UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION. ) Southern California Edison ) Docket No. ER Company )

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Southern California Edison ) Docket No. ER Company ) SOUTHERN CALIFORNIA EDISON COMPANY S REQUEST FOR LEAVE AND RESPONSE TO PROTESTS Pursuant to Rules 212 and 213 of the Federal Energy Regulatory Commission s ( FERC or the Commission ) Rules of Practice and Procedure, 18 C.F.R & (2011), Southern California Edison Company ( SCE ) requests leave to submit this answer to the protests ( Protests ) filed in response to SCE s October 28, 2011 request for authorization to recover in SCE s formula rate, prudently incurred abandoned plant costs associated with the Arizona segment of the Devers-Palo Verde II transmission project ( DPV2 ). I. REQUEST FOR LEAVE TO RESPOND TO PROTESTS As the issues raised by the Protests are detailed, permitting SCE to respond to them will aid the Commission in its deliberation. Accordingly, to the extent necessary, SCE requests waiver of Rule 213, 18 C.F.R (a)(2), which prohibits answers to protests. The Commission routinely allows answers to protests when they complete the record, clarify issues in dispute, or otherwise assist the Commission in its deliberation and decision-making process. 1 SCE has justified the case for recovery of the costs associated with the Arizona portion of DPV2 and will not needlessly repeat information provided therein, nor will it 1 See, e.g., Southwest Power Pool, Inc., 119 FERC 61,199, at P 18 (2007) (accepting answers to answers because they provide information that assisted the Commission in its decision-making process); The New Power Co. v. PJM Interconnection, Inc., 98 FERC 61,208, at p. 61,756 (2002). 1

2 respond to arguments made by the protestors regarding the Return on Equity ( ROE ) that SCE will receive, as that issue is being adjudicated in Docket No. ER and arguments regarding SCE s proposed ROE are nothing more than a collateral attack on SCE s formula rate case, which is currently before the Commission. Nevertheless, SCE can aid the Commission s deliberative process by addressing certain arguments made by the protestors. II. RESPONSE On October 28, 2011, SCE filed its request for authorization to recover in SCE s formula rate, prudently incurred abandoned costs associated with the Arizona segment of DPV2. Pursuant to authority granted previously by the Commission, 2 SCE requested to recover 100% of prudently incurred costs for the Arizona segment of DPV2 that were expended on and after September 1, In addition, SCE requested recovery of 50% of prudently incurred costs expended prior to September 1, Through its filing, SCE requested recovery of $ million in abandoned plant costs. On November 18, 2011, several parties filed interventions and protests to SCE s abandoned plant filing for the Arizona segment of DPV2. A. Collateral Attacks On SCE s ROE Are Inappropriate For This Docket The Motion to Intervene and Protests of the M-S-R Public Power Agency ( M-S-R ) and The City of Los Angeles Department of Water and Power ( LADWP ) 2 Southern California Edison Company, 121 FERC 61,168 (2007), reh g denied 123 FERC 61,293 (2008) (Incentives Order) at P 2 authorizes SCE to recover 100% of prudently incurred costs if DPV2, or a portion thereof, is cancelled due to factors beyond SCE s control. 3 DPV2 costs incurred prior to September 1, 2005 are not eligible for incentives under Order 679. SCE seeks recovery of 50% of these costs subject to the Commission s policy pursuant to Opinion No. 295, New England Power Co., Opinion No. 295, 42 FERC 61,016, reh'g denied in part and granted in part, Opinion No. 295-A, 43 FERC 61,285 (1988)). 2

3 state that the Commission should direct SCE to revise the ROE it proposes to apply to the abandoned plant costs. However, these protests ignore that SCE s ROE, beginning on January 1, 2012, will be determined in SCE s formula rate case, currently pending before the Commission in Docket No. ER SCE s proposal in this docket is to reflect in the formula rate beginning on January 1, 2012 the abandoned plant costs authorized in this docket. This means that the ROE ultimately determined in Docket No. ER will be applied to the abandoned plant costs authorized in this docket. SCE used the ROE that it proposed in Docket No. ER as an example to illustrate the impact on the Transmission Revenue Requirement ( TRR ), with the understanding that the actual ROE that SCE will use to determine its Base TRR beginning on January 1, 2012, is still subject to finalization in SCE s formula rate case. Examination of Mr. Allstun s testimony and the supporting workpapers provided therewith (Exhibit SCE-100) clearly indicate that SCE is simply proposing to flow the amount of the abandoned plant costs authorized by the Commission for recovery through its formula rate proposed in Docket No. ER In Mr. Allstun s supporting workpapers, he provided an illustrative calculation of the initial year impact of SCE s proposed Abandoned Plant recovery on its TRR. In calculating this estimate, Mr. Allstun used the ROE from SCE s September 1, 2011 Compliance Filing in Docket No. ER SCE is not seeking to modify rate levels in its filing in Docket No. ER12-239, but only to reflect that abandoned plant costs will be included in SCE s formula rate as of January 1, 2012, in the formula pending in Docket No. ER Since all issues associated with the formula, including ROE, will be addressed in Docket 4 In Southern California Edison Company, 137 FERC 61,173 (2011), dated November 30, 2011, the Commission accepted SCE s compliance filing subject to the outcome of the pending hearing and settlement procedures in Docket No. ER

4 No. ER , there is no merit to M-S-R s and LADWP s requests. This is not the forum to raise issues that will be addressed in other FERC dockets. Therefore, any objections to the ROE should be rejected as inappropriate and untimely. B. LADWP s Contention Regarding the Overhead Adder and AFUDC Are Without Merit LADWP, in its protest, questions the accrued amounts of corporate overheads and Allowance for Funds Used During Construction ( AFUDC ) that were assigned to the DPV2 Arizona expenditures through SCE s accounting system. 5 The testimony of Mr. Moon addresses the allocation of both corporate overheads and AFUDC (Exhibit SCE-200 at pages 2-5). LADWP draws its conclusions from review of the summary information in Exhibit SCE-202 without a review of the detailed information in that exhibit. SCE believes that part of LADWP s misunderstanding is due to SCE s labeling in the summary tables. In the summary tables of Exhibit SCE-202, SCE used the term Overheads to distinguish its direct expenditures from those costs allocated to the work order through its accounting system. Thus, the term Overheads in the summary tables on pages 4 and 5 of Exhibit SCE-202 included both allocated corporate overheads and accrued AFUDC. However, in the detail sheets beginning on page 6 of 208, SCE separates these two cost items and distinguishes between Overheads meaning corporate overheads (such as injuries & damages, A&G, Ad Valorem taxes, Pensions & Benefits, and Payroll Taxes) and AFUDC. As Attachment 1 shows, a review of these detailed sheets, with AFUDC excluded, yields an average corporate overhead factor over the period of about 13% of the total abandoned plant costs. LADWP also points to the negative corporate overhead percentages in 2008 resulting from its analysis. In addition 5 LADWP Protest at pages

5 to the fact that the term Overheads in the summary tables includes AFUDC, LADWP fails to consider the impact of the CWIP Rate Mechanism that was implemented by SCE in March In 2008, the Commission authorized SCE s request to implement CWIP recovery for the DPV2 project effective March 1, However, because capital expenditures for the project were incurred prior to the date of the Energy Policy Act of 2005, those expenditures did not qualify for CWIP or any incentive ratemaking. 7 The negative Overheads for 2008 shown on Exhibit SCE-202 at page 5 reflects the necessary accounting transfer to remove the AFUDC on the total pre-september 2005 DPV2 capital expenditures that accumulated between September 2005 and March 2008 in order to ensure that these costs would not receive CWIP treatment. This adjustment is shown on page 157 of Exhibit SCE-202. This adjustment appropriately reduced the amount of abandoned plant costs eligible for 100% abandoned plant incentive treatment. After properly considering the above two factors, it is clear that the overhead amounts calculated by SCE have been adequately supported in the filing, and are reasonable. Finally, LADWP questions SCE s AFUDC rate for 2011 and claims that discovery is required to ascertain how SCE derived its AFUDC rates and whether the SCE s computation of AFUDC is reasonable. In its pleading, LADWP divides the total accumulated AFUDC on the project from inception in 2002 through September 30, 2011 of $2.221 million 8 by the $ million in total abandoned plant costs and notes that AFUDC equals 20.2 percent of SCE s abandoned plant costs. This percentage, however, represents the total accumulated AFUDC since project inception compared to the total 6 Exhibit SCE-100 at page 4. 7 Exhibit SCE-100 at page 13. SCE defines costs accrued prior to the Energy Policy Act of 2005 to be Pre-incentive and after the Energy Policy Act of 2005 to be Post-incentive. 8 AFUDC did not accumulate on the Post-incentive expenditures during the period in which these expenditures were reflected in the CWIP Ratemaking Mechanism. 5

6 accumulated project costs, and must not be confused with an AFUDC rate. As shown on page 6 of Exhibit SCE-201, SCE s monthly AFUDC rate applied to the project expenditures was percent from September 2010 through December 2010, and percent in On a simple average basis, these equate to annual AFUDC rates of 8.13 percent and 7.96 percent, respectively. SCE s calculation with respect to AFUDC is performed in accordance with the Commission regulations (18 C.F.R. Part 101, Section 17). Attachment 2 provides SCE s calculations of the 2010 and 2011 AFUDC rates utilized on page 6 of Exhibit SCE-201. This information shows that LADWP s allegations about AFUDC are without merit and should be disregarded by the Commission. C. SCE s Proposed Five-Year Amortization Period Is Reasonable, However, SCE Does Not Oppose M-S-R s One-Year Amortization In their protests, M-S-R and LADWP object to SCE s proposed five (5) year amortization period for recovery its abandoned plant costs, and instead argue for a one (1) year amortization in SCE s formula rate. 9 In the Motion to Intervene and Comments of the California Department of Water Resources State Water Project ( SWP ), SWP also suggests that SCE be ordered to recover its abandoned plant costs over one year. However, instead of recovering the costs in its formula rate, SWP proposes that SCE recover such costs through its Transmission Revenue Balancing Account ( TRBA ) mechanism. 10 SCE believes that recovering the abandoned plant costs in its formula rate using the five-year amortization period is reasonable because the impact on the TRR is relatively small and the primary beneficiaries of the planned 9 M-S-R Protest P15; LADWP Protest at page SWP at page 7. 6

7 transmission investment are customers that are taking service on the CAISO grid today. However, SCE does not oppose M-S-R and LADWP s proposal for a one-year recovery of the abandoned plant costs in SCE s formula rate in that this proposal would provide SCE full recovery of its costs while allowing transmission ratepayers to avoid having to pay four years of carrying costs. SWP s recommendation that SCE recover the abandonment costs through the TRBA is inappropriate. SCE believes that the formula rate is a more appropriate ratemaking mechanism than the TRBA for recovering capital-related costs, such as the abandoned plant costs at issue in this docket. III. CONCLUSION For the reasons set forth herein, SCE requests that the Commission issue an order, granting SCE the right to recover the costs of abandonment of the Arizona portion of DPV2 sought in its Petition. Respectfully submitted, JENNIFER HASBROUCK REBECCA A. FURMAN ROBERT J. SAMUELS /s/ By: Rebecca A. Furman Rebecca A. Furman Attorney for SOUTHERN CALIFORNIA EDISON COMPANY December 5,

8 ATTACHMENT 1

9 SCE Corporate Loadings Percentage (Jan Aug) (Sep Dec) LADWP Calcs 1/ 8.7% 16.5% 20.1% 55.4% 18.3% 14.8% 57.7% 28.4% 11.0% SCE Corporate Overheads Percentage 2/ 5.4% 14.5% 11.9% 17.8% 9.8% 12.0% 14.5% 16.8% 11.0% Notes: 1/ Arizona Allocated Overheads divided by Arizona Direct Expeditures where Allocated Overheads include both Corporate Overheads and AFUDC; See Exhibit SCE 202, pp.4 5 2/ See below for details. Prior to 2003, SCE's accounting system included Pensions & Benefits costs as Direct Expenditures. Beginning in 2003, SCE's accounting system classified Pensions & Benefits costs as Corporate Overheads. DPV2 Combination Work Orders (Exhibit SCE 202) WO # SAP # (Jan Aug) (Sep Dec) ($) Direct Expenditures 3/ 274,043 1,275,693 3,014,618 1,948,869 1,982,914 7,917,843 3,454,282 3,189,437 5,336,805 28,394,504 Corp. Overheads 4/ 14, , , , , , , , ,026 3,682,281 AFUDC 5/ 11,228 75, , , ,747 1,010,292 1,711,697 (1,441,848) 2,196,597 Total 300,149 1,536,187 3,701,208 2,628,779 2,346,018 9,867,869 5,693,435 2,277,905 5,921,831 34,273, ($) Direct Expenditures 6/ 231, , ,082 Corp. Overheads 7/ 36,781 50,657 4,806 92,244 AFUDC Total 268, ,242 4, ,325 Total Costs ($) Direct Expenditures 274,043 1,275,693 3,014,618 1,948,869 1,982,914 8,149,826 3,960,868 3,189,437 5,337,318 29,133,585 Corp. Overheads 14, , , , , , , , ,026 3,774,525 AFUDC 11,228 75, , , ,747 1,010,292 1,711,697 (1,441,848) 2,196,597 Total 300,149 1,536,187 3,701,208 2,628,779 2,346,018 10,136,634 6,250,677 2,282,711 5,922,344 35,104,707 Allocated Corporate Loadings Percentages Corp. Overheads/ Direct Expenditures 5.4% 14.5% 11.9% 17.8% 9.8% 11.9% 15.3% 16.6% 11.0% 13.0% AFUDC/ (Directs + Corp Overheads) 3.9% 5.1% 9.7% 14.5% 7.8% 11.4% 43.0% 38.8% 0.0% 6.8% (Corp. Overheads + AFUDC) / Directs 9.5% 20.4% 22.8% 34.9% 18.3% 24.6% 64.8% 28.6% 11.0% 20.7% Corp. Overheads/ Direct Expenditures 15.9% 10.0% 0.0% 12.5% AFUDC/ (Directs + Corp Overheads) (Corp. Overheads + AFUDC) / Directs 15.9% 10.0% 12.5% Total Costs Corp. Overheads/ Direct Expenditures 5.4% 14.5% 11.9% 17.8% 9.8% 12.0% 14.6% 16.8% 11.0% 13.0% AFUDC/ (Directs + Corp Overheads) 3.9% 5.1% 9.7% 14.5% 7.8% 11.1% 37.7% 38.7% 0.0% 6.7% (Corp. Overheads + AFUDC) / Directs 9.5% 20.4% 22.8% 34.9% 18.3% 24.4% 57.8% 28.4% 11.0% 20.5% Notes: 3/ Direct Expenditures = Grand Total Corp. Overheads AFUDC; 2002 Exhibit SCE 202, page 41 of 208; 2003 SCE 202, p. 63 of 208; 2004 SCE 202, p. 85 of 208; 2005 SCE 202, p. 107 of 208; 2006 SCE 202, p. 129 of 208; 2007 SCE 202, p. 151 of 208; 2008 SCE 202, pp. 162 & 176 of 208; 2009 SCE 202, p. 202 of 208 4/ 2002 Exhibit SCE 202, p. 36 of 208; 2003 SCE 202, p. 58 of 208; 2004 SCE 202, p. 80 of 208; 2005 SCE 202, p.102 of 208; 2006 SCE 202, p. 124 of 208; 2007 SCE 202, p. 146 of 208; 2008 SCE 202, pp. 157 & 176 of 208; 2009 SCE 202, p. 202 of 208 5/ 2002 Exhibit SCE 202, p.36 of 208; 2003 SCE 202, p. 58 of 208; 2004 SCE 202, p. 80 of 208; 2005 SCE 202, p. 102 of 208; 2006 SCE 202, p. 124 of 208; 2007 SCE 202, p. 146 of 208; 2008 SCE 202,pp. 157 & 176 of 208; 2009 SCE 202, p. 202 of 208 6/ 2006 Exhibit SCE 202, p. 204 of 208; 2007 Exhibit SCE 202, p. 206 of 208; 2008 Exhibit SCE 202, p. 207 of 208; 2009 Exhibit SCE 202, p. 208 of 208 7/ 2006 Exhibit SCE 202, p. 204 of 208; 2007 Exhibit SCE 202, p. 206 of 208; 2008 Exhibit SCE 202, p. 207 of 208; 2009 Exhibit SCE 202, p. 208 of /5/2011

10 ATTACHMENT 2

13 CERTIFICATE OF SERVICE I hereby certify that in accordance with Rule 2010 of the Commission s Rules of Practice and Procedure, I have, this day, served a copy of the foregoing document, on all persons designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 5th day of December, /s/ Laura Placencia Laura Placencia _

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