SAFETY MODEL ASSESSMENT

Transcription

1 Application No.: Exhibit No.: Witnesses: A.1-0- SCE-01 M. Marelli S. Menon N. Woodward (U -E) SAFETY MODEL ASSESSMENT Before the Public Utilities Commission of the State of California Rosemead, California May 01

2 SAFETY MODEL ASSESSMENT Table of Contents Section Page Witness I. INTRODUCTION...1 M. Marelli A. Application Overview...1 B. Regulatory Background Rate Case Plan OIR (R.1--00)...1 C. Safety and Risk Management in SCE s General Rate Cases Safety and Risk Management in 01 GRC.... SCE s 01 GRC Will Include Safety and Risk Management Mapping.... SCE s 01 GRC Will Include the Full Safety and Risk Management Structure Envisioned in R Safety Mitigation Is But One Component of a General Rate Case... D. SCE s Testimony Fulfills the SMAP Requirements... II. SCE S ENTERPRISE RISK MANAGEMENT (ERM) FRAMEWORK... N. Woodward A. Introduction... B. Risk Lexicon... C. ERM Framework Overview Comparison of SCE s ERM to Cycla Corporation s Risk-Informed Resource Allocation Process...1 D. ERM Framework Risk Identification...1 a) Risk Taxonomy...1 b) Risk Statement...1 -i-

3 SAFETY MODEL ASSESSMENT Table of Contents (Continued) Section Page Witness. Risk Evaluation...1 a) Risk Evaluation Tool...1 b) Elements of the RET (impact dimensions, impact levels, frequency)...1 (1) Impact Dimensions...1 () Impact levels...1 () Frequency levels... c) Risk-Scoring Equation... d) Risk Scoring Process.... Risk Mitigation Identification.... Risk Mitigation Evaluation... a) Flags and non-risk considerations.... Risk-Informed Planning Approach.... Monitoring & Reporting... E. Governance... III. RISK-INFORMED ASSET MANAGEMENT AND PLANNING ILLUSTRATIONS... S. Menon A. Poles Prior Methodology... a) Risk Identification and Evaluation... b) Risk Mitigation Identification and Evaluation.... Current Methodology... a) Risk Identification and Evaluation... -ii-

4 SAFETY MODEL ASSESSMENT Table of Contents (Continued) Section Page Witness (1) Triggered Event Frequency (TEF)... () Consequence Percentage (CP) and Consequence Impact (CI)... () Risk Scoring... b) Risk Mitigation Identification and Evaluation... (1) Driver Analysis... () Asset Criticality Database... () Mitigation Alternatives.... Future Vision...1 B. Distribution Overhead Conductors Prior Methodology... a) Risk Identification and Evaluation... b) Mitigation Identification and Evaluation.... Current Methodology... a) Risk Identification and Evaluation... (1) Triggered Event Frequency (TEF)... () Consequence Percentage and Consequence Impact... () Risk Scoring...0 b) Risk Mitigation Identification and Evaluation... (1) Driver Analysis... () Asset Criticality Database... -iii-

5 SAFETY MODEL ASSESSMENT Table of Contents (Continued) Section Page Witness () Mitigation Alternatives.... Future Vision...1 C. Risk Analysis and Program Development for Other Asset Classes... D. Funding Allocation and the Decision-Making Process Prior Methodology.... Methodology under Current Consideration.... Future Methodology... APPENDIX A ACRONYM LIST... APPENDIX B WITNESS QUALIFICATIONS... -iv-

6 SAFETY MODEL ASSESSMENT List of Figures Figure Page 1 1 Figure II-1 ERM Framework... Figure II- Risk Identification... 1 Figure II- The Bowtie Diagram... 1 Figure II- Risk Evaluation... 1 Figure II- Risk Mitigation Identification... Figure II- Mitigation Evaluation... Figure II- Risk-Informed Planning Approach... Figure II- Example of Portfolio Prioritization Illustrative... 1 Figure II- Monitoring & Reporting... Figure II- ERM Governance... Figure III- Forecast Pole Failure Counts... 1 Figure III-1 Impact Of Risk Mitigation On Forecast Pole Failure Counts v-

7 SAFETY MODEL ASSESSMENT List Of Tables Table Page Table II-1 Definitions for Key Risk Elements... Table II- SCE s ERM Process Is Consistent with the Cycla Process... 1 Table II- Impact Dimensions... 1 Table II- Safety Impact... 1 Table II- Reliability Impact... 0 Table II- Environmental Impact... 1 Table II- Compliance Impact... Table II- Financial Impact... Table II- Frequency Levels... Table III- Summary Of Pole Risk and Mitigation Evaluation... Table III- CP and CI Forecast Approach For Pole Risks... Table III-1 Evaluation of Pole Risks (Illustrative Only)... Table III-1 Summary of Pole Risks By Impact Dimension (Illustrative Only)... Table III-1 Pre-mitigation and Post-mitigation Risk Scores by Program Tranche (Illustrative Only)... Table III-1 Risk Spend Efficiency of Pole Programs (Illustrative Only)... 1 Table III-1 Summary Of Fallen Dist. OH Conductor Risk & Mitigation Evaluation (Illustrative Only)... Table III-1 Summary Of Intact Dist. OH Conductor Risk & Mitigation Evaluation (Illustrative Only) Table III-1 CP and CI Forecast Approach For Distribution Overhead Conductor Risks... 0 Table III-1 Evaluation of Distribution Overhead Conductors By Risk Statement (Illustrative Only)... 1 Table III-0 Summary of Distribution Overhead Conductor Risk by Impact Dimension (Illustrative Only)... -vi-

8 SAFETY MODEL ASSESSMENT List Of Tables (Continued) Table Page Table III-1 Mitigation Evaluation For Overhead Conductor Program In High-Fire Areas in 01 (Illustrative Only)... Table III- Mitigation Evaluation For Overhead Conductor Program In Non-High-Fire Areas in 01 (Illustrative Only)... 0 Table III- Estimated Risk Spend Efficiency For Overhead Conductor Program (Illustrative Only)... 1 Table III- Forecast Risk Spend Efficiency For Select Programs (Illustrative Only)... -vii-

9 I. INTRODUCTION 1 A. Application Overview Southern California Edison s (SCE) core mission is to deliver safe, reliable, and affordable electricity to its customers across its 0,000 square mile service territory. The purpose of this testimony is to present the risk management systems that SCE plans to utilize to further support its 01 General Rate Case (GRC) request and the expected Risk Assessment Mitigation Phase (RAMP) submission in conjunction with SCE s 01 GRC as they relate to public and worker safety. These systems include the models and processes SCE plans to use to identify, assess, and prioritize risks; identify and evaluate risk mitigation measures; and inform risk mitigation spending forecasts. B. Regulatory Background Rate Case Plan OIR (R.1--00) In November 01, the Commission initiated the Order Instituting Rulemaking to develop a Risk-Based Decision-Making Framework to Evaluate Safety and Reliability Improvements and Revise the General Rate Case Plan for Energy Utilities (R-1--00, or Rate Case Plan OIR, or RCP OIR) to implement Senate Bill (SB) 0 with the intent of prioritizing safety in investor-owned energy utilities GRCs. 1 Specifically, R was initiated to: determine whether and how we should formalize rules to ensure the effective use of a risk-based decision-making framework to 1 While SB 0 s prioritization of safety only applies to a gas corporation, the Commission has extended the risk-based decision-making framework to the GRCs of the electrical corporations. D.1-1-0, p. 1. The Commission s decision to apply SB 0 to electrical corporations is consistent with SB 00 (enacted in 01), which directs the Commission to develop formal procedures to consider safety in a rate case application by an electrical corporation. Id., p. 1 (quoting SB 00). 1

10 evaluate safety and reliability improvements presented in General Rate Case (GRC) applications, develop necessary performance metrics and evaluation tools, and modify the Rate Case Plan (RCP) documentation requirements for the investor owned energy utilities. Our goal is to prioritize safety and reliability issues in GRC applications of energy utilities. In addition to several rounds of written comments and utility responses to Commission data requests, the RCP OIR proceeding included a three-day workshop in March 01, where SCE, PG&E, and the Sempra utilities discussed risk management frameworks and tools, and modifications to the Rate Case Plan to accommodate this framework and to streamline the rate case process. In R.1--00, the Commission also intends to clarify the rate case review process, and more efficiently manage the complexity and duration of the GRC proceedings, while ensuring consistency and uniformity among GRC applications of energy utilities. In the Scoping Ruling, however, the Commission decided to address proposals to revise the Rate Case Plan to promote more efficient and effective management of the overall rate case process in a separate phase. As of May 1, 01, the second phase of R has not been commenced. On December, 01, the Commission issued its decision (D.1-1-0) to incorporate a risk-based decision-making framework into the RCP, including two new proceedings. D requires SCE, PG&E, Southern California Gas Company, and San Diego Gas and Electric to file Safety Modeling Assessment Proceeding (SMAP) Applications on or before May 1, 01. The purpose of the S-MAP is to allow the Commission and parties to examine, understand, and comment on the models that the energy utilities plan to use to prioritize risks and to mitigate risks. This Application, when consolidated with the parallel filings of the other large energy utilities, will satisfy that order. The second proceeding is the R.1--00, p. 1. Scoping Ruling at. D.1-1-0, Ordering Paragraph. Id., p. 1.

11 Risk Assessment Mitigation Phase, where each utility will file its plans to assess its risks, and to mitigate and minimize such risks using the format adopted in the SMAP proceeding. Each utility s RAMP filing will be timed to naturally fold into its GRC filing. C. Safety and Risk Management in SCE s General Rate Cases There is no greater responsibility than protecting the health and safety of the public and our employees. This includes our infrastructure replacement program, asset inspection and maintenance programs, public safety outreach campaigns, and employee training. D agrees with this focus on safety, stating that The logical starting point for prioritizing safety for the investor-owned energy utilities is in the general rate case (GRC) applications that are filed by each of the energy utilities. The sections below describe testimony related to safety and risk management included in SCE s 01 GRC and planned for SCE s 01 and 01 GRCs. 1. Safety and Risk Management in 01 GRC In SCE s 01 GRC (A.1--00), SCE provided supplemental testimony that provided an overview of the risks addressed in SCE s 01 GRC and how those risks were explicitly addressed in SCE s O&M and capital forecasts. Specifically, in its supplemental testimony, SCE identified risk statements and described each of those risks with examples of Id., p.. Id., p.. SCE s 01 GRC was filed before the Commission issued D.1-1-0, so it did not include the same kind of risk assessment the Commission ultimately ordered in that decision. The Assigned Commissioner and ALJs in SCE s 01 GRC ordered SCE to supplement the record in July 01 with testimony on SCE s risk management and safety matters. A decision on SCE s 01 GRC is pending. See A.1--00, Exhibit SCE-1.

12 the potential risk exposure for each. In addition, SCE s supplemental testimony provided a detailed, project-by-project mapping of how SCE s GRC request addressed those risks. In addition to the public and worker safety risks that are the focus of this proceeding, the scope of SCE s earlier GRC response also encompassed risks related to reliability, system capacity, and energy supply. As identified in SCE s supplemental testimony, system safety and reliability were key considerations in developing our GRC requests. The tools, processes, and methodologies outlined in Section II of this testimony transition to a more explicit incorporation of risk into the financial planning process.. SCE s 01 GRC Will Include Safety and Risk Management Mapping Enterprise Risk Management (ERM) at SCE is evolving rapidly and will be further refined based upon the outcome of this proceeding. The Phase 1 RCP OIR decision (D.1-1-0) retains the -year GRC cycle 1 and requires SCE to file a request for an OII on September 1 of the year prior to its GRC filing date to initiate the RAMP proceeding. 1 Per D.1-1-0, SCE plans to file its next (01) GRC Phase 1 application on September 1, 01. Given the SMAP schedule established in D.1-1-0, SCE does not expect a decision on this Application in time to conduct a RAMP phase in its 01 GRC proceeding. D anticipated this possibility by requiring that [d]uring the transition of fully implementing the S- MAP and RAMP procedures, all of the large energy utilities should include in all their future GRC applications thorough descriptions of the risk assessments and mitigation plans they plan to use in their GRC application filings. 1 While SCE will not file a RAMP in its 01 GRC due to the timing of the SMAP and SCE s filing of its 01 GRC application, SCE plans to use the SCE limited its supplemental testimony to risks per the Assigned Commissioner s Ruling Amending Scoping Memo and Ordering Supplemental Testimony Regarding Risk Management and Safety Matters, dated May 1, 01, p.. See A.1--00, Exhibit SCE-1. 1 See D.1-1-0, p Id., p. and Ordering Paragraph, p.. 1 Id., Conclusions of Law #1, p..

13 tools described below, modified by knowledge gained during this proceeding, along with any compliance obligations that may come from other decisions (such as SCE s 01 GRC) and further experience, as a basis for a portion of its 01 GRC application. To further facilitate a transition, SCE will conduct a pre-application workshop in advance of SCE s 01 GRC to discuss the application of risk planning tools and processes used to inform SCE s 01 GRC forecasts.. SCE s 01 GRC Will Include the Full Safety and Risk Management Structure Envisioned in R Although SCE does not expect it will be able to reflect the Commission s decision on this Application in its 01 GRC, that filing will be informed by the risk assessment lessons learned during this proceeding. Also, SCE anticipates that Commission decisions made in this proceeding will be reflected in its RAMP submission for its 01 GRC application.. Safety Mitigation Is But One Component of a General Rate Case SCE appreciates the Commission s focus on safety and reliability risks, and welcomes the opportunity to share with others the tools it plans to use to identify, assess, and prioritize risks; identify and evaluate risk mitigation measures; and prioritize risk mitigation spending forecasts. SCE notes, though, that mitigating risk to public and worker safety is but one of the activities included in the general rate case. For example, SCE s GRC includes capital and O&M forecasts for the activities necessary to provide adequate customer service, operate power generation facilities, procure power from non-sce sources, and comply with Commission orders as well as state and federal laws. Accordingly, there are many categories of O&M and capital costs that SCE does not plan to forecast using the risk-informed planning approach described in this testimony. The tools and processes described in the next section provide for systematic identification and evaluation of risks by asset or event type and potential impact dimension. This

14 facilitates proactively identifying safety concerns, focuses attention on developing cost-effective mitigation options, and deploying resources to reduce safety risk. This is expected to further enhance and strengthen SCE s safety culture in operating and maintaining the system and delivering electricity. D. SCE s Testimony Fulfills the SMAP Requirements The Commission s goal for this proceeding is to assist interested parties and the Commission in evaluating the various proposals that the energy utilities use for assessing their safety risks, and to manage, mitigate, and minimize such risks. 1 Further, D requires that this application shall contain a description and the applicable information as to how each utility assesses the risks to safety associated with its system and services, and the tools or activities that it plans to use to manage, mitigate, and minimize such risks. 1 This application meets those requirements and all of the SMAP requirements of D Specifically, this testimony describes the current and anticipated risk management capabilities at SCE. As described in Section II below, SCE has an established ERM framework. Enhancing the ERM framework to include all the necessary elements to reach the Commission s objective of a risk-informed planning process, however, is a work in progress at SCE. The necessary improvements to the ERM framework are described throughout this testimony. Also described in Section II are the tools, lexicon, and taxonomy being developed for use in the ERM framework. This Section also provides a description of our planned Risk-Informed Planning Approach (RIPA). As further described therein, SCE is working to pilot RIPA for the 01 planning process and we expect to further refine all the tools and processes over time. Finally, SCE has developed illustrative examples, described in Section III, to demonstrate how all the ERM elements could come together to help inform the existing GRC forecasting processes. 1 Id., p.. 1 Id., p..

15 Given the complexity and breadth of GRC estimates, we will need a reasonable transition period to change from our existing GRC forecasting processes to any new and refined explicitly risk-informed planning process. While SCE has always implicitly considered safety and reliability in our planning processes, we are enhancing these processes to optimize these program forecasts over time. A theoretical optimized solution needs to be informed by subject matter expertise, and the implementation of any such solution will likely be constrained by operational limitations at least in the near term. However, SCE is working to incorporate the latest thinking into our processes going forward, and hopes to learn from all participants throughout the SMAP proceeding.

16 II. SCE S ENTERPRISE RISK MANAGEMENT (ERM) FRAMEWORK A. Introduction SCE has implemented and operates under an ERM framework. The ERM framework provides the structure to identify, evaluate, mitigate, and report risks at SCE. This testimony describes SCE s current and planned enhancements to its ERM framework, with a specific focus on our risk-informed planning approach. To date, the emphasis of the ERM framework has been to identify, evaluate, and report key enterprise risks and how those risks are being managed to SCE s senior management and Board of Directors as part of SCE s corporate governance. SCE s approach continues to evolve. This enhanced ERM framework, once fully implemented, will address risks more broadly and at greater depth, and will more explicitly incorporate risk analysis into the planning and decision-making process. Many of the tools, methodologies, and processes described in this testimony have either been recently developed, or are in process of being developed, and have yet to be implemented. SCE expects that the tools, methodologies, and processes will be further refined and modified based on what is learned during implementation. Further, as the organization develops experience with the tools and the processes, SCE expects that additional tools, models, and data sources will be developed to support these processes as they mature. SCE s risk-management standards have been developed based on the International Organization for Standardization (ISO) 00 and, to a lesser extent, the Committee of Sponsoring Organizations of the Treadway Commission (COSO): 00 Enterprise Risk Management. These standards are generally set by recognized international standard bodies or industry groups and seek to establish a common view on risk-management frameworks, processes, and practices to establish a systematic and effective risk management program. SCE has adopted standards based on ISO 00 and COSO since both standards emphasize risk management as a strategic discipline for making risk-informed decisions.

17 1 1 1 B. Risk Lexicon Based on the Refined Straw Proposal, SCE, in collaboration with the other investor owned utilities (IOUs), has developed a set of core key risk terms and definitions to be used for defining, acquiring, and disseminating risk-based information, 1 known as the Risk Lexicon. The Risk Lexicon consists of a common set of terms and definitions to allow for ease of communicating the risk-management activities described in this testimony. In addition to this set of core terms, each of the utilities will have additional risk terms and definitions to describe their specific processes. We expect the Risk Lexicon to evolve as industry risk management standards and practices and the ERM framework evolve. To develop the Risk Lexicon, SCE and the other IOUs identified terms and definitions in the ISO 00 and Department of Homeland Security (DHS) Risk Lexicon terminology documents. The defined terms were further validated against a broader list of external sources in the risk community. Table II-1 below is the defined list of key terms jointly developed by the IOUs for the following Risk Lexicon. 1 See the Refined Straw Proposal, p., in Appendix A of the Administrative Law Judge s Ruling Regarding Refined Straw Proposal, April 1, 01.

18 Table II-1 Definitions for Key Risk Elements 1 1 Sources: ISO 00:00, Risk Management Principles and Guidelines; ISO Guide :00, Risk Management Vocabulary; DHS Risk Lexicon: 0; Evaluation of PG&E s 01 Gas Distribution GRC Filing, prepared by Cycla Corporation for the Safety and Enforcement Division (01).

19 C. ERM Framework Overview SCE s ERM framework follows a six-stage process for managing risks. This framework provides a logical and systematic approach for addressing risk. The Figure II-1 below shows the six stages of the process: Risk Identification, Risk Evaluation, Risk Mitigation Identification, Risk Mitigation Evaluation, Risk-Informed Planning Approach (planning and prioritization), and Monitoring and Reporting. The ERM framework also includes an independent review, which would apply to all the stages of the process. 1 Figure II-1 ERM Framework 1 SCE s ERM framework is broader in scope and use and is not limited to risk-informed planning.

20 1. Comparison of SCE s ERM to Cycla Corporation s Risk-Informed Resource Allocation Process As part of PG&E s 01 GRC proceeding, Cycla Corporation presented a riskinformed resource allocation process. The CPUC s Safety and Enforcement Division (SED) has requested SCE include in this testimony information on the comparison of SCE s ERM framework to Cycla Corporation s (Cycla) Risk-Informed Resource Allocation process. Table II- below maps each element of SCE s ERM process to the Cycla process. Table II- SCE s ERM Process Is Consistent with the Cycla Process 1 - SCE's ERM Framework Risk Identification / Risk Evaluation 1 Identify Threats Cycla Process Characterize Sources of Risk Mitigation Identification Mitigation Evaluation Risk-Informed Planning Approach (RIPA) Indentify Candidate Risk Control Measures (RCMs) Evaluate the Anticipated Risk Reduction for Identified RCMs Detmine Resource Requirements for Identified RCMs Select RCMs Considering Resource Requirements and Anticipated Risk Reduction Determine Total Resource Requirements for Selected RCMs Adjust the Set of RCMs to be Presented in GRC Considering Resource Constraints Adjust RCMs for Implementation following CPUC Decision on Allowed Resources Monitoring & Reporting Monitor the Effectivess of RCMs 1

21 D. ERM Framework 1. Risk Identification Risk identification (Figure II- below) is the process of identifying and understanding a risk and its potential drivers and impacts that may affect SCE s ability to meet its objectives. SCE uses a wide variety of techniques and sources in the risk-identification process, including review of business strategies and goals, prior risk register, surveys, workshops, and industry events. Figure II- Risk Identification The objective of this stage is to develop a comprehensive list of risks that are defined clearly and consistently, allowing for the evaluation of the risks and the identification of mitigation activities. To achieve this objective, SCE relies on its Risk Taxonomy and the Bowtie diagram. 1

22 a) Risk Taxonomy The risk taxonomy is a multi-tiered structure that classifies the different types of risks across the company. The risk taxonomy helps identify and organize the spectrum of risks to which the company is exposed. SCE has developed a risk taxonomy designed to achieve the following objectives: Categorize risks, including but not limited to asset-related risks; Enable consistent aggregation and disaggregation of risks; Enable the definition of risk statements at a consistent level of detail The SCE taxonomy defines two groups of key risks: asset-related risks and utility-wide risks. Asset-related risks arise from physical assets and activities that are related to operating those assets. These risks can result in damage to or loss of company or public assets, environmental impact, public or personnel injury, and/or interruption of service to customers. Risks associated with, for example, generation facilities, substations, and control stations fall under this category. Two examples of asset-related risks are discussed in further detail in Section III of this testimony. Utility-wide risks include risks that are not associated with a particular physical asset. These would include, for example, financial and economic risks, business model risks, legal and regulatory risks, compliance risks, and human resource risks. As with other tools described in this testimony, the Risk Taxonomy will continue to evolve over time as it is implemented and used. b) Risk Statement As noted earlier, an objective of this phase of the ERM framework is to define risks clearly and consistently, enabling the understanding and evaluation of the risks. Based on these concepts, an identified risk is described with a risk statement that includes the following elements: a risk event, which is the occurrence or change of a particular set of circumstances (e.g., a pole fails in service); an outcome, which is the result of the risk event (e.g., 1

23 a wildfire); and the impact of the outcome (e.g., safety). Clearly defining a risk statement facilitates the risk-evaluation process, which is described in the next section. The Bowtie diagram, shown below as Figure II-, is used to map the progression of a risk from its driver, to the risk event, to its impact. This diagram helps delineate the causes that may lead to the risk event, and the potential impacts that the outcome of the risk event may have. Note that the risk statement focuses on the right side of the Bowtie diagram and does not include the drivers, since the risk event and impact may be the result of many drivers and does not inform the risk-evaluation process. However, identifying and analyzing risk drivers the left side of the Bowtie diagram is important for identifying and evaluating potential mitigation activities, which is discussed further in the section on Risk Mitigation Identification. Figure II- The Bowtie Diagram Risk Evaluation The second stage of the ERM framework is risk evaluation. Risk evaluation, Figure II- below, is the process of quantifying or determining the magnitude of risk identified in the risk-identification process. The Risk-Evaluation process assesses the likelihood and impact of a risk to determine a risk score. The risk score enables the comparison of risk across the 1

24 company by providing a common unit to measure risks. SCE has developed a risk evaluation tool that provides a structured approach to evaluate the risks across the company. Figure II- Risk Evaluation 1 1 a) Risk Evaluation Tool The Risk Evaluation Tool (RET) is a companywide tool that enables the consistent scoring of risks, based on impact and frequency, evaluated against multiple areas of impact. The RET will be utilized in the Risk Evaluation process for initial scoring of identified risks, and in the mitigation evaluation process to score the planned residual risk after mitigation to measure the expected effectiveness of the mitigation activities. The tool uses a matrix approach to determining risk scores. The tool defines discrete impact levels and frequencies, which in combination determine a risk score using the risk-scoring formula. This approach provides for the use of both qualitative and quantitative data for determining the magnitude of a risk. The analysis to determine the impact level and frequency of a risk statement will be based on operating unit tools and models and/or subject matter professional judgment. Examples of 1

25 operating unit tools and models that would be used in the risk-evaluation process may include historical data, asset condition models, predictive failure models, fault tree analysis, and root cause analysis. SCE operating units will have varying availability of data, tools, and models to support risk evaluation. The implementation of this tool will drive the development of better data, tools, and models to support this process as the organization implements and matures in these efforts. As with the other tools described in this testimony, the RET was recently developed, and SCE expects that it will continue to evolve over time as the tool is implemented and used. b) Elements of the RET (impact dimensions, impact levels, frequency) There are three key elements of the RET: impact dimensions, impact levels, and frequency. (1) Impact Dimensions The impact dimensions capture the different types of consequences that a risk event may have. The impact dimensions were identified to capture areas that are relevant to the business and have an impact on the company s mission to deliver safe, reliable, and affordable electricity to customers. As we implement and use this tool, new dimensions may be added as needed. The following Table II- lists SCE s five current impact dimensions and their definitions. 1

26 Table II- Impact Dimensions Impact Dimension Safety Reliability Environmental Compliance Financial Definition The potential impact of a risk event on public or worker safety The potential impact of a risk event on service or grid reliability The potential impact of a risk event on natural resources such as air, soil, water, plants or animal life The potential impact of a risk event resulting in noncompliance with federal, state, local, industrial, or operational standards or requirements The potential of a risk event resulting in a financial cost to customers, shareholders, and/or third parties 1 Providing safe delivery of energy to our customers is a primary objective of SCE. As shown in Table II- above, safety is an integral part of SCE s RET. Safety is defined as a distinct impact dimension and therefore the safety impact of all risks are evaluated independently and incorporated into the overall evaluation of a risk. The RET allows SCE to summarize risks by any impact dimension. For example, while the ERM process evaluates risks across all dimensions, it is possible to compare all risks only for safety attributes. 0 This will allow for summarizing safety risks addressed by projects/programs included in the financial plan. () Impact levels SCE s RET defines impact levels for each dimension, and each level is defined to be a factor higher than the prior level. The scale for each impact dimension is defined to create adequate separation in the impact levels and scores. Further, the scale allows 0 Please see Section III where risk scores are summarized by impact dimensions. 1

27 the tool to capture a wide range of impacts to enable evaluation from the narrowest risks within a unit of the organization to risks that have impacts at the enterprise level. Table II-, Table II-, Table II-, Table II-, Table II-, and Table II- below show the impact level definitions for each of the dimensions. Table II- Safety Impact Impact Level Description Catastrophic Many Fatalities, Mass Serious Injury or Illness: () - Many fatalities of employees, public members or contractors; - Mass serious injuries or illness resulting in hospitalization, disability or loss of work; - Wide-spread illness caused typically caused by sustained exposure to agents. Severe Few Fatalities, Serious Injuries or Illness; Permanent Disability: () - Few fatalities of employee, public member or contractor; - Many serious injuries or illnesses resulting in hospitalization, disability or loss of work; - Localized illness typically caused by acute or temporary exposure to agents. Extensive Serious Injuries or Illness; Permanent Disability: () - Serious injuries or illness to many employees, public members or contractors resulting in hospitalization, disability or loss of work. Major Serious Injuries or Illness; Permanent Disability: () - Serious injuries or illness to few employees, public members or contractors resulting in hospitalization, disability or loss of work; - Several employees, member of the public or contractors sent requiring treatment beyond first aid. Moderate Minor Injuries or Illness: () - Minor injuries or illness to several employees, public members or contractors; - Few employees, member of the public or contractors requiring treatment beyond first aid. Minor Minor Injuries or Illness: () - Minor injuries or illness to few employees, public members or contractors requiring first aid. Negligible (1) - No injury or illness. 1

28 Table II- Reliability Impact Impact Level Description Catastrophic Customer Hours Impact: () - Outage resulting in greater than 0 million total customer hours of interruption. Severe Customer Hours Impact: () - Outage resulting in at least million total customer hours of interruption. Extensive Customer Hours Impact: () - Outage resulting in at least 00,000 total customer hours of interruption. Major Customer Hours Impact: () - Outage resulting in at least 0,000 total customer hours of interruption. Moderate Customer Hours Impact: () - Outage resulting in at least,000 total customer hours of interruption. Minor Customer Hours Impact: () - Outage resulting in at least 00 total customer hours of interruption. Negligible Customer Hours Impact: (1) - Outage resulting in less than 00 total customer hours of interruption. 0

29 Table II- Environmental Impact Impact Level Description Catastrophic Environmental Impact: () Resulting in permanent or long term damage greater than 0 years; Irreversible and immediate damage to surrounding environment (e.g. extinction of species). Severe Environmental Impact: () Resulting in acute long term damage greater than years; Severe damage to surrounding environment. Extensive Environmental Impact: () Resulting in significant medium term damage greater than years; Reversible damage to surrounding environment. Major Environmental Impact: () Resulting in moderate medium term damage greater than few months; Reversible damage to surrounding environment. Moderate Environmental Impact: () Resulting in moderate short term damage of few months; Reversible damage to surrounding environment with no secondary consequences. Minor Environmental Impact: () Resulting in short term minor damage of less than few months; Immediately correctable damage to surrounding environment. Negligible Environmental Impact: (1) Resulting in negligible to no damage; Very small damage scale, if not negligible. 1

30 Table II- Compliance Impact Impact Level Description Catastrophic Non-Compliance Impact: () - Actions resulting in potential closure, split or sale of Company. Severe Non-Compliance Impact: () - Regulator issued cease and desist orders; - Regulators force the shut down of critical assets. Extensive Non-Compliance Impact: () - Regulatory investigations and enforcement actions, lasting longer than a year; - Violations that result in fines or penalties and/or multiple large non-financial sanctions; - Regulators force the removal and replacement of management positions. Major Non-Compliance Impact: () - Significant new and updated regulations are enacted as a result of an event; - Violations that result in fines or penalties and/or non-financial sanctions; - Increased oversight from regulators. Moderate Non-Compliance Impact: () - Violations that result in fines or penalties; - No additional oversight from regulators. Minor Non-Compliance Impact: () - Self-reported or regulator identified violations with no fines or penalties. Negligible Non-Compliance Impact: (1) - No compliance impact up to an administrative impact.

31 Table II- Financial Impact Impact Level Description Catastrophic Financial Costs: () - Impact > $ billion in costs; consider costs to customers, shareholders and third parties. Severe Financial Costs: () - Impact between $00 million and $ billion in costs; consider costs to customers, shareholders, and third parties. Extensive Financial Costs: () - Impact between $0 million and $00 million in costs; consider costs to customers, shareholders, and third parties. Major Financial Costs: () - Impact between $ million and $0 million in costs; consider costs to customers, shareholders, and third parties. Moderate Financial Costs: () - Impact between $00k and $ million in costs; consider costs from customers, shareholders, and third parties. Minor Financial Costs: () - Impact between $0k and $00k in costs; consider costs to customers, shareholders, and third parties. Negligible Financial Costs: (1) - Impact of less than $0k in costs; consider costs to customers, shareholders, and third parties. 1 () Frequency levels The frequency of a risk is defined as the number of events per year. Frequency is evaluated on a continuous basis in the risk score equation when data is available. We also define seven discrete frequency levels to determine frequency based on subject matter expert s judgment when data is limited, in which case the midpoint of the frequency level would be used. A 1- scale of frequency levels is defined and shown in Table II- below. We define Triggered Event Frequency (TEF) as the number of times a risk event occurs per year and the Consequence Percentage (CP) as the conditional probability that an outcome occurs given that the event has occurred. The frequency associated with a risk statement can be determined as the product of TEF and CP.

32 Table II- Frequency Levels Frequency Level Frequency Description Frequency per Year Common () > times per year F => Regular() 1 times per year F =1 Frequent () Once every 1 years F =1 0. Occasional () Once every years F = Infrequent () Once every 0 years F = Rare () Once every 0 0 years F= Remote (1) Once every 0+ years F=< c) Risk-Scoring Equation The risk score is calculated as a function of the impact level and the frequency of the risk statement being evaluated. For each risk statement the risk score is calculated using the following formula: Risk Score = Frequency * CI where, Frequency =TEF * CP and where, CI = Consequence Impact or Impact Level 1 The total risk score for a risk event is the sum of the risk scores for all the risk statements for that risk event. The total score can be used for ranking various risks. The risk-scoring methodology is a newly developed tool. As we learn through the implementation and use of this tool, we will refine it as needed.

33 d) Risk Scoring Process The process to score a risk begins with the risk statement, which is the output of the Risk Identification phase of the ERM framework. As mentioned previously, the risk statement defines a risk in the structure of an event, outcome, and impact. A risk event may have many outcomes and impacts. A risk score is determined for each event, outcome, and impact combination. Further, there can be a range of possible impact severities. In order for risks to be defined and evaluated consistently, the Worst Reasonable Direct Impact scenario or WRDI is evaluated for each impact dimension. The WRDI is defined as the reasonable worst scenario that could result from a risk event, but not an extreme scenario. To the extent data are available, the WRDI can be determined quantitatively using a full distribution of impact scenarios. The WRDI may also be determined using subject matter experts judgment. Once the WRDI for each impact dimension is determined, it is scored based on its impact level and frequency. Examples include historical data, asset condition models, predictive failure models, fault tree analysis, and root cause analysis.. Risk Mitigation Identification The third stage in the ERM framework is the mitigation alternatives identification (Figure II-). In this stage, the risks identified, analyzed, and evaluated in the previous stage are assessed to determine appropriate mitigation. The analysis of drivers or root causes of the risk event can help in developing specific projects or programs that address specific risk drivers. The mitigation alternatives are designed to reduce the frequency and/or impact of the risk event or outcome. In identifying risk mitigation projects/programs, the source of a risk may be categorized into tranches such that risks within a tranche have similar characteristics, but are distinctly different from risks within another tranche. This enables capturing meaningful differences in the level of risk reduction of these projects/programs and developing targeted mitigation programs for risks within a tranch. Examples of these are discussed in Section III.

34 Figure II- Risk Mitigation Identification 1 We note that risk mitigation is not the only form of treating risks. Other forms of risk treatments include risk avoidance (i.e., discontinuing or not starting the activity that creates the risk), risk transfer (i.e., sharing the risk with another party), risk financing (i.e., insurance), or acceptance of the risk by informed choice.. Risk Mitigation Evaluation The next stage of the ERM framework is risk mitigation evaluation (Figure II-). The objective of this stage is to determine the risk reduction benefits expected from the identified projects/programs. Where in the risk evaluation section the RET is used to determine the level of risk before mitigation, in the risk mitigation evaluation section the RET is used to determine the level of risk after mitigation.

35 Figure II- Mitigation Evaluation The process of risk mitigation evaluation begins with the projects/programs and associated scored risk event. Each project/program is evaluated to determine whether it reduces the frequency and/or impact level of each associated risk statement. The post-mitigated risk score is calculated for each risk statement and aggregated across all risk statements for the risk event to get a total risk score. This is the planned residual risk score for the risk event after mitigation. The total mitigated risk score for the project/program is the difference between the total current residual risk score (total risk score before the project/program is executed) and the total planned residual risk score (total risk score after the project/program is executed). The mitigated risk score indicates how much risk the project/program is expected to mitigate if implemented. Apart from determining potential risk reduction benefits of a mitigation option, we also determine the expected costs, resource requirements, and other attributes of the projects/programs (such as the volume of work required to meet compliance, process changes, or

36 permitting). Dividing this value by the spending necessary for the project/program (in millions of dollars) yields the Risk Spend Efficiency (RSE) of the project/program: a) Flags and non-risk considerations The Risk score does not always reflect all the reasons why a project/program would be initiated or continued. There are often other non-risk considerations that should be evaluated in determining whether a project/program should be funded. We capture these considerations with flags. Examples of such flags are compliance (i.e., work that must be conducted to avoid non-compliance with a legal or regulatory requirement), and work requested by others (i.e., Rule 0, agricultural-related requests, and new customer connections within the SCE service area).. Risk-Informed Planning Approach The next stage of the ERM framework is the Risk-Informed Planning Approach (RIPA). The objective of RIPA (Figure II-) is to explicitly integrate risk analytics into the decision-making process for resource allocation planning. The goal of RIPA is to prioritize and allocate funds to projects/programs that reduce the greatest amount of risk while taking into account other constraints. It is important to note that RIPA will not automatically prioritize a plan based on an algorithm or substitute judgment in the decision-making process. RIPA supplements management s decision-making process for resource allocation by explicitly incorporating risk. Risk Spend Efficiency = Mitigated Risk Score / Program Cost ($M) Mitigated Risk Score = Current Residual Risk Score Planned Residual Risk Score

37 Figure II- Risk-Informed Planning Approach As noted earlier, an objective of the RET is to enable a comparison of risks across the company by providing common measurement. It is important that the application of the RET is done in as consistent a manner as possible within and across operating units, and that the risk scores and flags are validated. To achieve this, the RIPA process will incorporate calibration sessions to ensure a consistent approach to scoring risks. These sessions may include the core RIPA team (cross-functional team that coordinates RIPA), the core risk-scoring team (crossfunctional team responsible for scoring projects), the owners and/or sponsor of projects/programs and subject matter experts (engineers and planners), and monitoring by the corporate ERM (which is part of the core RIPA team). Calibration will be critical to develop broad acceptance of the risk scores and flags, which will inform the prioritization and development of the portfolio of projects/programs. Calibration sessions are a series of meetings with increasingly senior participants during the scoring phase of RIPA. The sessions will first calibrate scores within divisions of operating units for specific types of work/assets, then across different types of work/assets within

38 an operating unit, and then across operating units. Division calibration sessions will include the core risk-scoring team and subject matter experts, and will occur frequently through the riskscoring phase of RIPA. Calibration sessions at the operating unit level and cross-operating unit level will also include the core RIPA team, key operating unit and corporate leadership, and will occur multiple times through the RIPA process. Prioritization of projects or programs will follow the calibration process. This will be accomplished through a series of prioritization sessions, which are meetings with increasingly senior participants where the draft portfolio of scored and flagged risk projects will be reviewed. The objective of these sessions is to discuss and validate the projects/programs that have been flagged, discuss tradeoffs, and evaluate any additional considerations and constraints to determine the portfolio of mitigation projects/programs. To facilitate these discussions, the core RIPA team will create a draft portfolio based on the RSE scores and flags. The projects/programs will be grouped by flags and then within each flag group ranked in descending order by RSE. The portfolio will then be depicted in a graph similar to the one shown in Figure II- below. The core team will also prepare a list of projects/programs for discussion based on criteria such as: Projects with low RSE, but which mitigate safety and/or reliability; Low RSE but are flagged as mandatory; Projects just above or below the financial constraint determined for that area; Discussion of non-mandatory flags. 0

39 Figure II- Example of Portfolio Prioritization Illustrative Risk spend efficiency Verified as mandatory work (not risk based) Non-mandatory; risk and other flags considered RSE = th quartile RSE = rd quartile RSE = nd quartile RSE = 1st quartile Support Programs WRO In-flight Mandatory Lowest spend efficiency Cumulative investment, $ mn 1 In the prioritization sessions, participants will discuss and determine which projects/programs are part of the prioritized portfolio. This process is expected to be repeated for each year of the plan, in each series of prioritization sessions. This process can also be used to address emergent issues, which might require reprioritization of the plan. As with the calibration sessions, the prioritization sessions will include increasingly senior level participants. The result of this process will be a prioritized plan of projects/programs. While the process has yet to be implemented, we expect that it will be integrated into the existing financial planning process, which is ultimately reviewed and approved by the senior management team and approved by the Board of Directors. SCE plans to pilot the RIPA process in our T&D operating unit over the next year. 1

40 . Monitoring & Reporting Monitoring and reporting is an element of the overall ERM process (Figure II-). The monitoring and reporting process includes detecting changes to the identified risks and the effectiveness of mitigation plans, and communicating and reporting on these items. Figure II- Monitoring & Reporting E. Governance Figure II- below details SCE s current governance for overseeing and managing the ERM framework, enterprise risks, and the financial plan.

41 Figure II- ERM Governance Board of Directors Review enterprise risk and mitigation of those risks Review effectiveness of risk management program Approve financial plan Committees Provide oversight of risk management activities Approve financial plan Senior Management Manage enterprise risks and mitigation of those risks Manage risk management program, processes, policies and procedures Review and approve financial plan Corporate Develop and implement processes, procedures, and tools to manage risks Facilitate consistent implementation throughout company Review and monitor financial plan Operational Units (OU) - Risk Owners Owner of risks and mitigations Identify, evaluate, manage and report risks within scope of operations Develop and execute financial plan 1

42 1 1 1 III. RISK-INFORMED ASSET MANAGEMENT AND PLANNING ILLUSTRATIONS This section discusses how the ERM processes, models, and tools can be applied to operational and financial planning within SCE. We have selected two T&D-asset examples for discussion: poles and distribution overhead conductors. The examples illustrate SCE s current state in the evolution of its risk-informed planning, but the specific risk and mitigation evaluation results are illustrative only. 1 To put this evolution in context, we have included a discussion of how program selection and funding allocation decisions were previously made (i.e., 01 GRC request) and where we envision to be in the future. The future state definition will change as we learn and adjust through phased implementation. Even with our progress to date, we have identified several specific areas where SCE s data, analysis, and process capability will have to evolve to fully incorporate an explicit risk analysis and evaluation methodology into our decision making. A. Poles 1 1. Prior Methodology a) Risk Identification and Evaluation In developing work scope and GRC requests in the 01 GRC and prior, risks associated with poles were implicitly considered to ensure that there was sufficient funding of the inspection and maintenance programs designed to meet the higher of regulatory requirements (i.e., GO 1 inspection requirements and GO construction standards) and SCE s internal inspection and maintenance standards. Thus, current assessments determine the 1 Note, however, that as mentioned in Section I, not all T&D investment is subjected to a risk analysis. For example, when we need to spend capital to connect new customers, that investment decision is driven by our obligation to serve, not a risk analysis.

43 condition of each pole relative to these requirements, and remediation is designed to meet current construction standards. For example, standards for intrusive inspections assign a priority level to inspection failures based on several factors, including the level of deterioration. All other factors being equal, a higher level of deterioration implies a higher risk of potential failure during a given period. Accordingly, inspected poles were prioritized for replacement based on the level of deterioration observed. This process uses subject matter experts to set replacement timeframes based on the likelihood that deteriorating poles would, without remediation, fall below the design standards for in-service poles. SCE made appropriate changes to its pole program when additional opportunities for enhancement were identified. An explicit risk analysis was not part of the annual planning cycle, but rather triggered by specific events. For example, following the 00 Malibu event and the 0 San Gabriel Valley windstorm, SCE undertook several studies to estimate how many poles might not meet current design standards. Here, SCE estimated the probability of poles not meeting the standards, not the probability of poles failing in service. Similarly, the consequences of a pole not meeting design standards were only assessed in terms of regulatory compliance, not in terms of the consequences of a pole failing in service. This approach is reasonable as safety and reliability underlie both GO requirements and SCE s design standards, and meeting these standards is expected to promote safety and reliability. b) Risk Mitigation Identification and Evaluation To comply with GO 1 s deteriorated pole inspection requirements (called intrusive inspections), SCE instituted a rigorous pole inspection and replacement program. As discussed above, pole inspection results lead to a prioritized schedule for pole replacements. Consistent with SCE s previous compliance-focused approach, this replacement schedule was not explicitly based on poles reaching a specific probability of failure, but was

44 instead based on the results of the intrusive inspection, which determines the remaining section modulus of the pole. This has been discussed in detail in previous SCE GRC testimony. When we identified a sub-population of poles that did not meet the safety factor or pole loading criteria outlined in GO or SCE s internal standards, we initiated a program to perform pole loading calculations on all poles in the system, and then repair, replace, or upgrade poles as necessary to meet compliance requirements and internal design standards. This pole loading assessment and remediation program was designed to be a 1-year program with assessments to be completed in the first years for all poles in the SCE system. Repairs and replacements would be conducted based on the priority schedule assigned resulting from the pole loading assessment results. Poles in high-fire and high-wind areas were prioritized within the Pole Loading Program based on qualitative assessment of pole failure impacts. Additionally, several enabling projects were undertaken to (1) update processes for performing and recording pole loading calculations, () develop new tools to improve repeatability and accuracy of pole loading calculations, () train planners and estimators, and () clarify and update joint pole standards.. Current Methodology This section reflects SCE s current approach to evaluate and mitigate risks associated with poles. SCE s current methodology explicitly identifies, quantifies, and documents risks in terms of events and associated potential consequences. The results and information shared herein are for illustrative purposes only. We expect to be further refine them before filing future GRCs. The mitigation programs discussed are under evaluation and have not been implemented. A (SCE s 01 GRC), Exhibit SCE-0, Vol., Part 1, p. 0. A (SCE s 01 GRC), Exhibit SCE-0, Vol., Part. A (SCE s 01 GRC), Exhibit SCE-0, Vol., Part, p..

45 described in Section II. Table III- below summarizes the various aspects of SCE s ERM approach, Row 1: Risk Identification the risk event and potential outcome; Row : Risk Categorization the taxonomy category of the risk event and the potential impacts of the outcome; Row : Risk Evaluation the expected Triggered Event Frequency (TEF), the expected Consequence Percentage (CP) or the conditional probability of outcome occurring given the triggered event occurs, and the Consequence Impact (CI) or the expected severity level of the impact for the risk with current controls prior to any further mitigation actions being taken; Row : Driver Analysis the factors that cause the risk event or a certain outcome to occur; Row : Mitigation Identification the potential actions that can be taken to address the drivers and reduce the risk score; Rows a and b: Mitigation Evaluation the expected change in TEF, CP and CI due to a mitigation program or project being undertaken (two options shown in this example). 1 1 subsequent sections. The details on how each of these elements was developed are provided in the

46 Table III- Summary Of Pole Risk and Mitigation Evaluation 1. RISK STATEMENT. CATEGORY EVENT OUTCOME OUTCOME OUTCOME OUTCOME A pole fails in service Potentially leading to human contact with conductor Potentially leading to wildfire Potentially leading to property damage Potentially leading to outage Impact Dimension: Taxonomy: Impact Dimension: Impact Dimension: Impact Dimension: Environmental, Asset Related Risk Safety, Financial Financial Reliability Safety, Financial. CURRENT RESIDUAL RISK SCORING TEF: 0 per year Safety: CP/CI: 0.01%/ Financial: CP/CI: 0.01%/ Environmental: CP/CI: 0.0%/ Safety: CP/CI: 0.0%/ Financial: CP/CI: 0.0%/ CP/CI: 0.01%/ CP/CI: %/. DRIVERS Deterioration; Pole Loading; Manufacturing Method; Material; High Wind Residential; Metro High Fire; High Wind Residential; Metro Area Metro Area. MITIGATION IDENTIFI- CATION Design Specs; Pole Strengthening; Pole Replacement; Underground Detection of energized downed wire Vegetation Management, Detection of energized downed wire Detection of energized downed wire a. MITIGATION EVALUATION pole replacement per current criteria in high fire areas b. MITIGATION EVALUATION pole replacement per current criteria in nonhigh fire areas TEF: Estimated reduction from to TEF: Estimated reduction from 1 to 1 No change No change No change No change No change No change No change No change

47 a) Risk Identification and Evaluation The pole-related risk statements are: 1. Pole fails in service leading to human contact with overhead conductors, which could have safety and financial impacts;. Pole fails in service potentially leading to a wildfire, which could have safety, environmental, and financial impacts;. Pole fails in service potentially leading to property damage, which could have financial impacts;. Pole fails in service leading to an outage, which could have reliability impacts. These risks are intended to capture the consequences of poles failing even if the resulting hazardous event is not directly related to poles. For example, wildfires are not expected to be caused by a pole falling, but rather by energized wire falling when the pole it is attached to falls. If the pole did not fall, the consequences would not have been triggered, and hence the risks associated with the wires in such cases are attributed to pole risks. The risks associated with overhead wire failing independent of a pole falling will be accounted for in overhead conductor risks, discussed in the next section. The example risk statements included here and the subsequent scoring do not include pole failures due to conditions beyond a pole s design specification such as vehicle collisions or trees falling on poles. (1) Triggered Event Frequency (TEF) The TEF represents the number of times a pole is expected to fail in service in a given year. Historical data on the number of pole failures were not considered to be useful in predicting pole failure rates as the existing pole-replacement programs are designed to meet compliance requirements and prevent poles from failing.

48 Two predictive models to estimate TEF were considered. The first model was composed of two parts: planned replacements and reactive replacements. The planned replacements were derived from a forecast of deterioration-related failures based on pole age. These were added to the current level of breakdown replacements, which were expected to continue into the future at current levels. This model assumed that poles flagged for replacement after inspection within a certain timeframe would fail within a specified number of years if not replaced. This method is relatively simple, as it relies on pole age as the only factor in predicting failure rates. Pole age data is easy to obtain and predict. It also relies on commonly used survival analysis. This approach, however, has limitations. For example, historical failure rates vary based not only on age, but also on decay zones, vintage, and manufacturer, indicating that many factors need to be considered in forecasting pole failure, not just age. The second model uses historical inspection results to forecast the rates of decay in poles and applies an engineering analysis to estimate the likelihood of pole failures under given inspection cycles. It integrates recent inspection results in developing an overall model of pole failure based specifically on rates of pole decay. It is better suited to evaluating varying inspection intervals and differentiating the impacts of intrusive inspections and pole loading assessments on risk. This probabilistic model has been developed to forecast TEF as a function of: 0 1 The presence and extent of pole deterioration; The initial safety factor of the pole as designed; The likelihood of a dynamic load sufficient to topple a pole with a given design safety factor and level of deterioration. Forecast based on a Weibull analysis, which is commonly used to predict asset failure rates. Breakdown replacements are failures assumed to be independent of deterioration. For example, excessive wind or soil erosion can cause a pole to fail independent of the structural integrity of the distribution pole. 0

49 The forecasts for presence and extent of pole deterioration are based on the probability of a pole experiencing deterioration in a particular year given the pole s age, and the extent the deterioration is expected to spread within the pole. The likelihood that deterioration has begun is derived from intrusive inspection data over the most recent five-year period (0-01), while the growth rate of deterioration is based on the increase in decay observed in poles inspected after a given interval. Figure III- Forecast Pole Failure Counts,000,000,000,000,000,000,000,000 1, Estimated # of pole failures prevented by pole programs in place Expected # of pole failures without further mitigation Figure III- above shows the forecast TEF by year if no further pole risk mitigations were to be undertaken. The TEF of 0 pole failures in 01 increases to over,000 pole failures by 0. The expected number of pole failures are low in the initial years because of the effectiveness of SCE s current pole replacement program. Therefore, not The model assumes a nearly uniform distribution of pole inspections annually, that poles are inspected every years, and that replacements will be needed based on intrusive inspection results and random failure due to extreme events such as high wind. It does not include any poles replaced due to damage caused by third parties or poles replaced due to inspection other than intrusive inspections, such as external damage noticed by field crews. 1

50 many poles are in a state of decay that would indicate high probability of failure. Figure III- also shows the numbers of poles that are estimated to have failed if SCE did not have pole inspection and replacement programs in place. If some mitigation measures do not continue, the failure rate is expected to increase dramatically in the future as indicated in Figure III-1. This is a preliminary model, limited by the amount and quality of data available. Currently we are relying on comprehensive inspection data on poles housed in SCE s asset management database since 0. Additional data on poles being inspected each year will improve the model quality. Moreover, the actual number of poles experiencing decay may be understated as inspections are not guaranteed to detect decay in every case. When inspections detect decay, it is at a single instant in time, and the inspections do not directly reveal the rate of growth of decay in a particular pole. The estimation of decay growth is complex and relies on a combination of data and expert judgment. SCE expects to continue refining these models to improve accuracy of predicting TEF. For example, subject matter experts are designing field trials that will directly measure the rate of decay growth in specific poles once deterioration has begun. The current TEF model also does not differentiate between different categories of poles; future enhancements will model rates of decay, which are expected to vary with local environmental conditions and decay zones. () Consequence Percentage (CP) and Consequence Impact (CI) The following Table III- summarizes data source and methodology for calculating the CP and CI for each event-outcome-impact combination for distribution pole risks. The CP and CI for each outcome-impact combination (except for the wildfire outcome, which is based on assumptions) is selected based on the WRDI method previously described in Section II. For example, for estimating reliability CP and CI: (1) all pole-related outages from were categorized into impact levels of 1 through per the RET, () the corresponding CP was calculated as the proportion of pole related outages in each

51 impact level, () the risk score was calculated for each impact level, and () the CP and CI corresponding to the highest risk score was selected as the WRDI set shown in Table III-1 and Table III-1. Table III- CP and CI Forecast Approach For Pole Risks Risk Statement Pole fails in service potentially leading to human contact with overhead conductors which could have safety and financial impacts Pole fails in service potentially leading to a wildfire which could have environmental, safety, and financial impacts Pole fails in service potentially leading to a property damage which could have financial impacts Pole fails in service potentially leading to an outage which could have reliability Data source and methodology for CP and CI estimation Annual average of CP-CI combinations from CPUC reportable incidents and emergency pole replacement data CP is a product of percentage of poles in high fire areas percentage of events involving downed overhead conductors in high fire areas where the equipment remain energized from data collected since May, 01 assumed % of incidents involving energized conductor down events that lead to wildfires assumed % of wildfires lead to extensive environmental and financial impact % percent probability that a wildfire will lead to multiple CI based on combination of historical data and professional judgment. It was assumed that all pole failures will lead to downed-wire. Annual average of CP-CI combinations from CPUC reportable incidents and emergency pole replacement data Outage data from 00 to 01 () Risk Scoring The TEF, CP, and CI are summarized in Table III-1 below, and also in row of Table III- above. Once these are estimated, the risk score for each outcome and impact dimension can be calculated. The risk score is calculated for each combination of See SCE SMAP Workpaper.xlsx, Pole Summary and Pole Repl Prog by Tranche tabs. The risk score for each outcome-impact combination is TEF*CP* CI.

52 risk event, outcome, and impact dimension. The total risk from poles failing in service is the sum of risk scores from all the outcome-impact pairs associated with this risk. The risk scores can also be aggregated by outcome or impact. The latter is shown in the second table below, Table III-1. Table III-1 Evaluation of Pole Risks (Illustrative Only) RISK SCORING FOR POLE FAILING IN SERVICE BY POTENTIAL OUTCOME IN 01 Risk Statement Current Residual No. Outcome Impact Dimension TEF WRDI CP WRDI CI Risk Score a 1 Injury Safety %, b Financial % c Environmental 0 0.0% 1, d Wildfire Safety % 1, e Financial 0 0.0% 1,0 f Property Damage Financial % g Outage Reliability 0.01%,1 Total 1,0 Table III-1 Summary of Pole Risks By Impact Dimension (Illustrative Only) SUMMARY OF RISK SCORES FOR POLE FAILING IN SERVICE BY IMPACT DIMENSION Currrent Residual Risk Impact Dimension Score a+d Safety 0, g Reliability,1 c Environmental 1, b+e+f Financial 1,0 Compliance 0 Total 1,0

53 b) Risk Mitigation Identification and Evaluation This section discusses the methodologies and processes we currently use to determine what mitigation options should be considered for poles, and to characterize the expected benefits, costs, and operational implications associated with any given mitigation alternative. The results shared should be considered illustrative only to demonstrate the methods, and they need further review and validation. The actual implementation plans for 01 are not expected to be significantly impacted by these results as the new methods need to be validated and because work is scheduled many months in advance. (1) Driver Analysis Determining which factors drive risk and the relative contribution of these drivers is the foundation of better predictive models for asset risk exposure, designing mitigation programs to target these factors, and prioritization of asset sub-populations for mitigation. Risk drivers can impact the TEF (increase the risk of pole failing), the CP (probability of an outcome manifesting if a pole fails), or CI (the severity of the impact if the outcome occurs). The pole risk drivers were identified through a combination of data analysis and inputs from engineers, wood product specialists, and field personnel. The current list of drivers identified are summarized in row of Table III-, and discussed further below Deterioration of pole: This reduces the remaining section modulus of the pole, making it more susceptible to failure, and thus increasing TEF. Pole loading: If the stress on the pole from equipment and attachments on the pole is higher than what the pole is designed for, it increases the likelihood of failure or TEF, especially when additional forces such as high wind are experienced.

54 Manufacturing method: The process used for manufacturing a pole may determine the efficacy of the chemical treatment of the pole, making it more or less resistant to decay over time, and thus affecting TEF. Material: Wood poles are more susceptible to decay, woodpecker damage, or failure during a fire compared to concrete or steel poles. The pole s material can thus impact TEF. High-wind areas: Poles located in high-wind areas are exposed to higher stresses that can increase TEF. If a pole fails and starts a wildfire, the fire is more likely to spread in a high-wind area, which affects CP and CI for this outcome. Residential or Metro areas: Property damage is more likely to occur where the density of customers is higher or near residential areas, thus increasing CP. Transformers on poles in metro areas are also expected to serve more customers on average, thus increasing CI for outages. Similarly, more individuals will be exposed to energized wire or equipment in metro and residential areas, thus increasing CP for injuries. High-fire areas: If a pole fails in service, wildfires are more likely to start in high-fire regions, which will impact CP and CI for this outcome. Since the risk statement is limited to poles failing during conditions for which they were originally designed, drivers such as vehicles hitting poles or trees falling are not included in this driver analysis. Moreover, the list of drivers is expected to be updated as SCE s data and analytical capabilities improve.

55 () Asset Criticality Database Driver analysis can help determine which pole attributes are key to evaluating risks specific to that asset. The poles can then be aggregated by a combination of attributes to stratify them into pole sub-populations that can be ranked by risk or matched with targeted mitigation options. Each pole can be tagged by its remaining strength modulus, pole loading safety factor, manufacturing method, material, and location (high-wind, high-fire, metro, or residential areas). Once a comprehensive asset database is compiled, the population of poles can be subdivided into multiple tranches representing high-risk to low-risk poles. The poles within a given tranche are expected to have a similar risk profile. The number of tranches should be chosen such that poles with distinctly different risk characteristics can be segregated to target mitigation and maximize risk reduction, but also be limited to facilitate ease of analysis and implementation given data and analytical maturity. Currently, SCE is in the process of compiling the pole asset criticality database. Assumptions must be made when specific pole attributes are not available, and the database will be updated as our data capability further matures. () Mitigation Alternatives Driver analysis is essential to identify and develop mitigation alternatives that are directed to reduce the effect of the driver. Potential mitigation options were identified by soliciting input from subject matter experts across the organization. This section is not meant to be a comprehensive set of potential mitigation options, but instead to highlight that reducing pole risks might require a multipronged approach targeted by pole tranche. Pole design standards can be updated to specifying size, material type, manufacturer and construction that would reduce failure probability;

56 1 1 Pole inspection programs can be tailored to the risk profile of tranches by altering inspection frequency and thresholds for initiating mitigation; Poles can be repaired or strengthened by adding queen posts, guy wires, steel stubs, or fiberglass wraps; Poles that pose high risks can be replaced using updated design standards, but the criteria for replacement can be customized to reduce consequences; Lines in high risk areas can be undergrounded to reduce the impact of high-wind or reduce probability of human contact; Aggressive vegetation management and brush control can be undertaken in high-fire and high-wind areas to limit probability of fire starting or spreading The only mitigation option evaluated in this example is pole replacement for two tranches of poles: those in high-fire designated areas and those in non-highfire designated areas based on a levelized -year intrusive pole inspection cycle. The forecast for pole replacements in each tranche is determined by applying the same criteria currently in use to tag a pole for replacement and assign priority based on remaining section modulus. The remaining section modulus forecast for each pole is based on the predictive model described previously, which then sets the future date for the pole replacement. Table III-1 below summarizes the estimated risk scores pre- and post-mitigation for the two tranches of poles in 01. The current residual TEF is estimated using the pole failure model described in Section III.A..a) above, categorized by high-fire and non-high fire areas ( in high-fire areas and 1 in non-high-fire areas adding to 0). The planned residual TEF, calculated using the same model described earlier, represents poles that are expected to fail due to exposure to high stresses beyond the design criteria for the pole, such

57 as extreme wind speeds, i.e., the pole replacement program is not designed to prevent these pole failures. The CP and CI associated with each tranche and outcome are not expected to change with the current mitigation program as it does not target the drivers of CP and CI. Table III-1 Pre-mitigation and Post-mitigation Risk Scores by Program Tranche (Illustrative Only) RISK SCORING FOR POLE FAILING IN HIGH-FIRE AREA BY POTENTIAL OUTCOME IN 01 ASSUMING 10 POLE REPLACEMENTS Risk Statement Current Residual Planned Residual No. Outcome Impact Dimension TEF WRDI CP WRDI CI Risk Score TEF WRDI CP WRDI CI Risk Score 1 Injury Safety 0.00% 1,0 0.00% 1 Financial 0.00% % Environmental 0.% 1, 0.%,0 Wildfire Safety 0.1% 1, 0.1%, Financial 0.% 1,0 0.%, Property Damage Financial 0.01% 0.01% Outage Reliability.01%,.01%, Total 0,0 1, RISK SCORING FOR POLE FAILING IN NON-HIGH-FIRE AREA BY POTENTIAL OUTCOME IN 01 ASSUMING 000 POLE REPLACEMENTS Risk Statement Current Residual Planned Residual No. Outcome Impact Dimension TEF WRDI CP WRDI CI Risk Score TEF WRDI CP WRDI CI Risk Score 1 Injury Safety %, %,1 Financial % % Environmental 1 1 Wildfire Safety 1 1 Financial 1 1 Property Damage Financial % % Outage Reliability 1.01%, 1.01% 1, Total,, Figure III-1 below shows the expected reduction in TEF based on prior and forecast replacements for a ten-year planning horizon.

58 Figure III-1 Impact Of Risk Mitigation On Forecast Pole Failure Counts 1 Evaluation of a pole replacement program includes cost forecasts, estimated risk reduction contribution, resource requirements (crews, planners, etc.), operational considerations (permitting, bundling with other work on the same circuits, etc.), and other considerations such as compliance requirements. This information will be input to the prioritization process. Table III-1 summarizes the Risk Spend Efficiency for the two tranches of pole replacements in high-fire and non-high-fire areas calculated based on program scope, unit costs, pre-mitigation risk scores for the tranches, and post-mitigation risk scores for the same tranches. It should be noted that the pole programs at SCE will continue to meet GO and GO 1 requirements; these inspection and replacement programs may be supplemented by pole failure risk analysis in the future. 0