Subject: Follow Up to SCG DR-ORA-005 Account 923 Outside Services Request 1. In response to Question 1, SoCalGas indicated that Account 923.0 reflected IT costs. Is SoCalGas referring to $19,580,000? In addition, it was indicated that there is an increase of $284,000 and this will be corrected in an upcoming errata. When will SoCalGas provide this erratum? Will it compare the original filing with the changes/corrections? Will the changes/corrections be specifically identifiable? Question 1 in SCG DR-ORA-005 discussed a difference between Table C in the workpapers and Table PJF-9 on page PJF-30. Table C reflected $119,018,000 while Table PJF-9 on page PJF-30 reflected $99,477,000 for Test Year 2004. Table C in the workpapers for Test Year 2004 was overstated by $19,541,000 due to the inadvertent inclusion of IT related costs that are being sponsored by Chris Baker for FERC Account 923. The IT costs presented in Chris Baker s testimony for FERC Account 923 for the December filing are $19,580,000 as shown on JCB-2. The IT cost inadvertently included in Pam Fair s 923.0 workpapers was from an earlier forecast. As noted in the response to Question 1 in SCG-DR-ORA-005, a preliminary forecasted increase of $284,000 was noted as an upcoming errata. The final errata submittal forecast for 2004 is now $97,851,000 for a decrease of $1,626,000 (instead of the preliminary $284,000 increase) due to lower allocations from Sempra Energy Corporate Center (SECC) and SDG&E. The errata forecast from SECC is now at $71,507,000 (PJF-37, Table PJF-11, Errata) and SDG&E now $26,344,000 (PJF-32, Table PJF-10, Errata). The errata was filed on May 2, 2003. Please refer to the attached spreadsheet identified as SCG-DR-ORA-047, Question 1, which reflects the FERC Account 923.0 workpaper included in the errata filing.
2. In response to Question 2, SoCalGas indicated that the 2001 recorded was adjusted for Intercompany charges, FAS-87 Pension credit, and LTIP. How did SoCalGas determine that $16,692,692 was Intercompany charges, that $4,376,487 was FAS-87 Pension credit, and that $2,200,510 was LTIP? Please provide an explanation for what are considered Intercompany charges and why they were charged to Account 923.0. What assurance is there that SoCalGas has backed out all Intercompany charges? How was the FAS-87 Pension credit determined? How was the LTIP determined? Please provide supporting documentation for each of these adjustments. As noted in the response to Question 2 of SCG-DR-ORA-005, the 2001-recorded allocations from SECC to SoCalGas was adjusted from $162,325,239 to $147,808,524. This adjustment was to eliminate the inter-company charges, FAS-87 pension credit and the LTIP. The amounts for these items were determined by SECC based on the billings generated through SAP from SECC to SoCalGas, which reports itemized costs in accounts and categories. These amounts are from the billing transaction totals for 2001. The inter-company charges specifically for SoCalGas are recorded in SECC cost center 1100-0285 and 1100-0287, the LTIP charges are recorded in 1100-0310 and the FAS-87 pension credit is recorded in 1100-0306. Inter-company charges consist of charges from SoCalGas to SECC and from SECC as a shared service billing back to SoCalGas. These costs are allocated to FERC Account 923.0 because all costs billed from SECC for this filing are reflected in this account for SoCalGas. An example of the Inter-company charges is: in 2001 (not in 2004), IT was a part of SECC and occupied space in the Gas Company Tower. SoCalGas billed SECC for space occupied in the Gas Tower. Because IT work was related to SoCalGas, SECC billed the space back to SoCalGas using the allocation methodologies discussed in the testimony of Frank Ault beginning on page FHA-4.
3. In response to Question 3, SoCalGas indicated that the estimate expenses for 2002 are comprised of SECC expenses of $71,514,000 and SDGE expenses of $17,866,000. How did SoCalGas determine these estimates? Please provide cross-reference to specific workpapers that support these estimates. In addition, Frank Ault s workpaper estimate for 2002 SECC is $64,471,000. Please provide reconciliation. As noted in Frank Ault s testimony on page FHA-11 and FHA-12, 2002 allocations are reflected as if the Utility Integration had occurred on January 1, 2001. Therefore, the SECC forecasted expense for 2002 does not include the 1 st quarter expenses for organizations that moved from SECC to SDG&E on April 1, 2002. In addition, the forecast of 2002 allocations from SDG&E to SoCalGas was only for April December 2002. Therefore, in Pam Fair s workpapers, an estimate of the 1 st quarter expenses based on an early forecast of the 2002 allocations to SoCalGas from SDG&E was added to the SECC forecast to account for a complete 2002. Also, in Pam Fair s workpapers, the SECC forecast for 2002 was incorrectly shown as $66,333,000 instead of the amount reflected in Frank Ault s testimony. The 2002 amount is being changed in the errata filings of both Frank Ault and Pam Fair. The attached spreadsheet (SCG-DR-ORA- 047 Question 3) details the difference between the original and errata filings for these numbers.. The SECC estimated expenses for 2002 are now $63,296,000, which agrees with the amount reflected in Frank Ault s errata filing, refer to Frank Ault s workpapers, FHA-253. In addition, the allocations from SDG&E for 2002 are $17,502,000 plus the 1 st quarter adjustment for a total of $22,683,000. The total 2002 forecast for 923.0 in Pam Fair s Testimony is now $85,979,000. The attached spreadsheet (SCG-DR-ORA-047 Question 3a) is a copy of the SoCalGas FERC Account 923.0 Errata workpaper for Pam Fair s testimony.
4. In response to Question 7, SoCalGas indicated that the $16,582,000 transfer from Account 923.0 to Account 921.6 is not being addressed in Pam Fair s testimony so these costs were transferred to account 921.6 for presentation purposes. What exactly does SoCalGas mean by this statement? In addition, Question 7 asked for a cross reference to the supporting workpapers that shows the transfer to Account 921.6, please provide this cross reference as requested, giving the exact page number in the witnesses workpapers. Included in the 2001-recorded amount of $147,808,000 in Pam Fair s testimony for FERC Account 923 were costs related to Business Solutions in the amount of $16,582,000. These costs are being sponsored in Mr. Krumvieda s SoCalGas Testimony and therefore were removed from Pam Fair s recorded 2001 for FERC Account 923. (See workpaper 923.0 Section D, Line 4 = <$16,582>). FERC Account 921.6 was identified in Pam Fair s response to data request number SCG-DR- ORA-005, Question 7 to indicate where in the COS presentation the costs moved, specifically from Pam Fairs testimony amount in FERC Account 923.0 to Mr. Krumvieda s testimony amount included in the FERC Account 921.6. However, these costs were restated to various accounts in Mr. Krumvieda s testimony and workpapers. Please refer to Mr. Krumvieda s testimony, page RAK-2 that states: Due to the utility integration that occurred on April 1, 2002, almost all of the Business Solutions costs formerly at Sempra Energy were transferred to SDG&E. Each of the functional organizations in Business Solutions, with the exception of Fleet Operations, was impacted by Sempra Energy activities being transferred to SDG&E. Therefore, many costs for SoCalGas Business Solutions activities were reflected as charges from Sempra Energy for 2001 and the first quarter of 2002. In addition, some of the Sempra Energy charges for 2001 and first quarter 2002 were recorded in different FERC accounts than used post integration. The $16,582,000 was calculated based on 1) the costs allocated to SoCalGas for 2001 from SECC that pertained to cost centers for Business Solutions that were transferred to SDG&E for the amount of $15,621,350, and 2) a portion of the overheads included in the 2001 recorded allocations from SECC to SoCalGas added to this number for the amount of $961,000. Please note that $16,582,000 is being changed to $17,228,061 in the errata because 1) in the original filing, costs for security were inadvertently reflected under HR instead of Business Solutions, and 2) there was a slight change to the overhead allocation. Please refer to the attached schedule identified as SCG-DR-ORA-047, Question 4 that reflects how the $17,228,061 was calculated. Response to Question 4 (Continued)
The amount removed for Business Solutions from Pam Fair s testimony will not specifically show as a line item in Mr. Krumvieda s testimony due to how the numbers are presented in the two testimonies. However, both testimonies, Pam Fair s and Mr. Krumvieda s, used the 2001 actual recorded expenses for Business Solutions to develop the 2001 restated amounts in the respective testimonies. (Refer to Frank Ault s Testimony for SoCalGas, FHA-12, that reflects the 2001 recorded amount for the Sempra Utilities.)
5. In response to Question 12, SoCalGas indicated that the $6,400,000 increase in base allocated expenses from SDG&E should be $7,151,101. In addition, SoCalGas provided a table that breaks down the estimate into five categories. How did SoCalGas determine this breakdown and where is SoCalGas supporting workpapers that supports this breakdown? Please provide specific workpapers to support these expenses. The final errata filing showed the increase in base allocated expenses from SDG&E to SoCalGas as $6,467,101, rather than the originally filed $6,400,000 or the preliminary errata number of $7,151,101. The attached schedule identified as SCG-DR-ORA-047, Question 5 provides the detail of the change in the base allocated expenses from 2001 to Test Year 2004. This includes the costs that were moved to SDG&E from SECC and are being sponsored in Pam Fair s Testimony and the 2004 forecasted allocations for these areas. The 2004 forecasted amounts exclude any overheads and are in 2001 dollars. (Please note, for SoCalGas allocations from SECC and SDG&E are considered the same as costs from outside vendors and are therefore escalated prior to receipt by SoCalGas. No additional escalation is added.)
6. In response to Question 13, SoCalGas indicated that the $1,200,000 increase in expenses from SDG&E is due to escalation. Why is SoCalGas escalating expenses from SDG&E? How did SoCalGas determine the breakdown of this escalation? Please provide specific workpaper cross reference that supports this escalation. Allocations from SECC and SDG&E to SoCalGas are treated as costs from an outside vendor and are therefore, escalated in the forecast before the costs are received and do not receive any additional escalation. Therefore, the 2004 forecast for allocations from SDG&E have been escalated. The escalation is one of the factors for an increase over the 2001 numbers. To identify the impact of the escalation, 2001 expenses were escalated and compared back to the actual 2001 expenses. Please refer to the attached schedule identified as SCG-DR-ORA-047, Question 6 on how the escalation increase was derived. As discussed in the response to question 13 in SCG-DR-ORA-005, the escalation factor used for this exercise was a blended rate of 9% based on the labor and non-labor Gas O&M rates indicated in Dave Barker s Escalation Testimony on DTB-12. Please note that a corrected difference of $992,373 is included in the errata filing.
7. In response to Question 14, SoCalGas indicated that the $8,400,000 increase in expenses from SDG&E should be $7,618,303 for overhead. Why is SoCalGas loading overheads onto costs from SDG&E? How did SoCalGas determine the overhead loading? How did SoCalGas determine the breakdown of this overhead loading? Please provide specific workpaper cross reference that supports this overhead loading. SoCalGas does not add any loaders onto shared services allocations received from SDG&E. These allocations have the loaders applied before they are received by SoCalGas. As discussed in Marianne Sower s SDG&E testimony on MCS-2, Various proceedings and related decisions dictate in general how SDG&E and SCG and other California utilities handle the transfer of goods and services between the utilities and other affiliates. As a general principle, a utility may share with its affiliates corporate support services and personnel. For the most part, the shared service billings represent services not produced, purchased or developed for sale on open markets. Therefore, they are priced at fully loaded costs including required affiliate supplemental loaders where applicable. Please refer to Marianne Sower s SDG&E testimony on MCS-7 through MCS-11, which discusses the items that are included in the overhead loaders. The overall change in SDG&E allocations to SoCalGas from 2001 to test year 2004 is $15,537,533. There are 3 key factors that would explain the change in allocations from SDG&E to SoCalGas from 2001 to test year 2004. 1. A $6,467,101 is attributed to a change in base expense (refer to Question 5). 2. A $992,373 is attributed to escalation of expenses (refer to Question 6). 3. A change in the level of overheads. $8,078,059 that is attributed to a change in overhead expense from 2001, resulting from the increase in base expenses and higher cost of benefits. (In the original filing, this amount was identified as $8,400,000 and the preliminary errata analysis reflected the amount as $7,618,303. However, the final errata data results in an increase of $8,078,059). Labor costs are forecasted to increase by $4,126,000 and non-labor to increase by $2,341,000 for 2004 over recorded 2001. Labor loaders forecasted for 2004 is 122.3% ($4,126,000*122.3% = $5,046,098) and non-labor loaders are forecasted at 13.1% ($2,341,000*13.1% = $306,671) for an increase due to change in base expense of $5,352,769. (Please refer to Marianne Sowers SDG&E Testimony, MCS-7 for loader rates). The remaining difference is due to increases in benefit expense. The table below summarizes the change in allocations from SDG&E to SoCalGas from 2001 to 2004 in FERC Account 923. Change Reason for Change Amount Change in Base Expense $6,467,101 Escalation Impact 992,373 Increase in overheads attributable to change in Base Expense 5,352,769 Increase attributable to increase in Overheads 2,725,290 Total Change in SDG&E Allocations from 2001 $15,537,533 Response to Question 7 (Continued)
Two large items that are included in the overheads (as discussed in Marianne Sower s testimony) are Workers Compensation and Pension and Benefits expense. Both of these items are reflecting significant increases over 2001 recorded. P&B expense for SDG&E is forecasted to increase by $49,899,000 from 2001 to test year 2004 and Workers Compensation is forecasted to increase by $2,594,000. Please refer to Joyce Rowland s SDG&E testimony on page GJR-13 and GJR-41.
8. In response to Question 16, SoCalGas indicated that the $7,000 decrease for Miscellaneous Change is now a $97,000 increase for unidentified variance. Please explain why SoCalGas is including a variance for the 2004 test year? SoCalGas errata filing notes a Miscellaneous Change of $87,000 decrease instead of the $7,000 decrease in the original filing. This amount accounts for the revised difference between the escalation and the overhead amounts in the SDG&E allocation for FERC Account 923.0 (workpaper Section D, Line 12, 13 and 14 = $15,625K) versus the total forecast for FERC Account 923.0 (PJF-32, Table PJF-10, Errata = $15,538K).