February 14, RE: Southern California Edison 2006 General Rate Case, A , et al.

Transcription

1 Frank A. McNulty Senior Attorney February 14, 2005 Docket Clerk California Public Utilities Commission 505 Van Ness Avenue San Francisco, California RE: Southern California Edison 2006 General Rate Case, A , et al. Dear Docket Clerk: Enclosed for filing with the Commission are the original and five copies of the SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E REPLY TO OTHER PARTIES COMMENTS ON THE PROPOSED DECISION OF ALJ FUKUTOME in the above-referenced proceeding. We request that a copy of this document be file-stamped and returned for our records. A self-addressed, stamped envelope is enclosed for your convenience. Your courtesy in this matter is appreciated. Very truly yours, Frank A. McNulty Enclosures cc: All appearances in A , et al. (U 338-E LAW P.O. Box Walnut Grove Ave. Rosemead, California ( Fax (

2 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Edison Company (U 338-E for Authority to, Among Other Things, Increase Its Authorized Revenues for Electric Service in 2006, and to Reflect that Increase in Rates. Investigation on the Commission s Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company. Application (Filed December 21, 2004 Investigation (Filed May 26, 2005 SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E REPLY TO OTHER PARTIES COMMENTS ON THE PROPOSED DECISION OF ALJ FUKUTOME MEGAN SCOTT-KAKURES JAMES M. LEHRER FRANK A. MCNULTY Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: ( Facsimile: ( scegrc@sce.com Dated: February 14, 2006

3 Reply To Other Parties Comments on Proposed Decision SUBJECT INDEX Section Title Page 1. Introduction Generation Expenses Mohave Generating Station Generation Expenses Four Corners Generating Station Generation Expenses Project Development Division Allocation Of Generation-Related Administrative & General Costs Transmission And Distribution Expenses - Subaccount Safety & Training Customer Accounts Expenses and Customer Service and Information TURN s Recommendation for Direct Access Costs TURN s Exclusion Of Leased Meter Costs Administrative And General Public Affairs Pensions Human Resources Client Services Account 925 Workers Compensation Reserves Depreciation Rate Base Customer Deposits Post-Test Year Ratemaking Conclusion...5 i

4 1. Introduction Pursuant to Rule 77.5 of the California Public Utilities Commission (Commission Rules of Practice and Procedure, Southern California Edison Company (SCE replies to comments filed by the Alliance for Retail Energy Markets (AReM, Direct Access Customer Coalition (DACC, Western Power Trading Forum (WPTF, Division of Ratepayer Advocates (DRA, the Utility Reform Network (TURN, Independent Energy Producers (IEP, and Aglet Consumer Alliance (Aglet on the Proposed Decision Of ALJ Fukutome (PD. The 5-page limit on replies precludes SCE from addressing each of the misrepresentations of law, fact, or condition of the record contained in the comments of other parties, so SCE focuses on the most significant of them Generation Expenses Mohave Generating Station Without pointing to any error of fact or law in the PD, TURN simply repeats its speculation that the suspension of Mohave operations will necessarily be long term and that a plant staffing level of 50 employees would be adequate for such a suspension. The PD correctly rejected this argument and the Commission should as well. The PD accepts a temporary shutdown staffing level of 224 employees and a two-way balancing account that will both allow SCE needed flexibility to adapt to the still-evolving Mohave situation and protect ratepayers from overstaffing or other unreasonable spending. The Commission should approve this approach. 5. Generation Expenses Four Corners Generating Station Aglet claims the PD s amortization of Four Corners overhaul costs for wrongly allows SCE to recover at least two-thirds of the estimated overhaul costs before the anticipated overhaul begins, and proposes to reduce SCE s rate base by the contribution for overhaul O&M costs in Amortization of overhaul costs is consistent with past Commission ratemaking. In past SCE GRCs, a 5-year average of recorded generation costs used to develop the test year forecast included overhaul costs in one or two, but not all years, which spread the costs over the GRC cycle. The Commission should adopt either the PD s approach or SCE s proposed overhaul outage schedule. 7. Generation Expenses Project Development Division DRA, Aglet, IEP and WPTF each oppose the PD s findings approving SCE s ability to recover costs of its Project Development Division (PDD. These parties simply rehash arguments made in 1 SCE s reply is organized using the same sequence of topics followed in the PD. In addition to the issues addressed herein, SCE continues to support the stipulation it filed jointly with TURN and the coalition of California Utility Employees (CUE. Page count limitations preclude SCE from replying to DRA s comments opposing the PD s adoption of the stipulation. However, SCE has reviewed CUE s draft reply on this issue and agrees with the arguments made herein. 1

5 briefs, arguments the PD rejected, and fail to identify any factual, legal, or technical errors in the PD. First, DRA, IEP and WPTF claim the PD would tilt the playing field, favoring utility development over other developers. There is no evidence that a ratepayer-funded PDD would have this effect. SCE s $4.95 million PDD expenses represent less than 0.3% of its total O&M expense request. Also, the PDD gives ratepayers the option of utility-built, cost-based generation, financed with a regulated capital structure and rate of return. This option would vanish without ratepayer funding of the PDD since other generators are not under cost-of-service regulation. SCE Opening Brief, p. 41. Second, WPTF and Aglet claim the PD does not state how PDD costs would be reflected in a balancing account or how these expenses would be reviewed. This concern is unwarranted. SCE will file advice letters to implement this GRC decision, which will include language to establish the necessary balancing account and will be subject to regulatory review. 8. Allocation Of Generation-Related Administrative & General Costs AReM, DACC, and WPTF contend that the PD errs by not assigning to the generation function the ES&M, QF and Resource Planning department costs. These parties ignore record evidence supporting the PD s conclusion that these departments also perform distribution related functions. Exhibit 105, pp Furthermore, their assertions are disingenuous and internally inconsistent, seeking to directly assign the costs of ES&M, QF and Resource Planning to the generation function, while ignoring other A&G organizations whose costs are not directly assigned. 9. Transmission And Distribution Expenses - Subaccount Safety & Training TURN reargues its claim that SCE has not explained why training costs for transmission employees increase from 5.9% of total transmission labor in 2003 to 7.7% in The record shows that adding new employees increases training costs. Exhibit 32, p. 60; Exhibit 94, p. 60; SCE Opening Brief, p.55. The PD rightly accepts SCE s forecast. PD 9.9, p Customer Accounts Expenses and Customer Service and Information 10.1 TURN s Recommendation for Direct Access Costs TURN would remove $598,000 for customer growth associated with Direct Access activities. TURN ignores evidence that the complexities of serving DA customers continue to grow, regardless of their numbers, and, more important, that costs to serve DA customers are no longer accounted for separately, as provided for in SCE s 2003 GRC. Any number of functions within different operating groups (e.g., Billing or CCO, may have relatively fixed costs at any time or may exceed the rate of customer growth. But it is not reasonable or practical to use different estimating methods for each activity performed by such groups as Billing or the CCO. Exhibit 99, pp

6 10.2 TURN s Exclusion Of Leased Meter Costs TURN argues for exclusion of leased meter capital costs, claiming SCE did not include the corresponding other operating revenue (OOR in its 2006 forecast. TURN simply ignores the record. As the PD recognizes, the record clearly shows that the majority of leased meter revenue is forecast and recorded in OOR Accounts , , , and , which are managed by TDBU, and that OOR from meters leased under Rule 2J is forecast and recorded in OOR Account , managed by CSBU. Exhibit 99, pp Since SCE forecast the revenue from leased meters as OOR, SCE also needs to forecast the costs. 14 Administrative And General 14.1 Public Affairs DRA restates its request for an additional 25% reduction in Public Affairs (PA already triplediscounted request. DRA suggests the record is unclear as to whether the 2003 recorded costs have been adjusted to reflect the new scope and nature of Public Affairs before the shareholder/ratepayer allocations were applied. The record shows that SCE carefully adjusted PA s 2003 recorded costs to account for 2004 changes (and, in the process, reduced the recorded amount by millions of dollars; and then further reduced the remaining costs by allocating them between ratepayers and shareholders using the unchallenged 2004 time-tracking study. SCE, Van Iderstine, Tr. 17/ ; Tr. 18/ , ; Exhibit 103, p Pensions DRA criticizes the PD for silence on whether pension expenses should be recorded in a balancing account and asks the Commission to specify that any contributions not made to SCE s pension plan as compared to the adopted amounts, be tracked and returned to ratepayers. In fact, SCE s uncontested proposal was that pensions (and PBOPs be subject to a balancing account. Since this proposal was uncontested, it falls within 2.1 of the PD, which approves SCE s uncontested proposals. However, DRA seems to suggest a one-way balancing account. The Commission should clarify this issue by adopting SCE s uncontested proposal in Exhibit 65, p. 9: In this GRC, SCE proposes that the Commission adopt a two-way (symmetrical balancing account for pension costs, beginning with the forecast period. The balancing account will record the difference between actual and forecast costs, and will be amortized beginning in Any accumulated balance should receive interest at the commercial paper rate, consistent with treatment of interest accruals for other SCE balancing accounts. 3

7 14.3 Human Resources Client Services Regarding the Organizational Development/Organizational Change Management functions, DRA errs by ignoring the record that SCE provided additional detail when available, which coincided with the drafting and filing of SCE s rebuttal testimony. SCE, Hernandez, Tr. 18/1719, 1723; Ex Account 925 Workers Compensation Reserves TURN reasserts its argument for balancing account treatment of Workers Compensation reserves. SCE s Workers Compensation reserves are subject to numerous regulations and a new balancing account is unnecessary. Exhibit 71, pp Depreciation TURN claims SCE s $2.1 billion accumulated removal cost is a surplus balance available to cover future costs for many years. TURN is wrong. Recovery is made over the assets lives and, given their current age, the T&D accumulated depreciation is actually under-collected by $1.4 billion. Exhibit 81, pp Account 364 (distribution poles makes up nearly one-third of this undercollection. The PD correctly finds: SCE has provided evidence indicating that with its proposed net salvage rate [i.e., -250%] for distribution poles included in Account 364, it would not accumulate sufficient funds to retire the existing poles. PD, p. 194, (emphasis added. The PD confirmed that even if the removal costs remained at recent recorded levels, unadjusted for inflation over the remaining lives of the existing poles. This supports the need for a significant increase in the net salvage rate, at least as it relates to distribution poles. SCE fully supported a -250% net salvage (which recovers less than current cost levels, but the PD adopted SCE s compromise estimate of -190%. SCE Reply Brief, pp. 157; Exhibit 107, pp ; Exhibit 81, pp The Commission should adopt the PD s 190% Rate Base Customer Deposits Aglet contends the PD errs by failing to distinguish between permanent and total customer deposits. While SCE continues to believe no portion of Customer Deposits is available for long-term investment, the PD correctly notes that: In D , we recognized that the full balance of customer deposits was unavailable as permanent capital and adopted a five-year historical average as a reasonable determination of the permanent level. PD, 18.8, p In D , the Commission adopted a permanent level equal to 68% of the recorded customer deposits. Exhibit 105, pp The 2 PD, p. 195; FOF 123. Ironically, TURN s proposed modification to FOF 124 suggests that the net salvage rate should be based on the 15 year historical average. Apparently, TURN is unaware that, as DRA states, [t]he 15-year historical average for this account is -190%, and not the -125% that TURN proposes. Exhibit 202, p

8 PD adopts an 80% level of recorded customer deposits. PD 18.8, p. 264; Exhibit 356, p. 68. Aglet s assertion that there is no difference between permanent and total customer deposits is thus contradicted by D Contrary to Aglet s claim, any variance from the PD s estimate will neither harm ratepayers nor benefit SCE with free capital. The general population of ratepayers does not provide for these amounts in rates, but rather are being protected from the non-payment of less creditworthy customers. The deposits are not free capital, as SCE must pay back, with interest, the individual customers who made the deposits. Exhibit 80, p. 61; D , pp Post-Test Year Ratemaking Aglet erroneously complains that the PD assumes intervenors bear the burden of proof regarding O&M escalation in post-test year ratemaking. On the contrary, SCE acknowledges it has the burden of proof on O&M escalation, but the record shows SCE met this burden. Exhibit 77, pp ; Exhibit 108, pp SCE also clearly demonstrated that the Consumer Price Index (CPI does not adequately escalate capital-related costs and that the shortfall is greater when SCE's real capital needs are increasing. Exhibit 108, Appendix C. SCE provided more extensive support for its post-test year capital additions than in any previous SCE general rate case. Exhibit 108, pp ; SCE, Worden, Tr. 7/ ; SCE, Hunt, Tr. 22/ Conclusion For the reasons stated herein and for those stated in SCE s comments on the PD, SCE asks the Commission to modify the PD accordingly. Respectfully submitted, MEGAN SCOTT-KAKURES JAMES M. LEHRER FRANK A. MCNULTY By: Frank A. McNulty Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: ( Facsimile: ( scegrc@sce.com February 14,

9 CERTIFICATE OF SERVICE I hereby certify that, pursuant to the Commission s Rules of Practice and Procedure, I have this day served a true copy of SOUTHERN CALIFORNIA EDISON (U 338-E REPLY TO OTHER PARTIES COMMENTS ON THE PROPOSED DECISION OF ALJ FUKUTOME on all parties identified on the attached service list(s. Service was effected by one or more means indicated below: Transmitting the copies via to all parties who have provided an address. First class mail will be used if electronic service cannot be effectuated. Placing the copies in sealed envelopes and causing such envelopes to be delivered by hand or by overnight courier to the offices of the Commission or other addressee(s. Placing copies in properly addressed sealed envelopes and depositing such copies in the United States mail with first-class postage prepaid to all parties. Directing Prographics to place the copies in properly addressed sealed envelopes and to deposit such envelopes in the United States mail with first-class postage prepaid to all parties. Executed this 14 th day of February 2006, at Rosemead, California. Myrna Martinez Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770