XXX. 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 restructure.

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 other 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:

"I know that there was some discussion about those areas from some of the witnesses to make a general review if that came up in their counterpart's testimony. But there were no witnesses from ORA specifically assigned to those (scoping memo) areas." (Transcript, p. 2113.)

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. No other party took up the Scoping Memo's directive to specifically address the details of staff organization and qualifications, to determine whether SDG&E was properly organized with not just enough (or too many) people but more importantly, people with the right qualifications and experience for the task. We will not adopt other parties' estimates just because they are lower than the applicant's request.

We will adopt SDG&E's estimate for the test year. Any unfilled positions will result in savings accruing to the TLCBA. 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 generic 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, (without a balancing account, unlike the labor costs), but we expect SDG&E to be able to clearly justify its usage of this allowance before seeking further funding in the next rate proceeding. 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.⁴⁶² 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 explanation so we will fund this project.⁴⁶³ 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. ORA simply concluded they were not provided "adequate justification," but we are not told what would have satisfied the analyst. 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.⁴⁶⁴ We will adopt the ORA adjustment; the positions are unlikely to be critical before 2005, and this is just one instance where SDG&E could use the discretion available in the TLCBA to shift funding to where it is most needed, should we be wrong in this instance. 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."⁴⁶⁵ We will not make this adjustment; based on the level of staff adopted in this decision the supervisory positions are needed.⁴⁶⁶ Any savings will accure in the TLCBA.

E. SDG&E Account 581 - Load Dispatch

ORA proposed an adjustment to this account that would allow for six of the eight additional apprentices and related training 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." This tells us nothing about how ORA determined six were enough or how it determined eight were too many. Again, we will not adopt alternative estimates just because they are lower. SDG&E provided a justification of the costs included in Account 581 and the fact that the workload has increased as a result of GO 166, Standards for Operation, Reliability, and Safety During Emergencies and Disasters.⁴⁶⁷ Again, we will adopt SDG&E's estimate of $1.544 million and rely on the TLCBA to save the ratepayers the costs of empty positions.

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 (1.2%) 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 such a granular micro-management 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.

Neither ORA recommendation is sufficient in detail and analysis to warrant adoption. We cannot use seemingly arbitrary lower alternatives in the absence of either an identified deficiency in the applicant's request or a superior adequately justified alternative. We adopt SDG&E's estimates⁴⁶⁸ that reasonably used the historical annual rate 4.26% 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. ORA's disallowance proposal is less than 1% of the $9.528 million requested for information technology costs, and is an intrusion on the managerial discretion we expect SDG&E to display. We expect SDG&E to spend what it needs to spend on information technology in order to provide safe and reliable service. 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 nibbling at the numbers is stated to be "consistent with customer growth" but no analysis is cited in the testimony to prove the connection.⁴⁶⁹ 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,⁴⁷⁰ 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. Adopting this estimate comes with a "price." We expect SDG&E (and SoCalGas as relevant) to show in the next rate proceeding that they either performed the training that was forecast or that the next test year forecast properly reflects the companies' true commitment level to training. 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 (which shows one of the weakness of settlements). 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.⁴⁷¹ 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."⁴⁷² 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.⁴⁷³ 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 that SDG&E must provide a competent and detailed analysis in its next rate proceeding that considers tree and other vegetation replacement alternatives.⁴⁷⁴

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.⁴⁷⁵ 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 sufficient 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)⁴⁷⁶ 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.⁴⁷⁷

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

ORA proposed a disallowance of $1.6 million related to the Sustainable Community Program, which as discussed in the capital expenditures section, was opposed by ORA and UCAN. We rejected their arguments regarding the capital expenditures. ORA argued here that the program is delayed and therefore the forecast maintenance expense will not occur in the test year.⁴⁷⁸ SDG&E argued in rebuttal that first, ORA only proposed a 46% disallowance of capital expenditures and inconsistently did not accept 54% of expenses, and second, that much of the maintenance work is actually preparatory for the program, and also, the advertising expense, for promotion, seminars and the like, is an operating and maintenance expense.⁴⁷⁹ We find this to be a valuable program and we will allow SDG&E its forecast amount; we expect the company to vigorously pursue the available opportunities for the Sustainable Community concept and to that end will authorize the expense estimate; the non-labor components for seminars, and program advancement are clearly within its control and any unused labor costs will accrue in the TLCBA.

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

We find the estimates⁴⁸⁰ to be reasonable; therefore, we adopt 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 rebuttal⁴⁸¹ 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 2005.⁴⁸² SDG&E argued that they need the staff to be prepared in 2004 to deal with builders ahead of 2005 construction. This is an example of where the TLCBA is most effective, given the lack of certainty about SDG&E's likely need for new positions. We will not make this adjustment, we note that if the positions are not filled then the labor costs are subject to refund within the operation of the TLCBA.

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. This is too granular, and 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.⁴⁸³

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, 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 to replace workers for the maturing workforce phenomena. As discussed elsewhere, SDG&E (and SoCalGas) have not convinced us that they correctly forecast the impact of likely retirements. ORA proposed to allow funding for the 2002 employment level⁴⁸⁴ and we adopt this recommendation on the assumption this fully staffs the effort. This is a reduction of $0.947 million for Test Year 2004. We adopt $4.703 million for Test Year 2004, reducing the SDG&E request by $0.947, all from the labor category.

ORA also proposed a reduction - that also affects Accounts 878 and 879 - that reduced the SDG&E forecast for field orders. SDG&E used the five-year average for 44 different order groups to develop and order per 1,000 active meters, and then used the 2004 meter forecast to ultimately project costs. ORA used the 2001 actual data for five categories where there was a declining trend. Clearly this is selecting a method on outcome and we reject the approach.

UCAN proposed a 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. We have already rejected ORA's method and UCAN also seeks to devise a method whose sole aim appears to be a lower estimate - shifting between differing assumptions. If either ORA or UCAN are right about the level of work orders, then any labor savings will be captured by the TLCBA. Their arguments, however, do not persuade us to reduce the estimates that we adopt. With respect to automated meter reading, we accept SDG&E's response that UCAN has two projects confused. We decline to make the adjustment.⁴⁸⁵

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.⁴⁸⁶ 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 whether 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. We reject considering any adjustment that does not have a plausible explanation and justification.⁴⁸⁷ 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),⁴⁸⁸ 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.⁴⁸⁹ 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%.⁴⁹⁰ 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.

⁴⁶² Ex. 302, p. 7-4, ORA does not otherwise address the validity of the programs, their scope or estimated cost.

⁴⁶³ Ex. 75, p. DLG-26.

⁴⁶⁴ Ex. 75, p. DLG-27.

⁴⁶⁵ Ex. 75, p. DLG-27.

⁴⁶⁶ 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.

⁴⁶⁷ See Ex. 27, pp. DLG-61 through DLG-63. GO 166 was adopted in D.98-07-097, in R.96-11-004.

⁴⁶⁸ Ex. 27, pp. DG-71 and DLG-72.

⁴⁶⁹ Ex. 302, pp. 7-12.

⁴⁷⁰ Transcript, p. 309, lines 8-12. We do not find this assertion credible.

⁴⁷¹ Ex. 27, p. DLG-99.

⁴⁷² Ex. 75, p. DLG-45.

⁴⁷³ Ex. 302, p. 7-17 and 7-15.

⁴⁷⁴ UCAN opening litigation brief, p. 80.

⁴⁷⁵ Ex. 75, p. DLG-49.

⁴⁷⁶ Ex. 75, p. DLG-44, (ORA did not quantify the amount in Ex. 302).

⁴⁷⁷ Ex. 150, p. 70; SDG&E request of $30.195 million for Account 593 less $0.185 million.

⁴⁷⁸ Ex. 302, pp. 7-18.

⁴⁷⁹ Ex. 75, pp. DLG-52 and DLG-53.

⁴⁸⁰ Ex. 27, pp. DLG-112 and 113, and Ex. 75, pp. DLG-52 and DLG-53.

⁴⁸¹ Ex. 98, p. RDP-8.

⁴⁸² Title 24, § 6, cited in Ex. 302, p. 8-6.

⁴⁸³ Ex. 302, 8-7, and Ex. 150, p. 73.

⁴⁸⁴ Ex. 302, pp. 9-4 and 9-5.

⁴⁸⁵ Sempra reply litigation brief, p. 46.

⁴⁸⁶ Ex. 30, pp, EF-109 through EF-125

⁴⁸⁷ Ex. 302, p. 9-26 and Table 9-13; base Year $3,947,000 less ORA's average $2,199,000.

⁴⁸⁸ Ex. 150, p. 90.

⁴⁸⁹ UCAN opening litigation brief, pp. 155-157.

⁴⁹⁰ Ex. 603, p. 14.