XXVII. SDG&E Electric Department
Operations & Maintenance Expense

A. SDG&E Nuclear Operations & Maintenance Expense

In Ex. 302, ORA presented its position on SDG&E's share of shared costs for SONGS that were litigated in total in the Edison general rate case, A.02-05-004 and in this decision we will rely on D.04-07-022 in that proceeding.

B. SDG&E Account 556 - System Control & Load Dispatch

SDG&E requested $1.858 million in Test Year 2004 to fund the operations of load dispatching as a part of the electric system control process. SDG&E asked for an increase to fund two senior traders and five senior analysts. SDG&E identified new duties including the administration of the California Department of Water Resources (DWR) electricity contracts that have been allocated to the company, following the failure of the AB 1890 electric restructuring process.

ORA proposed to reduce the number of new employees by one in both classifications for a savings of $0.152 million. It did not explain how it determined this number but did note than it still allowed for an increase.

In the April 2, 2003 Scoping memo, the Assigned Commissioner highlighted as an important issue and SoCalGas and SDG&E were directed to file supplemental testimony to answer (among other questions):

"Do SoCalGas and SDG&E have adequate organizations to plan for and meet future natural gas and electric resource procurement and distribution needs? Describe the staff qualifications and resources necessary for them to meet the procurement requirement."

ORA's project manager for SDG&E testified that ORA did not assign staff to review these questions. In response to cross-examination, (Transcript, p. 398) SDG&E's witness testified that the proposed procurement organization - gas and electric - was the company's best estimate on a ground-up basis to meet the procurement needs in the near term. In order to support its efforts to properly plan for its resource needs.

We will adopt SDG&E's estimate for the test year. We expect ORA to carefully examine organizational structure as a part of its review in the next rate proceedings for SDG&E (and SoCalGas).

C. SDG&E Account 557 - Purchase Power

ORA proposes a reduction of two analysts each in two new departments, for the Procurement Planning and the Resource Planning Departments that SDG&E justified as needed to reduce its reliance on consultants. Again, as in Account 556, we have no detailed analysis or recommendations from ORA other than a generalized reduction from five to three staff in both departments. We will not accept cuts. SDG&E also seeks $0.450 million for consulting costs, which it indicates is a new cost since the 2001 base year, before there were the two new planning departments. SDG&E argued that consultants, if used correctly, can save costs over full-time staff. We will allow the consulting costs. We expect the new departments to become more proficient and need less consulting support.

D. SDG&E Account 580 - Operation Supervision & Engineering

ORA proposed several reductions for several program related costs for an Electric Geographic Information System, an Outage Management System (a combined $458,000), and the Performance Support project ($150,000 reduction). It justified the reduction citing a delay in project schedules and lack of supporting justification for the Performance Support project.⁴²⁴ In rebuttal, SDG&E said that "(n)o approved change in the schedule ... has been made" for the Electric Geographic Information System project, and we assume SDG&E is not ignoring a real delay. We accept SDG&E's application so we will fund this project.⁴²⁵ SDG&E argues the Performance Support positions are needed to meet the needs for increased training and apprentice follow-up training, to replace temporary and intermittent trainers, and to oversee the design and development of training curricula. We will not reduce this request.

ORA proposed that SDG&E did not need the four New Business Construction Manager positions that would implement new Title 24 building standards, promulgated by the California Energy Commission, which will be effective in 2005. The Proposed Settlement Agreement (Ex. 150, p. 61) eliminates these positions, even though in rebuttal SDG&E argued the positions were needed to interact with homebuilders and the building industry in advance of the effective date, as well as perform other duties.⁴²⁶ We will adopt the ORA adjustment as we agree that; the positions are unlikely to be critical before 2005. We will reduce Test Year 2004 Account 580 by the $174,000 proposed by ORA.

A final proposal would reduce Account 580 by $448,000 that ORA said is consistent with eliminating other positions in other various electric distribution accounts. SDG&E vigorously defended the need for these positions: "These staffing additions are not bureaucratic `overheads' so frequently thought of as accountants and legal staff, but are field supervisory personnel."⁴²⁷ We will not make this adjustment; based on the level of staff adopted in this decision the supervisory positions are needed.⁴²⁸

E. SDG&E Account 581 - Load Dispatch

ORA proposed an adjustment to this account that would allow for six additional apprentices and training six, rather than the eight apprentices requested by SDG&E. It said it "recognizes the need for additional staff and training ...(but the justification) ...submitted for the eight apprentices proposed by SDG&E is insufficient." SDG&E is only seeking to hire six switch center operator apprentices at a time. However, training for each apprentice takes 18 months. The company demonstrated the resulting overlap in the training of the annual apprentice classes results in 96 student training months per year, the equivalent of training eight students per year. This a reasonable explanation for the apparent discrepancy. We will adopt SDG&E's estimate of $1.544 million

F. SDG&E Account 582 - Station Expense

In an account where SDG&E requested $4.202 million, ORA proposed a disallowance of $0.050 million for overtime on two contract security crews because of assumed savings from remote monitoring. We fail to see how this recommendation was derived and we will not make an adjustment. We will adopt $4.202 million for Test Year 2004.

G. SDG&E Account 584 - Underground Line Expense

SDG&E requested a $0.468 million increase over the Base Year 2001 for underground facilities - this account deals with the inspection, testing, and other routine operations of underground lines - and SDG&E used a 4.26% per year rate of increase. ORA proposed to use an uncompounded flat rate of 10% for the same period (2001-2004), reducing the increase by $0.080 million and stated the annual 4.26% was "not justified by historical numbers" but ORA offered no rational basis for a flat 10% (it did not assert 10% to be the actual historical multi-year effective rate for example) nor did it say why we should consider non historical annual rates relevant to the forecast.

ORA made a second disallowance proposal to reduce by $0.085 million the forecast for the number of instances where SDG&E must resolve a system encroachment on private property. ORA used an average of 170 instances but did not identify the basis of this "average" and an undefined estimate of $500 cost per encroachment investigation. SDG&E rebutted that recent numbers were higher than ORA's forecast.

We adopt SDG&E's estimates⁴²⁹ that reasonably used the historical annual rate 4.65% for growth. We also accept SDG&E's estimate for encroachments based on its historical range of costs.

H. SDG&E Account 588 - Miscellaneous Distribution Expenses

In Account 580, we declined to make an adjustment for apprentice follow-up training and we also decline here to make a related decrease of $0.200 million. There are two other adjustments with no explanation or justification to eliminate a training coordinator and to reduce per-student materials costs from $5,000 each to $1,000 each. ORA offered no reason (Ex. 302, pp. 7-10), and we adopt the applicant's full estimate of $5.492 million.

ORA proposed another "one-time" expense adjustment of $0.074 million for information technology related expenses also forecast in Account 588. As we have indicated before, eliminating "one-time only" expenses is reasonable if the items are unique, nonrecurring, and are not simply an ongoing stream of minor expenses each year. The point of a miscellaneous account is to record and provide for items that are too small or numerous to be specified; i.e., miscellaneous items. We will adopt $9.528 million for Test Year 2004.

I. SDG&E Account 590 - Maintenance Supervision - Engineering

ORA proposed a $0.206 million reduction to training for Customer Project Planners by reducing the number of students, reducing the number of instructors and increasing class sizes. This position is stated to be "consistent with customer growth" but no analysis is cited in the testimony to prove the connection.⁴³⁰ SDG&E argued the growth in capital expenditures - which this decision adopted, on the whole - and normal attrition justifies the numbers of students and teachers. Considering the SoCalGas and SDG&E assertion regarding maturing workforce replacements that it takes 15 years to be as proficient as current employees,⁴³¹ we are reluctant to reduce training. More realistically, we accept SDG&E's specific position that the number of students and instructors, with smaller class sizes is reasonable. Including all other activities, as well as training, we adopt $1.110 million for test year 2004.

J. SDG&E Account 593 - Maintenance of Overhead Lines

1. Vegetation Management

One of the expenses in this account is tree trimming; D.98-12-038 (83 CPUC 2d, 363) established a one-way balancing account (under-spending is refunded but over-spending is absorbed by SDG&E) in part because it was an unresolved item in a settlement. SDG&E asked for $23.715 million for vegetation management (tree trimming), an increase of $8.381 million over the base year 2001 actual cost of $15.334 million.⁴³² SDG&E also proposed to end the balancing account and argued that it has made a myriad of improvements. But it still faces drought and pests, and fires, etc. By Resolution E-3824, SDG&E and other utilities were directed to respond to then-Governor Davis' March 7, 2003 Emergency Proclamation to deal with the impacts of the pine bark beetle infestation. SDG&E cites this as an example of how even after the company filed its application and Ex. 27, "SDG&E anticipates the level of these "risk" trees to be far greater than originally determined, exceeding $3 million in 2003 alone."⁴³³ Resolution E-3824 does allow SDG&E to utilize a catastrophic event memorandum account for Bark Beetles, so there is a vehicle for recovering all reasonable actual costs.

ORA proposed $3.537 million less in Test Year 2004. It proposed to retain the balancing account and explains how, considering the achieved reductions in per-tree costs, it believes the estimate could be lowered.⁴³⁴ UCAN is concerned that SDG&E should consider tree replacement instead of trimming - by planting trees that would not require as much or as frequent trimming - and we agree that we do not have any analysis on record. We will adopt UCAN's recommendation and direct SDG&E must to provide a competent and detailed analysis in its next rate proceeding that considers tree and other vegetation replacement alternatives.⁴³⁵

Vegetation management is a major expense; it is a major expense subject to significant potential crises: fire, flood, pests and drought. We find it unreasonable in the face of a proposed increase of $8.381 million over recent actual expenditures to eliminate the balancing account - which would refund any savings over a cautious high-budget - and we are reluctant to reduce the estimate for such a literally volatile program. We adopt, subject to the continued usage of the one-way balancing account, SDG&E's full request of $23.715 million for vegetation management in Test year 2004.

2. General Order 165 Inspections - Mapping

SDG&E indicated that it currently lacks location information on individual streetlights, and as a part of General Order 165 it is required to inspect these facilities, making location information useful to have. We agree. ORA proposed to spread the cost over three years (Ex. 302, p. 7-16) but SDG&E is eager to be in compliance and wants to do the task in one year.⁴³⁶ We think this is one example where, given that rates will be in effect for several years (applicants seek five), SDG&E can do the work in one year and ORA would be reasonable in recommending allocating the cost over three years' rates. This is a large enough amount of money and SDG&E has the discretion of when to perform the task; if it is now trying to comply with General Order 165 we will not unduly rush it. We therefore amortize the costs over three years.

3. Other Adjustments

ORA wanted to reduce the number of maintenance inspectors ($0.042 million)⁴³⁷ which we decline to do, due to lack of justification for the change, and there are two other corrections or adjustments for $0.185 million accepted by SDG&E but not reflected in the Joint Comparison Exhibit, Ex. 150. We will adopt these last two items as requested by SDG&E and adopt for Test Year 2004, $30.010 million.⁴³⁸

K. SDG&E Account 594 - Maintenance of Underground Lines

This account includes $1.6 million O&M related to the Sustainable Community Program, which we rejected in our discussion of above. Since we have directed SDG&E to reconsider this program and resubmit a more detailed proposdal in a separte application, we will deny this O&M Request.

ORA also proposed an adjustment of $104,000 using the same flat rate growth factor, which we rejected in Account 584, and we reject it here, too.

Other than the adjustment above, we find the estimates⁴³⁹ to be reasonable. Therefore, we adopt $4,975 million of SDG&E's Test Year 2004 estimate of $6.575 million.

L. SDG&E Account 870 - Operating Supervision and Engineering

ORA recommended a total of $0.258 million in three adjustments to SDG&E's estimated $2.955 million. First, ORA proposed a $0.093 million adjustment to expenses that SDG&E attributed to "stricter" environmental regulation by local jurisdictions. SDG&E conceded in rebuttal⁴⁴⁰ that it cannot track these asserted changes, and we will adopt ORA's adjustment absent evidence to support the stricter behavior.

ORA proposed a disallowance of $0.107 million for all three new positions for New Business Managers to comply with the Energy Commission's new energy efficiency requirements beginning in 2005.⁴⁴¹ SDG&E argued that they need the staff to be prepared in 2004 to deal with builders ahead of 2005 construction. This is a reasonable argument and we will adopt SDG&E's estimate.

ORA proposed another adjustment of $0.058 million related to less supervision required based on a reduced customer growth and also its recommendation on fumigation turn-off/turn-on gas meter service. As discussed below, we adopt the fumigation related estimates for SDG&E.

M. SDG&E Account 880 - Other Expenses

We adopted the ORA adjustment to gas distribution capital expenditures for the delay in the geographic information system; therefore, we will also adopt ORA's related adjustment for training expenses of $0.041 million and $0.083 million for contract services related to the geographic information system.⁴⁴²

N. SDG&E Account 887 - Mains

ORA proposed an adjustment for SDG&E's alleged stricter permitting requirements and we consistently rejected applicants' testimony as lacking in specific details, so we will adopt ORA's $0.130 million adjustment here. We also rejected applicants' blanket arguments about maturing work force issues requiring more employees to replace retiring employees and so we adopt ORA's $0.075 million adjustment here for cathodic protection electricians. We have not accepted ORA's other rate of system growth adjustments so we reject the proposed $0.064 million. For Test Year 2004, we will allow $1.525 million ($1.730 million minus $0.130 million and $0.075 million).

O. SDG&E Account 892 - Services

As discussed in Section ___, we will adopt ORA's disallowance of $0.019 million for stricter permitting related costs consistent with Account 870. We adopt $0.882 for Test Year 2004.

P. SDG&E Account 586 - Electric Meter Testers

SDG&E requested a significant increase in apprentices in anticipation of increasing retirements. ORA proposed to allow funding for the 2002 employment level⁴⁴³. This would result in a reduction of $0.947 million for Test Year 2004.

SDG&E asserts, and we agree, that the company has clearly established the need for conducting three apprentice classes in 2004. As of August 2003, eight of the 27 employees who had been in these classifications during 2001 were no longer in those positions, including three who had left the company entirely. By the end of 2004, 14 of the 23 remaining employees will be 55 years of age or older, and thus eligible for retirement. SDG&E sees a need for apprentice classes graduating in 2006 -2007 in order to anticipate retirements. We adopt $5.02 million for Test Year 2004.

ORA also proposed a reduction - that also affects accounts 878 an 879 - to the SDG&E forecast for field orders. SDG&E developed its initial forecasts using a five-year average for 44 different order groups (different reasons for a customer service request) that establish an expected number of requests per 1,000 active meters, and then multiplied those factors by the 2004 meter forecast to ultimately project costs. ORA used the 2001 actual data for seven categories where there was a declining trend. SDG&E objects to this selective use of actual 2001, suggesting that there is something suspicious about only using 2001 costs when they lead to reduced forecasts.

ORA does not apologize for eschewing five-year averages in instances where revenue requirement reductions may result, arguing that reduced costs reflect productivity gains that should be captured in Test Year ratemaking. We agree with ORA that we should be looking for ways to capture productivity gains. Indeed, that is one of the main reasons to undertake Test Year ratemaking and a multi-year ratecase cycle. However, as SDG&E points out, the forecasts, here, relate to the number of requests the company expects to receive to shut off or turn on electric/gas service. There is no clear relationship between utility worker productivity and the number of such calls. As SDG&E points out, annual fluctuations are more likely to reflect the ups and downs of population movement. For these reasons, in this instance, we will not adopt ORA's suggested deviation from a five-year average approach.

For similar reasons, we will not adopt UCAN's proposed further disallowance of $0.232 million beyond ORA's: first, $0.271 million for a lower field order estimate, and second, $0.052 million for automatic meter reading. UCAN makes a valid point when it suggests that the increased use of pilotless furnaces should reduce the number of pilot relighting requests. SDG&E concedes this point. However, the company points out that pilot relight visits provide the opportunity to perform a furnace system maintenance and safety check of the furnace filters, burners, and ventilation system. SDG&E pledges to respond to the increased use of pilotless furnaces by more aggressively communicating to its customers the importance of an annual safety check, which SDG&E provides at no additional charge. We will refrain from making the comparatively small adjustment sought by UCAN, in this instance, in the hopes that doing so will reinforce the company's effort to provide more safety-related service. In the next GRC, we look forward to the company's report on what it has been able to accomplish, in this regard.

Q. SDG&E Account 878 - Relocation of Gas Meters and Regulators

We rejected the ORA adjustment in Account 586 to the forecast of field orders, and we decline to make the related adjustment here. We adopt SDG&E's estimate of $2.602 million.

R. SDG&E Account 879 - Gas Customer Installation Expenses

We rejected the ORA adjustment in Account 586 to the forecast of field orders, and we decline to make the related adjustment here.

ORA also proposed a one-way balancing account for fumigation related work orders to shut-off and restart service. As already discussed, we decline to place the burden solely on SDG&E (or SoCalGas) and we will not impose a one-way balancing account.

For Test Year 2004, we adopt $9.1 million.

S. SDG&E Account 910 - Miscellaneous Customer Service and Informational Expenses

SDG&E asked for a significant funding increase in Account 910 and for various eServices, primarily for creating, licensing, maintaining and operating online applications that will provide numerous customer services including more multilingual information.⁴⁴⁴ Customer service and information a vital part of SDG&E's service obligation and, consistent with our discussion of SoCalGas' Account 908, we find that these programs must be funded and properly implemented. SDG&E has proposed a broad expansion and we expect it to follow through so that in the next proceeding SDG&E can illustrate tangible customer benefits from having these programs in place.

ORA proposed a $1.748 million adjustment to the 2001 Base Year by using a five-year average of 1997-2001. An average drags down the effect of a rising cost trend, or delays the effect of a declining trend. ORA did not offer any reasoning or justification for using the average method. Any adjustment that does not have a plausible explanation and convincing justification.⁴⁴⁵ We need to know why the base year is not a reliable indicator.

Two differences cited in the Joint Comparison Exhibit are reductions by SDG&E to the base year for $1.199 million (reducing communication expenses for the energy crisis) and $0.131 million (discontinuing a survey),⁴⁴⁶ adjustments that we will include in Account 910.

SDG&E requested an additional $1.350 million for expanded eServices. We found the SoCalGas issues in Account 908, where eServices are included, to be too muddled to resolve the litigation positions and we resorted to the Partial Settlement's compromise. ORA proposed a 50% reduction suggesting a lack of justification for the amount of the increase. ORA did not tell us what was lacking to justify the whole amount or what convinced it that an increase of $675,000 was justified. UCAN raised an issue of the credibility of the eServices testimony for SoCalGas and SDG&E arguing various inconsistencies.⁴⁴⁷ SDG&E did not argue the issue in its Opening Litigation Brief. UCAN argued the project was still in planning stages and SDG&E had not met the burden of proof. UCAN would disallow 100%, not 50%.⁴⁴⁸ We will not adopt the 50% ORA allowance because we expect eServices to be an important tool to easily and affordably reach customers and improve communications. We do not agree with UCAN that a project in planning is necessarily deficient in its justification for inclusion in the test year. We find SDG&E's forecast to be reasonable and we adopt the end-of-litigation estimate of $7.134 million.

⁴²⁴ Ex. 302, p. 7-4, ORA does not otherwise address the validity of the programs, their scope or estimated cost.

⁴²⁵ Ex. 75, p. DLG-26.

⁴²⁶ Ex. 75, p. DLG-27.

⁴²⁷ Ex. 75, p. DLG-27.

⁴²⁸ Ex. 302, p. 7-5. By adopting the applicant's proposal, the Commission does not find that field supervisors are inherently more valuable than accountants or attorneys, only that in this narrow instance, the field supervisors' positions are justified.

⁴²⁹ Ex. 27, pp. DG-71 and DLG-72.

⁴³⁰ Ex. 302, pp. 7-12.

⁴³¹ Transcript, p. 309, lines 8-12. We do not find this assertion credible.

⁴³² Ex. 27, p. DLG-99.

⁴³³ Ex. 75, p. DLG-45

⁴³⁴ Ex. 302, p. 7-17 and 7-15.

⁴³⁵ UCAN opening litigation brief, p. 80.

⁴³⁶ Ex. 75, p. DLG-49.

⁴³⁷ Ex. 75, p. DLG-44, (ORA did not quantify the amount in Ex. 302).

⁴³⁸ Ex. 150, p. 70; SDG&E request of $30.195 million for Account 593 less $0.185 million.

⁴³⁹ Ex. 27, pp. DLG-112 and 113, and Ex. 75, pp. DLG-52 and DLG-53.

⁴⁴⁰ Ex. 98, p. RDP-8.

⁴⁴¹ Title 24, § 6, cited in Ex. 302, p. 8-6.

⁴⁴² Ex. 302, 8-7, and Ex. 150, p. 73.

⁴⁴³ Ex. 302, pp. 9-4 and 9-5.

⁴⁴⁴ Ex. 30, pp, EF-109 through EF-125

⁴⁴⁵ Ex. 302, p. 9-26 and Table 9-13; base Year $3,947,000 less ORA's average $2,199,000.

⁴⁴⁶ Ex. 150, p. 90.

⁴⁴⁷ UCAN opening litigation brief, pp. 155-157.

⁴⁴⁸ Ex. 603, p. 14.