6. Operations and Maintenance

SCE seeks a 68% increase in what has been budgeted in the past for its operations and maintenance expenses, citing a need for increased maintenance, employee training and compliance with numerous federal and state regulatory reporting requirements. Based on extensive discovery and a site visit, ORA objects to most of these increases. Both parties used a five-year average to estimate expenses, but SCE then sought additional amounts in several accounts to meet what it termed new "regulatory, safety, and reliability requirements."⁵ ORA contested this, stating:

In many instances, when pressed to identify what was the source of the 2005 budget in data requests, Edison witnesses repeatedly answered that the budgets that were "determined reasonable by SCE management, evolved during a series of discussions between SCE management and line employees" and that Edison did not maintain any "notes or calculations used to develop these forecasts."

ORA's investigation also found that in the very recent past Edison had substantially over-estimated its O&M expenses. For example, Edison in its application estimated that its O&M expenses would be $750,000 in 2003. However, recorded 2003 O&M expenses were only $456,000. (ORA Opening Brief, at 14; footnotes omitted.)

What follows are the positions of the parties as to each of the operations and maintenance accounts in dispute and our resolution of those disputes.

6.1 Additional Employee

SCE proposes $75,000 for a full-time equivalent employee to perform additional maintenance and inspection tasks.⁶ ORA claims that SCE has failed to justify this additional position, and that the new gas plant should obviate the need because of its increased efficiency.

SCE presented evidence showing that the new LPG plant will require an expanded preventative maintenance program to test and inspect the additional safety features in the new plant. SCE also testified that the additional staffing is required for a major pipeline testing and repair program that the company has begun. Hiring of an additional employee, SCE contends, will reduce SCE's reliance on more costly staff overtime to complete inspection and training requirements.

SCE has shown the need for an additional employee to augment its small staff on the island, and this addition should reduce SCE's need for additional overtime costs to accommodate employee training. We grant the requested increase of $37,500 in FERC Account 844.2 and $37,500 in FERC Account 874.⁷

6.2 Additional Training

For Test Year 2005, SCE requested a total of $280,000 in FERC Account 844.2, $77,000 in Account 874 and $58,000 in Account 920/921. ORA recommended a disallowance of additional training costs of $2,000 in Account 844.2, $2,000 in Account 874 and $5,000 in Account 920/921 for a total disallowance of $9,000. ORA also would disallow $60,000 in additional overtime costs for training purposes ($30,000 in Account 8442 and $30,000 in Account 874).

SCE's witness stated:

Federal regulations require that gas distribution operators and maintenance personnel be able to perform specific tasks to ensure the safe operation of the gas distribution system. To comply with these requirements, SCE is implementing a comprehensive formalized operator qualification training program and developing and maintaining "critical task" operating procedures to support this effort. (SCE Opening Testimony, at 39-40; footnotes omitted.)

ORA argues that all work required by the regulations that govern Catalina's gas distribution operation were in effect during 2002 and were reflected in historical rates. The evidence shows that during 2002, SCE conducted significant training that cost $83,000, and this amount was included in Catalina's base costs.

We agree with ORA that the record does not support a doubling of training and training overtime costs ($167,000) from the recorded training costs incurred in 2002 ($83,000). Our approval of SCE's request for an additional employee at Catalina also serves to reduce added costs in these categories. We adopt ORA's recommended amounts in Account 844.2, Account 874, Account 920/921, Account 844.2 and Account 874.

6.3 Preventative Maintenance

SCE seeks an additional $22,000 in preventative maintenance expenses in Account 847.1 (LPG Processing Terminal Maintenance Supervision and Engineering). The company testified that the revenue is necessary for inspection and maintenance requirements in the new LPG facility. In response to an ORA data request, however, SCE identified no testing and inspection tasks that are not currently required. ORA urges that a five-year average be used in calculating the 2005 test year cost for this account. We conclude that SCE has not met its burden of showing the need for this increase, and we disallow it.

We will, however, allow a requested $10,000 increase in Account 847.1 for corrosion protection of pipelines attaching to the new LPG plant. While ORA opposed this increase on grounds that no significant leakage or corrosion has been reported, SCE showed that the pipes in question are more than 40 years old and require additional protection during the plant construction.

6.4 Work Management System

SCE sought an additional $10,000 for an automated work management system and an additional $18,000 for a formalized training program, all part of Account 920/921 (Safety Training and Other Non-Operating Expenses). ORA recommends that a five-year average be used in calculating Test Year 2005 costs for this account. ORA testified that SCE's new automated management system would replace one that currently works well and costs less. On cross-examination at hearing, ORA showed that an internal audit report by SCE had only one recommendation for new training (handling of compressed gas), and that was to be completed by July 2002. We find that SCE has not justified these increased estimates for the small workforce it maintains in Catalina. We adopt ORA's recommendations for this account. Of course, this does not preclude SCE from developing a new automated work management system if it believes such a system will improve efficiency.

6.5 Uncontested SCE Proposals

SCE has applied to the Commission for an exemption from General Order 58A to implement a statistical meter-testing program. ORA supports this on grounds that the program probably will save ratepayers money. We adopt Edison's estimate for Account 878/879 (Meter & House Regulator & Customer Installation Expense).

SCE seeks an expense increase in Account 887 (Maintenance of Mains) of $65,000 for a major new pipeline testing and repair program. The evidence shows that the rate of underground leaks on SCE's system in 2003 was dangerously high - nearly 1.5 leaks per mile, or 6 leaks on 4.5 miles of steel pipe. ORA testified that the leaks were distributed throughout the system and were not isolated to any one section of pipe, and that it is prudent to begin a thorough testing of the system.

ORA also supports as reasonable SCE's forecast expenses for Account 893 (Maintenance of Meters and House Regulators Expense) and Account 902 (Meter Reading Expense). Testimony at hearing showed the likelihood of the forecast expenses. We adopt these forecasts.