Pete
The intent of Section 12.13.9.3.4 is to assure that if lateral spreading occurs, and imposes permanent lateral deformation of the pile along its length, that the pile will still be able to sustain the gravity loads imposed on it and not cause collapse. The degree and rigor of analysis necessary to do this depends on large part on fthe magnitude of lateral deformation predicted for the site, and the height (length) along the pile over which this deformation occurs.
The appropriate way to handle this analysis would be to use software that can model both the nonlinear flexural properties of the pile and also the P-Y springs of the soil. The model would be subjected to the predictted imposed lateral deforrmation over its height and evaluated for adequacy to support gravity loads. If lateral deformatioin is significant, it can be expected that some plastic flexural hinging of the pile will occur., resulting in degradation of the pile's strength. This can occur through crushing of cover concrete on concrete piles, and local buckling of the walls (or flanges) of steel piles. The analysis would have to account for this behavior. The 67% degraded strength requirement means that the flexural strength of the deformed pile under load cannot be less than 67% of the theoretical nominal strength of the pile in the undeformed condition. As noted abo ve this degradation can occur through local crushing of concrete or buckling-related deformation of steel elements.