Results Sharing

One of the costs Edison recovered in its general rate case is an allowance for "results sharing" which is an incentive pay plan. This Edison program links compensation to employees' annual job performance as well as business unit and Company performance. All full time Edison employees are eligible and all performance is measured against stated goals. Edison "forecast Results Sharing program expenses of $80.884 million for the 2003 test year. This forecast is distributed among Federal Energy Regulatory Commission (FERC) Accounts 500, 588, 905, and 920."¹⁴ We can immediately see that these accounts are not included in the list of accounts we used to develop the SDG&E forecast in D.04-12-015. Therefore, we know the Results Sharing costs for Edison are not included in the adopted SDG&E forecast of SONGS O&M. We now need to answer the question of whether they are costs billed by Edison to SDG&E, and if so, we need to develop the correct 2004 forecast.

According to Edison's rate case manager, the rate case costs for Results Sharing were net of the SDG&E share.¹⁵ We know this to be likely because our intention was to only include the costs that Edison would recover from its own customers, and not costs assignable to SDG&E or the other owners of SONGS. We also know from the ALJ's proposed Decision that the estimate for SDG&E in D.04-12-015 did not include costs from Edison's FERC Accounts 500, 588, 905, or 920. Therefore, we can conclude that SDG&E is entitled to an allowance in the 2004 forecast for Results Sharing costs as billed by Edison.

SDG&E requested $2.4 million in A.02-05-004, in 2000$ (Ex. 414), or $2.999 million in 2004$ (Ex. 170). Ex. 169 is completely inadequate to determine the request in A.02-12-028 for Result Sharing because the exhibit lacks any detailed descriptions and is devoid of citations to either D.04-07-022 or the underlying exhibits in the Edison proceeding. Here, and throughout this decision, we accord little weight to Ex. 169.

SDG&E included in Ex. 170 a copy of an invoice (Appendix K-65) which shows Edison billed SDG&E for $2.607 million for Results Sharing in 2003. We will accept that in fact, Edison charges SDG&E for Results Sharing as a part of SONGS 2 and 3 O&M expense.¹⁶ We can determine whether the up-dated request of $2.4 million is reasonable by comparing it to Edison's allowance for its share of the expense in D.04-07-022. We note that neither Ex. 169 nor Ex. 170 made any adjustment to the estimate, even though both were prepared after the Edison decision. We therefore find Ex. 170 misstates the likely SDG&E forecast to be derived from D.04-07-022.

The Commission determined that Edison "has not demonstrated the reasonableness of its estimation method." And later, "conclude[d] that both SCE's [Edison's] and ORA's forecast methodologies yield questionable forecasts for Results Sharing program costs, and we therefore adopt an alternative method." Nowhere in D.04-07-022 is this alternative method identified as SDG&E's method. The Commission adopted a two-year average amount of $73.432 million instead of $80.884 million, for Edison in 2003, a reduction of $7.452 million, or 9.21%.¹⁷ We cannot tell if SDG&E estimated its costs for Results Sharing more, or less, conservatively than Edison did. The Commission expected Edison to incur 9.21% less in Results Sharing expense. Therefore, we can reasonably conclude that, at the same time and in the same proceeding, SDG&E's adopted forecast, on an otherwise comparable basis, would be 9.21% less too. SDG&E could not anticipate this 9.21% reduction by the Commission in Exs. 261 and 414, but SDG&E should have included it in Ex. 169 and Ex. 170. SDG&E did make other adjustments in O&M expenses in Ex. 169, but ignored this adjustment to Edison's forecast. We will therefore make a comparable adjustment to SDG&E's request, reducing it by $0.221 million (9.21%), to $2.179 million, and then escalate the result to 2004 dollars levels. The 2004 allowance is $2.524 million. ($2.179 million x 1.1583, using the labor escalation rate of 15.83%.)

¹⁴ D. 04-07-022, mimeo., p. 214.

¹⁵ Declaration of Russell G. Worden, Appendix E, Ex. 170, at p. E-2.

¹⁶ Actual 2004 costs billed to SDG&E are not relevant because we are adopting the test year forecast with the information that was available at the time the parties litigated the Edison general rate case.

¹⁷ D.04-07-022, mimeo., pp. 215 - 216. ($80.884 million - $73.432 million = $7.452 million. $7.452 million/$80.884 million = 9.21%.)