COM/MP6/ar9/lil PROPOSED DECISION Agenda ID #14984 Quasi-Legislative 8/18/2016 Decision PROPOSED DECISION OF COMMISSIONER PICKER (Mailed 6/14/2016) BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of San Diego Gas & Electric Company (U902M) for Review of its Safety Model Assessment Proceeding Pursuant to Decision 1412025. Application 1505002 (Filed May 1, 2015) And Related Matters. Application 1505003 Application 1505004 Application 1505005 DECISION ADOPTING THE MULTIATTRIBUTE APPROACH (OR UTILITY EQUIVALENT FEATURES) AND DIRECTING UTILITIES TO TAKE TOWARD A MORE UNIFORM RISK MANAGEMENT FRAMEWORK
A full ALARP framework relies on explicit estimation of the value of statistical live (VSL). It relies on explicit statements of risk tolerance. Barriers to Implementation (some overlap with “cons” above) 1. Need to place a value on a statistical life. 2. Regulator and stakeholder unfamiliarity with models that requires some understanding of probability and statistical concepts. 3. Lack of data and deficiencies in quantitative models. 4. ALARP requires an explicit statement of risk tolerance, stated in the form of the upper and lower risk tolerability limits in the ALARP diagrams. 5. Absent more robust quantitative risk models, it would be difficult to attribute an incremental benefit to any particular threat and any particular mitigation control measure associated with that threat. (For example, leak survey is one type of risk mitigation but the total benefit must somehow be apportioned to all threats that have benefited from the leak survey, including for example, internal corrosion, external corrosion, stress corrosion cracking, earth movement, etc. 6. Regulators’ “no accidents” expectation does not conform with reality. SED Comments SED Staff asserts that the As Low As Reasonably Practical (ALARP) framework is a valuable alternative for consideration by the Commission. ALARP is an overarching framework meant to be used in conjunction with whatever risk evaluation tool that a utility may use (including the Joint Intervenors’ proposed approach). ALARP tends to be more useful in the longer horizon as the models mature and can incorporate more fully probabilistic
attribute ranges. Therefore, there is no reason to believe that either risk reduction will be measured correctly using such attribute weights.” Also, the utilities use “discrete” rather than “continuous” values in their scales. (If a scale is “continuous,” then all values within a range are possible and not just the discrete values 1, 2, 3, etc.) The utilities themselves admit the shortcomings of their current 7x7 approach. According to the Uniformity Report they state that “none of the implemented funding methods is currently capable of generating a risk reduction per dollar invested” although they acknowledge further progress towards fulfilling this objective as the proceeding progressed. They added that “crossrisk prioritization of mitigations is more challenging and will require more efforts to establish a methodology that can optimize spending based on risk reduction benefits across an entire organization.” Joint Intervenors interpret these statements as ”indicating that the utilities believe that: (i) they are not now able to calculate risk reduction; (ii) they may be able to make progress toward that goal at some future unspecified time; and (iii) the ability to compare and quantify risk reductions across an entire organization is a longer term challenge.” Building Blocks of Probabilistic Modeling Statement of the Solution The Joint Intervenors state that the fundamental requirement of its approach is that “risk reduction must be quantifiable to permit assessment of the cost effectiveness of the risk mitigation strategies.” If this requirement is not fulfilled, then it is impossible to determine costeff ectiveness strategies and there would be no “benchmarks” to compare alternatives.
Comparison of Utility and Joint Intervenor Approaches on an evaluation of the Joint Intervenor model and deeper understanding of utility risk management frameworks, the following table is a comparison of Utility Risk Evaluation Formulas and Risk Frameworks and the Joint Intervenors Framework: (SED Staff Report at 64, slightly modified based on comments.) Comparison of Utility Risk Evaluation Formulas and Risk Frameworks PG&E SCE Sempra Joint Intervenors Risk Management Framework Risk framework on Enterprise Risk Management yes yes yes yes impact dimensions consider shareholder interests and/or financial performance yes yes yes to be defined by the utility or Commission Input Type predominantly SMEestimated inputs yes yes yes no, only where observed data is unavailable Indexing method on frequency score selection(whole integeronly inputs, 1 to 7) partially yes, but allows for override with actual frequency no, uses continuous, linearscale frequency yes no Indexing method on consequence score selections (whole integeronly logscale inputs, 1 to 7) yes yes yes no Frequency number of frequency levels 7 7 7 model uses actual likelihood or probability representative position within logscale frequency range right hand of range not applicable, uses linear scale frequency fixed point value from each range model uses actual likelihood or probability
allows for actual frequency data input where available yes yes no model uses actual likelihood or probability specifically considers asset condition on a perasset element basis when determining frequency no model has ability to do so no yes Consequence consequence evaluation standard on P95 (95th percentile) "probably worst case outcome" on "worst reasonable direct impact" reasonable worst case scenario use complete probability distribution number of impact (consequence) dimensions 6 5 4 to be defined by the utility or Commission number of levels per impact dimension 7 7 7 to be defined uses weights on impact dimensions yes no yes yes impact (consequence) dimensions and weights safety(30%), reliability(25%), environment(5%), compliance(5%), trust(5%), financial(30%) safety, reliability, environment, compliance, financial, (not weighted, risk scores only summed) safety(40%), reliability(20%), compliance(20%), financial(20%) Intervenors advocate analytically derived weights to be properly defined by the utility or imposed by the Commission Risk Scores linear risk score? no yes yes yes relative or absolute risk score relative quasiabsolute quasiabsolute quasiabsolute consequence scenarios in risk score single scenario multiple scenarios single scenario single scenario risk formula emphasizes high consequence events yes no no no Other Areas takes into account threat interactions and their effects on frequency, impact, and impact dimensions no no, but does not preclude possibility of it no no
utilities to demonstrate new methods to better calculate and identify risk — and to mitigate risk more effectively. The utilities should use the RAMP filings as opportunities to clearly identify the most effective ways to achieve these goals and should communicate that understanding to all parties so that others can adopt the best practices that result. Demonstrate progress towards “risk spend efficiency” calculations California’s utilities have attempted to develop “riskspend efficiency” calculations that can compare the costs and benefits of particular mitigations. These calculations have posed a challenge, and the utilities and other parties have not always agreed among themselves on what methods are most useful for calculating riskspend efficiency. Nevertheless, understanding the costs of mitigations is an important part of the proceeding and an important step toward the General Rate Cases. The utilities should include riskspend efficiency calculations in their RAMP filings, even if those calculations are imperfect. It may take iterations over multiple cycles to refine those calculations, but by starting now California can benefit in the future. This guidance is for SMAP #1. By SMAP #2 or SMAP #3 these riskspend efficiency calculations may arrive at the desired state. If a utility develops a different method to calculate and optimize its spending for mitigations, then the utility should describe that method in its RAMP filing for the Commission to understand and for other parties to see. How the Utilities [should] show progress toward probabilistic calculations