2018 General Rate Case Rebuttal Testimony

Transcription

1 Application No.: A Exhibit No.: SCE-, Vol. 0 Witnesses: R. Ramos J. Smolk R. Swartz D. Tessler S. Tran (U -E) 01 General Rate Case Rebuttal Testimony Administrative & General (A&G) Volume 0 Legal (Law, Claims, and Workers Compensation and Disability Management) Before the Public Utilities Commission of the State of California Rosemead, California June 01

2 SCE-, Vol. 0: Administrative & General (A&G) Legal (Law, Claims, and Workers Compensation and Disability Management) Table Of Contents Section Page Witness I. INTRODUCTION...1 R. Swartz A. Legal Organization and Rebuttal Summary Legal Organization O&M Forecast Summary... B. O&M Expenses... II. REBUTTAL BY FERC ACCOUNT LAW DEPARTMENT... R. Swartz/... S. Tran A. B. Summary Of Forecast Revision... Law Department s (In-House) Expenses: FERC Accounts 0/ SCE s Application... ORA s Position... TURN s Position... SCE s Rebuttal To TURN s Position Related To In- House Legal Costs... a) b) c) SCE's Legal Costs Are A Valid Cost Of Service... TURN Ignores The Commission s Findings In The Cases It References... TURN S Calculation Of Inside Costs Related To The Five Matters It Identifies Is Significantly Inflated..... SCE s Rebuttal To TURN s Position Related To Inhouse Corporate Governance Costs... Conclusion...1 C. Outside Counsel: FERC Accounts //...1 -i-

3 SCE-, Vol. 0: Administrative & General (A&G) Legal (Law, Claims, and Workers Compensation and Disability Management) Table Of Contents (Continued) Section Page Witness 1.. SCE s Application...1 ORA s Position...1 a) b) c) ORA s Methodology For Adjusting The 01 Forecast Is Flawed...1 ORA s Proposed Methodology Is Transparently Designed To Reduce SCE s 01 Forecast...1 ORA s Characterization That Recorded Costs In 01 Is An Outlier Unreasonably Assumes That All Recorded Expenses In That Year Are Nonrecurring TURN s Position...1 SCE s Rebuttal To TURN s Position...1 a) b) TURN S Proposed Methodology To Use Last Recorded Year Is Flawed...1 Costs Of Defending Allegations Of Imprudence Should Not Be Removed...1. Conclusion...1 D. Corporate Governance Miscellaneous General Expenses: FERC Account SCE s Application...1 ORA s Position...1 SCE s Rebuttal To ORA s Position...1 TURN s Position...1 SCE s Rebuttal To TURN s Position...1 Conclusion...1 -ii-

4 SCE-, Vol. 0: Administrative & General (A&G) Legal (Law, Claims, and Workers Compensation and Disability Management) Table Of Contents (Continued) Section Page Witness III. REBUTTAL BY FERC ACCOUNT - CLAIMS...1 R. Ramos/... S. Tran A. B. Summary Of Forecast...1 Claims Administrative And General: FERC Accounts 0/1/: SCE s Application...1 ORA s Position...1 TURN s Position...1 SCE s Rebuttal To TURN s Position...1 Conclusion...0 C. Claims Reserve Injuries And Damages: FERC Account...1 R. Ramos/... R. Swartz/... S. Tran 1... SCE s Application...1 ORA s Position...1 SCE s Rebuttal To ORA s Position... a) Removal Of The Increases In 01 And 01 Assumes That These Recorded Costs Are Nonrecurring... b) ORA s Alternative Forecast Of $1. Million Under Its Proposed Normalization Methodology Should Be Rejected TURN s Position... SCE s Rebuttal To TURN s Position... Conclusion... -iii-

5 SCE-, Vol. 0: Administrative & General (A&G) Legal (Law, Claims, and Workers Compensation and Disability Management) Table Of Contents (Continued) Section Page Witness IV. REBUTTAL BY FERC ACCOUNT - WORKERS' COMPENSATION... J. Smolk/... S. Tran A. B. Summary of Forecast... Workers Compensation Administration: FERC Account SCE s Application... ORA and TURN s Positions... Conclusion... C. Workers Compensation Reserves: FERC Account SCE s Application... ORA s Position... TURN s Position... SCE s Rebuttal To TURN s Position... Conclusion... V. REBUTTAL BY FERC ACCOUNT DISABILITY MANAGEMENT... J. Smolk/... S. Tran A. B. Summary of Forecast... Disability Administration Staff: FERC Account SCE s Application... ORA And TURN s Position...0 Conclusion...0 -iv-

6 SCE-, Vol. 0: Administrative & General (A&G) Legal (Law, Claims, and Workers Compensation and Disability Management) Table Of Contents (Continued) Section Page Witness C. Disability Programs: FERC Account...0 J. Smolk/... D. Tessler/... S. Tran SCE s Application...0 ORA s Position...1 TURN s Position...1 SCE s Rebuttal To ORA And TURN s Positions... Conclusion... Appendix A -v-

7 I. INTRODUCTION A. Legal Organization and Rebuttal Summary Southern California Edison s (SCE) Legal Organization is comprised of the following departments: Law, Claims, and Workers Compensation and Disability Management. The Law Department provides a full range of services including but not limited to: (1) Advising SCE s management on compliance with applicable laws and regulations; () Providing legal advice and assisting in negotiating contracts and other transactions; and () Representing SCE before courts and regulatory agencies on matters related to SCE s provision of electric service and associated business activities. The Legal Organization also includes the Corporate Governance function that, among other things, supports compliance with Securities and Exchange Commission (SEC) reporting requirements and facilitates the holding of Boards of Directors and shareholder meetings. SCE s Claims Department performs investigations and litigation assistance in connection with claims against SCE, seeks collection and recovery of payments due to SCE for damage to SCE property, and represents SCE in small claims and other legal matters in connection with claims filed by or against SCE. SCE s Workers Compensation Department has the primary responsibility for administering workers compensation benefits, informing SCE employees regarding such benefits, and determining workers compensation benefit eligibility. Finally, the Disability Management Group, which was combined in 01 with Workers Compensation, provides oversight of disability benefit programs for employees who are unable to work due to illness or injury. Two parties, TURN and ORA, challenge aspects of the Legal Organization s O&M expense forecast. TURN asserts the Law Department s in-house labor forecast is based upon an inflated labor headcount that does not take Operational Excellence (OpX) labor savings into account. TURN is misinformed. The Law Department s labor forecast represents a decrease from 01 recorded costs which appropriately factors in Operational Excellence savings. Both TURN and ORA challenge the Law Department s Outside Counsel forecast and the Claims Organization s Claims Reserve forecast, both of which are based upon a five-year average. They assert the five-year average improperly includes abnormally high years, the trend for such costs is down and, accordingly, either the last recorded year or a modified averaging method (which reduces the forecast) is appropriate. SCE disagrees. Both outside counsel and claims reserves are areas with significant fluctuation and are driven by external factors SCE does not control. The five-year average method selected by SCE is appropriate. TURN also asserts SCE 1

8 must remove from the forecast legal costs, including in-house Law Department and Claims Organization administrative costs, outside counsel costs and claims reserves associated with five incidents of alleged obvious imprudence. There is no Commission precedent requiring the removal of such costs, TURN s arguments are an inappropriate attack on Commission approved settlements that do not require removing such costs and, in any event, TURN s estimate of such costs is wildly inflated. Both TURN and ORA challenge Corporate Governance costs for stock based compensation to the independent members of SCE s Board of Directors. SCE acknowledges the Commission has rejected such costs in the past. SCE will not submit rebuttal on this point but continues to believe such compensation is proper and consistent with general ratemaking principles. TURN also recommends a reduction in the allocation of Corporate Governance s in-house costs and board salary and other expenses to SCE from % to %. TURN s recommendation is flawed and should be rejected. Finally, TURN challenges SCE s use of a three-year average for Workers Compensation reserves and both TURN and ORA challenge SCE s disability administration cost forecast. In both instances, SCE believes its forecast is proper. This testimony describes ORA and TURN s position and provides SCE s rebuttal to their arguments. 1. Legal Organization O&M Forecast Summary Table I-1 provides a summary of the 01 O&M expense forecast set forth in SCE s opening testimony and subsequent errata and the positions of ORA and TURN including the variance of the positions from SCE s forecast. Table I-1 Legal Organization 01 O&M Forecast by FERC Account Summary of SCE, ORA, and TURN Positions (Constant 01 $000) Variance From SCE 01 Forecast Forecast Line No. Description SCE Application SCE Errata Adjustments SCE Revised Forecast ORA TURN ORA TURN SCE Rebuttal Position Law FERC Accounts 0/1, 1 //, 0 $,1 $ 0 $,1 $, $,1** $ (,) $ (,) $,1 Claims FERC Accounts 0/1/, $, $ - $, $ 1, $,0 $ (,00) $ (1,) $, Workers' Compensation FERC Account $ 1, $ - $ 1, NC $ 1, NC $ (1,0) $ 1, Disability Management FERC Account $ 0, $ - $ 0, $ 1, $ 1, $ (,0) $ (,) $ 0, Total Legal $, $ 0 $,1 $, $ 1,0 $ (,) $ (,1) $,1 * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. ** Reflects the $.0 million reduction recommended for FERC Accounts 0/1 in TURN-1, p.1.

9 B. O&M Expenses Legal Organization O&M expenses are recorded and forecast in the FERC Accounts shown in Table I-. The table provides the recorded amounts for 0-01 and the forecast for 01 for SCE, ORA and TURN. Table I- Legal Organization O&M by FERC Account 0-01 Recorded / 01 Forecast Summary of SCE, ORA, and TURN Positions (Constant 01 $000) Line Recorded (1) SCE Application (1) ORA TURN SCE Rebuttal Position No. Description Forecast Law FERC Accounts 0/1, 1 //, 0 $,1 $, $, $, $,0 $,1 $, $,1** $,1 Claims FERC Accounts 0/1/, $ 1, $, $ 0, $,1 $,00 $, $ 1, $,0 $, Workers' Compensation FERC Account $, $,01 $ 1, $ 1,0 $ 1,1 $ 1, NC $ 1, $ 1, Disability Management FERC Account $ 0, $ 1, $ 1, $ 1, $ 1, $ 0, $ 1, $ 1, $ 0, Total Legal $, $,00 $ 1, $, $, $,1 $, $ 1,0 $,1 (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. ** Reflects the $.0 million reduction recommended for FERC Accounts 0/1 in TURN-1, p.1.

10 II. REBUTTAL BY FERC ACCOUNT LAW DEPARTMENT A. Summary Of Forecast Revision Table II- summarizes the changes that the Law Department has made to its forecast via errata. These revisions are discussed below. The Law Department s 01 revised forecast is $.1 million. Table II- shows the recorded costs for the years 0-01, plus SCE s 01 forecast and intervenors recommended adjustments. Table II- Law Department Summary of Revised 01 Forecast (Constant 01 $000) Line No. Description FERC Account 01 Forecast Adjustments 01 Revised Forecast 1 In-House 0/1,, Outside Counsel // 1, 0 1, Corporate Governance 0,, Total Law,1 0,1 Line No. Table II- Law Department SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) Recorded (1) SCE Application (1) ORA TURN SCE Rebuttal Position Description Forecast FERC Accounts 0/1 1 In-House $, $, $ 1,0 $,0 $, $, NC $ 1,0 $, FERC Accounts // Outside Counsel $ 1, $ 1,0 $ 0,0 $ 1,1 $ 1, $ 1, $ 1, $, $ 1, FERC Account 0 Corporate Governance $, $, $,00 $, $, $, $, $, $, Total Law Department $,1 $, $, $, $,0 $,1 $, $,1** $,1 (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. ** Reflects the $.0 million reduction recommended for FERC Accounts 0/1 in TURN-1, p.1. B. Law Department s (In-House) Expenses: FERC Accounts 0/1 1. SCE s Application SCE s forecast for the Law Department s internal labor costs (FERC Accounts 0/1) is $, million, approximately $1. million less than 01 recorded and $.0 million in non-

11 labor costs. 1 These reductions are a result of projected future-year effects from OpX initiatives. SCE s forecast is shown in Table II-. Table II- Law Department 01 Recorded/Adjusted and 01 Forecast FERC Accounts 0/1 (Constant 01 $000) Variance From 01 Forecast SCE Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $, $,0 $, $,1 $,0 $, NC 1,0 NC $ (,) $, Non-Labor $, $, $,0 $, $,0 $,0 NC,0 NC $ (1,0) $,0 Total $, $, $ 1,0 $,0 $, $, NC $1,0** NC $ (,) $, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. ** Reflects the $.0 million reduction recommended for FERC Accounts 0/1 in TURN-1, p ORA s Position ORA does not oppose SCE s In-House forecast of $. million.. TURN s Position TURN offers two alternative recommendations to remove in-house legal expenses. TURN recommends a $. million reduction based upon an allegedly inflated employee headcount in the forecast. Alternatively, TURN recommends a $.0 million reduction based upon SCE s allegedly improper failure to exclude in-house costs alleged to be associated with imprudence. TURN also proposes reducing Corporate Governance administration expenses by increasing the allocation of costs to unregulated activities from 1% to % resulting in a $1,000 reduction. 1 The services performed by Law Department personnel are described in SCE s Opening Testimony. See SCE-0, Vol. 0, pp. -. TURN-0, p. 0. TURN-1, p. 1. TURN-0, pp. -0.

12 . SCE s Rebuttal To TURN s Position Related To In-House Legal Costs SCE requests a decrease in in-house legal costs to reflect expected efficiencies from its Operational Excellence initiatives. TURN recommends even steeper reductions on two alternative bases. The Commission should reject both of TURN s recommendations. TURN asserts that SCE s in-house labor forecast is based upon an inflated employee headcount of. TURN is mistaken. Table II- provides the detail headcount calculation SCE used to forecast test year 01. Table II- Legal Headcount Legal Organization Headcount 01 Actual YE Headcount* 01 YE Vacancies 1 01 Baseline OpX Initiative Reductions in Headcount Forecast 01 Actual Headcount* 1 Vacancies To Be Filled: Law Claims Disability Management 01 Headcount Forecast *TURN-SCE-0 Q1 1 1 At year-end 01, prior to the Legal Organization s OpX cost-cutting initiative in 01, SCE s Legal Organization employee headcount was. With the reduction of employees, SCE forecasts employees in the test year resulting in a downward adjustment of $1. million from the 01 recorded expense amount. TURN asserts SCE should use the actual February 01 headcount for its labor forecast but, as shown by Table II- above, TURN inappropriately fails to account for authorized vacancies SCE intends to fill. TURN-0, pp TURN-0, pp. 1-0.

13 Alternatively TURN, asserting that violations of law are always imprudent, claims that legal costs to defend the utility s interest when it has engaged in violations or other imprudent behavior, must be removed from rates. TURN s recommendation encompasses both outside counsel costs and in-house legal costs. TURN cites zero Commission precedent or other authority for this proposition. TURN s recommendation contravenes cost-of-service ratemaking principles. In addition, final Commission orders fully resolve issues in several of the proceedings TURN has highlighted. These Commission orders do not provide for TURN s recommended shareholder payment of legal defense costs. Finally, even if its position were otherwise correct, TURN s actual calculation is grossly inflated. a) SCE's Legal Costs Are a Valid Cost Of Service Legal expenses are a cost of doing business, and utilities may recover their prudently incurred costs. D.0-0-0, 00 Cal. PUC LEXIS at *; see also D.1-0-0, at 1 ( [T]he basic principle [of ratemaking] is to establish a rate which will permit the utility to recover its cost and expenses plus a reasonable return on the value of the property devoted to public use[,] (quoting Southern California Gas Company v. Public Utilities Commission (1) Cal.d 0, ) ). TURN s alternative disallowance recommendation is predicated upon five examples of SCE defending itself against alleged obvious company imprudence (discussed below). TURN contends legal defense costs in these matters should have been removed from the recorded base SCE used to forecast its 01 expenses. TURN does not assert that the quantum of costs or resources for the Company s defense in those cases was excessive, or that the quality of the defense was inadequate. Instead, TURN claims that any costs related to the defense of alleged utility imprudence are per se improper. Taken to its logical conclusion, TURN would require shareholders to bear the costs of defense against any even mere allegations of imprudence, whether or not such allegations are sustained in whole or in part. Defending against such allegations is a not uncommon aspect of a regulated utility s business, TURN-1, p.. Because there is no legal basis to require that the utility remove legal costs associated with proceedings involving allegations of imprudence, TURN s Non-Forecast Recommendations, which would modify internal controls to include a requirement to remove such costs and to require a best estimate of such costs in future GRCs, should be rejected. TURN-1, pp. -. Id.

14 and, as such, the costs of such defense are appropriately reflected in general rates. The Commission should not depart from this established regulatory principle as urged by TURN. b) TURN Ignores The Commission s Findings In The Cases It References The very examples identified by TURN show why its recommendation should be rejected. In three of the examples, the Commission initiated enforcement proceedings that were settled by SCE and the Commission s Safety and Enforcement Division (SED). In the context of those settlement agreements, SCE admitted certain alleged violations in the context of a compromise that typically resolved a broader set of issues. Even if some or all of the admitted violations involved imprudence, it does not follow that reasonably incurred legal costs to defend allegations of imprudence are not recoverable as a cost of service. These settlements were approved by the Commission. In approving the settlements, the Commission made no finding that the alleged violations meant that SCE shareholders must pay all of the legal costs associated with the incidents. The settlements, which were complete and final resolution[s] of the issues related to these proceedings, identified certain shareholder payments and monetary obligations. But two agreements (for the Acacia Fatalities and the San Gabriel Windstorm), provided for no shareholder payment of legal costs (either in-house or outside counsel costs), and the third (Malibu), provided for shareholder payment of outside counsel costs only. 1 There See D (August 1, 01) (approving Acacia Fatalities and San Gabriel Windstorm proceedings settlements); D (September 1, 01) (approving Malibu fire proceeding settlement). These settlements were approved following joint SED-SCE motions seeking approval. See D , Acacia Fatalities and San Gabriel Windstorm Settlements, second introductory paragraph of each characterizing the agreements as a complete and final resolution of all claims and as the sole agreement between the parties concerning the subject matter of the agreements (Attachment 1, p. 1). These agreements provide for specified shareholder funded payments (Section III.B. of each agreement) but do not provide for shareholder payment of defense costs or for the removal of costs from the GRC. 1 See D.1-0-0, Malibu settlement, second introductory paragraph which characterizes the settlement as a complete and final resolution of all claims and as the sole agreement between the parties concerning the subject matter of the agreement. The agreement provides for $ million of settlement payments (Section III.E.) and that SCE is to take all practical steps to ensure that no costs of the Malibu Fire are recovered from ratepayers in any... General Rate Case... including but not limited to the $ million total settlement payment... [and] the amounts incurred in defending against and resolving civil litigation arising from the Malibu Canyon Fire. SCE has consistently interpreted this to mean it must remove outside counsel costs from its GRC but not in-house Law Department costs or in-house costs incurred by the claims organization or other company organizations. As TURN acknowledges, SCE has removed Malibu Canyon Fire-related outside counsel costs from recorded costs. TURN-1, pp Although in-house and claims organization

15 was no requirement that shareholders pay in-house costs or that such costs be removed from GRC rate forecasts. Neither TURN, ORA, nor any other entity protested these settlements. In addition, although there was legal activity related to these matters during several of the years covered by SCE s 01 GRC, neither TURN nor any other party took issue with including legal cost associated with these incidents in that proceeding. 1 TURN s recommendation to remove SCE s in-house legal costs from SCE s recorded base used to forecast 01 expenses is an impermissible collateral attack on final, binding Commission orders, including the Commission s decisions approving the settlements and the 01 GRC. See Cal. Pub. Util. Code ( In all collateral actions or proceedings, the orders and decisions of the Commission which have become final shall be conclusive. ) SONGS, another of TURN s examples, involved by far the most outside counsel costs; it is an even more striking demonstration of why TURN s recommendation should be rejected. TURN repeatedly characterizes SCE s conduct regarding SONGS as imprudent. 1 But the Commission has made no finding of SCE imprudence regarding SONGS. As TURN points out, the Commission, in a scoping memo for SCE s 01 GRC, required SCE to remove from its GRC SONGS litigation costs. 1 SCE has consistently, without objection from other parties, interpreted this to mean outside counsel costs related to the Malibu Canyon Fire were included in recorded costs for prior SCE GRCs neither TURN nor any other party took the position that such costs needed to be excluded. 1 SCE s 01 GRC was based primarily upon recorded costs for the period. Legal activity in all of these matters occurred during that period and, except for outside counsel costs for the Malibu fire (which as TURN notes were removed), legal costs related to these matters were included in SCE s test year forecast. 1 See, e.g. TURN-1, p. 1 ( While SCE may persist in arguing that its imprudence was not responsible for the failure of the SONGS units... ). 1 See A.1--00, Joint Scoping Memo and Assigned Commissioner and ALJ Ruling in SCE s 01 GRC ( Joint Scoping Memo ), March, 01, pp. -. (Exhibit [ ]). Id. at page.

16 costs. 1 As TURN concedes, 1 SCE has removed SONGS-related outside counsel costs from its GRC forecast. 1 In addition, with the exception of one project manager position created to help gather information and coordinate with outside counsel for SONGS related matters, SCE did not hire personnel specifically for any of these matters. 1 Instead, SCE s regular in-house personnel supported these matters while continuing to carry out their other, non-songs related responsibilities. In other words, to the extent there was an expansion of resources to address SONGS issues, it was accomplished by turning to external resources, the costs of which are not reflected in SCE s legal cost forecasts in this case. c) TURN S Calculation Of In-House Counsel Costs Related To The Five Matters It Identifies Is Significantly Inflated TURN calculates a proposed $ million reduction in in-house legal costs under its alternative theory. In doing so, TURN assumes that the ratio of in-house legal costs for the SONGS, Acacia, and other matters to the total of in-house legal costs was the same as the ratio of outside counsel expenses in these matters to the total of outside counsel costs. Thus, TURN asserts that because outside counsel spend on those matters was 1.% of total outside counsel spend over the five-year period, the ratio of in-house costs related to these matters to total in-house counsel costs must have been the same. TURN further assumes there were other legal matters resulting from imprudence, and therefore it is 1 Commencing February 1, 01 and continuing through the present, SCE has filed monthly reports itemizing SONGS costs, including legal costs. See e.g., Appendix A, SCE s Monthly Reports submitted on February 1, 01, pp. A A1. Because SCE files a report each month, these five reports provide SCE s SONGS-related costs by month for each year since SCE began filing the reports. For each report, litigation costs are reported on Line of the spreadsheet attachment. Such costs have only included the costs of outside counsel. No party has questioned or protested this practice. SCE s in-house attorneys who handle SONGS matters have a number of other obligations as well. See, Joint Scoping Memo at page (acknowledging that some components of SCE s [GRC] forecast revenue requirement, which are not specific to SONGS, may nonetheless include some SONGS-related costs ). SCE has interpreted this ruling to require the removal of outside counsel costs only. 1 TURN-1, p Long Beach, another matter cited by TURN s, is the subject of an ongoing Commission enforcement proceeding. SED and SCE, the parties to that proceeding recently entered into a settlement agreement and filed a joint motion for Commission approval of the settlement. Joint Motion of Southern California Edison and Safety and Enforcement Division for Approval of Settlement, filed May, 01 (I ). 1 That position is now performing other functions within SCE s Law Department.

17 reasonable to recommend a reduction of at least one third of SCE s recorded in-house legal costs. First, TURN s basic premise that legal fees are not recoverable from customers for these matters, is incorrect. Second, SONGS costs are the largest component of the costs identified by TURN, amounting to approximately 1% of outside counsel costs during the period. 0 However, there has been no finding of imprudence related to SONGS. If SONGS costs are removed from TURN s calculation, only approximately 1% of outside costs during the period relate to matters allegedly involving imprudence. 1 Finally, SONGS involved several major proceedings, with sizable teams from three major law firms, many outside experts and other substantial costs. One reason SCE retained outside counsel for SONGS is the lack of sufficient internal staff to handle such an extensive proceedings. SCE s Law Department prudently managed the work of outside counsel in SONGS matters with the equivalent of only a few attorneys (each of whom continued to be responsible for other matters) --nothing even close to 1% of our in-house staff.. SCE s Rebuttal To TURN s Position Related To In-house Corporate Governance Costs Based upon TURN s assertion that SCE s unregulated affiliates are expected to experience increased activity, TURN alleges the factor for allocating Corporate Governance administrative expenses to SCE should be modified from %, the factor used in SCE s forecast, to %. In D the Commission approved a methodology for allocating common costs as between SCE and its affiliates depending upon the respective companies shares of operating revenue, operating expenses, assets and number of employees. SCE makes the required calculation quarterly. As shown in Table II-, the most recent calculations, for Q 01, continue to demonstrate the appropriateness of a % allocation of common expenses to SCE. 0 TURN-1 at page 1 (Table 1). SONGS outside counsel costs are $1. million out of a total of $. million, or approximately 1%. 1 TURN-1 at pages 1 and 1 (Tables 1 and ). Outside counsel costs associated with Acacia, the Windstorm, Long Beach and Malibu total $1 million, which constitutes approximately 1.1% of the $. million in total outside counsel costs.

18 Table II- Multi-factor Methodology Rates TURN s testimony does not reference the specified formula or SCE s application of same, instead merely citing references to general reports about the activities and planned activities of Edison Energy. TURN therefore offers no credible support for its proposed reallocation of costs. The % allocation utilized in SCE s forecast accordingly remains appropriate.. Conclusion 01 Q1 Q 01 Average SCE.%.%.% Edison Mission Group 0.0% 0.0% 0.0% Edison Insurance Services 0.0% 0.0% 0.0% Edison Energy Group 0.% 0.% 0.1% EIX 0.% 0.% 0.% 0.00% 0.00% 0.00% TURN s challenges to SCE s forecast for FERC Accounts 0/1 are based upon misinformation about actual headcount and positions to be filled, a proposed removal of costs associated with alleged imprudence that is flawed in principle and mistaken in its assumptions about SCE s costs, and an unsupported recommendation to change the affiliate administrative cost allocation percentage. Each of TURN s recommendations should be rejected. C. Outside Counsel: FERC Accounts // 1. SCE s Application Outside counsel costs are recorded to FERC Account Outside Services, FERC Account Legal Expenses for Injuries and Damages Claims, and FERC Account Regulatory Commission Expenses. Outside counsel perform critical services, assisting SCE s in-house counsel on matters requiring expertise not available in-house, additional staffing and other important engagements. SCE s original Test Year forecast for outside counsel expenses was $1, million. SCE subsequently removed additional outside service costs related to resolution of discrimination claims and reinstated costs related to the Alta Windpower Development matter adjustment via errata, yielding a $0,000 SCE-0, Vol. 0, pp

19 increase, or a revised 01 forecast of 1. million. The revised recorded/adjusted cost for 0-01 and adjusted forecast using a five-year average forecast method is shown in Table II-. Table II- Law Department (Outside Counsel) 01 Recorded/Adjusted and 01 Forecast FERC Accounts // (Constant 01 $000) Variance From 01 Forecast SCE Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Labor $ 1, $ 1,0 $ 0,0 $ 1,1 $ 1, $ 1, $ 1,, $ (1,) $ (,) $ 1, Total $ 1, $ 1,0 $ 0,0 $ 1,1 $ 1, $ 1, $ 1, $, $ (1,) $ (,) $ 1, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A.. ORA s Position ORA recommends removing 01 outside counsel payments and using an average of the remaining four years (0 to 01) to arrive at its estimate of $1. million. ORA alleges 01 was an outlier year and that SCE has not provided adequate reasoning to support the use of 01 data.. SCE s Rebuttal TO ORA s Position a) ORA s Methodology For Adjusting The 01 Forecast Is Flawed ORA s proposed four-year average of 0, 01, 01, and 01 is arbitrary. In D. -1-0, the CPUC stated that for expenses that fluctuate from year-to-year, an average is a reasonable base estimate. Outside counsel costs ranged from a high of $0. million in 01 to a low of $1.1 million in 01. Since spending from 0 to 01 has fluctuated, the five-year average method represents a reasonable approach for forecasting test year expenses. b) ORA s Proposed Methodology Is Transparently Designed To Reduce SCE s 01 Forecast Eliminating a high year (01 recorded) is arbitrary. Why not eliminate the low year and average the remaining four years, which would yield $1.0 million or eliminate the low year and high year, which would yield $1. million? Both of these alternative scenarios yield higher estimates than ORA s recommendation of $1. million. ORA-1, pp ORA s estimate was $1. million prior to SCE s Errata SCE-0, Vol. 0A. 1

20 c) ORA s Characterization That Recorded Costs In 01 Is An Outlier Unreasonably Assumes That All Recorded Expenses In That Year Are Nonrecurring ORA s assertion that 01 recorded costs is an outlier is incorrect. Completely excluding an entire year is not justified simply because the recorded expenses were higher in that year. The increase in outside counsel expenses in 01 was driven by increased legal activities related to power procurement contracts, general rate case items, labor issues and miscellaneous litigation. These are ordinary activities and likely to recur on a regular basis.. TURN s Position TURN recommends using 01, the last recorded year, as a starting point for forecasting outside counsel costs. In addition, based upon its assertions regarding costs associated with alleged imprudence, TURN claims outside counsel costs associated with the Acacia, Windstorm, and Long Beach matters should be removed from SCE s recorded cost base.. SCE s Rebuttal To TURN s Position a) TURN S Proposed Methodology To Use Last Recorded Year Is Flawed Outside counsel expenses in 01 were abnormally low. In 01, the Company resolved a number of disputes and new large litigation activity was down. It is not reasonable to forecast future expenses based upon an abnormally low year. Outside counsel expenses are typically driven by factors that are outside the utility s control and naturally tend to fluctuate from year to year. Have these factors changed? For example, has there been a change in law making litigation in key areas traditionally experienced by SCE, including employment litigation, wildfire and personal injury/property damage litigation, commercial disputes, class actions and similar cases less likely? Certainly not. There is every reason to expect SCE will continue to experience the same swings from year-to-year in litigation quantity going forward as it has in the past. In these circumstances, as the Commission has held, use of an average of recorded costs over the preceding five years instead of the costs in the most recent year in these circumstances is appropriate. See Appendix A, ORA-SCE-0-LMW-Q.01, p. A-1. TURN-1, pp. 1-1 and p.. D.-1-0, p. 1. 1

21 b) Costs Of Defending Allegations Of Imprudence Should Not Be Removed As required by the Commission for SONGS and by the settlement agreement in the Malibu matter (and as acknowledged by TURN), SCE removed outside counsel costs for these matters. TURN also recommends the removal of outside counsel costs associated with the Acacia, San Gabriel Windstorm, and Long Beach matters. The costs of defending allegations of imprudence should not be removed from SCE s recorded base. As discussed above in our rebuttal to TURN s recommendation regarding inhouse legal costs, the Acacia and San Gabriel Windstorm matters were the subject of Commissionapproved settlements, which resolved all issues and did not require any shareholder payment of legal fees. TURN did not protest these settlements and did not propose any similar adjustment in SCE s 01 GRC. As noted above, the Long Beach matter is the subject of an ongoing proceeding which the parties have resolved, subject to Commission approval of the settlement. There is no basis to exclude costs incurred in that proceeding from SCE s recorded base.. Conclusion Neither ORA s nor TURN s recommended reductions to SCE s outside counsel forecast should be accepted. ORA agrees that averaging is an appropriate forecasting method but its proposed removal of the one high year is arbitrary and transparently designed to lower the forecast. TURN s selection of the last recorded year is also inappropriate because outside counsel costs fluctuate and 01 reflects a year with abnormally low outside counsel activity that is not indicative of typical legal activity experienced over time, with every expectation that such experience will continue into the future. TURN s recommendation to remove costs associated with the Long Beach, Acacia and San Gabriel windstorm incidents is inappropriate for the reasons stated above. SCE s forecast based upon a five-year average should be adopted. D. Corporate Governance Miscellaneous General Expenses: FERC Account 0 1. SCE s Application Corporate Governance activities are recorded in FERC Account 0 and include fees and expenses paid to members of the Boards of Directors ( Board ), expenses associated with the annual shareholder meetings, contract services, and other proxy solicitation fees, as well as costs related to SEC TURN-1, p. 1. 1

22 filings. Relying on the principles of D.-1-0, SCE s 01 Test Year non-labor forecast of $. million was based on 01 recorded costs, as shown in Table II-. Table II- Corporate Governance 01 Recorded/Adjusted and 01 Forecast FERC 0 (Constant 01 $000) Variance From 01 Forecast SCE Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ $ 1 $ $ 1 $ $ NC $ NC $ (1) $ Non-Labor $, $, $,0 $,1 $,0 $,0 $,00, $ () $ (1,) $,0 Total $, $, $,00 $, $, $, $, $, $ () $ (1,) $, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested ORA s Position ORA recommends a reduction of $, from SCE s Test Year 01 forecast, specifically equity compensation, should be disallowed.. SCE s Rebuttal To ORA s Position SCE acknowledges the Commission has rejected past SCE requests to recover equity compensation paid to the Board. SCE, however, continues to believe its position seeking authorization to include such compensation in customer rates is appropriate. SCE stands on its opening testimony with respect to this point.. TURN s Position TURN recommends two adjustments, first a reduction in the allocation of board salary and other expenses to SCE from % to % and second, elimination of stock-based compensation to the Board from SCE s cost forecast. 0 SCE-0, Vol. 0, pp ORA-1, p TURN-0, p. 0. 1

23 . SCE s Rebuttal To TURN s Position As discussed above in the section, SCE s Rebuttal To TURN s Position Related To Inhouse Corporate Governance Costs, TURN s recommendation to allocate % to unregulated affiliates is flawed and should be rejected. In addition, as pointed above, SCE stands on its opening testimony with respect to the appropriateness of including in rates equity compensation paid to its Board.. Conclusion TURN s and ORA s proposals to reduce SCE s Corporate Governance forecasts are not adequately supported and should be rejected. 1

24 III. REBUTTAL BY FERC ACCOUNT - CLAIMS A. Summary Of Forecast As shown in Table III-, SCE s Claims Department forecasts $. million total in A&G expenses (including Injuries and Damages Claims Reserves). SCE forecasts $.0 million for FERC accounts 0, 1, and (Administrative, Salaries, Non-Labor Costs, Property Insurance) and $1. million for FERC Account (Claims Reserves). Historical recorded/adjusted costs for the Claims Department are reflected in the same table. Line No. Table III- Claims Department SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) Recorded (1) SCE Application (1) ORA TURN SCE Rebuttal Position Description Forecast FERC Accounts 0/1/ 1 Claims Admin $, $, $, $,1 $,0 $,0 NC $,0 $,0 FERC Account Claims Reserves $,0 $ 1,01 $, $, $, $ 1, $ 1, $, $ 1, Total Claims Department $ 1, $, $ 0, $,1 $,00 $, $ 1, $,0 $, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. 1 1 B. Claims Administrative And General: FERC Accounts 0/1/: 1. SCE s Application As shown in Table III-, SCE s Claims Department forecasts $.0 million for FERC accounts 0, 1, and (Administrative, Salaries, Non-Labor Costs, Property Insurance). 1 The labor and non-labor forecasts were based on 01 recorded expenses. 1 SCE-0, Vol. 0, p.. 1

25 Table III- Claims Administration SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) Variance From SCE 01 Forecast Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $, $, $,1 $,0 $, $, NC $ 1,1 NC $ () $, Non-Labor $ $ 1 $ 0 $ 1 $ 1 $ 1 NC $ 1 NC $ - $ 1 Total $, $, $, $,1 $,0 $,0 NC $,0 NC $ () $,0 (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested ORA s Position ORA does not contest SCE s Claims Administrative and General forecast of $.0 million.. TURN s Position TURN recommends reducing Claims Administration costs by $,000, which TURN associates with imprudence.. SCE s Rebuttal To TURN s Position Relying on arguments similar to those discussed above, TURN asserts the San Gabriel Valley Windstorm, Malibu Fire, Acacia incident, and the Long Beach outages involve imprudence and that Claims Administration costs associated with these events must be removed. No precedent exists for removing Claims costs related to such incidents from the recorded base. SCE s Claims Administration personnel investigate accidents and evaluate damage claims both for and against the Company. They also interact routinely with the Commission s safety division investigation staff such as by responding to the staff s information requests and, as needed, support SCE attorneys in various litigation and regulatory matters. This represents normal and prudent utility activity that helps ensure that accidents and other events involving the utility s electric system are fully investigated and understood, thereby safeguarding the integrity of the utility s processing of claims for compensation arising from such events and aiding in identifying how identified safety issues can be prevented in the future. SCE is not allocating excessive resources to these tasks, nor does TURN make TURN-1, pp

26 that allegation. Claims administration costs have remained relatively flat for many years, continue to be reasonable and should be recovered as forecast as part of SCE s cost of service. As noted above, the Malibu, Acacia, and Windstorm matters were comprehensively settled and those settlements, which were not protested by TURN, do not provide for shareholder funding of Claims Administration costs. TURN raised no issues about including Claims Administration costs for these incidents in SCE s 01 GRC. As discussed above in connection with TURN s challenge to legal costs, Long Beach is the subject of an ongoing proceeding. There is no basis for removing Claims Administration costs associated with that incident. Further, TURN provides no support for its estimate that one-third of Claims costs were associated with these incidents, other than its assertion that SCE needed to devote significant time to addressing these events. TURN s estimate that one-third of Claims costs are associated with incidents of alleged imprudence has the same logical flaw as TURN s projection that outside counsel costs are a direct indicator of in-house cost percentages. In both cases, there is no basis for TURN s estimates. Moreover, although TURN does not directly mention SONGS in connection with its criticism of the Claims Administration forecast, it appears that TURN s estimate that one-third of internal Claims costs relate to incidents of alleged imprudence reflects the same improper consideration of SONGS-related costs that drove its similar recommendation in the legal cost area. In point of fact, no Claims Administration resources were devoted to SONGS and, as indicated above, there has been no finding of imprudence with respect to SONGS.. Conclusion There is no support for TURN s request to reduce the Claims Administration forecast. SCE s Claims Administrative and General forecast of $.0 million is reasonable and should be adopted. TURN-1, p. 1. 0

27 C. Claims Reserve Injuries And Damages: FERC Account 1. SCE s Application SCE s Claims Department records payments and reserves associated with injuries and damages claims in FERC Account (referred to as Claims Reserves ) as shown in Table III-1. SCE s Test Year 01 forecast for Claims Reserves is $1. million, representing a five-year average of historical Claims Reserves, which appropriately predicts future expenses. This approach is appropriate due to significant claims fluctuations, which are influenced by external factors over which SCE has little control. Table III-1 Claims Reserves 01 Recorded/Adjusted and 01 Forecast FERC Account (Constant 01 $000) Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Labor $,0 $ 1,01 $, $, $, $ 1, $ 1,, $ (,00) $ (1,0) $ 1, Total $,0 $ 1,01 $, $, $, $ 1, $ 1, $, $ (,00) $ (1,0) $ 1, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A.. ORA s Position ORA recommends normalizing historic years 01 and 01 by removing large claims driving the increases in those years, then averaging the five years (0 to 01) to arrive at its estimate of $1. million. ORA contends that, given the unpredictable nature of the account, there is no certainty whether variations will continue to occur at the same level in the forecast period and that normalizing the annual expenses is therefore appropriate. 01 Forecast Variance From SCE Application SCE-0, Vol. 0, p.. ORA-1, Claims Reserves, p. 1. 1

28 SCE s Rebuttal To ORA s Position a) Removal Of The Increases In 01 And 01 Assumes That These Recorded Costs Are Nonrecurring The fluctuations in Claims Reserve costs, including the higher costs recorded in 01 and 01 and the lower costs in 0, 01 and 01 are reflective of the cost variability experienced by SCE. Per Table III-1, in 00, recorded Claims Reserve costs were $. million (Constant 01 $), similar to levels experienced in 01 and 01. In 0 costs were approximately $0 million. These expenses are driven by an assortment of new claims and lawsuits, for example, large commercial disputes, employment class actions, environmental litigation and wildfire litigation, all of which may be expected to recur given the breadth of SCE s business and operational activities spread over a service territory that is historically litigious compared to other business environments. Table III-1 Claims Reserves Year Nominal $ (000) Escalation Constant 01 $ (000) 00 $, 1.1 $, 00 $,0 1.1 $ 0, 00 $, 1. $ 1,0 00 $, 1.0 $, 0 $ 1,0 1.0 $ 1, 0 $, $,0 01 $ 1, $ 1,01 01 $, 1.01 $, 01 $, $, 01 $, $, b) ORA s Alternative Forecast Of $1. Million Under Its Proposed Normalization Methodology Should Be Rejected ORA s proposed normalizing methodology disregards well-established Commission directives regarding forecast methodologies. The appropriate methodology should be a five-year average given significant fluctuations in Claims reserves-related costs. SCE s Claims Reserve expenses have fluctuated significantly from year to year: For example, they more than doubled from 0 to 01, nearly doubled again from 01 to 01, remained relatively flat in years 01 and 01 at $. million and $. million respectively, and experienced a significant reduction of 0%

29 from These large fluctuations are precisely the reason to use an averaging methodology given the variability of Claims Reserve expenses. When such cyclical and fluctuating expenses occur, it would be imprudent and unreasonable to choose just the high years totaling over $ million, just as it would to choose a single low year of $. million in order to normalize the figures. As pointed out above, in 00 Claims Reserve costs were over $. million, which exceeded that of either 01 or 01. During the ten year period from 00 through 01, Claims Reserve costs exceeded $0 million in four of those years. The only reasonable way to normalize and forecast for these expenses when, as here, no directional trend is apparent is to utilize a straight-line average, the method used by SCE and endorsed by Commission precedent. The Commission approves use of the multi-year averaging approach when significant variations in expenses exist from year-to-year. This is clearly the case with the Claims Reserves included in SCE s forecast.. TURN s Position TURN, utilizing arguments similar to those relied upon by ORA, recommends the Commission start with 01, the last recorded year as a basis for forecasting Claims Reserves. TURN further recommends a reduction of $ million in Claims Reserves representing the reserve taken for the Long Beach outages.. SCE s Rebuttal To TURN s Position TURN s recommended use of the last recorded year as a basis for forecasting Claims Reserve costs is even more problematic that the modified averaging method suggested by ORA. Claims Reserve costs fluctuate dramatically and are largely driven by external factors that have random elements to them. As shown on Table III-1, the year 01 was an abnormally low year for Claims Reserve costs, the second lowest year in the year period from Using that year as the basis for forecasting future expenses is arbitrary and inappropriate. To support use of the last recorded year method, TURN points out that the Commission adopted a last recorded year method of forecasting Claims Reserves in SCE s 01 GRC. The last Refer to SCE-0 Vol. 0, pp. -. D.-1-0, p. 1. TURN-0, p..

30 recorded year adopted in that GRC was 00, when Claims Reserves were approximately $ million! In the 00 GRC, the Commission also used a last recorded year method, adopting recorded costs from 00 of $. million. 0 As pointed out above in the discussion of outside counsel costs, claims are driven by external factors which we have every reason to expect will continue to drive dramatic fluctuation in claims costs. This wide fluctuation is exactly why an averaging method is appropriate for this area. In addition, relying upon its argument that Claims costs associated with imprudence are not recoverable from customers and that the Long Beach outages involved imprudence, TURN asserts that Claims costs must be further reduced by $ million, the 01 Long Beach reserve. As explained above, TURN provides no support for the proposition that Claims costs to address incidents involving allegations of regulatory violations are not recoverable. TURN s recommendation to remove Long Beach reserves should be rejected. As a generic matter, SCE s reserves and payments for any incident are limited to its exposure net of insurance. Usually, that exposure is limited to its self-insured retention which, for most incidents is $ million. 1 In the case of the Long Beach outages, SCE s $ million reserve was established to account for typical customer compensation claims that follow any significant outage, regardless of the circumstances. The reserve therefore represented the anticipated cost of resolving such claims as opposed to the anticipated cost of resolving regulatory litigation associated with the outages. Responding to customer claims following outages is a routine aspect of utility operations and is appropriately included in forecasting of future costs. D.1--01, p.. 0 D.0-0-0, p Accordingly, TURN s assumption that SCE reserved $. million for the Malibu incident and $. million for the Acacia Avenue fatalities is incorrect. See TURN-1, pages -. SCE s self-insured retention for wildfire claims in recent years has increased but that increase is not applicable to any of the incidents cited by TURN.

31 . Conclusion SCE has demonstrated the reasonableness of a five-year averaging method and that such method is more appropriate than ORA s proposed modified averaging method or TURN s proposal to use the last recorded year. Moreover, TURN s additional proposed adjustments based upon alleged imprudence are not supported as a matter of Commission precedent and are based upon mistaken assumptions about SCE s reserving process.

32 IV. REBUTTAL BY FERC ACCOUNT - WORKERS' COMPENSATION A. Summary of Forecast SCE forecasts $1. million total for Workers Compensation, consisting of $. million for Workers Compensation staff expenses and $. million for Workers Compensation Reserves, as shown in Table IV-1. Line No. 1 Table IV-1 Workers Compensation SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) Recorded (1) SCE Application (1) ORA TURN SCE Rebuttal Position Description Forecast FERC Accounts Workers' Comp Admin $,00 $,0 $,1 $,01 $,1 $, NC NC $, FERC Account Workers' Comp Reserves $ 1,1 $ 1,0 $,1 $, $,1 $, NC $, $, Total Workers' Comp Department $, $,01 $ 1, $ 1,0 $ 1,1 $ 1, NC $ 1, $ 1, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. B. Workers Compensation Administration: FERC Account 1. SCE s Application SCE s forecast for the Workers Compensation Department s internal labor costs (FERC Account ) is $.1 million, approximately $00,000 less than 01 recorded. These reductions are a result of projected savings from OpX initiatives. SCE s forecast is shown in Table IV-1. SCE-0, Vol. 0, p..

33 Table IV-1 Workers Compensation Administration SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) From SCE 01 Forecast Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $, $, $,0 $, $,1 $,1 NC NC NC NC $,1 Non-Labor $, $, $,1 $, $,0 $,0 NC NC NC NC $,0 Total $,00 $,0 $,1 $,01 $,1 $, NC NC NC NC $, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. 1. ORA and TURN s Positions ORA and TURN do not oppose SCE s Workers Compensation staff expenses.. Conclusion There are no objections to SCE s Workers Compensation staff expenses and SCE requests that the Commission adopt its forecast. C. Workers Compensation Reserves: FERC Account 1. SCE s Application SCE s Test Year 01 forecast of $. million for Workers Compensation Reserves is based on a three-year average of recorded/adjusted costs and is shown in Table IV-1. SCE-0, Vol. 0, p. 1.

34 Table IV-1 Workers Compensation Reserves SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) 01 Forecast Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Labor $ 1,1 $ 1,0 $,1 $, $,1 $, NC, NC $ (1,0) $, Total $ 1,1 $ 1,0 $,1 $, $,1 $, NC $, NC $ (1,0) $, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. From SCE Application ORA s Position ORA does not oppose SCE s Workers Compensation Reserves forecast of $. million.. TURN s Position TURN proposes a four-year average of Workers Compensation Reserves, consisting of the years This methodology produces a forecast of $. million which is $1.0 million below SCE s request.. SCE s Rebuttal To TURN s Position TURN agrees the Workers Compensation Reserve forecast should be based on averaging. The only disagreement is the years to be utilized. SCE opposes including 01 as the costs for that year have not been adjusted for rate case purposes. In addition, 01 appears to be a year with unusually low reserves that is not indicative of future trends. SCE s proposal to use three years does not include 0 and 01 because SCE finds that recorded expenses in are most reflective of future expenses. Including the remaining three years of the standard recorded cost period is reasonable.. Conclusion ORA does not oppose SCE s forecast. SCE and TURN agree that an averaging method is appropriate to forecast Workers Compensation reserve expenses. SCE s proposal to use a three year average is appropriate and should be adopted. TURN-0, p..

35 V. REBUTTAL BY FERC ACCOUNT DISABILITY MANAGEMENT A. Summary of Forecast As shown in Table V-1, SCE s Disability Management Group forecasts $0. million total in A&G expenses. SCE forecasts $,000 for salaries and related expenses of Disability Administration staff and $1.0 million for the Disability Program costs, both recording in FERC Account (Employee Pensions and Benefits). Line No. 1 Table V-1 Disability Management SCE s 01 Forecast and Intervenors Adjustments (Constant 01 $000) Recorded (1) SCE Application (1) ORA TURN SCE Rebuttal Position Description Forecast FERC Accounts Disability Admin $ 1,0 $ 1, $ $ 1,1 $ $ NC NC $ FERC Account Disability Programs $ 1, $ 1,1 $ 1, $ 1,0 $ 1,00 $ 1,0 $ 1,00 $ 1, $ 1,0 Total Disability Management $ 0, $ 1, $ 1, $ 1, $ 1, $ 0, $ 1, $ 1, $ 0, (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested. 1 B. Disability Administration Staff: FERC Account 1. SCE s Application As shown in Table V-1, SCE s Disability Administration Group forecasts internal administration expenses of approximately $,000 for FERC account (Employee Pensions and Benefits) based on 01 recorded expenses.

36 Table V-1 Disability Administration 0-01 Recorded/Adjusted FERC (Constant 01 $000) From SCE 01 Forecast Application Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ 1, $ 1,0 $ $ 1, $ 0 $ 0 NC NC NC NC $ 0 Non-Labor $ 1 $ 1 $ $ $ $ NC NC NC NC $ Total $ 1,0 $ 1, $ $ 1,1 $ $ NC NC NC NC $ (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals. "NC" indicates that the activity was not contested ORA and TURN s Position ORA and TURN do not dispute SCE s Disability Administration labor and non-labor forecasts of $,000 for FERC account.. Conclusion There are no objections to SCE s Disability Administration internal expenses and SCE requests that the Commission adopt its forecast. C. Disability Programs: FERC Account 1. SCE s Application SCE records all costs associated with Disability Programs in FERC Account (Employee Pensions and Benefits). SCE s Test Year 01 forecast for this area is $1.0 million calculated by an itemized methodology. This methodology dynamically takes into account key elements that drive SCE s Disability Program recorded expenses, including a projected forecast of the number of eligible employees and the projected Program $ Cost/Employee. Table V-1 presents SCE, ORA and TURN s proposed forecasts. Differences between ORA/TURN s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the Results of Operations (RO) Model. SCE-0, Vol. 0, p.. SCE-, Vol. 01, p. 1. 0

37 Table V-1 Disability Programs 0-01 Recorded/Adjusted FERC (Constant 01 $000) 1 Line No. Description SCE Application (1) ORA TURN ORA TURN SCE Rebuttal Position 1 Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Labor $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Other $ 1, $ 1,1 $ 1, $ 1,0 $ 1,00 $ 1,0 $ 1,00 $ 1, $,0 $, $ 1,0 Total $ 1, $ 1,1 $ 1, $ 1,0 $ 1,00 $ 1,0 $ 1,00 $ 1, $,0 $, $ 1,0 (1) Reflects SCE's Recorded/forecast in SCE-0, Vol. and Errata -SCE-0, Vol.A. * Due to rounding, subtotals may not sum to the totals.. ORA s Position ORA recommends the removal of $.0 million from SCE s Test Year 01 forecast, asserting that the $1.00 million recorded/adjusted 01 base year amount is a better predictor of the actual test year expense. ORA asserts that SCE s recorded/adjusted Disability Programs expenses are below authorized levels and comments that 01 represents the most recent data and that amount is in line with 01 and 01 recorded data.. TURN s Position TURN recommends using a five-year average (0-01) of $1. million as a more accurate basis for forecasting the 01 Test Year expense. TURN asserts that SCE s proposed methodology for deriving the Disability Programs forecast has not been successful in projecting program expenses. 01 Forecast Variance From SCE Application ORA-1, pp TURN-0, pp. -. 1

38 SCE s Rebuttal To ORA And TURN s Positions SCE developed its test year 01 estimate for Disability Programs costs by utilizing the RO Model that considers forecast labor costs 0, employee counts 1, recorded benefit programs expenses and escalation rates. This approach is consistent with the RO Model forecast methodology utilized in prior rate cases. ORA s proposal to use the last recorded year ignores the Commission s 01 decision regarding Disability Management forecast methodologies. Furthermore, in D.1--01, the Commission adopted a mechanism tied to employee count and rejected a proposal to use the last recorded year. As shown in Table V-0, SCE s recorded/adjusted Disability Program amounts were lower than authorized levels during the 01 GRC period (01-01). This resulted from SCE s implementation during this period of OpX efforts (which reduced employee headcount) after SCE submitted its 01 GRC application in 0. As shown in Table V-1, SCE s recorded/adjusted Disability Program amounts were higher than authorized levels during the 01 GRC period (01-01). SCE s forecast of employee headcount now incorporates the benefit of several years of experience implementing Operational Excellence initiatives. SCE s proposed increase in disability program management costs for 01 results from its forecast of a modest overall headcount and labor increase over 01 recorded levels. SCE continues to believe that its forecasting methodology is a better indicator of future costs than other methods as it aligns SCE s Disability Programs forecast with the primary drivers for that program, the forecast number of eligible employees and the forecast Program $ Cost/Employee. WP SCE-0, Vol. 0, p.. 0 WP SCE-0, Vol., Chapter III-VIII, pp WP SCE-0, Vol., CH IX, Book B, p.. WP SCE-0, Vol. 0, p. 1. SCE-0, Vol.1, CH VII, p.. D.1--01, page we find that TURN s forecast based on per employee costs is a reasonable method to capture demographic changes in the workforce. D.1--01, p. SCE s basic approach of calculating per-eligible-employee costs, escalating those costs, and multiplying by the number of eligible employees is reasonable.

39 Table V-0 Disability Programs in SCE s 01 GRC Footnote: Recorded Employee Count based on TURN-SCE-1, Q.0. Table V-1 Disability Programs in SCE s 01 GRC AL 1-E Line Description Program $ Authorized 1, 1,0 Recorded 1,00 1,00 Recorded vs Authorized,,0 1 Footnote: Recorded Employee Count based on TURN-SCE-1, Q.0 and 01 Recorded Program $ is based on ORA-SCE--TXB Q.1.. Conclusion Using the itemized methodology is appropriate and was approved by the Commission in the 01 GRC. SCE requests that the Commission adopt this forecast methodology again and accept SCE s forecast in this case. Employee Count Authorized 1, 1, Recorded 1,,0 Recorded vs Authorized (1,) (1,)

40 Appendix A

41 Exhibit SCE- Volume 0 Legal (Law, Claims, and Workers Compensation and Disability Management) Appendix A Documents Document(s) Page(s) SONGS Monthly Report February 1, 01 A- - A-1 SCE s Response to ORA-SCE-0-LMW Question 01 A-1

42 Russell G. Worden Managing Director, State Regulatory Operations, 01 Mr. Ed Randolph Director, Energy Division c/o California Public Utilities Commission San Francisco, CA Dear Mr. Randolph: Re: Monthly Report in Compliance with I Enclosed is SCE s monthly report as directed by the Commission in I Specifically, I states on page 1: SCE and SDG&E shall each file a monthly status report with the Commission s Energy Division with service on the service list. The monthly report shall include an operational update for the units, description of any NRC actions, estimated replacement energy and capacity costs, estimated other operational expenses, estimated foregone revenues due to lost sales of excess energy, and any other information either utility believes is relevant that may impact the Commission s consideration of safe and reliable service at just and reasonable rates, including any additional information directed by the Energy Division Director. SCE is using the Energy Division s new Compliance Report Filing Procedure. If you have any questions, please feel free to contact me. Sincerely, Enclosure Russell G. Worden Director, State Regulatory Operations cc: Commission President Michael Picker ALJ Darcie Houck Mr. Eric Greene, Energy Division Mr. Truman Burns, ORA All Parties to I P.O. Box 00 1 Rush Street Rosemead, California () 0-1 Fax () 0-0.1