2018 General Rate Case

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1 Application No.: A.1-0- Exhibit No.: SCE-0, Vol. 0 Witnesses: R. Ramos J. Smolk R. Swartz S. Tran A (U -E) 01 General Rate Case ERRATA Administrative & General (A&G) Volume 0 Legal (Law, Claims, and Workers Compensation and Disability Management) Before the Public Utilities Commission of the State of California Rosemead, California September 1, 01

2 SUMMARY This volume presents Southern California Edison s (SCE) Test Year (TY) 01 forecasts of administrative and general expenses for the Legal Operating Unit. The Legal Operating Unit is headed by the SCE General Counsel and consists of the following departments: Law, Claims, and Workers Compensation and Disability Management. This chapter provides an overview of the exhibit. Chapter II discusses Law s estimate of. million 1 of TY 01 expenses, a. million increase relative to 01 recorded (in 01 dollars). The increase is primarily the result of a forecast increase in outside counsel expenses.. 1. Chapter III discusses Claims estimate of. million of TY 01 expenses, an increase of 1. million over the 01 recorded (in 01 dollars). The increase is primarily the result of higher Claims payments and reserves relative to 01 recorded amounts. Claims payments and reserves vary significantly from year to year, with 01 being an abnormally low year. Our estimate is based upon a five-year average of such costs, which we believe to be a more reasonable representation of future costs. Chapter IV discusses our Workers Compensation estimate of 1. million of TY 01 expenses, an increase of. million over the 01 recorded (in 01 dollars). This increase is the result of a somewhat higher expected claims and reserve amount over amounts recorded for 01 due to the use of a multi-year averaging method for the reasons described in the discussion above of the Claims forecast. This increase is partially offset by an expected decrease in Workers Compensation internal staffing costs from the Legal Operating Unit s participation in the SCE Corporate Operational and Service Excellence Initiative (OpX). Chapter V discusses the request from Disability Management for 0. million for TY 01 expenses, an increase of. million over the 01 spending levels (in 01 dollars). The change is primarily the result of an increase in Long-Term Disability Plan (LTD) costs. 1 SCE removed litigation expenses related to SONGS Replacement Steam Generators (RSG) and decommissioning matters from the 01 forecast. Refer to WP SCE-0 Vol. 0, p. and p.. As discussed below, reserves (FERC Account ) include disputes outside the Claims area such as employment, commercial, environmental and other matters. The Disability Management group was previously part of SCE s Human Resources Department. In mid-01, however, Disability Management was transferred to the Legal Operating Unit, where it was combined with Workers Compensation to form a new group under the name Workers Compensation and Disability Management.

3 A&G Law, Claims, and Workers Compensation and Disability Management O&M Expenses 01 Forecast (Total Company Constant Million)

4 Table I-1 SCE s Legal Organization 1 Table I- below summarizes the Legal Operating Unit s recorded costs for years and the requests for 01 TY for each of its departments. C. Operational Excellence Table I- Summary of Costs for Legal Organization Recorded and Adjusted /Forecast 01 (Constant ),1,,,,0, Forecast Law,1,,11,1,0,1 Claims 1,, 0,,1,00, Workers' Compensation,,01 1, 1,0 1,1 1, Disability Management 0, 1, 1, 1, 1, 0, Total Legal,0 11, 1, 11,0,1,11, 11,00 1, 11,,,1 As part of the Operation Excellence (OpX) initiative discussed by Mr. Payne in SCE-01, the Legal Operating Unit identified several initiatives to operate more efficiently and reduce costs. The Legal Operating Unit s OpX efforts included the following: (1) implementing organizational changes across several work groups, including eliminating positions; () implementing process efficiency enhancements; and () developing guidelines focused on reducing outside counsel spend, prioritizing work and clarifying service level expectations with other Company organizations. The Legal organization s 01 forecasts reflect.1 million of operational savings. Refer to WP SCE-0 Vol. 0, pp. 1-.

5 D. Compliance Requirements 1. Outside Counsel Incentive Payment In D , SCE was directed to support its request for amounts to cover discretionary outside counsel incentive payments by demonstrating that with such payments, it is still obtaining outside counsel services at a discount. This practice of providing annual incentive payments to strategic partner firms has largely been discontinued. In complying with this directive, SCE removes these discretionary payments from its 01 forecast.. Non-Employee Director Stock Based Compensation SCE s requests for recovery of certain elements of non-employee director compensation, including equity compensation, have been denied in previous rate cases. Notwithstanding the Commission s prior conclusions on this issue, SCE maintains that (1) total compensation for nonemployee directors, including equity compensation, is reasonable, and () the total compensation costs are legitimate operating expenses incurred in providing service to customers and should be recoverable in their entirety under cost-of-service ratemaking principles. Director compensation is discussed below in Chapter II, Part (d).. E. Comparison of Authorized 01 to Recorded The Legal organization recorded O&M expenses of.1 million in 01, which was less than the. million authorized in SCE s 01 GRC. This reduction was driven primarily by lower recorded spend in In-House and Outside Counsel Law Department expenses and in Claims and Workers Compensation reserves as shown in Table I- below. Refer to WP SCE-0 Vol. 0, p.. See Section II.B below.

6 Table I- 01 Authorized vs 01 Recorded (Constant ) 1,11 1,0 Department FERC Account Activity 01 Authorized 01 Recorded Underspent/ (Overspent) 0/1 In-House,,,0 Law // Outside Counsel 1,1,,0 0 Corporate Governance - Misc,, (1,) Claims Workers' Compensation Disability Management 0/1/ Administrative and General Administrative and General Disability Management,1,0 1,1,0, Claims Reserves Wcomp Reserves Disablity Program 0,1 1, 1,,,1 1,00 1,0,1 (,) Total Legal,1,1,,,

7 d) Other Support Staff The Law Department s remaining staff includes information technology specialists, file maintenance personnel, general operations personnel, analysts and filing specialists. These employees provide support related to the following areas: electronic discovery; file room; electronic file system; law library; invoice processing and reporting functions; variance analysis; purchase order support; supply order processing; systems development and deployment; and other operational activities that enable the Law Department to provide legal services efficiently and. effectively. B. Comparison of Authorized 01 to Recorded Law recorded.0 million in expenses in 01, which was less than the. million authorized in SCE s 01 GRC. This was driven by lower recorded spend on In-House expenses and Outside Counsel as shown in Table II- below. These spending reductions were achieved through staff attrition coupled with increased efficiencies, more economical use of outside counsel and a lower than typical level of significant litigation in Corporate Governance Directors Fees and Expenses recorded in 01 was higher than authorized by 1. million. This resulted from a higher allocation of such costs charged by EIX to SCE as a result of the Edison Mission Energy (EME) bankruptcy. Table II- 01 Law Authorized vs 01 Recorded (Constant ) 1,11 1,0,0, 11 Significant litigation is likely to recur in future years.

C. Law Department FERC Accounts,1,,,,0,1 Table II- below summarizes 011-01 the recorded O&M expenses in the Law Department by FERC account and its Test Year 01 estimates.

8 C. Law Department FERC Accounts,1,,,,0,1 Table II- below summarizes the recorded O&M expenses in the Law Department by FERC account and its Test Year 01 estimates. 1, 1,0 0,0 1,1 1,11 1, Table II- Summary of Costs for Law Department (Including Corporate Governance Recorded and Adjusted /Forecast 01 (Constant ) In-House Legal Resources and Corporate Governance (FERC Accounts 0, 1) 1 a) Activity Description SCE records the salaries and related expenses of the Law Department s attorneys and staff (including Corporate Governance support staff) to FERC Account 0 (Administrative and General Salaries) and FERC Account 1 (Office Supplies and Expenses). b) Need for Activity Using in-house counsel is advantageous for a number of reasons. First, our inhouse attorneys have developed an extensive knowledge of SCE s policies, programs, operations, regulatory oversight and compliance obligations, and maintain an effective and supportive working relationship with other SCE organizations. This knowledge base allows the attorneys to provide assistance on a wide-range of assignments required for SCE s business operations. Also, the Company s business representatives have greater direct access to the Law Department s attorneys than would typically be the case with outside counsel, which promotes timely legal advice and aids the Law Department in avoiding or more expeditiously resolving expensive and time-consuming litigation. Furthermore, SCE s in-house attorneys are, in most matters, a more cost-effective legal resource as compared to the cost of outside counsel. 1 Refer to WP SCE-0 Vol. 0, pp

9 c) Scope and Cost Forecast Figure II-1 In-House Legal Resources (Including Corporate Governance Support) Recorded And Adjusted /Forecast 01 FERC Accts. 0/1 (Constant ),,, ,0,0,0 (1) Historical Variance Analysis As shown in in Figure II-1 above, labor and non-labor expenses remained relatively stable during 011 to 01, with a downward trend from 01 to 01. The labor decrease reflects staff reduction from attrition and operational changes, which enabled the Department to handle its in-house workload with reduced staff. Operational changes include reorganizing teams, implementing the paperless office initiative described above, and eliminating or simplifying tasks. Non-Labor expenses decreased due to lower recorded costs for information technology applications and system maintenance. () Forecast,0, The Law Department s TY 01 forecast for in-house legal services is. million,. million of labor, and.1 million of non-labor. The basis of the 01 labor and non-labor forecasts was 01 recorded expenses, adjusted for projected future-year reductions in 1

10 Finally, SCE strongly encourages and increasingly utilizes alternative billing methods by outside counsel, including fee caps either by matter or phase, fixed fees, incentive billing, modified contingency agreements and other alternative billing arrangements. The above policies and practices allow SCE to achieve outside counsel rates at a discount from standard rates. c) Scope and Cost Forecast Figure II- Law Department (Outside Counsel) Recorded And Adjusted /Forecast 01 FERC Accts. // (Constant ) , 1,0 0,0 1,1 1,11 1, 1, 1, (1) Historical Variance Analysis As shown in Figure II- above, outside counsel expenses decreased from 1. million in 011 to 1.1 million in 01. In 01, outside counsel increased to 0. million due to wage and hour class action litigation. Outside counsel trended downward in 01 and 01. The fluctuation in outside counsel expenses is largely the result of a variable level of activity in our litigation, regulatory, employment, commercial, transactional and environmental practice areas. 1, () Forecast For TY 01, SCE forecasts 1. million for outside counsel expenses. This forecast method is based on the five-year average of recorded costs from The need for increased legal activities related to procurement contracts, general rate case items, labor and 1

11 claims (e.g., fires, falling wires, abnormal voltage, and other causes). In particular, in 01-01, large claims were asserted against the Company in the wage and hour and certain other areas, which resulted in significant reserves for those years. 01 did not involve the same level of new, large claims. This variance is not unusual for SCE. () Forecast The Claims Department s Test Year 01 forecast for Account, Claims Reserves, is 1. million, which was calculated based on a five-year average of recorded costs from This approach is consistent with D.-1-0, which stated that for those accounts which have significant fluctuations and which are influenced by external factors, an average of recorded expenses over a period of time is a reasonable base estimate. The increases for 01 and 01 were attributed to large reserves in the renewables, commercial, environmental and employment areas.

12 D. Disability Management FERC Accounts For Test Year 01, SCE forecasts a total of 0. million for disability program costs. Table V- 11 below, shows recorded disability program costs for the years 011 through 01, plus our forecast costs for Test Year 01. Table V-11 Disability Program Costs Recorded and Adjusted /Forecast 01 FERC Account (Constant ) 1,0 FERC Account Forecast Labor 1, 1,0 1, Non-labor 1 1 Disability Administration 1,0 1, 1,1 Disability Program 1, 1,1 1, 1,0 1,00 1, Total 0, 1, 1, 1, 1, 0, 1. Disability Administration Staff (FERC Account ) 0, a) Activity Description SCE records salaries and related expenses of Disability Management employees associated with employee pensions and benefits to FERC account. Refer to WP SCE-0 Vol. 0, pp

2018 General Rate Case Rebuttal Testimony

2018 General Rate Case Rebuttal Testimony Application No.: A.1-0-001 Exhibit No.: SCE-, Vol. 0 Witnesses: R. Ramos J. Smolk R. Swartz D. Tessler S. Tran (U -E) 01 General Rate Case Rebuttal Testimony Administrative & General (A&G) Volume 0 Legal