target is.

02:38:54.090 --> 02:38:55.410
But then the question would be

02:38:55.410 --> 02:38:59.450
is what's the actual bond rating relative to that target,

02:38:59.450 --> 02:39:01.720
and what's the difference in interest costs?

02:39:01.720 --> 02:39:02.553
<v ->Okay.</v>

02:39:03.441 --> 02:39:05.233
But how do we know what the bond rating would have been?

02:39:05.233 --> 02:39:07.480
<v ->We would--</v>

02:39:07.480 --> 02:39:10.500
<v Judge>I have a feeling that this--</v>

02:39:10.500 --> 02:39:15.500
<v ->Okay, I'll move on. I'll move on.</v>

02:39:17.250 --> 02:39:18.724
In determining credit rating,

02:39:18.724 --> 02:39:23.090
rating agencies look at quantitative metrics, correct?

02:39:23.090 --> 02:39:24.553
<v ->They do.</v>

02:39:24.553 --> 02:39:28.040
<v ->Such as funds from operation to debt, and debt to EBITDA.</v>

02:39:28.040 --> 02:39:28.873
<v ->Correct.</v>

02:39:30.219 --> 02:39:31.330
<v ->Have you reviewed those quantitative metrics</v>

02:39:31.330 --> 02:39:32.740
for PG&E at exit?

02:39:33.880 --> 02:39:38.310
<v ->I did, PG&E provided financial projections</v>

02:39:38.310 --> 02:39:40.670
right before I filed my testimony.

02:39:40.670 --> 02:39:44.270
So I was not able to review their financial projections

02:39:44.270 --> 02:39:47.980
and include a comment in my testimony.

02:39:47.980 --> 02:39:49.540
But since I've filed my testimony,

02:39:49.540 --> 02:39:51.500
I have looked at their financial projections

02:39:51.500 --> 02:39:55.430
and the resulting credit metric outlook of the utility.

02:39:55.430 --> 02:39:56.263
<v ->Right.</v>

02:39:56.263 --> 02:39:59.693
Both at exit and over a five year forecast period, correct?

02:39:59.693 --> 02:40:03.020
<v ->Right, I believe 2020 out through 2024</v>

02:40:03.020 --> 02:40:06.020
were the financial projections I primarily focused on.

02:40:06.020 --> 02:40:09.150
<v ->And are those quantitative metrics comparable to Edisons?</v>

02:40:10.390 --> 02:40:12.070
<v ->I have not made that comparison.</v>

02:40:12.070 --> 02:40:13.400
<v ->Are those quantitative metrics</v>

02:40:13.400 --> 02:40:16.590
similar to those PG&E had in 2017?

02:40:16.590 --> 02:40:18.410
<v ->I didn't make those comparisons.</v>

02:40:22.230 --> 02:40:24.631
<v ->Are those quantitative metrics in line with</v>

02:40:24.631 --> 02:40:29.020
the quantitative metrics of other investor owned utilities

02:40:29.020 --> 02:40:31.540
with investment grade issuer ratings?

02:40:34.230 --> 02:40:36.700
<v ->I didn't make that comparison either.</v>

02:40:36.700 --> 02:40:41.700
Both S&P and Moodys published credit rating target ranges

02:40:42.247 --> 02:40:45.690
that support various bond ratings, given the business risk,

02:40:45.690 --> 02:40:48.840
financial risk outlooks of the utilities.

02:40:48.840 --> 02:40:51.570
I did look at the projected financial metrics

02:40:51.570 --> 02:40:53.790
in comparison to those target ranges.

02:40:54.980 --> 02:40:59.078
<v ->Okay. And the reason that PG&E</v>

02:40:59.078 --> 02:41:02.830
would have a sub-investment grade issue or rating

02:41:02.830 --> 02:41:06.090
is because of the rating agencies evaluation

02:41:06.090 --> 02:41:07.590
of the business risk, correct?

02:41:09.020 --> 02:41:11.700
<v ->Well business risk and financial risk of the company.</v>

02:41:11.700 --> 02:41:14.280
I mean there is significant debt of this company

02:41:14.280 --> 02:41:17.540
that is not used to support investments

02:41:17.540 --> 02:41:18.690
that produce cash flow.

02:41:19.630 --> 02:41:23.510
So I think that will certainly be a factor

02:41:23.510 --> 02:41:26.660
of the credit rating agencies when reviewing the adequacy

02:41:26.660 --> 02:41:28.580
of the credit metrics going forward.

02:41:28.580 --> 02:41:33.143
<v ->If the S&P rated the business risk as strong,</v>

02:41:33.143 --> 02:41:36.980
would those credit metrics support

02:41:36.980 --> 02:41:40.480
an investment grade credit rating issuer?

02:41:40.480 --> 02:41:43.010
<v ->The greater the business risk, than the higher</v>

02:41:43.010 --> 02:41:45.960
the financial threshold to support a bond rating.

02:41:45.960 --> 02:41:48.790
So, the S&P, previously PG&E

02:41:48.790 --> 02:41:50.460
had an excellent business profile score

02:41:50.460 --> 02:41:53.380
and a strong financial profile score,

02:41:53.380 --> 02:41:57.470
so the range of credit metrics that would support

02:41:57.470 --> 02:42:00.710
an investment grade triple B, or a single A bond rating,

02:42:00.710 --> 02:42:03.850
would depend on S&Ps financial and business risk outlook

02:42:03.850 --> 02:42:06.860
for the utility. Moody's is similar,

02:42:06.860 --> 02:42:08.950
but they don't have a specific

02:42:08.950 --> 02:42:11.430
financial and business risk profile score.

02:42:11.430 --> 02:42:14.940
They do have various metric ranges,

02:42:14.940 --> 02:42:16.720
standard grade ranges,

02:42:16.720 --> 02:42:19.020
that correspond with the credit ratings

02:42:19.020 --> 02:42:23.080
for utility companies with an assessment

02:42:23.080 --> 02:42:24.650
of what their business risk is.

02:42:24.650 --> 02:42:26.240
For example, they go standard range

02:42:26.240 --> 02:42:28.430
with most electric utility companies

02:42:28.430 --> 02:42:30.625
that have commodity cost recovery risk.

02:42:30.625 --> 02:42:32.570
For other utility companies that don't have

02:42:32.570 --> 02:42:34.080
commodity cost recovery risks,

02:42:34.080 --> 02:42:37.770
there might be a low volatility table

02:42:37.770 --> 02:42:40.840
they would look at for appropriate metric targets.

02:42:42.860 --> 02:42:45.599
So those are the factors I considered.

02:42:45.599 --> 02:42:46.980
<v ->Right. That wasn't my question, so let me try again.</v>

02:42:48.497 --> 02:42:52.507
If S&P rated the business risk for PG&E as strong, strong,

02:42:54.540 --> 02:42:57.560
would the credit metrics support an investment grade

02:42:57.560 --> 02:42:59.410
credit rating at the issuer level?

02:43:00.702 --> 02:43:02.320
<v ->I would have to make that determination.</v>

02:43:02.320 --> 02:43:03.470
I did reviews them with an

02:43:03.470 --> 02:43:05.650
excellent business position ranking,

02:43:05.650 --> 02:43:08.640
that's what S&P rated PG&E

02:43:08.640 --> 02:43:11.890
around the end of 2017, beginning of 2018.

02:43:11.890 --> 02:43:14.760
If their business risk assessment changes,

02:43:14.760 --> 02:43:18.760
then the target metric would change as well.

02:43:19.640 --> 02:43:22.239
<v ->So the answer to my question is you don't know?</v>

02:43:22.239 --> 02:43:23.072
<v ->I haven't looked at it</v>

02:43:23.072 --> 02:43:26.000
with that business risk position ranking.

02:43:26.000 --> 02:43:28.320
So at this point, I do not know.

02:43:28.320 --> 02:43:33.112
<v ->Okay. So the business risk ranking for PG&E</v>

02:43:33.112 --> 02:43:38.112
is based on the rating agencies evaluation

02:43:39.450 --> 02:43:44.450
of the regulatory environment, among other things, correct?

02:43:44.460 --> 02:43:47.200
<v ->Yeah, but importantly also regulatory environment</v>

02:43:47.200 --> 02:43:49.990
and management strength are major components

02:43:49.990 --> 02:43:51.880
that go into business ranking.

02:43:51.880 --> 02:43:54.580
<v ->So just focusing on the regulatory environment,</v>

02:43:57.540 --> 02:44:02.350
the rating agencies will consider the predictability

02:44:02.350 --> 02:44:04.750
and timeliness or Commission decisions, correct?

02:44:06.590 --> 02:44:09.240
<v ->They will on recovery of prudent and reasonable cost,</v>

02:44:09.240 --> 02:44:11.940
which is a standard of rate making across the country.

02:44:30.090 --> 02:44:32.640
<v Judge>Mr. Weisman, let's do a time check here.</v>

02:44:43.040 --> 02:44:46.000
<v ->Maybe another half-hour.</v>

02:44:46.000 --> 02:44:48.310
<v Judge>So I'm thinking this might be a good time</v>

02:44:48.310 --> 02:44:49.370
for a lunch recess.

02:44:50.290 --> 02:44:55.083
So let's be in recess until 1:00 by the clock on the wall.