A.02-05-004, I.02-06-002 COM/CXW/mnt ALTERNATE DRAFT
STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor
PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298
February 13, 2004 Agenda ID #3269
(Alternate to Agenda ID #3268)
Ratesetting
TO: PARTIES OF RECORD IN APPLICATION 02-05-004 AND
INVESTIGATION 02-06-002
RE: NOTICE OF AVAILABILITY OF PROPOSED DECISION ON OPINION ON BASE RATE REVENUE REQUIREMENT AND OTHER PHASE 1 ISSUES WITH THE ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD
Consistent with Rule 2.3(b) of the Commission’s Rules of Practice and Procedure, I am issuing this Notice of Availability of the above-referenced proposed decision and alternate proposed decision. The proposed decision was issued by Administrative Law Judge (ALJ) Wetzell and the alternate proposed decision by Commissioner Wood on February13, 2004. An Internet link to this document was sent via email to all the parties on the service list who provided an e-mail address to the Commission. An electronic copy of this document can be viewed and downloaded at the Commission’s Website (www.cpuc.ca.gov). A hard copy of this document can be obtained by contacting the Commission’s Central Files Office [(415)703-2045].
This is the proposed decision of ALJ Wetzell, previously designated as the principal hearing officer in this proceeding and the alternate proposed decision of Commissioner Wood. It will not appear on the Commission’s agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code §1701.3(c). Pursuant to Resolution ALJ-180, a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10days before hand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.
When the Commission acts on the proposed decision or alternate proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.
Parties to the proceeding may file comments on the draft decision as provided in Article19 of the Commission’s “Rules of Practice and Procedure.” These rules are accessible on the Commission’s website at http://www.cpuc.ca.gov. Pursuant to Rule77.3 opening comments shall not exceed 25 pages.
Consistent with the service procedures in this proceeding, parties should send comments in electronic form to those appearances and the state service list that provided an electronic mail address to the Commission, including ALJ Mark Wetzell at . and Commissioner Carl Wood at . Service by U.S. mail is optional, except that hard copies should be served separately on ALJ Wetzell and Commissioner Wood, and for that purpose I suggest hand delivery, overnight mail or other expeditious methods of service. In addition, if there is no electronic address available, the electronic mail is returned to the sender, or the recipient informs the sender of an inability to open the document, the sender shall immediately arrange for alternate service (regular U.S. mail shall be the default, unless another means – such as overnight delivery is mutually agreed upon). The current service list for this proceeding is available on the Commission’s Web page, www.cpuc.ca.gov.
/s/ ANGELA K. MINKIN by PSW
Angela K. Minkin, Chief
Administrative Law Judge
ANG:sid/mnt
Attachment
- 2 -
A.02-05-004, I.02-06-002 COM/CXW/mnt ALTERNATE DRAFT
COM/CXW/mnt ALTERNATE DRAFT Agenda ID #3269
(Alternate to Agenda ID #3268)
Ratesetting
Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD (Mailed 2/13/2004)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of Southern California Edison Company (U 338-E) For Authority to, Among Other Things, Increase Its Authorized Revenues For Electric Service in 2003, And to Reflect That Increase in Rates. / Application 02-05-004(Filed May 3, 2002)
Investigation on the Commission’s Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Edison Company. / Investigation 02-06-002
(Filed June 6, 2002)
(See Appendix A for a list of appearances.)
OPINION ON BASE RATE REVENUE REQUIREMENT
AND OTHER PHASE 1 ISSUES
- 2 -
A.02-05-004, I.02-06-002 COM/CXW/mnt ALTERNATE DRAFT
TABLE OF CONTENTS
Title Page
OPINION ON BASE RATE REVENUE REQUIREMENT 55
AND OTHER PHASE 1 ISSUES 55
1. Introduction 55
1.1. Summary of Decision 55
1.2. Background 57
2. Preliminary Matters 59
2.1. The Utility’s Showing 60
2.2. SCE’s Financial Health 63
2.3. Comparative Rate Levels 65
2.4. Forecasting Issues 67
2.4.1. Averaging and Other Methodologies 67
2.4.2. Capital Expenditures & PBR 69
2.4.3. Witness Qualifications 71
3. Generation 72
3.1. San Onofre Nuclear Generating Station 72
3.1.1. SONGS 2 & 3 Capital 73
3.1.1.1. Introduction 73
3.1.1.2. Forecasting Methods 73
3.1.1.3. Used Fuel Storage Project 77
3.1.1.4. Marine Mitigation Projects 78
3.1.1.5. Offsite Sirens and Monitors Project 79
3.1.1.6. Blanket Work Orders 80
3.1.1.7. Conclusion – SONGS 2 & 3 Capital Expenditures 80
3.1.2. SONGS 2 & 3 Base O&M Expenses 82
3.1.2.1. Introduction 82
3.1.2.2. Training Credits Adjustment 84
3.1.2.3. Deferred Activities Adjustment 85
3.1.2.4. Awards and Recognition Adjustment 86
3.1.2.5. Nuclear Rate Regulation 88
3.1.2.6. Site Projects 89
3.1.2.7. Workers’ Compensation Adjustment 93
3.1.2.8. Labor Scarcity Adjustment 94
3.1.2.9. Plant Security Adjustment 97
3.1.2.10. Maintenance/FERC Account 524 99
3.1.2.11. Maintenance/FERC Accounts 530, 531, and 532 100
3.1.2.12. Nuclear Support/FERC Account 524 102
3.1.2.13. Nuclear Support/FERC Account 528 103
3.1.2.14. Nuclear Support/FERC Account 532 103
3.1.2.15. Other Methodological Issues 105
3.1.2.16. Removal of Outage Expenses 105
3.1.2.17. NRC Licensee Fees 106
3.1.2.18. Conclusion – SONGS 2 & 3 Base O&M 107
3.1.3. SONGS 2 & 3 Outage O&M 107
3.1.3.1. Cost Recovery Proposal 107
3.1.3.2. Reinstatement of Excluded Costs 109
3.1.3.3. Mobilization Adjustment 110
3.1.4. SONGS 1 Shutdown O&M 110
3.1.5. SDG&E’s Share of SONGS Costs 112
3.2. Palo Verde Nuclear Generating Station 113
3.2.1. Palo Verde Capital Expenditures 113
3.2.2. Palo Verde O&M Expenses 114
3.3. Mohave Generating Station 116
3.3.1. Mohave Capital Expenditures 116
3.3.2. Mohave O&M Expenses 119
3.4. Four Corners Generating Station 122
3.4.1. Four Corners Capital Expenditures 122
3.4.2. Four Corners O&M Expenses 124
3.5. Hydroelectric Generation 125
3.5.1. Hydroelectric Capital Expenditures 125
3.5.2. Hydroelectric O&M Expenses 127
3.6. Other Generation 128
3.7. Generation Capital Additions for 1997-1998 129
3.7.1. Introduction 129
3.7.2. Evaluation Criteria 133
3.7.3. Cost-Effectiveness Analyses 139
3.7.4. Performance Improvements 140
3.7.5. Budget Variances 141
3.7.6. Project Timing 141
3.7.7. Casualty Loss Projects 142
3.7.8. Conclusion – 1997-98 Capital Additions 143
4. Transmission and Distribution (T&D) 144
4.1. Introduction 144
4.2. Level of Reliability Performance 145
4.3. Wood Pole Inspections 148
4.3.1. Introduction 148
4.3.2. Historical Pole Inspections 148
4.3.3. Proposed Penalty 153
4.3.4. Ratemaking Adjustments for Deferred Inspections 157
4.3.5. Reporting Requirement 161
4.4. T&D Capital 161
4.4.1. Introduction 161
4.4.2. ORA’s Plant Recommendations 162
4.4.3. Wood Pole Replacement Costs 164
4.5. T&D O&M Expenses 168
4.5.1. ORA’s Proposals 168
4.5.2. Jurisdictional Separation 169
4.6. Line and Service Extension Rules 170
4.7. Electric Transportation 172
4.7.1. Introduction 172
4.7.2. ORA’s Recommendations 173
4.7.3. Aglet’s Recommendations 173
5. Customer Service 176
5.1. Introduction 176
5.2. O&M Expenses and Related Issues 177
5.2.1. Overview 177
5.2.2. Customer Service Operations 178
5.2.2.1. Forecast Method 178
5.2.2.2. Uncollectible Factor 179
5.2.2.3. Authorized Payment Agencies (APAs) 181
5.2.2.4. Internet Site Maintenance 183
5.2.2.5. Direct Access Costs 184
5.2.3. Customer Service & Information 185
5.2.3.1. Public Goods Charge Funding 185
5.2.3.2. Air Conditioner Cycling Programs 187
5.2.3.3. Load Control Programs 188
5.2.3.4. Economic and Business Development Costs 189
5.2.3.5. LA County’s Proposals 193
5.2.3.5.1. Introduction 193
5.2.3.5.2. Billing and Consumption Data 194
5.2.3.5.3. Energy Efficiency Financing 195
5.2.3.5.4. Ratepayer Impact Analysis 196
5.3. Service Fees and Other Operating Revenues 198
5.3.1. Ratemaking Policy Considerations 198
5.3.2. Late Payment Charge 200
5.3.3. Service Establishment Charge 202
5.3.4. Direct Access Customer Charge 204
5.3.5. Level of Service Charges 205
5.4. Capital 206
5.4.1. SCE’s Showing 206
5.4.2. Real Time Energy Metering (RTEM) 209
5.5. Service Guarantees 211
6. Administrative and General 215
6.1. Introduction 215
6.2. Financial Organizations and Capitalized Expenses 215
6.2.1. Account 930 – Participant Credits 215
6.2.2. Capitalized Pension and Benefits (P&B) 216
6.3. Legal And Regulatory, Workers’ Compensation, Insurance 217
6.3.1. Account 923 (ORA Audit Recommendations) 217
6.3.2. Accounts 923 & 928 (Forecast Methodology) 218
6.3.3. Account 928 (GRC Expenses) 219
6.3.4. Account 930 (Board Meetings) 220
6.3.5. Property and Liability Insurance Expense 221
6.3.5.1. Account 924 (Property Insurance Expenses) 221
6.3.5.2. Account 925 (Liability Insurance) 222
6.4. Shared Services 222
6.4.1. Shared Services Expenses 222
6.4.1.1. Business Resources 222
6.4.1.2. Investigations Division 224
6.4.1.3. Shared Services Support Group 226
6.4.1.4. Corporate Real Estate 227
6.4.1.4.1. Market Studies, Title & Mapping 227
6.4.1.4.2. Landscape Maintenance 228
6.4.1.4.3. Account 935 Forecasting Method 228
6.4.2. Shared Services Capital 229
6.4.2.1. Introduction 229
6.4.2.2. Adequacy of SCE’s Showing 229
6.4.2.3. Projects Over $1 Million 230
6.4.2.3.1. Strategic Facilities Plan 230
6.4.2.3.2. Corporate Fitness Center 233
6.4.2.3.3. Seismic Upgrades 234
6.4.2.4. Blanket Work Orders - Major Structures 236
6.5. Information Technology 237
6.5.1. Introduction 237
6.5.2. IT Expenses 237
6.5.3. IT Capital Expenditures 240
6.5.4. Y2K Retention Bonuses 242
6.5.5. IBM Charges 243
6.6. Capitalized Software 243
6.7. Human Resources (HR) 244
6.7.1. HR Departmental Costs 244
6.7.1.1. Total Compensation Division 244
6.7.1.2. HR Service Center 245
6.7.1.2.1. Dues and Memberships 245
6.7.1.2.2. FERC Account 923 247
6.7.1.3. Outside Services for Executives 248
6.7.2. Employee Compensation Issues 248
6.7.2.1. Total Compensation Study 248
6.7.2.2. Executive Compensation 253
6.7.2.2.1. Executive Bonuses 253
6.7.2.2.2. Executive Retirement Benefits 256
6.7.2.2.3. Executives and Philanthropy 257
6.7.2.3. Incentive Plans 258
6.7.2.3.1. Spot Bonuses 258
6.7.2.3.2. Results Sharing 260
6.7.2.3.3 ACE Program 264
6.7.2.4. Other Compensation Issues 265
6.7.2.4.1. Pensions 265
6.7.2.4.2. 401(k) Plan 268
6.7.2.4.3. Health Care Programs 271
6.7.2.4.4. Miscellaneous Benefits 272
6.7.2.4.5. PBOP Refund Proposal 272
6.7.2.4.6. TURN’s PBOP Proposal 274
6.8. Public Affairs and Corporate Communications 275
6.8.1. Public Affairs 275
6.8.2. Franchise Fees 280
6.8.3. Corporate Communications 281
6.9. Energy Supply and Management (ES&M) 282
6.10. Reimbursable Expenses Error Rate 284
7. Other Audit Issues – Affiliates 287
7.1. Introduction 287
7.2. Edison Select Costs 287
7.3. Energy Marketing Affiliate 288
8. Rate Base 289
8.1. Plant Balance Weighting Percentage 289
8.2. Materials and Supplies Inventory 291
8.3. Working Cash 292
8.4. Customer Advances for Construction 294
8.5. Customer Deposits 296
9. Depreciation and Amortization 301
9.1. Introduction 301
9.2. Depreciation Study 303
9.3. SONGS 2 & 3 Remaining Life 307
9.4. Easements 309
10. Other Results of Operations Issues 310
11. Post Test Year Ratemaking 311
11.1. Introduction 311
11.2. Revenue Balancing Account 312
11.3. SCE’s and Aglet’s PTYR Proposals 314
11.4. Productivity Adjustment 318
11.5. SONGS 2 & 3 Outages 319
11.6. Capital Forecasting Methodology 320
11.7. Escalation Factors 322
11.8. Exogenous Cost Changes (Z-Factors) 323
11.9. Filing Procedure 325
12. Jurisdictional Allocation Method 326
13. Performance Incentives 328
13.1. Introduction 328
13.2. Parties’ Proposals 329
14. Issues Raised by Commissioner Wood and the Energy Division 338
14.1. Introduction 338
14.2. Integrated Resource Planning and UtilityOwned Generation 339
14.3. Supplier Diversity 346
14.4. Workforce Diversity 351
15. Disposition of Memorandum Account 354
16. Comments on Proposed Decision 357
17. Assignment of Proceeding 357
Findings of Fact 357
Conclusions of Law 387
ORDER 393
APPENDIX A 1
APPENDIX B 1
(END OF APPENDIX B) 6
APPENDIX C 1
A.02-05-004 and I.02-06-002 (Email listing) 1
CERTIFICATE OF SERVICE 1
NOTICE 1
- 2 -
A.02-05-004, I.02-06-002 COM/CXW/mnt ALTERNATE DRAFT
OPINION ON BASE RATE REVENUE REQUIREMENT
AND OTHER PHASE 1 ISSUES
1. Introduction
1.1. Summary of Decision
Returning Southern California Edison Company (SCE) to conventional cost-of-service ratemaking after a six-year hiatus, we set the company’s authorized base rate revenue requirement at $2.756 billion for the 2003 test year. On an annualized basis, this represents an increase of $15 million (0.5%) above SCE’s present base rate revenue of $2.741 billion for 2003. SCE had requested an increase of $251 million (9.2%). The test year revenue requirement authorized herein will be implemented in accordance with Decision (D.) 03-05-076 and related determinations made in this decision.
SCE’s base rate revenue requirement covers the costs of operating, maintaining and investing in the utility’s generation, distribution, and central office functions. It excludes such costs as fuel, power procurement, and public purpose programs. In D.03-07-029 we provided for the reduction of SCE’s retail rates by $1.249 billion annually upon the utility’s recovery of the balance of its Procurement Related Obligations Account (PROACT). This reduction was calculated using an estimate of the total bundled service ratepayer revenue responsibility of $8.472 billion, which includes the share of the Department of Water Resources revenue requirement paid by SCE’s customers. Thus, the base rate revenue requirement that we authorize today, while substantial, represents approximately one-third of the consolidated revenue requirement being paid by SCE’s bundled service customers. The adopted test year base revenue requirement increases the bundled revenue requirement by 0.2%.
Pursuant to the Commission’s order in D.03-07-029, SCE’s electric rates will be increased on a system average percentage change (SAPC) basis to give effect to the base rate revenue requirement increase adopted today. In Phase 2 of this proceeding, the Commission is evaluating proposals regarding the allocation of revenue requirement responsibility to customer classes and the design of rate structures.
We approve SCE’s request to establish a late payment charge for residential customers along with an exemption for customers enrolled in the California Alternate Rates for Energy (CARE) program. We also approve in part SCE’s request to adjust its charges for returned checks, reconnects, service establishment, and field assignment. We do so to more closely align rates and charges with the principle of cost causation.