2015 General Rate Case Rebuttal Testimony PUBLIC VERSION

Transcription

1 Application No.: A Exhibit No.: SCE-24, Vol. 2 Witnesses: E. Jennerson R. Ramos J. Smolk R. Swartz (U 338-E) 2015 General Rate Case Rebuttal Testimony PUBLIC VERSION Financial, Legal, and Operational Services (FL&OS) Volume 2 - Legal (Law, Claims, and Workers Compensation) Before the Public Utilities Commission of the State of California Rosemead, California September 2014

2 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) Table Of Contents Section Page Witness I. INTRODUCTION...1 R. Swartz II. REBUTTAL BY FERC ACCOUNT LAW DEPARTMENT...2 E. Jennerson A. B. Summary Of Forecast Revision...2 Account 920/921 Law Department s (In-House) Expenses SCE s Application...3 ORA s Position...4 SCE s Rebuttal To ORA...4 a) ORA Inappropriately Re-Assigns SONGS Savings That Were Removed From The General Rate Case Per The Scoping Memo To Other Operating Units...4 C. Accounts 923/925/928 Outside Counsel...4 R. Swartz/... E. Jennerson SCE s Application...4 ORA s Position...5 TURN s Position...6 SCE s Rebuttal To ORA...6 a) b) c) ORA Ignored SCE s Testimony Regarding SCE s New Fee Structure Program for Certain Firms...6 SCE s Average Outside Counsel Rate Is Lower Than The Legal Market in Los Angeles...6 Grass Valley Fire Legal Costs Should be Recoverable Absent a Court s Award of Punitive Damages or Finding of Liability...7 -i-

3 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) Table Of Contents (Continued) Section Page Witness 6. SCE s Rebuttal To TURN...8 a) b) c) d) TURN s Methodology For Adjusting the 2015 Forecast Is Flawed...8 Large Outside Counsel Costs Incurred in 2010 And 2011 Have Been Removed Via Errata And Thus, There Is Limited Basis To Remove Those Years As Alleged Outliers...8 TURN s Characterization That Recorded Costs In 2010 And 2011 Are Outliers Unreasonably Assumes That All Recorded Expenses In Those Years Are Nonrecurring...9 TURN s Proposed Methodology Is Transparently Designed To Reduce SCE s 2015 Forecast...9 D. Account 930 Corporate Governance Miscellaneous General Expenses Non-Labor SCE s Application...9 ORA s Position...10 TURN s Position...10 SCE s Rebuttal To ORA...10 a) b) c) d) The Board s Oversight Benefits Ratepayers...11 SCE Cannot Legally Operate Without A Board Of Directors...11 The Board s Total Compensation Is Reasonable Compared To Its Peers...11 Such Costs Are Necessary As They Are An Incentive To Attract And Retain Highly Skilled And Experienced Board Members Which Ultimately Benefits Ratepayers ii-

4 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) Table Of Contents (Continued) Section Page Witness e) Recovery Of SCE s Share Of These Expenses Is Warranted Pursuant To The CPUC s Decisions On The Reasonableness Of Total Compensation SCE s Rebuttal To TURN...13 a) b) c) SCE s Rebuttal To ORA Above Is Equally Applicable To TURN...13 SCE Provided TURN With Access To Its Board Minutes...13 SCE Demonstrated The Reasonableness of its Director s Compensation...13 III. REBUTTAL BY FERC ACCOUNT - CLAIMS...14 R. Ramos/ E. Jennerson A. Summary Of Forecast - Claims Department SCE s Application...14 B. Account 920/921/924: Administrative And General Claims SCE s Application...15 ORA s Position...15 TURN s Position...15 SCE s Rebuttal To TURN...15 a) b) SCE Requires The Indoor Evidence Storage To Properly Store Evidence...15 SCE Is Requesting A Storage Facility In Order To Comply With The Commission s GO 95, Rule 19 And SED s Interpretation Of Such Rule iii-

5 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) Table Of Contents (Continued) Section Page Witness c) d) e) TURNS Claim That SCE Did Not Prove That Evidence Stored Outdoors Is Subject To Vandalism Or The Elements Is Incorrect...16 TURNS Claim That SCE Can Rely On Its Existing Storage Space Because Of Its Infrastructure Replacement Program Is Unfounded And Should Be Rejected...17 TURNS Contention That SCE Neglected To First Survey Its Own Capacity, Including The Alhambra Regional Operating, Is Incorrect...17 C. Account 925: Injuries And Damages Claims Reserve SCE s Application...18 ORA s Position...18 TURN s Position...18 SCE s Rebuttal To ORA...18 a) b) c) ORA s Auditor Recommendation Must Be Rejected Because The Grass Valley Fire Is Typical of Recurring Costs Experienced By SCE...18 Removal Of The Highest Settlement Amount For A 2011 Settlement From The 2015 Forecast Is Cherry-Picking By ORA And Should Not Be Allowed...19 SCE Has Not Been Found At Fault With Regards To The Grass Valley Fire SCE s Rebuttal To TURN...21 a) Turn s Recommended Reduction Of $2.697 Million To Remove The Impact Of The 2009 Recorded Expenses Is Cherry-Picking And Should Not Be Allowed iv-

6 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) Table Of Contents (Continued) Section Page Witness b) TURN s Alternative Forecast Of $ Million, The Amount Recorded In 2012, Should Be Rejected...21 IV. REBUTTAL BY FERC ACCOUNT - WORKERS' COMPENSATION...22 J. Smolk/ E. Jennerson A. Account 925: Injuries And Damages - Reserves SCE s Application...22 ORA s Position...22 TURN s Position...23 SCE s Rebuttal To TURN...23 a) b) Year 2013 Recorded Numbers Have Not Been Adjusted For General Rate Case Purposes...23 Significant Fluctuation Supports Averaging Methodology...24 Appendix A Appendix B Appendix C -v-

7 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) List Of Figures Figure Page Figure II-1 Law Department(Including Corporate Governance) Recorded and Adjusted /Forecast FERC Accts. 920/921/923/925/928/930 (Constant 2012 $000)...3 -vi-

8 SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 2 Legal (Law, Claims, and Workers Compensation) List Of Tables Table Page Table I-1 Summary of Costs for Legal Operating Unit Recorded and Adjusted /Forecast (Constant 2012 $000)...1 Table II-2 Law Department Summary of Revised 2015 Forecast (Constant 2012 $000)...2 Table II-3 Law Department SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000)...2 Table II-4 Law Department 2012 Recorded/Adjusted and 2015 Forecast FERC Accounts 920/921 (Constant 2012 $000)...4 Table II-5 Law Department (Outside Counsel) 2012 Recorded/Adjusted and 2015 Forecast FERC Accounts 923/925/928 (Constant 2012 $000)...5 Table II-6 Law Department (Outside Counsel) Revised Recorded/Adjusted FERC Accounts 923/925/928 (Constant 2012 $000)...5 Table II-7 Corporate Governance 2012 Recorded/Adjusted and 2015 Forecast FERC 930 (Constant 2012 $000)...10 Table III-8 Claims Department SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000)...14 Table III-9 Claims Department Recorded/Adjusted FERC 920/921/924/925 (Constant 2012 $000)...15 Table IV-10 Workers Compensation SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000) vii-

9 I. INTRODUCTION Southern California s (SCE) Legal Organization is comprised of the following three departments: Law, Claims, and Workers Compensation. SCE s Law Department continues to serve SCE s operations by providing a full range of legal services including but not limited to: (1) Advising SCE s management on compliance with applicable laws and regulations; (2) Providing legal advice on contracts and other transactions; and (3) Representing SCE before courts and regulatory agencies on matters related to SCE s provision of electric service and associated business activities. The Law Department also includes the Corporate Governance function that, among other things, supports compliance with SEC reporting requirements and facilitates the holding of Board of Director and shareholder meetings. SCE s Claims Department performs investigations and litigation assistance in connection with claims against SCE, seeks collection of payments due to SCE for damage to SCE property, and represents SCE in small claims and other legal matters in connection with claims filed by SCE. Finally, SCE s Workers Compensation Department has the primary responsibility for administering workers compensation benefits, informing SCE employees regarding such benefits, and determining workers compensation benefit eligibility. The following Table I-1 summarizes the recorded costs for years and the forecast for for these departments. Table I-1 Summary of Costs for Legal Operating Unit Recorded and Adjusted /Forecast (Constant 2012 $000) Law 46,517 47,228 54,811 53,270 49,783 48,641 48,258 48,252 Claims 16,351 41,256 24,411 11,363 21,089 22,882 23,282 23,282 Workers' Compensation 23,894 22,009 18,989 21,256 21,496 21,343 21,207 21,207 Total 86, ,493 98,211 85,889 92,368 92,866 92,747 92,741 1

10 II. REBUTTAL BY FERC ACCOUNT LAW DEPARTMENT A. Summary Of Forecast Revision Table II-2 summarizes the changes that the Law Department has made to its forecast via errata after filing its supplemental testimony in April These revisions are discussed below. The Law Department s 2015 revised forecast is $ million. Table II-3 below shows the summary of SCE s 2015 Forecast and Intervenors recommended adjustments. Table II-2 Law Department Summary of Revised 2015 Forecast (Constant 2012 $000) FERC Account 2015 Forecast Adjustments 2015 Revised Forecast Law- In-House 920/921 30,539 30,539 Law Outside Counsel 923/925/928 14,575 (72) 14,503 Corporate Governance 930 3,210 3,210 Total 48,324 (72) 48,252 Table II-3 Law Department SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000) SCE Application 1 ORA Adjustments 2 ORA OpX Adjustments 3 TURN Adjustments 4 SCE Rebuttal Position 5 FERC 920/921 Labor $ 25,245 $ - $ (98) $ - $ 25,245 Non Labor $ 5,294 $ - $ - $ - $ 5,294 In-House Total $ 30,539 $ - $ (98) $ - $ 30,539 FERC 923/925/928 Labor $ - $ - $ - $ - $ - Non Labor $ 14,503 $ (1,602) $ - $ (1,001) $ 14,503 Outside Counsel Total $ 14,503 $ (1,602) $ - $ (1,001) $ 14,503 FERC 930 Labor $ 14 $ - $ - $ - $ 14 Non Labor $ 3,196 $ (998) $ - $ (998) $ 3,196 Corporate Governance Total $ 3,210 $ (998) $ - $ (998) $ 3,210 Law Department TOTAL $ 48,252 $ (2,600) $ (98) $ (1,999) $ 48,252 (1) Reflects SCE's forecast in SCE-08, Vol.2 as well as SCE-08, Vol.2R and Errata-SCE-08, Vol.2R. (2) Includes ORA's proposed adjustments in ORA-19C and 26C, not including additional adjustments for Operational Excellence (3) Includes additional adjustments proposed by ORA for Operational Excellence as included in ORA-19. SCE's rebuttal to ORA's additional Operational Excellence adjustments are included in SCE-28. (4) Includes TURN's proposed adjustments in TURN-01. (5) Reflects SCE's rebuttal position as presented in this Exhibit. 2

11 1 2 3 For Test Year 2015, SCE s Law Department (including Corporate Governance) forecasts A&G expenses of $ million. Figure II-1 below shows the recorded costs for the years , plus forecast costs for the years Figure II-1 Law Department(Including Corporate Governance) Recorded and Adjusted /Forecast FERC Accts. 920/921/923/925/928/930 (Constant 2012 $000) 70,000 60,000 50,000 40,000 30,000 20,000 10, Labor Non-Labor Other Labor 25,649 26,135 27,278 26,639 26,716 25,630 25,265 25,259 Non-Labor 20,868 21,093 27,533 26,631 23,067 23,011 22,993 22,993 Other Total 46,517 47,228 54,811 53,270 49,783 48,641 48,258 48,252 Forecast B. Account 920/921 Law Department s (In-House) Expenses 1. SCE s Application SCE s revised forecast for the Law Department s internal labor costs (FERC Accounts 920/921) is $ million, approximately $1.457 million less than 2012 recorded. SCE forecasts $5.294 million in non-labor costs for Both revised forecasts are shown in Table II-4 below. 3

12 Table II-4 Law Department 2012 Recorded/Adjusted and 2015 Forecast FERC Accounts 920/921 (Constant 2012 $000) 2012 Recorded/Adjusted Test Year 2015 Forecast SCE ORA TURN Labor 26,702 25,245 25,222 25,245 Non-labor 5,368 5,294 5,294 5,294 Total 32,070 30,539 30,516 30, ORA s Position ORA recommends allocating SONGS share of the Financial Services centralization savings to the nine business operating units, including Legal. 1 This yields an additional reduction to Legal of $98, ORA claims that no portion of the centralization savings should be allocated to SONGS because it is no longer being addressed in this rate case. 3. SCE s Rebuttal To ORA a) ORA Inappropriately Re-Assigns SONGS Savings That Were Removed From The General Rate Case Per The Scoping Memo To Other Operating Units The Commission should reject ORA s recommendation. SCE s rebuttal is provided in SCE-28 (Operational Excellence). 2 C. Accounts 923/925/928 Outside Counsel 1. SCE s Application Outside counsel costs are recorded to FERC Account 923 Outside Services, FERC Account 925 Legal Expenses for Injuries and Damages Claims, and FERC Account 928 Regulatory Commission Expenses. SCE s original Test Year forecast for outside counsel expenses was $ ORA-19, p SCE-28, pp

13 million. 3 SCE removed costs related to telecommunications regulation and secondary land use matters via errata, yielding a $72,000 reduction, or a revised 2015 forecast of million. The adjusted forecast is shown in Table II-5 below and the revised recorded/adjusted cost for is shown in Table II-6 below. FERC A/C Table II-5 Law Department (Outside Counsel) 2012 Recorded/Adjusted and 2015 Forecast FERC Accounts 923/925/928 (Constant 2012 $000) Original 2015 Forecast Errata Adjustments 2015 Forecast SCE ORA TURN 923/925/928 14,575 (72) 14,503 12,901 13,503 Table II-6 Law Department (Outside Counsel) Revised Recorded/Adjusted FERC Accounts 923/925/928 (Constant 2012 $000) FERC Account /925/928 12,375 13,154 19,026 17,701 14, ORA s Position ORA removes discretionary incentive payments made to SCE s strategic partner law firms during , stating: SCE has provided no support that it is obtaining base fees at discount compared to market. SCE s only support is a chart that compares Real Rate Report to Edison. 4 ORA also removes $ million from FERC 925 Outside Counsel legal costs for the Grass Valley Fire, 5 3 Per the Commission, SCE removed all outside counsel costs associated with SONGS in SCE ORA-19, p ORA-26C, p. 2. 5

14 alleging SCE s utility equipment or lack of proper maintenance caused the fire. In total, ORA proposes a $1.602 million reduction to SCE s 2015 Outside Counsel Forecast. 3. TURN s Position TURN proposes a $1.001 million reduction based on averaging amounts recorded in 2008, 2009 and 2012, resulting in a Test Year forecast of $ million. 6 TURN alleges that recorded figures in 2010 and 2011 are outliers. 4. SCE s Rebuttal To ORA a) ORA Ignored SCE s Testimony Regarding SCE s New Fee Structure Program for Certain Firms ORA s basis for disallowing outside counsel incentives is that SCE did not prove that it pays below-market legal rates. This ignores SCE s testimony, which stated that SCE no longer has a holdback bonus program with its strategic firms. 7, 8 Instead, under SCE s new fee structure arrangements with its strategic firms, the subject firms have the opportunity to receive discretionary incentive payments based on exhibiting such factors as performance of exceptional legal work that exceeds what should typically be expected of high quality commercial law firms, efficiency in performance of that work, adherence to budgets, and commitment to diversity of the legal teams provided to SCE. This discretionary feature of SCE s fee arrangements, which also includes discounts from standard hourly rates, provides an appropriate incentive for outside counsel to perform at an exceptionally high level that benefits both SCE and its customers, as recognized by the Commission. 9 b) SCE s Average Outside Counsel Rate Is Lower Than The Legal Market in Los Angeles 6 TURN-01, p SCE-08, Vol. 02, p In SCE s 2012 rate case, the Law Department had a different holdback bonus program in which firms would provide fee discounts with the understanding that the firms could earn up to the full discounts back providing the level of services expected of firms providing sophisticated legal services in a market like Los Angeles. Although the discount from standard hourly rates feature of SCE s fee arrangements has continued, incentive payments under agreements that provide for them may now only be earned for work that materially exceeds expectations for high caliber firms or for other, exceptional reasons. 9 It may be reasonable to provide incentives to outside counsel to motivate them to achieve good results. D , pp

15 Even assuming that SCE still had its previous holdback bonus program, SCE has met its burden of proving that it pays reduced fees. As shown in SCE s direct testimony, SCE s Law Department consistently paid lower rates on average than the legal market in Los Angeles. 10 SCE used the Real Rate Report as its source of comparison information. This is the legal industry's leading data-driven benchmarking report for attorney billing rates and the only report that draws from actual law firm rates instead of self-reported survey responses. 11 ORA s claim that SCE provided no support that it is obtaining base fees at discount compared to the market is wrong. SCE provided a copy of the report in response to a data request. 12 Furthermore, SCE responded to other data requests and provided supporting documentation detailing how average outside counsel rates paid by SCE s Law Department are lower on average than the market. 13 In summary, SCE currently uses discretionary bonus payments as incentives to motivate outside counsel to perform exceptional legal work in a cost effective manner and with appropriate regard to diversity, all of which is supported by D Discretionary incentive payments by SCE are therefore a reasonable and proper element of SCE s outside counsel fee arrangements and should be included in the 2015 forecast. c) Grass Valley Fire Legal Costs Should be Recoverable Absent a Court s Award of Punitive Damages or Finding of Liability ORA seeks removal of all litigation costs associated with the Grass Valley Fire. Those total expenses were incurred over several years, while SCE s 2015 GRC legal expense forecast is based only on 2012 recorded expenses. Thus, ORA s removal of Grass Valley legal expenses would result in a decrease of $ As explained in detail further in section III (b) below, there is no valid reason to remove legal costs or claims payments associated with the Grass Valley Fire from rate recovery. ORA s proposed adjustment relies on a claim of alleged wrongdoing made during civil litigation. Yet, virtually 10 SCE-08, Vol. 02, p A compilation of such information is provided in Figure II-4, SCE-08, Vol. 02, p See Appendix A, TURN-SCE-015-Q12.a, pp. A-13 A-274 (Confidential). 13 See Appendix A, DRA-023-DFB-Q12.a, p. A-1, 12.b, pp. A-2 A-3; TURN-SCE-015-Q12.c, p. A-4; DRA- 325-DFB-Q1, p. A-5. The only time SCE objected to a related data request is when ORA sought confidential partner and associates rates for SCE s outside counsel firms. DRA-231-DFB-Q2. 14 D , pp

16 all lawsuits allege wrongdoing. In the case of the Grass Valley fire, there has been no judicial finding or admission of fault or wrongdoing. Instead, the litigation was resolved via settlement. And as the Commission previously ruled when ORA attempted to remove costs associated with the Happy Camp fire, litigation costs are reasonably included in ratemaking where there has been no finding of SCE fault TURN s Position TURN proposes a $1.001 million reduction based on averaging amounts recorded in 2008, 2009 and 2012, resulting in a Test Year forecast of $ million. 16 TURN alleges that recorded figures in 2010 and 2011 are outliers, so it omits them from its average. 6. SCE s Rebuttal To TURN a) TURN s Methodology For Adjusting the 2015 Forecast Is Flawed TURN s three-year average of 2008, 2009, and 2012 is arbitrary. Averaging is appropriate when there is significant fluctuation from year to year. SCE s historical recorded/adjusted outside counsel expenses show a clear upward trend from and a downward trend from , not year-to-year fluctuation. In D and D , the Commission stated that if recorded expenses in an account have shown a trend in a certain direction over three or more years, the last recorded year is an appropriate base estimate. Therefore, SCE appropriately used the last recorded year to develop its 2015 forecast. b) Large Outside Counsel Costs Incurred in 2010 And 2011 Have Been Removed Via Errata And Thus, There Is Limited Basis To Remove Those Years As Alleged Outliers With its errata filing, SCE has removed costs related to telecommunications regulation and secondary land use matters, resulting in large reductions to SCE s recorded outside counsel costs for 2010 and SCE s errata filing amounts to a $5.053 million reduction for 2010 and a $3.612 million reduction for TURN was aware of SCE s errata deductions as SCE 15 D , p TURN-01, p Errata SCE-08, Vol. 2R A. 8

17 disclosed such deductions in response to data requests. 18 Thus, TURN s claim that 2010 and 2011 should be disregarded as the costs of those years were extraordinarily high is incorrect. c) TURN s Characterization That Recorded Costs In 2010 And 2011 Are Outliers Unreasonably Assumes That All Recorded Expenses In Those Years Are Nonrecurring TURN s assertion that 2010 and 2011 recorded costs are outliers is wrong. It may be appropriate to remove specific, nonrecurring expenses from recorded costs but completely excluding two entire years is not justified simply because the recorded expenses were higher in those years. d) TURN s Proposed Methodology Is Transparently Designed To Reduce SCE s 2015 Forecast If the Commission nonetheless adopts an averaging methodology, the result of two-, three-, four-, or five-year averages actually yields a higher forecast than SCE s last recorded year of $ million. TURN s arbitrary exclusion of certain years from the averages yields a $1.001 million reduction to SCE s forecast. The Commission should not adopt TURN s selective forecast methodology. D. Account 930 Corporate Governance Miscellaneous General Expenses Non-Labor 1. SCE s Application Corporate Governance activities are recorded in FERC Account 930 and include fees and expenses paid to members of SCE s Board of Directors ( Board ), expenses associated with the annual shareholder meetings, contract services, and other proxy solicitation fees, as well as costs related to SEC filings. 19 Relying on the principles of D , SCE s 2015 Test Year non-labor forecast of $3.210 million was based on 2012 recorded costs, as shown in Table II-7 below. 18 See Appendix A, TURN-SCE-015-Q13.b, pp. A-6 A-7 (Confidential); TURN-SCE-015-Q13.c, pp. A-8 A-9 (Confidential) (attachments are in nominal dollars prior to adjustments). 19 SCE-08, Vol. 02, pp

18 Table II-7 Corporate Governance 2012 Recorded/Adjusted and 2015 Forecast FERC 930 (Constant 2012 $000) 2012 Recorded/Adjusted 2015 Forecast SCE ORA TURN Labor Non-Labor 3,196 3,196 2,198 2,198 Total 3,210 3,210 2,212 2, ORA s Position ORA subtracts $998,095 from SCE s Test Year 2015 forecast, claiming that certain types of compensation paid to SCE s Board, specifically supplemental benefits and equity compensation, should be disallowed. 3. TURN s Position TURN agrees with ORA s recommendation to deny recovery of supplemental benefits and stock-based compensation for non-employee directors. 20 TURN alleges that SCE was not able to provide substantiation that the Board s oversight of SCE s operations benefits the ratepayers. TURN also claims that SCE failed to demonstrate the reasonableness of the requested amounts of directors compensation or the portion of that compensation represented by equity grants. 4. SCE s Rebuttal To ORA SCE is seeking recovery of Director supplemental benefits and equity compensation again in this case because such expenses are typical and recurring costs of providing service and follow utility best practices. SCE met its burden of proving that all compensation paid to SCE s Board is reasonable and justified. SCE s testimony cited a study conducted by Frederic W. Cook showing that SCE s Board compensation is reasonable and, more specifically, that the equity compensation paid to SCE s Board is 20 TURN-01, p

19 reasonable and typical when compared to other utilities. 21 ORA merely asserted that ratepayers should not have to fund supplemental benefits and stock options as the expenses provide no direct benefit to the ratepayers. 22 a) The Board s Oversight Benefits Ratepayers SCE s Board reviews proposals and reports on major capital projects, including those necessary to maintain the safety and reliability of SCE s transmission and distribution system. These reviews help to ensure that SCE s operations are conducted in a cost efficient manner, while also ensuring the reliable and safe delivery of energy to SCE s customers. The costs to compensate the Board thus serve SCE s overall mission of providing safe, reliable and affordable electrical services to its ratepayers. Therefore, recovery of such expense is appropriate. b) SCE Cannot Legally Operate Without A Board Of Directors The California Corporations Code requires SCE s business affairs to be overseen by a board of directors. 23 The Company could not legally operate without a board. As such, payment of the Board s compensation and benefits is a legitimate cost of doing business in California and therefore is appropriate for recovery in rates. Furthermore, the denial of ratepayer funding for such expense violates the fundamental principle of cost-of-service ratemaking, as the Commission itself has stated in a decision, Under cost-of-service regulation, the utility is entitled to all of its reasonable costs and expenses. 24 c) The Board s Total Compensation Is Reasonable Compared To Its Peers An analysis conducted by Frederic W. Cook & Co. (the independent compensation consultant for the compensation and executive personnel committee of SCE s Board) demonstrates that the Board s total compensation is reasonable. 25 The study compared SCE s Board compensation to that of the companies in the adjusted Philadelphia Utility Sector Index and the S&P 500. SCE s director compensation ranked roughly in the middle of the 20-utility index in 2011 and 21 SCE-08, Vol. 02, pp ORA-19, p Corp. Code D , p SCE-08, Vol. 02, pp ; See Appendix A, Total Compensation Overview Peer Group Comparison, p. A

20 It was well below the median pay for S&P 500 companies during that two-year period. Furthermore, equity compensation is the norm of the industry. 26 Because the Board s total compensation is a typical recurring cost of utilities and reasonable, such costs should be recoverable under the fundamental principle of cost-of-service ratemaking. d) Such Costs Are Necessary As They Are An Incentive To Attract And Retain Highly Skilled And Experienced Board Members Which Ultimately Benefits Ratepayers In D , the Commission recognized the importance of having an experienced board of directors when it stated: "[w]e believe a regulated public utility should have the opportunity of obtaining expert outside directors to help ensure a well-managed company. In order to successfully recruit and retain highly skilled and experienced members of the Board, SCE provides incentives and competitive compensation. SCE is in alignment with the standard business practice of its peer utility in offering cash and equity compensation to its Board of Directors. Supplemental benefits and equity grants are essential to keep the Boards total compensation package market-competitive. This allows SCE to attract and retain highly skilled and experienced Board members which benefits ratepayers and should therefore be included in our 2015 forecast. e) Recovery Of SCE s Share Of These Expenses Is Warranted Pursuant To The CPUC s Decisions On The Reasonableness Of Total Compensation As discussed in SCE s testimony, the CPUC has previously approved the recovery of stock options in rates. For example, in its Southern California Gas Company (SoCal) 1998 GRC decision, the Commission responded to ORA s recommendation to remove stock options from rates based on claims of lack of ratepayer benefits. The Commission agreed with SoCal that as long as total compensation levels are appropriate we will not dictate how SoCal distributes compensation among various types of employment benefits. In re So. Cal. Gas Co., D (mimeo), p. 68, 1997 Cal. PUC LEXIS 751, 179 P.U.R. 4 th 237. See also D , p , where the Commission allowed dividend equivalent rights (DER) as part of Golden State Water Company s (GSWC) total direct compensation for its executives and ruled that the value of DERs included within GSWC s total direct compensation for executives is not unreasonable, does not constitute an extra burden on ratepayers, and should be included in rates. Recovery of SCE s share of various compensation 26 See Appendix A, Total Compensation Overview Peer Group Comparison, p. A

21 amounts is warranted pursuant to D because SCE has proven that its Board s total compensation is reasonable. It should not matter how SCE decides to provide Board compensation, whether cash compensation or equity. 5. SCE s Rebuttal To TURN a) SCE s Rebuttal To ORA Above Is Equally Applicable To TURN As explained in detail above, SCE s Board expenses should be included as part of rate making because it is a typical and necessary cost of providing service. b) SCE Provided TURN With Access To Its Board Minutes SCE responded to data requests and provided a detailed explanation of the Board or responsible Committee s approval process. 27 When TURN requested copies of minutes evidencing the practice, SCE offered the documents for review within the Law Department at a mutually agreeable time. TURN did not take SCE up on that offer. TURN s claim that SCE has not substantiated the Board s oversight and its benefit to ratepayers is incorrect and should be disregarded. c) SCE Demonstrated The Reasonableness of its Director s Compensation TURN claims that SCE did not prove that its Director Compensation is reasonable. This is untrue. As discussed in 4(d) above, SCE s total compensation for non-employee directors is well within market. These costs are reasonable and therefore should be recoverable. 27 See Appendix A, TURN-SCE-015-Q20, p. A-11; TURN-SCE-063-Q12, p. A

22 III. REBUTTAL BY FERC ACCOUNT - CLAIMS A. Summary Of Forecast - Claims Department 1. SCE s Application As shown in Table III-8 below, SCE s Claims Department forecasts $ million total in A&G expenses (including Injuries and Damages Claims Reserves). SCE forecasts $3.858 million for FERC accounts 920, 921, and 924 (Administrative, Salaries, Non-Labor Costs, Property Insurance) and $ million for FERC Account 925 (Claims Reserves). Historical recorded/adjusted costs for the Claims Department are shown in Table III-9 below. Table III-8 Claims Department SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000) SCE Application 1 ORA Adjustments 2 ORA OpX Adjustments 3 TURN Adjustments 4 SCE Rebuttal Position 5 FERC 920/921/924 Labor $ 3,057 $ - $ - $ - $ 3,057 Non Labor $ 801 $ - $ - $ (400) $ 801 Total $ 3,858 $ - $ - $ (400) $ 3,858 FERC 925 Labor $ - $ - $ - $ - $ - Non Labor $ 19,424 $ (200) $ - $ (2,697) $ 19,424 Total $ 19,424 $ (200) $ - $ (2,697) $ 19,424 Claims Department TOTAL $ 23,282 $ (200) $ - $ (3,097) $ 23,282 (1) Reflects SCE's forecast in SCE-08, Vol.2 as well as SCE-08, Vol.2R and Errata-SCE-08, Vol.2R. (2) Includes ORA's proposed adjustments in ORA-19C and 26C, not including additional adjustments for Operational Excellence (3) Includes additional adjustments proposed by ORA for Operational Excellence as included in ORA-19. SCE's rebuttal to ORA's additional Operational Excellence adjustments are included in SCE-28. (4) Includes TURN's proposed adjustments in TURN-01. (5) Reflects SCE's rebuttal position as presented in this Exhibit. 14

23 Table III-9 Claims Department Recorded/Adjusted FERC 920/921/924/925 (Constant 2012 $000) FERC Account /921/924 3,512 3,544 3,472 3,363 3, ,839 37,711 20,939 8,000 17,631 Total 16,351 41,255 24,411 11,363 21, B. Account 920/921/924: Administrative And General Claims 1. SCE s Application As shown in Table III-8, SCE s Claims Department forecasts $3.858 million for FERC accounts 920, 921, and 924 (Administrative, Salaries, Non-Labor Costs, Property Insurance). The labor and non-labor forecasts were based on 2012 recorded expenses, adjusted by $400,000 to cover lease/rental costs for a storage facility to house evidence related to incidents under investigation by the Commission. 2. ORA s Position ORA does not dispute SCE s Claims Department forecasts of $3.858 million for FERC accounts 920, 921, and TURN s Position TURN removes $400,000 of lease costs for an indoor evidence storage facility. TURN claims that the reasons cited by SCE in justification for the evidence storage facility do not withstand scrutiny SCE s Rebuttal To TURN a) SCE Requires The Indoor Evidence Storage To Properly Store Evidence As explained in detail in SCE s Application, 29 SCE urgently needs a proper indoor storage facility in order to house evidence related to incidents under investigation by the Commission or its staff. SCE s current facilities are inadequate and stretched to their capacity limit. In 28 TURN-01, p SCE-08, Vol. 02, pp

24 opposition, TURN fails to provide any evidence to refute SCE s showing. Thus, SCE s position should be adopted. b) SCE Is Requesting A Storage Facility In Order To Comply With The Commission s GO 95, Rule 19 And SED s Interpretation Of Such Rule General Order 95, Rule 19, states that any and all documents or evidence collected as part of the utility s own investigation shall be preserved for at least five years. Since Rule 19 relates to SCE s own investigation, SCE was not previously being directed to retain materials by SED apart from what SCE had identified as material. Things have now changed. As evidenced in data request responses, SCE construes SED s current interpretation of Rule 19 as requiring SCE to retain significantly more materials in many cases than SCE s own investigation would have identified as potentially relevant. Given the lack of appropriate space currently available, SCE cannot continue to satisfy the resulting increase in materials to be retained under the status quo. Notably, ORA has not challenged SCE s request for a storage facility. TURN also claims that issues that arose from the non-preservation of all materials from the November 30, 2011 windstorm is irrelevant to SCE s request for a storage facility. Fundamentally, however, SCE could not and will not be able to retain materials related to incidents like the windstorm unless it is given the space to be able to house such materials. Materials such as large wood poles that fell down during the windstorm cannot be stored in office space. Each and every time an incident is reported and SCE undertakes responsibility for storing and maintaining materials, it must analyze how and where to do so. SCE does not currently have the ability to store large quantities of materials properly. Thus, costs related to acquisition or development of a proper indoor facility should be permitted. c) TURNS Claim That SCE Did Not Prove That Evidence Stored Outdoors Is Subject To Vandalism Or The Elements Is Incorrect TURN claims that SCE failed to prove that evidence stored outdoors is subject to vandalism or the elements. Such claim is wrong. SCE has an obligation to ensure that the evidence it stores is properly preserved. That is precisely the reason why SCE is requesting access to an indoor facility versus an outdoor facility. Moreover, when asked about specific instances where SCE s evidence was damaged due to theft or the elements, SCE noted that it does not track such occurrences and yet SCE was able to provide information about a specific instance in which evidence stored by SCE 16

25 was stolen due to be being left outdoors. 30 The best way to protect evidence is to store it in a controlled, secured, weather-protected, indoor facility. d) TURNS Claim That SCE Can Rely On Its Existing Storage Space Because Of Its Infrastructure Replacement Program Is Unfounded And Should Be Rejected TURN assumes all of SCE s requests for infrastructure replacement will be approved, and assumes there will be no new incidents involving utility poles over the next several years. Such claim is unsupported as it is essentially impossible to eliminate all failure incidents, even with new construction and proper maintenance. Circumstances like excessive weather conditions, fires and external factors like metallic balloons can produce failures even under the best of circumstances. SCE will continue to have a need for the additional storage space. e) TURNS Contention That SCE Neglected To First Survey Its Own Capacity, Including The Alhambra Regional Operating, Is Incorrect With the current work load of T&D focused on pole replacement, all of the service yards and SCE warehouses are at capacity including the Alhambra Regional Operating Facility ( AROF ). There is no room at AROF for SCE s current evidence storage needs. Corporate Real Estate (CRE) has determined that a new building at AROF needs to be constructed to provide a secure storage area. The central location of AROF, which provides reasonable proximity to both the GO campus and regional governmental facilities in the central Los Angeles area, makes it a desirable location for this type of facility featuring reasonable access for the transportation and visual inspection of evidence stored at the facility. CRE advises this project will require a total expenditure of $5 million in 2017 for planning, designing, engineering, permitting, constructing, and closing out the project. The forecast for this new facility is included in the CRE capital requested in All that SCE is seeking in the Claims Department expenses is a temporary storage facility until the AROF facility is built. 30 See Appendix B, TURN-SCE-015-Q22.a, p. B-1; TURN-SCE-015-Q22.b, p. B SCE-08, Vol. 03, Pt.2, pp

26 C. Account 925: Injuries And Damages Claims Reserve 1. SCE s Application SCE s Claims Department records all costs associated with injuries and damages claims in FERC Account 925 (referred to as Claims Reserves ). SCE s Test Year 2015 forecast for Claims Reserves is $ million, representing a five-year average of historical Claims Reserves, which appropriately predicts future expenses. This approach is appropriate due to significant claims fluctuations, which are influenced by external factors over which SCE has little control. 2. ORA s Position ORA s only dispute with SCE s 2015 Claims Reserves forecast relates to the Grass Valley Fire. On page 44 of Exhibit ORA-19, ORA states that it believes that the Grass Valley Fire should be removed from Claims Reserves due to the recommendation of the ORA Auditor. In ORA-26C, ORA recommends that $976,000 paid in 2011 towards settlement be removed, resulting in a Test Year 2015 Claims Reserve amount of $ million, versus SCE s request of $ million. 3. TURN s Position TURN recommends a $2.697 million dollar reduction to SCE s forecast for Claims Reserves by removing the impact of the 2009 recorded expenses as an outlier. In the alternative, TURN recommends the Commission adopt a forecast of $ million, the amount recorded in 2012, in order to be consistent with SCE's approach to forecasting outside counsel expenses when recorded amounts in showed a similar pattern over that period SCE s Rebuttal To ORA a) ORA s Auditor Recommendation Must Be Rejected Because The Grass Valley Fire Is Typical of Recurring Costs Experienced By SCE On average, the Claims Department administers approximately 11,900 matters a year, consisting of both offensive and defensive claims. With regards to defensive claims, SCE resolves the vast majority of the matters prior to a complaint being filed against SCE. Nonetheless, an average of one hundred complaints alleging personal injury or property damage are still filed against SCE every year. 32 TURN-01, p

27 As explained in SCE s 2012 rate case, fires are a regular and recurring type of incident in California. 33 In fact, in the last case when ORA similarly challenged inclusion of the costs related to another fire, the Commission ruled that it would decline to pick and choose certain wildfire costs for exclusion. 34 The Grass Valley Fire litigation was typical of fire-related actions in which both negligence and inverse condemnation claims were asserted, and thus no different than any other litigation matters involving similar circumstances. The inverse condemnation claim was the focus of the Grass Valley Fire litigation. Under Article I, Section 19 of the California Constitution, parties can be paid just compensation when their property is damaged for public use under a claim for inverse condemnation. The policy underlying inverse condemnation is that the costs of a public improvement benefiting the community should be spread among those receiving the benefit, as opposed to being allocated to a single person within a community. 35 Under inverse condemnation principles, fault by the utility defendant need not be shown. And as discussed further below, in settling damage claims associated with the Grass Valley Fire, SCE made no admission of responsibility. Under these circumstances, ORA has provided no compelling reason why costs related to the Grass Valley Fire should be removed from SCE s Claims forecast. b) Removal Of The Highest Settlement Amount For A 2011 Settlement From The 2015 Forecast Is Cherry-Picking By ORA And Should Not Be Allowed ORA asked SCE to identify the ten largest claim payments made each year SCE identified the Grass Valley Fire as the largest settlement claim paid during that period, though SCE has recovered most of the settlement amounts under its insurance policy. 36 As indicated earlier, there is nothing extraordinary about the Grass Valley Fire lawsuit s allegations against SCE. c) SCE Has Not Been Found At Fault With Regards To The Grass Valley Fire ORA s premise for removing the Grass Valley Fire settlement funds is a press release from the United States Department of Justice ( DOJ ) claiming SCE wrongfully caused the fire. The DOJ s statement is typical of allegations parties make in support of their litigation positions. Mere 33 A , SCE-27C, pp. 14, 33; A , SCE-22 Vol. 02, pp D , p Belair v. Riverside County Flood Control Dist. (1988) 47 Cal.3d 550, See Appendix B, DRA-025-DFB-Q1, pp. B-3 B-7 (Confidential). 19

28 allegations of wrongdoing are not a valid basis for disallowing recovery. A plaintiff s negligence allegations provide no basis for removing these costs. Even if the allegations were proven, the Commission has long recognized that utilities should be allowed to recover the costs of claims resulting from negligent acts by utility employees. 37 The Commission has frequently stated that insurance premiums and deductibles are ordinary costs of doing business and has allowed recovery of those costs in rates. 38 Moreover, insurance covers the cost of claims based on negligence. There is no basis for treating the uninsured costs paid by SCE to third parties on negligence claims any differently than the costs paid by SCE to insurance companies to obtain coverage against such claims. In fact, the Commission has also allowed utilities to recover the costs of self-insurance, which includes the cost of claims based on negligence. 39 Finally, there has been no finding of fault or SCE wrongdoing. All of the claims involved in the Grass Valley Fire have been resolved with no verdict or finding of fault by SCE. Thus, there is no valid basis to exclude the Grass Valley Fire costs. On the contrary, there may be public detriment from excluding Grass Valley Fire settlement amounts. Doing so would provide an incentive to SCE and other utilities to fight litigated matters to judgment instead of exploring early settlement. Such tactics may inflate litigation costs unnecessarily and create risks of large judgments that could have been avoided by settlements. If such 37 The Commission itself pays out claims for negligence. The costs of such payments are covered by taxpayers and/or ratepayers. 38 See, e.g., D , p. 167 ( PG&E requested $27.4 million for property insurance, directors and officers liability insurance, and general liability insurance. No party objected. ); D , 42 CPUC2d 645, 1991 Cal. PUC LEXIS 911, *72 ( Along with conventional liability and property insurance, Edison purchases replacement generation insurance.... We will allow these expenses... ); D , p. 247 (liability insurance appropriately included in lead-lag study); D , 34 CPUC2d 109, 1989 Cal. PUC LEXIS 673, *25 (noting that insurance is a legitimate and necessary business expense ); D , p. 20 (allowing recovery for umbrella liability insurance that included general liability, automobile liability, and property damage ). Because insurance policies typically require a deductible before paying for claims, general rate case revenues usually cover forecast claims up to the deductible amount. See, e.g., D , pp , (SCE s most recent General Rate Case (GRC) decision). 39 D , 47 CPUC2d 580, 1993 Cal. PUC LEXIS 24, *57 (authorizing recovery of cost of maintaining insurance reserves for its insurance deductible, as well as liability in excess of the policy limit); D.89711, 84 CPUC 733, 1978 Cal. PUC LEXIS 1507, *79-80 (SCE s Property Insurance, Injuries, and Damages rate component included self-insurance reserves for property damage, injuries, and damages ); D , 64 CPUC2d 241, 1996 Cal. PUC LEXIS 23, [part 3 of 6] at *41 (including $ million in self-insured workers compensation expenses for the test year). 20

29 cases involve claims of inverse condemnation, which many fire cases do, then the prevailing party would also be entitled to attorney s fees, again increasing costs. The Commission should accept SCE s Claims Reserves 2015 forecast of $ million and reject ORA s recommendation to remove Claims Reserves for the Grass Valley Fire. 5. SCE s Rebuttal To TURN a) Turn s Recommended Reduction Of $2.697 Million To Remove The Impact Of The 2009 Recorded Expenses Is Cherry-Picking And Should Not Be Allowed There is no legitimate basis to remove outlier years from averaging methodology. If the Commission were to adopt TURN s recommendation, it would create a precedent for parties in every rate case to exclude alleged outliers. Outliers are precisely the reason to average; it captures unpredictable shifts in litigation and levels out the peaks and valleys of recorded costs that naturally occur from year to year. Just as it would not be prudent to discount the lowest recorded figure, it would be equally imprudent to discount the highest. b) TURN s Alternative Forecast Of $ Million, The Amount Recorded In 2012, Should Be Rejected In the alternative, TURN asks the Commission to adopt the 2012 recorded costs on the basis that doing so would be consistent with SCE s forecasting approach for outside counsel expenses. This proposal categorically ignores well-established Commission directives regarding forecast methodologies. Instead, the appropriate methodology should be a five-year average given significant fluctuations in Claims-related costs. 21

30 IV. REBUTTAL BY FERC ACCOUNT - WORKERS' COMPENSATION A. Account 925: Injuries And Damages - Reserves 1. SCE s Application SCE forecasts $ million total for Workers Compensation, consisting of $7.029 million for Workers Compensation Staff expenses and $ million for Workers Compensation Reserves as shown below in Table IV-10. SCE s Test Year 2015 forecast of $ million for Workers Compensation - Reserves ( WC Reserves ) is based on a five-year average of recorded/adjusted costs. Table IV-10 Workers Compensation SCE s 2015 Forecast and Intervenors Adjustments (Constant 2012 $000) SCE Application 1 ORA Adjustments 2 ORA OpX Adjustments 3 TURN Adjustments 4 SCE Rebuttal Position 5 FERC Workers' Labor $ 3,833 $ - $ - $ - $ 3,833 Compensation Staff Non Labor $ 3,196 $ - $ - $ - $ 3,196 Total $ 7,029 $ - $ - $ - $ 7,029 FERC Workers' Labor $ - $ - $ - $ - $ - Compensation - Reserves Non Labor $ 14,178 $ - $ - $ (2,039) $ 14,178 Total $ 14,178 $ - $ - $ (2,039) $ 14,178 Workers' Compensation TOTAL $ 21,207 $ - $ - $ (2,039) $ 21,207 (1) Reflects SCE's forecast in SCE-08, Vol.2 as well as SCE-08, Vol.2R and Errata-SCE-08, Vol.2R. (2) Includes ORA's proposed adjustments in ORA-19C and 26C, not including additional adjustments for Operational Excellence in ORA-19C. (3) Includes additional adjustments proposed by ORA for Operational Excellence as included in ORA-19. SCE's rebuttal to ORA's additional Operational Excellence adjustments are included in SCE-28. (4) Includes TURN's proposed adjustments in TURN-03. (5) Reflects SCE's rebuttal position as presented in this Exhibit ORA s Position ORA does not dispute SCE s Workers Compensation forecast of $ million. 22

31 TURN s Position TURN recommends the reduction of SCE s WC Reserves forecast of $ million to $ million based on removal of 2008 recorded costs and instead, utilizing the five-year average from SCE s Rebuttal To TURN a) Year 2013 Recorded Numbers Have Not Been Adjusted For General Rate Case Purposes SCE has used recorded/adjusted data to derive the WC Reserves forecast based on fluctuating expenses. The historical (recorded) data have been adjusted upward and downward to ensure all data is in a consistent format for use in forecasting. TURN has proposed removing the recorded/adjusted data in 2008 and instead, substituting recorded/unadjusted data for 2013 in deriving a five-year average. The Commission should reject TURN s proposal since it relies on numbers that have not yet been adjusted and therefore, inappropriate for rate making purposes. For example, some of the adjustments from historical GRCs include the non-utility affiliate credits, transfers of Master Insurance Plans (MIP) costs and removal of non-recurring costs. For 2012, we removed non-recurring costs associated with the Rivergrade and burn incidents. 41 And more specifically, for 2013, we received approximately $2.7 million dollar excess insurance recovery for the Rivergrade and burn incidents which are not reflected in TURN s proposal. This preliminary adjustment will increase our recorded data for 2013 by $2.7 million and there may be additional 2013 adjustments necessary. Therefore, until all adjustments are appropriately accounted for, 2013 numbers should not be included in the average calculation. Furthermore, the Commission should not replace 2008 data with 2013 data as it would create a precedent for parties to seek exclusion of undesirable years. Costs incurred in 2008 are typical recurring costs which may be incurred in Claimed outliers are exactly the reason to average costs as this method captures cost fluctuations. The $ million in expense forecasts was based on the five-year average of costs from 2008 to 2012, which is a more complete data set upon which to forecast future reserves. 40 TURN-03, p See Appendix C, Workpapers, SCE-08, Vol. 02, pp. C-1 C-3 for adjustments made to Workers Compensation Reserves in the current case. 23

32 b) Significant Fluctuation Supports Averaging Methodology SCE s WC Reserve expenses have fluctuated significantly from year to year: (1) 14% reduction from ; (2) 22% reduction from ; (3) 19% increase from ; and (4) remained relatively stable from These fluctuations are precisely the reason to use an averaging methodology given the variability of workers compensation claim expenses and injury severity. Furthermore, based on previous Commission rulings, 42 the multi-year averaging approach is valid and appropriate when significant variations in expenses exist from year-to-year. This is clearly the case with the WC Reserves included in SCE s forecast. 42 D , pp

33 Appendix A

34 Exhibit SCE-24 Financial, Legal, and Operational Services (FL&OS) Volume 2 Law Appendix A Documents Document Page SCE Response to DRA-023-DFB Question 12(a) A-1 SCE Response to DRA-023-DFB Question 12(b) A-2 SCE Response to TURN-SCE-015 Question 12(c) A-4 SCE Response to DRA-325-DFB Question 1 A-5 SCE Response to TURN-SCE-015 Question 13(b) [Confidential] A-6 SCE Response to TURN-SCE-015 Question 13(c) [Confidential] A-8 Frederic W. Cook & Co.: Total Compensation Overview Peer Group Comparison A-10 SCE Response to TURN-SCE-015 Question 20 A-11 SCE Response to TURN-SCE-063 Question 12 A-12 SCE Response to TURN-SCE-015 Question 12(a) [Confidential] A-13

35 Southern California Edison 2015 GRC A XXX DATA REQUEST SET DRA-023-DFB To: DRA Prepared by: Elizabeth Jennerson Title: Manager, Dated: 10/31/2013 Received Date: 10/31/2013 Question 12.a: Originated by: Donna-Fay Bower Exhibit Reference: SCE-08, Volume 2 Subject: Legal Please provide the following: 12. SCE states: Figure II-4 below compares the average outside counsel rates paid by SCE s Law Department to the market rates for the Los Angeles area. (Footnote 12 The Real Rate Report is published by Corporate Executive Board and TyMetrix). a. How were the rates for 2010, 2011, 2012, and 2013 (1 st Qtr) determined for the line labeled Real Rate Report? Response to Question 12.a: 12.a. The Real Rate Report provides average partner and associate rates for the Los Angeles area for each of the years 2010 through Because the Real Rate Report only provides the partner rate and the associate rate, SCE must determine the proper mix of partner and associate time to assume in order to calculate a proper benchmark that is useful for comparison. To determine the proper benchmark rate, SCE calculated a weighted average of the partner and associate rates, weighted at the proportion of actual partner and associate hours paid for by SCE. For example, if SCE paid bills made up of 75% partner time and 25% associate time, SCE would add (1) the Real Rate Report partner rate multiplied by.75, and (2) the Real Rate Report associate rate multiplied by.25, to get to the benchmark rate. The 2013 Real Rate Report rates are not yet available, so SCE calculated the 1st quarter 2013 rate by taking the 2012 partner and associate rates and multiplying them by the average rate of escalation of the rates from 2010 to A-1

36 Southern California Edison 2015 GRC A XXX DATA REQUEST SET DRA-023-DFB To: DRA Prepared by: Elizabeth Jennerson Title: Manager Dated: 10/31/2013 Received Date: 10/31/2013 Question 12.b: Originated by: Donna-Fay Bower Exhibit Reference: SCE-08, Volume 2 Subject: Legal Please provide the following: 12. SCE states: Figure II-4 below compares the average outside counsel rates paid by SCE s Law Department to the market rates for the Los Angeles area. (Footnote 12 The Real Rate Report is published by Corporate Executive Board and TyMetrix). b. Provide the supporting calculation/documentation on the line labeled Edison. This should include each component used in the calculation. Response to Question 12.b: Attached below is a spreadsheet supporting the calculation of the average outside counsel rates. For the purpose of calculating the average, the numbers include SCE and EIX costs (though the vast majority are SCE). A-2

37 DRA-023-DFB-12b - Average Outside Counsel Rates Supporting Documentation 2015 GRC Real Rate Report Rates (In Nominal $) Q1 Formula Notes Partner A $597 $608 $620 $632 Associate B $391 $407 $413 $ Q1 rate is an estimate. It is calculated by escalating the 2012 rate at annual rate of increase from SCE Hours Partner hours C 40,494 32,648 29,746 5,551 Q Excludes worker's comp hours (see backup below) Associate hours D 29,963 23,930 26,870 5,452 R Excludes worker's comp hours (see backup below) Partner hours (% of total) E 57.47% 57.70% 52.54% 50.45% C/(C+D) Associate hours (% of total) F 42.53% 42.30% 47.46% 49.55% D/(C+D) Weighted Avg. Real Rate Report Rate ($/hrs) G $509 $523 $522 $529 (A*E)+(B*F) Weighted at same proportion of SCE partner and associate hours SCE Rates Only partner and associate time is included to be consistent with real rate SCE Partner spend H $20,413,430 $16,348,946 $15,479,297 $2,925,174 report SCE Associate spend I $12,287,780 $10,722,576 $11,253,755 $2,607,868 Partner and associate hours constitute about 80% of total hours Bonus for 2013 Q1 is an estimate, calculated by prorating the 2012 bonus Year end bonuses paid to firms J $2,055,367 $1,598,086 $949,111 $237,278 Worker's Comp spend K $1,630,870 $1,680,448 $1,440,432 $496,544 Worker's comp spend excluded because rate is not representative of standard rates Adjusted SCE rate ($/hrs) L $470 $477 $464 $479 (H+I+J-K)/(C+D) % below/(above) Benchmark 7.70% 8.79% 11.16% 9.34% 1-(L/G) Backup: All partner hours M 41,423 32,924 29,903 5,560 All associate hours N 39,888 34,628 36,088 8,680 Workers comp partner hours O Workers comp associate hours P 9,924 10,698 9,218 3,228 Total adjusted partner hours Q 40,494 32,648 29,746 5,551 M-O Total adjusted associate hours R 29,963 23,930 26,870 5,452 N-P A-3 Printed: 11/7/ :58 PM

38 Southern California Edison 2015 GRC A DATA REQUEST SET TURN-SCE-015 To: TURN Prepared by: Martin Palanza Title: Project Manager Dated: 03/03/2014 Received Date: 03/03/2014 Question 12.c: Originator: Bob Finkelstein 12. In SCE-08, Vol. 2, at page 16, in Figure II-4, SCE refers to the Real Rate Report. c. Did SCE provided data to the authors of the Real Rate Report for any portion of the period from , inclusive? If so, please provide a copy of the data provided. Response to Question 12.c: No, SCE has not provided information for the report. A-4

39 Southern California Edison 2015 GRC A DATA REQUEST SET DRA-325-DFB To: DRA Prepared by: Martin Palanza Title: Project Manager Dated: 07/10/2014 Received Date: 07/10/2014 Question 01: Originator: Donna-Fay Bower Exhibit Reference: SCE-08 Volume 2 Subject: Outside Counsel Discretionary Bonuses Please provide the following: 1. In response to DRA-231-DFB, Q. 2.a., SCE stated: Please refer to Figure II-4 on page 16 of SCE-08, Vol. 2, which states the average hourly blended rates, including bonus payments, for partners and associates paid by SCE in 2010, 2011, 2012, and first quarter of 2013 for all outside counsel, excluding payments for workers compensation matters. Please provide a breakdown of the components used to arrive at the blended rates. Response to Question 01: Please refer to written response and related attachment provided for DRA-023-DFB (Question 12.b). A-5

40 See Appendix In Confidential Version Of This Volume Of Testimony A6 through A7

41 See Appendix In Confidential Version Of This Volume Of Testimony A8 through A9

42 Total Compensation Overview Peer Group Comparisons EIX's total compensation value is at the median in a tight competitive range, with a similar mix of cash and equity to that of the peers Cash Compensation Equity Compensation Retainers / Fees Total Cash Comp. Full-Value Stock Total Equity Comp. Total Company Board Committee $ Amount % Total Awards Options $ Amount % Total Compensation AES $80,000 $26,125 $106,125 41% $150,000 $0 $150,000 59% $256,125 AEP $88,000 $7,917 $95,917 42% $132,000 $0 $132,000 58% $227,917 Cons Edison $102,000 $15,286 $117,286 53% $105,000 $0 $105,000 47% $222,286 NextEra Energy $71,000 $16,000 $87,000 41% $127,574 $0 $127,574 59% $214,574 PSEG $82,000 $21,500 $103,500 48% $110,000 $0 $110,000 52% $213,500 FirstEnergy $85,000 $0 $85,000 41% $122,000 $0 $122,000 59% $207,000 Southern Co $100,000 $0 $100,000 49% $105,000 $0 $105,000 51% $205,000 Xcel Energy $80,000 $3,800 $83,800 41% $120,000 $0 $120,000 59% $203,800 Dominion Resources $76,000 $16,000 $92,000 48% $100,000 $0 $100,000 52% $192,000 Edison Int'l $71,000 $16,000 $87,000 45% $105,000 $0 $105,000 55% $192,000 Duke Energy $70,000 $20,000 $90,000 47% $100,000 $0 $100,000 53% $190,000 Exelon $66,000 $20,500 $86,500 46% $100,000 $0 $100,000 54% $186,500 DTE Energy $76,000 $8,000 $84,000 45% $100,638 $0 $100,638 55% $184,638 Entergy $62,000 $16,000 $78,000 43% $105,000 $0 $105,000 57% $183,000 Ameren $69,000 $27,300 $96,300 53% $85,000 $0 $85,000 47% $181,300 Northeast Utilities $57,000 $12,000 $69,000 38% $110,310 $0 $110,310 62% $179,310 PG&E $69,000 $15,333 $84,333 48% $90,000 $0 $90,000 52% $174,333 El Paso Electric $48,000 $8,800 $56,800 35% $107,240 $0 $107,240 65% $164,040 Centerpoint Energy $66,000 $16,000 $82,000 50% $80,840 $0 $80,840 50% $162,840 Covanta $30,000 $12,667 $42,667 37% $72,225 $0 $72,225 63% $114,892 75th Percentile $81,000 $18,000 $96, $115, $115, $210,250 Average $72,474 $13,854 $86,328 45% $106, $106,465 55% $192,792 Median $71,000 $15,333 $86,500 45% $105, $105,000 55% $190,000 25th Percentile $66,000 $8,400 $82, $100, $100, $180,305 Edison Int'l Rank 50% 55% 55% % -- 55% 2A-17 A-10

43 Southern California Edison 2015 GRC A DATA REQUEST SET TURN-SCE-015 To: TURN Prepared by: Michael Barbieri Title: Project Manager Dated: 03/03/2014 Received Date: 03/03/2014 Question 20: Originator: Bob Finkelstein 20. In SCE-08, Vol. 2, page 21, SCE states that the Board s oversight of SCE s operations benefits the ratepayers. For each year from 2010 through 2013, inclusive, please provide minutes of the meetings of the SCE Board of Directors and Board committees that indicate the Board changing, modifying, disagreeing with or rejecting a proposal of SCE management. If SCE contends it would be unduly burdensome to assemble all such examples, please provide the five examples for each year that, in SCE s view, best represent such events. Response to Question 20: Board or Committee approval requires a cumulative effort and encompasses multiple meetings. Management reviews a multitude of detail and criteria with the Board or responsible Committee, providing ample opportunity for the Board to ask questions and request additional information if necessary. Approval is sought once the Board is comfortable they have all the information necessary. In addition, SCE s Board structure includes a Lead Director. The Corporate Governance Guidelines provide that,.the Lead Director in consultation with non-employee directors, approves agendas and schedules for Board meetings, and approves the flow of information to the Board. Minutes of meetings evidencing this practice will be made available for review within the Law Department at a mutually agreeable time. A-11

44 Southern California Edison 2015 GRC A DATA REQUEST SET TURN-SCE-063 To: TURN Prepared by: Michael Barbieri Title: Project Manager Dated: 04/29/2014 Received Date: 04/29/2014 Question 12: Originator: Bob Finkelstein 12. In the response to TURN-15, Question 20, SCE states that minutes of meetings evidencing the practice described in the response will be made available for review within the Law Department at a mutually agreeable time. Please provide a copy of the minutes to TURN, along with citation to the specific passages in each set of minutes that SCE contends evidences the practice described in the response. Please also specifically identify passages in the minutes that represent the Board changing, modifying, disagreeing with or rejecting a proposal of SCE management, as requested in TURN-15, Question 20. If SCE contends that it would be unduly burdensome to provide a copy of all such minutes, please provide a sample that SCE believes is fairly representative of the minutes evidencing the practice described in the response. Response to Question 12: SCE's Board minutes do not include a detailed account of specific instances in which the SCE Board or Board Committee changes, modifies, disagrees with or rejects a proposal from SCE Management. Board minutes only indicate that a discussion was held and whether additional information was requested. As way of background, SCE Board or Committee approval requires a cumulative effort and encompasses multiple meetings. Initially, SCE Management gathers relevant information related to the subject matter and analyzes it prior to presenting a proposal to the Board. In addition, SCE s Board structure includes a Lead Director. The Corporate Governance Guidelines provide that,.the Lead Director in consultation with non-employee directors, approves agendas and schedules for Board meetings, and approves the flow of information to the Board.. As such, this allows for collaboration and exchange of ideas prior to Board meetings. SCE Management reviews a multitude of detail and criteria with the Board or responsible Committee, providing ample opportunity for the Board to ask questions and request additional information if necessary. The discussion and requests for additional information can take place throughout multiple Board meetings. Approval is sought once the Board is comfortable they have all the information necessary. A-12

45 See Appendix In Confidential Version Of This Volume Of Testimony A13 through A274

46 Appendix B

47 Exhibit SCE-24 Financial, Legal, and Operational Services (FL&OS) Volume 2 Claims Appendix B Documents Document Page SCE Response to TURN-SCE-015 Question 22(a) B-1 SCE Response to TURN-SCE-015 Question 22(b) B-2 SCE Response to DRA-025-DFB Question 1 [Confidential] B-3

48 Southern California Edison 2015 GRC A DATA REQUEST SET TURN-SCE-015 To: TURN Prepared by: Randy Bell Title: Manager Dated: 03/03/2014 Received Date: 03/03/2014 Question 22.a: Originator: Bob Finkelstein 22. In SCE-08, Vol. 2, page 26, SCE states that its current evidence storage facilities are outdoor facilities in which the materials are exposed to the elements and may be subject to vandalism or theft. a. Please describe each problem that SCE has experienced due to the materials being exposed to the elements, including the date or dates on which SCE experienced the problem, and any steps SCE took to mitigate any harm to the stored materials. Response to Question 22.a: Typically if damaged poles, electrical hardware, or components are stored outdoors, the sun, wind, fog, rain, snow, or ice will have a detrimental effect and will degrade their condition. SCE did not track each and every time we experienced problems due to materials being compromised by the elements. B-1

49 Southern California Edison 2015 GRC A DATA REQUEST SET TURN-SCE-015 To: TURN Prepared by: Randy Bell Title: Manager Dated: 03/03/2014 Received Date: 03/03/2014 Question 22.b: Originator: Bob Finkelstein 22. In SCE-08, Vol. 2, page 26, SCE states that its current evidence storage facilities are outdoor facilities in which the materials are exposed to the elements and may be subject to vandalism or theft. b. Please describe each problem that SCE has experienced due to the materials being vandalized, including the date or dates on which SCE experienced the problem, and any steps SCE took to mitigate any harm to the stored materials. Response to Question 22.b: SCE did not track each and every time we experienced problems due to materials being vandalized but our response includes but is not limited to the following incident: On August 24, 2013, several SCE poles were blown over in a rural area near Desert Center during a wind event. SCE crews removed approximately 4-5 poles and temporarily placed them along the roadside. The intent was that the poles would be relocated to a lay down yard for subsequent inspection by the CPUC. When the crews returned the next day to set the replacement poles, they noted that the subject poles had been stolen. B-2

50 See Appendix In Confidential Version Of This Volume Of Testimony B3 through B7

51 Appendix C

52 Exhibit SCE-24 Financial, Legal, and Operational Services (FL&OS) Volume 2 Workers Compensation Appendix C Documents Document Workpaper, Exhibit No. SCE-08, Vol. 02, pp : Workers Compensation Adjustments Page C-1

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