Supplemental Information

Transcription

1 Application No: Exhibit No: Witnesses: A SCE- P. T. Hunt D. Snow (U -E) Supplemental Information Before the Public Utilities Commission of the State of California Rosemead, California June, 01

2 01 COST OF CAPITAL, SUPPLEMENTAL INFORMATION Table Of Contents Section Page Witness I. INTRODUCTION...1 P. T. Hunt II. III. CPUC JURISDICTIONAL REVENUE REQUIREMENT RECOVERABLE THROUGH BALANCING AND MEMORANDUM ACCOUNTS... ACTUAL VERSUS AUTHORIZED RETURNS ON RATE BASE AND COMMON EQUITY... D. Snow P. T. Hunt IV. HISTORICAL CREDIT RATINGS... V. EQUITY ANALYST RECOMMENDATIONS (EDISON INTERNATIONAL)...9 Appendix A Witness Qualifications... D. Snow - ii -

3 01 COST OF CAPITAL, SUPPLEMENTAL INFORMATION List Of Tables Table Page Table II-1 Percentage of Authorized Revenue Requirement Recovered Through Balancing and Memorandum Accounts (Thousands of Dollars)... Table II- Memorandum Account Balances (Over-)/Under-Collection (Thousands of Dollars)... Table III- Actual Versus Authorized Returns on Rate Base and Common Equity... Table IV- Standard & Poor s Ratings... Table IV- Moody s Ratings... Table IV- Fitch Ratings... Table V- Equity Analyst Recommendations (Edison International, June 1, 01) iii -

4 9 I. INTRODUCTION As directed by Administrative Law Judge ( ALJ ) Michael J. Galvin during the prehearing conference ( PHC ), 1 and Scoping Memo, Southern California Edison Company (SCE) submits this supplemental testimony. Chapter II presents the requested information on the percentage of SCE's CPUC jurisdictional revenue requirement subject to balancing and memorandum accounts. Chapters III through V present requested information on actual and authorized return on equity, credit rating agency views on the SCE s debt, and current equity analyst recommendations regarding Edison International, SCE s parent company. 1 See PHC Reporter s Transcript, dated June, 01, pp A , et al., Assigned Commissioner s Scoping Memo and Ruling, dated June 1, 01. 1

5 II. CPUC JURISDICTIONAL REVENUE REQUIREMENT RECOVERABLE THROUGH BALANCING AND MEMORANDUM ACCOUNTS ALJ Galvin requested that SCE provide amounts currently authorized in balancing accounts in relationship to their total authorized 01 revenue requirement, and if you re able to, tie that in with forecast 01. Because SCE does not yet have authorized 01 revenue requirements, SCE is presenting both its 011 authorized and a 01 forecast based on amounts requested in its 01 GRC proceeding. SCE interprets this as a directive that it provide its overall CPUC-jurisdictional revenue requirement and the percentage that is recoverable through balancing and memorandum accounts. For 011, SCE projects this number to be 9.1%; for 01,.%. This projection begins with an estimate of SCE s total system 011 authorized revenue requirement. First, Department of Water Resources ( DWR ) and Federal Energy Regulatory Commission ( FERC ) revenue requirements and direct pass-through items, such as amounts collected and passed through to the California Energy Commission prior to 01, were removed to arrive at an SCE CPUC jurisdictional revenue requirement. SCE then tallied all of the amounts included in the SCE CPUC jurisdictional revenue requirement that are covered by a balancing or memorandum account. SCE then calculated the requested ratio. Table II-1, below, provides the details of these calculations. ALJ Galvin, Tr. 1/10. SCE does not have a forecast of authorized 01 balancing account revenues or 01 total revenue requirement, so the percentage on a forecast basis is not available. SCE has calculated these percentages consistent with how they were calculated in A (SCE s 00 COC proceeding).

6 Table II-1 Percentage of Authorized Revenue Requirement Recovered Through Balancing and Memorandum Accounts (Thousands of Dollars) Total System Authorized Revenue Requirement 11,100,1 11,91,. Less:. DWR Power and Bond Charge Revenue Requirements 1,01,1 1,0. FERC-Jurisdictional Revenue Requirements 1,0,. CEC Funding 9,1 0. SCE-related Authorized Revenue Requirement (CPUC-jurisdictional) 1/ 9,09, 11,10,. Revenue Requirements Recovered through Bal/Memo Accounts:. Pensions & PBOPS Balancing Accounts: 9. Pensions,0 100, PBOP 0,90 1,1 11. Other Bal/Memo Accounts 1. ERRA Proceeding (primarily fuel & purchased power),,9,0,1 1. Balancing Account Under (Over) collections (01,0) (1,) 1. Public Purpose Programs / 1,9 1,9 1. Electric Program Investment Charge (EPIC) 0 9,1 1. Self Generation /,, 1. Demand Response / 1,9 9,0 1. CA Solar Initiatives / 111, 111, 19. CEMA 1, 0 0. RD&D /,1, 1. Palo Verde 1,1 0. Medical, 0. Results Sharing / 91, 0. Capital- related Balancing Accounts:. Edison SmartConnect 0, 1,0. SONGS Steam Generators 0,0 11,9. Solar PV,9 0. Mohave 19,,9 9. Total Revenue Requirements Recovered through Bal/Memo Accounts,9,10,11,9 0. Bal/Memo Account Recovery as % of SCE Authorized Rev Req 9.1%.% NOTES: 1/ Excludes 01 GRC Memo Account / One-way balancing accounts 1 In the above table, SCE has categorized the balancing and memorandum accounts into three categories because not all regulatory accounts have the same level of risk. Currently, SCE s Pension and Post Retirement Benefits other than Pensions (PBOP) costs are recovered through two-way balancing accounts and to the extent that the 01 SCE GRC decision authorizes continuation of the two-way

7 balancing accounts, there is relatively low risk in recovering costs that are in excess of authorized amounts. The second category includes accounts, such as, the Energy Resource Recovery Account (ERRA) where there is some risk of disallowance, based on reasonableness reviews, as the result of how SCE operates its Utility Owned Generation and how it dispatches its portfolio. Also included in this category are balancing accounts for mandated programs, such as public purpose related programs. Costs in these balancing accounts are passed through to customers, however SCE does not earn a return on these activities. The third category contains balancing accounts where SCE is recovering a return on its investment for programs such as Edison SmartConnect and the SONGS Steam Generator Replacement. In its 01 GRC application, SCE requested that the following balancing accounts and memorandum accounts be discontinued: Project Development Division Memorandum Account, Results Sharing Memorandum Account, Medical Programs Balancing Account, Palo Verde O&M Balancing Account, Community Choice Aggregators Implementation Costs Balancing Account, Four Corners Capital Expenditures Memorandum Account, Non-Discretionary Cost Memorandum Account, Solar Photovoltaic Program Balancing Account, Market Redesign and Technology Memorandum Account, Fuel Cell Program Memorandum Account, and the Edison SmartConnect Balancing Account upon the conclusion of meter deployment. ALJ Galvin also requested a list of all memorandum accounts where the balances have yet to be included into rate levels. Table II- below contains the list of SCE s memorandum accounts with both the year-end 011 balance and the balance as of May 1, 01. SCE does not have a forecast of these balances as of year-end 01, nor does SCE have any pending memorandum accounts not included in Table II-. DRA has proposed to make SCE s pension-related costs subject to a one-way balancing account in A (SCE s pending 01 GRC). Excluding amounts associated with mandated programs from this category since these amounts are recovered through one-way balancing accounts, and SCE is at risk for expenses in excess of authorized funding amounts, the percentage of balancing and memorandum accounts costs when compared to SCE s total revenue requirement would be.0% for 011 and.0% for 01.

8 Table II- Memorandum Account Balances (Over-)/Under-Collection (Thousands of Dollars) Re corde d Account Dec-011 May-01 1 Affiliate Transfer Fee Memorandum Account (ATFMA) (1) 0 California Solar Initiative Measurement and Evaluation Expenses Memo Acct (CSI M&E MA) 1,1 1,9 Catastrophic Event Memorandum Account (CEMA):,91 0, a. Bark Beetle 11,90 1,0 b. 00 Firestorm,9, c. 009 Wildfires,1,90 d. Jan 010 Winter Storms,9,9 e. Dec 010 Winter Storms 1,9 1,1 9 f. 011 Windstorm 0 1, 10 Department of Energy Litigation Memorandum Account (DOELMA) (110,1) 11 Energy Settlement Memorandum Account (ESMA) - Litigation Expense Tracking 10,00 10,0 1 Fire Hazard Prevention Memorandum Account (FHPMA),19, 1 Four Corners Capital Memo Account (FCCMA),1, 1 Fuel Cell Program Memorandum Account (FCPMA) Hydrogen Energy California Memorandum Account (HECAMA) 1,019 1,0 1 Long Term Procurement Plan Technical Assistance Memo Account (LTAMA) 9 1 Market Redesign & Technology Upgrade Memo Account (MRTU),0, 1 Non-Discretionary Service Costs Memo Account (NDSCMA) Project Development Division Memorandum Account (PDDMA),,9 0 RD&D Royalties Memorandum Account (RD&DRMA) Renewable Portfolio Standard Costs Memo. Account Technical Contractor (RPSCMA-TC) 9 9 Residential Service Disconnection Memorandum Account (RSDMA) (0) 1, Smart Connect Opt-Out Memo (SOMA) 0 Smart Grid "American Recovery & Reinvestment Act" Memorandum Account (SGARRAMA),, SONGS Seismic Projects Memorandum Account (SSPMA) 0 9 TOTAL 11,11 0,10 1 A full list of all of SCE s Balancing and Memorandum accounts can be found on the company s website at

9 III. ACTUAL VERSUS AUTHORIZED RETURNS ON RATE BASE AND COMMON EQUITY Commissioner Ferron requested that SCE provide data on how rates of return, both actual and authorized, have tracked over time. Table III- presents historical data on SCE s CPUC-authorized returns on rate base ( ROR ) and common equity ( ROE ) and SCE s earned ROR and ROE. For the years 00 through 009, SCE has been able to calculate its earned ROR and ROE from CPUCjurisdictional operations that are covered by SCE s CPUC General Rate Case. 9 This is the best summary measure of how SCE has performed in its CPUC-jurisdictional operations during this period. For the years 010 and 011, this information is not available because SCE has not calculated GRC Results of Operations tables for 010 and 011, so SCE has provided its total-company recorded ratemaking ROR and ROE, which also includes its FERC-jurisdictional operations. 10 Year Table III- Actual Versus Authorized Returns on Rate Base and Common Equity Authorized CPUC ROR Earned ROR Authorized CPUC ROE Earned ROE Notes 00.%.9% 11.0% 11.91% CPUC GRC recorded ROE 00.%.% 11.0% 9.0% CPUC GRC recorded ROE 009.% 9.% 11.0% 1.9% CPUC GRC recorded ROE 010.%.% 11.0% 11.% Total company recorded ratemaking ROE; includes FERC jurisdiction 011.%.1% 11.0% 10.90% Total company recorded ratemaking ROE; includes FERC jurisdiction In its Form 10-K reports, SCE provides financial ROE data. Financial ROE differs from ratemaking ROE because it includes one-time items such as the global tax settlement and the tax impact of health care legislation; it also includes the effect of Allowance for Funds Used During Construction (AFUDC). Thus, the earned returns shown in the table above more clearly reflect the operating performance of SCE than does SCE s reported financial ROE. Commissioner Ferron, Tr. 1/11. 9 The earned ROR is taken directly from the Results of Operations table. The earned ROE is calculated on a pro forma basis, using the authorized ratemaking capital structure and the authorized costs of long-term debt and preferred equity. 10 The total company ROR is calculated as electric operating income divided by weighted average rate base. Total company ROE is calculated as electric operating income minus interest on long-term debt and amortization of debt costs minus preferred equity dividend requirement, divided by weighted average adjusted common equity.

10 IV. HISTORICAL CREDIT RATINGS Commissioner Ferron also requested credit ratings by Standard & Poor's, Moody's, and Fitch over time. 11 Tables IV- through IV- present credit ratings for SCE by Standard & Poor s, Moody s, and Fitch for the period from January 1, 00, through the present. 1 In each case, the effective date of a set of ratings is shown; the last line in each table provides the current ratings for SCE. Table IV- Standard & Poor s Ratings Effective Date Issuer/ Corporate Senior Secured Senior Unsecured Short-Term 1/1/00 BBB BBB BBB- A- /1/00 BBB+ BBB+ BBB A- 9//00 BBB+ A BBB A- Table IV- Moody s Ratings Effective Date Issuer/ Corporate Senior Secured Senior Unsecured Short-Term 1/1/00 Baa1 A Baa1 P- 10/1/00 A A A P- //009 A A1 A P- Table IV- Fitch Ratings Effective Date Issuer/ Corporate Senior Secured Senior Unsecured Short-Term 1/1/00 BBB- BBB+ BBB -- 9//00 A- A+ A F-1 All of the credit rating agencies have a stable outlook for SCE. The agencies consider California regulation to be supportive of credit quality, 1 but express concern about California energy policy 11 Commissioner Ferron, Tr. 1/11. 1 This is a longer period than Commissioner Ferron requested, however it has the advantage of showing how long the current ratings have been effective for SCE. 1 The credit rating agencies generally take the viewpoint of bondholders, not shareholders.

11 goals. 1 Fitch s November 011 report on SCE considers an adverse decision in SCE s General Rate Case unlikely, but indicates that it would result in a credit rating downgrade. 1 Similarly, regarding this application (anticipated at the time of Fitch s report), Fitch writes: [a] large decrease in authorized return could lead to future, adverse credit rating actions. 1 1 See the discussion in Exhibit SCE-1 at pages -9, which includes a summary of recent Standard & Poor s and Moody s reports on SCE. 1 Fitch Ratings, Southern California Edison Co., dated November, 011, p Id., p..

12 V. EQUITY ANALYST RECOMMENDATIONS (EDISON INTERNATIONAL) SCE s common stock is not publicly traded. Instead. it is entirely held by SCE s parent company, Edison International ( EIX ). Thus, it is not possible to provide equity analyst recommendations regarding SCE. However, SCE here provides current equity analyst recommendations for EIX. Of course, these recommendations reflect the anticipated performance of EIX s other subsidiaries, as well as SCE. Table V- Equity Analyst Recommendations (Edison International, June 1, 01) Buy 1 Hold Sell 0 9

13 Appendix A Witness Qualifications

14 SOUTHERN CALIFORNIA EDISON COMPANY QUALIFICATIONS AND PREPARED TESTIMONY OF DOUGLAS A. SNOW Q. Please state your name and business address for the record. A. My name is Douglas A. Snow, and my business address is Walnut Grove Avenue, Rosemead, California 910. Q. Briefly describe your present responsibilities at the Southern California Edison Company (SCE). A. I am the Manager of Revenue Requirements in SCE s Regulatory Policy and Affairs (RP&A) Department. As such, I am responsible for the recovery of SCE s authorized revenue requirements and oversee the operation of various balancing and memorandum accounts, including the recovery of the balances in those accounts. Q. Briefly describe your educational and professional background. A. I graduated from Texas A&M University in May of 19 with a Bachelor of Science Degree in Industrial Engineering. In June of 19, I went to work for Southwestern Public Service Company (SPS) in west Texas. While there, I was a supervisory engineer, responsible for revenue requirement calculations and rate design for both retail and resale customers. I filed testimony on behalf of SPS before the Texas Public Utility Commission and the Federal Energy Regulatory Commission. In November of 199, I began to work for the Southern California Edison Company as a financial analyst in the FERC Pricing section in the RP&A Department. While working in the FERC section, I was responsible for the rate design for SCE s requirements sales for resale, Wheeling Access Charges, and wholesale Distribution Access Charges. In March 199, I became a supervisor in the Revenue Requirements division of RP&A, responsible for supervising a group of analysts that oversee the forecasting and recording entries associated with all CPUC regulatory mechanisms. In December 001, I was promoted to the position of manager in the Revenue Requirements division of RP&A. In August 00, I was promoted to my current position as Manager of Revenue Requirements. I have previously testified before the California Public Utilities Commission. A-1

15 Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this proceeding is to sponsor Exhibit SCE-, titled Supplemental Information as identified in the Table of Contents thereto. Q. Was this material prepared by you or under your supervision? A. Yes, it was. Q. Insofar as this material is factual in nature, do you believe it to be correct? A. Yes, I do. Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best judgment? A. Yes, it does. Q. Does this conclude your qualifications and prepared testimony? A. Yes, it does. A-