IOUs Respond to Resolution SPD-37 with a Unified Playbook for Senate Bill 884 Cost Recovery
PG&E, SCE, and SDG&E jointly filed an application with the CPUC seeking approval of standardized methodologies to implement Senate Bill 884’s 10-year electric distribution undergrounding program.
The filing is a response to Resolution SPD-37 (see CRI's summary here). It asks the CPUC to approve a common benefit-cost ratio calculation methodology, an audit framework, and portfolio-level cost-recovery conditions applicable only to SB 884 undergrounding projects.
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Who Should Care?
- Utility regulatory affairs and wildfire mitigation teams. This filing will impact how SB 884 undergrounding is evaluated, audited, and recovered, with direct consequences for execution risk, financing, and internal prioritization across large portfolios.
- CPUC Safety Policy Division and Energy Division staff. The proposal tests whether SPD-37 will be implemented as a portfolio framework aligned with the Risk-Based Decision-Making Framework, or evolve into a more interventionist, project-specific review regime.
- Investor-owned utility finance and treasury teams. Portfolio-level benefit-cost ratio and predictable audit standards influence capital planning, cost of capital, and the ability to pace multi-year undergrounding investments.
- Ratepayer and consumer advocates. The outcome here will affect how strictly costs are constrained, how benefits are measured, and whether oversight focuses on system-level performance or individual project outcomes.
Summary of the IOUs' Application
The utilities argue that the benefit-cost ratio methodology should align with the CPUC’s existing Risk-Based Decision-Making Framework. They call for a consistent approach across Energy Safety’s project-selection phase and the CPUC’s cost-recovery phase, rather than adopting project-specific or novel methods that could introduce uncertainty or financing risk
Under their proposal, undergrounding projects would be evaluated using a standardized benefit-cost ratio that compares total mitigation benefits (including wildfire risk reduction, reliability improvements, and public-safety benefits) to the present value of total implementation costs, including:
- Capital expenditures; and
- Net operations and maintenance impacts.
Total mitigation benefits would encompass not just wildfire risk reduction but also standard reliability benefits from distribution overhead asset failures and public-safety benefits from public contact with electrical equipment (categories that broaden the benefit-cost ratio numerator beyond wildfire alone and improve the economic case for undergrounding).
The utilities also propose clear rules for discount rates, risk scaling, backcasting when models change, and a single "BCR Year Zero" tied to the effective date of a utility's undergrounding plan to preserve comparability across projects. On the Interruption Cost Estimate Calculator (which sets the standard dollar value of reliability risk used in benefit-cost ratio calculations) the IOUs propose continuing to use version 2.0 rather than immediately adopting the newer Interruption Cost Estimate 2.1, coordinating any update with risk model version changes as defined in the Energy Safety EUP Guidelines.
In parallel, the application lays out a detailed audit methodology to verify compliance with annual cost caps, average unit-cost limits, and minimum benefit-cost ratio thresholds at the portfolio level. Each IOU would define its own criteria for determining when a project is "used and useful," introducing some asymmetry into what is otherwise pitched as a joint standardized framework. This methodology would also confirm that projects are used and useful and that costs are incremental to amounts already authorized in general rate cases.
The IOUs request a 2% variance threshold on the portfolio-level cost recovery conditions. Under this proposal, a utility could exceed its annual cost cap, unit cost target, or benefit-cost ratio threshold by up to 2% before any projects would need to be moved to the memorandum account for further reasonableness review. At program scale, this tolerance represents meaningful financial flexibility.
The application also asks the CPUC to allow utilities to select undergrounding over a cheaper alternative mitigation when the undergrounding benefit-cost ratio is within 70% of the alternative's benefit-cost ratio (what the IOUs call an "estimate uncertainty factor"). In those cases, utilities would supplement the modeling with qualitative assessments of ingress/egress risk, tree-strike risk, and Public Safety Power Shutoff dynamics. PG&E previously applied a 50% uncertainty range but narrowed it to 30% after Energy Safety's recommendation in the 2026–2028 Base Wildfire Mitigation Plan (the 70%-of-alternative threshold and the 30% estimate uncertainty range are two expressions of the same concept, not separate provisions). This provision is particularly likely to draw intervenor scrutiny.
Last, the IOUs seek to grandfather previously scoped undergrounding projects into the EUP even if those projects were selected under older risk models and cannot demonstrate compliance with current Energy Safety screening requirements. The utilities argue that canceling projects already in planning (where land rights, municipal coordination, and community engagement are underway) would be disruptive and wasteful.
Protests and responses are due March 16.
INSTANT ANALYSIS
PG&E, SCE, and SDG&E are pressing the Commission to ground benefit-cost testing, audits, and cost recovery in the existing Risk-Based Decision-Making Framework, rather than allowing SPD-37 to drift toward a bespoke or project-by-project construct.
The main concern is risk containment. A standardized, portfolio-level benefit-cost ratio and audit structure:
- Reduces financing uncertainty;
- Preserves flexibility to manage execution variability across many circuit segments; and
- Limits after-the-fact challenges to individual projects.
If the Commission accepts the IOUs' approach, SB 884 undergrounding will operate much more like a General Rate Case-style portfolio with defined guardrails, rather than a sequence of individualized prudency reviews. But the asks go beyond framework alignment.
The 2% variance threshold, the 70% estimate uncertainty factor, the broadened benefit categories, and the grandfathering of previously scoped projects all push in the same direction: maximizing the volume of undergrounding that qualifies for streamlined cost recovery. Expect intervenors to argue that these provisions, taken together, weaken the cost discipline that SPD-37 was designed to impose.