BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA REPLY BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U338-E) PUBLIC VERSION

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1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application Of Southern California Edison Company (U 338E) For Authority To Increase Its Authorized Revenues For Electric Service In 2018, Among Other Things, And To Reflect That Increase In Rates. A (Filed September 1, 2016) REPLY BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U338-E) PUBLIC VERSION KRIS G. VYAS GLORIA M. ING Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone:(626) Facsimile: (626) Dated: September 29, 2017

2 Reply Brief of Southern California Edison Company Table of Contents Section Page 1. POLICY EVIDENTIARY STANDARDS AND THE BURDEN OF PROOF SETTLEMENTS TRANSMISSION AND DISTRIBUTION T&D General Operational Overview Risk-Informed Decision Making Safety and Reliability Investment Incentive Mechanism T&D Customer-Driven Programs Rule 20 Issues The Penalty That ORA Seeks Is Unreasonable and Would Curtail Rule 20A Projects ORA Attempts To Introduce Brand-New Evidence In Its Opening Brief SCE s Proposal Would Result In Some Cities Not Receiving Allocations Because SCE Has Put Forward A Reduced But Prudent Forecast The Commission Has Opened A Rulemaking To Consider Revisions To Rule T&D System Planning New Distribution Circuits Substation Expansion Projects Substation Equipment Replacement Program (SERP) Subtransmission Line Plan kV Programs kV Cutover Program...6 -i-

3 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page kV Substation Elimination Project Grid Reliability Projects PV Dependability and Capacity-Driven Capital Projects T&D Distribution Maintenance and Inspection T&D Distribution Construction & Maintenance T&D Substation Construction & Maintenance Substation Physical Security Substation Protection & Control Replacement Program SAS Infrastructure Replacement T&D Transmission Construction & Maintenance O&M Transmission Overhead and Underground Line Maintenance O&M Transmission Vegetation Management Capital: Transmission Tools and Work Equipment T&D Infrastructure Replacement Worst Circuit Rehabilitation (WCR) Overhead Conductor Program Capacitor Bank Program T&D Poles T&D Grid Modernization SCE s Reliability is Not Improving And Lags Behind Its Peers While SAIDI Metrics that Include MEDs are Useful for Some Purposes, They Cannot be Used to Measure a Utility s Performance Against Historical Metrics or Peer Utilities IEEE s Report Provides a Fair Comparison of Utility Performance and Shows SCE Lagging ii-

4 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page The CPUC s 2016 Reliability Report Demonstrates that SCE s Reliability is Declining SCE s Proposal is the Only One That Will Sufficiently Modernize SCE s Grid In Addition to Being Procedurally Inappropriate, TURN s Primary Proposal Will Not Achieve Near the Level of Reliability Estimated by TURN TURN Underestimates the Value of Remote Intelligence Switches SCE s AMI Will Not Provide the Functions ORA Claims it Will Only SCE s Proposal Will Resolve Masked Load Issues SCE Has Demonstrated the Cost-effectiveness of its Grid Modernization Program SCE s BCA is Still Positive Even When Adjusted for SEIA- Vote Solar s Unreasonable Criticisms ORA s Payback Period Analysis is Flawed SCE Has Sufficiently Rebutted the Issue of Upgrade Costs SCE s Existing Communications Backbone is Outdated, Slow, Reaching Saturation and Needs to be Replaced Investment in FAN is Justified on the Basis of Latency Alone NetComm Cannot Support Even a Modest Level of Additional Telemetry T&D Grid Technology Energy Storage Pilots SCE s Proposal Is Consistent With Commission Guidance ORA and TURN Incorrectly Assert The Energy Storage Pilots Should Be Funded Through The EPIC Program iii-

5 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page ORA s Argument Concerning Pre-Commercial Strategies Would Render The Commission s Guidance Meaningless The Distributed Optimized Storage Project (DOS) Does Not Provide a Turn-Key Solution and is Not Duplicative ORA s arguments that SCE did not meet EPIC requirements are not pertinent, because SCE did not propose the projects in EPIC ORA Did Not Raise The Cost Cap For Distributed Resources Plan Demo E Until Its Opening Brief ORA Incorrectly Claims The ESPs Are Duplicative Of Other Efforts The ESPs are Not Duplicative of IDER Pilots The ESPs Are Not Duplicative of Three DRP Demonstration (Demo) Projects TURN Is Also Incorrect in Asserting the ESPs Are Duplicative ORA Erroneously Claims The ESPs Do Not Meet The Standard Of Review For A Utility-Owned Storage Project The ESPs are Not Subject to Competitive Solicitation and Associated Requirements Even Though A Competitive Solicitation Is Not Required, SCE Used A Competitive Request for Proposal (RFP) Process to Select the Vendor to Supply SCE s Battery Energy Storage for the Pilots TURN Incorrectly Asserts That Storage Mandate Requirements Bar SCE s Request ORA Incorrectly Contends That the Distribution Volt VAR Control (DVVC) Program Is A Grid Modernization Program TURN s Attacks on SCE s Equipment Demonstration & Evaluation Facility (EDEF) Are Not Warranted T&D Safety Training & Environmental Programs Environmental Programs Transmission (Acct ) Hazardous Waste Management and Disposal (Acct ) iv-

6 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page T&D Other Costs, Other Operating Revenues T&D Additional Issues CUSTOMER SERVICE Customer Service O&M The Commission Should Approve SCE s Forecast for its Metering Services Organization Meter Reading Operations FERC Account Test, Inspect, and Repair Meters FERC Account Turn-On and Turn-Off Services FERC Account Customer Installation and Energy Theft Expense FERC Account Meter Services Operation and Management FERC Account The Commission Should Approve SCE s Forecast for its Revenue Services Organization Billing Services FERC Account Credit and Payment Services FERC Account Postage FERC Account Uncollectible Expense FERC Account The Commission Should Approve SCE s Forecast for its Customer Contact Center The Commission Should Approve SCE s Forecast for its Business Customer Division The Commission Should Approve SCE s Forecast for its Customer Programs and Services Customer Service Capital Customer Service Other Operating Revenue v-

7 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page 5.4. Customer Service Additional Issues INFORMATION TECHNOLOGY Information Technology O&M and Hardware Hardware/Software Licenses & Maintenance Business Integration & Delivery (BID) Customer Service Re-Platform New Grid Planning and Analytics Grid Modernization HR Platform Modernization Grid Services Information Technology Capitalized Software Contingency Amounts in Capitalized Software Forecasts Cybersecurity and Compliance SCE Does Not Object To ORA s Position that 2016 Recorded Costs Be Used For Capital Projects, Including SCE s Cybersecurity & Compliance Programs SCE Opposes TURN s Recommendation That The Commission Remove All Capital Expenditures Related To Cybersecurity Into a Memorandum Account The Evidence Demonstrates That SCE Needs All Of Its Ongoing C&C Capital Projects A Memorandum Account Is Inappropriate For Cybersecurity-related Projects SCE Provided Appropriate Cost Justification and Information To TURN While Meeting Its Obligations To Protect Sensitive and Classified Information vi-

8 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page SCE Welcomes The Opportunity to Streamline How Cybersecurity Information Is Shared Both With Intervenors and the Commission Grid Modernization Cybersecurity It Is Vital That SCE Implement The Grid Modernization Cybersecurity Project Even If Grid Modernization Is Removed From This GRC, Grid Modernization Cybersecurity Costs Are Necessary Now To Fix Existing Vulnerabilities A Memorandum Account Is Inappropriate For Costs Related To Cybersecurity Other Capitalized Software Vegetation Management (VM) Project Comprehensive Situational Awareness for Transmission (CSAT) Grid Planning & Analytics Software Enterprise Content Management (ECM) Project Information Technology - Customer Service Re-Platform SCE s Forecast Should be Approved in this 2018 GRC Proceeding The Commission Should Approve SCE s Reasonable Proposed Contingency The Commission Should Approve SCE s Request to Recover its Reasonable Forecast for O&M Costs Supporting CS Re-Platform in this GRC, Not through a Memorandum Account Information Technology Additional Issues SCE s Use of Managed Services Providers (MSPs) GENERATION Generation Nuclear Generation (Palo Verde) vii-

9 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page 7.2. Generation Energy Procurement Generation Hydro Generation Generation Catalina & 2017 Capital for PBGS Automation Project Capital Project for All Other Capital Projects Under $3 Million Generation Other Mountainview Peakers Mohave Closure Solar Photovoltaic Fuel Cells Generation Additional Issues HUMAN RESOURCES Human Resources O&M Benefits and Other Compensation Short-Term Incentive Programs The Goals and Metrics Underlying SCE s STIP and EIC Are Expressly Designed to Advance Customer Interests TURN s and NDC s Recommendations to Modify SCE s STIP and EIC Forecasts Should Be Rejected Conclusion Long-Term Incentives Recognition Programs Medical Programs viii-

10 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page Executive Benefits Program Human Resources Total Compensation Study Human Resources Additional Issues OPERATIONAL SERVICES Business Resiliency Corporate Environmental Services Corporate Real Estate ORA s Recommendation of a Blanket Reduction to CRE s Capital Forecast Should Be Rejected TURN s Recommendations for Reductions to CRE s Capital Forecast Should Be Rejected Service Center Modernization Program TURN s Challenges to SCE s Service Center Modernization Projects Inaccurately Contend that the Projects Are the Same as Those Requested in Prior GRCs and Fail to Account for the Limited Funding Authorized in the 2015 GRC Decision Changes in Scope and Scale of Service Center Modernization Projects and Related Forecasts Primarily Arose from Lessons Learned from Past Service Center Upgrade Projects and Benchmarking Efforts about Fitness for Purpose Deficiencies Specific Service Center Projects Storage of Critical Electrical Equipment Spares Blanket Programs Non-Electric Capital Maintenance Substation Capital Maintenance Various Major Structures ix-

11 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page 9.4. Corporate Health and Safety Corporate Security Supply Management Supplier Diversity Transportation Services TURN Has Withdrawn Its Recommendation for Modifications to TSD s Forecast of Non-Fuel Operating Costs TURN s New Recommendation for Changes to SCE s Showing of Transportation-related Costs in the Next GRC Should Be Rejected TURN s Reduction of Refueling Services Costs Should Be Rejected Operational Services Additional Issues ADMINISTRATIVE & GENERAL Ethics and Compliance Regulatory Affairs Regulatory Affairs Labor: FERC Account 920/ Regulatory Affairs Integrated Planning Power Procurement: FERC Account Corporate Communications Corporate Communications Operations Labor: FERC Account 920/ Corporate Communications - Outside Services: FERC Account Local Public Affairs Local Public Affairs FERC Account 920/ Corporate Membership Dues and Fees FERC Account Financial Services Account 920/921 (Labor) x-

12 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page Accounts 923/930 (Non-Labor) Audits Enterprise Risk Management Legal Removal of Costs Resulting from Alleged Imprudence TURN Improperly Relies Upon SONGS-Related Costs to Support its Position Remedies For The Other Instances Of Alleged Imprudence Have Been Determined In Other Commission Proceedings; Assessment Of Additional Cost Reductions At This Late Date And In This Proceeding Would Be Unfair And Would Unwisely Discourage Settlements Law Claims Workers Compensation Disability Program Property and Liability Insurance Property Insurance Liability Insurance [CONFIDENTIAL SECTION] Administrative & General Additional Issues RATEMAKING PROPOSALS JURISDICTIONAL ISSUES SALES AND CUSTOMER FORECAST ORA s 36 Month Lag is Unrealistic CFC s Proposal is Unclear TURN s Opening Brief Provides Nothing New xi-

13 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page 14. OTHER OPERATING REVENUE COST ESCALATION POST TEST YEAR RATEMAKING Response to Issues Raised by Both ORA and TURN ORA and TURN Recognize the Need for a Post-Test Year Ratemaking Mechanism ORA s and TURN s Mechanisms Will Not Provide Adequate Revenue Requirements for SCE The Consumer Price Index (CPI) Is Not an Appropriate Price Index for O&M or Capital Costs Response to ORA Response to TURN SCE s Mechanism Does Not Guarantee Utility Earnings TURN s Table of Commission Decisions Supports SCE s Proposal Escalating the Revenue Requirement Is Not Appropriate TURN s Analysis of Historical Capital Additions Does Not Support Its Proposal RATE BASE COMPONENTS Electric Plant Depreciation Expense Taxes Rate Base Customer Advances Customer Advances Electric Construction Customer Advances Temporary Services Materials and Supplies xii-

14 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page Working Cash Lead Lag Study Revenue Lag Days Income Tax Lag Fuel and Purchased Power Expense Lag Other O&M Expense Lag Depreciation & Deferred Income Tax Lags Customer Deposits ORA's Projection of 2018 Customer Deposits Should Not Be Used TURN's Proposed Rate Base Adjustment Should Be Denied TURN's Opening Brief Incorrectly Claims That Customer Deposits Would Be Cost-Free If They Did Not Offset Rate Base TURN s Opening Brief Showcases the Variability in Customer Deposits TURN Incorrectly Applies the PG&E Decision AFUDC Rate Base Components Additional Issues DEPRECIATION STUDY Foundational Overview T&D Net Salvage TURN Misses the Point of SCE s Peer Group Study TURN s Principal Criticism of SCE s Untempered Study Incorporating Inflation Leads to No Different Inflation Proposal Legitimately Pending in the Proceeding SCE Incorporated the Effects of Inflation Consistent with SP U xiii-

15 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page TURN s Net Salvage Proposal Is Not A Defensible Forecast Method ; It s Just An Output Focused Exclusively On Keeping Rates Low TURN s Insistence That Its Proposal Accrues for Future Cost of Removal is Meritless The Commission Should Reject TURN s Request to Bar SCE From Using a Per-Unit Analysis Life T&D Life Hydro Life Solar Life Generation Decommissioning Depreciation Study Additional Issues RATE BASE ADDITIONAL ISSUES Aged Poles Commission Precedent Shows That Permanent Write-Offs Are Accompanied by Explicit Language To That Effect SCE Has Adequately Demonstrated The Reasonableness of Its Cost Recovery Proposals Capital Spending Above Authorized TURN Seeks Improperly To Graft a New Procedural Requirement on SCE s GRCs That Violates Due Process TURN Overlooks The Procedural Avenues Available To It And Others To Pursue Inquiries About the Reasonableness Of Past Utility Spending Substantively, TURN s Doubts That SCE Spent Prudently On Critical Safety and Reliability Programs Lacks Merit TURN s Proposal Would Contravene Public Policy and Offer Poor Incentives for Proactive, Necessary Safety Spending xiv-

16 Reply Brief of Southern California Edison Company Table of Contents (continued) Section Page TURN s Reliance on the GT&S Case Is Misplaced Changes in Accounting SPIDACalc Pole Issues SCE Appropriately Chose SPIDA As Its Software Vendor SCE Appropriately Pursued Improvements to SPIDA Version TURN s Revised Disallowance Proposal Remains Disproportionate and Unjustified Correction for Shareholder-Assigned Costs Rate Base Additional Issues AFFORDABILITY RESULTS OF EXAMINATION COMPLIANCE CEMA BARK BEETLE RECOVERY CALSLA ISSUES OTHER ISSUES Appendix A Uncontested Issues for O&M Expense (Corrected)... A Appendix B Declaration Regarding Confidentiality of Certain Data... B -xv-

17 Authority Reply Brief of Southern California Edison Company Table of Authorities Page Federal Regulations 18 C.F.R. 5.5(d) , 18 C.F.R Statutes Cal. Pub. Util. Code 309.5(e) Cal. Pub. Util. Code Cal. Pub. Util. Code Cal. Pub. Util. Code Cal. Pub. Util. Code (d) Case Law Hart v. Lancashire & Yorkshire Ry. Co., 21 L.T.R. N.S. 261, 263 (1869) Re Petition of Atlanta Gas Light Company for Approval of Adjustment of its Rates and Revised Tariff, 2010 WL (Ga. P.S.C.) , 153 Re Southern California Gas Company, 55 CPUC 2d 134, Re Washington Gas Light Company, 95 Md. P.S.C 106 (2004) CPUC Decisions D , 16 Cal. P.U.C.2d D , 18 Cal. P.U.C. 2d D , 27 CPUC2d D D , 34 CPUC2d , 123 D , 50 CPUC2d D , 52 CPUC2d D , 53 Cal. P.U.C. 2d D , 68 CPUC2d D , 68 CPUC2d D D D , 172 D , 121, 166, 178 D D , 156 D D , 171 D , 50 D , 170 D D xvi-

18 Authority Reply Brief of Southern California Edison Company Table of Authorities Page D D , 47 D D , 161, 172 D , 168 D passim D D , 150, 161, 173 D D , 171, 172 D D D D D D passim D D , 180 D D D , 48 D CPUC General Orders G.O G.O GO CPUC Rules of Practice and Procedure Rule 1.4(a) (2) Rule 1.4(a) (4) Rule CPUC Rulemaking R Other Authorities CPUC Standard Practice U , 148 CPUC Standard Practice U , 155 FERC Accounting Release AR-12, IV Fed. Energy Reg. Comm n Rep. (CCH), 40,012 (1980) xvii-

19 SUMMARY OF RECOMMENDATIONS In September 2016, Southern California Edison Company (SCE or Company) filed its Application for a Test Year 2018 General Rate Case (GRC). In that Application, SCE asked the California Public Utilities Commission (CPUC or Commission) to adopt an Authorized Base Revenue Requirement (ABRR) of $5.885 billion to become effective January 1, 2018, and to reflect the ABRR in distribution, generation and new system generation (peakers) rates. SCE s request has been modified during the litigation of this proceeding. SCE is now asking the Commission to authorize an ABRR of $5.859 billion. 1 SCE s Chief Executive Officer Kevin Payne testified that several factors are driving changes in our business. 2 Advancements in key energy technologies, along with changing customer behaviors and preferences about clean energy and the ability to choose and control their energy use, are together creating an unprecedented new era in how electricity is generated, delivered, and used. Regardless of these developments, what is not changing is SCE s responsibility to deliver safe and reliable electricity to its customers, whether it is on a 4kV circuit with old obsolete equipment, or a new 16kV circuit with a majority of the customers using solar photovoltaic, or anything in between. Meeting this core responsibility is the focus of SCE s GRC showing. SCE s infrastructure continues to age and deteriorate. Equipment failures pose serious safety and reliability risks, and SCE is continuing to work proactively to mitigate those risks. SCE has highlighted these issues in the past several rate cases, and appreciates that the Commission has authorized funding to pursue several infrastructure replacement programs with increasing scope. But SCE has still not arrived at a steady state of maintenance where grid performance is no longer eroding. SCE must leverage its Infrastructure Replacement and Grid Modernization programs to implement solutions that foster and improve safety and reliability and help meet California policies. Moreover, as customers use the grid differently by adding distributed energy resources (DERs), feeding excess generation back to the grid, or changing load patterns by charging electric vehicles at night, SCE must make the necessary modifications to keep up with these changes. While it would be shortsighted to narrowly focus on DER enablement, SCE cannot afford to simply ignore the reality and promise of DERs. SCE s request will provide modern capabilities to its electric grid through an 1 The requested revenue requirement and the positions set forth in this Reply Brief and the Opening Brief are based on the evidentiary record. 2 Exhibit SCE-01, p. 1.

20 integrated and measured no regrets approach that will: begin providing customer benefits now; start preparing the grid and SCE s workforce for all realistic future scenarios; build in flexibility for uncertainties; and leverage the available and upcoming resources from customer sites and DER providers. In addressing its responsibilities, SCE also needs to spend its customers money prudently. In the work SCE will undertake in this rate case cycle, the Company will hold fast to key values that have defined its service to its customers: Safety as more and more people live and work near SCE s equipment, and interact directly with SCE s grid. Reliability as the communities SCE serves depend to a greater degree on 24/7 electric service in every aspect of their work and personal lives, and as SCE manages an aging system. Resilience in light of natural disasters, and malicious and ever-expanding cyber-hacks and cyber-attacks. SCE s request has been thoroughly tested and explained through discovery, deep dive workshops, extensive prepared testimony, 15 days of evidentiary hearings, and several days of public participation hearings throughout SCE s service territory. (Additional public participation hearings are scheduled for November 2017). The resulting record amply demonstrates that SCE s request is reasonable. The table below summarizes the changes in SCE s requested revenue requirement for Test Year 2018 and the two post-test Years, 2019 and SCE also includes below two tables that summarize SCE s current O&M request and capital expenditures request. These tables do so on a volume-by-volume basis with reference to SCE s opening testimony.

21 CPUC Application 5,885,244 6,418,388 6,988, SCE Revisions Southern California Edison Company Change in GRC Revenue Requirement (Thousands of Dollars) 3. SCE Agreed to ORA/Intervenors Adjustments: 4. Power Supply (186) (636) (1,177) 5. T&D 2,776 (15,166) (30,942) 6. A&G (including OS and TSD) (2,067) (4,899) (10,314) 7. Pension Forecast - (28,741) (31,744) 8. Working Cash/Rate Base (2,052) (3,582) (10,823) Recorded Capital Expenditures 10,716 9,546 11, Subtotal 9,186 (43,478) (73,960) 11. Errata (9,480) (11,197) 4, Aged Pole Correction 14,817 12,397 9, RO Model Updates (3,454) (1,231) (1,362) 14. STIP Accounting Change (30,291) (28,385) (25,061) 15. Shareholder-Assigned Costs (6,762) (7,196) (7,030) 16. Subtotal for Updates (25,984) (79,090) (92,935) 17. Rebuttal 5,859,260 6,339,298 6,895, Joint Comparison Exhibit Updates 19. Ridgecrest Service Center Correction Catalina Concession Correction T&D O&M Rounding Concession (5) (5) (5) 22. Subtotal for Updates Joint Comparison Exhibit 5,859,263 6,339,338 6,895,750

22 Summary of SCE's Updated O&M Request (Including OOR) (Nominal $ in Thousands)

23 Summary of SCE's Updated Capital Expenditures Request (Nominal $ in Thousands)

24 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application Of Southern California Edison Company (U 338E) For Authority To Increase Its Authorized Revenues For Electric Service In 2018, Among Other Things, And To Reflect That Increase In Rates. A (Filed September 1, 2016) REPLY BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U338-E) Pursuant to Rule of the California Public Utilities Commission s (Commission s) Rules of Practice and Procedure, and the schedule issued by the Administrative Law Judges (ALJs), Southern California Edison Company (SCE) submits its Reply Brief in this proceeding, SCE s General Rate Case (GRC) Application for Test Year At the outset, SCE respectfully notes that many sections of the Opening Briefs of ORA, TURN and other parties appear to simply repeat points made in their prepared testimony, and do not confront or address SCE s rebuttal showing. Although SCE disagrees with the arguments and accuracy of many portions of these parties Opening Briefs, for the sake of brevity SCE will not repeat positions we have briefed in SCE s Opening Brief. Instead, SCE s Reply Brief mainly focuses on the new or modified arguments and issues raised by the parties in their respective Opening Briefs. SCE s silence in this Reply Brief on any issue should not be interpreted in any way as acquiescence to the material presented in other parties Opening Briefs. Where a topic or heading in SCE s reply brief contains no supporting text, SCE asks that the reader refer to the same topic or heading in SCE s Opening Brief for SCE s arguments and citations to the record. SCE s Opening Brief included appendices with tables of uncontested capital requests, uncontested O&M requests, and uncontested memorandum and balancing account proposals. SCE requested that the final decision issued by the Commission confirm that each of the items found in these appendices is approved. The table for uncontested O&M requests inadvertently contained a single line item that is actually being contested. SCE provides, as Appendix A to this Reply Brief, a corrected version of the table that removes that single line item. 1

25 1. POLICY 2. EVIDENTIARY STANDARDS AND THE BURDEN OF PROOF 3. SETTLEMENTS 4. TRANSMISSION AND DISTRIBUTION 4.1. T&D General Operational Overview Risk-Informed Decision Making Safety and Reliability Investment Incentive Mechanism 4.2. T&D Customer-Driven Programs Rule 20 Issues The Penalty That ORA Seeks Is Unreasonable and Would Curtail Rule 20A Projects As SCE discussed in its testimony, Rule 20A projects are extremely complex 3 and typically take three to five years to complete. 4 SCE s opening brief addressed why ORA s proposed penalty would lead to the completion of less Rule 20A projects. 5 In response to an ALJ request, SCE provided specific project impacts and delays if the Commission adopts ORA s suggested penalty. 6 In discussing its proposed penalty in this case, ORA suggests that it made the same proposal in SCE s 2015 GRC and the Commission adopted it. 7 But ORA s proposal in this case is not the same as the one in the last rate case. In SCE s 2015 GRC, ORA proposed its adjustment as a reduction to the forecast that the Commission should authorize. 8 As stated in the 2015 GRC decision, SCE disagreed with ORA s reasoning but chose not to contest the reduced forecast. 9 The Commission approve[d] 3 Exhibit SCE-02, Vol. 2, p. 39, lines ( Generally speaking, Rule 20A conversion projects are among the most complex projects within the Distribution Business Line. Each project requires coordination with multiple utilities and customers, and necessitates acquiring multiple permits based on the magnitude and duration of the projects. ) 4 Exhibit SCE-02, Vol. 2, p. 42, lines 9-11 ( Given that it typically takes three to five years to complete a Rule 20A project, delays in schedule can significantly impact SCE s annual expenditures. Thus, expenditures can vary considerably from year to year. ) 5 See SCE Opening Brief, pp Exhibit SCE-31, pp See also SCE, Ayorinde, Tr. 9/ ORA Opening Brief, p See D , p D , p

26 ORA s uncontested forecast. 10 In sharp contrast, in this case ORA is proposing that the Commission authorize SCE s full forecast, but then approve funding significantly below that authorized forecast. That is a rather different proposition. ORA suggests that the penalty can be funded by previously authorized Rule 20A expenditures. 11 That is incorrect. If a sum is authorized for a given activity (here, Rule 20A projects) and SCE does not spend the entire authorized amount, the money is not retained by SCE for spending in that same area. As SCE s Chief Executive Officer Kevin Payne discussed, the funds can be spent on other, emergent needs (such as safety and reliability) and activities that benefit customers. 12 SCE s Senior Vice-President of Information Technology and Chief Information Officer, Todd Inlander, also testified that [i]nformation available after a GRC decision should be incorporated into company decisions related to capital spend. These decisions may result in some projects not starting as originally anticipated and/or other projects spending amounts higher or lower than originally forecast. 13 Funds that were previously authorized and then underspent are not retained by SCE in bankaccount fashion to spend in the future in the same area. In fact, as Mr. Worden testified at the evidentiary hearings, there have been past instances when SCE does not have sufficient funds in its authorized revenue requirement to undertake all needed activities for the safety of our customers and the reliability of our system. SCE resorted to under-earning in the short run by borrowing from shareholders without matching revenues occurring. 14 Mr. Worden also testified that rate case spending should be judged by how the utility spends within the aggregate authorized revenue requirement across programs, rather than whether the utility underspent or overspent in one particular area. 15 Mr. Worden noted: The Commission expects the utility to use the available funding judiciously to manage its operations. Just as there are programs in which recorded capital expenditures are above authorized amounts, others will have recorded expenditures below authorized amounts every GRC Decision authorizes one revenue requirement, not a series of disconnected revenue requirements separated by activity, project, or program type D , p ORA Opening Brief, p SCE Opening Brief, pp Exhibit SCE-20, Vol. 1, p. 1, lines SCE, Worden, Tr. 16/2335, lines See Exhibit SCE-25, Vol. 3, pp Exhibit SCE-25, Vol. 3, p. 26, lines

27 TURN witness Garrick Jones supported this point. Mr. Jones testified: For those projects with recorded costs above the forecasted amount, on a portfolio basis the Commission can and should reasonably expect that the above-forecast amounts will be offset by the below-forecast amounts of other projects in the portfolio. 17 In sum, the penalty ORA seeks should not be supported by the Commission. It runs contrary to Commission and utility practices. And as discussed above, it would actually lead to less Rule 20A work being completed ORA Attempts To Introduce Brand-New Evidence In Its Opening Brief In its brief, ORA introduces new evidence that is not found anywhere in the evidentiary record. ORA takes the chart that SCE provided to the ALJs during the evidentiary hearings in response to an ALJ request, 18 and compares it to some material that ORA asserts came from an SCE website. 19 SCE has two responses to ORA. First, the website material is brought up for the first time in ORA s brief. It is not found anywhere in the evidentiary record, and not referenced in any party s testimony. By seeking to inject the material into this case for the first time in its opening brief, ORA has given SCE no opportunity to clarify or address the material with evidence. If the ALJs are somehow inclined to consider this new evidence, they will be doing so on an incomplete record. This is prejudicial to SCE and procedurally improper. The material should be stricken from the record. SCE is concurrently filing a motion to strike the material. Second, without resorting to ORA s tactic of trying to introduce new evidence now, SCE makes one small, but telling, point. The website material that ORA tries to introduce appears to have a date of December The material that SCE provided to the ALJs during the evidentiary hearings was provided as of July Thus, it appears that ORA is comparing two sets of project reporting that are approximately eight months apart. No doubt information such as project status, progress, and schedule will have changed during that time. In fact, in SCE s response to the ALJs request, SCE specifically stated: Please note that the indicated delay is an estimate at this point, and may change based on 17 Exhibit TURN-04, p. 71 (emphasis added). 18 ORA suggests this chart contains unrealistic starting dates without specifying any particular projects. See ORA Opening Brief, p See ORA Opening Brief, p

28 operational factors. 20 SCE can say no more on this subject because there was no chance to provide testimony or other evidence regarding the material ORA cites SCE s Proposal Would Result In Some Cities Not Receiving Allocations Because SCE Has Put Forward A Reduced But Prudent Forecast ORA criticizes SCE because SCE s proposal would result in seven cities receiving no Rule 20A allocations. 22 That is only about one-third of the 20 cities that would receive no Rule 20A allocations under ORA s approach. Moreover, SCE s forecast is a prudent one rather than the most expensive one. SCE balanced a number of factors and proposed a reasonable level of spending The Commission Has Opened A Rulemaking To Consider Revisions To Rule 20 As SCE showed in rebuttal, this GRC proceeding is not the correct forum to craft new policies and procedures governing Rule 20 work. 24 If ORA s proposed penalty mechanism has any merit (and SCE contends it does not), then this mechanism and other issues associated with Rule 20 can and should be considered in the Commission s Rulemaking on Rule The Commission opened that Rulemaking in May 2017, and the proceeding is ongoing. In instituting the rulemaking the Commission said: The Commission may revise or otherwise modify Rule 20, or take another course of action based on the Commission s assessment of which option is most likely to enhance the fair, efficient allocation of ratepayer funds to communities for the undergrounding of electric infrastructure in specified locations and circumstances. The Commission will primarily focus on revisions to Electric Tariff Rule 20A but may make conforming changes to the other parts of Rule In that proceeding, all stakeholders can provide input and the Commission can consider and resolve Rule 20A issues in a manner that provides notice and an opportunity to be heard to all parties. SCE s GRC is not the right forum to resolve such issues. 20 Exhibit SCE-31, p. 7 ( Response to Question 02 ). 21 It is possible that the website information may be updated or changed in the future, so it may not even match what ORA claims in its Opening Brief. 22 ORA Opening Brief, p See Exhibit SCE-02, Vol. 2, pp ; Exhibit SCE-18, Vol. 2, p. 12, lines (SCE s forecast is a conservative approach. ) 24 See Exhibit SCE-18, Vol. 2, p. 14, lines R , Order Instituting Rulemaking to Consider Revisions to Electric Rule 20 and Related Matters (issued May 19, 2017) ( Rule 20A Order ). See also Exhibit SCE-18, Vol. 2, p. 14, lines Rule 20A Order, p. 2. 5

29 4.3. T&D System Planning New Distribution Circuits ORA s Opening Brief did not raise any new issues, and SCE has responded to ORA s proposals in its rebuttal testimony 27 and Opening Brief Substation Expansion Projects ORA s Opening Brief did not raise any new issues, and SCE has responded to ORA s proposals in SCE s rebuttal testimony 29 and Opening Brief Substation Equipment Replacement Program (SERP) ORA s Opening Brief claims that SCE has not provided adequate justification for its proposed funding levels for SERP. But ORA fails to acknowledge either the 2016 study in the evidentiary record supporting SCE s proposal 31 or the safety- and reliability-related risks underlying SERP, both issues which its expert ignored. 32 SCE s proposal is supported by reliable, record evidence 33 and should be adopted Subtransmission Line Plan ORA s Opening Brief offers no new reasons to accept its proposal to dramatically reduce SCE s capital expenditure forecast for subtransmission line planning. As SCE explained in rebuttal testimony 34 and in its Opening Brief, 35 System Planning is based on a project-specific basis as determined by locational-specific grid needs, not some historical capital expenditure average kV Programs kV Cutover Program ORA continues to advocate reducing SCE s capital expenditure forecast for the 4kV cutover program based on its criticism of SCE changing its unit cost forecast methodology between rate case cycles from amps cutover to transformers replaced. ORA complains that transformer replacement costs are not perfectly correlated to project costs. SCE concedes that they are not, but maintains that 27 Exhibit SCE-18, Vol. 3, pp SCE Opening Brief at p Exhibit SCE-18, Vol. 3, pp SCE Opening Brief at pp Exhibit SCE-18, Vol. 3, Appendix A, pp. A Roberts, ORA, Hearing Tr. 18: See, e.g., Exhibit SCE-18, Volume 3, pp ; Appendix A, pp. A Exhibit SCE-18, Vol. 3, pp SCE Opening Brief at p

30 basing a cost forecast on something that directly costs money (i.e., replaced transformers) based on historical data instead of something that does not (i.e., amps cutover) is more appropriate. It is irrelevant that many other materials as well as labor to plan, design, and construct the cutovers also cost[] money. 36 To start, SCE s revised methodology includes the labor to plan, design, and construct the cutovers. 37 More fundamentally, SCE revised its unit cost methodology in order to improve accuracy based on actual completed work, so it is not directly comparable to the previous methodology, which was based on estimates. 38 Now that SCE has a more robust data set based on actual costs for actual work, it is appropriate to base its unit cost forecasting methodology on that data set. Indeed, ORA conceded that it is not taking a position on whether amps, transformers, or circuits provide the best basis upon which to forecast 4kV project costs. 39 In light of this ambivalence, and because the record evidence supports using transformers as the basis of the cost forecast, 40 ORA s arbitrary 41 funding reductions should be rejected kV Substation Elimination Project TURN s Opening Brief somewhat revises its position in testimony and now recommends a paltry $4.9 million for SCE s 4kV substation elimination program. This is a proposed reduction of 97% compared to SCE s proposal 42 and would effectively end this important Commission-approved program. SCE responded to TURN s main arguments in its rebuttal testimony and Opening Brief and will only respond to TURN s new arguments here. TURN claims that SCE agreed that the equipment necessary to replace existing 4kV equipment is readily available from manufacturers. 43 That is true but irrelevant: just because equipment is available does not mean it should be used. SCE conclusively demonstrated that various cost, safety and reliability drivers justify eliminating these obsolete and antiquated substations. 44 TURN also downplays the islanding effect and its potential to cause serious 36 ORA Opening Brief at p WP SCE-02, Vol. 3, Book A, pp ; Appendix B, pp. B-8-B Exhibit SCE-18, Vol. 3, p ORA Opening Brief at p See, e.g., Exhibit SCE-18, Vol. 3, pp (explaining that the number of transformers that needs to be replaced on a circuit to cutover a certain number of amps can vary significantly based on circuit-specific characteristics). 41 ORA recommends that the Commission simply adopt the same budget it approved in the 2015 GRC, irrespective of whether the scope of work and/or underlying costs have changed. 42 See TURN Opening Brief at p. 9 (reducing forecast expenditures from $178.6 million to $4.9 million). 43 TURN Opening Brief a p. 11 (citing Takayesu evidentiary hearing testimony). 44 See Exhibit SCE-18, Vol. 3, pp

31 interruptions of service. SCE agrees that to date it has successfully avoided outages due to planned maintenance on 4kV substations; TURN s argument does not take into account the amount of effort and expense necessary for that success, nor the potential costs and inconvenience to customers should those efforts be less successful in the future. Simply put, it is not prudent to operate a utility system with a significant portion of that system intentionally islanded. Similarly, TURN s argument that SCE has not shown historical DER-driven issues with 4kV substations does not take into account that future forecasts of DER-driven penetration are much higher than existing numbers. TURN agrees that preemptive replacement may be warranted when there are safety or reliability issues 45 but downplays the degrading reliability of those assets. SCE s sworn written testimony discusses the safety risks to SCE s employees and customers of continuing to operate these aging substations, 46 and although SCE continues to maintain that reliability is decreasing more rapidly on the 4kV network than on the system as a whole, 47 reliability is only one out of several factors driving the elimination program. 48 That is consistent with the Commission s approval of SCE s proposals in the last GRC based on SCE s testimony that 4kV circuits are limited, inefficient, inflexible and full of obsolete equipment. 49 The crux of TURN s 4kV substation-elimination-elimination proposal is that the program is not cost-effective. SCE s rebuttal testimony demonstrated that, to the contrary, it is cost-effective, because rebuilding the substations would cost essentially as much as replacing them. 50 TURN s only response in its Opening Brief is a claim that there is no evidence that SCE would rebuild the substations instead of replacing them when they fail because they will likely not all fail within the next three years, and because SCE can simply cutover to a higher voltage system if there are forecast overload issues. SCE is not claiming that all 54 remaining 4kV substations will fail in the next three years (nor is SCE asking for funding to replace them all in this rate case cycle). But TURN s run-to-failure proposal would necessarily require continued equipment maintenance and replacement. There is no evidence that SCE could anticipate these ancient substations failing for non-load-growth reasons and then cutover in a 45 TURN Opening Brief at p Exhibit SCE-18, Vol. 3, p Exhibit SCE-18, Vol. 3, p See, e.g., SCE, Takayesu, Tr. 11/1408; 1415; D at pp Exhibit SCE-18, Vol. 3, pp

32 just-in-time manner, as TURN s proposal would necessitate. SCE s important, safety- and reliabilitydriven, Commission-approved, cost-effective 4kV substation elimination program should continue Grid Reliability Projects TURN s Opening Brief continues to advocate that SCE s capital expenditure forecast for the Cerritos Channel Transmission Line Relocation Project (CCTLRP) be removed entirely because it is unlikely to be in service during this rate case cycle, and because TURN thinks the City of Long Beach should pay for it, not SCE. TURN made these same arguments in its intervenor testimony, and SCE s rebuttal testimony and Opening Brief largely addressed them. In its Opening Brief, TURN claims the bridge must be rebuilt before the transmission line is raised. 51 There is no evidence for that. TURN also incorrectly presents the scope of the Port s CEQA review as including the bridge itself (with no citation). In fact, that is not true. 52 SCE s rebuttal testimony demonstrates that the project is likely to be in operation during this rate case cycle. 53 Moreover, Section 10.c is the applicable provision in the Agreement that requires SCE to relocate the transmission line at SCE s expense. TURN s reference to Public Utilities Code Section 6297 is irrelevant, because the Agreement is not a franchise agreement. Nor is the project an Added Facilities piece of equipment dedicated to a single customer as defined by SCE s tariff Rule PV Dependability and Capacity-Driven Capital Projects In its Opening Brief, the Solar Energy Industries Association and Vote Solar (SEIA-Vote Solar) continue to advocate that SCE not recover any capacity-driven capital expenditures in this rate case cycle approximately $875 million until SCE completely reruns a System Planning analysis using a PV dependability curve that is more favorable to the solar industry. SCE s Opening Brief and rebuttal testimony demonstrated why SEIA-Vote Solar s recommendation is entirely without merit. Much of SEIA-Vote Solar s Opening Brief repeated those same arguments, and was focused on three main areas: (1) Claims that PG&E used a different PV dependability curve for undefined reasons and that SCE should have used a location-specific analysis; (2) complaints about the data set SCE used to determine its dependability curve; and (3) claims that SCE s desktop analysis presented in its rebuttal showing is 51 TURN Opening Brief at p. 4 (citing Exhibit SCE-18, Vol. 3, p. 29). SCE s testimony makes no such claim, and, in fact, the bridge is currently under construction. 52 See Exhibit SCE-18, Vol. 3, p. 29 (describing CEQA review as pertaining to the CCTRLP itself, not the bridge). 53 Exhibit SCE-18, Vol. 3, pp

33 somehow insufficient. None of these arguments support SEIA-Vote Solar s disproportionate disallowance proposal. First, SCE s rebuttal testimony explained that PG&E s 82% number and SCE s 19% numbers are simply not comparable. PG&E s number represents the full output of PV at noon, which corresponds to SCE s data at noon; SCE s represents the dependable solar output based on local peaks. 54 It is the latter that is appropriate to use when determining what capacity-driven load growth projects may be deferred or eliminated due to solar generation. It is simply not relevant that the full output of solar may be quite dependable at noon, a time well before the vast majority of SCE s circuits peak. 55 Indeed, even SEIA-Vote Solar s proxy proposal of a 50% PV dependability curve is nowhere near PG&E s number, illustrating that even it does not believe such a value would be appropriate. Moreover, SEIA- Vote Solar s complaints that SCE s analysis was not location-specific enough are unfounded. In any event, as demonstrated in SCE s rebuttal testimony, although the data from the 2012 study underlying SCE s PV dependability curve at this level of granularity was not readily available due to its vintage and the amount of manual effort required to research each interconnection on a circuit-by-circuit basis, SCE provided the PV output data for all of SCE s 4,600 circuits to SEIA-Vote Solar. 56 SEIA-Vote Solar ignored that data, and it is SEIA-Vote Solar s failure to perform a location-specific analysis that is an inherent flaw in its disallowance recommendation. 57 Moreover, as demonstrated in SCE s rebuttal testimony, SCE s 2016 desktop analysis using SEIA-Vote Solar s 50% number was location-specific, and did not show a material reduction in load (less than 5%). 58 Second, SEIA-Vote Solar s complaints about alleged flaws in SCE s 2012 data set are overstated. SCE already (and appropriately) removed the systems in the data set that had zero values for both the minimum and maximum values, but did not remove the systems that had some recorded values for maximum values. SEIA-Vote Solar finds it implausible that solar systems could have the number of time periods indicated by the data when they should be producing but are not, other than if the explanation is that the data was incorrect due to a faulty meter reading. 59 But as acknowledged by SEIA- 54 Exhibit SCE-18, Vol. 3, pp. 34, Exhibit SCE-18, Vol. 3, p. 38, Figure IV-1. SEIA-Vote Solar s claim that 47% of SCE s circuits peak during some 8-hour block when solar PV is at least 40% is a results-oriented attempt to shoehorn the data into an irrelevant time window. 56 Exhibit SCE-18, Vol. 3, p SCE Opening Brief at p. 23; Volkmann, SEIA-Vote Solar, Evidentiary Hearing Tr. 20: Exhibit SCE-18, Vol. 3, pp SEIA-Vote Solar Opening Brief at pp

34 Vote Solar witness Volkmann during cross-examination, the fact that those systems had some recorded maximum values demonstrates that the meter was at least functional, and the instances of other recorded values of zero could be due to planned or unplanned outages. 60 SCE s different approach moving forward to remove all zero data values is also reasonable because it is based on a much larger data set. 61 Of course, removing all zero values from that much larger data set results in a PV dependability curve (on average) of 28%, not 50% or 82%. 62 Third, SCE s desktop analysis provided in rebuttal is sufficient to help support SCE s prima facie burden of proof (made in SCE s direct testimony). Although it is true that the burden of proof never shifts to intervenors, SEIA-Vote Solar must present sufficient evidence to support an alternative recommendation. 63 Here, SEIA-Vote Solar has not met that standard to supports its unrealistic alternative recommendation (i.e., zero dollars for any capacity-driven projects). Contrary to SEIA-Vote Solar s implications, SCE s desktop analysis was appropriate rebuttal testimony submitted in response to SEIA-Vote Solar s unanticipated and draconian proposals made in its intervenor testimony. While it is true that SCE s desktop analysis looked at only a subset of capacity-driven projects, it is entirely reasonable to assume that the results would be similar for other similar capacity-driven projects. The desktop analysis used SEIA-Vote Solar s 50% dependability number (not SCE s new 28% number), and determined that even using SEIA-Vote Solar s unsupported higher number that no DSP Substation Expansion projects would be deferred. 64 It is SEIA-Vote Solar s proposal that is unreasonable and not based on the record T&D Distribution Maintenance and Inspection 4.5. T&D Distribution Construction & Maintenance ORA continues to challenge SCE s forecast for FERC Sub-Account (Streetlight Operations and Maintenance), focusing on its argument that the installation/conversion to LED 60 Volkmann, SEIA-Vote Solar, Evidentiary Hearing Tr. 20: Takayesu, SCE, Evidentiary Hearing Tr. at 11: Takayesu, SCE, Evidentiary Hearing Tr. at 11: Re Pacific Bell, D , at p. 22, 27 CPUC2d 1; see also SCE Opening Brief, p Exhibit SCE-18, Vol. 3, Appendix D, p. D-5; see also Takayesu, SCE, Evidentiary Hearing Tr. at 11: 1465 ( But in comparison to the latest set of plans that we have recently approved, I can say that the expenditures haven t changed because new load growth assumptions have since come in. That s the reason why we have an annual planning process because all these factors are subject to change. ). 11

35 technology should reduce expenses. 65 SCE s rebuttal testimony demonstrated that SCE s street light model already incorporated those reductions, and ORA is simply misusing it. 66 ORA proposes a reduction in FERC sub-account (Distribution Storm expense) of $1.574 million and the imposition of one-way balancing account based on SCE s underspend compared to authorized and the uncertainty and unpredictability of the weather. 67 But it is that exact uncertainty and unpredictability that cuts directly against imposing a one-way balancing account, which could punish shareholders for weather events entirely outside of their control. The Commission rejected this exact same asymmetrical ORA proposal in SCE s last rate case. 68 SCE s forecast is reasonable and based on a standard historical five-year forecast, not ORA s results-oriented historical five-year forecast that excludes the highest cost year. 69 While ORA is correct that the Commission has required shareholders to fund the T&D-related service guarantees since 2004, SCE continues to believe that recovering these costs through rates is consistent with principled cost-of-service ratemaking T&D Substation Construction & Maintenance Substation Physical Security SCE s capital forecast for substation physical security enhancement is $ million and $ million (nominal $000), 70 respectively, and SCE s need for substation physical security enhancements is addressed in Section of SCE s Opening Brief. 71 In summary, SCE proposes to upgrade eight substation projects per year from , 72 while ORA proposes that SCE be allowed to upgrade only five substations per year during at $1.0 million per site ORA Opening Brief at p Exhibit SCE-18, Vol. 5, pp ORA Opening Brief at p See D at p. 148 (rejecting ORA s proposed asymmetric one-way balancing account treatment that would lead to ratepayer refunds in some years and would require shareholders to fund storm activities in other years. ) 69 Exhibit SCE-18, Vol. 5, pp The 2018 capital forecast is $ million in constant SCE s forecast is found in Figure I-9 and Table I-17 in Exhibit SCE-02, Vol. 6, pp Please note that SCE agrees to use 2016 recorded costs instead of SCE s 2016 forecast. See Table I-2, p. 3, of Exhibit SCE-18, Vol SCE Opening Brief, pp SCE Opening Brief, p See Table in ORA Opening Brief, p. 41 which provides ORA s recommended forecast of $5 million for 2017 and $5 million for

36 ORA s position in its Opening Brief is deficient. First, ORA s Opening Brief on substation physical security is a recitation, almost verbatim, of its Direct Testimony, 74 and thus it does not address SCE s response to ORA in SCE s Rebuttal Testimony which is a part of the evidentiary record. In summary, SCE, in its rebuttal testimony, established that: Although copper thefts have declined, 75 copper prices have risen by 28% from January 2016 to April 2017 and thus SCE anticipates an increase in copper theft. 76 It is immaterial that there are many non-copper theft incidents, since it is reasonable to assume that trespassing and suspicious activity could be precursors for future copper theft. 77 Indeed, both trespasses, suspicious activity, and vandalism at SCE s substations have risen from 2014 to Fundamentally, SCE believes that any intrusion incident has the potential to impact public or employee safety and cause customer outages. 78 ORA s analysis that 30% of copper thefts incidents in 2013 only occurred at 6 substations 79 is a red herring. SCE has shown that ORA s analysis is statistically flawed and different conclusions can be drawn easily by simply changing the query of the number of high frequency incidents. 80 Second, SCE notes that in ORA s Opening Brief on Substation Physical Security, ORA cites to several data request without an exhibit number. 81 While these data requests may have been referred to or cited in ORA s direct testimony, ORA has not indicated or demonstrated that the actual data request themselves are part of the evidentiary record. 74 Compare ORA Opening Brief, pp with Exhibit ORA-11, pp ORA Opening Brief, pp Exhibit SCE-18, Vol. 6, p See ORA Opening Brief, pp Exhibit SCE-18, Vol. 6, p ORA Opening Brief, pp Exhibit SCE-18, Vol. 6, pp ORA proposes that SCE be allowed to upgrade only five substations in years based on ORA s arbitrary decision that only those substation that experienced four thefts have a high frequency of incidents. However, SCE submits that it should not have to wait until a substation experiences four copper thefts before SCE makes upgrades. See SCE Opening Brief, p ORA Opening Brief, pp

37 Substation Protection & Control Replacement Program SAS Infrastructure Replacement The SAS Infrastructure Replacement Program is one of the four sub-programs of SCE s Substation Protection & Control Program. 82 In SCE s Rebuttal Testimony, SCE outlined the differences between the SAS Infrastructure Replacement Program, which is covered in Exhibit SCE-02, Vol. 6, and the Grid Modernization SA-3 Program, which is covered in Exhibit SCE-02, Vol In light of SCE s rebuttal testimony, TURN indicates in its Opening Brief that it is withdrawing its proposed disallowance for the SAS Infrastructure Replacement Program. 84 In addition to withdrawing its proposed disallowance, TURN also recommends that SCE provide greater justification for SA-3 in future capital requests, and lists a series of suggested SA-3 standards. 85 SCE appreciates and takes TURN s suggestion under advisement, but urges the CPUC not to adopt prescriptive compliance requirements for SCE. SCE has the burden of proof in its rate case application, and additional requirements are not warranted with respect to how SCE meets this burden. Notwithstanding the above, if the Commission were to require TURN s suggested SA-3 standards, the Commission should not include the standard identified in the fourth bullet of TURN s list: An analysis of the reliability benefit-cost ratio of SA-3 upgrades relative to other reliability investments the Company could make via the application of a transparent, risk-informed project prioritization process such as the Company s PRISM approach. 86 This standard is overly broad 87 and thus difficult to answer, especially in light of the fact that risk-informed project prioritization methodology is the topic of an ongoing proceeding (A ) and is undergoing significant evolution with respect to each California IOU as well as the Commission. 82 The SAS Infrastructure Replacement Program is one of the four sub-programs of SCE s Substation Protection & Control Program. SCE Opening Brief, pp Exhibit SCE-18, Vol. 6, pp TURN Opening Brief, pp TURN Opening Brief, p TURN Opening Brief, p For example, the reference to other reliability investments is overly broad. 14

38 4.7. T&D Transmission Construction & Maintenance O&M Transmission Overhead and Underground Line Maintenance ORA s Opening Brief on Transmission Overhead and Underground Line Maintenance (Account ) is a recitation, almost verbatim, of its Direct Testimony, 88 and thus it does not address SCE s rebuttal to ORA. 89 ORA therefore does not address the fundamental flaws of using its proposed fouryear average ( , and 2015), namely that years are not representative of test year expenses due to the accounting change in overhead divisions starting in In addition, in support of its position, ORA s Opening Brief continues to carry over from its Direct testimony the factually incorrect statement that Non-labor expenses recorded in last year recorded 2015 are comparable to years This is inconsistent with the recorded data O&M Transmission Vegetation Management ORA s Opening Brief on Transmission Vegetation Management (Account ) is a recitation, almost verbatim, of its Direct Testimony, 93 and thus it does not address SCE s rebuttal to ORA. 94 Given that SCE proposes to use year 2015 as the basis to forecast 2018 test year expenses, and ORA proposes to use , the fundamental dispute is whether year 2014 should be used as the basis to forecast test year expenses. 95 It should not. As indicated in SCE s Opening Brief, the evidentiary record shows that contractor terms for transmission vegetation management changed in May 2014; thus, 2014 does not represent a full year of expenses under the new contractor term Capital: Transmission Tools and Work Equipment ORA s Opening Brief on Transmission Tools and Work Equipment 97 is a recitation, almost verbatim, of its Direct Testimony, 98 and thus it does not address SCE s rebuttal showing. 99 The only 88 ORA Opening Brief, pp ; Exhibit ORA-06, p Exhibit SCE-18, Vol. 7, pp SCE Opening Brief, pp ORA Opening Brief, p. 56; Exhibit ORA-06, p See table on ORA Opening Brief, p. 56; SCE Opening Brief, p ORA Opening Brief, pp ; Exhibit ORA-06, p Exhibit SCE-18, Vol. 7, pp SCE Opening Brief, pp SCE Opening Brief, pp (citing Exhibit SCE-18, Vol. 7, p. A-3). 97 WBS Element CET-PD-OT-TE (See Figure IV-11 in Exhibit SCE-02, Vol. 7, p. 34). 98 ORA Opening Brief, pp ; Exhibit ORA-11, p Exhibit SCE-18, Vol. 7, pp

39 issue in dispute in SCE s forecast for As explained in SCE s Opening Brief, ORA s forecast for 2017 relies on a singular correlation between SCE s Transmission Tools and Work Equipment and the Transmission Planned Capital Maintenance, which does not exist. 101 As explained by SCE witness Anthony Edeson, the correlation between the two is a moderate 0.51 because Transmission Tools and Work Equipment are used in all parts of transmission construction and maintenance activities presented in Exhibit SCE-02, Volume 7, and not just Transmission Planned Capital Maintenance. 102 Transmission Planned Capital Maintenance is not a primary driver for increases or decreases in Transmission Tools and Work Equipment, as there are many other factors that need to be considered T&D Infrastructure Replacement Worst Circuit Rehabilitation (WCR) TURN continues to seek reductions in SCE s WCR program, which proactively replaces cables prior to failure on the SCE circuits where SCE s customers experience the worst reliability. TURN s criticisms are based on the models SCE uses to predict cable failures (which dictates the rate at which SCE replaces cable in order to avoid them). TURN s criticisms of SCE s Weibull model are misplaced: SCE does have in-service failure replacement experience; namely total counts of historical in-service cable failures from its computer database. 104 SCE recorded a total of 1,202 such cable failures in The combination of Weibull models and 2014 cable inventory data 106 predict a total of 1,211 inservice cable failures for the same year. 107 Regardless of TURN s specific arguments about the way SCE developed its model, a prediction of 1,211 in-service failures over the course of a year and an actual experience of 1,202 in-service failures over the same year is strong evidence in support of the reasonableness of the failure model. TURN also confuses model development with model validation in 100 See SCE Opening Brief, p. 32, which explains SCE and ORA s agreement with $1.274 million and $1.953 million for 2016 and 2018, respectively. 101 SCE Opening Brief, p See SCE Opening Brief, pp (citing Exhibit SCE-18, Vol. 7, pp ). 103 Exhibit SCE-18, Vol. 7, p WPS SCE02-Volume 08 page 24 ( Validation of the derived Weibull cable failure rates was performed by comparing the calculated cable failures against the distribution system interruption records from the ODRM outage data. ) 105 WPS SCE02-Volume 08 page 27 Table 2. [Please note this is Underground Cable Reliability Model Update p. 5, and page 126 of pdf.] 106 Exhibit SCE-02, Volume 8, p. 21, Table III WPS SCE02-Volume 08 page 27 Table 2. [Please note this is Underground Cable Reliability Model Update p. 5, and page 126 of pdf.] 16

40 its criticism of SCE s use of 2014 data. TURN incorrectly refers to the Weibull model as a one-year model. 108 In fact, the Weibull models are based on fourteen years of inventory data 109 and cable installation years as far back as In short, SCE developed a failure model based on data spanning multiple historical years, and then validated that model by specific failures from the most recent year of available data at that time, i.e., TURN s criticism of SCE s reliability model (the model used to forecast the necessary amount of proactive cable replacement) is similarly misplaced. TURN argues that the model indicates that SCE must replace a lot of cable on a proactive basis in order to achieve much smaller reductions in the reactive replacement count. 111 But that fundamentally misses the point: The point of proactively replacing cable is to maintain SAIDI and SAIFI; 112 that the reactive replacement cable rate also goes down when SCE does so is an imperfectly-correlated ancillary effect. In its Opening Brief, TURN agrees with SCE s approach that SCE should run a cost-benefit analysis for mainline cable injection testing before undertaking a potential pilot program. The Commission should consider taking a similar approach when considering TURN s recommendation that SCE begin recording cable failure by cable type. Given TURN s acknowledgment that the minimum age of replacement is a guideline rather than a hard cut-off, it is unclear what specific relief TURN is seeking from the Commission here. In addition, mean time to fail by definition means that some cable fails earlier, and some cable fails later than the mean. The driver of WCR is actual empirical performance on the worst-performing circuits; 113 those circuits can include cable that is younger than the mean. By the time one of these circuits is identified, and the project is scoped and ready for construction, the customers on that circuit could have been experiencing SCE s worst relative reliability for several years. It would not be reasonable to subject them to additional years of that level of reliability in order to comply with a minimum age threshold In its Opening Brief, TURN uses of phrases such as single year model (page 25); model based on 2014 (page 26); and models developed and validated on such years (page 26-27) inventory data; see WPS SCE02-Volume 08 page WPS SCE-02 Volume 08 page TURN Opening Brief p See Exhibit SCE-02, Vol. 8, pp. 16, (Figures III-9 and III-10); see also SCE, Goizueta, Tr. 13, Exhibit SCE-18, Vol. 8, p In fact, in D , the Commission required SCE to specifically identify and report on any worstperforming circuit that appears on the list in repeated years. 17

41 Overhead Conductor Program TURN s Opening Brief argues for a dramatic reduction in SCE s critical, public-safety-oriented OCP because, in its view, SCE has not sufficiently supported its forecast and has not exhaustively considered other alternatives. TURN deems its proposal as an exercise [in] some degree of caution. 115 SCE respectfully submits it is not cautious to drastically scale back 116 a program that is designed to prevent energized high-voltage electrical wires from falling on the ground, a program that even at SCE s proposed funding levels would only replace 300 miles per year out of 16,000 miles of undersized wire on SCE s system. 117 SCE s forecast was well supported by the record evidence; 118 and is reasonable, achievable, and prudent. While other alternatives may in the future prove to be viable and complementary to the OCP, it would be imprudent to pursue a reduced pace now while we wait to find out. 119 Regarding TURN s unjustified 10% shareholder disallowance for oversized Branch Line Fuses (BLFs), TURN reiterates its previous arguments based on one incorrectly characterized line from an SCE workpaper. SCE s rebuttal testimony made absolutely clear that BLFs (whether correctly coordinated or oversized relative to upstream protection) do not cause damage to existing overhead wire 120 and BLFs (whether correctly coordinated or oversized relative to upstream protection) do provide system benefits. 121 SCE s protection scheme is designed for circuit-level protection, i.e., circuit breakers or automatic re-closers, and installation of BLFs is not required for minimum adequate protection purposes (or else BLFs would be installed everywhere). TURN s casual dismissal with no electrical engineering expert testimony to the contrary of SCE s point that protective relaying is both and art and a science ignores the complexities of the issue, 122 and SCE s shareholders should not be punished for pursuing these improvements over time. 115 TURN Opening Brief at p TURN s forecast reflects a lower number of replacements (120 circuit miles rather than 300). TURN Opening Brief at p SCE, Goizueta, Hearing Tr. 13: See, e.g., Exhibit SCE-18, Vol. 8, pp SCE continues to be committed to identifying and implementing cost-effective mitigation measures to address wire-down events; as those become proven techniques, those will be incorporated as appropriate into work practices. 120 Exhibit SCE-18, Vol. 8, pp Exhibit SCE-18, Vol. 8, pp See, e.g., Exhibit SCE-18, Vol. 8, pp at FNs 30 and 31 (discussing state of scientific literature). 18

42 ORA s Opening Brief continues to focus on the secondary reliability potential benefits associated with OCP, instead of on the primary, safety-oriented purpose of the program. ORA and SCE simply have a fundamental difference about what skyrocketing means in this context; when one starts from an exceedingly low base, even modest increases in work scope appear quite large on a percentage basis (i.e., moving from 1 circuit mile to 10 circuit miles is by definition a 900% increase, but SCE would not characterize that increase as skyrocketing ). SCE also has the capability to implement its proposed replacement levels, 123 and ORA s claim that SCE only completed about half of its 2016 proposed work is incorrect. ORA s Opening Brief uses data from the spreadsheet attached to SCE s response to TURN Data Request SCE-031 question 29d (included in testimony as a response to TURN Data Request SCE-059 question 01.b.iii at Exhibit SCE-18, Vol. 8, p. A-14), and then filters that data for 2016 results. ORA neglects, however, to cite the actual text response to that previous data request, which explains that some 2017 projects were accelerated to 2016 to complete the full 202 circuit miles, as stated in SCE s rebuttal testimony. 124 CFC s Opening Brief again focuses on the ancillary, secondary reliability-related aspects of OCP, instead of the primary, safety-related purposes of the program. Its attempt to split those primary safety and secondary reliability benefits (88%-12% in CFC s view 125 ) in order to justify a reduction in the program is unavailing. The chart CFC cites in its Opening Brief demonstrates that, as a percentage of the total, the overwhelming risk issue that the OCP is attempting to mitigate is human contact with intact conductor 126 (i.e., people being electrocuted). While it is true that the chart demonstrates that other residual risks are mitigated by OCP (e.g., freeway/road closures), CFC s cost causation argument that seemingly only safety-related costs (and not reliability-related costs) should be included in general rates is simply wrong. 127 CFC seems to argue that because OCP might increase reliability, including in a way that accommodates DERs, the scope of the program should be reduced (or somehow assigned to different rate classes ). 128 Even if CFC s premise is correct, its conclusion is not a logical reason to reduce this critical, safety-related program. If there happen to be ancillary reliability benefits, that is a good thing, not a reason to slow down. Replacing any span of small wire reduces safety risk and 123 Exhibit SCE-18, Vol. 8, pp Exhibit SCE-18, Vol. 8, pp. 12; A CFC Opening Brief at p CFC Opening Brief at pp (showing SCE s Table I-3 from Exhibit SCE-02, Vol. 1, p. 7). 127 CFC Opening Brief at p CFC Opening Brief at pp. 16;

43 reliability risk simultaneously, and failure of an overhead conductor span poses safety and reliability risks to the same customers. Moreover, the assignment of costs to different rate classes is a GRC Phase 2 issue, not a GRC Phase 1 issue. Finally, CFC s claims that there have been last-minute changes in the numbers presented obscure the fact that the way the numbers changed is that SCE discovered it could mitigate more small wire for the same amount of money it originally requested, thereby shortening the lifetime of the program. 129 CFC s claims should be rejected Capacitor Bank Program SCE s forecast should not be further reduced from the reduction it agreed to in its rebuttal testimony, as doing so would not allow SCE to get closer to a long-term, steady state rate of replacements of failed and obsolete capacitor banks. Capacitor banks are used in the distribution system to supply needed reactive power to help maintain an adequate power factor, help supply customers sufficient voltage, and therefore avoid equipment damage and grid reliability issues T&D Poles SCE addressed many of TURN s arguments about these issues in its rebuttal testimony and Opening Brief. TURN continues to challenge SCE s unit cost numbers for poles (albeit TURN s proposed reduction has been itself reduced by an acknowledgement that SCE s procurement-related savings is appropriate). 131 As SCE demonstrated, the main cost driver of the increases in unit costs are increased contractor costs. TURN claims that SCE did not provide evidence that those cost increases are reasonable. To the contrary, SCE demonstrated that it engages in a competitive bidding process in order to maximize value for the company and our customers. The bidding process entails commercial and technical analysis, in addition to negotiations to help ensure that the best value for customers is realized from awards to SCE s contractors. 132 Given this process, it is hard to understand what additional evidence TURN would deem sufficient to deem these costs reasonable. SCE has also responded to ORA s arguments on these issues in its rebuttal testimony and Opening Brief. In its Opening Brief, ORA s argument on pole assessments focuses on an implication that going forward SCE will not complete the number of Pole Assessments it said it would See Exhibit SCE-18, Vol. 8, pp Exhibit SCE-02, Vol. 3R, p. 45; Exhibit SCE-18, Vol. 8, p TURN Opening Brief, pp Exhibit SCE-18, Vol. 9, p ORA Opening Brief at p

44 That implication is belied by the unrebutted evidence that SCE completed 200,000 assessments in 2016 and is on pace to complete 220,000 in In its Opening Brief, ORA s argument in support of its proposed reduction to SCE s Joint Pole Organization O&M expense forecast is based on a claim SCE s June 2017 Rebuttal Testimony is too little too late to verify because SCE allegedly did not provide a data request response to ORA. 135 SCE s data request response to ORA on this issue cross-referenced a response to a TURN data request that was made available to ORA and all parties on a shared website T&D Grid Modernization The issues surrounding Grid Modernization have coalesced around whether SCE needs to improve reliability through grid modernization, and whether the level of automation and supporting technology SCE proposes is a reasonable path to achieve this. SCE s transmission system helps illustrate why the distribution grid needs to be modernized. The transmission system is characterized by two-way power flows. To help ensure that it performs reliably, transmission operators have real-time visibility and flexibility in switching, supported by robust communications and analytics technologies. The distribution system, which has been characterized by power flowing in one direction from the substation to the customer has not historically needed these features. Environmental policies, new technologies and changing customer demands are increasing both the importance and complexity of the distribution grid, necessitating greater visibility and flexibility. These changes are requiring that SCE s distribution grid function more and more like SCE s transmission grid. At the same time, SCE s reliability is declining from historical levels and in comparison to its industry peers, and must improve. This is needed to continue to provide safe and reliable service to SCE s customers as well as to meet growing SCE customer demands for improved reliability and choice over their energy usage. Given the fact that SCE s reliability continues to degrade under current levels of distribution automation, ORA and SEIA-Vote Solar s recommendations and TURN s primary proposal will not allow SCE to maintain even a status quo level of reliability or modernize its grid. These approaches certainly will not accommodate the countervailing trends towards increased reverse power flows and greater distribution grid complexity and will not enable the full potential of DERs. While TURN s alternative proposal will achieve a measure of improvement, it is still shortsighted. It does not provide real-time visibility, sufficient circuit sectionalization for flexible 134 Exhibit SCE-18, Volume 9, p ORA Opening Brief, pp

45 reconfigurations, or resolution of SCE s masked load issues. This means that operators will have to continue to make conservative assumptions and underutilize existing distribution grid capacity. Moreover, it limits the potential for DERs to provide grid services. Additionally, while TURN s proposal to upgrade SCE s archaic NetComm system, in lieu of the Field Area Network (FAN), may allow NetComm to limp along for a few years, it is not a prudent approach in the long-run. 136 Instead, TURN s recommendation would ultimately involve throwing good money after bad, 137 given that NetComm has reached the end of its useful life, will likely reach saturation within the next year or two, 138 and needs to be replaced. Likewise, investing in ADMS and DERMS, instead of GMS, will not result in a substantial cost savings, and requires forgoing considerable benefits. 139 SCE s Grid Modernization proposal achieves many of the key capabilities relied upon on the transmission grid greater operator flexibility in switching through increased sectionalization and realtime visibility, automated features for reduced customer outage times, and a high-speed communications backbone. It measurably improves reliability, putting SCE in the second quartile for reliability of service. 140 It will simultaneously create flexibility to integrate DERs at any realistic level of growth. SCE has also demonstrated that its proposal is cost-effective and yields additional non-quantifiable benefits SCE s Reliability is Not Improving And Lags Behind Its Peers Intervenors cite various reliability metrics to show that SCE s reliability is improving vis à vis historical metrics and its peer utilities. These metrics are not particularly helpful, given that the Commission has clearly indicated that the way to view reliability when considering a utility s performance over time or when comparing utilities to one another is to look at SAIDI 142 with major event days (MEDs) excluded. 143 The Institute of Electrical and Electronics Engineers (IEEE), a 136 See Exhibit SCE-02, Vol. 10, pp ; SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 10, pp SCE, Gooding Tr. 13/ See SCE Opening Brief, pp ; SCE, Gooding Tr. 13/ Exhibit SCE-18, Vol 10, pp Exhibit SCE-18, Vol 10, pp See SCE Opening Brief, pp SAIDI stands for System Average Interruption Duration Index. 143 Exhibit ORA-108, p. 7 (letter from Energy Division Director, Paul Clanon, indicating its agreement that using IEEE Standard , which is a standard for how to exclude major event days, would... provide consistency in comparing reliability data from different utilities across the country. ); see also CCUE Rebuttal, p. 7, lines 3-14; see also D , 68 CPUC2d 80, Appendix A thereto, p. 2, Section 4.c, Excludable Major Events ( Each utility will exclude from calculation of its reliability indices major 22

46 reputable independent electrical standards body, has developed a uniform approach to excluding MEDs 144 and provides a valuable method of assessing reliability performance among utilities. When looking at these metrics over a 10-year period, it is indisputable that SCE s reliability is degrading and needs to be improved While SAIDI Metrics that Include MEDs are Useful for Some Purposes, They Cannot be Used to Measure a Utility s Performance Against Historical Metrics or Peer Utilities ORA points to an IEEE white paper in support of its position that other reliability metrics have merit. 146 SCE has never argued that other metrics lack merit. In fact, SCE witness, Mr. Tolentino, explained that SCE provided SAIDI information including MEDs to SCE s customers impacted by the Santa Barbara outage. But he also explained why reliance on this metric is inappropriate for comparing utility performance: When you look at [] the Santa Barbara reliability report, the intent of that report is to educate the citizens in Santa Barbara County about what the reliability is, and they have experienced outages on major event days. So we believe it to be fully transparent to those customers that we need to show them what outages they actually experienced. Now, when you are doing comparative assessment across utilities, that the major event days can skew the results and show needs where they don't exist, as well as make the comparison very difficult when you are looking at utility-by-utility comparison IEEE s Report Provides a Fair Comparison of Utility Performance and Shows SCE Lagging SCE relies on an IEEE study that compares reliability among utilities to show that SCE s reliability is lagging. 148 ORA argues that the IEEE study, which relies on confidential data, may not represent an apples-to-apples comparison between utilities since utilities may capture the data differently events that meet either of the two following criteria: (a) the event is caused by earthquake, fire, or storms of sufficient intensity to give rise to a state of emergency being declared by the government, or (b) any other disaster not in (a) that affects more than 15% of the system facilities or 10% of the utility s customers, whichever is less for each event. ); see also D , 68 CPUC2d 275, p. 46 (establishing SCE s Performance Based Ratemaking mechanism and stating that the reliability metrics upon which the performance incentive would be based should exclude the impact of less frequent events like major storms ). 144 See ORA-107, pp See Exhibit SCE-18, Vol. 10, p. 21 (Figure I-3 SAIDI Excluding MEDs ). 146 See ORA Opening Brief, pp and p. 96, n. 426 (referencing ORA-107, p. 25). 147 See SCE, Tolentino, Tr. 11/ See SCE, Tolentino, Tr. 11/1528, lines 1-13; SCE-18, Vol. 10, pp. 20,

47 and planned outages may or may not be included. 149 But the point of the study is to provide information for users to assess their performance relative to peers. 150 ORA s suggestion that some utilities may be including planned outages in the IEEE study is a red herring. The study includes several charts with various SAIDI measures, one of which is the without planned or WOP SAIDI chart that SCE included in its rebuttal. 151 This SAIDI measure specifically excludes transmission outages and planned outages for all utilities. Mr. Tolentino explained this to ORA at hearings. 152 Although there may be data collection differences between the various utilities, there is little reason to suspect that the participating utilities failed to understand and accurately report on the various IEEE measures of SAIDI. It is true that the level of sophistication at capturing reliability data may vary from utility to utility, and that better data collection techniques tend to reveal more reliability issues. But SCE has been using its tracking system (ODRM) since Reliance on better technology cannot be a reason for SCE s declining reliability metrics over the past 10 years. Moreover, given the trend across the industry towards increased adoption of more sophisticated data tracking for reliability and the associated exposure of more reliability issues, one would think that SCE s reliability would appear better relative to these more-recent technology adopters. This suggests that SCE s rank may actually be inflated The CPUC s 2016 Reliability Report Demonstrates that SCE s Reliability is Declining ORA relies on a 2016 CPUC reliability report to show that SCE s reliability is on par with the other California IOUs. 154 That report includes planned outages for PG&E, but not for SDG&E and SCE. 155 The chart below summarizes the annual SAIDI performance for each of the three California IOUs over the past 10 years, excluding MEDs and planned outages. 156 This chart shows that SCE s performance is the worst of the three IOUs, and that its performance trend is deteriorating. SCE s 2016 SAIDI performance was about 106 minutes, which is worse than this trend line. SDG&E consistently registers the best performance, while PG&E s has shown uninterrupted improvements since See ORA Opening Brief, pp Exhibit ORA-107, p See Exhibit SCE-18, Vol. 10, p. 27 (Figure I-7). 152 See SCE, Tolentino, Tr. 11/1531, lines See Exhibit ORA-107, p. 64; SCE, Tolentino, Tr. 11/ See Exhibit ORA-09, p. 49; ORA Opening Brief, pp SCE Opening Brief, p For the underlying metrics, see Exhibits TURN-121, TURN-122 and SCE

48 TURN refers to Figure 4 in the 2016 CPUC reliability report, reproduced below, claiming that SCE actually outperformed the other utilities from This further illustrates the importance of excluding MEDs. SDG&E s SAIDI is lower than SCE s (meaning it has better reliability than SCE) in every year except for 2007 and 2011 (when it reached over 560 due to the 2011 Southwest Blackout, an extraordinary event that caused 1.4 million customers in San Diego to lose power for a sustained period). Since the CPUC chart includes MEDs, the impact of this one outage was so severe that it skewed the results such that SCE s 10-year reliability performance appears better than SDG&E s. It is clear that MEDs should be excluded when comparing reliability performance among utilities. 157 TURN Opening Brief, p

49 While SCE has had relatively constant declining reliability (declining by 1.8% annually over the past 10 years), the industry has been improving. This fact, combined with customer satisfaction surveys, 158 and the greater role electricity plays in our lives (for example, as electrical vehicle adoption increases), suggests that SCE needs to take meaningful action to halt this modest slide in reliability and actually begin to increase it SCE s Proposal is the Only One That Will Sufficiently Modernize SCE s Grid In Addition to Being Procedurally Inappropriate, TURN s Primary Proposal Will Not Achieve Near the Level of Reliability Estimated by TURN TURN includes a primary proposal for the Worst Circuit Rehabilitation (WCR) portion of SCE s distribution automation (DA) program with an annual budget of $22 million for the DA program, based on a tripling of the historic annual budget for more traditional approaches to distribution automation. 159 Although TURN contradicts its own numbers, 160 TURN generally claims that this proposal should achieve close to 50% of the SAIDI reliability improvement that SCE forecasts for its total grid modernization program, at about one-twentieth of SCE s forecast cost This proposal 158 See SCE Opening Brief, p. 46; see also Exhibit SCE-18, Vol. 10, Appendix A, pp. A-58 to A-67 (attaching ORA-SCE-218-TCR, Q. 01, showing J.D. Power fourth quartile results for the subcategory of Power Quality & Reliability entitled Supply electricity during very hot or very cold temperatures ). 159 TURN Opening Brief, Summary of Recommendations p. xxiii. 160 See e.g., TURN Opening Brief, Summary of Recommendations p. xxiii and p TURN Opening Brief, Summary of Recommendations p. xxxiii. 26

50 consists of adding one midpoint switch and one tie switch to 240 WCR circuits per year 162 (for a total of 720 circuits over the GRC period). These switches would be RCSs and would include neither SCE s proposed telemetry nor RFIs. There are a number of problems with TURN s new primary proposal. As a threshold matter, TURN s proposal is procedurally unfair, as it was not included in TURN s prepared testimony. While intervenors had SCE s Grid Modernization witness, Mr. Tolentino, on the stand for over five hours, TURN never alluded to this proposal during cross-examination. SCE was therefore unable to question TURN on it either through data requests or through cross-examination. TURN s proposal is essentially pulled out of thin air TURN simply takes SCE s historical DA costs and multiplies them by three. TURN provides no explanation for why three times historical DA costs is prudent. TURN s proposal cannot meet even the lowest burden of production and, if adopted based on the current record, would be an arbitrary result. On this basis alone, the Commission should disregard TURN s proposal. Besides being procedurally unfair and prejudicial, TURN s proposal does not fare any better on the merits. TURN s claim that its proposal would achieve close to 50% of the reliability benefits at onetwentieth the cost of SCE s proposal is seductive but grossly inaccurate. Even taking a giant leap of faith in assuming that this proposal would result in a 9-minute SAIDI improvement a claim that TURN does not substantiate and that SCE has not had the opportunity to vet this would represent less than 39% of the reliability improvement of SCE s proposal, not close to 50%, as TURN claims. Moreover, TURN s proposal does not account for the additional costs associated with moving the existing midpoint switch and adding a circuit tie, both of which are necessary to realize TURN s estimated, but unverified, SAIDI improvement. Since approximately 80% of SCE s WCR circuits already have at least one midpoint switch, 163 adding an additional midpoint switch to these circuits would also require that SCE relocate the existing midpoint switch to the optimal location such that the circuit load is divided into three equal segments. Additionally, when SCE installs automated switches on its circuit ties today, it typically uses an existing circuit tie that is suitable for the switch rather than installing a new circuit tie. However, most circuits only have one suitable circuit tie. Therefore, adding an automated switch to a second circuit tie would, in most instances, require that SCE construct a new circuit tie in order to achieve the SAIDI improvement assumed by TURN. The level of funding for 162 See TURN Opening Brief, pp. 57, See Exhibit SCE-18, Vol. 10, p

51 TURN s primary proposal does not include this additional cost. SCE estimates the actual cost required to move existing midpoint switches and to construct new circuit ties to be at least an additional $144 million. 164 The second material weakness with TURN s proposal is that it does not sufficiently take into account communications upgrade requirements. SCE s NetComm system (which TURN recommends continued use of as opposed to upgrading to FAN) cannot support the automation configuration TURN proposes. TURN s proposal will result in 2,412 new radios. 165 At the current rate, the NetComm system will reach saturation even before these installations are complete, and therefore cannot accommodate TURN s proposal. SCE has adequately explained why adding data collection points to increase NetComm capacity in lieu of the FAN is short-sighted and would be an imprudent investment. 166 Finally, TURN s primary proposal is illogical in that it does not include RFIs for WCR circuits. TURN s primary proposal for WCRs equates to approximately $91,700 per circuit, about 15% of what TURN proposes for the DER-driven circuits ($621,000 per circuit). Much of this reduction is associated with eliminating RFIs. TURN proposes 5 RFIs per circuit for the DER-driven circuits, and no RFIs for the WCR circuits. Given the reliability improvements that the RFIs provide and the cost-effectiveness of these improvements, which TURN describes in detail in both its prepared testimony 167 and opening brief, 168 it is striking that TURN neglects to include RFIs in its primary WCR proposal. This reflects the low level of rigor supporting TURN s primary proposal TURN Underestimates the Value of Remote Intelligence Switches SCE proposes installing Remote Intelligence Switches (RISs) and has explained that RISs are valuable because they interrupt faults, saving upstream customers from seeing any outage at all and reducing MAIFI. 169 TURN acknowledges the RIS s fault interrupting capability, but dismisses the corresponding reduction in MAIFI of less than 3% as not worth the incremental cost. 170 SCE 164 See SCE-02, Vol. 10 Workpapers, p. 55 (identifying $500,000 as the circuit tie cost shared between two circuits, so the cost per circuit is $250,000). Since constructing a new circuit tie costs an average of $250,000, the cost of TURN s proposal is understated by approximately $144 million (720 circuits x 80% x $250,000). This does not include the cost of moving the existing midpoint switch, which, if included, would bring the total cost even higher ,440 WCR switches, 162 DER-driven circuit switches, and 810 DER-driven circuit RFIs. 166 See Exhibit SCE-18, Vol. 10, pp , SCE, Gooding, Tr. 13/ TURN-04 pp. 46, 68-71, 73, TURN Opening Brief, pp. 48, 49, 51, 54, 69 ( TURN supports installation of RFIs. ), 82-83, 92, 94, and SCE Opening Brief, p MAIFI stands for the Momentary Average Interruption Frequency Index. 170 TURN Opening Brief, p

52 recognizes that a 3% MAIFI improvement seems small. However, this figure represents the net MAIFI improvement associated with SCE s proposal, concealing a more complicated story about how SCE s proposal impacts reliability. SCE s current automation scheme includes one midpoint switch. Following an outage using today s automation scheme, 50% of the circuit can be restored within about a minute, 171 which impacts MAIFI, while 50% would experience a sustained outage (one lasting more than five minutes), which impacts SAIFI. 172 Under SCE s proposed DA scheme, 75% of the circuit could be restored within about a minute of an outage. This means only 25% of the circuit would experience a sustained outage. That decreases SAIFI by 50%, but causes a corresponding 50% increase in MAIFI. By using RISs instead of RCSs, the customers downstream of a fault who would have otherwise experienced a momentary interruption following an outage, will now experience no outage whatsoever. The net impact of SCE s enhanced distribution automation proposal is a MAIFI reduction of 3%, but this is actually indicative of a fairly significant reliability improvement from RISs. SCE has estimated that the value of these avoided momentary interruptions is 20% greater than the incremental cost of using RISs instead of RCSs. 173 This calculation does not account for the value to customers of avoiding curtailing their PV systems, which if included would further increase the value of the RIS over the RCS SCE s AMI Will Not Provide the Functions ORA Claims it Will SCE has already explained the opportunities and limitations of AMI and will not reiterate them here. 174 However, in its opening brief, ORA makes several points with respect to the capabilities that SCE can obtain from its AMI system, that SCE needs to clarify. First, ORA criticizes SCE for not conducting a request for information or proposals to determine if its Itron meters can be upgraded. SCE s Itron meters are first-generation AMI meters that have limited functionality. Trying to upgrade these meters through a request for information would have been futile, 171 If a fault occurs today on the back half of a circuit, the customers on the front half would see their power restored in about 1 minute after the midpoint RCS switch opens and the substation circuit breaker closes. If a fault occurs on the front half of a circuit, the customers on the back half would see their power restored in 30 minutes through remote switching performed by the system operator (1st part load up). In either case, an additional set of customers on the faulted half of the circuit would be restored in 80 minutes (2nd part load up). The remaining customers on the faulted half would have to wait until a line crew fixes the problem and restores their service. 172 SAIFI stands for the System Average Interruption Frequency Index. 173 See Exhibit SCE-18, Vol. 10, pp See Exhibit SCE-18, Vol. 10, p ; 57-58; see also SCE Opening Brief pp

53 given that Itron, our current vendor, is the only vendor who could perform this upgrade on its proprietary AMI system. At hearings, SCE s witness, Mr. Gooding, clarified that SCE is not capable of upgrading this current generation of meters to serve as a field area network due to meter capacity and other technical limitations. 175 Mr. Tolentino also touched on the limitations of NetComm. 176 ORA also asserts that smart meters can notify operators of an outage and can help identify the source of the fault. As SCE explained, smart meters can detect the general location and SCE operators do use this information. But AMI meters simply will not be able to identify the fault location, especially in bigger outages. 177 In this light, the value of increased circuit sectionalization and RFIs becomes apparent. An RFI can communicate to the grid operator whether a fault is present on a section of the circuit, and thus eliminates the need for a troubleman to drive or walk along the circuit looking for the flashing lights of a traditional fault indicator. On average, SCE expects RFIs to reduce the troubleshooting portion of an outage by 30 minutes. 178 With respect to the AMI meters, ORA states that the vast majority can detect reverse power flow, and the balance may be able to have this capability with a firmware update. 179 However, this capability does not measure reverse power flow, it just detects whether reverse flows exist or not. Moreover, even accepting the spatial advantage of having data at nearly every customer location, 180 there is no getting around the fact that this information comes a day late and provides very little value for an operator that must make an immediate switching decision during an outage. SCE explains the need for real-time information, in the context of masked load, in Section below Only SCE s Proposal Will Resolve Masked Load Issues Masked load refers to the load on a circuit that is served by customer-site generation and to which the grid operator lacks real-time visibility. Real-time load data for an entire circuit is available to the operator at the substation. On circuits without DERs, this load data is sufficient for operators to estimate load levels along the circuit. On circuits with DERs, however, some of this load is reduced by the DER generation, such that the operator is no longer unaware that the load exists. 175 SCE, Gooding, Tr. 13/ SCE, Tolentino, Tr. 13/ SCE Opening Brief, pp See SCE Opening Brief, p. 49, see also Exhibit SCE-18, Vol. 10, p ORA Opening Brief, p ORA Opening Brief, p

54 Resolving this masked load issue requires that grid operators know the real-time gross load for each discrete circuit segment. Gross load equals net load plus DER generation. To calculate the realtime gross load for each circuit segment, grid operators require both net load and DER generation (in real-time). While real-time generation information from each customer is available through telemetry at the customer site, load information from AMI is not available in real-time. 181 Also, because customersite generation is disconnected temporarily at the outset of an outage, the operator cannot detect the customer load that had been masked by the DER generation that is now disconnected. TURN recognizes that masked load can present challenges to grid operators when trying to perform state estimation to inform their switching decisions. 182 Yet TURN argues that the more direct way to calculate gross load is to know the actual output of a DG system. 183 TURN questions why data from net energy metered DERs would not provide as much information along the entire circuit as would SCE s asset deployment. 184 As explained above, even if the system operators know the actual output of the DG systems, they also need to know the net load in order to calculate the gross load for each circuit segment. Since the grid operators are currently unaware of the gross load on the circuit neither on the circuit as a whole, nor on individual circuit segments they must make conservative assumptions when transferring load to an adjacent circuit. The operator will only switch the affected customers to an adjacent circuit if substantial additional capacity exists or the operator can gather sufficient information, through manual processes, to discern the level of masked load. While SCE estimates this process takes, on average, 20 minutes, it can take much longer. 185 In contrast, SCE s proposed asset deployment will provide real-time gross load information immediately. TURN and SEIA-Vote Solar offer several other approaches to resolving masked load issues, including better use of software tools and enforcement of interconnections standards. But these suggestions fail to address the lack of real-time gross load information. First, TURN argues that the masked load issue can be resolved by relying on the various software tools being developed by SCE, including the Grid Analytics Applications, the Grid Connectivity Model and the Grid Interconnection 181 SCE Opening Brief, p See TURN Opening Brief, pp ; Exhibit TURN-06, p. 56 ( Changes in power flow caused by DERs do cause unpredictable circuit loading during switching operations, primarily resulting from masked loads. It is also true that loads which are masked by generation on the distribution system present challenges to grid operators as described in the examples provided by SCE. ). 183 TURN Opening Brief, p TURN Opening Brief, p See SCE Opening Brief, p. 56, see also Exhibit SCE-18, Vol. 10, p. 49; SCE, Tolentino, Tr. 12/

55 Processing Tool. 186 These software applications are largely planning tools. While these applications provide capabilities that are essential for incorporating DERs into grid planning activities, they do not collect real-time data and are insufficient for performing state estimation to support operator s switching decisions. 187 Operators simply cannot make real-time switching decisions based on day-old data. SCE requires the enhanced telemetry, communications, and GMS to resolve the masked load concern with the accuracy necessary for grid operations. Similarly, SEIA-Vote Solar argues that SCE s System Modeling Tool, Grid Connectivity Model, Grid Analytics Application, and the DERMS will largely eliminate the 20-minute delay included in SCE s BCA for analyzing reverse power flows. 188 These technologies will provide the DER generation data, but will not provide real-time net load information at the circuit section level. Masked load, therefore, will continue to be an issue even with these technologies. As explained above, to properly address the masked load issue (and for grid operators to be able to make switching decisions following an outage on circuits with reverse power flows), SCE will need telemetry along the circuit. 189 TURN argues that SCE does not enforce its rights under interconnection tariffs to require telemetry from DER providers. For example, TURN says that SCE provided one more example of an outage caused by a 20 MW wholesale generator that masked load during switching. SCE fails to explain why it did not have telemetry output information from this 20 MW generator. 190 In its Opening Brief, SCE explained that TURN incorrectly interpreted SCE s data request response regarding this outage as an admission that SCE had failed to request the appropriate telemetry. 191 TURN erroneously concludes that this telemetry would be enough. 192 The key point for the Commission here is that telemetry at the DER location is insufficient to provide adequate state estimation for each circuit segment. 193 Likewise, TURN argues that wholesale interconnection agreements do not mandate compliance with communications and data access capabilities in accordance with IEEE standards 1547 and Perhaps for this reason, SCE concludes that existing wholesale telemetry requirements are 186 TURN Opening Brief, p SCE, Boucher, Tr. 8/ (explaining that output data from generators combined with AMI, when combined with the Grid Connectivity Model, will still not provide sufficient state estimation capabilities.) 188 SEIA-Vote Solar Opening Brief, p See also SCE Opening Brief, pp. 42, TURN Opening Brief, p See SCE Opening Brief, p See TURN, Stephens, Tr. 20/ See SCE, Tolentino, Tr. 11/

56 inadequate. 194 SCE does not say that wholesale telemetry requirements are inadequate. Instead, SCE s position is that wholesale telemetry itself is inadequate to resolve the masked load issue. In fact, as a participant in the smart inverter working group, SCE is engaged in developing the new IEEE standard But SCE reiterates that operators also need real-time net load information for each circuit segment in order to make appropriate switching decisions. 196 TURN makes a similar argument about the use of the DER provider network data for smaller PV systems (less than 1 MW), suggesting that SCE would prefer to bypass third party data and instead obtain telemetry through its own monitoring equipment. 197 This is simply untrue. The data provided by the DER provider network and the data provided by SCE s proposed monitoring equipment are both necessary. The DER provider network will provide generation data from small PV, while SCE s proposed monitoring equipment will provide net load information. Both are necessary for SCE to be able to calculate gross load SCE Has Demonstrated the Cost-effectiveness of its Grid Modernization Program Intervenors repeatedly state that SCE s Grid Modernization program is not cost-effective. But this is not simply not supported by the evidence. SCE has provided a rigorous benefit-cost analysis that shows net positive benefits for its core Grid Modernization program. 198 SCE has also described myriad qualitative benefits that would drive this ratio even higher. Separately, SCE s payback period analysis demonstrates that investment in distribution automation, combined with supporting technologies, will pay for itself in approximately five years. Intervenors fail in their efforts to demonstrate that SCE s grid modernization program is not cost effective SCE s BCA is Still Positive Even When Adjusted for SEIA-Vote Solar s Unreasonable Criticisms SEIA-Vote Solar describes SCE s Grid Modernization proposal as at best barely more than a break-even proposition. 199 Rather than being at best barely breaking even, the proposal in fact 194 TURN Opening Brief, p SCE, Gooding, Tr. 12/ SCE Opening Brief, pp. 61, TURN Opening Brief, p See SCE Opening Brief, pp ; see also Exhibit SCE-18, Vol. 10A4, p. 32 and Appendix E Reliability Improvement Calculations: SCE reliability technology BCA_Model 2_Incorporate 2016 Reliability Performance.xlsx, tab 1. Summary, pp. E-159a4 to E-162a SEIA-Vote Solar Opening Brief, p

57 estimates benefits that at worst exceed the associated costs by 16 percent. 200 Given that this BCA only quantifies narrow reliability benefits, the benefits likely exceed costs by much more. SEIA-Vote Solar criticizes SCE s analysis as riddled with errors both in its calculation of cost per CMI as well as in its estimate of the duration of outages that will be avoided. 201 SEIA-Vote Solar bases these statements on one error with the CMI value (which SCE corrected), and its partisan belief that masked load created by DER will have zero impact on outage restoration times. Even after correcting the one error, and even after removing the DER impacts, the reliability benefits alone still exceed the cost of SCE s Grid Modernization proposal. 202 SEIA-Vote Solar points out that the BCA of the DER-driven circuits falls below one. 203 SCE accepts that by slicing its Grid Modernization program into pieces, one can find aspects that create fewer quantifiable benefits. 204 But just because the full value of DER-driven circuits is not easily quantified, that does not mean this component of Grid Modernization should not be pursued. In the case of PG&E s Cornerstone request, the Commission clarified that cost effectiveness does not necessarily require the value to be above 1.0: In determining what is optimal, we expect PG&E to conduct appropriate levels of costeffectiveness analyses. This does not mean that a project that does not have a benefit to cost ratio greater than 1.0 should necessarily be rejected from consideration. Knowing the extent of how cost-ineffective a project may be will aid in the process of determining whether it is reasonable to proceed with the project, or how the project should be prioritized, when considering other factors such as the severity of the problem being addressed and non-quantifiable benefits. 205 SCE has described several of the non-quantifiable benefits related to its DA program, including public safety, capital deferral and O&M savings, physical and cybersecurity, customer choice and convenience, environmental improvements and other economic benefits. 206 SCE s analysis is also 200 See SCE Opening Brief, p. 55; See SCE-18, Vol. 10A4, p. 32 and p. 33A4 (Figure I-8). 201 SEIA-Vote Solar Opening Brief, p See SCE Opening Brief, pp SEIA-Vote Solar Opening Brief, p For example, TURN argues that the BCA benefits are greater for C&I customers, who may not really depend on SCE to provide uninterrupted service, because of back up generation. But TURN provides no evidence for this statement. 205 D , Decision on Pacific Gas and Electric Company Request to Implement a Program to Improve Electric Distribution System Reliability, pp (June 24, 2010) (emphasis added). 206 See SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 10A4, pp

58 conservative in that it assumes no DER growth beyond 2020, even though these projects will actually enable higher amounts of DER adoption for years to come. 207 SEIA-Vote Solar criticizes SCE for not having done its own value of service (VOS) study. SCE hired Nexant to conduct a customer interruption cost analysis, which relied on PG&E s VOS study and a nationwide VOS study developed by Nexant in conjunction with Lawrence Berkeley National Laboratory (LBNL) and the Department of Energy. 208 The purpose of the nationwide study is to avoid the need for utilities to conduct a VOS study for each service territory. As the Nexant Report explains: The primary drawback of surveys is that they require collecting detailed information from large, representative samples of residential, commercial, and industrial (C&I) customers. As a result, only a few of the largest utilities in the U.S. have conducted customer interruption cost surveys. To address this barrier, the Department of Energy (DOE), LBNL, and Nexant have been working together for over a decade to make reasonable interruption cost estimates readily available for utilities that have not conducted their own surveys. 209 Nexant went on to explain that use of this study combined with PG&E s value of service study provided a reasonable estimation of SCE s outage costs, given the higher cost of doing business in California. 210 Therefore, had SCE conducted a study, it likely would have indicated a value comparable to the PG&E value (not the midpoint). Moreover, it is reasonable to assume that the cost of outages to customers, including residential customers, will increase substantially as customers adopt plug-in electric vehicles. 211 It is likely that SCE s approach substantially undervalues the reliability benefits of its Grid Modernization proposal ORA s Payback Period Analysis is Flawed ORA essentially ignores SCE s BCA, instead taking issue with SCE s statement in its original GRC application about the payback period being less than five years. In addition to disregarding SCE s compelling business case (with benefits exceeding the associated costs by a comfortable margin), ORA fumbles its critique of the payback period demonstrating instead that SCE s payback period is indeed approximately five years. 212 This is true even after including the costs of all the foundational 207 See SCE Opening Brief, p. 55; SCE Rebuttal Testimony, p See Exhibit SCE-02, Vol. 10A3 Workpaper, pp. 124a-129a; see also Exhibit SCE-18, Vol. 10A4, pp A4, See SCE-02, Vol. 10A3 Workpapers, p. 124a. 210 See SCE-02, Vol. 10A3 Workpapers, p. 125a. 211 See Exhibit SCE-09 (Results of Operation), Vol. 01, p. 68 (showing a six-fold increase in PEV adoption by 2020). 212 See SCE Opening Brief, pp

59 technologies and extending the scope beyond the GRC period to also include 2021 and 2022 distribution automation deployments. ORA lists three findings from its review of SCE s analysis, all of which are simply incorrect: 213 SCE s analysis considered only the first year of the Worst Circuit Replacement Distribution Automation program on the 200 least reliable circuits. This is incorrect. SCE extended its analysis to cover five years the entire GRC period, plus 2021 and 2022 and the payback period is still five years. 214 SCE s analysis did not include the cost of other Grid Modernization components required to achieve the purported reliability benefits. This is also incorrect. SCE updated its analysis to include the cost of all the foundational technologies (GMS, FAN, WAN and CSP), and the payback period is still five years. 215 A continuation of SCE s existing (+1+1) has a shorter payback than SCE s 3-3 proposal. Instead, ORA s proposed +1+1 scheme has a payback period of 4.9 years. 216 ORA also suggests that benefit-cost analyses are inherently flawed because while forecast costs are almost always realized fully and immediately through rate increases, the forecast benefits are typically delayed and may never materialize. 217 ORA s statement is incorrect in that SCE s BCA takes into account the timing of the expected costs and benefits, 218 and therefore does not prematurely recognize the benefits. Despite ORA s suggestions that benefit-cost analysis is a poor method of evaluating cost effectiveness, utilities and the Commission regularly rely on such analyses to determine cost reasonableness. Moreover, ORA does not suggest a better way to show cost-effectiveness. 213 ORA Opening Brief, p See SCE Opening Brief, p. 66, see also Exhibit SCE-18, Vol. 10A4 and Appendix E, p. 186A See SCE Opening Brief, p. 66, see also Exhibit SCE-18, Vol. 10A4 and Appendix E, p. 186A See SCE Opening Brief, p. 66, see also Exhibit SCE-18, Vol. 10A4, p. 45A4, Table II-5 and Appendix E, p. 187A ORA Opening Brief, p See e.g., SCE-18, Vol. 10A4, Appendix E Reliability Improvement Calculations, SCE reliability technology BCA_Model 3_Correct Outage Data.xlsx, Summary, pp. E-163a4-166a4 (explaining that this discounted cash flow model estimates annual cash flows and then discounts these cash flows back to 2017 using a discounted rate). 36

60 SCE Has Sufficiently Rebutted the Issue of Upgrade Costs ORA points out that customers are generally required to pay a portion of grid upgrades they cause through increased load, and to extend the grid to new customers. Similarly, developers of large distributed generators (developers) are generally required to pay a portion of grid upgrade costs the utility determines to be required to accommodate their energy. 219 ORA then argues that SCE s testimony does not discuss these customer/developer contributions 220 and that SCE does not directly rebut either TURN s or ORA s testimony on the impacts of different types of DER and who should pay for them. 221 Contrary to ORA s statement, SCE has addressed these concerns regarding DER-driven upgrade costs at hearings and in its system planning rebuttal testimony. At hearings, Mr. Takayesu explained that DER-driven upgrade circuits are not driven by wholesale generators. They are driven by forecasted retail NEM generation. 222 Given that SCE is not proposing to modernize its DER driven circuits for specific wholesale generators, SCE does not see the relevance of standards that require certain generators to pay for the upgrades they trigger. Moreover, as stated in SCE s system planning rebuttal testimony, SCE cannot and should not require wholesale DERs, already connected to SCE s system, to pay for circuit upgrades triggered by new retail DER SCE s Existing Communications Backbone is Outdated, Slow, Reaching Saturation and Needs to be Replaced Investment in FAN is Justified on the Basis of Latency Alone TURN draws an incorrect conclusion that FAN is not a worthwhile investment based on the small latency improvements it provides. TURN explains: SCE stated that the typical time between when an operator issues a command signal for a device to operate and when that operator receives confirmation back from that device of a successful operation (the command cycle time) is two minutes. The FAN, as proposed by SCE, has an overall latency of 15 seconds, which translates into command cycle time of 30 seconds. SCE does not provide analysis on why the savings of 90 seconds is worth the investment of $238 million. 219 ORA Opening Brief, p ORA Opening Brief, p ORA Opening Brief, p SCE, Takayesu, Tr. 11/ SCE Exhibit 18, Vol. 3, p

61 TURN is confusing reporting frequency with latency. SCE s FAN would have a reporting frequency 224 (the time required for a data packet to travel from the originating device all the way to the end-point) of less than 15 seconds. The FAN latency (the time required for a device to pass along a data packet to another device) is less than a second. 225 On the other hand, SCE s NetComm has a reporting frequency of 15 minutes and a latency of 2 minutes. 226 In the event of a fault, the field equipment would report the state change to the GMS, the GMS would then run a FLISR 227 application to analyze the data and develop an isolation restoration plan and, lastly, it would execute controls over automated switches (RISs or RCSRs). All this would happen in a second and would barely be perceptible by the system operator. This difference between a two-minute latency and a one-second latency is significant with respect to reducing the outage impact on customers, because it enables faster automated and operatedassisted switching. This improves reliability and safety by reducing the amount of time a distribution circuit is in a faulted condition. And if a circuit is appropriately sectionalized and FAN enabled, outages for many customers on that circuit would not only be reduced but avoided altogether. 228 The investment in FAN is absolutely justified on this basis alone NetComm Cannot Support Even a Modest Level of Additional Telemetry TURN suggests that SCE s NetComm system can be expanded by adding more radios, changing the frequency of signal transmission from radios, and/or changing the number of radios that report at a certain frequency. 229 TURN recognizes that the NetComm system would reach saturation with its existing capacity with the installation of 2,000 RFIs 230 and then explains that the NetComm system could be expanded to accommodate TURN s secondary recommendation, which they claim includes 3,000 RFIs. 231 There are two problems with this characterization. 224 This is sometimes referred to as overall latency. 225 See Exhibit SCE-02, Vol. 10, p See Exhibit SCE-18, Vol. 10, p FLISR stands for fault location, isolation, and service restoration. 228 Exhibit SCE-18, Vol. 10, p TURN Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p

62 First, TURN underestimates the number of RFIs needed for its proposal. The true number of RFI devices that would be added under TURN s alternate scenario is 9,810, not 3, TURN also leaves out up to 492 radios for the switches and circuit ties TURN recommends for the 110 WCR circuits and the 54 DER-driven circuits. The NetComm system would therefore reach saturation well before SCE deploys the total number of devices in TURN s proposal. Second, SCE has already explained that although NetComm capacity can be stretched until the FAN is built, it is not a long-term solution. 233 Putting additional money into NetComm in lieu of FAN would be, as Mr. Gooding described it, throwing good money after bad. 234 Mr. Gooding explains that while it is technically possible, this approach is imprudent: You can actually spend large amounts of money to get a very old technology to do what you want it to do. But as the grid becomes more dynamic, we believe the NetComm radio system is actually incapable of -- because of its limitations, the speed and the lack of ability to do peer-to-peer information. We believe it lacks the technical capability to actually meet our requirements in the future, even without grid modernization, just as the grid becomes more dynamic. 235 Although NetComm may continue to limp along, it is slow, old and incapable of being upgraded with modern cybersecurity features. 236 NetComm needs to be replaced. Investments in NetComm, while needed in the short-run as a stopgap, should not be extended any longer than necessary to accommodate completion of SCE s FAN T&D Grid Technology Energy Storage Pilots ORA s brief makes three principal arguments against SCE s Energy Storage Pilots (ESPs). 1) The ESPs cannot be proposed in the GRC because they are research, development and demonstration (RD&D) and/or technology demonstration and deployment (TD&D) projects ,000 RFIs for the 200 WCR circuits (9,000 = 600 circuits x 5 RFI locations per circuit x 3 RFIs per RFI location) and 810 for the 54 DER-driven circuits (810 = 54 circuits x 5 RFI locations per circuit x 3 RFIs per RFI location). 233 See Exhibit SCE-02, Vol. 10, pp ; SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 10, pp SCE, Gooding Tr. 13/ SCE, Gooding Tr. 13/ See Exhibit SCE-02, Vol. 10, pp ; SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 10, pp See ORA Opening Brief, p ORA references both RD&D and TD&D initially, then appears to focus on TD&D. Accordingly, SCE will similarly refer to TD&D. 39

63 ORA believes that the ESPs should instead be proposed in the Electric Program Investment Charge (EPIC); 2) The ESPs duplicate other efforts in this area; 238 and 3) SCE has not met the standards and processes for utility-owned storage systems. 239 SCE addressed each of these three arguments in rebuttal: 1) There are fundamental differences between TD&D projects on the one hand, and SCE s ESPs on the other. The projects that SCE is proposing cannot be requested under EPIC ) SCE is leveraging resources to serve more than one beneficial purpose. This is not duplication. 241 This is making prudent use of our resources on behalf of our customers. 3) The ESPs utilize capital assets to bolster distribution reliability and foster use of preferred resources. Therefore, the storage procurement requirements as identified in D do not bar funding for the Pilots. 242 TURN similarly suggests that the ESPs are unnecessary and are duplicative. 243 TURN also argues that SCE s proposal is not consistent with the Commission s storage mandate decision SCE s Proposal Is Consistent With Commission Guidance The Commission has encouraged a diverse portfolio of energy storage projects, including utilityowned systems: As determined in D , the definition of energy storage system utilized in this proceeding is the one articulated in Section 2835(a). This definition is intended to embrace a mix of ownership models and contribute to a diverse portfolio that can encourage competition, innovation, partnerships, and affordability there is room to allow for different types of economic or policy driven storage projects that meet different needs, cost requirements, and other criteria. 245 The Commission also stated: 238 See ORA Opening Brief, p See ORA Opening Brief, p See Exhibit SCE-18, Vol. 11, pp See Exhibit SCE-18, Vol. 11, pp , See Exhibit SCE-18, Vol. 11, pp TURN Opening Brief, pp TURN Opening Brief, p D , p

64 IOUs shall procure energy storage through competitive solicitations involving RFO(s) for third party-owned or -aggregated resources, or other processes authorized by the Commission appropriate for utility- or customer- owned storage projects. Storage projects involving distribution reliability applications shall be procured via existing processes used by IOUs for other distribution reliability utility assets. 246 The IOUs may own storage assets in all three storage grid domains. However, each IOU may procure utility-owned storage resources only up to 50 percent of the cumulative procurement targets across all three grid domains. The utility may propose the utilityowned energy storage asset within its applicable GRC proceeding, or the procurement application discussed below. 247 Other Commission decisions have supported utilizing the GRC as a vehicle to propose and seek funding for utility-owned storage projects. 248 Accordingly, SCE s proposal comports with Commission guidance, and the ESPs are appropriately requested in this GRC ORA and TURN Incorrectly Assert The Energy Storage Pilots Should Be Funded Through The EPIC Program SCE has demonstrated in detail that there are fundamental differences between TD&D proposals versus the ESPs. 249 TD&D proposals are appropriate for EPIC, but pilots using commercially available technologies are not. 250 In fact, the Commission has characterized EPIC technology demonstrations as follows: This area supports assisting technology development through the valley of death and toward commercialization. 251 The ESPs are not supporting technologies that are headed toward commercialization. Instead, the ESPs use commercially available technologies to serve customers and provide necessary information before undertaking a full-scale implementation of the technologies across SCE s power grid. 252 This difference is evidenced in the length of the ESPs versus the EPIC RD&D projects. SCE s EPIC demonstrations will only continue for a period of three years, 253 with no guarantee of any continued use of the assets after that. The ESPs will be in service for 10 to 15 years; in other words, the service life of the assets D , Appendix A, p. 5 (emphasis added). 247 D , Appendix A, p. 6 (emphasis added). 248 See D , pp , SCE Opening Brief, pp SCE Opening Brief, p. 82, Exhibit SCE-18, Vol. 11, pp D , p See Exhibit SCE-18, Vol. 11, p. 10, lines See Exhibit ORA-09-WP, pp (entries showing project schedule for each SCE EPIC project). 254 Exhibit SCE-18, Vol. 11, p. 18, lines

65 Moreover, even if SCE s proposed pilots were EPIC TD&D projects (which SCE has clearly demonstrated they are not), ORA incorrectly implies that the myriad ways in which energy storage devices might contribute to grid advancement and reliability could be established through a single EPIC demonstration project. ORA references PG&E EPIC Project 1.02, Energy Storage for Distribution Operations. ORA states that SCE proposes to procure at least three utility-owned, commercially available battery energy storage systems to test the same energy storage use-cases (i.e. distribution reliability) that PG&E s EPIC Project 1.02 is authorized to test. 255 ORA further notes that SCE s own testimony says that the purpose of the Energy Storage Pilot is to test new applications for energy storage such as distribution reliability, integration of renewable resources, and grid optimization. 256 But distribution reliability is not a use-case or an application. It is a fundamental function of a Load Serving Entity. Reliability is delivered through Transmission and Distribution assets, including but not limited to 13,061 miles of transmission lines, 105,773 miles of primary distribution lines, 2,753 substation transformers, 728,627 distribution transformers, 422,707 underground structures and 67,302 switches. 257 Monitoring, communicating with, and controlling these assets is accomplished through, among other assets, 7,250 servers, 3 mainframes, and 5,380 miles of fiber cable. 258 The precise number of ways in which energy storage may be integrated into this complex system in order to maintain or enhance distribution reliability is far greater than one application. The optimization of the grid, including contribution to reliability needs, is not a single use case; instead, it is one of the three established guiding principles for procuring and developing energy storage systems in the Energy Storage Procurement Framework this Commission has adopted. 259 As we noted above, this framework specifically contemplates utility ownership of energy storage systems, and expressly allows the utilities to propose such projects in their GRCs. Moreover, PG&E proposed its battery project in its EPIC 1 Application 260 back in November SCE testified that much has happened since PG&E filed its EPIC Investment Plan in November 2012, including the fact that certain energy storage technologies have continually advanced, 255 ORA Opening Brief, p ORA Opening Brief, pp Exhibit SCE-02, Vol. 1, p. 2, Table I Exhibit SCE-04, Vol. 1, p. 1, lines D , pp A D , p

66 with devices now being commercially available. 262 SCE will use commercially available energy storage systems for its Pilots. 263 ORA claims that energy storage systems deployed through EPIC TD&D-type programs have been counted toward energy storage procurement targets. 264 That is true. But ORA is incorrect in arguing that if a project counts toward energy procurement targets, that must automatically mean the Commission found the projects to be used and useful. The projects were not counted toward the target because they were used and useful; they were counted because they met separate and independent qualifying criteria related to the timing and focus of the project. 265 In addition, ORA has made for the first time in its Opening Brief the claim that SCE s ESPs can reside in the EPIC program even if they are used and useful assets. 266 ORA s prepared testimony did not address this, and ORA chose not to cross-examine SCE s Grid Technology witness. Used and useful traditionally denotes a capital asset that is placed in rate base, and SCE has proposed its ESPs as capital expenditures. Because ORA has raised this issue for the first time in its Opening Brief, SCE has no opportunity to offer clarifying or contravening evidence on the nature SCE s EPIC funding and whether such EPIC funding is expensed as O&M or treated as capital and placed in rate base if used and useful. TURN s arguments regarding proposal of the ESPs in EPIC rather than the GRC have been addressed above and in detail in SCE s rebuttal ORA s Argument Concerning Pre-Commercial Strategies Would Render The Commission s Guidance Meaningless ORA suggests that SCE could propose the ESPs in EPIC because EPIC permits pre-commercial technologies or strategies. 268 SCE took the commonsense approach in determining where to request the ESPs. The technology we are deploying is commercial. SCE did not wish to risk violating the EPIC guidelines by trying to shoehorn in the ESPs as a pre-commercial technology strategy when the critical technologies being funded are commercially available. Read broadly, nearly any project could be part of a technology strategy. Under ORA s expansive reading of the Commission language, the 262 Exhibit SCE-18, Vol. 11, p. 13. As a commonsense matter, even a cursory look at any street confirms that commercial battery technology has evolved considerably since 2012, as shown by the abundance of electric and hybrid cars that have appeared on the roads in the last five years. 263 Exhibit SCE-18, Vol. 11, pp ORA Opening Brief, p D , Appendix A, p ORA Opening Brief, pp Exhibit SCE-18, Vol. 11, pp ORA Opening Brief, p

67 phrase pre-commercial technologies is nullified because it is swallowed whole by pre-commercial strategies The Distributed Optimized Storage Project (DOS) Does Not Provide a Turn- Key Solution and is Not Duplicative ORA asserts that in SCE s 2016 EPIC Annual Report, SCE states that project (later renamed DOS) will demonstrate end-to-end integration of multiple energy storage devices on a distribution circuit/feeder to provide a turn-key solution that can cost-effectively be considered for SCE s distribution system. 269 However, the project itself is not a turn-key solution. Instead, the results of the project will help identify a turn-key solution. This is shown by the entire passage that ORA partially quotes from: This field pilot will demonstrate end to end integration of multiple energy storage devices on a distribution circuit/feeder to provide a turn-key solution that can cost-effectively be considered for SCE s distribution system, where identified feeders can benefit from grid optimization and variable energy resources (VER) integration. To accomplish this, the project team will first identify distribution system feeders where multiple energy storage devices can be operated centrally. Once a feeder is selected, the energy storage devices will be deployed and tested to demonstrate seamless utility integration, control, and operation of these devices using a single centralized controller. At the end of the project, SCE will have established clear methodologies for identifying feeders that can benefit from distributed energy storage devices and will have established necessary standardsbased hardware and control function requirements for grid optimization and renewables integration with distributed energy storage devices. 270 ORA incorrectly states that SCE does not refute ORA s testimony that SCE s proposed ESPs duplicate DOS. In fact, SCE did refute ORA s argument in SCE s rebuttal testimony. 271 ORA is mistakenly labeling efforts as duplicative when SCE has simply tried to leverage resources. DOS is a demonstration which centers on integrating, controlling, and operating multiple devices. Instead of purchasing separate devices specifically for DOS, SCE is using Distributed Energy Storage Integration (DESI) systems that will already be deployed for reliability purposes, and additionally using those systems to support DOS. In doing so, SCE is saving customers money and maximizing resources. Punishing SCE for trying to maximize value to its customers would be a disincentive to the utility vigilantly attempting to find multiple beneficial uses for its assets. 269 ORA Opening Brief, p Exhibit ORA-09-WP (Witness Myers), p. 65 (emphasis added). 271 SCE-18, Vol. 11, pp

68 ORA cites a presentation by Colin Cushnie to suggest that certain programs are demonstration programs rather than pilots. 272 SCE clarified in discovery that Mr. Cushnie does not directly work on the EPIC program and the entire deck was for a completely different purpose. The stated intent of Mr. Cushnie s presentation was to discuss SCE s Preferred Resources Pilot (PRP) and energy storage results. 273 A stray word or two in a deck prepared for an unrelated purpose and delivered by an executive who does not directly work on the EPIC Program should not be used to disallow substantial funding for a prudent project. ORA infers that SCE is only permitted to fund EPIC projects in the area of technology demonstration and deployments [TD&D]. Thus, DESI-3 (formerly known as DOS) must be a demonstration project. 274 SCE s 2016 Smart Grid Deployment Plan Update mistakenly stated in passing that DOS was renamed DESI-3. ORA pointed this out, for the first time, in its Opening Brief. 275 SCE regrets any confusion this item may have caused. There is proof in the record that DOS remains its own project and has not been renamed DESI SCE delineated the difference between DESI 3 and DOS in testimony: SCE did not purchase the DOS battery energy storage system using EPIC funding. In fact, the battery energy storage system we will use for DOS will be purchased as part of the Commission-approved DESI pilots. 277 Moreover, the project nomenclature is not the important issue here. The important issue is that there is no double dipping or redundancy between DESI 3 and DOS. In fact, it is the precise opposite. SCE is making multiple beneficial uses of a single system. We are doing the most we can with the fewest dollars. The system installed for the DESI 3 pilot will serve a reliability function for 10 to 15 years. 278 During a portion of its service life, the DESI 3 system will also participate in the DOS effort. 272 ORA Opening Brief, p See Exhibit ORA-102, p ORA Opening Brief, p. 113 (brackets in original). 275 See ORA Opening Brief, p For example, the EPIC Annual Report that SCE filed in February 2017 shows that DOS remains its own separate project and has not been renamed DESI-3. See Exhibit ORA-09-WP, pp See also Exhibit SCE-02, Vol. 11, p. 36, lines 1-7 (tracing the development of DESI pilots) and p. 37, lines Exhibit SCE-18, Vol. 11, pp DESI 3, like all of the ESPs proposed here, will provide services to customers for the useful life of the asset. See Exhibit SCE-18, Vol. 11, p. 13, lines That life is a year period. See Exhibit SCE-18, Vol. 11, p. 18, lines 2-4. Moreover, as SCE stated, [b]y leveraging DESI 2 and DESI 3, we have a clearer path for extracting value from energy storage deployed in support of the DRP for 10-plus years beyond the DRP Demonstration test period. Exhibit SCE-18, Vol. 11, p. 21, lines

69 As illustrated in the diagram below, the system will be deployed through DESI 3 for reliability purposes for its full service life. 279 During a portion of that service life, SCE will leverage the asset for EPIC demonstration purposes. Again, this is simply finding multiple beneficial uses of SCE s assets to give customers more value. The diagram illustrates the relationship between DESI 3 and DOS. DESI 3 and DOS Venn Diagram ORA argues that SCE could not leverage DESI 2 and 3 for the DOS and Integrated Grid projects, because DESI 2 and 3 were not available when SCE requested and received approval of the DOS and Integrated Grid projects. 280 There is no requirement, nor can ORA point to one, that states that all non- EPIC resources that may eventually be leveraged to gain efficiencies in EPIC must be available or even identified at the time that an EPIC project is requested, considered, or approved. The Commission expects utilities on an ongoing basis to seek efficiencies and take full advantage of resources. That is all that SCE is doing here ORA s arguments that SCE did not meet EPIC requirements are not pertinent, because SCE did not propose the projects in EPIC SCE has shown that the ESPs are pilot projects, using commercially available technologies, and are not appropriately funded through EPIC. 282 ORA complains that SCE s request has not met certain specific EPIC requirements. SCE s request has not met those EPIC requirements because it did not propose the ESPs in EPIC. Thus, each of the following arguments by ORA is not germane: 279 See Exhibit SCE-18, Vol. 11, p. 21, lines and p. B-3 ( DRP ). 280 ORA Opening Brief, p See Exhibit SCE-18, Vol. 11, p. 14, lines 18-20, p. 15, lines Exhibit SCE-18, Vol. 11, pp

70 ORA argues that SCE circumvents the cost cap the Legislature and the Commission imposed on the EPIC Program. 283 However, the cost cap does not apply because, as SCE has shown, the ESPs are not appropriate for EPIC funding. ORA suggests that SCE s GRC proposal must comply with the requirements of PUC Code and D But these requirements apply to utility research and development and TD&D projects, which should be proposed through EPIC. ORA argues that the Commission clearly directed SCE to file a standalone application in cases where unforeseen opportunities emerge outside of the EPIC program. 285 But the authority that ORA cites indicates that this applies to EPIC TD&D proposals. 286 And, as SCE discussed in detail in its rebuttal and opening brief, the ESPs are not TD&D projects. 287 ORA argues that SCE failed to comply with the Commission s order to inform EPIC stakeholders of outside TD&D projects. 288 But the ESPs are not EPIC TD&D projects, as discussed above. Accordingly, these EPIC requirements do not apply ORA Did Not Raise The Cost Cap For Distributed Resources Plan Demo E Until Its Opening Brief ORA also argues that SCE has not shown that the ESP Projects are under the $888,000 cost cap established for SCE s Distributed Resources Plan (DRP) Demo E. 289 As discussed below, SCE has not shown this simply because it was not raised until ORA s opening brief. SCE has no opportunity to address ORA s argument with contravening evidence ORA Incorrectly Claims The ESPs Are Duplicative Of Other Efforts The ESPs are Not Duplicative of IDER Pilots ORA mistakenly claims SCE s proposed pilots are duplicative of the IDER regulatory incentive mechanism pilot (IDER Pilot). 291 SCE s ESPs differ markedly from the IDER pilots. The purpose of the 283 ORA Opening Brief, p ORA Opening Brief, pp ORA Opening Brief, p ORA Opening Brief, p Exhibit SCE-18, Vol. 11, pp ; SCE Opening Brief, pp ORA Opening Brief, p D , p ORA s injection of this evidentiary issue in briefing is procedurally inappropriate, and should be disregarded by the Commission. 291 ORA Opening Brief, p

71 IDER Pilot is to test a competitive solicitation framework to solicit distributed energy resources for distribution deferral purposes, as well as a regulatory mechanism to incentivize cost-effectively deploying distributed energy resources that defer or displace more traditional distribution capital projects and expenditures. 292 On the other hand, SCE s ESPs are intended to support various capabilities, including but not limited to: enhancing distribution reliability, enhancing transmission substation reliability, integrating DERs, demonstrating dual-use (serving both a grid reliability function and participating in the market), fostering microgrids, and spurring electrification of transportation. 293 The ESPs will test capabilities, rather than explore any competitive framework or regulatory incentive mechanism. The only connection between the IDER Pilot and the ESPs is that the energy storage pilots will inform IDER and could potentially support one or more of the IDER projects. 294 Again, this is leveraging rather than duplication The ESPs Are Not Duplicative of Three DRP Demonstration (Demo) Projects ORA claims SCE s Energy Storage Pilot also duplicates three DRP demonstration projects. 295 ORA is incorrect. SCE is simply leveraging ESP resources for use in DRP to support and enhance the learning in DRP projects. SCE showed this in detail in rebuttal. 296 It is axiomatic that DRP demonstrations require distributed energy resources. 297 ORA asserts that SCE is creating duplication by making an energy storage pilot system available to a demonstration that requires distributed energy resources in order to function. This is illogical. And ORA s contention would lead to inefficient utilization of utility assets. ORA suggests that SCE has not shown how the ESPs will contribute to SCE s Demo E. 298 Demo E is a microgrid project approved in D SCE has not made this showing for one simple reason. ORA raises this issue for the first time in its opening brief. Therefore, SCE has not had any opportunity to provide any evidence concerning leveraging of resources for Demo E, or indeed any 292 D , pp. 2, SCE-02, Vol. 11, p. 38, lines (emphasis added). 294 See Exhibit SCE-02, Vol. 11, pp ; Exhibit SCE-18, Vol. 11, p. 14, lines 20-21; SCE-18, Vol. 11, p. 21, line ORA Opening Brief p Exhibit SCE-18, Vol. 11, p. 15, lines The Commission expressly anticipated and supported the fact that DRP demonstration projects would utilize both third-party-owned and utility-owned resources. D pp ORA Opening Brief, p See ORA Opening Brief, p

72 evidence at all on this subject. ORA cannot complain about a lack of evidence on an issue that ORA brings up for the first time in its opening brief. The Commission should accord no weight to ORA s contention TURN Is Also Incorrect in Asserting the ESPs Are Duplicative TURN also argues that the ESPs appear duplicative. 301 SCE has addressed these arguments above, as well as in SCE s Opening Brief 302 and its rebuttal to TURN. 303 SCE has also responded above to TURN s arguments that the ESPs are not needed for the DRP and IDER programs. Moreover, SCE s rebuttal also addressed TURN s positions, including TURN s contention in its brief that [i]t is ludicrous on its face to suggest additional pilots are needed to support other pilots ORA Erroneously Claims The ESPs Do Not Meet The Standard Of Review For A Utility-Owned Storage Project The ESPs are Not Subject to Competitive Solicitation and Associated Requirements ORA claims the ESPs are subject to certain competitive solicitation requirements. 305 SCE showed that holding a competitive Request for Offer (RFO) process is infeasible. 306 Moreover, the Commission decision cited by ORA also says the following: An IOU proposing utility-owned storage in any grid domain, except for projects that involve distribution reliability applications, for special circumstances similar to those described in D , shall pursue a competitive process consistent or comparable to the process described in D That is, the IOU should request in its application to hold a competitive RFO for turnkey project development of the resource under a Purchase and Sale Agreement (PSA). If a competitive solicitation for a PSA contract to build the utility-owned project is not appropriate, the IOU should explain in its application why this is the case and propose an Engineering, Procurement, and Construction (EPC) straight utility build project approach, or other approach, depending on the circumstances Of course, if SCE can obtain savings and conserve resources by locating an ESP in the Demo E area to advance the objectives of each program (just as SCE is doing for Demo D), then it is reasonable for SCE to do so. Just as with Demo D, this approach would help SCE maximize the beneficial use of its assets on behalf of its customers. 301 TURN Opening Brief, pp SCE Opening Brief, pp See Exhibit SCE-18, Vol. 11, pp TURN Opening Brief, p SCE s rebuttal to TURN on this point is found at Exhibit SCE-18, Vol. 11, p. 21, lines ORA Opening Brief, pp Exhibit SCE-18, Vol. 11, pp D , Appendix A at p. 6 (emphasis added). 49

73 ****** [A]n IOU proposing utility-owned storage in any grid domain shall pursue a competitive process consistent with LTPP processes outlined in D Applications for approval of utility-owned energy storage systems procured outside of the RFO process shall be evaluated on a case-by-case basis. In the application the IOU must make a showing that holding a competitive RFO is infeasible. These circumstances may include market power mitigation, reliability, preferred resources, and expansion of existing facilities. 308 ****** Storage projects involving distribution reliability applications shall be procured via existing processes used by IOUs for other distribution reliability utility assets. 309 Accordingly, where reliability and preferred resources are implicated, a competitive solicitation is not required by D SCE repeatedly showed that the ESPs are being proposed to address reliability and preferred resources. Here are just some examples: The DESI pilot program was developed to test the ability of a Battery Energy Storage System (BESS) to provide feeder load relief, give voltage support, and smooth the delivery of energy from renewable distributed generation to the grid. DESI will also establish the aggregation and control of multiple systems and the ability of energy storage systems to integrate to the grid safely and reliably. 310 SCE intends to test how DESI 1 can be a dual-use machine; besides providing grid reliability, the system will actually participate in the wholesale market. There will be learnings associated with managing the system between the two uses, with the priority being grid reliability. 311 DESI 2, a 2 MW, 4 MWh lithium iron batter system will test grid operations for reliability purposes. 312 To continue to support market transformation, and help safely and reliably integrate energy storage on the grid, SCE will expand the pilot program from the initial three pilots previously approved to an additional ten pilots D , p. 52 (emphasis added). 309 D , Appendix A, p. 5 (emphasis added). 310 Exhibit SCE-02, Vol. 11, p. 36, lines Exhibit SCE-02, Vol. 11, p. 36, lines (emphasis added). 312 Exhibit SCE-02, Vol. 11, p. 36, lines Exhibit SCE-02, Vol. 11, p. 37, lines (emphasis added). 50

74 The ESPs will help[] ensure that integrating energy storage does not diminish safety and reliability for our customers or workers. 314 Expanding the DESI Pilot Program will support various capabilities, including enhancing distribution reliability and enhancing transmission substation reliability. 315 SCE will pilot energy storage systems to test the feasibility of optimizing the grid through contribution to distribution reliability and to evaluate whether energy storage can contribute to grid needs. These pilot projects will use BESS as a tool to assess how energy storage can help mitigate distribution substation planning criteria violations, such as planned loading limit and duct-bank temperature violations. 316 The ESPs will support efforts to safely and reliably deploy new technologies. 317 The ESPs will facilitate preferred resources. 318 The ESPs will provide the battery energy storage system for SCE s Preferred Resource Pilot. 319 DESI 2 will be associated with circuits to support SCE s Preferred Resource Pilot (PRP) programs. 320 DESI 3 will be utilized in the PRP deployment area. 321 Moreover, SCE provided a table that showed, among other things, how each of the ESPs address distribution reliability. 322 Here is a summary of the ESPs reliability applications as found in that table: DESI 2 -- support local distribution reliability and optimization; DESI 3 -- foster optimized phase and voltage balancing; Distribution Reliability Pilots (Horoscope, Mercury 1, Mercury 2) -- mitigate system planning criteria violations; 314 Exhibit SCE-02, Vol. 11, p. 38, lines Exhibit SCE-02, Vol. 11, p. 38, lines Exhibit SCE-02, Vol. 11, p. 39, lines Exhibit SCE-18, Vol. 11, p. 14, lines Exhibit SCE-02, Vol. 11, pp Exhibit SCE-02, Vol. 11, pp ; Exhibit SCE-18, Vol. 11, p. 14, lines Exhibit SCE-02, Vol. 11, p. 37, lines Exhibit SCE-18, Vol. 2, p. 14, line See Exhibit SCE-18, Vol. 11, Appendix B, Table 1. 51

75 Facilitate Preferred Resources Pilots (Mercury 3, Mercury 4, Gemini 1) -- address reliability issues caused by the high penetration of PV, i.e., reverse power flow, voltage fluctuations, and PV dependability; and Other Application Pilots (Gemini 2, Gemini 3, Apollo 1, Apollo 2) -- address reliability and contingency response for critical loads, critical infrastructure and public safety during emergency events, and grid operations to address high load growth. ORA did not challenge the reliability or preferred resource applicability of any of the ESPs, and chose not to cross-examine SCE s witness at the evidentiary hearings. The record is replete with unchallenged evidence showing that the ESPs will address reliability and preferred resources. Approval of SCE s request is warranted Even Though A Competitive Solicitation Is Not Required, SCE Used A Competitive Request for Proposal (RFP) Process to Select the Vendor to Supply SCE s Battery Energy Storage for the Pilots SCE s testimony states: To develop its forecast, SCE engaged in a competitive RFP process with multiple battery integration vendors responding to the RFP. Based on pricing and technical information provided in vendor RFP responses, SCE conducted a qualitative and quantitative analysis of vendor capabilities. SCE then selected a vendor that demonstrated recent experience in deploying battery energy storage systems for our specified quantity and timeline, capable of operating under SCE parameters while providing operations support and maintenance services, under best value contracted pricing. 323 Accordingly, even though a competitive solicitation process was not required for the ESPs, SCE actually did engage in a competitive RFP process to select its battery storage vendor for the ESPs TURN Incorrectly Asserts That Storage Mandate Requirements Bar SCE s Request TURN s argument that SCE has not met the Commission s storage mandates is addressed above, and in SCE s rebuttal Exhibit SCE-02, Vol. 11, p. 42, lines 22-25; p. 43, lines Exhibit SCE-18, Vol. 11, pp

76 ORA Incorrectly Contends That the Distribution Volt VAR Control (DVVC) Program Is A Grid Modernization Program. ORA s brief essentially mirrors its prepared testimony on this issue. SCE showed in rebuttal why its proposal is separate from our grid modernization efforts. 325 SCE also demonstrated why Commission approval of the project is warranted. 326 SCE explained why ORA s argument concerning smart inverters is incorrect. 327 Finally, SCE showed ORA s arguments on recorded costs are incorrect, and described why ORA s recommendations would deny customers the benefits of DVVC. 328 Those benefits have been tested, and realization of the DVVC benefits for customers pivots on deploying DVVC TURN s Attacks on SCE s Equipment Demonstration & Evaluation Facility (EDEF) Are Not Warranted TURN s concerns with SCE s EDEF request have been addressed in SCE s Opening Brief, 330 and in SCE s rebuttal. 331 In addition, Mr. Worden has separately addressed TURN s proposed disallowance of EDEF capital expenditures. 332 In TURN s Opening Brief section addressing Rate Base Additional Issues (section 19), TURN chides SCE for not addressing in SCE s Grid Technology opening testimony that SCE might be including in its requested revenue requirement certain amounts that were previously disallowed. 333 TURN s criticism is misplaced. SCE s Grid Technology direct testimony addressed its proposed capital expenditures, and was not intended to address rate base issues. The rate base issues and treatment of prior disallowances would be (and are) addressed in SCE s rate base testimony and briefing, as cited to above. 325 Exhibit SCE-18, Vol. 11, pp See also SCE Opening Brief, pp Exhibit SCE-18, Vol. 11, p. 25, lines Exhibit SCE-18, Vol. 11, pp Exhibit SCE-18, Vol. 11, pp See also SCE Opening Brief, pp Exhibit SCE-18, Vol. 11, p. 25, lines See SCE Opening Brief, p Exhibit SCE-18, Vol. 11, pp Exhibit SCE-25, Vol. 3, p. 15, lines Also, this issue is briefed at page 83 of SCE Opening Brief. 333 TURN Opening Brief, p

77 4.12. T&D Safety Training & Environmental Programs Environmental Programs Transmission (Acct ) ORA s Opening Brief on its opposition to SCE s 2018 forecast for Transmission-related Environmental Programs does not provide any arguments that were not already found in ORA s direct testimony. 334 SCE has addressed these arguments in its rebuttal testimony and Opening Brief. 335 Fundamentally, there appears to be a factual dispute between ORA and SCE. ORA continues to claim that SCE has deferred maintenance projects and programs that were included in SCE s 2015 GRC, 336 which SCE denies. As explained by SCE witness Don Neal: Under no circumstance is SCE asking for recovery twice for the same activity already funded in a prior rate case, 337 There is no deferred maintenance because SCE is required to commence restoration activities as soon as a project closes. 338 The term deferred, as shown on Exhibit ORA-114 should really be delayed. 339 The Commission should continue its adopted policy of basing the 2018 forecast on the work associated with anticipated transmission projects (as proposed by SCE), as opposed to 2015 recorded (as proposed by ORA), and since 2015 recorded cost are not representative of test year expenses Hazardous Waste Management and Disposal (Acct ) ORA s Opening Brief on its opposition to SCE s 2018 forecast does not provide any new arguments already raised in ORA s direct testimony, including ORA s unfounded claim that SCE has deferred projects. 341 As such, SCE has therefore addressed ORA s position in SCE s rebuttal testimony and Opening Brief. 342 In order to provide safe and reliable electric service for its customers, it is important for SCE to have the funds needed to manage and dispose hazardous and non-hazardous materials properly and 334 See ORA Opening Brief, pp ; Exhibit ORA-07, pp Exhibit SCE-18, Vol. 12, pp. 3-7; SCE Opening Brief, pp ORA Opening Brief, p SCE Opening Brief, p. 85 (citing SCE, Neal, Tr. 14/1933). 338 SCE Opening Brief, p. 85 (citing Exhibit SCE-18, Vol. 12, p. 6; SCE, Neal, Tr. 14/1933). 339 SCE, Neal, Tr. 14/1933, lines SCE Opening Brief, pp (citing D , pp ). 341 See ORA Opening Brief, pp ; Exhibit ORA-07, pp SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 12, pp

78 Issue Transmission Work Order Write-Offs Distribution Work Order Write-Offs Dispute Labor & Nonlabor SCE uses a 5-year average to forecast 2018 expenses, while ORA uses 2015 LYR Labor only* SCE uses a 5-year average to forecast 2018 expenses, while ORA uses 2015 LYR timely. Fundamentally, ORA s proposal to base 2018 test year expenses on 2015 recorded expenses 343 (i.e., the lowest of the five years of recorded costs) 344 would not meet this important objective. In support of using 2015 recorded expenses, ORA in its Opening Brief points to the downward cost trend from , and dismisses SCE s direct testimony where SCE indicates that it anticipates increased costs in 2016 due to expenses associated with testing soil samples in-house. 345 ORA does not acknowledge or address that, as testified by Mr. Don Neal in his rebuttal testimony, SCE s recorded costs in 2016 dramatically increased to $3.916 million; this represents a 66% increase over 2015 recorded costs. 346 The Commission should not use the last year recorded (2015) as the basis to forecast 2018 test year expenses, as proposed by ORA. Hazardous waste management activity fluctuates from year-to-year and are reactive and unpredictable. 347 Thus, the Commission should, instead, adopt SCE s proposed four-year average ( ) as the basis for forecasting 2018 test year expenses T&D Other Costs, Other Operating Revenues ORA and SCE disagree over the following four transmission and distribution sub-accounts relating to two issues: (1) Transmission and Distribution Work Order Write-Offs, and (2) Transmission/Substation and Distribution Capital-Related Expense. In SCE s Opening Brief, SCE organizes its discussion based on the two issues. 348 In ORA s Opening Brief, ORA organizes its discussion based on the sub-accounts. 349 To clarify, the two issues fall within the following subaccounts: Sub- Account Exhibit ORA-07, p See Account in Figure II-5 in Exhibit SCE-02, Vol. 12, p ORA Opening Brief, p. 132; Exhibit SCE-02, Vol. 12, p SCE Opening Brief, p. 87 (citing Exhibit SCE-18, Vol. 12, pp. 8-9). The 2016 cost increase was due to variable costs such as lead paint remediation and transformer oil spill clean-ups. Id. 347 Exhibit SCE-02, Vol. 12, p SCE Opening Brief, pp ORA Opening Brief, pp

79 Issue Transmission/Substation Capital-Related Expense Distribution Capital- Related Expense Dispute SCE uses the same ratio to develop the capitalrelated expense forecast for non-plp and PLP, while ORA uses different ratios to develop non- PLP and PLP. SCE uses the same ratio to develop the capitalrelated expense forecast for non-plp and PLP, while ORA uses different ratios to develop non- PLP and PLP. Sub- Account ORA also eliminates SCE s adjustment for Compatible Units. *ORA agrees to SCE s use of a five-year average to forecast non-labor costs. With respect to Transmission Work Order Write-Offs and Distribution Work Order Write-Offs, ORA continues to reiterate its view that it opposes an increase in 2018 labor expenses since SCE does not include any labor proposals for additional staff. 350 In ORA s Brief, ORA does not refer to or refute SCE s Rebuttal Testimony or SCE witness Tracee Reeves testimony at the evidentiary hearing 351 where SCE indicates that work order write-offs are not a component of a particular organization with people. 352 Instead, they are a flow-through of the cost classified as labor in work orders, comprised of many bits and pieces of different individuals time. 353 ORA does not refute the fact that SCE s use of a five-year average for Transmission and Distribution Work Order Write-Offs is the same methodology adopted by the CPUC in SCE s two prior GRCs, 354 and which should be adopted again in SCE s 2018 GRC proceeding. With respect to Transmission/Substation Capital-Related Expense and Distribution Capital- Related Expense, ORA in its Opening Brief 355 does not refer to or refute SCE s Rebuttal Testimony or SCE witness Tracee Reeves testimony at the evidentiary hearing. Thus, SCE has addressed ORA s position in SCE s Rebuttal Testimony and its Opening Brief. 356 SCE s methodology in the 2018 GRC is 350 ORA Opening Brief, pp. 134, ORA Opening Brief, pp. 134, See SCE Opening Brief, p. 89 (citing to SCE, Reeves, Tr. 9/ and Exhibit SCE-18, Vol. 3, pp. 8-9). 353 See SCE Opening Brief, p. 89 (citing to SCE, Reeves, Tr. 9/ and Exhibit SCE-18, Vol. 3, pp. 8-9). 354 See SCE Opening Brief, p. 88 (citing to Table I-7 in Exhibit SCE-18, Vol. 13, p. 8). 355 ORA Opening Brief, pp SCE Opening Brief, pp ; Exhibit SCE-18, Vol. 13, pp ;

80 the same as in the 2015 GRC, which was adopted by the Commission. 357 ORA disagrees with this methodology. 358 In ORA s Opening Brief, ORA quotes from the Commission s decision in SCE s 2015 GRC: SCE concludes that we should adjust these forecasts only based on adjustments to the capital forecast, excluding pole loading. 359 SCE submits that it is clear in context that the Commission is excluding pole loading from the forecast for and because pole loading costs are forecast in and The Commission did not disagree with the underlying calculations, and in fact, adopted a forecast that used those calculations. For non-plp capital-related expense, the Commission reduced SCE s request by 10% to approximate the reduction to the non-plp capital forecast. 360 Additionally, the Commission reduced SCE s request for PLP capital-related expense by 27.1% to approximate the reduction to the PLP capital forecast. 361 There was no disagreement with using the combined ratio to reduce the forecast for both areas. Fundamentally, ORA uses an inconsistent ratio to forecast PLP and non-plp expenses. For PLP expenses, ORA uses a historical ratio that was developed based on both PLP and non-plp historical capital-related expenses and capital expenditures. For non-plp expenses, ORA uses a different historical ratio that was developed based on non-plp historical capital-related expenses to non-plp capital expenditures. 362 Regarding Distribution Capital-Related Expense, in its Opening Brief, ORA does not add any new arguments with respect to the position it took in its direct testimony on opposing SCE s adjustment for compatible units. 363 SCE s 2018 forecast takes into account the implementation of the compatible units methodology in 2018, and thus, it is both logical and necessary to make the adjustment in the historical years for forecasting purposes to avoid an apples to oranges comparison between the recorded years and the forecast year. 364 Further, ORA appears to be cherry-picking by opposing adjustments which result in an upward adjustment to ratepayers, but not those that result in a downward adjustment SCE, Reeves, Tr. 9/ ORA Opening Brief, p D , p. 188 (emphasis in ORA Opening Brief, p. 136). 360 D , p D , p SCE Opening Brief, p See ORA Opening Brief, pp , which reiterates ORA s testimony from Exhibit ORA-07, p SCE Opening Brief, p See SCE Opening Brief, p

81 4.14. T&D Additional Issues 5. CUSTOMER SERVICE SCE demonstrated that its Customer Service forecast is reasonable and necessary to support its customers as technology and customer needs and expectations change. ORA, TURN, and other intervenors do not provide sufficient evidence to justify any reductions to SCE s forecast, and the Commission should approve SCE s forecast Customer Service O&M For Test Year 2018, SCE forecasts $ million (constant 2015 $) in O&M expenses for Customer Service. 366 This request is $9.25 million below SCE s 2015 recorded adjusted base. 367 ORA recommends reducing SCE s forecast by approximately $10.3 million, including removing SCE s O&M adjustments for CS Re-Platform. 368 TURN recommends reducing SCE s forecast by approximately $17.5 million, including removing SCE s O&M adjustments for customer growth and Customer Service Re-Platform (CS Re-Platform). 369 Both ORA and TURN recommend allowing SCE to record its O&M costs related to CS Re-Platform in a memorandum account and seek recovery through an advice letter. 370 TURN supports its request to remove SCE s proposed customer growth adjustments by stating that customer growth is being offset by productivity and changes in customers behavior in certain areas and customer growth appears not to be an explicit driver of any upward trend in the forecast. 371 SCE agrees that its productivity efforts may mask, but do not negate, the upward cost pressures caused by customer growth. Even if those costs are somewhat hidden by SCE s productivity efforts (and therefore not explicit ), SCE demonstrated that customer growth is a real cost driver. 372 Because SCE justified its forecast, which already incorporated operational excellence and productivity initiatives to reduce it to below SCE s 2015 recorded adjusted base, the Commission should reject ORA s and TURN s unsupported proposals to further reduce SCE s forecast. 366 Exhibit SCE-03RA2, p Exhibit SCE-03RA2, p ORA Opening Brief, p TURN Opening Brief, p ORA Opening Brief, pp. 142, 145, 149; TURN Opening Brief, p SCE responds to these arguments in Section 6.3 of this Reply Brief. 371 TURN Opening Brief, pp See SCE Opening Brief, pp

82 The Commission Should Approve SCE s Forecast for its Metering Services Organization Meter Reading Operations FERC Account 902 TURN recommends removing SCE s proposed customer growth adjustment of $256,000 solely because 2016 expenses were less than SCE forecast. 373 TURN does not cite any record evidence that customer growth does not drive costs for meter reading operations, stating only that the 2016 costs below SCE s forecast generally supports TURN s only adjustment. 374 The Commission should reject TURN s proposal for all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 375 and in this FERC Account specifically Test, Inspect, and Repair Meters FERC Account TURN recommends removing SCE s proposed customer growth adjustment of $362,000 and removing $1.010 million (which TURN recommends should be offset by adding back $25,000 from SCE s proposed operational excellence cost reductions). 377 TURN does not provide any evidence that customer growth does not drive costs for testing, inspecting, and repairing meters. TURN instead relies on the fact that the number of meters tested fell in TURN acknowledges that this decline is only due to a decline in one type of tests (request tests), while other types of tests (sample and routine tests) increased in TURN also bases its proposed reduction on the fact that recorded costs for one activity fell in This comparison is inappropriate, however, because TURN compares 2016 unadjusted costs to 2015 adjusted costs, which fails to account for a $1.5 million adjustment for certain support activities. 381 For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 382 and in this FERC Account specifically, 383 the Commission should reject TURN s proposal. 373 TURN Opening Brief, p TURN Opening Brief, p SCE Opening Brief, pp SCE Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p SCE Opening Brief, p SCE Opening Brief, pp SCE Opening Brief, p

83 Turn-On and Turn-Off Services FERC Account TURN recommends removing SCE s proposed customer growth adjustment of $114,000 solely because activity levels fell in 2016 and the number of manual turn-ons and turn-offs has been declining from 2014 to TURN does not cite any record evidence that customer growth does not drive costs for turn-on and turn-off operations, stating only that the decline in activity is inconsistent with SCE s customer growth adjustment. 385 For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 386 and in this FERC Account specifically, 387 the Commission should reject TURN s proposal Customer Installation and Energy Theft Expense FERC Account 587 TURN recommends removing SCE s proposed customer growth adjustment of $114,000 and using 2016 as the base year for pick-up reads and exception orders, resulting in a total reduction of $579, TURN bases its proposed reductions on a decline in pick-up reads and exception orders from 2016 to TURN does not cite any record evidence that customer growth does not drive costs for pick-up reads and exception orders. TURN also inappropriately relies on unadjusted 2016 costs and fails to consider other activities in this FERC Account, including energy theft and supervisory activities. In fact, energy theft investigations increased from 2015 to For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 391 and in this FERC Account specifically, 392 the Commission should reject TURN s proposal Meter Services Operation and Management FERC Account 580 TURN recommends removing SCE s proposed customer growth adjustment of $155,000 solely because 2016 expenses were less than SCE forecast. 393 TURN does not cite any record evidence that customer growth does not drive costs for meter and field-related services, stating only that in light of the $600,000 cost reduction in 2016, TURN does not agree that a customer growth allowance is 384 TURN Opening Brief, p TURN Opening Brief, p SCE Opening Brief, pp SCE Opening Brief, p TURN Opening Brief, p TURN Opening Brief, pp Exhibit SCE-19, p SCE Opening Brief, pp SCE Opening Brief, p TURN Opening Brief, p

84 justified. 394 For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 395 and in this FERC Account specifically, 396 the Commission should reject TURN s proposal The Commission Should Approve SCE s Forecast for its Revenue Services Organization Billing Services FERC Account ORA recommends eliminating SCE s requested $249,000 to establish a base level of service guarantee credits as a normal cost of doing business. 398 TURN supports ORA s recommendation. 399 TURN and ORA simply rely on the fact that the Commission has previously declined to approve these requests, 400 but do not provide any record evidence to dispute SCE s expert testimony that service guarantees are a cost-effective and reasonable way to achieve appropriate service standards. 401 As explained in SCE s Opening Brief, 402 the Commission should approve SCE s request to include a base level of service guarantees in rates. TURN recommends removing SCE s proposed customer growth adjustment of $619,000 solely because 2016 expenses were less than SCE forecast. 403 TURN does not cite any record evidence that customer growth does not drive costs for billing-related activities. For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 404 and in this FERC Account specifically, 405 the Commission should reject TURN s proposal. TURN recommends reducing SCE s forecast for policy adjustments by $40,000, based on removing policy adjustments related to net energy metering (NEM) bills in 2015, because SCE does not 394 TURN Opening Brief, p SCE Opening Brief, pp SCE Opening Brief, p ORA recommends denying SCE s requested $2.833 million in CS Re-Platform staff augmentation costs and allowing SCE to track those costs in a memorandum account and seek recovery through an advice letter. ORA Opening Brief, pp TURN supports this recommendation. TURN Opening Brief, p SCE responds to these arguments in Section 6.3 of this reply brief. 398 ORA Opening Brief, pp TURN Opening Brief, p ORA Opening Brief, pp ; TURN Opening Brief, p Exhibit SCE-19, pp SCE Opening Brief, pp TURN Opening Brief, p SCE Opening Brief, pp SCE Opening Brief, p

85 expect these policy adjustments to recur. 406 TURN, however, fails to recognize that SCE has shown that it periodically experiences unique, non-recurring events involving multiple customers, which result in higher-than-usual policy adjustments in a particular year. SCE provided evidence that these types of events occurred in 2015 and As explained in SCE s Opening Brief, a five-year average is the appropriate forecasting method to address these year-to-year variations, not removing particular events that create the variations. 408 For these reasons, the Commission should reject TURN s proposal to pick which costs to include in or exclude from the five-year average. TURN recommends removing $568,000 from SCE s forecast to process additional NEM applications. 409 TURN bases its recommendation on the fact that NEM applications received were lower than forecast in 2016 and witness testimony that some portion of the reduction in applications could be due to saturation effects in the market. 410 TURN, however, selectively quotes SCE s witness Kempf and fails to acknowledge contrary evidence in the record. TURN ignores SCE s unrebutted evidence of steady increases in NEM applications projected in 2017, 2018, 2019, and TURN also ignores Mr. Kempf s explanation that the slight decline in NEM applications in 2016 was explained by regulatory changes that are no longer expected to affect the forecast for applications going forward. 412 TURN also fails to account for the increasing percentage of NEM applications requiring special handling, which SCE expects to continue growing under the new NEM successor tariff. 413 For these reasons, and as further discussed in SCE s Opening Brief, 414 the Commission should approve SCE s forecast for NEM application processing. TURN recommends removing $300,000 from SCE s forecast for non-labor expenses by adding three million electronic bills to SCE s forecast. 415 TURN relies on the incorrect assumption that SCE did not assume savings related to electronic bills in 2019 and In fact, SCE demonstrated that it forecast $1.2 million in savings associated with electronic bills through 2018 and forecast savings to 406 TURN Opening Brief, p Exhibit SCE-03R, pp SCE Opening Brief, p TURN Opening Brief, p TURN Opening Brief, pp Exhibit SCE-19, p SCE, Kempf, Tr. 13/ Exhibit SCE-19, pp SCE Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p

86 continue through For these reasons, and as further discussed in SCE s Opening Brief, 418 the Commission should reject TURN s recommended reduction Credit and Payment Services FERC Account TURN recommends removing SCE s proposed customer growth adjustment of $368,000 solely because 2016 costs were less than SCE forecast and have been declining for several years as customers move to lower-cost payment channels. 420 TURN does not cite any record evidence that customer growth does not drive costs for credit and payment activities, or otherwise support its recommendation to eliminate customer growth. For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 421 and in this FERC Account specifically, 422 the Commission should reject TURN s proposal. TURN recommends removing $1.005 million from payment services because fewer customers are paying their bills by mail, at payment agencies, or at local offices. 423 TURN incorrectly states that SCE s forecast does not assume that the decline in costly payment channels will continue into the 2018 Test Year. 424 In fact, SCE s forecast does include productivity gains that may have been realized earlier than anticipated. 425 Further, as discussed in SCE s Opening Brief, TURN s reliance on 2016 unadjusted costs is not appropriate for forecasting purposes. 426 The most current years for which SCE has adjusted cost data, 2011 to 2015, show that the largest decreases occurred from 2011 to 2012, while 2014 to 2015 remained stable. 427 For these reasons, the Commission should approve SCE s reasonable forecast. 417 Exhibit SCE-19, p SCE Opening Brief, p ORA recommends denying SCE s requested $333,000 in CS Re-Platform staff augmentation costs and allowing SCE to track those costs in a memorandum account and seek recovery through an advice letter. ORA Opening Brief, pp TURN supports this recommendation. TURN Opening Brief, p SCE responds to these arguments in Section 6.3 of this reply brief. 420 TURN Opening Brief, pp SCE Opening Brief, pp SCE Opening Brief, pp TURN Opening Brief, p TURN Opening Brief, p Exhibit SCE-19, p SCE Opening Brief, p Exhibit SCE-19, p

87 Postage FERC Account TURN recommends removing $1.168 million from SCE s forecast for postage expenses by adding three million electronic bills to SCE s forecast. 428 As discussed in Section above and in SCE s Opening Brief, SCE reasonably forecast costs and savings associated with electronic bills for this GRC cycle. 429 For these reasons, the Commission should reject TURN s recommended reduction Uncollectible Expense FERC Account 904 TURN recommends reducing SCE s proposed uncollectible forecast factor from percent to percent, based solely on an unsupported claim that choosing to include 2016 instead of 2011 in the five-year average better reflects changed economic conditions. 430 As discussed in SCE s Opening Brief, 431 the Commission should reject TURN s recommendation, which is unsupported by any evidence in the record The Commission Should Approve SCE s Forecast for its Customer Contact Center 432 TURN recommends removing SCE s proposed customer growth adjustment of $980,000, although its brief does not explain the basis for this recommendation. 433 TURN does not cite any record evidence that customer growth does not drive costs for contact center activities, or otherwise support its recommendation to eliminate customer growth. For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 434 and in this FERC Account specifically, 435 the Commission should reject TURN s proposal. TURN also recommends a further three percent reduction in SCE s forecast to account for the increase in the percentage of calls handled by IVR. 436 TURN asserts that its assumption is valid 428 TURN Opening Brief, p SCE Opening Brief, p TURN Opening Brief, pp SCE Opening Brief, pp ORA recommends denying SCE s requested $6.8 million in CS Re-Platform staff augmentation costs and allowing SCE to track those costs in a memorandum account and seek recovery through an advice letter. ORA Opening Brief, pp TURN supports this recommendation. TURN Opening Brief, p SCE responds to these arguments in Section 6.3 of this reply brief. 433 See Exhibit TURN-03, pp SCE Opening Brief, pp SCE Opening Brief, p TURN Opening Brief, pp

88 because the percentage of calls handled by IVR in the first half of 2017 is higher than in SCE witness Nagoshi, however, testified that call volumes and IVR percentages in the first half of the year are not reflective of call volumes on an annual basis, because calls typically increase substantially in the second half of the year. 438 TURN s limited, selective analysis also fails to acknowledge that although calls handled by live agents declined in 2016, total call volume increased an average of 4.2 percent annually from 2012 to TURN also fails to acknowledge that the calls that continue to be handled by live agents are more complex, increasing average handle time and associated costs by 3.5 percent from 2015 to Mr. Nagoshi testified that the increase in average handle time between 2015 and 2016 offset any call volume decrease during that period. 441 For all these reasons, as well as the reasons discussed in SCE s Opening Brief, 442 the Commission should deny TURN s recommended reduction The Commission Should Approve SCE s Forecast for its Business Customer Division ORA recommends removing $88,000 from SCE s forecast for outage communications because SCE s 2016 recorded costs for its Dear Neighbor program were lower than forecast for that year. 443 SCE explained that the decline in 2016 costs were due to program restructuring, and not reflective of anticipated volume or costs going forward. SCE expects to meet or exceed its 2017 forecast for this important customer service. 444 For these reasons, and the reasons discussed in SCE s Opening Brief, 445 the Commission should reject ORA s proposed reduction. TURN recommends removing SCE s proposed customer growth adjustment of $204,000, although its brief does not explain the basis for this recommendation other than to say that it is consistent with TURN s removal of customer growth throughout SCE s customer service request. 446 TURN does not cite any record evidence that customer growth does not drive costs for the business 437 TURN Opening Brief, p SCE, Nagoshi, Tr. 13/ Exhibit SCE-19, p Exhibit SCE-19, pp SCE, Nagoshi, Tr. 13/ SCE Opening Brief, pp ORA Opening Brief, pp Exhibit SCE-19, p SCE Opening Brief, p TURN Opening Brief, p

89 customer division, or otherwise support its recommendation to eliminate customer growth. For all the reasons discussed in SCE s Opening Brief describing how customer growth drives costs in Customer Service, 447 and in this FERC Account specifically, 448 the Commission should reject TURN s proposed reduction The Commission Should Approve SCE s Forecast for its Customer Programs and Services TURN recommends reducing SCE s forecast for new product opportunities by 50 percent, because this group also supports non-tariffed products and services, which cannot be funded by ratepayers. 449 SCE, however, explained that this is not a primary role for the group and any costs associated with activities supporting non-tariffed products and services are appropriately charged to shareholders. 450 For these reasons and all the reasons discussed in SCE s Opening Brief, 451 the Commission should reject TURN s proposed reduction. NDC does not propose any changes to SCE s forecast, but makes several recommendations regarding SCE s marketing, education, and outreach (ME&O). 452 As described more thoroughly in SCE s Opening Brief, NDC s recommendations are unsupported and unnecessary. 453 SCE demonstrated that it is committed to reaching its diverse customers through targeted media buys, collaboration with community-based organizations, and other tactics. 454 NDC does not provide any evidence that its vague recommendations will improve the effectiveness of SCE s ME&O efforts. For these reasons, and the reasons discussed in SCE s Opening Brief, 455 the Commission should reject NDC s recommendations Customer Service Capital The only opposed portion of SCE s Customer Service capital forecast is TURN s recommended reduction to SCE s meter replacement forecast. TURN recommends using three-year average to forecast meter replacement, but recommends using the years 2014 to 2016 instead of SCE s proposed forecast, 447 SCE Opening Brief, pp SCE Opening Brief, p TURN Opening Brief, p Exhibit SCE-19, p SCE Opening Brief, p NDC Opening Brief, pp SCE Opening Brief, pp Exhibit SCE-19, pp SCE Opening Brief, pp

90 which uses a three-year average from 2013 to TURN states that this would remove the anomalous year of 2013 that simply does not reflect current experience and accuses SCE of presenting a forecast based on speculative generalities. 457 TURN is incorrect. TURN, in fact, offers no evidence to rebut SCE s expert testimony that its forecast better reflects future needs because increased meter replacements may result from aging meters, firmware updates, 3G to 4G migration, cell relay replacement, and other enhanced capabilities. 458 For these reasons, and the reasons discussed in SCE s Opening Brief, 459 the Commission should reject TURN s recommendation and approve SCE s Customer Service capital forecast Customer Service Other Operating Revenue 5.4. Customer Service Additional Issues 6. INFORMATION TECHNOLOGY SCE s Information Technology Operating Unit (IT) must be able to support the safe and reliable planning and operation of the electric system, defend against growing cybersecurity threats, maintain and improve customer and IT service desk functions, and deploy critical enabling software applications for core business processes. SCE has presented a reasonable and well-substantiated IT O&M and capital expenditure request to be able to fund these vital duties. Intervenors have proposed reductions to SCE s IT O&M request as well as SCE s capitalized software request. In the event the Commission adopts the proposed reductions, SCE could not maintain its computing environment and administrative network. Similarly, the grid and information held by SCE could be subject to cyber-attacks. And finally, SCE would not be able to implement various critical projects. SCE has provided extensive justification for the need and reasonableness of the IT programs and costs requested in this GRC. SCE requests that the Commission fund SCE s IT funding request in its entirety Information Technology O&M and Hardware Hardware/Software Licenses & Maintenance SCE provided a transparent, itemized forecast for Hardware/Software Licenses that are critical to SCE s operations. But ORA and TURN continue to recommend forecasts that: (1) disregard the growth 456 TURN Opening Brief, p TURN Opening Brief, p See Exhibit SCE-19, p SCE Opening Brief, p

91 in HW/SW license and maintenance agreements from that are required to operate the electric system safely and reliably; 460 (2) inappropriately use 2016 recorded expenses 461 while ignoring the concrete, individual 2018 license costs that SCE provided in its detailed itemized forecast; 462 and (3) continue to double count savings included in the IT OpX 920/921 account. 463 Regarding the third item, TURN adjusts its forecast in an attempt to remove the double-counting of OpX savings, 464 but in doing so it errs in two ways. First, TURN intentionally only includes those savings attributable to the retirement of agreements, and not the additional savings attributable to reductions to agreements. 465 Both types of savings are captured in the IT OpX 920/921 account, and therefore both must be included in the adjustment to avoid double-counting. Second, TURN does not remove double-counted savings attributable to the 2018 test year. There are $13.1 million in HW/SW License & Maintenance savings included in the IT OpX 920/921 test-year forecast. 466 TURN only accounts for $3.066 million, which only represents a portion of savings achieved in This leaves an additional $ million in savings that are double-counted in TURN s forecast. And contrary to ORA s bare assertion that SCE s showing was inadequate, 467 SCE provided detailed information on each license that is included in the forecast. 468 No party challenged any individual license or agreement, and no party challenged the $13.1 million in 2018 OpX reductions that SCE proposed for this account. For these reasons and consistent with the evidence provided throughout the record, 469 the Commission should adopt SCE s 2018 itemized forecast of $71.2 million for the HW/SW License & Maintenance account in concert with IT OpX 920/921 forecast of $(14.741) million Business Integration & Delivery (BID) SCE has demonstrated that it needs incremental O&M funding for BID to support additional projects. SCE s forecast for BID is $ million, which is based on 2015 recorded costs plus incremental O&M expenses for five project areas: (1) CS Re-Platform; (2) New Grid Planning & 460 Exhibit SCE-20, Vol. 1, pp ORA Opening Brief, pp ; TURN Opening Brief, p Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, pp TURN Opening Brief, pp TURN Opening Brief, p. 142 fn SCE Opening Brief, p. 116 (citing Exhibit SCE-20, Vol. 1, pp ). 467 ORA Opening Brief, p Exhibit SCE-20, Vol. 1, Appendix D, pp. D18-D SCE Opening Brief, pp (citing Exhibit SCE-20, Vol. 1, pp. 7-15). 68

92 Analytics; (3) Grid Modernization; (4) HR Platform Modernization; and (5) Digital Experience SAS. 470 No party objects to SCE s base 2015 recorded-cost BID forecast or to the incremental O&M to support the Digital Experience SAS project. ORA continues to recommend, however, that the Commission adopt memorandum accounts to track the capital-related O&M requests for (1) CS Re-Platform, (2) New Grid Planning and Analytics, and (3) Grid Modernization, instead of authorizing any incremental funding for these projects in this GRC. 471 In addition, ORA recommends that the Commission reject SCE s request for the HR Platform Modernization project on the basis that SCE should already have adequate funding to complete this project. 472 For the reasons stated below and in SCE s Opening Brief, the Commission should adopt SCE s BID incremental forecast for these projects Customer Service Re-Platform SCE addresses ORA s recommendation for the incremental funding for BID to support the CS Re-Platform Capitalized Software project in its Opening Brief 473 and in Section 6.3 below New Grid Planning and Analytics SCE s incremental O&M request for New Grid Planning and Analytics will provide required support for the Grid Interconnection Processing Tool, Grid Analytics Application, Long Term Planning Tool, and Grid Connectivity Model. Due to accounting rules, this support work cannot be capitalized with these projects. 474 ORA s Opening Brief restates almost verbatim the argument it made in its direct testimony: these incremental funds should be rejected because SCE developed its O&M expense forecasts during the pre-planning phases of these projects. 475 ORA misunderstands the term pre-planning phase ; it is simply the first part of the standard SCE IT project lifecycle for all capitalized software projects. 476 There is nothing in the record to support ORA s suggestion that cost estimates developed during this phase are per se unreliable, premature, or inadequately supported. 477 SCE provided ORA additional details regarding the estimation assumptions for these projects through discovery, including an explanation of how SCE applied a percentage of total capital-related project labor cost to derive the 470 Exhibit SCE-20, Vol. 1, p ORA Opening Brief, pp. 164, 175, ORA Opening Brief, p SCE Opening Brief, pp Exhibit SCE-20, Vol. 1, p ORA Opening Brief, pp Exhibit SCE-04, Vol. 1, p ORA Opening Brief, p

93 ongoing labor and other O&M support costs. 478 SCE has met its burden of demonstrating that its forecasts in this area are reasonable. ORA also continues to object to these O&M funds because the capital projects this O&M will support are dependent on the outcomes of several open proceedings. 479 SCE addresses the merits of each of these projects in its Opening Brief. 480 Nothing in ORA s Opening Brief changes the fact that if the Commission adopts these projects, it is necessary for the Commission to also adopt these associated capital-related O&M expenses. Contrary to ORA, TURN sees value in the Grid Planning and Analytics projects. TURN witness Stephens states that these software tools can provide grid operators assistance in performing grid state estimation during switching operations and to help address problems caused by masked load. 481 Thus, TURN does not oppose SCE s capital request for these Grid Planning & Analytics projects. TURN does not comment on the corresponding O&M request for these projects. However, to the extent the Commission approves the requested capital amounts for these projects, the O&M related to these capital projects should also be approved Grid Modernization SCE s incremental O&M request for certain Grid Modernization projects will provide required support for the System Modeling Tool (SMT) and the DRP External Portal (DRPEP) projects. 482 Due to accounting rules, this support work cannot be capitalized with the projects. 483 In its direct testimony, ORA recommends that these O&M costs to support Grid Modernization be tracked in a memorandum account along with all other Grid Modernization costs. 484 ORA does not provide any specific analysis or justification in its direct testimony or in its Opening Brief regarding the reasonableness or forecasting methodology for these projects. In contrast to ORA, TURN sees value in the SMT and DRPEP projects. TURN witness Stephens states that these software tools can provide grid operators assistance in performing grid state estimation during switching operations and to help address problems caused by masked load. 485 Thus, TURN does 478 Exhibit SCE-20, Vol. 1, p ORA Opening Brief, p SCE Opening Brief, pp TURN Opening Brief, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 1, p Exhibit ORA-13, p TURN Opening Brief, pp

94 not oppose SCE s capital request for these two projects. TURN does not comment on the corresponding O&M request for these projects. To the extent the Commission approves the requested capital amounts for the System Modeling Tool (SMT) and the DRP External Portal (DRPEP) projects presented in SCE- 02, Volume 10, the O&M related to these capital projects should also be approved HR Platform Modernization SCE reduced its original forecast for the HR Platform Modernization project to $930,000 to implement only one module (the Learning Solution module) in this GRC period. 486 ORA nevertheless overlooks SCE s reduced project scope and claims that SCE is still seeking $2.9 million, 487 which was the original forecast to implement the entire HR Platform Modernization project. 488 ORA also does not address SCE s rebuttal testimony, where SCE explained that previously approved BID funding must be used to support the current HR system (SAP ERP ECM) until all functionality is transferred to newer systems. 489 That transition will happen after this GRC period. 490 ORA is therefore incorrect when it asserts that SCE failed to show that it needs incremental funding support the new HR project, 491 which will follow the software development lifecycle, just like a capitalized software project. 492 ORA also declares that the HR Platform Modernization project is likely to be delayed if the CS Re-Platform project is delayed. 493 But there is nothing in the record to support this assertion. 494 In fact, the only evidence in the record on this point supports the opposite conclusion: SCE witness Kimberly 486 Exhibits SCE-20, Vol. 1, pp ; SCE-04, Vol. 1A2, pp (errata showing the reduced forecast). 487 ORA Opening Brief, p Exhibit SCE-04, Vol. 1A2, pp (errata showing the original and reduced forecast). 489 Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 1, p ORA Opening Brief, p Exhibit SCE-20, Vol. 1, p ORA Opening Brief, p ORA s premise that the CS Re-Platform project is likely to be delayed also finds no support in the record. ORA cites testimony of SCE s expert witness, Bruce Webster, to buttress its assertion that the CS Re- Platform project will be delayed. ORA Opening Brief, p But in testifying there is a decent risk of the project going past schedule, Mr. Webster qualified his opinion by first saying that it depend[s] upon how the CS Re-Platform project is managed. SCE, Webster, Tr. 8/890. ORA cites to nothing in the record that suggests that SCE will fail to manage the CS Re-Platform project so as to avoid delays. ORA also does not acknowledge that Mr. Webster testified on redirect that he is not working with the CS Re-Platform implementation team and does not have any reason to believe that the project will go over schedule. SCE, Webster, Tr. 8/

95 Garcia testified that if the CS Re-Platform project is delayed, the HR Platform Modernization project would still be implemented. 495 ORA does not question SCE s need to implement this project, but instead seems to misunderstand the needed costs and timeline for implementing the one module. Therefore, the Commission should adopt SCE s incremental forecast to implement the Learning Solution module, as SCE has proven that such costs are reasonable Grid Services The Grid Services group manages critical 24x7 operational functions to support the electric grid (electric and generation control systems, grid communication network, grid data center, grid and telecommunication operation centers, and grid security operations). 496 ORA and TURN do not object to the base last year recorded forecast, but they both object to SCE s request for incremental O&M funding to support four Grid Modernization capital projects: The Grid Management System, Wide Area Network, Field Area Network, and Common Substation Platform. 497 As SCE explained in testimony and its Opening Brief, if the Commission adopts these capital projects, 498 it is necessary for the Commission to also adopt these associated capital-related O&M expenses. 499 ORA s Opening Brief is virtually a verbatim recitation of portions of ORA s direct testimony, with an additional focus on its assertion that SCE did not provide any support for the level of funding requested 500 to support the Grid Modernization projects. As SCE explained in its Opening Brief, however, SCE has met its burden of proof regarding the incremental O&M expenses needed to support the Grid Modernization projects. 501 In response to data requests, 502 SCE provided granular detail and the basis for its assumptions concerning the O&M needed to support each Grid Modernization project, including year-by-year labor estimates, the number of FTE needed per year, the title and function for each FTE, and a breakdown of the non-labor forecast by year and by type of work performed SCE, Garcia, Tr. 6/ Exhibit SCE-20, Vol. 1, p ORA Opening Brief, p. 161; TURN Opening Brief, p These capital projects were requested in SCE-02, Volume 10 Grid Modernization. 499 Exhibits SCE-20, Vol. 1, p. 22; SCE-04, Vol. 1A, p. 60; SCE Opening Brief, pp ORA Opening Brief, p SCE Opening Brief, p See SCE response to ORA-SCE-041-DAO, Q.01 Supplemental, located in Exhibit SCE-20, Vol. 1, Appendix B, pp. B-6 B Exhibit SCE-20, Vol. 1, pp

96 ORA continues its objections to all Grid Modernization and DER-related projects in SCE s GRC, including this O&M funding to support those projects. 504 ORA recommends that all Grid Modernization costs be tracked in a memorandum account. 505 SCE addresses these arguments in its Opening Brief 506 and in Section 4.10 above. If the Commission adopts the Grid Modernization capital projects, the Commission should adopt SCE s forecast for incremental Grid Services O&M to support those projects Information Technology Capitalized Software Contingency Amounts in Capitalized Software Forecasts Consistent with IT industry best practices, SCE includes costs for contingency in many of its capitalized software project forecasts to account for uncertainties and variables that are unknown at the time SCE estimates the cost of a project. 508 SCE presented unrebutted evidence through the testimony of expert witness Bruce Webster demonstrating that: (1) contingencies are a routine and necessary part of sound software cost estimation; 509 and (2) SCE s contingency levels are reasonable and consistent with software industry best practices. 510 Despite this evidence, ORA and TURN continue to object to SCE s contingency amounts, with ORA seeking to cut SCE s requested contingency amounts in half 511 (albeit 504 ORA Opening Brief, p Id. 506 SCE Opening Brief, p TURN provides an alternate proposal to SCE s Grid Modernization requests, which would provide an additional $1.635 million to the Grid Services 920/921 activity to support TURN s recommendation to implement ADMS (Advanced Distribution Management System) and DERMS (Distributed Energy Resource Management System) instead of the full GMS (Grid Management System) and to support SCE s Common Substation Platform (CSP) request. TURN Opening Brief, p If the Commission should adopt TURN s capital proposal (which SCE opposes), then SCE agrees with TURN s recommendation to provide associated incremental O&M of $1.635 million to this activity. SCE Opening Brief, p Exhibit SCE-20, Vol. 1A, p. 24A. 509 Exhibit SCE-20, Vol. 3, p. 15; SCE, Webster, Tr. 8/894 (testifying that going over budget is a chronic issue in the software industry ); SCE, Webster, Tr. 8/ ( [B]ecause of the invisibility and inherent complexity of software, it is not unusual to get partway through a project and discover difficult problems that will either force you to back up and rethink your fundamental architecture and design, or will require solutions that are going to take more time and effort in order to achieve completion. ). 510 Exhibit SCE-20, Vol. 3, pp ORA Opening Brief, p

97 using faulty math) 512 and TURN seeking to eliminate all of SCE s requested contingencies 513 (also using faulty math). ORA s and TURN s objections are not well-founded, for the following reasons: First, there is nothing in the record that supports TURN s attempt to redefine the relevant issue here. Given the lack of evidence to rebut Mr. Webster s strong testimony that contingencies are a necessary and routine part of software cost estimation, 514 TURN suggests that SCE, as a regulated utility, is somehow different from non-regulated companies when it comes to developing cost estimates for software projects simply because the costs of the project will be charged to ratepayers. 515 TURN also suggests that Mr. Webster s testimony is not necessarily applicable to a regulated utility. 516 But the record does not support TURN s inference that the source of funding for a project (i.e., ratepayers for a regulated utility project vs. customers for a non-regulated company project vs. taxpayers for a government project) determines the need for a contingency to be included in a software project s cost estimate. The relevant industry best practices to look to here is the software development industry, not the regulated utility industry as TURN proposes. 517 There is no evidence that software projects for regulated utilities do not face the same inherent complexity and risk of going over budget as projects for non-regulated utilities. 518 And as he pointed out in his testimony, Mr. Webster has worked on three failed IT projects involving utilities. 519 Mr. Webster made no distinction in his testimony between the need for a contingency in utility software projects on the one hand and non-regulated company projects on the other. Instead, Mr. Webster made an unqualified statement that if anything, they [utility and government software projects] are more prone to fail and fail spectacularly. 520 This makes the need for a contingency in a utility or government project all the more important to avoid the risks Mr. Webster 512 SCE explained in rebuttal testimony that ORA s and TURN s contingency reductions contained calculation errors. Exhibit SCE-20, Vol. 1, pp TURN Opening Brief, p Exhibit SCE-20, Vol. 3, p. 15; SCE, Webster, Tr. 8/894; SCE, Webster, Tr. 8/ TURN Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p SCE, Webster, Tr. 8/ ( [B]ecause of the invisibility and inherent complexity of software, it is not unusual to get partway through a project and discover difficult problems that will either force you to back up and rethink your fundamental architecture and design, or will require solutions that are going to take more time and effort in order to achieve completion. ); SCE, Webster, Tr. 8/894 (testifying that going over budget is a chronic issue in the software industry ). 519 SCE, Webster, Tr. 8/ SCE, Webster, Tr. 8/

98 described regarding projects failing due to inadequate budgets. 521 TURN asked no questions of Mr. Webster on cross-examination to draw the distinction they are now trying to make. The only conclusion to reach from the evidence in the record is that SCE s contingency levels are modest 522 (or, for the CS Re-Platform project, may be too low), 523 ORA s proposal of a 10% contingency is unreasonable, 524 and TURN s proposal of no contingency is unrealistic and highly risky. 525 Second, TURN s proposal to eliminate contingencies for software projects and to instead adjust revenue requirements in the next GRC to account for any cost overruns 526 would result in poor ratemaking policy. As Russ Worden testified, [i]n the three-year cycle when the utility spends above authorized levels, it forgoes earning the authorized rate of return from the time the capital additions were made until the next test year. To the extent the assets cost more than what the utility was authorized to collect between test years, the utility would effectively be providing free service to customers from these assets between GRC test years. 527 If TURN s proposal prevails, and SCE cannot recover any of its forecast contingencies, it would lose the revenue requirement associated with that legitimate business expense. That is not only unfair, but results in poor ratemaking policy, as the calculations from Mr. Worden s illustrative capital project shows. 528 As Mr. Webster testified, when constrained by a tight budget, IT project managers often cut corners, putting the project at risk. 529 Thus, if the Commission were to adopt TURN s recommendation to eliminate all contingencies, there is a high likelihood that many (if not most) software projects will be 521 See SCE, Webster, Tr. 8/ ( If you are looking at a situation where there has to be a delay in bringing the funds to bear, I think that has ultimately distorting influence on the project itself, in my opinion. ); SCE, Webster, Tr. 8/ (testifying that in a failed IT project that he analyzed, there were tight budget constraints that resulted in the company using people who were less qualified. They delayed in hiring the right technical resources. And then as the project slipped, they actually started rolling people off the project to try to lower their burn rate. ). 522 Exhibit SCE-20, Vol. 3, p Exhibit SCE-20, Vol. 3, p Exhibit SCE-20, Vol. 3, p Exhibit SCE-20, Vol. 3, p TURN Opening Brief, p Exhibit SCE-25, Vol. 3, pp Exhibit SCE-25, Vol. 3, pp SCE, Webster, Tr. 8/ (testifying that in a failed IT project that he analyzed, there were tight budget constraints that resulted in the company using people who were less qualified. They delayed in hiring the right technical resources. And then as the project slipped, they actually started rolling people off the project to try to lower their burn rate. ). 75

99 hampered or will exceed the forecast amount, and SCE will inequitably be on the hook for the overspent amounts (that otherwise would be covered by the industry-standard contingency) until the next GRC. Third, ORA s and TURN s conclusion that SCE did not spend the full contingency it was authorized in the 2015 GRC 530 is based on an incomplete analysis of SCE s spending history on software projects. ORA s and TURN s portfolio-level analysis inappropriately included projects that have not yet been completed. Until a project is completed, it cannot be known to what degree the planned contingency will be used. 531 Each project is unique, and contingency must be evaluated for each individual project based on the particular risks and complexities of that project. 532 ORA also cherrypicked three projects from the 2015 GRC for its conclusion that SCE has overestimated its contingency cost element in its 2015 GRC forecast. 533 But SCE explained why the variances for each of those projects were not contingency-related, 534 and SCE identified several projects adopted in the 2015 GRC that had expenditures far greater than the total cost estimate including contingency amounts. 535 In sum, ORA s and TURN s simplistic review of the current spending for projects from SCE s 2015 GRC does not support a conclusion that contingencies are unnecessary for individual projects. Fourth, ORA s focus on whether SCE employs the Delphi method 536 is a red herring. SCE explained in rebuttal testimony how it employ[s] the main tenants of the Delphi method by using expert peer group discussions and consensus techniques. 537 Mr. Webster confirmed in his testimony that employing a Delphic approach can be far less formal than ORA (or the paper [that ORA cites]) states.... This process could be done verbally, in real time, in a conference room. 538 And in addition to employing cost estimation methods consistent with the Delphi method, SCE also uses an algorithmic method for estimating software project costs, which uses mathematical equations based on research and historical data. 539 There is no support for ORA s conclusion that SCE s cost estimation approach is flawed merely because it does not rigidly apply the Delphi method. 530 TURN Opening Brief, p. 149; ORA Opening Brief, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 3, p ORA Opening Brief, p Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, p ORA Opening Brief, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 3, p Exhibit SCE-20, Vol. 1, p

100 Fifth, ORA s reliance on the Commission s decision regarding PG&E s 2014 GRC to claim that SCE failed to support its request for contingency in software projects 540 is misplaced. As can be seen in the very quotation ORA included in its brief, the Commission found that in seeking a contingency in its forecast of mapping and records collection, PG&E failed to identif[y] any unusually difficult factors in forecasting that warrant including a contingency for the program. 541 But the circumstances at issue in the quoted PG&E decision are different than the factors involved in software cost estimation. Mr. Webster testified that contingencies are necessary in software cost estimation because of the invisibility and inherent complexity of software and that it is not unusual to get partway through a project and discover difficult problems that will either force you to back up and rethink your fundamental architecture and design, or will require solutions that are going to take more time and effort in order to achieve completion. 542 Thus, unlike the quoted PG&E decision, in software cost estimation there are unusually difficult factors at play that necessitate a contingency. Finally, despite SCE s explanation in rebuttal testimony that ORA s and TURN s calculations of their proposed reduced contingency amounts were flawed, 543 ORA and TURN continue to propose in their Opening Briefs the same incorrect reductions. If the Commission decides to adopt a lower contingency amount than SCE requested for one or more projects, the Commission should review the worksheet attached to Exhibit SCE-20, Vol. 1 in Appendix C, pp. C-27 C-31 to perform the correct calculations. 544 Mr. Webster s unequivocal opinions and the well-known IT industry sources that SCE discusses in its rebuttal testimony 545 demonstrate that SCE s contingency amounts are necessary to mitigate project risk, are consistent with industry best practices, and are reasonable. Moreover, there is precedent for contingencies being included in SCE s software project forecasts; the Commission adopted higher levels of contingency in previous GRCs than the 20% SCE requests for many projects in this GRC. 546 The Commission should adopt the contingency amounts that SCE has included in each of its capitalized software project forecasts. 540 ORA Opening Brief, pp A , p. 42 (emphasis added); ORA Opening Brief, p SCE, Webster, Tr. 8/ Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 1A, pp. 25A Exhibit SCE-20, Vol. 1, p

101 Cybersecurity and Compliance As described in detail in SCE s testimony and Opening Brief, SCE s Cybersecurity and Compliance organization ( C&C ) safeguards and maintains the confidentiality, availability, integrity, and accountability of IT systems and operations. 547 SCE requests $308.5 million 548 from to fund seven essential C&C projects, consisting of: (1) Perimeter Defense, (2) Interior Defense, (3) Data Protection, (4) SCADA Cybersecurity, (5) Common Cybersecurity Services for Generator Interconnection, (6) NERC CIP Compliance for IT, and (7): Grid Modernization Cybersecurity SCE Does Not Object To ORA s Position that 2016 Recorded Costs Be Used For Capital Projects, Including SCE s Cybersecurity & Compliance Programs. ORA proposes that the Commission use SCE s 2016 recorded capital expenditures in place of SCE s originally forecast 2016 capital expenditures, 551 although in its Opening Brief, ORA only specifically referenced SCADA Cyber Security, Data Warehouse Consolidation, and Grid Modernization Cyber Security. 552 SCE does not object to utilizing 2016 recorded costs as long as 2016 recorded costs are used for all IT capital projects and cherry-picking is not utilized SCE Opposes TURN s Recommendation That The Commission Remove All Capital Expenditures Related To Cybersecurity Into a Memorandum Account. TURN s Opening Brief restates that it was unable to analyze whether SCE s request was reasonable, and asks that the Commission remove all costs from this GRC proceeding and move them to a memorandum account. 553 Since TURN s Opening Brief consisted of verbatim arguments it made in its rebuttal testimony (re-ordered to some degree), SCE does not restate all of its responsive material. Instead, SCE references its Opening Brief section and subsections within, since no new points were made by TURN. 547 SCE Opening Brief, pp ; Exhibit SCE-20, Vol. 1, pp SCE-04, Vol. 2A2, p. 30 (errata showing the reduced forecast). 549 In order to assist the Commission with its evaluation, SCE again notes that its C&C O&M forecast of $ million was not challenged. Instead, only the capital projects are at issue. 550 TURN cited the outdated figure of $308.9 million in its Opening Brief. TURN Opening Brief, p Exhibit ORA-13, pp. 2, ORA Opening Brief, p TURN Opening Brief, pp

102 The Evidence Demonstrates That SCE Needs All Of Its Ongoing C&C Capital Projects A Memorandum Account Is Inappropriate For Cybersecurity-related Projects SCE Provided Appropriate Cost Justification and Information To TURN While Meeting Its Obligations To Protect Sensitive and Classified Information SCE Welcomes The Opportunity to Streamline How Cybersecurity Information Is Shared Both With Intervenors and the Commission. SCE reiterates that it agrees with TURN that a process regarding information sharing is needed for cybersecurity. SCE asks that the Commission raise the issue in a separate proceeding so that all parties could collaborate and develop an appropriate process through workshops and comments. Due process dictates that all affected parties must be able to weigh in, including other IOUs, Commission staff, and the federal government. This ratemaking proceeding is not the appropriate avenue to create new processes and procedures in this area. While the new sharing process should inform subsequent GRC requests, the Commission has adequate evidence on the record to support full authorization of the cybersecurity programs requested in this GRC, which constitute SCE s defense against the growing volume and complexity of cybersecurity threats facing the enterprise every day Grid Modernization Cybersecurity While ORA accepts SCE s forecast for the six ongoing cybersecurity capital projects, 554 ORA recommends removing all Grid Modernization Cybersecurity costs from this GRC and tracking them in a Grid Modernization memorandum account. This is consistent with ORA s recommendation for all Grid Modernization costs. 555 TURN requests that all C&C capital costs be removed from the GRC and tracked in a memorandum account, including Grid Modernization Cybersecurity costs. 556 In the alternative, TURN agrees with ORA s recommendation, which accepts all ongoing C&C capital projects but recommends tracking Grid Modernization Cybersecurity costs in a memorandum account These six projects include: Perimeter Defense, Interior Defense, Data Protection, SCADA Cybersecurity, CCS for Generator Interconnections, and IT NERC CIP Compliance. 555 ORA Opening Brief, p TURN Opening Brief, p TURN Opening Brief, p

103 Since ORA and TURN did not raise any new points beyond that what was already in their rebuttals, SCE references its Opening Brief section and subsections within, in order to avoid duplication It Is Vital That SCE Implement The Grid Modernization Cybersecurity Project Even If Grid Modernization Is Removed From This GRC, Grid Modernization Cybersecurity Costs Are Necessary Now To Fix Existing Vulnerabilities. SCE notes that no party challenged SCE s request that 40-50% of SCE s Grid Modernization Cybersecurity request of $99.4 million (total for ) be authorized now in this GRC in the event Grid Modernization is removed or disallowed from this GRC. 558 Thus in the event Grid Modernization is disallowed, SCE requires approximately $45 million to protect existing vulnerabilities and respectfully requests that the Commission approve this amount A Memorandum Account Is Inappropriate For Costs Related To Cybersecurity Other Capitalized Software ORA challenges the following capitalized software projects: Vegetation Management; 559 Comprehensive Situational Awareness for Transmission (CSAT); 560 Grid Planning & Analytics Software; 561 and Enterprise Content Management. 562 ORA s discussion of these projects in its Opening Brief does not add any substantive argument beyond what it stated in direct testimony, and ORA does not address the evidence SCE provided on these projects in its rebuttal testimony. For the reasons explained in SCE s Opening Brief and summarized below, the Commission should adopt each of these projects Vegetation Management (VM) Project ORA s Opening Brief on the VM project is a verbatim recitation of portions of its direct testimony. 563 ORA does not address SCE s rebuttal testimony or refute SCE s evidence that (1) there is 558 SCE Opening Brief, p ORA Opening Brief, pp ORA Opening Brief, pp ORA Opening Brief, pp ORA Opening Brief, pp ORA Opening Brief, pp ; Exhibit ORA-13, pp

104 a strong need for the project to improve the processes and workflows associated with the maintenance and tracking of 1.5 million trees located near SCE s electrical equipment; 564 (2) customers received benefits from SCE s decision to delay the VM project because SCE executed a new vegetation management contracting strategy, revamped its business processes, and was able to reduce the forecast for this project by $2 million; 565 and (3) SCE prudently implemented part of the VM project where it made sense to do so, and it delayed and re-scoped the rest of the project to the benefit of customers. 566 Thus, the Commission should approve this valuable project Comprehensive Situational Awareness for Transmission (CSAT) ORA s Opening Brief on the CSAT project is a verbatim recitation of portions of its direct testimony. 567 ORA, therefore, does not address SCE s rebuttal testimony or refute SCE s evidence that (1) there is a strong need for the project; 568 and (2) SCE prudently modified its plans originally outlined in the 2015 GRC for the CSAT project (formerly Phasor Analytics) so as to avoid even more delay and putting the entire project investment at risk. 569 The Commission should approve SCE s forecast for the CSAT project, which remains critical to the effective operation of the grid Grid Planning & Analytics Software ORA s Opening Brief on these grid planning and analytics software projects (or, what ORA terms Distributed Energy Resources (DER) Related Projects ) is a verbatim recitation of portions of its direct testimony. 571 ORA, therefore, does not address SCE s rebuttal testimony or refute SCE s evidence that (1) each of these four projects will provide essential tools to manage the current grid and the grid of the future; 572 (2) the Commission should not make SCE wait for open DRP proceedings to conclude before implementing these important projects; 573 and (3) because DERs continue to proliferate throughout our electric system every day, SCE must implement these projects now to effectively interconnect, plan for, and operate with the volume and complexity of DERs that are currently and will 564 Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 1, pp ORA Opening Brief, pp ; Exhibit ORA-13, pp Exhibit SCE- 20, Vol. 1, pp Exhibit SCE- 20, Vol. 1, p Exhibit SCE- 20, Vol. 1, pp ORA Opening Brief, pp ; Exhibit ORA-13, pp Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, pp ; SCE Opening Brief, pp

105 be connected to the grid. 574 The Commission should authorize these projects in this GRC regardless of its decision on SCE s Grid Modernization program request or the pending DRP proceedings as these four software applications are needed to maintain business-as-usual operations. 575 Contrary to ORA, TURN sees value in the Grid Planning and Analytics projects. TURN witness Stephens states that these software tools can provide grid operators assistance in performing grid state estimation during switching operations and to help address problems caused by masked load. 576 As such, TURN does not oppose SCE s capital request for these Grid Planning & Analytics projects Enterprise Content Management (ECM) Project ORA s Opening Brief on the ECM project is largely a verbatim recitation of portions of its direct testimony. 577 ORA does not meaningfully address SCE s rebuttal testimony or refute SCE s evidence that (1) several of the planned functionalities to be implemented in this ECM project are completely distinct from the edmrm capabilities already implemented, and SCE can take advantage of advancements in technology that were unavailable at the time it planned the edmrm project; 578 (2) the digital signature technology that SCE plans to implement as part of the ECM project is distinct from the pilot SCE conducted as part of edmrm; 579 (3) SCE has not abandoned edmrm, and customers have received meaningful benefits from the parts of edmrm that SCE implemented; 580 and (4) the amount that SCE has spent implementing a reduced-scope edmrm coupled with the forecast for this ECM project is slightly less than the amount adopted in the 2015 GRC for the original edmrm project. 581 The ECM project is necessary, reasonable, and the Commission should approve it Information Technology - Customer Service Re-Platform SCE s Customer Service (CS) Re-Platform project will implement a new customer relationship and billing system that will perform several critical customer-service-related functions, including 574 Exhibit SCE-20, Vol. 1, p While SEIA/Vote Solar s direct testimony suggested that SEIA/Vote Solar was opposing the four grid planning and analytics software projects (see Exhibit SEIA/Vote Solar, pp. 6, 9), in its Opening Brief SEIA/Vote Solar actually supports these projects. SEIA/Vote Solar Opening Brief, pp , TURN Opening Brief, p ORA Opening Brief, pp ; Exhibit ORA-13, pp Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, p Exhibit SCE-20, Vol. 1, pp Exhibit SCE-20, Vol. 1, p

106 customer billing, account management, customer care, credit and collections, and accounts receivable. 582 SCE forecasts $208.7 million (nominal $) in capital expenditures from 2017 to 2020 and $17.4 million (constant 2015 $) in Test Year 2018 O&M costs. 583 ORA and TURN do not object to SCE s proposed CS Re-Platform project. 584 They do, however, make certain recommendations, which SCE addresses below. For all the reasons discussed below and in SCE s Opening Brief, 585 the Commission should approve SCE s CS Re-Platform project as proposed SCE s Forecast Should be Approved in this 2018 GRC Proceeding TURN recommends removing SCE s CS Re-Platform forecast from this GRC forecast entirely, because TURN questions SCE s ability to complete the project within this GRC period. 586 TURN relies on SCE s requested contingency to address uncertainties as its sole support for its recommendation, 587 but fails to acknowledge that the contingency is intended to mitigate project uncertainties, including the potential for schedule delays. 588 Further, TURN fails to acknowledge SCE s expert witness Lorene Miller s testimony that she fully expects this project to be completed on its proposed schedule, which anticipated and planned for potential complexities. 589 Further, Ms. Miller testified that SCE has project controls in place to stay on schedule. 590 Because TURN offers no unrebutted evidence that SCE will not complete the project on schedule, within this GRC cycle, as further discussed in SCE s Opening Brief, 591 the Commission should reject TURN s recommendation The Commission Should Approve SCE s Reasonable Proposed Contingency ORA recommends reducing SCE s proposed contingency to 15 percent. 592 ORA bases its recommendation on a selective review of prior SCE projects, 593 but, as SCE explained, those projects are not comparable in scope, scale, or complexity and were simply used as examples of Commission 582 Exhibit SCE-04, Vol. 3, p Exhibit SCE-04, Vol. 3A2, p ORA Opening Brief, p. 179; TURN Opening Brief, p SCE Opening Brief, pp TURN Opening Brief, p TURN Opening Brief, pp Exhibit SCE-20, Vol. 2, p Exhibit SCE-20, Vol. 2, p. 8; SCE, Miller, Tr. 7/ SCE, Miller, Tr. 7/ SCE Opening Brief, p ORA Opening Brief, p ORA Opening Brief, p

107 precedent for approving contingencies within the range of SCE s proposal. 594 Further, ORA fails to acknowledge the evidence on the record that demonstrates that ORA s proposal is inconsistent with industry standards and not reasonable for a project of this size. 595 For these reasons, and the reasons discussed in SCE s Opening Brief, 596 the Commission should reject ORA s unsupported recommendation to reduce SCE s proposed contingency The Commission Should Approve SCE s Request to Recover its Reasonable Forecast for O&M Costs Supporting CS Re-Platform in this GRC, Not through a Memorandum Account ORA and TURN recommend that SCE s O&M costs for incremental labor to support the CS Re- Platform project be tracked in a memorandum account, with cost recovery to be sought through an advice letter. 597 If the Commission does not approve this request, TURN proposes in the alternative that SCE s forecast for its supplemental support for the Customer Contact Center be reduced by ten percent. 598 Neither ORA nor TURN present any evidence to refute SCE s reasonable forecast for the supplemental staff necessary to implement a project as important, large, and complex as CS Re- Platform, relying on implementation timing uncertainty to support their recommendations. 599 As discussed in Section above, SCE demonstrated that the CS Re-Platform project is likely to be completed on schedule, within this GRC cycle. TURN also relies on a declining number of calls handled by customer service representatives to support its argument that SCE s proposed Customer Contact Center costs to support the CS Re-Platform implementation are uncertain and should therefore be tracked in a memorandum account or at least reduced by ten percent. 600 As discussed in Section above, TURN s limited analysis inappropriately relies on one type of customer contact, without accounting for the overall increase in customer calls or the increase in complexity, average handle time, and resulting costs of call handled by customer service representatives. 601 SCE has demonstrated that its forecast of one-time O&M costs to support the implementation of CS Re-Platform is reasonable and should be approved in this GRC. 594 SCE Opening Brief, pp Exhibit SCE-20, Vol. 3, pp. 6, SCE Opening Brief, pp ORA Opening Brief, p. 181; TURN Opening Brief, pp. 122, TURN Opening Brief, p ORA Opening Brief, p. 181; TURN Opening Brief, p TURN Opening Brief, pp Exhibit SCE-19, pp

108 For all the reasons explained in SCE s Opening Brief, a memorandum account is inappropriate to recover CS Re-Platform O&M costs. 602 If the Commission does not approve SCE s forecast for CS Re- Platform O&M costs in this GRC, a balancing account, not a memorandum account, would be a more appropriate cost-recovery mechanism to give parties the opportunity to review recorded costs on a timely basis and allow SCE to recover recorded costs annually. 603 If the Commission approves ORA s and TURN s request to track these costs in a memorandum account, the Commission should also remove SCE s forecast CS Re-Platform benefits from this GRC. As discussed in SCE s Opening Brief, this would treat the benefits similarly to the costs and equitably account for SCE s delayed cost recovery under ORA s and TURN s proposal Information Technology Additional Issues SCE s Use of Managed Services Providers (MSPs) 7. GENERATION 7.1. Generation Nuclear Generation (Palo Verde) No parties recommended reductions to SCE s forecasts for Palo Verde O&M expenses and capital expenditures, except for ORA s global recommendation to adopt SCE s 2016 recorded versus 2016 forecast of capital expenditures. SCE agreed with this recommendation, and the Commission should approve SCE s Palo Verde forecasts with that one adjustment, as reflected in Exhibit SCE Generation Energy Procurement 7.3. Generation Hydro Generation No parties recommended reductions to SCE s forecasts for Hydro O&M expenses and capital expenditure, except for ORA s global recommendation to adopt SCE s 2016 recorded versus 2016 forecast of capital expenditures. SCE agreed with this recommendation, and the Commission should approve SCE s Hydro forecasts with that one adjustment, as reflected in Exhibit SCE SCE Opening Brief, pp SCE Opening Brief, p SCE Opening Brief, pp See Exhibit SCE-21, Table II-6 and Table II-7, pp See Exhibit SCE-21, Table II-6 and Table II-7, pp

109 ORA incorrectly stated in its opening brief that the SCE s Hydro O&M forecast was $26.8 million, which reflects only FERC account The correct forecast for Hydro O&M is $ million, which includes FERC accounts 536, 539, and Generation Catalina & 2017 Capital for PBGS Automation Project In TURN s Opening Brief, TURN continues to oppose SCE s capital request for the Pebbly Beach Generating Station (PBGS) Automation Project, 608 which is needed so that SCE can remain in compliance with environmental regulations and mitigate the risk of a major outage resulting from the failure of obsolete equipment. 609 TURN claims that SCE mismanaged the project, citing SCE s decision to change the system design by replacing the Allen Bradley PLC with Emerson Ovation DCS systems. 610 However, as indicated in SCE s Opening Brief, SCE made the prudent decision to amend the scope of the project instead of continuing on a path that could lead to additional costs for an inferior project. 611 Catalina presents complex challenges, given the difficulty of serving an isolated system. In this situation, the delay due to the drawing inconsistencies led to an unexpected opportunity to relook at the project, start with a fresh engineering management team, and amend the scope to make PBGS operations consistent with other SCE generating units. 612 Notwithstanding the change in scope, SCE has provided evidence that 90% of the previously purchased equipment is being used, including the Allen Bradley controllers, which are being used for parts of PBGS such as the NaS Battery, the Desalination Unit, the Microturbine and Diesel controllers, or being used as spare parts at other generating stations. 613 This further demonstrates SCE s prudent management of the PBGS Automation Project. TURN questions the value of having spare parts, instead of parts that are in active, everyday use. 614 However, especially in a situation like Catalina, which is an isolated system with aging equipment, having spare parts is critical. As testified by SCE witness Anthony Edeson: 607 ORA Opening Brief, p TURN Opening Brief, pp See SCE Opening Brief, pp TURN Opening Brief, pp SCE Opening Brief, p Exhibit SCE-05, Vol. 5, Pt. 02, p. 8, lines Exhibit SCE-21, p TURN Opening Brief, p

110 The current state exposes the isolated electrical grid of Catalina to a risk of power outages, as the unreliable equipment replacement sources and lack of redundant inventory leaves power supply reliability at the mercy of an ever-increasing probability of equipment failure. 615 Fundamentally, TURN opposes any rate base recovery above the $5.1 million already approved by the CPUC in D SCE s adamant belief that the automation project is necessary for its customers on Catalina Island is evident by the fact that SCE s shareholders have funded $8.790 million on the PBGS Automation Project in , and SCE forecasts spending an additional $3.249 million in 2017 for this project, which is forecast to go in rate base in Given the obsolescence of the current PBGS system and its shortcomings, 618 time was of the essence and SCE moved forward with the automation project. The CPUC should reject TURN s proposed disallowance, which effectively results in SCE s shareholders heavily subsidizing a project that is needed by, and benefits, our customers. Finally, as a result of SCE s review of TURN s Opening Brief, SCE noticed an error in one of the figures in our Opening Brief. In TURN s Opening Brief, TURN refers to the permissible recovery of the $3.2 million that SCE spent, or will spend, during the period to salvage and redraw old as-built drawings. 619 Referring to the same data request response as TURN, SCE identified in its Opening Brief the year-to-year costs from but neglected to include the 2017 recorded cost of $232,855 when it listed the recorded costs for 2015 and 2016 and the forecast cost for the remainder of Therefore, TURN is correct that the total cost shown in the data request response is $3.2 million Capital Project for All Other Capital Projects Under $3 Million In SCE s direct testimony, SCE s capital forecast is $7.1 million (nominal dollars) for all other projects under $3 million, based on SCE s forecast of various capital projects including facility resurface paving, fence and gate replacements, air compressor replacements, PBGS plant seawall improvement, etc Exhibit SCE-05, Vol. 05, Pt. 02, p TURN Opening Brief, p Table I-1 of Exhibit SCE-21, p. 2, and Exhibit SCE-25, p Exhibit SCE-05, Vol. 5, Pt. 02, p. 9; Exhibit 21, p. 5, FN TURN Opening Brief, p SCE Opening Brief, p. 147; Exhibit SCE-21, p. A-1 (i.e., SCE s response to DR TURN-SCE SCE Opening Brief, p. 149 (citing Table I-2 in Exhibit SCE-05, Vol. 5, Pt. 02, p. 2); Exhibit SCE-05, Vol. 5, Pt. 2, p

111 In ORA s direct testimony, ORA proposes that (1) for 2016, SCE use the 2016 recorded, and (2) for , SCE use a five-year average ( ) (nominal dollars). 622 In SCE s rebuttal testimony, SCE agreed to use 2016 recorded. 623 With respect to , if an average were used, SCE recommended the following changes: (1) Use a six-year average ( ) of constant dollars, (2) remove the recorded cost of the mandatory unit overhauls for Units 8 and 14 in the six year average, and include the forecast cost for the overhaul of Unit 15 in the 2017 forecast. 624 As summarized in SCE s Opening Brief, the basis for SCE s recommended changes are as follows: All available years would depict better the historical expenditure levels, Consistent with D , averaging should be done in constant dollars, and The cost of the mandatory unit overhauls are known or can be forecast because they are scheduled and thus generally known. 625 In ORA s Opening Brief, ORA indicates: SCE agreed to use 2016 recorded capital, but on rebuttal revised its combined capital estimate from $5.650 million down to $2.420 million, a reduction of $3.230 million. Considering SCE s difficulties with forecasting 2016 Other Capital spending and its suddenly deflated forecast, the Commission should adopt ORA s Other Capital recommendation. 626 ORA s Opening Brief does not refute or address the specific recommendations SCE made if ORA s proposed average were to be used, or the support for SCE s recommendations. Instead, ORA incorrectly indicates that, because of SCE s response in its rebuttal testimony to ORA s proposal, SCE has difficulties forecasting its capital spending. 627 SCE does not have difficulties with forecasting its capital spending. As indicated above and as supported in SCE s direct testimony, 628 SCE s forecast in its direct testimony is based on the capital work SCE anticipates, such as facility resurface paving, fence and gate replacements, air compressor replacements, PBGS plant seawall improvement, etc. 629 SCE s proposed changes to its forecast in its rebuttal testimony was in response to ORA s proposal that an 622 Exhibit ORA-14, p Exhibit SCE-21, pp See SCE Opening Brief, pp See SCE Opening Brief, pp , which summarizes SCE s basis for these changes. 626 ORA Opening Brief, p ORA Opening Brief, p Exhibit SCE-05, Vol. 5, Pt. 02, p. 16. As indicated in SCE s direct testimony, details of these projects are available in SCE s workpapers. Id. (citing to WP SCE-05, Vol. 5, P. 02, pp ). 629 SCE Opening Brief, p. 149 (citing Table I-2 in Exhibit SCE-05, Vol. 5, Pt. 02, p. 2). 88

112 average be used. And, if ORA s averaging proposal were to be adopted, SCE has shown that any analysis should consider the mandatory unit overhaul costs which are known or can be forecast (as SCE has done) Generation Other Mountainview No parties recommended reductions to SCE s forecasts for Mountainview O&M expenses and capital expenditures, except for ORA s global recommendation to adopt SCE s 2016 recorded versus 2016 forecast of capital expenditures. SCE agreed with this recommendation, and the Commission should approve SCE s Mountainview forecasts with that one adjustment, as reflected in Exhibit SCE Peakers No parties recommended reductions to SCE s forecasts for Peakers O&M expenses and capital expenditures, except for ORA s global recommendation to adopt SCE s 2016 recorded versus 2016 forecast of capital expenditures. SCE agreed with this recommendation, and the Commission should approve SCE s Peakers forecasts with that one adjustment, as reflected in Exhibit SCE Mohave Closure No parties recommended reductions to SCE s forecasts for Mohave Closure O&M expenses and capital expenditures, except for ORA s global recommendation to adopt SCE s 2016 recorded versus 2016 forecast of capital expenditures. SCE agreed with this recommendation, and the Commission should approve SCE s Mohave Closure forecasts with that one adjustment, as reflected in Exhibit SCE Exhibit SCE-21, pp See Exhibit SCE-21, Table II-6 and Table II-7, pp See Exhibit SCE-21, Table II-6 and Table II-7, pp See Exhibit SCE-21, Table II-6 and Table II-7, pp

113 Solar Photovoltaic Fuel Cells 7.6. Generation Additional Issues 8. HUMAN RESOURCES 8.1. Human Resources O&M As noted in SCE s Opening Brief, no issues were raised concerning SCE s forecast for the Human Resources Operating Unit (HR) expenses for Test Year Only TURN and NDC raised issues regarding SCE s forecast for Executive Officer expenses for Both of these parties proposed forecast reductions tied to the short term incentive costs for Executive Officers. Their arguments are addressed in the section below Benefits and Other Compensation Short-Term Incentive Programs The Goals and Metrics Underlying SCE s STIP and EIC Are Expressly Designed to Advance Customer Interests SCE has attempted to strike a balance here. On the one hand, there are the Commission s decisions that exclude funding for various forms of employee incentive compensation from its authorized revenue requirements. On the other hand, there are a number of Company priorities tied to (1) maintaining market competitive levels of compensation; (2) offering employees incentive compensation opportunities that correspond with those offered by comparable companies; and (3) designing, developing and administering incentive compensation plans to motivate its workforce to achieve goals that concurrently advance the interests of the Company and its customers. SCE has also made significant strides to rework employee compensation and benefit plans to better control its costs. No party challenges the fact that the costs of non-cash compensation (including medical, pension and other retirement benefits) have climbed swiftly. SCE took proactive steps to change the mix of cash and non-cash compensation for its workforce by eliminating the pension plan, retiree healthcare plan and executive retirement plan for new hires after December 30, 2017, and reducing the long-term cost structure of those benefit plans See Exhibit SCE-06, Vol. 02, Sections IX.B, IX.F, and IX.I. 90

114 Part and parcel of SCE s effort to offer market level incentive compensation to its workforce is the need to make sure those incentive compensation plans are based on goals that can be understood by SCE s workforce. Indeed, it is imperative that all employees understand the goals upon which their incentive compensation is based, in terms of what those goals are and how the employee s activities and conduct can impact the achievement of such goals. SCE s senior management undertakes an annual review to establish goals focusing on employee activities that have an impact on the Company s success in delivering services to its customers and establishing metrics tied to public and workplace safety, customer service, system reliability, affordability, and productivity. 635 Since 2016, the goals for SCE s Executive Incentive Compensation Plan (EIC) covering its executive employees and Short-Term Incentive Program (STIP) covering its non-executive employees have been identical. Accordingly, the entire workforce (represented and non-represented) receives incentive compensation opportunities under the same balanced set of measurable, strategic and challenging performance goals. 636 TURN, ORA and NDC all seek to reduce SCE s forecasts for its short-term incentive programs. TURN seeks reductions to STIP and EIC covering SCE s entire workforce. NDC challenges only the forecast for EIC costs for SCE s Executive Officers. ORA challenges only the forecast of STIP/EIC costs for SCE employees (excluding SCE s Executive Officers.) 637 Despite these differences, the arguments made by TURN, NDC, and ORA to justify their varying recommendations are largely similar, as they relate to the goals underlying STIP and EIC. There is no evidence that the TURN, ORA, and NDC witnesses who recommended the reductions and changes to SCE s incentive compensation plans have any experience, training or other specialized knowledge in planning, creating or implementing workforce compensation or benefit programs. 638 SCE has designed the goals and related metrics underlying STIP and EIC to explicitly advance customer interests. SCE s detailed listing of the STIP and EIC goals are designed to inform SCE 635 Exhibit SCE-06, Vol. 2, p Exhibit SCE-06, Vol. 2, p See, TURN Opening Brief at pp , NDC Opening Brief at pp , and ORA Opening Brief at pp. 187 and Exhibit TURN-01-A, p. 1 (Mr. Sugar s areas of experience appear to be over 35 years of energy planning, program analysis and energy program management. ); NDC s Prepared Testimony of Faith Bautista on the 2018 General Rate Case Application of Southern California Edison, pp. 1-4 (Ms. Bautista s Background and Qualifications make no reference to any employee compensation or benefit programs experience or knowledge.); and ORA-23, p. 8. (The only qualifications related to employee compensation and benefit programs appears to be Ms. Hunter s preparation of Human Resources testimony in recent GRCs of SCE and other utilities.) 91

115 employees how their job activities advance those interests. The goals include: (a) protecting public and worker safety; (b) improving customer satisfaction; (c) achieving grid reliability targets; (d) protecting critical infrastructure to safely serve customer needs and safeguard customer information; (e) controlling costs in support of affordable customer rates; (f) achieving capital spending targets to support safe, reliable, and affordable infrastructure and to enable customer technology choices; (g) achieving goals tied to diverse business spending and leadership talent; (h) advancing key regulatory proceedings that support customer rates and the safe and cost-effective retirement of SONGS; (i) advancing organizational performance by enhancing decision-making processes and employee engagement; and (j) achieving core earnings target in support of affordability and financial performance. 639 Relative to these goals, TURN, ORA and NDC all challenge the benefits to customers from achievement of the financial performance goal as measured by a core earnings target. TURN asserts that SCE s efforts to seek full rate recovery for the costs of its short-term incentive programs is somehow evidence that improved financial performance is achieved at the detriment of ratepayers; further, TURN questions the Commission s adoption of a 10% reduction (rather than 40% reduction) of the authorized STIP forecast based on the financial performance goal in the 2015 GRC Decision. 640 NDC claims that the financial performance goal incentivizes profit over safety due to the weight accorded to that goal under EIC. 641 ORA argues that the financial performance goal does not benefit customers directly and is shareholder oriented. 642 These assertions have no merit and ignore both the reasonableness of SCE s total compensation to its workforce, as shown by the results of the 2018 Total Compensation Study (which included incentive compensation via STIP and EIC), and the customer benefits that result from SCE achieving the financial performance goal. These customer benefits take the form of the utility being able to access capital financing on reasonable terms to fund infrastructure investment, customer service projects, and other expenditures that support safe and reliable service. 639 Exhibit SCE-06, Vol. 2, p. 25 (Table V-3). 640 TURN Opening Brief, p NDC Opening Brief, p ORA Opening Brief, p ORA Opening Brief contains a nearly verbatim restatement from its prepared testimony on why ORA also disputes the customer benefits from the High Performance Organization goals under STIP. (See Exhibit ORA-15, p. 10, lines 4-10.) SCE has already addressed these arguments in its rebuttal testimony and will not restate them here. (See Exhibit SCE-22, pp ) 92

116 TURN s reference to SCE s effort to obtain rate recovery for the short-term incentive program costs does not constitute record evidence that customers will suffer harm from SCE s achievement of the financial performance goal. 643 From the standpoint of SCE s workforce participating in STIP and EIC, the achievement of the financial performance goal is intended to communicate the importance of working safely, efficiently, and cost-consciously to benefit the Company and customers alike. Proposals from TURN to create plan metrics tied to rate reductions or lower rate increases 644 are simply impractical. Such a metric is impacted by a multiplicity of factors, and it would be a substantial challenge for the vast majority of SCE employees to comprehend how their individual activities supporting safety, reliability, customer satisfaction, cybersecurity, and other existing plan goals demonstrably impact SCE s customer rates. SCE strongly objects to NDC s grave claim that EIC incentivizes profit over safety. NDC solely relies upon the fact that the financial performance goal receives a weight of 40% and the specific safety goal receives a weight of 10%. 645 NDC fails to realize that the safety and financial performance goals are interrelated. A significant negative safety event will result in serious consequences and adversely impact SCE s ability to meet the financial performance goal. 646 While NDC questions SCE s failure to achieve its safety goal in prior years, the safety goal in EIC is aggressively measured by the following metrics: (i) DART 647 rate goal (a combination of historical DART rate performance and expected performance based on top quartile industry benchmarks), (ii) zero worker fatalities, and (iii) zero serious injuries to the public resulting from system failures. 648 Additionally, NDC fails to acknowledge that, under the current EIC plan, SCE s Compensation Committee (comprised of independent directors) retains discretion to completely eliminate EIC awards in the event of a serious safety violation and/or non-compliance event. 649 In seeking to reduce SCE s forecast of short-term incentive plans, TURN, NDC and ORA incorrectly assume that benefits arising from the achievement of plan goals can and should be quantified and allocated into metrics that measure who benefits more customers or shareholders. However, 643 TURN Opening Brief, p Exhibit TURN-01, p. 14 (TURN proposed that SCE scuttle its earnings-based incentive in favor of an incentive tied to lowering rates. ) 645 NDC Opening Brief, p SCE, Bennett, Tr. 7/864:21-865: DART stands for Days Away, Restrictions, and Transfers. 648 Exhibit SCE-15, p. 5 (Additionally, the 2017 DART target (0.53) for EIC is based on a 25% improvement from the projected 2016 year-end DART rate (0.71).) 649 Exhibit SCE-15, p

117 those efforts remain unsupported and do not address the overarching purpose of the short-term incentive programs to promote individual and collective employee behavior and achieve goals benefiting both customers and the Company TURN s and NDC s Recommendations to Modify SCE s STIP and EIC Forecasts Should Be Rejected As discussed in greater detail in SCE s Opening Brief, TURN and NDC 650 both advocate reducing the short-term incentive program costs based on applying differing forecast methodologies. However, it remains undisputed that SCE s forecasts of short-term incentive program costs provide a reasonable estimate of what those costs will be in the Test Year SCE s forecast of Executive Officer labor costs, including EIC costs, is based on the five-year average of actual recorded costs from 2011 to 2015 due to fluctuations in the recorded costs over the five-year period. 651 TURN s and NDC s modified forecast methodologies do not account for the actual fluctuation in EIC expenses shown over the five-year period. SCE s STIP forecast is based on an itemized forecast methodology utilizing the expense ratio derived from comparing the last recorded year (2015) STIP costs by the 2015 recorded non-capital labor expense and then applying that expense ratio to the projected non-capital labor forecast for For the STIP forecast, the resulting Test Year 2018 forecast using this itemized forecast methodology is lower than the forecast derived by applying the averaging methodology. 653 With respect to TURN s recommendation that the STIP forecast should be adjusted to the same 12.11% ratio (representing a six-year average of STIP costs from ) applied by the Commission in the 2015 GRC Decision, this 12.11% ratio was selected by the Commission in large part due to the STIP costs for the base year (2012) representing 27% above-target performance. 654 In contrast, SCE s 2018 Test Year forecast of STIP costs are based on the 2016 payout of STIP awards (for 2015 plan year performance). This was a modest 4.6% above-target performance STIP expense 650 As noted earlier, NDC s recommendations only related to EIC costs within the Executive Officer forecast. NDC made no recommendations related to the STIP forecast covering all SCE employees, excluding executive officers. 651 Exhibit SCE-06, Vol. 1, p Exhibit SCE-06, Vol. 2, p Exhibit SCE-06, Vol. 2, p D , p

118 compared to the forecast. 655 As such, TURN is mistaken in relying on the 12.11% ratio based on the 2015 GRC Decision. The additional increase in STIP costs that SCE forecasts (raising the expense ratio an additional 2.1%) is tied to certain job classifications that required an increase in cash compensation to keep their total compensation in line with the market. It also serves to counterbalance the impact of SCE s decision to end pension plan participation for new hires starting December 31, 2017 and discontinue its retiree healthcare plan for employees hired on or after that same date in those job classifications. 656 SCE made these changes to try to reduce the long-term cost structure of those expensive benefit plans. 657 TURN claims that SCE presented no testimony to support this additional increase. But SCE s prepared testimony, workpapers and data request responses all described the pension plan and retiree healthcare plan changes and the attendant increase in the STIP forecast. 658 Additionally, although TURN thoroughly cross-examined SCE s witness on this subject, TURN s Opening Brief lacks any reference to the fact that this additional increase in STIP costs will be more than offset by the savings tied to the benefit plan changes, and those savings are already reflected in this GRC in SCE s forecasts for pensions and post-retirement benefits other than pensions (PBOP). 659 Moreover, as the percentage of the employee population who are not covered by these benefit plans increases, the cost savings achieved under the plans will continue to increase over time. 660 TURN also does not address the fact that, although SCE s 401(k) plan costs will see an attendant increase due to these changes, SCE did not include those increased 401(k) plan costs in its forecast for this GRC. 661 Accordingly, the increase in STIP costs tied to the employee classification changes are more than offset by the savings created by the benefit plan changes. Those savings will continue to increase over time Conclusion Notwithstanding ORA s, TURN s, and NDC s varying objections to SCE s short-term incentive program goals and forecast methodologies, the Commission stated in its 2015 GRC Decision that we 655 See Exhibit SCE-06, Vol. 2A2 HR-Benefits and Other Compensation (2 nd Errata), and SCE-22, Appendix C, p. C-2 (SCE s Supplemental Response to Data Request TURN-SCE-006 Q.01.f.). 656 See Exhibit SCE-06, Vol. 2, sections IX.B and IX.F. 657 See Exhibit SCE-06, Vol. 2, sections IX.B and IX.F. 658 See, e.g. Exhibit SCE-06, Vol. 2, sections V.E.3, IX.B and IX.F and Exhibit TURN See Exhibit SCE-06, Vol. 2, pp. 55 (lines 4-6) and 91 (lines 15-19); see also, SCE, Bennett, Tr. 7/839: Exhibit SCE-22, p and SCE, Bennett, Tr. 7/846: See Exhibit SCE-06, Vol. 2, pp. 55 (lines 4-6) and SCE, Bennett, Tr. 7/860:6-22 and 861:22-862:10. 95

119 do place weight on the results of the TCS and decline to adopt the deep cuts proposed by TURN and ORA. 662 As in the 2015 GRC, the results of the 2018 TCS concluded that SCE s workforce compensation is at market. 663 No parties dispute the results of the 2018 TCS. As the market level of compensation is, by definition, the amount set by the labor market as necessary to attract and retain employees, recovery of market level compensation costs should be treated as legitimate operating expenses incurred by the utility to provide adequate service to its customers. SCE respectfully requests that the Commission reject ORA s, TURN s and NDC s reductions to SCE s forecasts associated with short-term incentive program costs and adopt SCE s forecasts for those programs Long-Term Incentives TURN, ORA and NDC recommend disallowances to SCE s Long-term Incentive (LTI) expenses. The Opening Briefs submitted by all three parties reiterate the arguments made in their prepared testimony. SCE has fully addressed those arguments in SCE s rebuttal testimony and Opening Brief Recognition Programs SCE s Opening Brief and rebuttal testimony already address ORA s arguments for disallowance of recognition programs. 665 The Commission should approve funding of SCE s Recognition Programs as requested and in line with its recent decisions in SCE s 2015 GRC, Sempra s 2013 GRC, and PG&E s 2014 GRC Medical Programs ORA proposes applying a different escalation rate to calculate SCE s Medical Programs costs. ORA s Opening Brief does not add to its prepared testimony. SCE has fully addressed ORA s arguments in SCE s rebuttal testimony and Opening Brief. 667 SCE has reasonably determined escalation rates for its medical programs. Because SCE utilized escalation rates provided by its health plan carriers based on the covered workforce, SCE s 2018 Test Year forecast of medical program costs of $ million should be adopted as reasonable. 662 D , p Exhibit SCE-06, Vol. 3, p See Exhibit SCE-22, pp ; SCE Opening Brief, pp See Exhibit SCE-22, pp ; SCE Opening Brief, pp See D , pp ; D , pp ; D , p See Exhibit SCE-22, pp ; SCE Opening Brief, pp

120 Executive Benefits Program ORA proposes a fifty percent reduction to SCE s Executive Benefits Program forecast. ORA s Opening Brief reiterates the same points made in its prepared testimony. SCE has fully addressed ORA s arguments in SCE s rebuttal testimony and Opening Brief. 668 SCE requests that the Commission adopt its Test Year 2018 forecast for the Executive Benefits Program Human Resources Total Compensation Study 8.4. Human Resources Additional Issues 9. OPERATIONAL SERVICES 9.1. Business Resiliency ORA proposes a $74,000 reduction to Business Resiliency s test year O&M forecast. ORA s Opening Brief does not add to its prepared testimony. SCE has fully addressed ORA s arguments in SCE s rebuttal testimony and Opening Brief. 669 Business Resiliency s O&M forecast should be adopted as reasonable Corporate Environmental Services 9.3. Corporate Real Estate ORA s Recommendation of a Blanket Reduction to CRE s Capital Forecast Should Be Rejected ORA proposes a blanket reduction to CRE s capital forecast in 2017 and ORA s Opening Brief adds nothing to its prepared testimony. SCE has fully addressed ORA s arguments in SCE s rebuttal testimony and Opening Brief See Exhibit SCE-22, pp ; SCE Opening Brief, pp See Exhibit SCE-23, Vol. 1, pp. 4-6; SCE Opening Brief, p See Exhibit SCE-23, Vol. 2, pp. 5-11; SCE Opening Brief, pp

121 TURN s Recommendations for Reductions to CRE s Capital Forecast Should Be Rejected Service Center Modernization Program TURN s Challenges to SCE s Service Center Modernization Projects Inaccurately Contend that the Projects Are the Same as Those Requested in Prior GRCs and Fail to Account for the Limited Funding Authorized in the 2015 GRC Decision TURN s arguments in the Opening Brief repeatedly imply that the service center projects proposed and authorized in the 2012 and 2015 GRCs are the same as the projects presented in this GRC, but with substantially larger forecasts. 671 While the Service Infrastructure Upgrade Program from the 2015 GRC and the Service Center Modernization Program in this GRC cover some of the same service centers, the modernization projects for those service centers materially differ in scope and scale for this GRC. The expanded scope of the service center projects arose from discovering greater levels of building deterioration than previously determined and addressing Fitness for Purpose deficiencies. This is detailed in SCE s direct and rebuttal testimony, voluminous workpapers and data request responses, testimony during evidentiary hearings, and SCE s Opening Brief, 672 The current service center projects are needed to resolve business and service level issues at high-priority sites and to reduce worker and public safety hazards and increase operating efficiencies. TURN inaccurately suggests that SCE s customers are being asked to pay for the same work twice. Even with the more limited scope of the projects embodied by SCE s request for the Service Center Infrastructure Upgrade Program in the 2015 GRC, SCE was only authorized a fraction (less than one-third) of the funds requested and ended up spending more than the authorized amount on service center projects in 2015 and SCE did not proceed with the prior Service Center projects from the 2009 and 2012 GRCs because those funds were reallocated to more critical reliability projects. The 671 See, e.g. TURN Opening Brief, pp. 175 ( Many of the constituent projects are repeats from prior GRC applications and decisions ) and 177 ( the forecasts SCE has presented here for modernizing the same facilities through the same program. ) 672 See, e.g. Exhibit SCE-07, Vol. 3, pp (Bishop Service Center), (Kernville Service Center), (Redlands Service Center), (Ridgecrest Service Center, (San Joaquin Service Center), (Santa Ana Service Center); Exhibit SCE-23, Vol. 2, pp , 24-25, 28, 34-35, 40-41, and Appendix A (to SCE-23, Vol. 2), pp

122 Commission has recognized that SCE should not be barred from seeking recovery for previously authorized projects and has authorized funds for projects that were delayed or deferred from prior GRCs. 673 Here, those funds were re-allocated for other critical reliability projects. There are a variety of reasons why the projects and programs forecast in a GRC will not necessarily tie to the projects and programs ultimately deployed. Some of those reasons entail the need to address higher priority emergent work or make adjustments when the Commission adopts funding at less than requested levels. TURN s recommendations reflect a rote adherence to using past requests to forecast future needs without linking such recommendations to the actual drivers of new projects. TURN also ignores the benefits to SCE s customers and employees from the additional capabilities and features provided by the new projects Changes in Scope and Scale of Service Center Modernization Projects and Related Forecasts Primarily Arose from Lessons Learned from Past Service Center Upgrade Projects and Benchmarking Efforts about Fitness for Purpose Deficiencies. TURN criticizes SCE for spending less than forecast on service center projects in But SCE s spending on service center projects in 2016 ($8.5 million) exceeded by a substantial margin the approximately $3 million per year authorized in the 2015 GRC decision. The same holds true for 2015, when SCE recorded approximately $ million for the Shaver Lake, Ridgecrest and Bishop Service center projects (and related IT infrastructure and equipment). 674 The service center projects in 2015 required spending levels higher than previously forecast due to changes in scope to address operational needs and unforeseen site or building conditions. SCE was transparent about the fact that the service center projects in progress or completed in the time period leading to the submission of the 2018 GRC application led to further review and assessment of the scope and forecast for service center projects previously submitted in the 2015 GRC. 675 Coupled with the unforeseen impacts of CRE s substantial reduction in staffing and SCE s transition to a managed service provider for real estate project management and maintenance, SCE acknowledges it was unable to achieve the level of spending projected in its direct testimony for However, those circumstances do not change the importance of properly modernizing the service centers and addressing Fitness for Purpose issues to best meet current operational needs and to mitigate functional obsolescence. 673 See, Exhibit SCE-23, Vol. 2, Appendix A, pp See Exhibit SCE-23, Vol. 2, Appendix a, pp for SCE s response to TURN-SCE-021, Q. 2.b Supplemental. 675 See Exhibit SCE-07, Vol. 3, pp

123 The expanded scope of the Service Center Modernization projects requested in this GRC are intended to extend the life of the service centers and to utilize them for SCE s customers for as long as feasible. SCE used standard cost estimating techniques in developing its forecasts. Those techniques take into account the current and projected costs of physical building construction, across several elements of the project. 676 TURN does not dispute that the forecasts present a reasonable estimate of the expenditures needed for the work covered by each project s defined scope. While TURN does challenge SCE s decision to expand the scope of projects (as compared to prior GRC requests), TURN does not submit any evidence to challenge SCE s contentions that the additions and upgrades embodied within the expanded scope of work (including those covering administrative buildings, pre-fab buildings, garages, hazardous materials storage and laydown yards) will enhance the useful life of the service centers and address a wide range of existing deficiencies. 677 SCE s decision to expand the scope of the service center projects was not justified by blind reliance on updated design standards, as TURN claims. Rather, those design standards are intended to provide guidance for service center projects on a going-forward basis and embody lessons learned from recent service center upgrade projects, benchmarking efforts and the contributions of outside consultants and other SCE departments (including T&D and the Transportation Services Department). 678 SCE made it clear that the design standards were a work-in-progress and remained subject to further internal review. 679 However, the status of the design standards does not change facility condition index (FCI) scores and growth in customer population served that drove the need for significant work on the service centers covered by the Service Center Modernization Program. 680 The scope of the current service center projects provides better support for current operational needs and promotes safer circulation for workers, pedestrians, vehicles, and equipment and proper storage of parts and materials. 681 TURN incorrectly claims that SCE provided no documentation concerning its architectural consultant s work associated with the updated design standards. TURN notes that the architectural consultant who provided this assistance was also charged with design work on three service center 676 See Exhibit SCE-07, Vol. 3, pp See Exhibit SCE-23, Vol. 2, pp See, SCE-23, Vol. 2, pp and SCE-23, Vol. 2, Appendix A, pp See, e.g. SCE-23, Vol. 2, Appendix A, pp See Exhibit SCE-07, Vol. 03, pp. 52 and See Exhibit SCE-07, Vol. 03, pp and Exhibit SCE-23, Vol. 2, pp

124 projects dating back to SCE also retained this architectural consultant to assist with SCE s updated service center design standards and to leverage this consultant s experience with recent service center projects. SCE provided TURN with documents related to this specific retention of the architectural consultant. SCE did so in data request responses served in March Regardless, the design standards do not constitute the lone basis for the expanded scope of work in the current projects. As detailed through its testimonial submissions, the service centers identified in current Service Center Modernization Program have an overall facility condition of 13%-35% (poor to critical), are all high priority sites (based on Asset Priority Index (API) rankings), and have building configuration, property size, and other physical site limitations that do not properly support current work processes and equipment. 683 For these reasons, it is critical that the Commission authorize the funds needed for these projects to reduce safety hazards, increase operating efficiencies, meet current operational needs and mitigate functional obsolescence at these service centers Specific Service Center Projects Bishop Service Center The section of TURN s Opening Brief concerning this project only discusses TURN s modified forecast and compares SCE s current and prior GRC forecasts and recorded costs for work on this service center. 684 TURN bypasses the fact that funds authorized in 2009 and 2012 were reallocated to address other urgent projects. 685 There is also no mention of SCE s evidentiary submissions concerning (a) the expanded scope of work, with additions and upgrades supporting worker safety, regulatory compliance, and operational efficiency; and (b) the added costs arising from requirements imposed by 682 See Exhibit TURN-02-A-C (Confidential Attachment to TURN-02), pp. 1A-1D. Per an agreement of counsel, TURN will be submitting an errata to TURN-02-A-C to add in missing pages from the cited data requested response. Those missing pages consist of the contractor work authorization to engage the architectural consultant for updating the service center design standards (with descriptions of the scope of work including interviews with SCE's Corporate Real Estate, Transportation Services, Information Technology, Corporate Security, and Transmission and Distribution employees to validate current space needs related to program requirements for the SCE Service Centers.) Concurrent with the cited data request response, SCE served an additional data request response containing a report from the architectural consultant after the consultant completed the engagement. The report summarizes the work performed and makes recommendations regarding SCE service center plans. 683 See Exhibit SCE-07, Vol. 03, pp (includes multiple workpapers references). 684 TURN Opening Brief, p Exhibit SCE-23, Vol. 2, p

125 the local government agency. 686 Those undisputed facts support the reasonableness of SCE s forecast for this project Kernville Service Center The section of TURN s Opening Brief concerning this project only discusses TURN s modified forecast and compares SCE s current and prior GRC forecasts and recorded costs for work on this service center. 687 TURN does not challenge SCE s evidentiary submissions showing: (a) the expanded scope of work with additions and upgrades supporting worker safety, regulatory compliance, and operational efficiency; and (b) the higher land acquisitions costs than previously forecast. 688 TURN s reduction of SCE s current forecast will not allow SCE to sufficiently address the age and condition of the current facility and should be rejected Redlands Service Center The section of TURN s Opening Brief concerning this project only discusses TURN s modified forecast and compares SCE s current and prior GRC forecasts and spending for work on this service center. 689 TURN otherwise does not dispute that (1) the 2015 GRC request for this service center only involved renovating buildings on an existing site; 690 (2) the current forecast involves relocation to a new site and related construction; 691 and (3) the relocation was necessary due to material deficiencies in the existing site, projected activity growth from the upcoming Transmission transfer of the 33kv system to the territory, and anticipated population growth in the communities served. 692 The Commission should adopt SCE s forecast for the Redlands Service Center project and reject TURN s proposed reduction Ridgecrest Service Center The section of TURN s Opening Brief concerning this project only discusses TURN s modified forecast and comparisons to SCE s current and prior GRC forecasts and spending for work on this service center and purchase of land for the new site in SCE previously addressed the land purchase issue in its Opening Brief. TURN does not dispute the change in project scope (comparing the 686 Exhibit SCE-07, Vol. 03, pp ; Exhibit SCE-23, Vol. 2, p ; and SCE-23, Vol. 2A, p. 25, line TURN Opening Brief, p See Exhibits SCE-07, Vol. 3, p. 67 and SCE-23, Vol. 2, p. 28, lines TURN Opening Brief, p Exhibit TURN-02-A-1, p (Excerpt from SCE s 2015 GRC testimony on Redlands Service Center Project.) 691 Exhibit SCE-07, Vol. 3, pp Exhibit SCE-23, Vol. 2, pp TURN Opening Brief, p

126 2015 GRC project scope and the current project scope) leading to the higher forecast, 694 nor does TURN address the stated benefits of service center expansion to improve service to this rural community and to address safety issues and improve operational efficiency. 695 The Commission should reject TURN s modified forecast and adopt SCE s forecast for the Ridgecrest Service Center. That Service Center is 59 years old and in poor condition San Joaquin Service Center The section of TURN s Opening Brief concerning this project only discusses TURN s modified forecast and comparisons to SCE s current and prior GRC forecasts and spending for work on this service center. 697 TURN does not otherwise address or dispute the expanded scope of modernization work leading to the higher forecast 698 or projected population growth project in the region served. 699 TURN s modified forecast should be rejected, and SCE s forecast should be adopted Santa Ana Service Center In its Opening Brief, TURN reiterates the arguments from its prepared testimony for disallowing any funding due to skepticism over whether SCE will move forward with the project. TURN also proposes that SCE seek recovery for the project in the next GRC if it moves forward. 700 Although the bulk of expenditures for this project occur from , SCE forecasts spending approximately $5.4 million for planning and architectural and engineering design work. 701 Given that such expenditures are forecast to occur during the current rate case cycle, there is no basis for compelling SCE to save its request for the next GRC, and thereby risk the prospect of no recovery for such a substantial investment to improve the service center. Additionally, TURN makes no arguments disputing the justification for moving forward with this project, including the advanced age and high API of the service center and the need to improve safety and security of the facilities at this heavily populated, urban location. 702 The 694 Exhibit TURN-02-A-1, p. 92 (Excerpt from SCE s 2015 GRC testimony on Ridgecrest Service Center project). 695 Exhibit SCE-23, Vol. 2, pp Exhibit SCE-07, Vol. 3, p TURN Opening Brief, p Exhibits SCE-07, Vol. 3, pp and SCE-23, Vol. 2, pp Exhibit SCE-23, Vol. 2, pp TURN Opening Brief, p Exhibit SCE-07, Vol. 3, p Exhibit SCE-07, Vol. 3, p , Exhibit SCE-23, Vol. 2, p

127 Commission should reject TURN s modified forecast and recommendation and adopt SCE s forecast for this project Santa Barbara Service Center As with the Santa Ana Service Project, TURN proposes that SCE seek rate recovery for the proposed relocation of the Santa Barbara Service Center to the next GRC. 703 However, SCE forecasts expenditures of $17.9 million from 2017 to 2018 for the purchase of the new site, planning, architectural and engineering design and permitting. 704 Given this level of expenditures to move forward with this project in the current rate case cycle, TURN s recommendation should be rejected. It requires SCE to engage in an unwarranted retroactive ratemaking exercise and risk no recovery for such a substantial investment to improve the service reliability and workforce stability of the service center. Beyond this recommendation, TURN s Opening Brief cites to news articles concerning significant outages and SCE s electric infrastructure investment plans in the Santa Barbara region to suggest that the proposed relocation of the local service center is unwarranted. 705 However, these articles with dates ranging from 2014 to 2016 do not support TURN s position. Instead, the articles support the need to improve reliability in the region by describing the widespread outages in recent years. 706 However, the articles only reference one aspect of SCE s efforts to achieve such improvement (namely, grid improvement work). 707 None of these articles counters SCE s evidence that relocation of the service center will also improve service reliability in the region and address staffing issues at the service center, in particular. 708 While TURN argues that the analysis of reliability improvement (as measured by the sustained average interruption duration index (SAIDI)) arising from service center relocation provided by SCE in its rebuttal testimony should be disregarded, the conclusion of that analysis (namely, improvement of Santa Barbara Service Center s SAIDI performance by an average of 26 minutes) is uncontested. TURN declined an opportunity to cross-examine the witness sponsoring that analysis during the evidentiary 703 TURN Opening Brief, pp Exhibit SCE-07, Vol. 3, p TURN Opening Brief, p See Exhibit TURN-111, pp. 1-2, See Exhibit TURN-111, pp See Exhibit SCE-23, Vol. 2, pp

128 hearings. 709 Based on the projected improvement on service reliability and positive impact on staffing issues experienced at the Santa Barbara Service Center, the Commission should adopt SCE s forecast and reject TURN s recommendations Storage of Critical Electrical Equipment Spares In its Opening Brief, TURN reiterates its arguments for no funding for SCE s Storage of Critical Electric Equipment Spares Project from its prepared testimony. 710 TURN refers to SCE s 2011 Critical Spares Workstream project. This is not germane because that internal assessment dealt with processes to more efficiently manage the storage and rotation of critical spare parts and equipment at existing SCE storage sites. 711 The findings of this project did not assess the potential for the current Storage of Critical Electric Equipment Spares Project. More than anything, the findings of that assessment discuss the need for changes to address the storage of critical spares by optimizing their location and minimizing obsolescence, theft and deterioration costs. 712 As detailed in its testimony, there is an increased need for this project due to the completion of the Chino Hills 500kV underground transmission line in 2016 (the only underground transmission line of this magnitude in the United States) and the critical spares for this line that are specially made and require significant lead time to acquire. 713 The manufacturer s guidelines for critical spares affiliated with this transmission line strongly recommend storage of certain critical spares, including cable reels, splices, terminations and related accessory kits, in an environmentally controlled, indoor space to avoid unfavorable acceleration of aging, deformation, melting or shortening of shelf life. 714 While TURN points to portions of those guidelines that suggest alternatives where such a space is not available or feasible, the most appropriate method remains environmentally controlled and secure indoor storage space in an optimized location within SCE's 50,000 square-mile service territory. 715 Having such a large storage facility in an optimized location also allows the facility to house critical electric spares for transmission lines and for distribution and transmission emergent restoration work at other key sites TURN s contention that the SAIDI analysis should be excluded since it was not provided in response to a data request should be rejected given the infeasibility of preparing such a complex analysis in the short timeframe required for responses to data request. 710 See Exhibit TURN-02, pp Exhibit SCE-23, Vol.2, pp See Exhibit TURN-02-A-C (Confidential attachments to TURN-02), pp. 9, Exhibit SCE-23, Vol. 2, Appendix, p. A-203; SCE, Bauder, Tr. 8/1001: : See Exhibit SCE-23, Vol. 2, p Exhibit SCE-23, Vol. 2, p. 56 and Exhibit SCE-23, Vol. 2, Appendix, p. A Exhibit SCE-23, Vol. 2, Appendix, p. A

129 SCE requests that the Commission reject TURN s recommendation and adopt SCE s 2016 recorded capital expenditures and forecast of $ million for the Storage of Critical Electrical Equipment Spares project Blanket Programs Non-Electric Capital Maintenance The Non-Electric Capital Maintenance Program covers expenditures to safely and reliably maintain non-electric facilities and assets to avoid deterioration and unplanned business interruption. In its Opening Brief, TURN reiterates its position from its prepared testimony. TURN s position is solely based on its interpretation of how SCE was able to achieve an overall portfolio FCI score of 16% by the end of 2015 and the reasons for a lower level of spending than forecast in 2016 on Non-Electric Capital Maintenance. 717 Even setting aside TURN s claims that SCE s most recent assessment of the level of expenditures needed to maintain a constant FCI score should be disregarded, the undisputed historical costs from saw an average of $ million per year on Non-Electric Capital Maintenance. 718 TURN s proposal would reduce funding for Non-Electric Capital Maintenance to an amount less than half of SCE s average annual recorded spending on Non-Electric Capital Maintenance from SCE s current request for $ million annually in Non-Electric Capital Maintenance from already takes into account the lower level of 2016 recorded expenditures (versus the original forecast). 720 TURN assumes that the reduced level of 2016 expenditures reflected a scaling back of work. But SCE has already shown that the actual drivers were the material impact on CRE capital spend arising from workforce reductions, along with SCE transitioning to a third party service provider to manage and maintain real estate projects. 721 TURN s recommendation to continue this lower level of spending fails to address current maintenance needs. It also risks exposing SCE s non-electric facilities to more unanticipated failures, emergency repairs and business interruptions. 722 SCE requests the Commission approve SCE s 2016 recorded capital expenditures and forecast of $ million for Non-Electric Capital Maintenance. 717 Exhibit TURN-02, p Exhibit SCE-07, Vol. 03, p. 137, Table V Exhibit TURN-02, p. 35, lines Figure 19 on the same page incorrectly referenced $ million as 2016 recorded expenditures. 720 Exhibit SCE-23, Vol. 2, p. 63, lines Exhibit SCE-23, Vol. 2, pp Exhibit SCE-23, Vol. 2, p

130 Substation Capital Maintenance In its Opening Brief, TURN recommends reducing the forecast for Substation Capital Maintenance to $9.48 million for 2017 ($3.354 million less than SCE s forecast) and $9.954 million for 2018 ($4.774 million less than SCE s forecast). However, SCE s 2016 recorded costs for Substation Capital Maintenance of $ million were actually $2.696 million higher than the original forecast, 723 not $2.5 million below the forecast as TURN suggests in its Opening Brief. 724 SCE acknowledges its rebuttal testimony (cited by TURN in its Opening Brief) included this error. 725 While TURN expresses puzzlement over the varying levels of Substation Capital Maintenance spending from , the levels of spending, particularly the higher levels seen from , were due to the timing of completing assessments on 31 occupied substations and the capital maintenance activities arising from the findings of those assessments. 726 Moreover, the assessments of a representative sampling of SCE s approximately 900 unoccupied substations has shown preliminary FCI scores ranging from 10.48% to 66.98%, with an average score of 49.94% or critical. 727 While TURN claims those assessments should be disregarded, they provide the most recent depiction of the volume of maintenance work needed. SCE respectfully requests that the Commission approve SCE s $ million request for Substation Capital Maintenance from (incorporating 2016 recorded expenditures) Various Major Structures Outside of a new alternative forecast, TURN s Opening Brief concerning the Various Major Structures program (VMS) repeats the arguments from its prepared testimony. SCE s rebuttal testimony examined in detail a number of VMS projects and explained how those projects are unplanned or emergent and triggered by regulatory changes, environmental conditions and events (e.g., drought and wildfires), facility system breakdowns, and other significant facility failures. 728 TURN recommends that 723 See Exhibit SCE-07, Vol. 3, p. 132, Table V-52 (SCE s original 2016 forecast for Substation Capital Maintenance was $8.070 million.) and Exhibit SCE-23, Vol. 2, p. 64, Table (2016 recorded costs for Substation Capital Maintenance including IT Infrastructure and Equipment is $ million.) 724 TURN Opening Brief, p See Exhibit SCE-23, Vol. 2, p. 65, lines Exhibit SCE-23, Vol. 2, p Exhibit SCE-23, Vol. 2, p. 65. See also, Exhibit SCE-07, Vol. 3, p. 39 (FCI score, expressed as a percentage, is the ratio of the cost of correcting identified deficiencies to the replacement cost for the facility in whole, and scores over 30% are defined as critical under industry standards.) 728 Exhibit SCE-23, Vol. 2, pp

131 the VMS forecast be reduced to either $7.894 million in 2017 and $8.289 million in 2018 or, alternatively, $9.08 million per year. 729 However, the recorded costs from show average VMS spending of $ million per year. 730 TURN s modified forecasts (and its Opening Brief) do not address the significant increase in facilities and grounds that now fall under VMS. VMS now covers the buildings and grounds of substation and hydro facilities (over 1,100 additional buildings with an average infrastructure age of 30 years and covering approximately 1.1 million square feet). Assessments to date show FCI scores ranging from 40%-60%. 731 Given the expanded coverage of VMS, SCE s request for the 2016 recorded expenditures and forecast of $ million for the Various Major Structures program is reasonable Corporate Health and Safety In ORA s Opening Brief on SCE s Corporate Health & Safety, ORA reiterates its direct testimony verbatim on the issue of funding EPRI Program 60 research, and ORA does not refer to SCE s Rebuttal Testimony or SCE witness Mr. Jeske s testimony at the evidentiary hearings. 732 As a result, SCE already addressed ORA s Opening Brief in SCE s rebuttal testimony and SCE s Opening Brief. SCE showed that (1) ORA is mistaken that D and D limit and preclude SCE from seeking EPRI Program 60 funds in the GRC, (2) the CPUC has funded the EPRI Program 60 via the GRC since the early 1990s, and (3) the CPUC has continued to show its support for continued EMF research. 733 In addition, SCE notes that in ORA s Opening Brief, ORA relies on a data request without an exhibit number. 734 While the data request may have been referred to or cited in ORA s direct testimony, ORA has not indicated or demonstrated the actual data request itself is part of the evidentiary record. 729 TURN Opening Brief, p Exhibit SCE-07, Vol. 3, p. 147, Table V Exhibit SCE-07, Vol. 3, p. 148 and Exhibit SCE-23, Vol. 2, p ORA Opening Brief, p. 204; Exhibit ORA-16, p Exhibit SCE-23, Vol. 1, pp ; SCE Opening Brief, pp In ORA Opening Brief, p. 204, ORA cites to ORA-SCE-Verbal-024, Q. 4 in Footnotes 1007 and While ORA refers to this data request in ORA s direct testimony (see Exhibit ORA-16, p. 20, footnotes 86 & 87), SCE does not believe that the data request response itself is an exhibit in the record, which raises a question of the appropriateness of the citation in the Opening Brief and the weight that should be given to the accompanying text. 108

132 9.5. Corporate Security 9.6. Supply Management 9.7. Supplier Diversity The National Diversity Coalition (NDC) recommends that SCE set aspirational goals of 42.9% for outside contracting and procurement spend from diverse business enterprises (DBEs) and 25.5% for minority business enterprises (MBEs). 735 As indicated in SCE s Opening Brief, NDC s proposal directly contradicts Section 8 of General Order (GO) 156 which provides that it is the utility (not the Commission or another party) that determines the utility s short, mid, and long term goals. 736 In addition, in its Opening Brief, NDC expresses concern over the growing budget of SCE s Supplier Diversity Department (SDD) and goes a step further by proposing that approval of SCE s O&M request be contingent upon SCE increasing its internal DBE aspirational goal. 737 SCE disagrees. NDC does not cite to any evidence to support a direct correlation between SDD program cost and SCE s DBE spending goal. In fact, SCE s 2018 test year forecast includes cost for program activities beyond DBE participation in procurement activities, such as compliance, data collection, tracking, reporting, technical assistance and capacity building workshops, and the sponsoring of outreach activities with community based organizations such as NDC. 738 NDC also notes that SCE s 2018 test year request is higher than SCE s 2015 recorded cost. 739 As explained in SCE s testimony, SCE anticipates an increase in workload due to the new requirements set forth in D to extend GO 156 to include LGBT business enterprises, which is not reflected in SCE s 2015 recorded cost. 740 SCE s current aspirational goal is 40%, and SCE actively creates opportunities for DBEs to do business with SCE. 741 For the above reasons and the reasons set forth in SCE s testimony and Opening Brief, the Commission should reject NDC s proposal. 735 Exhibit NDC-01, pp SCE Opening Brief, p NDC Opening Brief, p Exhibit SCE-07, Vol. 6, pp NDC Opening Brief, p Exhibit SCE-07, Vol. 6, pp Exhibit SCE-23, Vol. 1, p

133 9.8. Transportation Services TURN Has Withdrawn Its Recommendation for Modifications to TSD s Forecast of Non-Fuel Operating Costs As indicated in its Opening Brief, TURN has withdrawn its recommendation to modify TSD s Non-Fuel Operating Costs forecast. 742 Accordingly, SCE s original forecast of TSD s Non-Fuel Operating Costs should be adopted as reasonable TURN s New Recommendation for Changes to SCE s Showing of Transportation-related Costs in the Next GRC Should Be Rejected TURN s prepared testimony made no reference to any concerns with SCE s transportationrelated costs for SCE Operating Units being presented in a consolidated volume sponsored by Transportation Service Department (TSD), the department charged with managing and maintaining SCE s vehicle fleet. First, by raising this issue for the first time in Opening Briefs, TURN circumvents the normal GRC process for litigating issues before the Commission. If TURN had raised this issue properly through its prepared testimony, SCE could have entered rebuttal testimony explaining and justifying why SCE consolidated the showing. Additionally, by presenting such testimony in a consolidated volume, SCE reduced the amount of testimony that would need to be separately presented in at least four other volumes of testimony specifically tied to vehicle costs that are impacted by corresponding regulatory mandates and other common factors. Notably, SCE has presented TSD s operating costs in this fashion for the two prior GRCs, and no objections or concerns were raised by TURN. 743 Accordingly, TURN s belated recommendation for SCE s next GRC should not be countenanced by the Commission TURN s Reduction of Refueling Services Costs Should Be Rejected As stated in direct testimony, SCE decided to move certain refueling services to a third-party vendor in This decision was primarily driven by workforce reductions and allowed TSD s remaining staff to focus to a greater degree on more complex maintenance work (e.g. engine and hydraulic replacements). 745 TURN acknowledges the prudence of SCE using third-party refueling 742 See TURN Opening Brief, p For TURN s prior recommendation, please refer to Exhibit TURN-12, p See D , p. 316; D , p Exhibit SCE-07, Vol. 7, p Exhibit SCE-07, Vol. 7, p

134 services due to the reduction in garage staffing. But TURN incorrectly assumes that this was a stopgap measure in the face of a shortage of SCE labor. 746 TSD s staff remains at reduced levels and, given the desire to direct the remaining staff to more complex work, and to mitigate the costs associated with readding staff, SCE determined that using a third-party refueling service was reasonable and necessary. In rebuttal, SCE presented a detailed cost comparison between SCE labor and contract labor. 747 This specifically rebutted TURN s assertion that some additional cost-benefit analysis was required. The cost-benefit analysis SCE presented further demonstrates SCE was prudent in relying on a third-party refueling service. This is in addition to the efficiencies that would be gained by having TSD s reduced garage staff focus on more complex work. While TURN challenges the productivity factor used in the analysis, SCE s witness specifically noted that this factor was determined based upon actual observations of TSD staff on the actual time dedicated to performing the refueling service. 748 Utilizing a productivity factor directed toward the actual refueling service at issue provides a more accurate assessment than a generic productivity factor covering other types of work. Similarly, TURN challenges SCE s Total Equipment Cost because SCE incorporated costs associated with 36 SCE fuel trucks. SCE used the costs of 36 SCE fuel trucks because that is the number required for refueling services to be performed solely by SCE labor. TURN expresses concerns over the need for SCE fuel truck count to decline in a corresponding fashion to SCE s increased use of a third party refueling services. 749 However, the number of SCE fuel trucks has already declined and continues to decline (down to 34 in 2015 and 29 in 2016). 750 As noted by SCE s witness, SCE must maintain some fuel trucks for SCE service centers and other garage facilities where use of a third-party refueling service is not cost-effective. 751 TURN does not dispute the necessity of performing this refueling service. The use of the third-party refueling service is reasonable. TURN s proposed reduction to account for the associated costs should be rejected Operational Services Additional Issues 746 TURN Opening Brief, p See Exhibit SCE-23, Vol. 1, p. 42 (Table VII-27) and Appendix C, pp SCE Guntrip Tr. 8/1043:5-1044: TURN Opening Brief, p Exhibit TURN-115 (Response to TURN-158, Questions 2.a and 2.b.) 751 SCE Guntrip Tr. 8/1047:

135 10. ADMINISTRATIVE & GENERAL Ethics and Compliance Regulatory Affairs ORA inadvertently included a discussion of its concerns about Dues and Memberships in Section 10.2 of its brief. 752 SCE forecast its Dues and Memberships costs as part of its Local Public Affairs cost forecast and will reply to both ORA and TURN on the Dues and Memberships issues in Section below. ORA offered no discussion of Regulatory Affairs costs in its Opening Brief. SCE responds to issues raised by TURN below Regulatory Affairs Labor: FERC Account 920/921 ORA does not dispute SCE s forecast of $ million for Labor and Non-Labor Test Year 2018 expenses for its Regulatory Affairs Department in FERC Accounts 920/ TURN agrees with SCE s forecast of $2.528 million for Regulatory Affairs Non-Labor FERC Account 920/921, but it proposes an additional reduction of $2.167 million to Regulatory Affairs Labor FERC Account 920/921 over 2015 recorded cost levels. 754 TURN bases its recommendation to disallow costs in SCE s Regulatory Affairs Labor FERC Account 920/921 on erroneous claims concerning an MDR response submitted on September 1, 2016 that is unsupported by SCE s testimony. 755 TURN incorrectly represents the actual numbers underlying SCE s forecast; 756 TURN does so by including a headcount forecast for 2016, 2017, and 2018 from the MDR response that SCE did not use to develop its forecast. 757 TURN s Opening Brief relies on fictional employee vacancies associated with the MDR response, incorrectly implying that SCE asks customers to provide funding for these fictional employee vacancies. 758 The MDR headcount forecast showed 159 employees in Regulatory Affairs in TURN compares that MDR forecast to SCE s March ORA Opening Brief, p Id. 754 TURN Opening Brief, pp Exhibit SCE-24, Vol. 1, p. 2, line 12 - p. 6, line See TURN Opening Brief, Table 24, p Exhibit SCE-24, Vol. 01 at p.5, line 29 - p.6, line TURN Opening Brief, pp Id. at p.199, Table

136 response to TURN s data request showing an actual 2017 headcount of 141 as the basis for its assertions that SCE s Test Year 2018 forecast includes 18 fictional employees. 760 TURN incorrectly assumes that SCE based its Test Year 2018 Labor cost forecast on the headcount forecast in the MDR response. 761 TURN ignores unambiguous statements in SCE s rebuttal testimony that SCE based its Regulatory Affairs Labor FERC Account 920/921 forecast on the actual headcount of 141 employees working in 2017, not the headcount forecast of 159 employees in the MDR response. 762 SCE s testimony indisputably demonstrates that it started its Regulatory Affairs Labor FERC Account 920/921 forecast with 2015 last year recorded expenses. 763 SCE then reduced these last year recorded expenses to reflect employee force reductions associated with OpX. 764 So, in total, SCE forecasts a significant reduction of $0.881 million from the last recorded year for this account 765 based on an actual reduction of 13 employees. 766 In fact, it should be noted that SCE s Regulatory Affairs department has reduced its costs by $10.2 million, or 28%, between 2011 and 2015, 767 with further savings reflected in the test year forecast for the Regulatory Affairs Labor Account 920/921 Account. 768 This reduced forecast is correlated to the reduced headcount noted in the data request response. Therefore, the Commission should reject TURN s additional reduction to SCE s forecast based on an erroneous story that SCE included 18 fictional employees in its forecast Regulatory Affairs Integrated Planning Power Procurement: FERC Account 557 TURN recommends reducing SCE s forecast by $1.590 million associated with memberships and consulting expenses that relate to electric system modeling. 769 At the outset, TURN fails to acknowledge that SCE already cut its request for the resource planning function by $450, Then, TURN incorrectly assumes that these costs are associated with the discontinued Project 760 Id. at pp Id. at pp Exhibit SCE-24, Vol. 01, p.5, line 31 p.6, line Exhibit SCE-08, Vol 2, p.24, Table I Id. 765 Id. 766 Exhibit SCE-24, Vol. 1, Appendix B. 767 Exhibit SCE-08, Vol. 2, p. 21, Figure I Id. at p. 24, Table I TURN Opening Brief, pp Exhibit SCE-08, Vol. 02, p. 21, Figure I

137 Development Division ( PDD ). 771 In fact, SCE discontinued the PDD Generation Planning function, whose expenses had previously recorded to FERC Account SCE requested recovery of only actual recorded costs for the discontinued function through its ERRA Application, as the costs were recorded in a memorandum account. 773 SCE then transferred the remaining employees with the appropriate skill sets to the Resource Planning function in FERC Account TURN acknowledges that SCE s rebuttal testimony demonstrated that it now needs these expenses for a different purpose to conduct system-wide analysis for increased Renewables Portfolio Standard ( RPS ) requirements. 775 But TURN claims that SCE only justified the functions of the Resource Planning function in FERC Account 557 in its Rebuttal Testimony. 776 To the contrary, SCE s Direct Testimony chronicles the work of Resource Planning a function carried out in every utility in the United States. 777 This same Direct Testimony states that there are new challenges in production simulation modeling associated with stepped-up Renewables Portfolio Standard ( RPS ) requirements, dramatically reduced availability of emission allowances, heavy adoption of demand response and energy efficiency, and large-scale adoption of electric transportation. 778 The former Generation Planning staff understands these issues and is currently providing valuable input and modeling to inform SCE policies and strategies with its findings. 779 SCE s rebuttal testimony merely reiterates direct testimony associated with the need to conduct system-wide analysis of increasing RPS requirements. 780 In the final analysis, SCE reduced its request from 2015 recorded levels by ending the PDD Generation Planning function and reducing its test year request by $450, The Commission should reject TURN s adjustment because SCE effectively supported the value of the Resource Planning function in both direct and rebuttal testimony. 771 TURN Opening Brief, pp Exhibit SCE-24, Vol. 01, p.8, lines Id. 774 Id. at p.8, lines Id. 776 TURN Opening Brief, p Exhibit SCE-08, Vol. 2, at pp Exhibit SCE-08, Vol. 2, p.11, line 21 p. 12, line Id. at p.12, lines Id. and Exhibit SCE-24, Vol. 01, p.8, lines Id. at p.8, lines

138 10.3. Corporate Communications Corporate Communications Operations Labor: FERC Account 920/921 TURN proposes to reduce SCE s forecast for Corporate Communications Operations Labor FERC by $0.349 million, based on an erroneous story that SCE included 4 employee vacancies in its Test Year 2018 forecast. 782 SCE did not include any employee vacancies in its Test Year 2018 forecast. 783 SCE based its forecast on actual recorded 2015 costs, less an OpX adjustment for a reduction of 27 employees that occurred in TURN asserts that SCE did not consider the number of employees providing the relevant services, because it did not use the headcount forecast in the MDR response as the basis for its forecast. 785 This argument has no weight, as demonstrated in Section 10.2 above discussing TURN s argument concerning the Regulatory Affairs Labor FERC Account 920/ The Commission should reject TURN s adjustment of this forecast based on an incorrect story about employee vacancies, and adopt SCE s forecast of $5.071 million of Test Year 2018 expenses for its Corporate Communications Operations Department in FERC Accounts 920/921. SCE s forecast is a decrease of $2.684 million over recorded 2015 cost levels Corporate Communications - Outside Services: FERC Account 923 TURN withdrew its recommendation to disallow these costs and now agrees with SCE s forecast of $1.689 million for FERC Account 923 for: 1) ethnic media services; 2) communications measurement; and 3) communications quality assurance Local Public Affairs Local Public Affairs FERC Account 920/921 No party disputed SCE s forecast for this account. NDC urged the Commission to require SCE to host at least five capacity building workshops per year for community-based organizations. 788 In 2015, SCE discontinued capacity building workshops because they were not core to Local Public Affairs 782 TURN Opening Brief, pp Exhibit SCE-24, Vol. 01, p. 11, lines Id. at p. 11, line 25 p.12, line TURN Opening Brief, p.203. TURN asserts that this headcount forecast was not made in February 22, 2016, but on August 8, SCE s Rebuttal Testimony appropriately notes that the date of the MDR response was February 22, 2016 at Exhibit SCE-24, Vol.01, p.5, lines See Section 10.2 above. 787 TURN Opening Brief, p NDC Opening Brief, p

139 function and has no plans to resume them. 789 The Commission should reject NDC s proposal to require SCE to host five capacity building workshops each year because they are not core to Local Public Affairs function Corporate Membership Dues and Fees FERC Account 930 ORA recommends the same funding level of $1.177 million adopted in the Test Year 2015 GRC, a 40% reduction over 2015 recorded costs, because the number of organizations to which SCE plans to pay membership due and fees was reduced by a net total of three. 790 TURN recommends an aggregate $1.805 million reduction to FERC Account 930, proposing to disallow all funding of membership dues and fees for: the Edison Electric Institute ( EEI ), California Taxpayer Association, 791 Business Roundtable, California Small Business Association, and California Small Business Roundtable. 792 SCE disagrees with both ORA s and TURN s positions because customers benefit from the membership fees and dues that SCE expends on their behalf. 793 Both ORA s and TURN s recommendations are unreasonable. First of all, ORA did not show that the membership dues and fees for the net total of three organizations for which SCE did not request funding was equivalent to 40% of SCE s request. 794 SCE based its funding request on its 2018 forecast of the cost of membership dues and fees for each organization in which it planned to participate. 795 Moreover, SCE did remove the forecast costs of participation in three organizations as a concession to ORA and TURN; 796 so, no further adjustment should be necessary to address ORA s concerns. TURN asserts that Edison Electric Institute ( EEI ) membership dues support political and/or lobbying efforts. 797 TURN s characterizations are incorrect because SCE removed even more costs from its funding request than EEI identified as shareholder-related. 798 Moreover, TURN s allegations that SCE is providing less information and less detail about EEI membership and dues than it did in the Exhibit SCE-24, Vol. 01. at p. 19, line 18 p. 20, line ORA Opening Brief, p Contrary to TURN s assertions in its Opening Brief, at p. 207, SCE has removed membership due and fees for the California Taxpayer Association from its SCE s Test Year 2018 request. See, Exhibit SCE-24, Vol 1, p.20, footnote TURN Opening Brief, pp Exhibit SCE-24, Vol. 01, p.22, line 1 p. 26, line ORA Opening Brief, p Exhibit SCE-24, Vol. 01, Appendix E, p.e Exhibit SCE-24, Vol. 01, at p. 21, lines TURN Opening Brief, p Exhibit SCE -24, Vol. 01, p.21, lines

140 GRC 799 is simply untrue. In data request responses and in SCE s Rebuttal Testimony mirroring the data request responses, SCE describes at length the many customer benefits associated with SCE s participation in EEI and the other organizations that these membership dues and fees support. 800 TURN s Opening Brief specifically attacked funding for SCE s membership in the Business Roundtable and California Small Business Roundtable ( CSBR ) asserting that these organizations are political in nature. 801 As SCE s Rebuttal Testimony states with regard to the CSBR, SCE engages with the CSBR to educate influential leaders from the small business community about rates and programs that impact small business customers, in efforts to expand the reach and understanding of such programs to SCE s small business customers. 802 As SCE s Rebuttal Testimony states, the Business Roundtable supports federal proposals on topics like infrastructure modernization, cybersecurity, physical security of critical infrastructure 803 These activities of Business Roundtable and CSBR are of value to customers. SCE requests that the Commission adopt SCE s revised forecast of $1.920 million for membership dues and fees for the specific organizations described in its testimony based on 2015 actual recorded costs, as revised by concessions to ORA and TURN Financial Services Account 920/921 (Labor) TURN continues to believe that there are 22 vacancies in the Financial Services Department in 2017 (with an average salary of $104,907 million) that should not be filled, hence TURN s proposed $2.308 million reduction to SCE s 2018 labor forecast of $38.5 million. 804 As summarized in SCE s Opening Brief, these 22 vacancies existed at a point in time as SCE was in the middle of staffing its organization. SCE is on track to fill all vacancies by 2018 in its Controllers, Treasurers, and Operational Finance & Risk Management sections of the Financial Services Department. 805 TURN s statement in its Opening Brief that SCE s accelerated hiring spree (i.e., the hiring of new staff) is a new claim made in 799 TURN Opening Brief, p See, Southern California Edison Company's (U 338-E) Response to the Motion of the Utility Reform Network to Strike Portions of SCE s Rebuttal Testimony on Local Public Affairs, dated July 21, 2017, pp.3-4 and Appendix A and Exhibit SCE-24, Vol.01, p.22, line 1 p.26, line TURN Opening Brief, p Exhibit SCE-24, Vol. 01, at p.24, lines Id. at p.25, lines TURN Opening Brief, pp SCE Opening Brief, pp

141 rebuttal 806 is unfounded. In SCE s rebuttal testimony, SCE was responding to TURN s opening testimony regarding the inappropriate use of certain headcount data. 807 Moreover, the overall impression TURN seeks to leave in its Opening Brief is that SCE s 2018 forecast is excessive, given the downward trend in headcount from 2012 through This impression is inconsistent with the recorded data. As seen in Table II-2 from Exhibit SCE-24, Volume 2, SCE s 2018 labor forecast of $38.50 million is approximately 10% lower than its 2015 labor recorded expense of $42.92 million, and far lower than its recorded expense of $63.99 million - $ million: Further, it is not reasonable to disregard SCE s rebuttal testimony and Opening Brief and recommend a 2018 forecast based on headcount data from 2016 and 2017, as TURN has done. This is especially true in this case, as the Financial Services department continues to rebuild and staff up following the operational effectiveness and restructuring efforts performed throughout the organization in It is wholly expected, and part and parcel of these types of efforts, that there will be vacancies in the short term resulting from an organizational reduction-in-force. SCE is proposing a reasonable 2018 forecast that will allow SCE to staff remaining critical positions, while still reducing headcount relative to 2015 base year levels Accounts 923/930 (Non-Labor) To develop the 2018 non-labor forecast for outside services for Accounts 923/930, SCE proposes a $ million OpX adjustment. 810 The amount of this OpX adjustment is directly and inextricably linked to 2015 recorded expense, which SCE uses as a baseline. 811 Therefore, if a different baseline is 806 TURN Opening Brief, p Exhibit TURN-07, p TURN Opening Brief, p Exhibit SCE-08, Vol. 3, p SCE Opening Brief, p Id. (citing testimony of SCE witness Jeff Duran in Exhibit SCE-24, Vol. 2, p. 10). 118

142 used (such as a five-year average as proposed by TURN), then the amount of the OpX adjustment needs to change. 812 While TURN may disagree with SCE s derivation of the specific dollar value of the OpX adjustment associated with a change in the baseline, 813 TURN does not appear to dispute the direct link SCE has made between the $ million OpX adjustment to 2015 recorded expenses, which logically means that SCE would need to revise the OpX adjustment when a different baseline is used. Indeed, as explained by SCE witness Jeff Duran, if a five-year average is used as the baseline, a further reduction to the OpX adjustment is needed to avoid double counting a portion of the proposed reduction. 814 Further, TURN s Opening brief 815 and its Table suggest that SCE is discontinuing all OpX efforts. This is not correct. SCE is reducing, but not eliminating OpX efforts. As testified by Mr. Duran, SCE s forecast includes some amount of expense related to OpX efforts, just not to the same level as SCE experienced previously in Therefore, TURN s Table 28 understates SCE s expenses in 2018 because Table 28 assumes SCE will no longer need outside services for OpX activities. Fundamentally, SCE is proposing deep reductions in the 2018 test year for Accounts 923/930. As noted in TURN s Opening Brief, SCE forecasts $ million for outside services (one of the three components of Account 923/930), which represents a $ million reduction from 2015 recorded cost. 818 When examining Accounts 923/930 in their entirety, SCE s 2018 non-labor forecast of $20.9 million represents a 58% reduction from its 2015 recorded expense of $49.2 million, while TURN s 2018 forecast represents a remarkable 73% reduction. 819 The CPUC should reject TURN s draconian reduction, which would compromise SCE s ability to perform essential functions, including SCE s ability to comply with CPUC and SEC audit mandates/requirements and federal and state tax codes Id. 813 TURN Opening Brief, p. 210 (calling SCE s derivation of a $ million adjustment as circular and results oriented when the baseline is based on a five-year average). 814 SCE Opening Brief, p. 192, fn (citing Exhibit SCE-24, Vol. 2, p. 11). 815 TURN Opening Brief, pp TURN Opening Brief, p SCE, Duran, Tr. 15/2107, lines TURN Opening Brief, p See SCE Opening Brief, p SCE Opening Brief, p

143 10.6. Audits In its Opening Brief, TURN continues to incorrectly rely on data that should not be used in the development of the 2018 test year forecast for Audit Services Department s Account 920/ SCE regrets any confusion over its Master Data Request response MDR-07, Q. VII that may have caused TURN to take its position. In light of this confusion, and after further review of SCE s Opening Brief and discussion with TURN, SCE believes that a portion of its Opening Brief on ASD should be revised as follows: SCE s Opening Brief, p. 193: TURN s conclusion that there are 28 vacancies is based on data from two different periods Specifically, TURN relies on the 56 budgeted employees identified from SCE s Master Data Request MDR-07, Q. VII.13 (dated February 2016), 1313 and the 28 actual employees in 2017 from a March 2017 data request Despite the February 2016 date visibly specified on the face of the MDR, TURN apparently misunderstood and believed the data to be more recent, namely, in the August/September 2016 time period when SCE posted the MDR on its GRC database While SCE regrets this misunderstanding SCE s Revision to Opening Brief, p. 193: TURN s conclusion that there are 28 vacancies is based on data from two different time periods. Specifically, TURN relies on the 56 budgeted employees 823 identified from SCE s Master Data Request MDR-07, Q. VII and the 28 actual employees in 2017 from a March 2017 data request. 825 SCE provided a forecast of employees in response to the Master Data Request, but not the number of employees the cost forecast and GRC request is based on. 826 While SCE regrets any misunderstanding Referring to TURN s Table 29 in its Opening Brief, 827 regardless of which month in 2016 the number of forecast employees is from, there are not 28 vacancies in SCE s ASD. ASD went through a department restructuring in April 2016 which resulted in a change of department staffing, as the company required employees to have a certain skillset, expertise, and/or licenses. 828 ASD intends to be staffed with up to 43 auditors by 2018 in order to carry out its critical missions TURN Opening Brief, pp SCE, Menon, TR. 14/ Exhibit TURN-07, p Exhibit SCE-24, Vol. 2, Appendix A, pp. A1-A Exhibit SCE-24, Vol. 2, Appendix A, pp. A3-A Exhibit SCE-24, Vol. 2, pp ; SCE, Menon, TR. 14/ TURN Opening Brief, p Exhibit SCE-08, Vol. 3, pp Exhibit SCE-08, Vol. 3, pp ; Exhibit SCE-24, Vol. 02, p

144 Most importantly, TURN s reduction based on perceived vacancies 830 is a red herring. SCE s 2018 labor forecast is based on actual costs in the 2015 Test Year and not, as TURN focuses on, forecast headcount. SCE s 2015 labor costs were $5,617 million 831 and represent the incurred costs for 44 actual employees. 832 TURN also disregards that actual labor costs recorded in the 2015 Test Year are the lowest expenses for labor in any year since Over the four years prior to 2015, labor costs declined 36% from $8,717 million in 2011 to $5,617 million in TURN s proposed 2018 labor forecast of $2.937 million is a substantial 52% reduction of SCE s already low 2015 recorded labor costs. 834 SCE developed its labor forecast by following Commission guidance concerning forecast methodologies when costs exhibit a trend in one direction for three or more years, as the ASD labor costs clearly do so. 835 Finally, TURN makes a statement in its Opening Brief that SCE has not shown than an additional 28 employees will be needed. 836 On one hand, in light of the 2016 ASD reorganization, TURN is correct that ASD is not in need of 28 additional employees. Rather, SCE has met its burden of proof and shown, via the evidence provided by SCE witness Evangeline Andersen, that ASD needs in 2018 about the same number of employees as in 2015 to perform the approximately 46,000 audit hours in the Audit Plan, including risk-based assurance projects relating to customer data protection, cybersecurity, operational and environmental health and safety, financial controls and procedural audits. 837 SCE has met its burden of proof, and the Commission should adopt SCE s 2018 labor forecast of $5.873 million for Accounts 920/ TURN believes there are 28 vacancies with an average salary of $104,985, hence TURN s proposed $2.937 million reduction. TURN Opening Brief, pp Exhibit SCE-08, Vol. 3, p. 40; Exhibit SCE-24, Vol. 2, p Exhibit SCE-24, Vol. 2, Appendix A, p. A Exhibit SCE-08, Vol. 3, p. 40; Exhibit SCE-24, Vol. 2, p Exhibit TURN-07, pp ; Table III-6, p. 14, of Exhibit SCE-24, Vol In D , 34 CPUC2d 199 and subsequently in D , the CPUC states that if costs have shown a trend in a certain direction over three or more years, the last recorded year forecasting methodology is an appropriate base estimate for the test year. 836 TURN Opening Brief, p SCE Opening Brief, p. 193 (citing Exhibit SCE-24, Vol. 2, pp ). 121

145 10.7. Enterprise Risk Management Legal SCE forecasts $ million for the Legal Organization, comprising $ million for the Law Department (including Corporate Governance), $ million for the Claims Department, and $ million for the Workers Compensation Department and $ million for Disability Management. TURN and ORA recommend several reductions to this forecast. As explained below and in SCE s Opening Brief and rebuttal testimony, these recommendations should be rejected Removal of Costs Resulting from Alleged Imprudence TURN asserts SCE has a pattern and practice of improperly including in its Legal Organization forecast costs resulting from imprudence. 838 TURN bases this charge entirely on five instances of obvious company imprudence involving costs SCE failed to remove from its forecast. 839 TURN uses a formula that compares outside counsel costs expended on these matters to SCE s total outside costs. 840 TURN then almost doubles that percentage based upon unsupported speculation that there were other legal matters resulting from imprudence. 841 Using this method, TURN estimates SCE incurred over $12 million of imprudence-related costs, remarkably consisting of a full third of SCE s total in-house Law and Claims Department expenses in its test year forecast and some outside counsel and reserve costs. 842 TURN recommends these costs be excluded and SCE be directed prospectively to revise its internal guidance document to remove expenditures resulting from 838 TURN Opening Brief, p Exhibit TURN-13, p TURN acknowledges SCE has already removed the lion s share of outside counsel costs associated with the matters it identifies. TURN Opening Brief, pp and Table 30. TURN s recommendation principally focuses on in-house Law Department and Claims resources, SCE Brief, p. 195, fn.1324, citing Exhibit TURN-13, pp As discussed below, TURN fails to cite a single case supporting the removal from a GRC forecast of reasonable in-house legal costs (not to mention other reasonable company business organization costs which TURN also claims should be removed) based upon allegations of imprudence. Moreover, TURN assumes the percentage of SCE s inside resources devoted to the several matters in question is equivalent to the percentage of outside resources devoted to those same matters. Among many other reasons for rejecting TURN s recommendation, this assumption is wildly inaccurate and transparently calculated to inflate TURN s disallowance recommendation. See Exhibit SCE-24, Vol. 3, p TURN Opening Brief, p TURN calculates the percentage of SCE outside counsel costs spent on matters alleged to involve imprudence to be approximately 18% of SCE s total outside counsel costs. TURN Opening Brief, p Then, based upon its unsupported assertion that SCE must have incurred legal costs related to other identified acts of imprudence, and without any numerical or analytical basis, TURN summarily concludes that the percentage of imprudence-related Law Department and Claims in-house costs should be increased to 33.3%. TURN Opening Brief, pp

146 Company imprudence. TURN s recommendation is flawed and should be rejected. SCE s forecast costs are appropriate and its review processes are sound. As noted above, the alleged imprudence costs TURN points to are largely in-house Law Department costs (approximately $9 million) 843 and in-house Claims Department costs ($957,000). 844 TURN s position misapprehends the normal internal staffing needs of an in-house corporate law department and Claims function. SCE, like all other large corporate and government entities, needs to maintain a sophisticated legal function capable of dealing with a variety of predictable and unpredictable matters. As SCE has repeatedly pointed out, its internal staffing of attorneys, paralegals, assistants and Claims personnel was not expanded to address the matters that TURN asserts involved imprudence. 845 Accordingly, the one-third reduction in forecast costs in these areas sought by TURN are not costs that result from imprudence. Instead, those costs would have been incurred regardless of the matters identified by TURN. According to TURN, SCE disputes the very notion it should remove unreasonable costs resulting from imprudent events from its recorded costs. 846 This is incorrect. SCE agrees that it must demonstrate that its forecast costs are just and reasonable. 847 In its testimony for the Legal Organization, SCE followed the well-established practice of basing its forecast upon recorded costs, 848 which it adjusted to remove costs not appropriately included in customer rates. 849 SCE s recorded legal expenses are ordinary costs necessary to operate the Legal Organization (including defense costs as required), and recovery is warranted under cost-of-service ratemaking principles TURN Opening Brief, p. 235 Table TURN Opening Brief, p. 237 Table Exhibit, SCE-24 Vol. 3, p. 10 (pointing out SCE retained one project manager specifically to address SONGS issues but otherwise there were no incremental, internal personnel added for these matters); SCE, Swartz, Tr. 14/ TURN Opening Brief, p California Public Utilities Code D , 2000 Cal. PUC LEXIS 239 *458 [Lexis pdf.p.130], ( it is entirely reasonable to rely on the actual spending in a recent year or the average recorded spending of recent years as the starting point, and possibly the ending point, of a forecast ); D , 34 CPUC2d 199, p. 27 (explains approved cost forecasting methods which include those utilized here by the Legal Organization) 849 See, e.g. Exhibit SCE-08 Vol. 4 WP, pp and (adjustments removing numerous categories of outside counsel costs). 850 D , p

147 TURN cites D , a case involving Southern California Gas Company (SoCalGas) litigation expenses. 851 That decision did not deny recovery of costs. Instead, it held that SoCalGas needed to establish the reasonableness of such costs and afforded an opportunity for the company to do so in a future proceeding. It is not clear that SoCalGas Company s prudence was the primary issue regarding such costs, as opposed to the cost amounts. 852 That case does not stand for the extreme proposition TURN advocates here, that every hour of an employee of a utility s legal or Claims function should be scrutinized to determine how that time was spent and, therefore, who should pay for it. Such an approach contravenes cost-of-service principles. The FERC system of accounts, which all parties recognize as the basis for GRC forecasting, expressly contemplates the recovery of costs associated with the defense of claims against the company; it does not provide for a threshold examination of the utility s conduct related to each entry in the account. For example, FERC Account 925 was established precisely to include the cost of insurance or reserve accruals to protect the utility against injuries and damages claims of employees or others, losses of such character not covered by insurance, and expenses incurred in settlement of injuries and damages claims and the cost of labor and related supplies and expenses incurred in injuries and damages activities. 853 A rule that would make such costs subject to a separate prudence review of the activity underlying injury or damage claims would undermine the very purpose of this account. In addition the rule advocated by TURN would potentially create wild, unpredictable swings in the authorized revenue requirements for these functions (witness TURN s dramatic one-third cost reduction request in this case). TURN has not cited a single case barring the recovery of all costs associated with the legal defense of an imprudence claim, including in-house law, claims and business line costs. 851 See, e.g. TURN Opening Brief, p. 222, fn Re Southern California Gas Company, 55 CPUC 2d 134,138 (emphasis added) (SoCalGas failed to present evidence on the question whether it is reasonable to use in its forecast all of the expenses it has incurred in the Angelus lawsuit. ) 853 See 925, 18 C.F.R 101. As noted above, this account contemplates the recovery of costs associated with the defense of legal claims against a utility. One recognized carve-out is for expenditures related to discriminatory employment practices. See FERC Accounting Release AR-12, IV Fed. Energy Reg. Comm n Rep. (CCH), 40,012 (1980). TURN acknowledges SCE s internal guidance document dictates the removal of such costs. TURN Opening Brief, p. 216, citing SCE Guidance Document. There are no carve-outs for judgments or other legal costs associated with ordinary negligence or other claims typically experienced in the management of a complex electrical system. 124

148 TURN s request mandates that SCE engage in an elaborate exercise each rate case of internally investigating vast aspects of its operations to determine if elements of its costs even arguably relate to imprudence. This would require a massive, costly exercise that no prior rate case decision to SCE s knowledge has ever required. It would unnecessarily consume substantial party and Commission resources to sort everything out to TURN s liking. These resources can more profitably be applied to the benefit of customers elsewhere. SCE does not dispute it must establish the reasonableness of its cost forecasts. SCE believes it has done so. What SCE disputes is that the matters identified by TURN involve costs that SCE improperly included in rates. They don t TURN Improperly Relies Upon SONGS-Related Costs to Support its Position As SCE previously pointed out, and TURN acknowledges, its formula for estimating alleged imprudence-related costs is almost entirely driven by SONGS. 854 TURN admits there has been no finding of imprudence on the part of SCE, and SCE has not acknowledged imprudence regarding SONGS. 855 In stretching to find imprudence regarding SCE s management of the replacement steam generator project, TURN characterizes the SONGS events as extraordinary, 856 as if the mere fact that an occurrence is extraordinary means it resulted from imprudence. It does not. TURN also repeatedly points to a decision in the SONGS OII penalizing SCE for ex parte reporting rule violations. 857 Those violations are regrettable. SCE has been penalized for them and implemented changes in its internal processes to mitigate the potential for similar violations in the future. But the already-sanctioned violations concern communications with Commission personnel after the new steam generators had already failed. Those communications have nothing to do with whether SCE prudently managed the SONGS replacement steam generator project TURN Opening Brief, page TURN acknowledges issues of imprudence relating to the [SONGS] shutdown are still pending. TURN Opening Brief, page 220, fn TURN Opening Brief, p D The decision imposing sanctions for SONGS-related ex parte violations did not concern SCE s prudence in managing SONGS. In the entirety of the decision, the word prudence or any derivative ( prudent, prudency, imprudent, etc.) is only used once, and that is in a lengthy quotation from one of the s found to be a reportable ex parte communication. Id. at p

149 Because there is no established or acknowledged imprudence regarding SCE s management of SONGS, it is inappropriate to include SONGS as an example of admitted imprudence. SONGS-related outside counsel costs must therefore be removed from TURN s formula. 859 These SONGS-related costs have been significant in relation to other outside counsel costs due to the magnitude of the SONGSrelated claims pursued by SCE against third parties. When SONGS-related legal costs are removed, TURN s math crumbles. Without SONGS costs in the formula, only slightly over 1% of SCE s outside counsel costs relate to TURN s alleged imprudence incidents. 860 With this adjustment, the in-house cost reductions proposed by TURN based upon its seriously speculative and flawed formula become essentially de minimis Remedies For The Other Instances Of Alleged Imprudence Have Been Determined In Other Commission Proceedings; Assessment Of Additional Cost Reductions At This Late Date And In This Proceeding Would Be Unfair And Would Unwisely Discourage Settlements As SCE has already explained, three of the other four incidents discussed by TURN, Acacia, the San Gabriel Windstorm, and the Malibu wildfire, were the subject of enforcement proceedings. Each of these proceedings concluded via Commission approval of settlement agreements that represented a complete and final resolution of those proceedings. Each settlement provided for substantial payments by SCE shareholders, system or process enhancements at shareholder expense, and, in the case of the Malibu matter, removal of outside counsel costs from future cost recovery requests (such as a GRC), but no provisions for the removal of other costs from future proceedings, such as internal legal costs. 861 A decision approving the settlement of a proceeding involving the fifth incident, the 2015 Long Beach outages, was recently issued. 862 That settlement, also a complete and final resolution of claims, does not provide for the shareholder payment of legal or other costs related to the outages As TURN acknowledges, outside counsel costs associated with the SONGS RSG issues, which include those related to SCE s response to the Commission s review of the ex parte communications, have been removed from SCE s forecasts used in this case. TURN Opening Brief, pp. 229 (SCE removed outside counsel costs related to SONGS ), Turn Opening Brief, pp and Table Exhibit SCE-24, Vol. 3, p Exhibit SCE-24, Vol. 3, pp I , Proposed Decision of ALJ Cooke Adopting Settlement Agreement Between Southern California Edison Company and The Safety and Enforcement Division. At its September 28, 2017 meeting the Commission approved the proposed decision with minor modifications. At this writing, the decision number has not been issued. 863 Id., Attachment 1, p

150 TURN asserts it is appropriate to assign further costs to shareholder in this proceeding, thereby effectively imposing additional sanctions beyond those accepted by SCE in Commission-approved settlements with Commission staff. TURN, however, elected not to participate in the subject enforcement proceedings. TURN does not claim that it would have been denied party status in any of these proceedings had it sought that status, including for purposes of protesting settlements it believed were unreasonable. 864 SCE disagrees with TURN that potential shareholder liability for defense costs was beyond the scope of these proceedings. For example, the scoping memo for the Malibu wildfire investigation quoted in TURN s brief confirms that fines and other remedies for any proven violations are within the proceeding s scope. 865 The disallowance of legal costs was within scope because the settlement agreement provided for the removal of outside counsel costs from GRC rate forecasts. 866 In the Acacia and Windstorm matters, the Order Instituting Investigation stated the proceeding was to determine if SCE engaged in violations of Commission General Orders. SCE was directed to show cause why the Commission should not impose fines, penalties or other forms of relief if such violations were found. 867 Had TURN elected to participate in these proceedings, it could have sought to include the disallowance of legal fees, third party payments, or other costs in the scope. TURN claims it would be inefficient to require its intervention in the enforcement proceedings. But those proceedings are focused on precisely the conduct TURN claims to be important -- SCE s operation and management of its system and remedies for any mismanagement. Accordingly, it would be less, not more, efficient to withhold from such proceedings claims regarding cost disallowance remedies and instead raise those claims months or years later in a separate proceeding that does not primarily focus on remedies for, or the factual record surrounding, the events encompassed in the investigation. Citing the timing of the Long Beach enforcement proceeding, TURN claims that it is not practical to require that TURN participate in such proceedings or risk loss of the claims asserted in this GRC. TURN suggests this is true because the Long Beach proceeding extended past the current GRC hearing dates. That objection would not apply to the Malibu, Acacia and the San Gabriel windstorm proceedings, all of which occurred years ago. And as to Long Beach, although the parties sought approval of the settlement this year, the proceeding was initiated in July of last year. TURN could have 864 CPUC Practice Rule 1.4(a) (2), CPUC Practice Rule 1.4(a) (4). 865 TURN Opening Brief, p. 223 (quoting Malibu wildfire proceeding scoping memo). 866 Exhibit SCE-24, Vol. 3, p. 8, fn I , Order Instituting Investigation (March 19, 2014) at p

151 intervened at that time to seek the remedies it now seeks here. TURN s claims regarding timing issues should be rejected. TURN asserts it is unfair for it to be bound by Commission approval of settlement agreements providing complete and final resolutions of all claims, notwithstanding that it elected not to participate in the proceedings that produced the settlements in question. TURN, however, fails to explain why it would be fair to the settling utility to remain subject to additional shareholder impacts by nonintervening parties, potentially for years after entering into a settlement that the utility reasonably believed resolved all of the regulatory issues associated with the subject incident. In deciding to enter into a settlement and agree to certain admissions as a condition of that settlement, the utility must necessarily consider and weigh all of the costs attendant to the proposed settlement against the risks associated with continuing to litigate. As SCE General Counsel Swartz pointed out at the evidentiary hearings, SCE enters into negotiations in good faith, expecting settlement agreements will resolve and provide closure to issues surrounding the relevant incident. 868 Moreover, it is the policy of this Commission to strongly encourage settlement. 869 The position that TURN advocates, providing for additional litigation, marked uncertainty, and substantial utility exposure beyond the remedies agreed to in a final settlement, will have a chilling effect on settlements. It will result in onerous costs and burdens to the settling utility, and would place a strain on scarce Commission resources Law Outside of TURN s recommendations to reduce costs related to imprudence, the TURN and ORA briefs add little of substance to their previously-submitted testimony regarding the Law Department. SCE therefore relies upon and incorporates its earlier testimony and opening brief, and touches only briefly on a few points below. 868 SCE, Swartz, Tr. 14/ D , p. 5 ( The Commission has long held a policy strongly favoring settlements, similar to that of other judicial bodies in the State of California and the United States... ). 870 Additionally, Mr. Swartz pointed out that the result advocated by TURN would increase the risk profile of utilities. SCE, Swartz Tr. 14/2016. TURN criticizes this point based on the short-sided view that a reduction in a rate case cost forecast always benefits customers. TURN Opening Brief, p. 224, fn This argument, however, fails to comprehend that a policy requiring utilities to absorb additional, potentially significant costs on top of the substantial sanctions already accepted by them in Commission-approved settlements would increase the risk of making utilities less attractive to the investment and lending communities. Such increased risk could lead to the longer-term consequence of increased utility borrowing costs, the detriment of which would ultimately flow through to customers. 128

152 TURN s alternative recommendation for in-house labor (FERC Accounts 920/921) that costs should be reduced by $3.669 million due to SCE s alleged use of an inflated headcount, is premised on an error. 871 SCE did not use the 263 headcount referenced by TURN as the basis for its in-house labor forecast. TURN appears to ignore SCE s testimony, which explains that SCE used actual 2015 year-end headcount, reduced by positions eliminated via its Operational Excellence initiative. This is an appropriate basis for its labor forecast. 872 TURN s alternative recommendation to reduce SCE s in-house labor cost forecast should be rejected. Regarding outside counsel, TURN and ORA repeat in their briefs the positions in their testimony challenging SCE s use of a five-year average. Due to the variability from year-to-year of significant new court and regulatory litigation requiring the retention of outside counsel costs, and because there is no indication that the litigious environment in California has changed, 873 a five-year average remains appropriate. Regarding Corporate Governance labor and non-labor costs, TURN continues to challenge SCE s allocation of 99% of these costs to SCE. TURN, citing public reports about anticipated investments by SCE s parent in its unregulated activities, asserts the allocation should be 95%. As SCE pointed out, the 99% allocation is based upon a Commission-approved formula which, applied as recently as the first and second quarters of 2017, results in a 99% allocation. 874 TURN s recommendation to reduce the allocation factor should be rejected TURN Opening Brief, pp TURN asserts SCE is bound to the 263 headcount because that number was contained in a master data request response. TURN Opening Brief, p SCE never claimed it was using that master data request response as the basis of its Law Department in-house labor forecast. Instead, as clearly shown by SCE s workpapers, SCE used 2015 actual in-house labor costs (which was based upon actual 2015 YE headcount), reduced by savings achieved through implementation of its Operational Excellence initiatives. Exhibit SCE- 08, Vol. 4 WP, and p. 6 ( so the last recorded year provides an appropriate estimate of the level of expenses anticipated for Test Year 2018 (adjusted for projected reductions in personnel resulting from the Operational Excellence initiative). ) 873 As shown by the July 2017 California Supreme Court s decision expanding the rights of Private Attorney General Act plaintiffs, California courts continue to expand rights that form the basis of new claims. SCE Brief, p. 198, n Exhibit SCE-24, Vol. 3, pp The formula results in a % allocation factor for the first half of TURN s assertion that the formula calculations for 2017 show a decreasing trend supporting its clam for the inaccuracy of the 99% allocation should be disregarded because two quarters is insufficient to show a trend and in any event the calculated amount, %, supports the 99% allocation factor. 129

153 Claims TURN recommends reducing Claims administrative costs by 33.3% due to alleged imprudence. This should be rejected for the reasons described above and in SCE s Opening Brief and rebuttal testimony. As pointed out in Section above, Claims did not add staff to address the incidents it identifies. Claims personnel provide a valuable service to SCE and its customers, promptly investigating accidents, resolving claims, and interfacing with the Commission. SCE is allocating a reasonable level of resources to these important tasks. The Claims administrative cost forecast reflects a decrease in such costs over the period considered in this GRC cycle. 876 The forecast for Claims administration costs is reasonable and should be adopted. ORA and TURN recommend that the Claims Reserve forecast be reduced. ORA proposes to normalize the forecast by removing costs associated with 2013 and 2014, the two years with the highest reserve amounts. ORA claims these years are aberrational, even though 4 of the last 10 years have had actual reserve costs at these levels. TURN goes further, recommending that the Commission adopt the last recorded year as the forecast. Adopting TURN s recommendation would reduce SCE s forecast by approximately 77%, and would set Claims Reserves at the second-lowest level over the last 10 years. 877 TURN cites past GRC decisions which have adopted a last recorded year approach to forecasting reserves. 878 But those decisions resulted in wildly fluctuating authorized Claims Reserve amounts. 879 After this experience, in the 2015 GRC, the Commission determined that for Claims Reserves, [a] 5YA forecast is a reasonable approach to forecasting accounts with high variation in recorded costs. 880 The Commission should continue to follow its approach from the 2015 GRC Workers Compensation TURN repeats its recommendation to use a four-year forecast (including 2016) instead of the three-year forecast over advocated by SCE. For the reasons stated in its rebuttal testimony and Opening Brief, SCE s approach is consistent with Commission precedent and TURN s recommendation should be rejected. 876 Exhibit SCE-24, Vol. 3, pp and Table III Id. 878 TURN Opening Brief, p SCE Brief, p SCE Brief, p. 200, quoting D , p

154 Disability Program ORA s brief mirrors its prepared testimony. SCE has addressed ORA s arguments in rebuttal 881 and in SCE s Opening Brief. 882 TURN s Opening Brief compares SCE s forecasts in employee counts to recorded numbers. 883 Comparing recorded to authorized, however, provides a somewhat different picture. SCE s recorded/adjusted Disability Program amounts were lower than authorized levels during the 2012 GRC period ( ). 884 This result occurred because SCE implemented Operational Excellence (OpX) efforts after SCE submitted its 2012 GRC Application. 885 Those OpX efforts reduced employee headcount. 886 SCE s recorded/adjusted Disability Program amounts were actually higher than authorized during the 2015 GRC period ( ). 887 TURN also suggests that SCE incorrectly characterized its proposed increase for 2018 as a modest one in comparison to 2015 recorded costs. 888 But TURN speaks in terms of the dollar amount of the increase. SCE s testimony indicated that it was the headcount and labor that had modest increases, rather than the dollar forecast. 889 TURN s criticism is mistaken. The itemized methodology that SCE uses was approved by the Commission in SCE s 2015 GRC. 890 SCE should be permitted to continue to use this methodology, and SCE s forecast should be adopted Property and Liability Insurance Property Insurance ORA s Opening Brief reiterates its arguments in support of a reduction of SCE s Property Insurance expense to $ million. 891 In its Opening Brief and Rebuttal Testimony, SCE accepts ORA s and TURN s recommended property insurance expense forecast of $ million for Test 881 See Exhibit SCE-24, Vol. 3, pp See SCE Opening Brief, pp See TURN Opening Brief, p. 257, Table See Exhibit SCE-24, Vol. 3, pp See Exhibit SCE-24, Vol. 3, p. 32, lines See Exhibit SCE-24, Vol. 3, p. 32, line See Exhibit SCE-24, Vol. 3, p. 32, lines See TURN Opening Brief, pp See Exhibit SCE-24, Vol. 3, p. 32, lines D , p See also Exhibit SCE-24, Vol. 3, p. 33, lines ORA Opening Brief, pp

155 Year 2018, because premiums in the property insurance market are now expected to remain stable for SCE Opening Brief, p.201 and Exhibit SCE-24, Vol. 04, p.4, lines

156 Liability Insurance [CONFIDENTIAL SECTION] ORA and TURN recommend using the Last Year Recorded forecast of $ million for Test Year liability insurance expense. 893 TURN wrongly asserts that the record does not support SCE s position that ongoing wildfire conditions throughout California put strong upward pressure on 2017 and 2018 insurance premiums and are leading insurers to reduce or eliminate wildfire coverage in the state. 894 To the contrary, SCE s Rebuttal Testimony shows that SCE renewed its general liability insurance in 2017 at a premium approximately 25% greater than the 2016 renewal. 895 TURN s Opening Brief contains the significantly flawed Table 44, 896 which contains a 2017 forecast of Liability Insurance costs based, in part, on confidential information included in a footnote. Table 44 neglects to include that SCE renewed its general liability insurance on June 1, 2017 at a premium approximately 25% greater than the 2016 renewal. 897 The exact cost of the 2017 renewal is not yet known, because, at present, SCE is still seeking to fill some remaining uninsured gaps within the insurance program. 898 Table 1 below corrects TURN s error of not including the increase in SCE s general liability insurance, and results in a forecast cost of $ million for the period from June 1, 2017 through May 31, 2018, using costs recorded for 2016 with updated general liability insurance costs for June 2017 through May Table 1 includes confidential information in order to respond to the confidential information upon which TURN relied in its Opening Brief. Table 1 starts with recorded 2016 Total Corporate General Liability and Supplemental Wildfire Insurance Expense of $ million. 899 SCE then adds in a full year of Additional Annual Wildfire Liability Insurance Expense. 893 ORA Opening Brief, pp ; and TURN Opening Brief, pp TURN Opening Brief, p Exhibit SCE-24, Vol. 01, p.6, lines TURN Opening Brief, p See TURN Opening Brief p.261, Table 44, footnote 1224, stating that the 2017 forecast in that Table is double the year-to-date 6 month figure of $34,154,000, that SCE provided in TURN-SCE-125 (Response to TURN-SCE-163, Questions 1.b). The year-to-date 6 month figure of $34,154,000 does not include the effect of the 25% increase in SCE s general liability premium which occurred on June 1, 2017 (See Exhibit SCE- 08, Vol. 5, p.3, Table I-1, line B.1, showing that SCE s General Liability Insurance policy for expired on June 1, 2017). So, General Liability insurance for SCE between June 1, 2017 and December 31, 2017 is 25 % greater than TURN s Table 44 shows. Correcting for this error yields a significantly higher forecast for 2017 that is consistent with SCE s 2018 forecast cost. 898 See Exhibit SCE-08, Vol. 5, p.3, Table I-1, line B.1, showing that SCE s General Liability Insurance policy for expired on June 1, TURN Exhibit

157 901 This results in a subtotal for 2016 Total Corporate General Liability and Supplemental Wildfire Insurance Expense of Table 1 then subtracts 2016 Forecast Supplemental Wildfire Insurance Expense of to arrive at the Net Corporate General Liability Insurance Expense. 902 Supplemental Wildfire Insurance Expense is not included in Net Corporate General Liability Insurance Expense, and it is the Net Corporate General Liability Insurance that renewed on June 1, 2017 with a premium increase of approximately 25%. 903 This yields the Net Corporate General Liability Expense for 2016 of 900 Table 1 then multiples this Net Corporate General Liability Expense for 2016 by 25% to reflect the increase that occurred in Table 1 adds the 25% increase into the Net Corporate General Liability Expense for 2016 to reflect the 25% Corporate General Liability Insurance Expense increase for the period from June 1, 2017 through May 31, Finally, Table 1 adds back in the 2016 Forecast Supplemental Wildfire Insurance Expense, which is not part of the Corporate General Liability Insurance expense, 906 and adds in all other liability insurance expenses that SCE incurred and recorded in 2016 that were not part of the Corporate General Liability Insurance Expense. 907 Using this approach, Table 1 shows an adjusted forecast total of $ million for the period June 1, 2017 through May 31, 2018 that reflects the significant increase in SCE s Corporate General Liability Insurance starting on June 1, TURN Exhibit 125C. 901 Id. 902 Exhibit SCE-55C. 903 Id. 904 Exhibit SCE-24, Vol. 4, p. 6, lines Exhibit SCE-08, Vol. 5, p.3, Table I-1, line B Exhibit SCE-24, Vol. 04, p.6, lines Exhibit TURN

158