2018 General Rate Case Rebuttal Testimony. Human Resources (HR) Benefits and Other Compensation

Transcription

1 Application No.: Exhibit No.: Witnesses: A SCE-22 M. Bennett G. Henry J. Trapp (U 338-E) 2018 General Rate Case Rebuttal Testimony Human Resources (HR) Benefits and Other Compensation Before the Public Utilities Commission of the State of California Rosemead, California June 2017

2 SCE-22: Human Resources (HR) Human Resources, Benefits and Other Compensation Table Of Contents Section Page Witness I. HR / EXECUTIVE OFFICERS EXPENSE...1 J. Trapp A. Introduction...1 B. Executive Officers FERC Account 920/ ORA Position TURN Position NDC Position SCE Rebuttal...3 a) TURN s Claim That SCE s Incentive Compensation Constitutes a Customer Surcharge Is Meritless...3 b) TURN s and NDC s Proposed Forecast Modifications Are Unwarranted...3 c) TURN s and NDC s Proposed Reductions for SCE s Financial Performance Goal Ignore Benefits to Customers From Its Achievement...4 d) NDC s Proposed Reorganization of SCE s EIC Plan Goals Should Be Rejected Conclusion...6 II. BENEFITS AND OTHER COMPENSATION...8 M. Bennett A. Introduction...8 B. Short-term Incentives (STIP) FERC Accounts 500, 588, 905, 920/ ORA Position TURN Position SBUA Position i-

3 SCE-22: Human Resources (HR) Human Resources, Benefits and Other Compensation Table Of Contents (Continued) Section Page Witness 4. SCE Rebuttal...10 a) ORA s, TURN s, and SBUA s Proposed Reductions for SCE s Financial Performance Goal Ignore Benefits to Customers From Its Achievement...11 b) ORA s Objection to the High Performance Organization Goals on the Basis of Lacking Clear Ratepayer Benefit Is Unsound...13 c) TURN s Recommended Forecast Is Based on a Number of Incorrect Premises Conclusion...16 C. Long-term Incentives (LTI) FERC Account 920/ J. Trapp 1. ORA Position TURN Position NDC Position SBUA Position SCE Rebuttal...17 a) ORA...17 (1) ORA s Analysis of SCE Executive Headcount Data Is Flawed...18 (2) ORA s Reliance on Total Compensation Study Results Is Misguided...19 b) TURN and NDC...20 (1) SCE Prepared Its Request in Compliance With the Commission s Guidance in the 2015 GRC Decision ii-

4 SCE-22: Human Resources (HR) Human Resources, Benefits and Other Compensation Table Of Contents (Continued) Section Page Witness (2) TURN and NDC Ignore Customer Benefits From SCE s LTI Program...20 c) SBUA s Arguments to Disallow LTI Funding Are Incorrect and Unsupported Conclusion...22 D. Recognition Programs...22 M. Bennett 1. ORA Position SCE Rebuttal...23 a) ORA Incorrectly Claims a Lack of Transparency...23 b) ORA s Assumption That Recognition Programs Expense Is Based on Recorded Labor Costs Is Inaccurate...24 c) In Past and Recent Rate Cases, the Commission Has Approved Recognition Programs Conclusion...26 E. Pension FERC Account G. Henry 1. ORA Position SCE Rebuttal Conclusion...27 F. Medical Programs FERC Account M. Bennett 1. ORA Position SCE Rebuttal iii-

5 SCE-22: Human Resources (HR) Human Resources, Benefits and Other Compensation Table Of Contents (Continued) Section Page Witness a) ORA s Proposed Use of General Survey Data for Its Escalation Rate Does Not Accurately Reflect SCE s Workforce Composition and Medical Plan Usage b) SCE Has Used Reasonable Trend Rates to Develop Its 2018 Medical Programs Costs Conclusion...30 G. Miscellaneous Benefits FERC Account M. Bennett 1. ORA Position SCE Rebuttal Conclusion...31 H. Executive Benefits FERC Account M. Bennett 1. ORA Position SCE Rebuttal Conclusion...34 Appendix A: SCE s Response to Data Request NDC-SCE-004 Appendix B: 2016 STIP High Performance Organization Goal Success Measures Year-end Status Appendix C: SCE s Revised Response to Data Request TURN-SCE-006 Q.01.f Appendix D: Current SCE Executive Population: Average Tenure Appendix E: Executive Retirements : Average Length of Service Appendix F: 2012, 2015, and 2018 Total Compensation Studies: Payroll Dollars Footnotes -iv-

6 SCE-22: Human Resources (HR) Human Resources, Benefits and Other Compensation Table Of Contents (Continued) Section Page Witness Appendix G: SCE Executive Average Annual Base Pay Appendix H: Recognition Programs Historical Expense vs. Budget Appendix I: Letter From Actuary Re: SCE 2017 Medical Plans Renewal Rate, Dated May 17, 2017 Appendix J: ORA s Response to Data Request SCE-ORA-028 -v-

7 1 2 3 A. Introduction I. HR / EXECUTIVE OFFICERS EXPENSE The Human Resources Operating Unit (HR) provides client organizations with integrated solutions for attracting, developing, motivating, and retaining a diverse workforce to safely deliver reliable, affordable and clean energy to our customers. This includes designing, developing, and administering compensation and benefits programs for all active employees, and benefits programs for retirees. 1 Table I-1 below summarizes the 2018 O&M expense forecasts for HR and Executive Officers of SCE, Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), and the National Diversity Coalition (NDC). None of the parties have contested SCE s forecast of HR O&M expenses. Table I-1 Human Resources / Executive Officers O&M Forecast By FERC Account Recorded and 2018 Forecast Summary of SCE, ORA, TURN and NDC Positions In Constant 2015 $ B. Executive Officers FERC Account 920/921 For the Test Year 2018, SCE forecasts $ million of expenses for executive officer cash compensation (salaries and short-term incentives) and non-labor expenses. SCE records costs associated 1 See Exhibit SCE-06, Vol. 1, p. 1. 1

8 1 2 3 with salaries and expenses for executive officers and their administrative assistants in FERC Account 920/921. Table I-2 below provides the recorded amounts for and the 2018 forecasts of SCE, ORA, TURN, and NDC. 2 Table I-2 Executive Officers FERC Account 920/921 Recorded / 2018 Forecast Summary of SCE, ORA, TURN and NDC Positions Constant 2015 $ ORA Position ORA does not contest SCE s Test Year forecast for Executive Officers TURN Position TURN proposes $ million for the Executive Officers labor forecast, $2.673 million less than SCE s forecast. TURN s proposed reduction solely relates to short-term incentive costs for executive officers under SCE s Executive Incentive Compensation Plan (EIC). TURN calculates this reduction in two steps: (1) using a 5-year average of SCE s EIC costs at target levels to adjust the test year labor forecast, which reduces the forecast by $0.979 million to $ million; and (2) deducting 40% of the average EIC costs to remove the percentage SCE allocates to the EIC s financial goal, which further reduces the forecast by $1.694 million to arrive at $ million NDC Position NDC proposes $ million for the Executive Officers labor forecast, reflecting a 25% reduction from SCE s Test Year forecast, related to EIC expenses. NDC arrives at its recommendation by calculating the average of SCE s EIC expenses, which reduces the 2 Collaborative Approaches to Utility Safety Enforcement (CAUSE) submitted testimony discussing potential changes to the operation of certain executive compensation programs for safety events. However, as CAUSE makes no recommendations or adjustments to EIC and other executive compensation forecasts, SCE will not address CAUSE s testimony here. 3 ORA-15, p. 7, lines TURN-01, pp

9 forecast by $1.138 million to $ million, and then applying a 62.5% EIC goal-related reduction. NDC asserts that ratepayers should fund only 37.5% of EIC based on NDC-proposed EIC goal allocations, which further reduces the forecast by $3.111 million to arrive at $ million. NDC subtracts this difference from the Test Year forecast based on a 3-year-average forecasting methodology rather than SCE s forecasting methodology to arrive at a total reduction of $4.249 million from SCE s Executive Officers Test Year labor forecast. NDC s proposed 62.5% reduction is based on NDC s contention that ratepayers should fund half of safety and operational and service excellence-related goals and none of the financial performance and strategic initiatives goals under the EIC plan, as weighted by NDC in its proposed reorganization of SCE s EIC plan goals SCE Rebuttal a) TURN s Claim That SCE s Incentive Compensation Constitutes a Customer Surcharge Is Meritless To support its recommendation regarding incentive compensation in general, TURN provides a Background and Overview section, arguing that SCE and other regulated utilities are asking customers to pay a surcharge or increment when they seek funding of their incentive compensation programs. TURN further asserts that, in contrast, the incentive compensation programs for unregulated firms are solely funded by the owners/shareholders. 6 This argument is incorrect. The costs of those incentive compensation programs are ultimately paid for through the revenues generated by those companies, typically via sales of goods and/or services to customers, whether they be customers of regulated or unregulated companies. As further detailed in SCE-06, Volume 2, Chapter IV, SCE maintains that the requested funding of its incentive compensation programs cannot be viewed as a surcharge or increment imposed on customers where SCE s workforce compensation is reasonable and at market. b) TURN s and NDC s Proposed Forecast Modifications Are Unwarranted SCE disputes TURN s use of target level EIC in its calculation of the proposed EIC forecast, as opposed to SCE s forecast relying on actual recorded EIC costs. Likewise, SCE disputes NDC s utilization of an alternative methodology in calculating its test year forecast 5 NDC Faith Bautista Prepared Testimony, pp TURN-01, pp

10 recommendation. NDC uses a 3-year-average of SCE s historical Executive Officers labor expense, citing 2012 as an anomalous year with an unusually high recorded cost of labor. 7 As with any variable compensation pay program, the ultimate costs of payouts will vary based on performance during any given year. This variance is reflected in SCE s historical EIC payout costs. Neither TURN nor NDC s proposed methodology considers the actual fluctuation in EIC expenses shown over the historic period. As SCE mentioned in direct testimony, the relatively small number of employees in the executive officer population leads to disproportionately significant impacts on cost fluctuations from year to year. 8 Both TURN s application of only target-level EIC costs and NDC s claim that the EIC goals and metrics only encompass basic operational responsibilities fail to recognize that the metrics for assessing the achievement of goals under EIC are set aggressively to motivate and reward exceptional performance by its participants. Indeed, the main objective of EIC is to focus executive officers efforts on meeting the Company s customer satisfaction, reliability, safety and other operating objectives. Moreover, neither TURN nor NDC acknowledge that these actual recorded incentive awards (at above-target levels) were included in the Total Compensation Study (TCS). The TCS concluded that SCE s overall workforce compensation was at market and its Executive Officers total cash compensation levels, in particular, were 17.7% below market. 9 c) TURN s and NDC s Proposed Reductions for SCE s Financial Performance Goal Ignore Benefits to Customers From Its Achievement TURN further reduces its proposed forecast by 40% to account for SCE s Financial Performance goal, stating, Edison has provided no new material evidence that the Financial Goal in EIC provides ratepayer benefits. 10 SCE disagrees. At the Commission s direction, SCE expanded its testimony regarding EIC to show how the EIC goals, including the Financial Performance goal, achieve ratepayer benefits. 11 NDC proposes zero funding for the Financial Performance goal and 7 NDC Faith Bautista Prepared Testimony, p The fluctuations are driven by attrition and incentive compensation payouts. 9 See Exhibit SCE-06, Vol. 3, p. 4, Table TURN-01, p D , Ordering Paragraph (OP) 9d. 4

11 makes the incorrect and inflammatory assertion that SCE s current EIC structure creates a perverse incentive to sacrifice safety for profit. 12 As an initial matter, NDC fails to recognize that SCE s designated Safety goal within the EIC plan goals is just one of the many ways in which SCE seeks to foster strong safety behavior, culture, and ownership with its executives. Financial incentives are only a single facet. Other facets include efforts such as Executive Safety Engagement, which spanned two years of sessions tailored to build executive safety competencies, facilitate increased workforce engagement, and reinforce cultural direction, and Leader Safety Roles and Responsibilities and Safety Leadership Development, which established foundational leader safety expectations. 13 In addition to the specific Safety goal, other EIC goals also support worker and public safety and engagement, including cyber and physical security improvements, emergency preparedness, mitigation and recovery efforts, customer satisfaction, reliability and pole loading milestones. The Financial Performance goal in the form of a core earnings target is an objective and widely utilized metric to assess a company s overall health and success. This goal provides a defined measure of workforce productivity, reliability, safety, customer satisfaction and efficiency. It should not be viewed solely as a goal intended to benefit shareholders. Our customers benefit when our workforce is focused on operating in the most efficient manner without sacrificing safety and reliability. Greater workforce productivity and operational efficiency translate into lower expenses. The Financial Performance goal works in tandem with other EIC goals to push its participants to keep SCE financially sound and fiscally responsible for both its shareholders and its customers. Trying to parse customer benefits from shareholder benefits when examining incentive program goals has the effect of distorting these goals. The EIC goals work collectively to press the participants to achieve all of the goals and exceed related metrics; the goals reward high-performing participants for their efforts at a market-competitive level. Notably, in the most recent EIC plan year, even though SCE exceeded its core earnings target, EIC award payouts were below target, as SCE determined that other metrics tied to non-financial goals were not sufficiently met NDC Faith Bautista Prepared Testimony, pp See Exhibit SCE-15, Supplemental Testimony on Executive Compensation and Safety, p Appendix A, pp. A-1 to A-3, SCE-22, Human Resources, Benefits and Other Compensation, SCE s response to Data Request NDC-SCE-004, Q.04. 5

12 TURN s and NDC s view that SCE s Financial Performance goal only serves shareholder interests refuses to acknowledge how customers directly benefit from SCE s overall financial well-being. As SCE s rate base is financed through a combination of common equity, longterm debt and preferred equity, SCE must have access to capital market financing on reasonable terms. Such financing funds ongoing cash flow needs, including financing power procurement and capital expenditures, including construction projects and ongoing investment in grid infrastructure. Absent continued financial health, SCE s access to capital market financing would be challenged, its cost of capital would increase and, consequently, its ability to fund infrastructure investment and power procurement would be severely hampered. Moreover, such constraints on SCE s ability to secure capital on reasonable terms naturally translate into higher customer rates. d) NDC s Proposed Reorganization of SCE s EIC Plan Goals Should Be Rejected Much of NDC s testimony focuses on presenting its outlook on how SCE s EIC plan goals should be reorganized and reprioritized. NDC s efforts to micromanage the Company s EIC plan goals should not be followed. The EIC plan goals represent a balance of all elements of our business and incentivize the high performance and engagement needed to achieve the goals on behalf of our customers. Our business is very complex. As such, the EIC goals are not just about safety, nor just about people. Safety is integral to everything our employees do to provide safe, reliable, and affordable service to our customers. As detailed above, the Financial Performance goal plays an important role in driving efforts that support affordability of customer rates. The mix of goals is determined based on thorough review and approval by the Compensation Committee of the Board of Directors. 15 The Compensation Committee also retains discretion to completely eliminate the EIC award in the event of a serious safety violation and/or non-compliance events Conclusion All the components that contribute to a successful business and enable SCE to provide safe, reliable, and affordable service must be considered and given weight to provide reasonable 15 See Exhibit SCE-06, Vol. 2, p In addition, SCE proposed the establishment of the SCE Officer Compensation Memorandum Account ( SOCMA ) in this GRC to comply with 2015 Assembly Bill 1266, which added Section 706 to the California Public Utilities Code effective January 1, Information regarding AB 1266 is available at [as of May 10, 2017]. See also Exhibit SCE-09, Vol. 1 for more information regarding the proposed SOCMA. 6

13 incentives for the workforce. Safety is integral to everything our employees do and is the Company s utmost priority. The core earnings metric provides an objective measure of SCE s financial health and cost controls. Our financial goal keeps us focused on fostering affordability and working productively and efficiently on behalf of our customers, while continuing to operate the utility in a safe, efficient and reliable manner. Achieving this goal benefits our customers and makes our business more successful. SCE s EIC goal matrix provides the appropriate mix of goals to properly incentivize and reward its participants for excellent performance and efforts to meet the Company s operating objectives. The goals should not be scrutinized individually, as they all work together to benefit customers and shareholders alike. Further, SCE s incentive pay programs, including EIC (and the Shortterm Incentive Program and Long-term Incentive Plan, both of which are discussed in greater detail below), are included in the 2018 TCS. The Commission has directed SCE to submit the TCS and has relied upon it in past GRCs to show how SCE s workforce compensation compares to the market. The TCS results show SCE s total compensation is 1.9% below market. Absent a finding that the variable pay programs are unreasonable, cost of service principles warrant inclusion of these costs when setting an authorized revenue requirement. SCE respectfully asks the Commission to adopt its Test Year forecast for Executive Officer labor expense in full, including the EIC plan expense. 7

14 A. Introduction II. BENEFITS AND OTHER COMPENSATION SCE s total compensation programs comprise base pay, short-term incentives, long-term incentives, recognition awards, pension, and benefits. To attract and retain the workforce essential to the Company s operations, SCE must offer a market-competitive compensation package. 17 Table II-3 below summarizes the 2018 expense forecasts for Benefits and Other Compensation of SCE, ORA, TURN, NDC, and the Small Business Utility Advocates (SBUA), and the variance from SCE s forecast, if any. Table II-3 Benefits and Other Compensation Forecast by FERC Account Recorded and 2018 Forecast 18 Summary of SCE, ORA 19, TURN, NDC, and SBUA Positions Constant 2015 $000 and Nominal $ See Exhibit SCE-06, Vol. 2, p SCE s 2015 STIP expense and 2018 forecast reflect changes filed via Exhibit SCE-06 HR Vol. 02 A2 HR-Benefits and Other Compensation (2 nd Errata) on June 16, ORA forecasts are based on a reduced labor forecast. Differences between ORA s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the RO Model. See also SCE-25, Vol Activity 926 forecasts are presented in nominal $000 dollars. All other activity forecasts are presented in constant 2015 $000 dollars. 8

15 B. Short-term Incentives (STIP) FERC Accounts 500, 588, 905, 920/921 For the Test Year 2018, SCE s application forecast $ million of expenses for the Short- term Incentive Compensation Program (STIP). Concurrent with its submission of this testimony, SCE submitted a correction to the 2015 recorded STIP costs via errata filing reducing the forecast to $ million. STIP expenses are recorded and forecast in the FERC Accounts shown in Table II-4 below. The table provides the recorded amounts for and the forecasts for 2018 of SCE, ORA, TURN, and SBUA. Table II-4 Short-term Incentives (STIP) FERC Accounts 500, 588, 905 and 920/ Recorded and 2018 Forecast Summary of SCE, ORA 21, TURN and SBUA Positions Constant 2015 $ ORA Position ORA proposes a 45% disallowance of SCE s 2018 STIP forecast based on adjustments tied to the STIP goals. 22 ORA recommends a 40% reduction based on the weight accorded to the Financial Performance goal and a 5% reduction representing half of the weight accorded to the High Performance Organization goals in the most recent STIP matrix. ORA contends that there is no direct benefit to ratepayers in relation to the Financial Performance Goal and that the High Performance Organization goals do not present a clear ratepayer benefit, and do not appear to be transparent or readily quantifiable ORA s forecast is based on a reduced labor forecast. Differences between ORA s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the RO Model. See also SCE-25, Vol See Table V-3 on p. 25 of Exhibit SCE-06, Volume 02 HR Benefits and Other Compensation for Company Goals included in STIP. 23 ORA-15, p

16 TURN Position TURN proposes $ million for SCE s 2018 Test Year STIP, which represents a total forecast reduction of $ million. TURN calculates its recommended STIP forecast by reducing SCE s forecast STIP/Labor ratio to 12.11%, the ratio authorized by the Commission in the 2015 GRC decision, which reduces the forecast by $ million to arrive at $ million. TURN then applies a 40% reduction based on the weight accorded to the Financial Performance goal in the most recent STIP matrix, further reducing the forecast by $ million to arrive at a forecast expense of $ million SBUA Position SBUA proposes $ million, reflecting a reduction of 40% from SCE s Test Year Forecast. 25 In addition to SBUA s recommendation of funding for only 60% of SCE s forecast, SBUA also recommends that the Commission require that SCE remove the goals of Advanc[ing] key regulatory proceedings that support customer rates and the safe and cost-effective retirement of SONGS and Achieve Core earnings target SCE Rebuttal None of the parties opposing our request properly acknowledge the results of the 2018 TCS. The TCS shows that SCE s compensation is reasonable and at market. None of the parties challenge SCE s testimony concerning the benefits associated with variable pay programs. Variable pay has been and continues to be an integral component of SCE s market-competitive total compensation package for its workforce, and places a portion of employees compensation (increasing as a percent of total compensation based on job classification) at risk. STIP awards are based on defined and objective goals covering customer service, safety, diversity, reliability, affordability, cost control and financial performance. Variable pay serves as a catalyst for improving these and other important business goals. By focusing on company-wide goals, SCE s STIP program motivates employees in different departments to support each other and to work cooperatively toward common objectives. The 24 TURN-01, pp SBUA bases its forecast on the STIP forecast from SCE s 2018 GRC Application. Based on SCE s updated forecast (see SCE-06 HR Vol. 02 A2 HR-Benefits and Other Compensation (2 nd Errata)), SBUA s forecast would be $ million. 26 SBUA Michael Brown Opening Testimony, pp

17 motivational potential of variable pay is stronger than that of other forms of compensation, and helps nurture a performance culture. Additionally, ORA and other parties attacks on SCE s variable pay components are unfounded because SCE submitted undisputed evidence that its total compensation remains at market. The 2018 TCS, independently performed by Aon Hewitt, included these variable pay programs. The TCS showed that SCE total compensation levels are 1.9% below market. The proposed reductions to our variable pay programs ignore SCE s continuing efforts to rework employee compensation and benefit plans to better control costs, and the customer benefits that spring from these efforts. It is widely recognized that the costs of non-cash compensation (including medical, pension and other retirement benefits) have climbed swiftly. This has prompted SCE to manage these expenses by changing the mix of cash and non-cash compensation for its workforce. Any increases in variable pay in this GRC are expected to be mitigated by the offsetting decrease in benefits, including the elimination of the pension plan and retiree healthcare plan for new hires, and elimination of the Executive Retirement Plan for newly hired executives, after December 30, Upcoming changes to SCE s pensions and postretirement benefits are discussed in SCE-06, Volume 2, Chapters IX.B, IX.F, and IX.I. ORA and the other parties are viewing the STIP and other variable pay programs in an incorrect light by picking and choosing certain goals that they contend do not show direct customer benefit. Their viewpoint ignores the overall objective of the programs, which seek to promote individual and collective employee behavior that benefits both customers and the Company. A more realistic approach in evaluating these programs is to recognize that the mix of goals are all interrelated, and that better reliability, safety, customer service, cost control, and diversity all contribute to the financial performance of the Company. Correspondingly, the Company s successful financial performance helps reduce the borrowing costs of capital to fund infrastructure investment, customer service projects, and other expenditures that support safe and reliable service. a) ORA s, TURN s, and SBUA s Proposed Reductions for SCE s Financial Performance Goal Ignore Benefits to Customers From Its Achievement Like TURN s and NDC s proposed reduction to the EIC forecast, TURN, ORA, and SBUA propose reducing STIP for SCE s Financial Performance goal on the grounds that it benefits shareholders only. This view ignores the importance of SCE s financial health to customers, including the critical role that our financial condition plays in securing financing on reasonable terms for critical infrastructure and other capital projects. Core earnings reflect our revenues versus expenses; as such, it 11

18 is a clear indicator of the cost efficiency of our Company s operations. Just as with the EIC financial goal, SCE believes the STIP financial goal enhances the workforce s focus on affordability, safety, customer service, and cost control and is an important component of the STIP goals benefits to ratepayers. The parties variously assert that customers should not have to fund all or part of the STIP costs where the achievement of certain goals benefits shareholders (even in some cases where they concede customers may receive an indirect benefit). Regarding SCE s Financial Performance goal, ORA contends, While there is no direct benefit to ratepayers, there is a tangible benefit to shareholders in the form of dividends and higher stock prices. As such, there is no justification to support ratepayer funding of this aspect of the incentive matrix. 27 Modifying SCE s STIP to somehow exclusively benefit customers is simply untenable. For virtually any incentive program goal, it is possible to argue that shareholders see some benefit from the achievement of that goal. Achieving goals tied to customer satisfaction, safety and reliability metrics inarguably benefits customers. These achievements also inure to the benefit of shareholders as they reflect successful Company performance. Similarly, the achievement of financial performance milestones, while benefiting shareholders, also benefits customers since SCE s financial strength enhances our ability to finance utility projects at competitive rates and reflects effective internal cost controls. Regarding its proposed reduction for the financial goal, ORA further notes that ORA made the same recommendation in PG&E and Sempra s most recent GRCs and those were later settled. 28 However, it is unclear why the settlement of those GRCs, 29 involving hundreds of individual issues and line items, lends any support to ORA s recommendation that there should be no customer funding of STIP for the percentage allocated to the financial performance goal. Commission Rule of Practice and Procedure 12.5 specifically states that [u]nless the Commission expressly provides 27 ORA-15, p ORA-15, p Settlements, of course, are not precedents. See, e.g., In re Pac. Gas & Elec. Co., D , 2006 WL (Nov. 30, 2006) (In response to challenges interposed to PG&E s estimated owner s costs based upon ratemarking treatment recently approved for Contra Costa 8 as part of a settlement in D , the Commission wrote: We reject this justification as contrary to Rule 12.5 of our Rules of Practice and Procedure. ( Unless the Commission expressly provided otherwise, such adoption [of a settlement] does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding. ) ) 12

19 otherwise, the Commission s adoption of a settlement does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding. Finally, ORA s viewpoint is particularly tenuous given that, as discussed above, the Commission-authorized TCS found that SCE s total compensation, including STIP, is at market. b) ORA s Objection to the High Performance Organization Goals on the Basis of Lacking Clear Ratepayer Benefit Is Unsound ORA also objects to the High Performance Organization goals on the grounds they are not transparent or readily quantifiable, and lack clear ratepayer benefit. SCE disagrees with ORA. SCE s High Performance Organization goals, which comprise a portion of the overall People and Culture goals, contain important customer benefits. Below are each of the goals and their measures: Diversify Leadership Pipeline as discussed in direct testimony, SCE strives to mirror its service territory s diverse communities in its leadership team, to enhance decision-making for our customers. 30 The goal is measured by the improvement in diversity of women and ethnic minorities from the previous calendar year, both in the executive population, and in leadership pools. 31 Advance a High Performance Organization Culture this goal included the following success measures: Streamline the decision-making process by rationalizing committee governance structure to increase effectiveness Leverage X-change pilot to support employee engagement and create sustainable continuous improvement function 32 Improve employee perceptions regarding awareness of the SCE vision, trust in leaders and effective communication as measured through monthly pulse surveys 30 See Exhibit SCE-06, Vol. 02, p Appendix A, pp. A-4 to A-5, SCE-22 Human Resources, Benefits and Other Compensation, SCE s response to Data Request NDC-SCE-004 Q The X-Change program, developed by front-line employees, empowers participants to identify improvement projects and implement solutions that support our mission to safely deliver reliable, affordable, and clean energy to our customers. 13

20 Each of the above success measures has clear benefits to customers by driving process improvements and work efficiencies, and enhancing employee productivity through awareness of the Company vision and top priorities for serving our customers. 33 As such, ORA s disallowance associated with this category of goals should be rejected. c) TURN s Recommended Forecast Is Based on a Number of Incorrect Premises TURN s recommended forecast is based on several incorrect premises. First, TURN states that STIP provides incentive payments for non-represented employees, management employees and non-officer executives. 34 This statement mistakenly implies that SCE s represented employees are ineligible to receive incentive compensation under the STIP program when the converse is true. Second, TURN declares, [w]hen STIP scores fall short of the target level, some of the authorized funding from ratepayers either buffers the cost of poor performance for shareholders, or is used for other purposes. 35 TURN s statement fails to acknowledge that SCE s STIP funding is subject to a one-way memorandum account (STIPMA), which returns any over-collection for this specific expense through the Base Revenue Requirement Balancing Account (BRRBA). 36 Third, in its analysis of SCE s STIP forecast methodology, TURN states that SCE s Test Year forecast is based on the 2015 payout of STIP awards (for 2014 plan year performance) when the eligible workforce received STIP awards based on Company performance that was 42.6% above the target level. 37 As a result, TURN then asserts that SCE is asking for levels of funding commensurate with and exceeding this 42.6% above-target performance from In fact, SCE s Test Year forecast is based on the 2016 payout of STIP awards (for 2015 plan year performance). This resulted in only a modest 4.6% above-the-target STIP expense in relation to the forecast. 38 Although the 33 Appendix B, SCE-22, Human Resources, Benefits and Other Compensation, 2016 STIP High Performance Organization Goal Success Measures Year-end Status. 34 TURN-01, p TURN-01, p See Exhibit SCE-09, Vol. 01, p TURN-01, p See Exhibit SCE-06 HR Vol. 02 A2 HR-Benefits and Other Compensation (2 nd Errata), and Appendix C, p. C-2, SCE-22 Human Resources, Benefits and Other Compensation, SCE s Revised Response to Data Request TURN-SCE-006 Q.01.f. 14

21 higher STIP payout (for 2014 plan year performance) was included in the TCS, the TCS still concludes that SCE s total workforce compensation is at market, which further supports the reasonableness of SCE s Test Year forecast. 39 While TURN avoids mentioning the TCS conclusion that SCE s total workforce compensation is at market, TURN does cite the TCS to claim that STIP is skewed in favor of higherranking employees. This assertion ignores the realities of workplace practices; namely, that higher level employees generally receive higher variable pay opportunities as they are more willing to accept that a higher percentage of their total compensation is subject to the inherent volatility associated with variable pay opportunities. Naturally, the greater the percentage of total cash compensation that comprises variable pay, the higher the potential variation up or down year-to-year based on individual and Company performance. On the other hand, employees with lower levels of base pay are generally not as willing to place a significant portion of their income at risk. SCE s STIP is designed to properly reflect this reality of workplace practices, and the market levels of SCE s workforce compensation at all levels remain supported by the unchallenged results of the TCS. TURN criticizes the incremental costs of SCE s STIP program arising from anticipated job classification changes. But TURN fails to consider the rising costs of non-cash compensation (i.e., employee benefits) that prompted SCE to deploy a range of strategies for managing workforce compensation expenses over the years. For example, SCE moved from a defined benefit pension plan to a hybrid cash balance design to save costs in 1999, several years before other California utilities did so. As discussed in SCE-06, Volume 2, Chapter IX, SCE is also seeking to manage expenses by ending pension plan participation for new hires starting December 31, 2017, and discontinuing its retiree healthcare plan for employees hired on or after that same date. 40 Based on SCE s analysis, certain employee classifications required an increase in cash compensation to keep their total compensation in line with the market and counterbalance the loss of certain benefits. SCE believes that any increase in 39 The TCS and SCE s STIP forecast in its GRC Application do not have the same timing. Aon Hewitt initiated the TCS analysis in early 2016, and the methodology requires inclusion of all cash compensation paid in the most recent complete year (which, for STIP, was the 2014 performance year paid in 2015). SCE s STIP forecast in its GRC application is derived from STIP payments for the 2015 performance year paid in See Exhibit SCE-06, Vol. 02, sections IX.B and IX.F. 15

22 STIP costs will be mitigated by the expected decreases in the costs of pensions and post-retirement benefits in coming years. 5. Conclusion Notwithstanding ORA s, TURN s, and SBUA s objections to certain SCE goals, the Commission stated in its 2015 GRC decision that we do place weight on the results of the TCS and decline to adopt the deep cuts proposed by TURN and ORA. 41 ORA s, TURN s, and SBUA s positions are inconsistent with the results of the TCS, which concluded that SCE s workforce compensation is at market. 42 None of the parties disputes the TCS results in relation to SCE s STIP program. Since 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 service to its customers. SCE respectfully requests that the Commission adopt its full Short Term Incentive Program forecast. C. Long-term Incentives (LTI) FERC Account 920/921 LTI is an integral part of SCE s total compensation package for executives, and is provided in the form of non-qualified stock options, restricted stock units, and performance shares. 43 For the Test Year 2018, SCE s application estimated $ million in LTI expenses. Table II-5 below provides the recorded amounts for and SCE s forecast for 2018 and the disallowances recommended by ORA, TURN, NDC, and SBUA. Table II-5 Long-term Incentives FERC Account 920/921 Recorded / 2018 Forecast Summary of SCE, ORA, TURN, NDC, and SBUA Positions Constant 2015 $ D , p See Exhibit SCE-06, Vol. 03, p See Exhibit SCE-06, Vol. 02, p

23 ORA Position ORA recommends disallowing all LTI funding on the following grounds: (a) SCE s claim that LTI results in better retention is disputed by its own data; (b) SCE s claim that LTI benefits ratepayers through lower costs is not supported by the evidence available; and (3) the Commission has a long history of declining to provide rate recovery for LTI TURN Position TURN recommends disallowing all LTI funding, on the basis that SCE has offered no material evidence that ratepayers benefit and the Commission has historically denied recovery. TURN further argues that the Commission s current process provides no disincentive for a utility to pursue unlikely ratepayer funding of activities at ratepayer expense. 3. NDC Position Citing the Commission s decision in SCE s 2015 GRC, NDC recommends disallowing all LTI costs, based on the argument that ratepayer benefits are incidental, indirect, and minimal compared to the primary, direct, and substantial benefit to shareholders SBUA Position SBUA contests SCE s requested recovery of LTI expense, claiming the 2018 Total Compensation Study report was not satisfactory, and inaccurate and self-serving, and that SCE has not provided sufficient evidence to justify its current high levels of requested executive compensation SCE Rebuttal a) ORA ORA contends that SCE offers LTI to non-executives, citing SCE s response to a data request that sought clarification of positions in the 2018 TCS for which LTI is awarded. 47 However, ORA s contention is based on a misinterpretation of SCE s response to the data request, and incorrectly treats SCE s director-level positions as non-executive. 44 ORA-15, pp NDC Faith Bautista Prepared Testimony, pp SBUA Michael Brown Opening Testimony, p ORA-15, p. 11 (lines 3-6 and footnote 25). 17

24 LTI is part of the total compensation package (along with base pay, benefits, and short term incentives) for all SCE non-officer (i.e., director-level) executives. As in past total compensation studies, the TCS assigns executive officer positions to the Executive category, and nonofficer executive positions to the Manager/Supervisor category. The TCS provides definitions of jobs included in each of the four TCS job categories, and clarifies that the Executive category contains the limited group of company top executives who are responsible for overall direction of the company. 48 ORA s recommendations are also incorrect for the following reasons: (1) ORA s Analysis of SCE Executive Headcount Data Is Flawed ORA provides its analysis of executive headcount data that SCE submitted in response to a data request. 49 ORA asserts that SCE s LTI program does not result in better executivelevel retention. However, ORA s analysis relies on erroneous assumptions of job titles and condenses positions with slightly different job titles that appeared to be the same jobs and positions that were apparently promoted in reaching this conclusion. 50 This analysis fails to consider other factors, including lateral transfers and organizational changes, and does not reflect the true tenure of SCE employees in executive-level positions. The average tenure of SCE s current executive population is 18 years of service. 51 Further, looking at the same time period as that covered in the data request that ORA relied on for its analysis, SCE notes that 88 executives retired from SCE with an average tenure of 27 years of service from Of those executive retirements, 41% retired at age 61 or later with five or more years of service, the minimum criteria necessary to qualify for full vesting of LTI awards. 52 Accordingly, ORA s incorrect interpretation of executive headcount data, and the conclusions it draws, should be rejected. 48 See Exhibit SCE-06, Vol. 03, p ORA-15-WP, pp ORA-15, pp Appendix D, SCE-22 Human Resources, Benefits and Other Compensation, Current SCE Executive Population: Average Tenure. 52 Appendix E, SCE-22 Human Resources, Benefits and Other Compensation, Executive Retirements : Average Length of Service. 18

25 (2) ORA s Reliance on Total Compensation Study Results Is Misguided ORA argues that LTI does not benefit ratepayers through lower costs, citing to its interpretation of results from TCS reports submitted in SCE s 2012, 2015, and 2018 GRCs. 53 ORA used the data in the Study Results table from each TCS report. ORA calculated the average base pay of executives by dividing the number of employees in the Executive category of the TCS by the corresponding SCE Payroll Dollars. ORA uses this calculation to support its conclusion that SCE executive base pay has nearly doubled in six years. There are several problems with this analysis. First, the Executive category in the TCS includes only SCE s executive officers. However, SCE s entire executive population, including non-officer executives, is eligible to receive LTI awards and those non-officer executives fell under the Manager/Supervisor category (not the Executive category) in the TCS. Second, the SCE Payroll Dollars in the TCS are not limited to base pay; rather, it represents total cash compensation and includes short-term incentive awards and base pay. The footnotes in each table denote that Payroll Dollars includes base pay and annual incentives. 54 Contrary to ORA s conclusion that SCE executive base pay has increased 30%, SCE s executives overall (including executive officers and non-officer executives) received an average annual base pay increase of 1.77% from 2009 through Of that executive population, an average of 54% of executives received no annual base pay increase in any given year over the same period. 55 Beyond its reliance on flawed analyses, ORA does not otherwise dispute SCE s testimony concerning the benefits to customers tied to LTI. As discussed in greater detail in SCE- 06, Volume 2, Chapter VII, SCE s use of LTI as part of an executive s total compensation package helps conserve cash resources, since there is no immediate cash payment to employees for an LTI award due to the multi-year vesting schedule applicable to each form of LTI. LTI awards do not trigger increases in an executive s annual/fixed pension and benefits costs that are a function of base pay, and conserving 53 ORA-15, p Appendix F, pp. F-2, F-4, and F-6, SCE-22 Human Resources, Benefits and Other Compensation: 2018 GRC, Ex. SCE-06, Vol. 03, p. 4, fn. 2, 2012 GRC, Ex. SCE-06, Vol. 02, Appendix B, p. B-5, fn. 2, and 2015 GRC, Ex. SCE-06, Vol. 2, Part 2, p. 4, fn Appendix G, pp. G-9 and G-10, SCE-22 Human Resources, Benefits and Other Compensation, SCE Executive Average Annual Base Pay

26 cash via the LTI component helps avoid interest on short-term borrowing, which represents a cost of service. 56 b) TURN and NDC TURN scolds SCE for once again seeking recovery of LTI, deeming SCE s testimony an ill-considered request, and encourages the Commission to send a very firm message to Edison in the form of appropriate remedies, if SCE purportedly wastes their and the Commission s resources again in a future GRC. 57 NDC argues that any ratepayer benefits from LTI are incidental. (1) SCE Prepared Its Request in Compliance With the Commission s Guidance in the 2015 GRC Decision SCE continues to firmly believe that LTI is an important and legitimate cost of ratemaking, despite the Commission s past rejections. The Commission stated in its 2015 GRC decision, In recent decisions, we have held that LTI is not recoverable from ratepayers because LTI does not align executives interests with ratepayer interests. SCE s arguments to the contrary are vague, limited, and unpersuasive. 58 SCE fully considered the importance of continuing to seek recovery and, as required by the Commission, 59 buttressed its showing to reinforce the benefits to customers of funding this essential component of the total market-based compensation package for SCE s leadership team. (2) TURN and NDC Ignore Customer Benefits From SCE s LTI Program TURN tries to use SCE s acknowledgement that access to capital market are driven by a number of complex interrelated factors to argue that SCE has no evidence ratepayer benefits associated with LTI. NDC argues that any benefits from LTI are incidental and minimal. Neither TURN nor NDC address or otherwise dispute SCE s testimony describing particular benefits to customers arising from LTI, including: o LTI does not increase an executive s annual/fixed pension and benefits costs tied to base pay; this benefits customers by avoiding increases in benefits costs for the executive 56 See Exhibit SCE-06, Vol. 02, pp TURN-01, p D , p D , p

27 workforce while still allowing SCE to provide a market-competitive compensation package. o LTI promotes stability of a strong leadership team at SCE, as LTI awards and payouts depend on multiple years of continuous employment, strong executive performance, and thriving SCE financial health. o LTI fosters a strong performance culture, as LTI awards may be adjusted based on SCE s review of the executive s performance. o Customers benefit from SCE s retention of high performing executives with a strong and long-term knowledge of its operations and the proficiency to fulfill SCE s mission of safely delivering reliable, affordable and clean energy to our customers. o LTI awards to high-performing executives advance customer interests by aligning executives with the strategic goals and initiatives of the Company. c) SBUA s Arguments to Disallow LTI Funding Are Incorrect and Unsupported In recommending disallowance of LTI funding, SBUA suggests that the Commission should not look to the TCS, because: (1) this issue of executive compensation was dealt with and decided against SCE in the last rate case; (2) SCE has not taken sufficient actions to benefit small commercial customers in its proposed rate case; and (3) SCE has not provided any evidence to show that its customers would support paying for high levels of executive compensation. 60 As an initial matter, it is unclear what any of these reasons have to do with the TCS. Contrary to SBUA s claim, that not a single intervenor last GRC supported a compensation study, 61 SCE and ORA jointly managed the TCS in SCE s 2015 GRC. Moreover, neither ORA nor any other party challenged the results of the 2015 TCS, which found that SCE s workforce compensation was at market. While ORA did not participate in the 2018 TCS, it was invited to do so. Further, SCE employed the same methodology that arose from joint agreements between SCE and ORA in the 2015 TCS. Notably, ORA did not contest the results of the TCS in this GRC even though ORA did not participate in its creation. The 2018 TCS provides the specific evidence supporting the reasonableness of SCE s requested levels of executive compensation. 60 SBUA, Michael Brown Opening Testimony, p SBUA, Michael Brown Opening Testimony, p

28 When SBUA says that this issue of executive compensation was dealt with and decided against SCE in the last rate case, SBUA appears to reference the Commission s rejection of LTI funding from the 2015 GRC. However, as discussed in greater detail above, SCE has supplemented its showing in this GRC per the Commission s direction to better detail the benefits to customers arising from the LTI program. SBUA s remaining arguments concern SCE s failure to take sufficient action to benefit small business customers in its overall GRC showing and the perceived absence of customer support for executive levels of compensation. Both of these points are inapposite to the issues of the reasonableness of rate recovery for SCE s LTI program and should be accorded no weight. Outside of its recommended disallowance of LTI funding, SBUA makes no specific recommendation regarding other components of executive compensation. 6. Conclusion SCE continues to maintain that LTI is an essential part of the total compensation package and vital retention tool for its executive workforce. Further, the TCS, which was conducted by an independent third party, speaks for itself. SCE s total compensation, which includes LTI, shows SCE s workforce compensation to be at market. The results of the TCS were not refuted by any of the parties. Therefore, SCE respectfully requests that the Commission adopt SCE s forecast for LTI. D. Recognition Programs SCE s application requests recovery for its low-cost cash and non-cash recognition programs, which include the Spot Bonus program and Awards to Celebrate Excellence (ACE) program. SCE s historical and forecast expenses for the Spot Bonus and ACE programs are included, respectively, in the labor and non-labor expense forecasts of individual operating units. The Spot Bonus program is designed to motivate and reward employees who accept and perform additional responsibilities in an exceptional manner or accept responsibilities or assignments that require extraordinary time commitments. The ACE program utilizes non-cash awards to recognize employees for promoting a safe working environment through actions and behaviors and for helping contribute to public safety. In January 2016, the ACE program was redesigned, allowing all non-executive employees to participate. 62 Prior to 2016, the ACE program was limited to employees who participated in one of the Company-approved safety programs that were in effect at the time. 62 See Exhibit SCE-06, Vol. 02, pp

29 The costs of the Spot Bonus and ACE programs are recorded in operating unit labor and nonlabor expense forecasts, respectively. In its Decision D , the Commission directed SCE to present a clear and coordinated showing on its forecast for these recognition programs in its next GRC direct testimony. SCE complied with this directive and presented in its direct testimony a consolidated view of the 2015 recorded costs and estimated 2018 forecast along with an explanation of how the forecast was developed. The estimated expense of $1.456 million demonstrates the modest cost of these two important recognition programs ORA Position ORA recommends that the Commission reject funding for SCE s Recognition Programs based on lack of transparency in the form of historical expense levels beyond the base year to support the forecast methodology, breakdowns of the costs of the programs by Operating Unit or job category and absence of justification for the expense. 64 ORA recommends the removal of SCE s Recognition Programs forecast expense of $1.456 million from SCE s 2018 Test Year forecast for Miscellaneous Benefit Programs SCE Rebuttal For the sixth consecutive rate case, ORA has proposed disallowing expenses for SCE s Spot Bonus and ACE recognition programs. But each program continues to represent a low-cost and highly effective mechanism to recognize employees for exceptional performance (Spot Bonuses), and for achieving safety-related objectives (ACE awards) which are beneficial to ratepayers and valued by SCE employees. a) ORA Incorrectly Claims a Lack of Transparency SCE disagrees with ORA s claim that SCE s showing lacked transparency. As compared to its showing in the 2015 GRC, SCE expanded its testimony to explain in detail the manner in which its modest recognition program costs are managed, recorded costs of the programs for the base year, and the basis for its calculation of the test year forecast. Table II-6 below is the recorded and 63 See Exhibit SCE-06, Vol. 02, pp ORA-15, p See SCE s rebuttal to the Miscellaneous Benefits Programs deduction in section II.G below for discussion of the appropriate account for any proposed removal. 23

30 1 2 3 forecast expense presented in SCE s direct testimony. 66 Given the manner in which program costs are managed, SCE s use of a budget-based approach to manage costs of the programs and to forecast future expenses is prudent and reasonable. Table II-6 SCE Recognition Programs 2018 Estimated Expense b) ORA s Assumption That Recognition Programs Expense Is Based on Recorded Labor Costs Is Inaccurate ORA bases its proposed disallowance on a ratio of 2015 recognition program expense to total 2015 recorded labor costs, equaling 0.16%. Because the 2015 expense occurred prior to ACE Program changes implemented in January 2016, ORA concludes that future recognition program expense will be higher; ORA also questions whether the 2015 expenses are accurate or an anomaly. 67 First, ORA s assumption that recognition program expense is tied to recorded labor in the GRC is not congruent with SCE s direct testimony, which states that the recognition program expense is determined by the Company s labor budget. 68 Recorded labor costs and labor budget are not the same. Second, ACE program expense represented less than 20% of the total Recognition Program expense in For that reason, the 2016 ACE Program change is not expected to cause a material increase in the budget for Recognition Programs. In fact, Spot Bonus and ACE program costs in 66 See Exhibit SCE-06, Vol. 02, p ORA-15, p See Exhibit SCE-06, Vol. 02, p

31 , while higher than 2015, did not exceed the established budget (i.e., 0.20% of labor budget) for recognition awards. 69 c) In Past and Recent Rate Cases, the Commission Has Approved Recognition Programs ORA rather casually dismisses SCE s testimony regarding the widespread use of recognition programs to drive positive employee contributions as a weak everyone does it justification for incurring such costs. 70 ORA does not acknowledge or reference the fact that the California Legislature has established similar programs to recognize individual and team achievement above normal work requirements for state employees. 71 Moreover, in the 2015 GRC decision, the Commission rejected ORA s proposed disallowance of SCE s Recognition Programs and observed that: We agree with SCE that the types of behaviors (e.g., a focus on safety) that these programs reward do further the provision of safe and reliable service at just and reasonable rates. Further, we agree that the costs appear reasonable relative to the benefits. 72 Other recent Commission decisions have also approved rate recovery of similar recognition programs offered by other utilities with short-term incentive programs. For example, in Sempra s 2012 General Rate Case, the Commission approved funding for the utility s Employee Recognition and Spot Cash programs. The Commission stated: Given the modest cost of these two programs, and the relationship of the employees recognition to their job activities, it is reasonable that the program costs of the Employee Recognition and Spot Cash programs be paid for by ratepayers. 73 In PG&E s 2014 General Rate Case, the Commission stated: 69 Appendix H, SCE-22, Human Resources, Benefits and Other Compensation, Recognition Programs Historical Expense vs. Budget. Even using ORA s method of applying recorded labor, our 2016 recognition programs expense was 0.26% of recorded labor. 70 ORA-15, p D , p D , pp

32 We approve PG&E s forecast for $8.734 million to fund the R&R program. This program is similar to those offered by the other California utilities. We conclude that the program provides a reasonable way to reward employees who help improve the operations of the utility, or provide exceptional service, or otherwise distinguish themselves. The program helps promote retention of strong employees, which benefits both PG&E and its ratepayers. We also conclude that the program costs are reasonable, as PG&E is not forecasting an increase in program costs other than normal escalation Conclusion SCE s Recognition Programs remain effective tools to motivate employees with rewards for individual achievements and for promoting a safe work environment. They represent a relatively modest expense in light of the benefits. The Commission has acknowledged these programs provide benefits to SCE customers by furthering the provision of safe and reliable service. As such, SCE requests that the Commission adopt its Recognition Programs forecast. E. Pension FERC Account 926 The SCE Retirement Plan provides eligible employees with income after their employment has ended. Since the Retirement Plan is qualified by the IRS, participants avoid current taxable income as funds accumulate during their employment. 75 SCE s application requests a total of $ million for pension costs in the Test Year 2018, and million and $ million, respectively, for the 2019 and 2020 attrition years. Table II-7 below provides the recorded amounts for and the forecast for 2018 for SCE, ORA and TURN. Table II-7 Pension Costs FERC Account 926 Recorded / 2018 Forecast Summary of SCE, ORA, and TURN Positions Nominal $ D , p See Exhibit SCE-06, Vol. 02, p

33 ORA Position While ORA does not contest SCE s test year 2018 forecast of pension costs, ORA challenges SCE s post-test year forecast for attrition years 2019 and ORA recommends continuation of the 2018 Test Year forecast of $ million for both attrition years and cites, as the basis for its recommendation, SCE s testimony regarding upcoming Retirement Plan changes, which will reduce the plan s long-term cost structure. 76 ORA supports the continuation of the two-way Pensions Cost Balancing Account to protect both ratepayers and SCE from pension cost volatility. 2. SCE Rebuttal SCE respectfully disagrees with ORA and maintains the material reduction in the pension plan s cost structure will not be fully realized until years after the current GRC cycle. Notwithstanding this, in the interest of courtesy, cooperation, and judicial economy, SCE will accept ORA s proposal for the 2019 and 2020 pension forecast adjustment. In doing so, we will narrow the number of remaining issues to be litigated in this GRC. Accordingly, SCE will not further address ORA s proposed pension expense reductions in this rebuttal testimony. 3. Conclusion SCE accepts ORA s proposals for the 2019 and 2020 pension forecast reduction and the continuation of the two-way Pension Cost Balancing Account. F. Medical Programs FERC Account 926 SCE forecasts medical program costs of $ million for Test Year The medical program provides comprehensive coverage for eligible enrolled employees and their covered dependents when they incur costs for treatment required due to illnesses and injuries, and includes options to help participants reduce future health expenditures and access preventive services. 77 SCE projected the revenue requirement for 2018 by applying escalation rates to the 2015 recorded/adjusted costs; those escalation rates were 0% for 2016, 7% for 2017, and 7% for Table II-8 below provides the recorded amounts for and the forecast for 2018 for SCE, ORA 78 and TURN. 76 ORA-21, pp See Exhibit SCE-06, Vol. 2, pp SCE has updated ORA s RO Model to reflect modeling that matches their testimony position. 27

34 Table II-8 Medical Programs FERC Account 926 Recorded / 2018 Forecast Summary of SCE, ORA 79, and TURN Positions Nominal $ ORA Position ORA s recommended Test Year 2018 forecast is $ million, which is $9.241 million less than SCE s forecast. ORA applies a medical escalation rate of 4.58% to derive its proposed Test Year 2018 forecast, and further recommends utilizing that escalation rate for its post-test year mechanism SCE Rebuttal a) ORA s Proposed Use of General Survey Data for Its Escalation Rate Does Not Accurately Reflect SCE s Workforce Composition and Medical Plan Usage. ORA chose three sources of healthcare cost statistics to challenge the reasonableness of SCE s proposed medical escalation rate, namely, (1) the 2016 Milliman Medical Index; (2) the California Employer Health Benefits Survey; and (3) the Kaiser Family Foundation s Medical Expenditure Panel Survey. ORA calculated the average of the three insurance premium rate increases cited in these three sources 4.7%, 5.6%, and 3.45%, respectively to arrive at a proposed medical escalation rate of 4.58%. 81 SCE opposes ORA s use of general survey data in determining the medical escalation rate for SCE s Medical Programs expense. Such general surveys determine the average trends of employers with different medical benefit designs, different usage experience and different 79 ORA s forecast is based on a reduced labor forecast. Differences between ORA s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the RO Model. See also SCE-25, Vol ORA-21, p ORA-15, pp

35 methodologies employed for collecting data. In addition, because these general surveys include varying employer populations, significant variances exist in medical trend rates among them. In most cases, general survey data, such as those presented by ORA, represent mitigated cost trend rates. In other words, each set of data reflects the net impact of employer actions to moderate health care costs, such as changing vendors, modifying plan design and increasing required employee contributions. SCE s forecast medical trend rate of 7% is a non-mitigated trend rate. SCE has collective bargaining agreements (CBAs) that are typically in force for five years. Although significant plan changes that potentially reduce medical costs may be included in these agreements, they may not occur in each year covered by the CBAs. Many of the employers who participate in general surveys can make changes to their medical programs each year, typically by either passing more costs to employees or reducing benefit coverage, which has an overall effect of reducing their trend rates. Employers with union-represented employees, such as SCE, must consider any changes to their medical programs and obtain agreements by the unions only when those CBAs are renegotiated. Since so many variables can impact medical trend rates in a five-year period, SCE cannot react as swiftly as other employers represented in those surveys; therefore, our trend rates will generally be higher. b) SCE Has Used Reasonable Trend Rates to Develop Its 2018 Medical Programs Costs As discussed in greater detail in SCE-06, Volume 02, at pages 63-75, SCE evaluated numerous factors influencing medical costs for its covered population to determine reasonable escalation rates. SCE also analyzed multiple surveys that are applicable for forecasting medical cost trend rates for employers, including those used by the ORA. However, in contrast to the general survey data used by ORA, SCE reached out to its own medical plan carriers and asked that their underwriting departments develop future cost projections based on its current covered populations and plan designs. As a result, these estimates are more accurate than broad, generic surveys of employers in general, which represent average health care increases. SCE s health care carriers are most familiar with SCE s cost profiles and consider age and health factors that are specific to SCE s enrolled population in preparing their cost trend projections. After reviewing all of that data, SCE reasonably determined that a 7% annual trend rate for the period, for its specific enrolled population, was appropriate. (The appropriateness of SCE s trend rate is further supported by the rate setting process for SCE s

36 medical plans showing the actual trend at 6.7%. 82 ) Notably, SCE s medical carriers projected generally higher trend rates than the rate selected by SCE for its medical trend forecast. The rates provided by the plans for the years 2017, 2018, 2019, 2020 and 2021, respectively, are: Blue Shield Preferred Provider Organization (PPO): %, %, %, %, % Health Net HMO: 8.9%, 8.9%, 9.2%, 9.2%, 9.4% Kaiser HMO: 7 11%, 7 11%, 7 11%, 7 11%, 7 11% United Health Care HMO: 9.4%, 8.9%, 8.9%, 8.9%, 8.9% 83 SCE projected a lower trend rate than these projections obtained directly from its medical carriers as SCE believes it can achieve this rate through its continued active health management of its enrolled population. 3. Conclusion ORA s use of general survey data to determine SCE s medical escalation rate should be rejected. As noted above, significant variances exist in trend rates among surveys. To avoid survey data issues and biases, SCE received cost estimate projections directly from its medical plan carriers underwriters and SCE s forecast applies a trend rate less than what its own medical carriers have projected. These underwriters used data that is specific to SCE s actual population demographics and the health conditions and plan utilization patterns of that population. As a result, SCE applies trend factors that reflect the reality of the medical system and its underlying cost pressures. This rebuttal is equally applicable to ORA s proposed medical benefit cost escalation for its post-test year mechanism. G. Miscellaneous Benefits FERC Account 926 SCE forecasts Miscellaneous Benefit Programs costs of $5.592 million for Test Year See Table II-9 below. Miscellaneous benefit programs consist primarily of the Electric Service Discount Reimbursement, Awards to Celebrate Excellence, Commuter Programs, and Educational Reimbursement Appendix I, Human Resources, Benefits and Other Compensation, Letter From Actuary Re: SCE 2017 Medical Plans Renewal Rate, Dated May 17, See WP SCE-06, Vol. 02, Chapter 9, Book B, p See Exhibit SCE-06, Vol. 02, pp

37 Table II-9 Miscellaneous Benefit Programs FERC Account 926 Recorded / 2018 Forecast Summary of SCE, ORA 85, and TURN Positions Nominal $ ORA Position ORA does not contest SCE s test year forecast for Miscellaneous Benefit Programs, but proposes a reduction of $1.456 million to SCE s test year forecast for Recognition Programs SCE Rebuttal As discussed in Section D above, SCE disputes ORA s proposed reduction of SCE s forecast for Recognition Programs. Beyond the points discussed there, SCE does not record OU-related Recognition Program expense in Miscellaneous Benefit Programs Conclusion SCE maintains that its Recognition Program expense is reasonable and provides tangible benefits to its customers. As mentioned in section D above, SCE requests that the Commission adopt its Recognition Programs forecast ORA s forecast is based on a reduced labor forecast. Differences between ORA s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the RO Model. See also SCE-25, Vol ORA-15, p. 17. See also SCE s rebuttal position in section D, above. 87 ORA agreed to an alternative methodology to model its proposed Recognition Program adjustment by reducing FERC account Other A&G labor by $1.197 million and non-labor by $0.259 million. See Appendix J, p. J-3, SCE-22, Human Resources, Benefits and Other Compensation, ORA s Response to Data Request SCE-ORA-028, Q.02.b. 88 To the extent ORA s recommendation is adopted, the proposed reduction of $1.456 million for Recognition Programs should be made to Other A&G 920/921, as it allows for the appropriate allocation of forecast labor and non-labor costs for Spot Bonuses and ACE expense, respectively. 31

38 H. Executive Benefits FERC Account 926 SCE forecasts Executive Benefits costs of $ million for Test Year See Table II-10 below. The Executive Benefits Program is part of the competitive compensation package used to attract and retain well-qualified executives. The Program comprises the Executive Retirement Plan that supplements the SCE Retirement Plan, and certain other benefits not included in the rate request. The primary purpose of the Executive Retirement Plan is to restore benefits that executives cannot receive in the qualified SCE Retirement Plan due to limits the Internal Revenue Code (IRC) has imposed on covered compensation and payable benefits in qualified plans. 89 As discussed in greater detail in Chapter IX.I.2.a of SCE-06, Volume 02, SCE will implement changes to the Executive Retirement Plan beginning in 2018 to reduce the plan s long-term cost structure. 90 SCE expects material reductions in associated costs will be realized in the period following the current GRC cycle. Table II-10 Executive Benefits FERC Account 926 Recorded / 2018 Forecast Summary of SCE, ORA, 91 and TURN Positions Nominal $ ORA Position ORA recommends ratepayer funding of 50% of SCE s Test Year 2018 forecast for Executive Benefits based on Commission decisions in SCE s past three GRCs, and because ratepayers 89 See Exhibit SCE-06, Vol. 02, pp See Exhibit SCE-06, Vol. 02, pp ORA s forecast is based on a reduced labor forecast. Differences between ORA s and SCE s forecast labor expense will be addressed when the authorized labor expense is determined and reflected in the RO Model. See also SCE-25, Volume

39 should not bear the full cost of supplemental benefits which serve to further enhance benefits to already highly-compensated employees SCE Rebuttal ORA recommends 50% ratepayer funding of SCE s Executive Benefits Program. ORA does not challenge SCE s forecast of the program costs. ORA also does not contend that the retirement benefits offered to SCE s Executives through the Executive Benefits Program are dissimilar to those provided by comparable companies to similarly situated executives, including both PG&E and Sempra. Rather, ORA s recommendation relies on the claim that SCE s executive benefits are 96.4% above market, according to the TCS, clearly indicating that SCE is already providing very generous benefits to its executives. 93 Once again, ORA incorrectly relies upon the TCS results for a single category of SCE employees, namely Executives, and compounds that error by citing to a single component of total compensation, namely, Benefits. As the Commission has acknowledged, total compensation studies are intended to show a comparison of a utility s total compensation paid to all categories of its workforce in the aggregate with the external market. 94 Since the TCS was designed to view SCE s total workforce compensation in the aggregate in comparison with the market, it is not reasonable for ORA to pick and choose one component of compensation for a small group of SCE executives (who represent a particularly small population of total positions in the TCS (0.3%) 95 ). Consideration of a single component for this small group simply does not lend itself to an accurate assessment of SCE s executives in comparison with executive pay levels in the external market. Notably, even viewing the Executive category by itself, the total compensation for that group remains 8.3% below market according to the TCS. Moreover, ORA s citation to TCS results relative to the Benefits component of the Executive category is further misplaced, since the population of SCE employees eligible for the Executive Benefits Program is not limited to the executive officers who comprise that category. It also includes other SCE employees who fall outside of the TCS Executive job category, namely, the non- 92 ORA-15, p ORA-15, p D , p See Exhibit SCE-06, Vol. 03, p. 4, Table 1. (Executive category includes 43 positions out of the 13,218 positions in the TCS.) 33

40 officer executives included in the Manager/Supervisor category of the TCS. The Executive Benefits Program was included in the TCS for participants in the relevant job categories. ORA does not address the fact that the TCS showed that total cash compensation and LTI for both SCE s Executive and Managers/Supervisor categories, as well as the total compensation overall, were all shown to be below market. Further, ORA does not dispute the results of the TCS nor its key finding that SCE s total compensation is at market. The Executive Benefits Program remains a key component of the total compensation package that SCE needs to attract and retain experienced and productive executives. The Commission has previously ruled that ratepayers and shareholders should equally share of the costs of these programs (including in SCE s 2015 GRC). However, in this 2018 GRC, the reasonableness of SCE s request for full recovery of the costs of its Executive Benefits Program is supported by (1) the TCS results showing SCE s total compensation is at market and (2) SCE s efforts to restructure the long-term costs of the Executive Benefits Program, including the elimination of the Executive Retirement Plan for newly hired executives in 2018 and beyond. 3. Conclusion Based upon the TCS results, which include the Executive Benefits Program as a component of applicable positions total compensation package, SCE s total compensation levels are at market. Therefore, SCE s forecast for the Executive Benefits Program should be adopted as part of the reasonable costs of compensating its executive workforce. 34

41 Appendix A SCE s Response to Data Request NDC-SCE-004

42 Southern California Edison 2018 GRC A DATA REQUEST SET NDC-SCE-004 To: NDC Prepared by: Michelle Ricard Title: Project Manager Dated: 03/30/2017 Received Date: 03/30/2017 Question 04: 4. Similar to the response provided in NDC DR003_Q03 Attachment, please provide information on the total amount of Executive Incentive Compensation (EIC) paid to executives in Indicate how much was paid for performance in each separate metric of the EIC plan, and provide the performance levels that were achieved in each EIC metric versus the target goal. Response to Question 04: The attachment provided in response to NDC-SCE-003, Q.03 has been updated to include the breakdown of target and actual performance levels for each EIC metric for the 2016 plan year and is attached hereto as NDC-SCE-004_Q.04 Attachment.xlsx. NDC-SCE-004_Q.04 Attachment.xlsx

43 Southern California Edison Executive Incentive Plan - Goal Achievement and Target vs. Actual EIC/NOEIP Payout NDC-SCE-004, Q.04 PLAN YEAR GOAL Target Score Actual Score Target EIC Target NOEIP Actual EIC* Actual NOEIP** Safety 10 0 $ 322,064 $ 606,454 $ - $ - Operational & Service Excellence 20 8 $ 644,128 $ 1,212,907 $ 258,737 $ 488,383 Strategic Initiatives $ 644,128 $ 1,212,907 $ 679,184 $ 1,282,006 People & Culture 10 8 $ 322,064 $ 606,454 $ 258,737 $ 488,383 Financial Performance $ 1,288,256 $ 2,425,814 $ 1,714,132 $ 3,235, $ 3,220,641 $ 6,064,536 $ 2,910,790 $ 5,494,312 Safety 10 0 $ 352,191 $ 641,563 $ - $ - Operational & Service Excellence $ 704,383 $ 1,283,125 $ 910,993 $ 1,596,462 Strategic Initiatives $ 704,383 $ 1,283,125 $ 692,355 $ 1,213,311 People & Culture 10 8 $ 352,191 $ 641,563 $ 291,518 $ 510,868 Financial Performance $ 1,408,766 $ 2,566,251 $ 1,931,306 $ 3,384, $ 3,521,914 $ 6,415,627 $ 3,826,172 $ 6,705,140 Operational & Service Excellence $ 918,129 $ 1,631,930 $ 905,961 $ 1,500,624 Strategic Initiatives $ 734,503 $ 1,305,544 $ 1,063,519 $ 1,761,602 People & Culture $ 550,878 $ 979,158 $ 393,896 $ 652,445 Financial Performance $ 1,469,007 $ 2,611,088 $ 3,151,167 $ 5,219, $ 3,672,517 $ 6,527,721 $ 5,514,543 $ 9,134,234 Operational & Service Excellence $ 805,917 $ 1,251,050 $ 1,035,441 $ 1,568,480 Strategic Initiatives $ 805,917 $ 1,251,050 $ 1,242,529 $ 1,882,176 People & Culture $ 805,917 $ 1,251,050 $ 1,449,617 $ 2,195,873 Financial Performance $ 1,611,834 $ 2,502,100 $ 1,863,794 $ 2,823, $ 4,029,584 $ 6,255,250 $ 5,591,381 $ 8,469,794

44 Operational & Service Excellence $ 1,129,183 $ 1,708,103 $ 972,463 $ 1,328,465 Strategic Initiatives $ 1,129,183 $ 1,708,103 $ 2,917,390 $ 3,985,394 People & Culture $ 451,673 $ 683,241 $ 729,347 $ 996,348 Financial Performance $ 1,806,692 $ 2,732,964 $ 1,944,927 $ 2,656, $ 4,516,730 $ 6,832,410 $ 6,564,127 $ 8,967,136 Regulatory & Legislative Advocacy $ 705,160 $ 1,059,174 $ 914,920 $ 1,439,713 Operational Excellence $ 940,213 $ 1,412,231 $ 686,190 $ 1,079,785 People & Culture 5 5 $ 235,053 $ 353,058 $ 228,730 $ 359,928 Financial Performance $ 2,820,640 $ 4,236,694 $ 2,744,760 $ 4,319, $ 4,701,066 $ 7,061,157 $ 4,574,600 $ 7,198,564 + Includes Safety goal *Executive Incentive Compensation Plan payouts to Executive Officers (EIC) are included in labor costs in Executive Officers 920/921 activity package. See SCE- 06 Vol. 1 testimony, pp **For purposes of our GRC showing, SCE includes the Executive Incentive Compensation Plan payouts to non-officer executives (known as NOEIP ) together with STIP in a single STIP request. See SCE-06 Vol. 2 Ch. 5 testimony, pp Refer to 2016 EIX/SCE Joint Proxy Statement, p. 29, for EIC Goals and Target/Actual Scores: 2 Refer to 2015 EIX/SCE Joint Proxy Statement, p. 34, for EIC Goals and Target/Actual Scores: 3 Refer to 2014 EIX/SCE Joint Proxy Statement, p. 33, for EIC Goals and Target/Actual Scores: 4 Refer to 2013 EIX/SCE Joint Proxy Statement, p. 29, for EIC Goals and Target/Actual Scores: 5 Refer to 2012 EIX/SCE Joint Proxy Statement, p. 30, for EIC Goals and Target/Actual Scores: 6 Refer to 2017 EIX/SCE Joint Proxy Statement, p. 30, for EIC Goals and Target/Actual Scores:

45 Southern California Edison 2018 GRC A DATA REQUEST SET NDC-SCE-004 To: NDC Prepared by: Michelle Ricard Title: Project Manager Dated: 03/30/2017 Received Date: 03/30/2017 Question 13: 13. Please provide additional details on the People and Culture metric of EIC. Specifically, what levels of diversity or representation of minorities must be achieved to meet this target? If levels or details have changed over the years, please provide the metrics used from Response to Question 13: Please see the attached table, which provides the diversity metrics included in the EIC People and Culture goal each year from The achievement of the diversity metric each year is based on the improvement in representation of ethnic minorities and women from the previous calendar year. NDC-SCE-004_Q.13 Attachment.xlsx

46 Southern California Edison Executive Incentive Plan - People and Culture Goal Diversity Metrics NDC-SCE-004, Q.13 Year EIC Goal Diversity Metrics Met / Not Met Results 2011 People and Culture No diversity metrics. N/A N/A 2012 People and Culture Improve representation of ethnic minorities and females across executive population. Not Met Ethnic minorities: decreased from 26.8% in 2011 to 26.4% in 2012 Females: decreased from 31.0% in 2011 to 27.7% in People and Culture Improve representation of ethnic minorities and women across executive population. Met. Ethnic minorities: increased from 26.4% in 2012 to 29.5% in 2013 Women: increased from 27.7% in 2012 to 31.8% in People and Culture Improve representation of ethnic minorities and women across executive population and leadership pools. Not Met Ethnic minorities (Executives): increased from 29.5% in 2013 to 30.0% in 2014 Women (Executives): decreased from 31.8% in 2013 to 31.4% in 2014 Ethnic Minorities (Leadership Pools): decreased from 42.7% in 2013 to 42.0% in 2014 Women (Leadership Pools): increased from 29.8% in 2013 to 30.5% in People and Culture Improve representation of ethnic minorities and women across executive population and leadership pools. Not Met Ethnic minorities (Executives): decreased from 30.0% in 2014 to 29.5% in 2015 Women (Executives): increased from 31.4% in 2014 to 31.8% in 2015 Ethnic Minorities (Leadership Pools): decreased from 42.0% in 2014 to 41.4% in 2015 Women (Leadership Pools): decreased from 30.5% in 2014 to 29.5% in People and Culture Improve representation of ethnic minorities and women across executive population and leadership pools. Not Met Ethnic minorities (Executives): increased from 29.5% in 2015 to 30.0% in 2016 Women (Executives): decreased from 31.8% in 2015 to 29.2% in 2016 Ethnic Minorities (Leadership Pools): increased from 41.4% in 2015 to 42.1% in 2016 Women (Leadership Pools): decreased from 29.5% in 2015 to 29.4% in 2016

47 Appendix B 2016 STIP High Performance Organization Goal Success Measures Year-end Status

48 SCE High Performance Organization culture YE Status Goal Advance a High Performance Organization culture by enhancing the decision making process and encouraging employee engagement Alignment: High Peformance Organization Owner: Payne, Powell, Trapp Success Measures 1. Streamline the decision making process by rationalizing committee governance structure to increase effectiveness Analysis/Actions The Executive Governance Model, including establishing four Cross-Functional Committees, has been implemented. Executive Council will continue to review model effectiveness and implement changes when necessary. Owner: Payne 2. Leverage X-change pilot to support employee engagement and create a sustainable continuous improvement function Owner: Powell X-Change transitioned from a pilot into a recurring program. It received over 160 applications for employee-driven improvement projects in Nearly 80 projects were selected to participate in two rounds of workshops, with 40 projects delivering recommendations to senior management. 3. Improve employee perceptions regarding awareness of the SCE vision, trust in leaders and effective communication as measured through monthly pulse surveys Owner: Trapp Surveyed EIX/SCE employees (excluding SONGS) each month with a 38% response rate (>4,500 responses). Company leadership receives monthly reports and actions as a result of feedback include: Employee Road Shows were held earlier this year across the company to help you better understand the company's vision. Team Edison: News You Can Use is a monthly that provides leaders with messages and materials they can use to keep you informed about our company's top priorities. Ongoing Conversations requires all leaders to hold one-onone conversations monthly with their employees. Discussion guides are sent monthly to leaders and employees with suggested topics and questions that can be used as conversation starters. As part of the communications plan for the leadership transition, the SCE CEO is meeting with OU Leadership teams to talk about the company priorities and answer employee questions. Pulse Scores 2015 Q1 Q2 Q3 YE Engagement Vision Trust Mgr Eff Thresholds Met Partially Met/Needs Discussion Not Met 2/8/17 24

49 Appendix C SCE s Revised Response to Data Request TURN-SCE-006 Q.01.f

50 Southern California Edison 2018 GRC A DATA REQUEST SET TURN-SCE-006 To: TURN Prepared by: Michelle Ricard Title: Project Manager Dated: 10/21/2016 Received Date: 10/21/2016 Question 01.f Revised: 1. Regarding WP SCE-06, Vol 2, Chap. III-VIII p. 59, the table STIP Forecast shows an increase in STIP target incentives as a percentage of baseline labor costs for 2018 as compared to 2016 and f. Regarding the table STIP-2015 Recorded Data, please provide a similar table calculated with 2015 STIP costs at target for each function and broken out into STIP at Target, Labor Rec/Adj and STIP at Target/Labor. Response to Question 01.f Revised: SCE is providing a revised response to this data request originally received from TURN on October 21, Please refer to WP SCE-06 Volume 2 Ch. III-VIII, p. 61, Footnote #2, where SCE lists the employee groups excluded from the annual STIP payouts requested through the GRC. SCE inadvertently included two of the listed groups of employees, Edison Carrier Solutions and Public Affairs (Sacramento), in the reported number of employees covered under 2015 STIP. Therefore, the workpaper also includes the 2015 STIP payouts for the two aforementioned groups. SCE apologizes for the inconvenience and will include the updated STIP testimony and workpapers in the next Errata filing at a later time during this proceeding, and reduce the 2018 Test Year forecast accordingly. In order to provide for a corrected response to this data request, please see the attachment titled TURN-SCE-006 Q.01f Revised Attachment.xlsx. Excel columns D and H have been corrected to reflect the reduction in 2015 STIP recorded and target amounts, accordingly. The corrected 2015 STIP Recorded/Adjusted in the attachment is $122,086, and the STIP Target is $116,698, after making the appropriate exclusions. These were previously reported as $123,013 and $117,615, respectively. TURN-SCE-006 Q.01f Revised Attachment.xlsx

51 Southern California Edison Short-Term Incentive Program (STIP) $ in Thousands (Constant) STIP Recorded Data 2015 Target 1 STIP Labor STIP/ STIP Labor STIP/ Function Rec/Adj Rec/Adj Labor Target Rec/Adj Labor Generation 6,982 73, % 6,693 73, % Less: Participant Credits 1 Net Generation 6,982 73, % 6,693 73, % Transmission & Distribution 55, , % 53, , % Customer Service 2 15, , % 14, , % Administrative & General 44, , % 42, , % Total Company 122, , % 116, , %

52 Appendix D Current SCE Executive Population: Average Tenure

53 Average Length of Service of Active* SCE Executives Average LOS (Years) Executive Count Director Officer Total Count of Active* SCE Executives by Length of Service Range Length of Service Range (Years) 0 to 1 1+ to 3 3+ to 5 5+ to to Total Director Officer Total Count by LOS Range Percent of Active* SCE Executives by Length of Service Range Length of Service Range (Years) Director 3% 2% 4% 9% 27% 34% Officer 0% 1% 2% 3% 6% 9% Total % by LOS Range 3% 3% 6% 13% 33% 42% *Active as of April 30, 2017

54 Appendix E Executive Retirements : Average Length of Service

55 SCE Executive Retirements Earlier Than Age 61 At or After Age 61 w/5 Years of Service w/5+ Years of Service Total Retired YEAR Count Average of Average of Average Count Count LOS LOS LOS Grand Total

56 Appendix F 2012, 2015, and 2018 Total Compensation Studies: Payroll Dollars Footnotes

57

58

59

60

61

62

63 Appendix G SCE Executive Average Annual Base Pay

64 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 0% 6.02% 3.00% 0% 0% 0% 4.00% 1.88% Executive % 0% 0% 0% 0% 0% 0% 0% 0.25% Executive % 0% 0% 0% 0.50% Executive 4 0% 3.00% 4.00% 2.33% Executive % 0% 4.99% 0% 3.00% 0% 0% 3.00% 1.75% Executive % 0% 0% 0% 0.51% Executive 7 0% 0% 0% 2.00% 0.50% Executive % 0% 0% 1.98% 0% 0% 8.00% 3.00% 1.93% Executive % 2.00% 0% 0% 2.00% 1.20% Executive 10 0% 4.00% 2.00% Executive 11 0% 2.00% 1.00% Executive 12 0% 0.00% Executive % 0% 1.02% Executive % 3.00% 5.00% Executive % 2.00% Executive % 2.98% 4.02% 3.67% Executive % 1.48% 0% 0% 1.12% Executive % 0% 0% 0% 0.58% Executive % 0% 2.98% 5.49% 3.41% 0% 2.46% Executive % 4.99% 2.98% 3.00% 0% 3.00% 0% 0% 2.18% Executive 21 0% 0% 0% 5.00% 1.25% Executive % 3.00% 2.00% 3.33% Executive % 0% 0% 1.98% 0% 3.00% 0% 0% 0.88% Executive 24 0% 0% 4.00% 0% 0% 0% 0.67% Executive 25 0% 3.00% 0% 1.00% Executive % 2.00% Executive % 2.02% Executive 28 0% 3.00% 1.50% Executive % 0% 5.00% 2.67% Page 1 of 10

65 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive 30 0% 0% 0% 0% 0.00% Executive 31 0% 3.00% 0% 0% 0.75% Executive % 0% 0% 0% 0% 0% 0% 0% 0.25% Executive % 0% 0% 1.01% 2.00% 0.81% Executive % 0% 4.00% 2.17% Executive % 0% 2.02% 4.01% 0% 0% 0% 5.00% 1.82% Executive 36 0% 0% 3.02% 0% 0% 0% 0% 5.00% 1.00% Executive % 0% 0% 0% 4.00% 2.00% 1.00% Executive 38 0% 4.00% 1.51% 1.84% Executive % 0% 0% 3.99% 0% 0% 0% 0.86% Executive % 0% 0% 0% 0% 0% 0.33% Executive 41 0% 4.00% 7.00% 3.67% Executive % 1.48% Executive 43 0% 0% 0% 1.79% 3.41% 1.04% Executive 44 0% 6.00% 0% 4.00% 2.50% Executive % 2.00% Executive 46 0% 0% 0% 0% 0.00% Executive % 3.00% 3.00% Executive % 5.01% 0% 0% 0% 1.60% Executive 49 0% 3.50% 0% 0% 0% 0% 0.58% Executive 50 0% 3.00% 2.00% 0% 0% 0% 0% 0.71% Executive 51 0% 3.00% 0% 1.00% Executive % 0% 0% 0% 0.75% Executive 53 0% 0% 0% 0% 0.00% Executive 54 0% 6.00% 2.00% 4.00% 3.00% Executive 55 0% 0% 0% 0% 0% 0% 0% 2.00% 0.25% Executive % 0% 1.50% Executive % 10.00% 5.00% 7.00% Executive % 3.01% 3.00% 0% 2.00% 2.00% Page 2 of 10

66 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive 59 0% 2.61% 2.02% 3.00% 0% 2.00% 4.00% 1.95% Executive % 0% 2.01% Executive % 0% 0% 0% 3.00% 0% 0.83% Executive 62 0% 0% 1.98% 0% 0% 0% 0.33% Executive 63 0% 0% 0% 0.00% Executive 64 0% 3.00% 1.50% Executive 65 0% 0% 0% 0% 0% 8.00% 1.33% Executive 66 0% 0% 0% 0% 2.00% 0.40% Executive % 3.99% 5.01% 0% 2.75% Executive 68 0% 0.00% Executive 69 0% 2.00% 2.00% 1.33% Executive % 0% 0% 0% 0% 0% 0% 0% 0.25% Executive 71 0% 0% 0% 2.91% 0.73% Executive 72 0% 0% 0% 0% 0% 0.00% Executive % 0.99% 0% 0% 1.00% Executive % 0% 0% 0% 0% 0.40% Executive % 0% 2.02% 0% 0% 0% 0% 0% 0.50% Executive % 0% 0% 0% 0.62% Executive 77 0% 4.98% 3.01% 0% 2.00% 2.00% Executive % 0% 5.02% 3.02% 3.00% 0% 0% 5.00% 2.32% Executive % 0% 3.00% 0% 1.50% Executive 80 0% 0% 8.00% 5.00% 3.25% Executive % 0% 5.00% 4.00% 0% 0% 1.84% Executive % 4.99% 3.01% 0% 2.97% 10.00% 8.00% 2.00% 4.12% Executive % 0% 2.99% 0% 1.13% Executive % 0% 0% 0% 0.63% Executive 85 0% 0% 0% 0% 0.00% Executive % 3.99% 0% 0% 1.76% Executive % 0% 0% 0% 0.50% Page 3 of 10

67 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 2.99% 2.46% Executive % 0% 3.99% 1.99% 0% 3.00% 0% 7.00% 2.25% Executive % 3.48% 2.99% 5.03% 0% 0% 0% 0% 1.87% Executive % 8.30% 0% 7.77% Executive % 0% 2.00% 0% 3.00% 0% 1.83% Executive % 2.01% 2.98% 0% 0% 0% 0% 3.00% 1.25% Executive 94 0% 3.99% 0% 0% 0% 0% 2.00% 0.86% Executive % 2.49% 0% 2.16% Executive % 0% 1.00% Executive 97 0% 2.00% 0% 0% 0% 0.40% Executive 98 0% 3.00% 1.50% Executive % 5.00% 4.00% 3.00% 4.50% 4.18% Executive % 0% 0% 0% 1.24% Executive % 0% 1.49% 0% 0% 0% 3.00% 0% 0.97% Executive 102 0% 4.00% 2.00% Executive % 0% 4.00% 7.00% 3.50% Executive 104 0% 0% 0% 0% 0.00% Executive % 0% 0% 0% 0.50% Executive 106 0% 9.99% 0% 0% 3.00% 3.00% 8.00% 3.43% Executive 107 0% 6.00% 2.00% 2.67% Executive 108 0% 0% 0% 0.00% Executive 109 0% 0% 0.00% Executive 110 0% 2.02% 3.41% 3.01% 7.00% 4.00% 4.00% 3.00% 3.31% Executive % 2.00% 2.50% 3.01% 3.00% 0% 8.00% 4.00% 3.13% Executive % 4.99% 4.49% Executive % 0% 0% 0% 0% 0% 0% 3.50% 0.69% Executive % 0% 1.75% Executive 115 0% 5.00% 6.00% 6.00% 4.25% Executive % 0% 0% 1.33% Page 4 of 10

68 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 2.00% 0% 3.00% 4.00% 2.00% Executive % 0% 0% 0.50% Executive % 4.98% 0% 2.33% Executive % 0% 0% 0% 0% 0% 0.33% Executive % 10.00% 0% 0% 2.50% 3.50% Executive % 10.02% 10.01% 0% 3.00% 0% 0% 3.00% 3.58% Executive 123 0% 6.00% 3.00% Executive % 0% 0.50% Executive 125 0% 0.00% Executive % 0% 0% 0% 0.63% Executive % 0% 3.02% 0% 0% 1.01% Executive % 6.01% 3.69% 0% 3.92% Executive 129 0% 0% 0% 3.00% 0% 0.60% Executive 130 0% 0% 4.99% 2.02% 1.75% Executive 131 0% 0% 0% 0.00% Executive % 5.02% 0% 5.02% 0% 0% 0% 1.72% Executive % 0% 0% 2.02% 1.01% Executive % 5.00% Executive % 2.04% Executive % 5.02% 4.99% 0% 0% 4.00% 6.00% 7.00% 3.63% Executive % 0% 1.99% 0% 3.00% 0% 0% 0.93% Executive 138 0% 3.00% 3.01% 2.00% Executive % 0% 0% 0% 0.51% Executive 140 0% 0% 4.00% 5.00% 0% 1.80% Executive 141 0% 3.02% 2.98% 0% 0% 1.20% Executive % 0% 3.52% 3.01% 3.00% 0% 0% 2.00% 1.82% Executive % 3.01% 0% 0% 0% 0% 0.84% Executive % 2.00% Executive % 5.02% 0% 0% 0% 0% 1.50% Page 5 of 10

69 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 0% 0% 1.00% Executive 147 0% 0% 0% 0% 0% 3.00% 8.00% 7.00% 2.25% Executive 148 0% 0% 1.98% 0% 0% 0% 3.50% 0.78% Executive 149 0% 0% 0% 4.02% 0% 0% 0% 3.00% 0.88% Executive % 3.19% 0% 0% 1.67% Executive 151 0% 0% 0% 0% 0.00% Executive 152 0% 0% 0% 0.00% Executive % 5.00% 2.01% 4.98% 5.00% 3.00% 0% 4.00% 3.25% Executive 154 0% 4.00% 4.00% 2.67% Executive % 0% 0% 1.33% Executive 156 0% 10.00% 5.00% Executive 157 0% 3.00% 3.02% 0% 5.00% 0% 0% 3.00% 1.75% Executive 158 0% 0% 0% 0% 0% 0% 0.00% Executive % 4.98% 3.00% 4.02% 0% 5.00% 0% 0% 2.88% Executive 160 0% 0% 0% 6.00% 0% 3.00% 1.50% Executive 161 0% 5.00% 5.00% 3.33% Executive 162 0% 4.00% 3.00% 4.00% 3.00% 2.80% Executive 163 0% 0% 0% 0.00% Executive % 3.00% Executive % 0% 0% 0% 0% 0% 0.34% Executive 166 0% 2.00% 0% 0% 0.50% Executive % 5.00% 5.00% Executive 168 0% 0% 5.01% 0% 0% 1.00% Executive 169 0% 0.00% Executive % 3.00% 0% 4.99% 5.00% 3.12% Executive % 2.02% Executive % 4.99% 0.00% 0% 0% 5.00% 0% 0% 1.69% Executive % 0% 5.03% 0% 0% 1.41% Executive 174 0% 3.09% 5.00% 5.02% 0% 0% 0% 1.87% Page 6 of 10

70 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive 175 0% 5.00% 3.00% 4.00% 3.00% Executive % 6.00% Executive 177 0% 0% 0% 8.00% 0% 1.60% Executive % 8.00% 2.00% 0% 3.76% Executive 179 0% 0.00% Executive % 2.52% 2.98% 0% 3.38% Executive % 0% 3.02% 2.02% 3.00% 0% 0% 3.00% 1.76% Executive % 5.00% 4.00% 2.00% 3.50% 3.70% Executive 183 0% 0% 0% 0% 0% 0% 3.00% 0.43% Executive 184 0% 5.98% 5.01% 0% 3.50% 0% 0% 3.00% 2.19% Executive 185 0% 0.00% Executive 186 0% 0% 0% 0% 0.00% Executive % 7.50% 6.26% Executive % 0% 3.03% 0% 3.00% 10.00% 8.00% 6.00% 4.01% Executive % 0% 2.99% 4.00% 2.51% Executive % 0% 0% 0% 0% 0.40% Executive % 4.01% 5.00% 3.00% 0% 0% 2.51% Executive 192 0% 0% 3.03% 2.99% 2.96% 1.80% Executive % 0% 0% 4.00% 1.38% Executive % 0% 12.50% 7.41% 5.73% Executive 195 0% 7.01% 3.11% 0% 0% 0% 1.69% Executive 196 0% 5.00% 3.00% 2.67% Executive 197 0% 5.00% 3.00% 2.67% Executive 198 0% 7.00% 3.50% Executive 199 0% 0% 3.00% 1.00% Executive % 0% 0% 0% 3.00% 1.11% Executive 201 0% 0% 0.00% Executive % 5.99% 1.00% 0% 0% 1.80% Executive 203 0% 0% 0.00% Page 7 of 10

71 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 0% 1.12% 0% 0.66% Executive % 0% 0.91% Executive 206 0% 3.01% 0% 5.00% 0% 0% 1.34% Executive % 5.02% 4.99% 0% 0% 0% 2.25% Executive % 4.00% 4.00% 5.00% 4.00% 4.20% Executive % 4.99% 3.00% 0% 9.00% 2.00% 3.50% Executive % 0% 0% 0% 0.75% Executive 211 0% 6.01% 2.99% 0% 0% 1.80% Executive 212 0% 3.67% 3.54% 2.56% 2.44% Executive % 5.01% 5.01% Executive % 4.98% 12.51% 0% 3.22% 0% 0% 0% 3.19% Executive 215 0% 5.00% 0% 3.00% 2.00% Executive % 4.98% 5.00% 5.00% 0% 0% 0% 0% 2.25% Executive 217 0% 0% 0% 0% 0% 0.00% Executive 218 0% 0% 2.00% 0% 3.00% 1.00% Executive 219 0% 0.00% Executive % 0% 0% 0.66% Executive % 0% 0% 4.01% 0% 5.00% 0% 1.50% Executive % 0% 4.00% 0% 1.50% Executive 223 0% 0% 0% 0% 0% 0.00% Executive 224 0% 0% 0% 0% 4.00% 0.80% Executive % 0% 0% 0% 3.00% 3.00% Executive 226 0% 0% 0.00% Executive % 7.74% 7.37% Executive % 5.02% 9.99% 10.00% 0% 0% 0% 3.00% 3.75% Executive % 0% 8.00% 0% 0% 3.00% 3.00% 6.00% 2.71% Executive % 0% 0% 0% 0% 0.60% Executive % 0% 2.99% 3.01% 0% 1.81% Executive % 4.99% 0% 0% 0% 5.00% 2.00% Page 8 of 10

72 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Executive % 5.98% 0% 2.00% 5.00% 4.00% 3.66% Executive % 2.99% 0% 2.49% 1.75% Executive % 4.00% 5.99% 6.97% 5.00% 5.00% 0% 0% 3.75% Executive % 3.02% 2.98% 0% 0% 0% 0% 0% 1.13% Executive 237 0% 0% 3.00% 4.00% 1.75% Executive 238 0% 0% 10.00% 0% 0% 2.00% Executive % 2.99% Executive % 2.01% 2.98% 0% 0% 0% 0% 2.00% 1.38% Executive % 0% 0% 0.51% Executive % 3.00% Executive 243 0% 0% 3.00% 1.00% Executive 244 0% 6.17% 4.00% 5.00% 4.10% 3.85% Executive 245 0% 0% 3.00% 1.00% Executive % 0% 0% 0% 0.25% Executive % 0% 2.50% 0% 1.13% Executive 248 0% 0% 7.99% 5.98% 0% 6.00% 4.00% 3.00% 3.37% Executive 249 0% 5.02% 0% 0% 0% 0% 0% 0.72% Executive 250 0% 0% 0% 0% 0% 0.00% Executive % 5.01% 0% 0% 0% 1.40% Executive 252 0% 0% 5.00% 1.67% Executive % 3.01% 3.00% 0% 2.00% 3.50% 2.44% Executive % 0% 5.00% 2.66% Executive % 5.50% 5.25% Executive 256 0% 5.00% 0% 3.00% 2.00% Average Base Pay 2.00% 1.56% 1.80% 1.39% 1.27% 1.43% 1.90% 2.84% 1.77% Number of Executives Number of Executives Receiving 0% Pay Page 9 of 10

73 NAME SCE Executives - Annual Base Pay Received (Percentage) Average Percent of Executives Receiving 0% Pay 24% 64% 53% 64% 67% 68% 60% 29% 54% Page 10 of 10

74 Appendix H Recognition Programs Historical Expense vs. Budget

75 Recognition Programs Historical Expense vs. Budget ACE Expense - O&M Grand Total* $4,813,168 $485,869 $184,170 $236,045 $227,278 $443,706 2 Spot Bonus Expense - O&M Grand Total* $3,387,999 $1,822,924 $1,108,930 $1,050,475 $997,046 $1,634,346 3 Recognition Programs - O&M Grand Total $8,201,167 $2,308,793 $1,293,100 $1,286,520 $1,224,324 $2,078,052 4 Budget - 0.2% of Budgeted Labor Base (excluding Nuclear and Capital)** $2,641,542 $2,106,352 $2,123,230 5 Actual vs. Budget (Underspend) ($1,355,022) ($882,028) ($45,178) For comparison - based on ORA testimony, comparing Recognition Program expense to recorded/adjusted labor: 6 Recorded/Adjusted Labor (Nominal) $829,103,000 $792,876,888 7 Recognition Program Expense as % of Recorded/Adjusted Labor 0.148% 0.262% *Excluding Nuclear and Capital **2014 Budget Includes Capital Notes: Line 3 = Line 1 + Line 2 Line 5 = Line 3 - Line 4 Line 7 = Line 3 Line 6

76 2016 ACE / Spot Bonus Targets ($000) NT Budget detail Org Unit Dept O&M GF O&M Div Overhead IMM Capital Total.2% Nuclear $ 215 $ 215 $ 0.4 Power Supply 61,664 4,279 $ 65,943 $ OS 29,942 48,067 1,891 $ 79,900 $ T&D 188, , ,814 $ 747,648 $ 1,495.3 Customer Service 168, ,242 $ 173,156 $ Corp Comm 8,834 $ 8,834 $ 17.7 Govt Affairs 13,085 $ 13,085 $ 26.2 Pres Office 485 $ 485 $ 1.0 IT 73,094 32,854 $ 105,948 $ Finance 43,721 $ 43,721 $ 87.4 Ethics & Compliance 9,034 $ 9,034 $ 18.1 Reg Affairs 22,339 $ 22,339 $ 44.7 Audits 6,807 $ 6,807 $ 13.6 HR* 35,927 $ 35,927 $ 71.9 Legal 32,865 5 $ 32,870 $ 65.7 $ 694,991 $ 908 $ 317,864 $ 48,067 $ 284,079 $ 1,345,909 $ 2,691.8 *HR 8,750 GF not included A Total Budgeted Labor Base $ 1,345, B Total, excluding Nuclear and Capital $ 1,061, C Recognition 0.2% (000) $ 2, Notes: C = B x.002

77 A Total Budgeted Labor Base $ 1,425, B Total, excluding Nuclear and Capital $ 1,053, C Recognition 0.2% (000) $ 2, Notes: C = B x.002

78 A $ 2,755,502 Recognition Programs Target B $ 2,641,542 Recognition Programs Target, Less Nuclear Notes: B = A - $113,960

79 Spot Bonus Historical Expense A&G $1,620,625 $490,846 $375,441 $449,057 $409,728 $792,822 Power Production $390,150 $417,050 $39,575 $49,675 $24,550 $71,898 Transmission & Distribution $1,028,775 $418,149 $247,325 $215,446 $296,100 $496,472 Customer Service $285,180 $254,685 $284,799 $283,398 $245,123 $270,235 O&M Subtotal $3,324,730 $1,580,730 $947,140 $997,576 $975,501 $1,631,427 Spot Bonus Recorded to Clearing Cost Center $316,345 $1,210,971 $808,948 $264,494 $107,727 $14,594 80% of Clearing Cost Center Allocated to Capital $253,076 $968,777 $647,158 $211,595 $86,182 $11,675 20% of Clearing Cost Center Allocated to O&M $63,269 $242,194 $161,790 $52,899 $21,545 $2,919 O&M Grand Total 3,387,999 1,822,924 1,108,930 1,050, ,046 1,634,346 Notes: Line 5 = Sum of Line 1 through Line 4 Line 7 = Line 6 x 0.8 Line 8 = Line 6 x 0.2 Line 9 = Line 5 + Line 8

80 ACE Program Historical Expense A&G $1,790,373 $222,920 $10,038 $7,088 $12,263 $33,805 Power Production $251,063 $30,318 $17,063 $29,763 $59,163 $317,870 Transmission & Distribution $1,506,323 $124,358 $137,638 $150,713 $104,713 $91,990 Customer Service $1,116,105 $77,048 $17,150 $44,288 $48,588 $0 O&M Subtotal $4,663,863 $454,643 $181,888 $231,850 $224,725 $443,665 ACE Bonus Recorded to Clearing Cost Center $746,528 $156,133 $11,413 $20,975 $12,763 $205 80% of Clearing Cost Center Allocated to Capital $597,222 $124,906 $9,130 $16,780 $10,210 $164 20% of Clearing Cost Center Allocated to O&M $149,306 $31,227 $2,283 $4,195 $2,553 $41 O&M Grand Total $4,813,168 $485,869 $184,170 $236,045 $227,278 $443,706 Notes: Line 5 = Sum of Line 1 through Line 4 Line 7 = Line 6 x 0.8 Line 8 = Line 6 x 0.2 Line 9 = Line 5 + Line 8

81 Appendix I Letter From Actuary Re: SCE 2017 Medical Plans Renewal Rate, Dated May 17, 2017

82 Via Electronic Mail May 17, 2017 Mr. Mark Bennett Director of Total Rewards and Services 1515 Walnut Grove Ave Rosemead CA Re: Southern California Edison 2017 Rate Renewal Dear Mark: The letter describes the process that Cheiron used to develop the projected increase in the medical and prescription drug plan costs for calendar year Cheiron first requested each of the medical and prescription drug vendors to provide their estimate of the cost for 2017, separating out the expected increases for claims, capitation, and administrative costs with supporting justification for their estimates. Cheiron then independently developed estimated increases for claims and capitation through an analysis of the underlying cost trends for the past three years for each benefit plan offering and vendor individually. This produced our estimate of the actual underlying, historical cost trends that were specific to the Edison population. We then compared our estimates to the expected increases developed by the vendors and discussed any differences with the vendors to determine if there were any specific issues, such as changes in provider discounts, that would lead to differences in cost trend assumptions. This allowed us to develop our final estimate of the claims components of costs for We also compared the requested increases in administrative costs to the increases we saw in the marketplace. We then negotiated with the vendors to end up with reasonable changes in the administrative cost for The combination of the claims and administrative components produced the 6.7% projected change in costs between 2016 and This letter was prepared exclusively for Southern California Edison for the purpose described herein. Other users of this letter are not intended users as defined in the Actuarial Standards of Practice, and Cheiron assumes no duty or liability to any other user. To the best of my knowledge, this letter and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices that are consistent with the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board. Furthermore, as a credentialed actuary, I meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in this letter. Please feel free to call me at extension 1135 if you have any questions. Sincerely, Cheiron Michael Schionning, FSA, MAAA Principal Consulting Actuary

83 Appendix J ORA s Response to Data Request SCE-ORA-028

84