6. Maximum Reasonable and Prudent Cost
The Decision established a maximum reasonable and prudent cost (maximum cost) for the Project pursuant to Pub. Util. Code § 1005.5(a) of $545,285,000 in 2005 dollars, including pension and benefits, and administrative and general overheads, but excluding Allowance for Funds Used During Construction (AFUDC). The Decision provided for increases and decreases to the maximum cost dependent upon various routing options that SCE might pursue for the Arizona portion of the Project.54
The Decision recognized that SCE's cost estimate for the Project would be more accurate once SCE developed a final detailed engineering design-based construction estimate, particularly given the fact that certain routing options remained under consideration. Consequently, it required SCE to file an advice letter within 30 days of the availability of such an estimate so that the Commission could reconsider the appropriate maximum cost for the project.55
SCE requests that, in lieu of modifying the maximum cost at this time, we retain the advice letter process set forth in the Decision.
We grant SCE's request. However, we note that SCE's current showing of the costs for the California-only Project raises several concerns which we expect SCE to fully address in its advice letter filing. SCE estimates that the California-only Project will cost between $526.3 million and $536.6 million in 2009 dollars, dependent upon routing around Alligator Rock.56 This estimate includes escalation to the estimate for the original Project from 2005 to 2009 dollars. It subtracts those portions of the original Project which will not be constructed at this time, and it adds $106.3 million to construct the Midpoint Substation, including a 35% contingency factor for the substation. SCE does not explain how it calculated the escalation of 2005 dollars to 2009 dollars. Additionally, the 35% contingency factor for the Midpoint Substation is concerning. SCE's advice letter filing should provide the most current cost estimates available, including contingency factors, and a justification for any contingency over 15%. To the extent escalators are used, they should be explained and justified. Additionally, if SCE's method for escalating 2005 dollars to 2009 dollars results in a different amount compared to using a Bureau of Labor Statistics escalation/inflation calculator, SCE should fully explain the difference and why SCE's chosen method is more appropriate. The cost differences between the Project we approved in the Decision and the California-only Project should be clearly explained.
SCE should also carefully review its assumptions and arithmetic in future filings, as there appear to be several errors in SCE's current filing. For example, SCE estimates AFUDC of $135 million. This may be an error. SCE's advice letter filing should update the amount of AFUDC projected for the California-only Project, explain how it was calculated, including the rate used to calculate AFUDC (i.e., 90 day commercial paper rate). Additionally, SCE states in the Supplemental Filing that "Attachment K shows that construction of the DPV2 would include an estimated $113 million for DPV2, $333 million for Devers to the California border, and $235 million for the California border to Harquahala for an estimated total of $686 million in $2009."57 However, if we add up these numbers - 113 + 333 + 235 - they equal $681 million, not $686 million. Further, Attachment K reflects $112 million for DPV2, not the $113 million cited in the Supplemental Filing. While these errors or omissions are not significant given the scope of the project at issue here, we note that this listing is not exhaustive. Repeated errors and omissions of this type reflect a concerning lack of attention to detail which we expect to be corrected in future filings.
54 Decision at Ordering Paragraph 10.
55 Decision at Ordering Paragraphs 11 and 12.
56 Supplemental Filing, Attachment L.
57 Supplemental Filing at 19.
