5. Capital Expenses

SCE proposes to replace its gas vaporization system and upgrade the fuel supply and storage tank facilities. The estimated total cost of this project is $1,303,000. The estimated useful life of the vaporization plant is 30 years. SCE's request for a significant increase in the Test Year 2005 revenue requirement is attributable primarily to the vaporization plant upgrade.

The existing LPG system uses a blend of 60% propane and 40% butane, which is delivered to Catalina by barge and transported to Pebbly Beach by tanker truck to four 30,000-gallon propane/butane storage tanks and one 16,000-gallon propane storage tank. The blended LPG is heated and vaporized into a gas-air mixture that ultimately is delivered into the distribution system.

SCE acquired the LPG butane-propane storage and processing system in 1962 and has made many additions and replacements to the system since that time. The company states that the facilities have begun to degrade to the point that reliability is compromised. Inspections have revealed leaks in water bath vaporizers and extensive corrosion. The upgrade includes replacement of water bath vaporizers, mixers, a mix tank, air compressor equipment and an LPG tank. The project will enable SCE to switch from a propane/butane mix to 100% propane, and this is expected to lower costs of gas because propane is available from more sources and is mechanically easier to vaporize.

SCE states that upgrading and relocating the existing LPG processing facilities within the current site is the least-cost alternative in addressing the obsolescence of the equipment and complying with safety requirements. The project is targeted for completion late this year.

ORA in its analysis agrees with SCE that the upgrade is necessary, noting that the existing facility is more than 30 years old and is out of compliance with a number of national fire safety standards. Because the cost will more than double the fixed capital component of SCE's rate base in Catalina, and because rates will reflect a return on that investment, ORA recommends that no rate increase be allowed to go into effect until the project is completed and the new plant is fully operational. SCE has agreed with that position, and our order today so provides.

The building used by SCE for its electric, water and gas operations has a deteriorating floor that precludes use of heavy equipment because of danger that the floor could collapse into the basement. ORA examined the facility and the concrete integrity evaluation conducted for SCE, and ORA agrees that upgrading is necessary. Estimated cost of the project is $400,000, of which 15% or $60,000 is allocated to the gas operations. Because there has been some delay in completion, ORA recommends that the $60,000 allocation be effective July 1, 2005 rather than April 1, 2005 as originally requested by SCE. Our order today makes this amount effective on July 1, 2005.

Edison has completed a Bird Park line extension that involved installation of new gas distribution service in conjunction with the City of Avalon for a new city-subsidized low-income building development. The project provided gas service to 24 new customers. ORA reviewed the project, its cost, alternatives considered and vendor selection and recommends approval of the estimated $95,000 cost of the project. We agree that the record supports this addition to rate base as the least-cost alternative to providing this new service.

SCE proposes to replace 500 feet of gas distribution pipeline to 20 existing residences in Pebbly Beach Village, contending that the line was installed in the 1960s and now has exceeded the 40-year useful life of underground steel pipeline. Cost of the work would be $265,000, with $200,000 attributed to SCE's gas operations and $65,000 attributed to SCE's water utility.

ORA initially opposed this work on grounds that SCE has provided no engineering studies or other evidence that the line, despite its age, is in need of replacement at this time. At hearing, however, SCE presented evidence that it will be sharing the cost of this project with Santa Catalina Island Company, which plans to install a new fire flow line in Pebbly Beach at the same time the gas pipeline is installed. SCE was unable, however, to estimate how much it will save because of the joint project. Mark Bumgardner, ORA's project coordinator, testified that ORA would support a $100,000 allocation for the pipeline work if its costs are shared with the fire flow work.

In the absence of any revised estimate of cost because of the participation in the work by the Santa Catalina Island Company, our decision today approves $100,000 for this gas pipeline replacement.

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