enterprise planning & governance...2 1 a. summary of rebuttal position 2 the forecasts for...

Application No.: A.19-08-013 Exhibit No.: SCE-17 Vol. 02 Witnesses: T. Frierson

J. Jiang R. LeMoine A. Li

(U 338-E)

2021 General Rate Case Rebuttal Testimony

Enterprise Planning & Governance

Before the

Public Utilities Commission of the State of California

Rosemead, California June 12, 2020

SCE-17, Vol. 02: Enterprise Planning & Governance Table Of Contents

Section Page Witness

-i-

I. INTRODUCTION .............................................................................................1 A. Li

A. Summary of Rebuttal Position ...............................................................2

1. O&M Forecast Summary ...........................................................3

2. Capital Expenditure Summary ...................................................3

II. FINANCIAL OVERSIGHT AND TRANSACTIONAL PROCESSING ...................................................................................................5

A. O&M Expenses ......................................................................................5

1. Accounting, Financial Compliance, and Financial Reporting....................................................................................5

a) SCE Application ............................................................5

b) Cal Advocates ................................................................6

(1) Cal Advocates Position ......................................6

(2) SCE’s Rebuttal to Cal Advocates’ Position ..............................................................6

c) Conclusion ...................................................................11

2. Vendor Discount and Other Miscellaneous Payments ..................................................................................11

a) SCE Application ..........................................................11

b) Cal Advocates ..............................................................12

(1) Cal Advocates Position ....................................12

(2) SCE’s Rebuttal to Cal Advocates’ Position ............................................................12

c) Conclusion ...................................................................12

3. Participant Credits and Charges ...............................................12


SCE-17, Vol. 02: Enterprise Planning & Governance Table Of Contents (Continued)


-ii-

b) Cal Advocates ..............................................................13


(2) SCE’s Rebuttal to Cal Advocates Position ............................................................13

c) Conclusion ...................................................................14

III. INSURANCE ...................................................................................................15

A. O&M Expenses ....................................................................................15

1. Wildfire ............................................................................................15 R. Le Moine


b) Cal Advocates ..............................................................16

(1) Cal Advocates’ Position ...................................16

c) TURN ...........................................................................19

(1) TURN’s Position ..............................................19

d) SCE’s Rebuttal to Both Cal Advocates and TURN Positions ...........................................................20

(1) Wildfire Liability Insurance Expense Should Not Be Allocated Between Ratepayers and Shareholders; Customers Should Pay For These Costs Through Rates as They Always Have ....................................................20

e) Conclusion ...................................................................27

2. Non-Wildfire ............................................................................28 J. Jiang


b) Cal Advocates ..............................................................29


c) SCE’s Rebuttal to Cal Advocates Position ..................29



-iii-

d) Conclusion ...................................................................30

3. Property ....................................................................................30


b) Cal Advocates ..............................................................31


c) SCE’s Rebuttal to Cal Advocates Position ..................31

d) Conclusion ...................................................................32

4. Proposed Acceleration of Recovery of Previously Authorized (Capitalized) Wildfire Liability Insurance ..................................................................................32 A. Li


b) Cal Advocates and TURN ...........................................32


(2) TURN Position ................................................33

c) SCE’s Rebuttal to both Cal Advocates’ and TURN’s Positions ........................................................34

(1) SCE strives to follow the FERC Uniform System of Accounts where applicable, and expensing the wildfire insurance premiums is consistent with the cited FERC guidance ...........................................................34

d) Conclusion ...................................................................36

IV. SUPPLY CHAIN MANAGEMENT ...............................................................38 T. Frierson

A. O&M Expenses ....................................................................................38

1. Supplier Diversity ....................................................................38




-iv-

b) National Diversity Coalition ........................................39

(1) NDC’s Position ................................................39

(2) SCE’s Rebuttal to NDC’s Position ..................39

c) Conclusion ...................................................................42

Appendix A Supplemental Response to TURN-SCE-038 Q. 13a-b

Appendix B FERC Order on Compliance Filing, August 3, 2012, Docket No. ER11-4318-001

1

I. 1

INTRODUCTION 2

In this volume, Southern California Edison (SCE) provides additional support for its Test Year 3

2021 forecast of operations and maintenance (O&M) expenses and 2019-2023 capital expenditures 4

forecast for Enterprise Planning & Governance activities, which are primarily managed by the Finance, 5

Risk Management, Legal, Business and Financial Planning, and Supply Chain Management 6

organizations. If approved, this funding request will allow SCE to continue its efforts to provide 7

financial governance and oversight, minimize unexpected property losses and mitigate unexpected costs 8

and risks. It will also allow SCE to uphold its commitment to procure materials and services from 9

diverse business enterprises, and leverage new technologies like computer automation and machine 10

learning to identify new improvement opportunities and solutions. Three of the five BPEs included in 11

SCE’s GRC application for Enterprise Planning & Governance had some components of its testimony 12

contested by an intervenor: 13

Chapter II - Financial Oversight and Transactional Processing: Contested 14

Chapter III – Insurance: Contested 15

Chapter IV – Legal: Not Contested 16

Chapter V - Business and Financial Planning: Not Contested1 17

Chapter VI - Supply Chain Management: Contested 18

The purpose of this testimony is to address the various recommendations raised by California 19

Public Advocates Office (Cal Advocates), The Utility Reform Network (TURN), and National Diversity 20

Coalition (NDC) pertaining to SCE’s proposals for Enterprise Planning & Governance related forecast 21

for operations and maintenance (O&M) expenses for the 2021 Test Year. The capital expenditures for 22

2019 through 2021 were not contested by any intervenor. 23

Cal Advocates contested $167.525 million of the $956.692 million requested, TURN contested, 24

$312.083 million of the $956.692 million requested, and NDC contested $182,000 of the $6.901 million 25

in Supplier Diversity. 26

1 There was a typo in Cal Advocates testimony (PAO-10, p. 25) that suggested a reduction to SCE’s forecast

for Digital and Process Transformation. SCE’s counsel confirmed with Cal Advocates’ counsel that it was indeed a typo and that Cal Advocated did not oppose SCE’s forecast for Digital and Process Transformation.

2

A. Summary of Rebuttal Position 1

The forecasts for Enterprise Planning & Governance O&M expense, and capital expenditures, 2

made by SCE, Cal Advocates, TURN, and NDC are shown in the following tables. Table I-1 provides a 3

summary of the 2021 O&M expense forecast for SCE, Cal Advocates, TURN and NDC, along with the 4

variances from SCE’s forecast and SCE’s rebuttal position. For the Enterprise Planning & Governance 5

O&M forecast, Cal Advocates and TURN propose changes to SCE’s forecasts in Financial Oversight & 6

Transactional Processing, and Insurance. NDC propose changes to SCEs Supplier Diversity request 7

which resides under Supply Chain Management. SCE will address the issues raised by Cal Advocates, 8

TURN, and NDC recommendations related to SCE’s 2021 O&M forecast in the below corresponding 9

chapters. For the areas not contested, SCE is requesting the Commission adopt SCE’s request. 10

Table I-1 Enterprise Planning & Governance

2021 O&M Forecast Summary of SCE, Cal Advocates, and TURN Position

(2018 Constant $000)

Table I-2 provides a summary of Enterprise Planning & Governance 2021 capital expenditure 11

forecast by SCE, Cal Advocates, and TURN, along with the variance from SCE’s forecast. For the 12

Enterprise Planning & Governance Capital Expenditures forecast, Cal Advocates and TURN did not 13

propose changes to SCE’s forecast. SCE will not address Capital Expenditures in this rebuttal testimony 14

as no issues were raised by Cal Advocates, TURN, or any other intervenor. SCE’s rebuttal position 15

reflects a $120,000 lower forecast than originally forecast as the 2019 forecast was updated with 2019 16

recorded expenditures. SCE request that the Commission adopts its Capital Rebuttal requests in full. For 17

additional information on the company-wide use of 2019 capital recorded expenditures as the rebuttal 18

forecast, please see SCE-12, Vol. 1. 19

3


Capital Expenditures 2019-2021 Forecast Summary of SCE, Cal Advocates, and TURN Position

(Nominal $000)

1. O&M Forecast Summary 1

SCE’s rebuttal position reflects a $4.607 million decrease than its original application as 2

Financial Oversight & Transactional Processing has conceded to Cal Advocates recommendations for 3

Vendor Discount and Other Miscellaneous Payments, and Participant Credits and Charges. SCE’s 4

rebuttal position remains consistent with its application for all other areas and will be defended as such. 5

Table I-3 provides the recorded amounts for 2014-2018 and the rebuttal forecast for 6

2021. 7


2014-2018 Recorded/2021 O&M Forecast (2018 Constant $000)

2. Capital Expenditure Summary 8

Table I-4 provides the recorded amounts for 2014-2019 and the forecast for 2020-2021. 9

SCE’s rebuttal position reflects a lower forecast than originally forecasted as the 2019 forecast numbers 10

4

were replaced with 2019 recorded. As discussed in SCE-12, Vol. 01,2 SCE proposes the Commission 1

authorize SCE’s revised capital forecast for 2019, which incorporates 2019 recorded expenditures, and 2

adopt its Capital Rebuttal requests in full. 3

Table I-4 Enterprise Planning & Governance Capital Expenditures

2014-2019 Recorded/2020-2021 Forecast (2018 Nominal $000)

2 See SCE-12, Vol. 01 pp. 15 – 16.

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II. 1

FINANCIAL OVERSIGHT AND TRANSACTIONAL PROCESSING 2

Table II-5 Financial Oversight & Transactional Processing

2021 O&M Forecast Summary of SCE, Cal Advocates, and TURN Position


A. O&M Expenses 3

1. Accounting, Financial Compliance, and Financial Reporting 4

a) SCE Application 5

The Accounting, Financial Compliance, and Financial Reporting activities are 6

responsible for SCE’s essential accounting, financial compliance and financial reporting activities.3 As 7

shown in Table II-6 below, SCE’s 2021 Test Year forecast for Accounting, Financial Compliance, and 8

Financial Reporting is $24.248 million, $2.084 million higher than 2018 recorded. This increase 9

includes: 10

1) $0.317 million increase in Labor costs relative to 2018 recorded. This 11

represents an increase in personnel due to the greater-than-expected employee turn-over occurred in 12

2018, and the need for resuming to the optimal level of personnel of staff that SCE has committed to in 13

its Operational Excellence efforts to manage the increasing workload.4 14

2) $1.767 million increase in Non-Labor costs relative to 2018 recorded. This is 15

primarily driven by (a) a one-time timing difference in expenses recording in 2018, which artificially 16

3 See Exhibit SCE-06, Vol. 2, Ch. II, p. 9, lines 3-14; p. 10, line 1-3. 4 See Exhibit SCE-06, Vol. 2, Ch. II, p. 11, lines 12-17.

6

reduced SCE’s 2018 external audit fee expenses by roughly $1 million when comparing to the historical 1

average spending level,5 and (b) an $0.620 million increase in improvement and/or enhancement 2

projects spend. Such spending was temporarily delayed due to the significant shortage of personnel of 3

staff caused by the greater-than-expected employee turn-over in 2018, and needed to be resumed.6 4

Table II-6 Accounting, Financial Compliance, and Financial Reporting

2014-2018 Recorded/2021 Forecast Summary of SCE, Cal Advocates, and TURN Position


b) Cal Advocates 5

(1) Cal Advocates Position 6

Cal Advocates recommends using the 2018 base year of $22.164 million 7

resulting in a $2.083 million decrease.7 Cal Advocates claims that it is reasonable for SCE to maintain 8

the current level (2018) of spending for both Labor and Non-Labor based on the achieved cost 9

reductions, because additional funding beyond the base year defeats SCE’s Operational Excellence 10

efforts.8 11

(2) SCE’s Rebuttal to Cal Advocates’ Position 12

SCE objects to the recommendations provided by Cal Advocates. Cal 13

Advocates claims that additional funding beyond the base year (2018) defeats SCE’s Operational 14

Excellence efforts, when the reality is quite the opposite. SCE’s requests are modest and deliberate out 15

of necessity. Cal Advocates’ proposal of reduction of funding by merely quoting SCE’s Operational 16

Excellence efforts without any reasoning behind it is flawed. Such a proposal does not support SCE to 17

5 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 10-12. 6 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 13-20. 7 See Exhibit PAO-10, p. 13, lines 2-5. 8 See Exhibit PAO-10, p. 13, lines 18-21.

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sustain and advance the accomplishments SCE has achieved through its Operational Excellence efforts; 1

it will do the opposite. 2

(a) Cal Advocates’ proposal does not consider that a one-time timing 3

difference in expense recording is not a permanent cost reduction. 4

In the 2021 GRC testimony, SCE’s requested a roughly $1 million 5

increase in Non-Labor costs relative to 2018 recorded related to an accounting change occurred in 2018, 6

which only created a one-time timing difference in expense recording, but not a permanent cost 7

reduction. This change not only artificially reduced 2018 external audit fee expenses from the historical 8

average spending level by roughly $1 million, but artificially increased 2019 external audit fee expenses 9

by almost the same amount when comparing to the historical average spending level. Therefore, an 10

amount that is aligned with the historical average spending level should be adopted.9 11

The above conceptual explanation can also be easily illustrated 12

through actual amounts. In 2019, SCE’s recorded expense in this area was $6.799 million, versus $4.806 13

million in 2018 recorded. The historical average spending over 2015 through 2019 was $6.033 million. 14

SCE’s request of $1.119 million increase relative to 2018 recorded will bring the 2021 Test Year 15

Forecast to $5.925 million, comparable to the historical average spending level. 16

Cal Advocates’ proposal to adopt 2018 recorded is inappropriate 17

because their method simply treated a one-time recording timing difference as a permanent cost 18

reduction. Adopting their proposal would result in SCE not being able to recover legitimate business 19

costs. Cal Advocates’ proposal by merely quoting SCE’s Operational Excellence efforts is invalid, 20

because SCE’s Operational Excellence efforts do not support identifying a one-time expense recording 21

timing difference as a permanent cost reduction. 22

(b) Cal Advocates’ proposal does not consider the impact and 23

consequences of an understaffed and overstretched workforce. 24

In the 2021 GRC testimony, SCE requested a $0.317 million 25

increase in Labor costs relative to 2018 recorded. SCE experienced temporary greater-than-expected 26

employee turn-over in 2018, which is not a permanent cost reduction.10 An understaffed and 27

overstretched workforce is not the goal of SCE’s Operational Excellence efforts. It does not create 28

9 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 9-12. 10 See Exhibit SCE-06, Vol. 2, Ch. II, p. 11, lines 12-17.

8

and/or maintain a physically and psychologically safe working environment for the employees; and it 1

increases potential risks of mistakes and rework as a result. We must resume to the optimal level of 2

personnel of staff to manage the increasing workload.11 3

It’s worth mentioning that even after the increase, SCE’s 2021 Test 4

Year Forecast for Labor costs in Accounting, Financial Compliance and Financial Reporting area is still 5

$1.615 million lower than the historical average of $13.792 million over 2014 through 2018,12 a steep 6

12% reduction. SCE also emphasized in its 2021 GRC testimony that the cost savings through 7

Operational Excellence initiatives were fully materialized in 2017.13 Even after the increase of $0.317 8

million as SCE requested, SCE’s 2021 Test Year Forecast of Labor costs in Accounting, Financial 9

Compliance and Financial Reporting area is $12.179 million, still more than $0.3 million lower than the 10

$12.498 million of 2017 recorded.14 11

To support the $0.317 million increase in Labor costs relative to 12

2018 recorded, SCE discussed in granular details in the 2021 GRC testimony the increasing workload in 13

Accounting, Financial Compliance and Financial Reporting area in recent years. For example, roughly 14

45 new balancing and memorandum accounts have been approved and implemented since the beginning 15

of 2017, representing more than one third of the current population of the balancing and memorandum 16

accounts we manage on a day-to-day basis. At the same time, many of these new accounts have 17

introduced significantly more complex accounting assessment and tracking efforts than the accounts 18

existed before. Furthermore, two major new accounting pronouncements, namely, Accounting Standards 19

Codification (ASC) 606 Revenue From Contracts With Customers, and ASC 842 Leases, went into 20

effect on January 1, 2018 and January 1, 2019, respectively. The implementation of these two new 21

accounting pronouncements created profound on-going impact on the accounting, internal control and 22

reporting workload captured under Accounting, Financial Compliance and Financial Reporting area.15 23

During 2019, in order to temporarily address the magnificent 24

challenges created by shortage in Labor, SCE hired multiple temporary outside consultants under 25

Accounting, Financial Compliance and Financial Reporting area. For instance, for a good part of 2019, 26

11 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 1-3. 12 See WP SCE-06, Vol.02 Book A, p. 3. 13 See Exhibit SCE-06, Vol. 2, Ch. II, p. 12, lines 26-29, p. 13, lines 1-3. 14 See WP SCE-06, Vol.02 Book A, p. 3. 15 See Exhibit SCE-06, Vol. 2, Ch. II, p. 11, lines 18-31, p. 12, line 1-23.

9

the revenue, power procurement and regulatory accounting teams hired multiple outside consultants to 1

address shortage of staff and great amount of increased workload. This model can temporarily address 2

our Labor needs, but is not sustainable and long-term wise, would have a sever adverse impact on the 3

overall morale and the quality of work. We will have to add additional headcount and resume to the 4

optimal level of personnel of staff to address and manage the increasing workload, and equally 5

important, maintain a physically and psychologically safe working environment for our employees. 6

Cal Advocates’ proposal to adopt 2018 recorded is inappropriate 7

because they treat a temporary greater-than-expected employee turn-over as a permanent cost reduction. 8

Adopting their proposal would force SCE to struggle with an understaffed and overstretched workforce, 9

which does not create and/or maintain a physically and psychologically safe working environment for 10

SCE’s employees, and will increases potential risks of mistakes and rework as a result. It is not the goal 11

of SCE’s Operational Excellence efforts. 12

(c) Cal Advocates’ proposal does not consider the profound adverse 13

impact and consequences of not investing in continuous 14

improvements. 15

In the 2021 GRC testimony, SCE requested a $0.620 million 16

increase in Non-Labor costs relative to 2018 recorded related to improvement and/or enhancement 17

projects spend.16 In today’s environment, continuous improvement is not a luxury, it is a necessity. SCE 18

temporarily delayed in continuous improvements related spending in 2018 largely due to the greater-19

than-expected employee turn-over discussed above, which is not a permanent cost reduction. It should 20

be noted that merely following and repeating outdated workplace practices will not support and sustain 21

the accomplishments SCE’s Operational Excellence efforts have achieved. The result will be quite the 22

opposite. SCE must resume to investing in continuous improvement efforts to (1) keep up with 23

technology upgrade to stay relevant and mitigate corresponding risks, and (2) improve our processes and 24

practices to keep driving efficiency and effectiveness. 25

It’s worth mentioning that even after the increase, SCE’s 2021 Test 26

Year Forecast for Non-Labor costs in Accounting, Financial Compliance and Financial Reporting area is 27

16 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 13-20.

10

still $0.417 million lower than the historical average of $12.484 million over 2014 through 2018,17 a 1

more than 3% reduction. 2

SCE discussed in the 2021 GRC testimony a few examples of 3

improvement and/or enhancement projects to be executed, such as Blackline account reconciliation tool 4

upgrade, PowerPlan software upgrade, and lease accounting software stabilization project, just name a 5

few.18 Since then, quite a few more projects have also been either launched or added to the list. For 6

example: 7

In an effort to strengthen our IT general control environment for IT 8

segregation of duty and financial reporting purposes, the financial reporting and internal control 9

governance team just renewed and extended its service contract with one of the big-4 accounting firms 10

for another three years starting in February 2020. The spending on this project alone is roughly $0.4 11

million annually. 12

The Federal Energy Regulatory Commission (FERC) also 13

announced in mid-2019 that it will adopt XBRL, a financial reporting related software standard that uses 14

tags to identify each piece of financial information reported, for multiple FERC filings, including FERC 15

Form 1. The expected effective timeline is early 2021, which has introduced the need to implement a 16

software solution to meet the new reporting requirements in time for the expected effective timeline. 17

The energy procurement accounting team has been part of an 18

Energy Market & Trading Systems Refresh (EMTSR) project to enhance the management of the 19

lifecycle of SCE’s current and future power and natural gas trades and energy contracts, including the 20

corresponding accounting and financial reporting processes. The overall project was launched in 2016, 21

and delivered in 2019. It is currently in stabilization and subsequent enhancement stage. Third-party 22

consultants have been utilized in these implementation and improvement efforts. 23

These upgrades, enhancements and continuous improvement 24

initiatives are essential to SCE’s efforts in keeping up with technology upgrade to stay relevant and 25

mitigate corresponding risks, and equally important, driving efficiency and effectiveness. 26

Cal Advocates’ proposal to adopt 2018 recorded is flawed because 27

they treated a temporary delay in continuous improvements related spending as a permanent cost 28

17 See WP SCE-06, Vol.02 Book A, p. 3. 18 See Exhibit SCE-06, Vol. 2, Ch. II, p. 13, lines 13-20.

11

reduction. Adopting their proposal would force SCE to delay much-needed continuous improvements 1

efforts, and therefore, follow and repeat outdated workplace practices. Such a proposal would not 2

support and sustain the accomplishments SCE’s Operational Excellence efforts have achieved. The 3

result will be quite the opposite. 4

c) Conclusion 5

In summary, the Commission should reject Cal Advocates’ proposal and adopt 6

SCE’s 2021 Test Year Forecast of $24.248 million for Accounting, Financial Compliance and Financial 7

Reporting activities. SCE’s requests are modest and deliberate out of necessity. Cal Advocates’ proposal 8

of reduction of funding through merely quoting SCE’s Operational Excellence efforts without any 9

reasoning behind it is flawed. Such a proposal does not support SCE to sustain and advance the 10

accomplishments SCE has achieved through its Operational Excellence efforts; it will do the opposite. 11

2. Vendor Discount and Other Miscellaneous Payments 12


The majority of the dollars captured under Vendor Discount and Other 14

Miscellaneous Payments represent the non-labor vendor payment discounts SCE receives through SCE’s 15

Accounts Payable (AP) Vendor Discount program. This activity also captures non-labor miscellaneous 16

credits and charges.19 As shown in Table II-7 below, SCE’s 2021 Test Year forecast for Vendor 17

Discount and Other Miscellaneous Payments is $(11.212) million, keeping it flat with the five-year 18

average over 2014 through 2018. SCE considers other miscellaneous credits and payments as non-19

recurring in nature, and therefore, no forecast is made for other miscellaneous credits and payments for 20

2021 Test Year.20 21

19 See Exhibit SCE-06, Vol. 2, Ch. II, p. 14, lines 6-9. 20 See Exhibit SCE-06, Vol. 2, Ch. II, p. 16, lines 14-18; p. 17, lines 9-11.

12

Table II-7 Vendor Discount and Other Miscellaneous Payments



b) Cal Advocates 1


Cal Advocates recommends using $(13.089) million based on a 5-year 3

historical average for both AP Vendor Discount program and other miscellaneous payments for 2014 4

through 2018, resulting in a $1.877 million decrease. Cal Advocates states that considering in each of 5

the historical years there has been some level of activity in other miscellaneous payments, there is a 6

greater likelihood that such activity will occur on a regular basis over the forecast period.21 7

(2) SCE’s Rebuttal to Cal Advocates’ Position 8

SCE concedes to Cal Advocates’ position. Therefore, SCE adjusts its 2021 9

Test Year forecast for Vendor Discount and Other Miscellaneous Payments to $(13.089) million. 10

c) Conclusion 11

SCE concedes to Cal Advocates’ position. Therefore, SCE adjusts its 2021 Test 12

Year forecast for Vendor Discount and Other Miscellaneous Payments to $(13.089) million. 13

3. Participant Credits and Charges 14


Participant Credits and Charges discusses the participant Administrative & 16

General (A&G) and Pension & Benefits (P&B) credits and charges for SCE’s jointly owned facilities, 17

mainly participant charges for the Palo Verde Nuclear Generating Station (PVNGS).22 SCE is a non-18

operating agent of PVNGS, and pays participant charges to Arizona Public Service (APS), PVNGS’s 19

21 See Exhibit PAO-10, p. 14, lines 6-13. 22 SCE owns approximately 16 percent of PVNGS with Arizona Public Service (APS), El Paso Electric, PNM

(formerly Public Service Company of New Mexico), SRP, and DWP owning the remaining approximately 84 percent.

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operating agent. As shown in Table III-10 below, SCE’s 2021 Test Year forecast for Participant Credits 1

and Charges is $22.754 million, consisted mainly of $11.510 million A&G, and $9.564 million P&B, 2

participant charges, for PVNGS.23 3

SCE’s 2021 Test Year PVNGS A&G participant charges are expected to be 4

consistent with 2018, as the A&G loading rates generally do not fluctuate significantly year to year. The 5

2021 Test Year PVNGS P&B participant costs are calculated based on the 2017 actual P&B loading 6

rates provided by APS, resulting in participant charges $4.825 million higher than 2018.24 7

Table II-8 Participant Credits and Charges



b) Cal Advocates 8


Cal Advocates does not oppose SCE’s forecast of $12.200 million for 10

A&G; however Cal Advocates considers using a 5-year average (2014-2018) as a better forecasting 11

methodology for P&B. Cal Advocates states that it is clear that P&B loading rates can fluctuate 12

significantly; and, thus a 5-year average better captures the fluctuations. Cal Advocates’ approach 13

recommends a 2021 Test Year forecast of $7.753 1 million for P&B, a $2.801 million decrease.25 14

(2) SCE’s Rebuttal to Cal Advocates Position 15

SCE concedes to Cal Advocates’ position. Therefore, SCE adjusts its 2021 16

Test Year forecast for Participant Credits and Charges to $19.953 million (A&G $12.200 million and 17

P&B $7.753 million). 18

23 See SCE-06, Vol. 2, Ch. II, pp. 21-22, Table II-5 and Table II-6. 24 See SCE-06, Vol. 2, Ch. II, p. 22, Table II-6. 25 See Exhibit PAO-10, p. 15, lines 24-27; p. 16, lines 1-3.

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c) Conclusion 1

SCE concedes to Cal Advocates’ position. Therefore, SCE adjusts its 2021 Test 2

Year forecast for Participant Credits and Charges to $19.953 million (A&G $12.200 million and P&B 3

$7.753 million). 4

15

III. 1

INSURANCE 2

For Test Year 2021, SCE forecasts $680.1 million in A&G expense for property and liability 3

insurance. This request includes $623.8 million for wildfire liability insurance, $35.9 million for non-4

wildfire liability insurance and $20.5 million for property insurance. 5

Table III-9 Insurance 2021 O&M Forecast

Summary of SCE, Cal Advocates, and TURN Position (2018 Constant $000)

A. O&M Expenses 6

1. Wildfire 7


Consistent with prior years, SCE continues to purchase approximately $1 billion 9

of wildfire insurance coverage to protect customers from the financial exposure of third-party legal 10

claims resulting from wildfires alleged to be associated with SCE infrastructure. SCE may obtain this 11

coverage through traditional insurance or through alternative risk transfer instruments such as 12

catastrophe bonds and self-insurance.26 AB 1054 requires SCE to maintain a reasonable amount of 13

insurance as determined by the Wildfire Fund Administrator, and must incur at least $1 billion in 14

wildfire claims payments to receive access to the Wildfire Fund.27 In addition, as stated in SCE’s direct 15

26 Catastrophe bonds are a capital markets instrument used to provide protection against perils such as

earthquakes and wildfires. 27 See Cal. Pub. Util. Code § 3293 (requiring that “[a] participating electrical corporation shall maintain

reasonable [wildfire] insurance coverage.”).

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testimony, SCE believes that maintaining at least $1 billion in insurance coverage is beneficial to and 1

necessary for customers for the following two reasons. First, it protects customers from third-party 2

claims related to wildfires pursued under the inverse condemnation doctrine, when SCE is not at fault 3

but nevertheless SCE—and derivatively, its customers—will be held strictly liable for resulting 4

damages.28 Second, as recognized in Governor Newsom’s June 21, 2019 official report on catastrophic 5

wildfires, stabilizing the financial health of California’s utilities is essential to enable them “to provide 6

safe, affordable and reliable energy, ensure fair compensation for wildfire victims, and protect 7

ratepayers from massive rate spikes.”29 Maintaining $1 billion in coverage is prudent since that is the 8

level of liability would need to incur before accessing the Wildfire Fund, which is critical for the 9

financial stability of SCE and the other California IOUs. 10

Table III-10 Wildfire Liability Insurance Expense30



b) Cal Advocates 11

(1) Cal Advocates’ Position 12

Cal Advocates does not question the amount of SCE’s proposed liability 13

insurance coverage or its associated cost. Nevertheless, Cal Advocates recommends a $155.951 million 14

reduction to SCE’s Wildfire Liability Insurance requests based solely on an arbitrary 75%/25% 15

allocation “sharing” method between customers and shareholders. Cal Advocates’ position is based on 16

28 See SCE-06, Vol. 02 Ch. III, p. 39. Wildfire liability insurance – like all liability insurance – also protects

against claims alleging negligence. 29 See June 21, 2019 Governor Newsom’s Strike Force Progress Report on Catastrophic Wildfires, Climate

Change and Our Energy Future at p. 7. https://www.gov.ca.gov/wp-content/uploads/2019/06/Strike-Force-Progress-Report.pdf, as of August 20, 2019.

30 Wildfire Liability Insurance expenses were combined and recorded with Non-Wildfire General Liability Insurance Expenses prior to 2018.

17

its belief that customers and shareholders both benefit from the protection of wildfire liability insurance. 1

Cal Advocates believes that the increase in insurance rates is the result of the following: 2

1) Utility infrastructure has ignited recent significant fires, and in SCE’s 3

service territory, the most notable fire was the 2017-2018 Thomas Fire,31 4

2) The significant increase in insurance premiums is directly associated 5

with wildfires ignited by utility infrastructure, 6

3) Insurance premiums benefit shareholders not only to mitigate risk but 7

such amounts also contribute to the recovery of settlement costs, and 8

4) Although insurance premiums benefit a number of parties, the other 9

parties were not the cause of the wildfires. 10

SCE addresses Cal Advocates’ arguments in detail below, but none of its 11

four arguments has merit. Specifically: 12

(a) Utility infrastructure has been alleged to have ignited fires, and in 13

SCE’s service territory, the most notable fire was the 2017-2018 14

Thomas Fire. 15

o SCE Response: The purpose of liability insurance is to protect 16

against liabilities associated with a company’s actions or 17

equipment. This is appropriately and has always been a customer 18

expense pursuant to cost-of-service ratemaking principles. Cal 19

Advocates’ arguments regarding alleged responsibility for 20

historical fires is unrelated to appropriate cost responsibility for 21

insurance coverage to protect customers in the future. And, in fact, 22

SCE is vigorously contesting the allegation that its equipment was 23

involved in the ignition of the Thomas Fire.32 24

31 Notably, Cal Advocates does not allege that SCE was imprudent in the start of the fires. In the absence of an

imprudence finding (and none exists here), customers pay claims costs; insurance is a risk management instrument that protects customers from paying the full amount of those costs.

32 There are two ignitions at issue in what is commonly referred to as the “Thomas Fire.” SCE has reported that its equipment was likely involved in the smaller of the two ignitions, known as the Koenigstein Fire. Officials now refer to the larger of the two fires, which began in Anlauf Canyon as the Thomas Fire. Litigation is ongoing and no findings have been made.

18

(b) The significant increase in insurance premiums is directly 1

associated with wildfires ignited by utility infrastructure 2

o SCE Response: Cal Advocates provides no evidence of what 3

portion of the increase in insurance premiums is related to SCE’s 4

or other utilities’ specific loss histories, and SCE is unaware of 5

any. But even if true, SCE has not been found liable for any such 6

fires during the historic period, and SCE cannot be found 7

imprudent for cost increases related to the loss histories of other 8

utilities. 9

(c) Insurance premiums benefit shareholders not only to mitigate risk 10

but such amounts also contribute to the recovery of settlement 11

costs. 12

o SCE Response: Cal Advocates’ position incorrectly assumes that 13

settlement costs are typically a shareholder expense. In the absence 14

of a Commission finding of imprudence, they are not. Without 15

insurance protection, customers are liable for all claims/damages in 16

the absence of utility imprudence. SCE procures insurance to 17

protect its customers against the risk of such claims, not in 18

anticipation of an imprudence finding. 19

(d) Although insurance premiums benefit a number of parties, the 20

other parties were not the cause of the wildfires. 21

o SCE Response: The purpose of insurance is to protect against 22

significant liabilities associated with the actions or equipment of 23

the insured, the costs of which are passed on to the insured’s 24

customers. This is why liability insurance has always been a 25

standard cost-of-service product for ratemaking purposes. Cal 26

19

Advocates’ proposed 25% shareholder penalty would be 1

unprecedented in CPUC ratemaking jurisprudence. 2

c) TURN 3

(1) TURN’s Position 4

(a) TURN Proposed Ratepayers and Shareholders Split Wildfire 5

Liability Insurance Expense 6

Like Cal Advocates, TURN does not question the amount of 7

SCE’s proposed liability insurance coverage or its associated cost. Nevertheless, TURN recommends a 8

$312 million or 50% reduction to SCE’s wildfire liability insurance requests based on a 50%/50% 9

“sharing” allocation method between customers and shareholders. TURN believes that the financial risk 10

resulting from claims associated with wildfires is one faced by both customers and shareholders.33 11

Essentially, TURN puts the cart before the horse by asserting that, in at least half the cases, SCE will, 12

many years from now, be found imprudent for wildfires (which have yet to occur) alleged to have been 13

ignited by SCE equipment. In TURN’s hypothetical world, wildfire liability insurance thus reduces the 14

future shareholder financial impact resulting from such a wildfire because there will be a lesser 15

magnitude of uninsured losses. 16

TURN goes on to state that customers should not bear the cost of 17

SCE wildfire liability insurance covering risks not associated with the inverse condemnation doctrine 18

and would limit customer funding only to coverage associated with losses arising from property damage 19

and attorney fees. TURN asserts the associated premiums to cover solely property damage are less 20

expensive on a per-dollar-coverage-dollar basis than the liability insurance that also covers personal 21

injury and wrongful death. Accordingly, TURN recommends that SCE wildfire liability insurance 22

covering personal injury and wrongful death is a cost that should be borne by SCE’s shareholders.34 23

Additionally, TURN asserts that in recent years, SCE’s liability insurance policies often include punitive 24

damage coverage, and TURN believes the costs associated with such insurance coverage should not be 25

recovered from ratepayers, as ratepayers are not at risk of paying punitive damages if awarded against 26

the utility.”35 27

33 See TURN-01, p. 5. 34 See TURN-01, p. 10. 35 Id., p. 11.

20

(b) TURN Believes SCE’s Showing in Support of Its 2021 Wildfire 1

Liability Insurance Forecast is Inadequate 2

TURN questions SCE’s wildfire liability insurance forecast 3

methodology for Test Year 2021 by relying on the guidance of SCE’s broker, Marsh. As stated in 4

TURN’s testimony, “there is nothing in the testimony that explains in any detail how SCE arrived at the 5

$624 million figure for 2021. The workpapers provide no further detail. The Marsh Premium forecast 6

letter itself provides only the most minimal information.”36 Hence, TURN struggles to reasonably 7

accept, assess and understand SCE’s Test Year 2021 forecast of $624 million for wildfire liability 8

insurance since it represents a significant increase over prior years. TURN does not address the fact that 9

SCE’s insurance broker is the witness for its direct testimony. 10

(c) TURN Requests the Commission Deny SCE’s request for 11

Alternative Risk Transfer Instruments 12

TURN recommends that the Commission reject SCE’s proposal for 13

less costly alternative risk transfer instruments and approaches, such as catastrophe bonds and self-14

insurance, on the grounds that SCE’s showing in support of those instruments and approaches is 15

inadequate. 16

d) SCE’s Rebuttal to Both Cal Advocates and TURN Positions 17

(1) Wildfire Liability Insurance Expense Should Not Be Allocated Between 18

Ratepayers and Shareholders; Customers Should Pay For These Costs 19

Through Rates as They Always Have 20

Cal Advocates’ and TURN’s testimonies recommend that the Commission 21

abandon its sound and universal practice of treating liability insurance premiums as a standard cost of 22

doing business appropriately included in customer rates by imposing a massive $155.951 and $312.0 23

million disallowance and requiring shareholders to fund the shortfall. The Commission should reject that 24

proposition in totality. Both Cal Advocates and TURN proposals are logically unsound, inequitable, 25

contrary to all Commission precedent (including all past and current ratemaking treatment for the other 26

California IOUs), and could inappropriately negatively impact SCE’s financial stability by eroding the 27

investment community’s confidence in the continued viability of the California regulatory compact, to 28

the direct detriment of customers. Maintaining wildfire liability insurance is required by California law 29

36 Id, p. 12.

21

in order for an IOU to maintain access to the AB 1054 Wildfire Fund, which the Legislature created in 1

2019 as a crucial statutory safeguard to re-affirm the very viability of the utility business model in 2

California. As part of that statutory bargain, SCE (and the other IOUs) were required to contribute 3

billions of dollars in shareholder money to pay for what the Legislature deemed to be their equitable 4

share of the cost burden for the Wildfire Fund. Both Cal Advocates’ and TURN’s proposals would 5

effectively turn that painstakingly-crafted legislative compromise on its head by requiring SCE – but not 6

PG&E or SDG&E – to pay an additional multi-hundred-million dollar “cover charge” (presumably 7

indefinitely) to maintain access to the fund. There is no basis in law, precedent, or logic to support Cal 8

Advocates’ and TURN’s proposals. 9

Despite the amount of the premiums being part of the record and 10

essentially undisputed, neither Cal Advocates nor TURN argue that SCE’s premiums are not cost-11

effective for customers. By contrast, SCE has met its burden to prove that its insurance premiums are 12

objectively reasonable on their face. Thus, Cal Advocates and TURN have not come forward with any 13

legitimate basis for departing from the longstanding rate treatment for the cost of liability insurance 14

premiums, which is a ubiquitous and prudent cost of doing business. It is an obvious proposition that the 15

purpose of insurance is to provide a cost-effective means for all entities and individuals to cover and 16

finance the risk of being sued on claims that allege negligence, and is simply a standard cost of 17

business.37 For that reason, California law is crystal clear that insurers are required to cover all forms of 18

negligence.38 Taken to its logical conclusion, both Cal Advocates and TURN positions would mean that 19

the Commission should disallow or require a refund to customers anytime insurance covers a claim. The 20

Commission should not adopt a ratemaking proposal that would be directly contrary to the logic 21

37 Marshall Wilson Reavis III, PhD, Insurance Concepts & Coverage: Property, Liability, Life, Health and Risk

Management at p. 33 (2012) (“The purpose of liability insurance is to protect an insured from economic loss in the event the insured is negligent. . . .”); see also The International Risk Management Institute’s Glossary’s definition of negligence states that “Liability policies are designed to cover claims of negligence.” The definition is available at: https://www.irmi.com/term/insurance-definitions/negligence.

38 Cal. Ins. Code § 533 expressly states that while “an insurer is not liable for a loss caused by the willful act of the insured, [] [the insurer] is not exonerated by the negligence of the insured, or of his agents or others.” The California Supreme Court has held that Section 533 applies to all forms of negligence, including gross negligence and recklessness. J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1021.

22

underlying the very purpose of obtaining insurance. All prudent people and entities procure insurance to 1

guard against the risk of third-party claims alleging negligence.39 2

Whether an underlying claim is the product of any form of negligence or 3

so-called “imprudence” is also beside the point because the purpose of insurance is to prudently finance 4

the risk that the insured will incur costs based on claims alleging unintentional torts, as well as the 5

defense costs associated with lawsuits alleging such claims irrespective of the merit of those lawsuits. 6

What is at issue here is simple: Was SCE’s procurement of insurance in and of itself prudent? SCE 7

submits the answer is unequivocally “yes.” To examine whether SCE’s insurance procurement is 8

prudent, the Commission must ask whether SCE obtained a reasonable amount of commercial insurance 9

at a price that is cost effective for customers to finance their risk, keeping in mind that some insurance is 10

legally mandated, such as automobile insurance for individuals and wildfire insurance under AB 1054 11

for the utilities.40 Because SCE has demonstrated that the answer to that question is “yes,” it should 12

recover this standard cost of doing business from customers. 13

Cal Advocates and TURN notably do not contend that SCE’s premiums 14

are not a cost-effective way for customers to finance risk; they also recognize that the financial stability 15

that liability insurance provides benefits communities, customers, and creditors.41 However, their 16

positions in part are that the cost of insurance that SCE should maintain and that benefits customers 17

should be borne by shareholders because premiums have increased due to an increase in covered claims. 18

Cal Advocates and TURN positions not only turn the concept of insurance on its head but also fail to 19

appreciate the role factors outside SCE’s control contribute to the costs of premiums, the way the 20

insurance business operates with respect to increasing and declining premiums for certain types of 21

losses, or the role commercial insurance plays in allowing utilities to support and advance the state’s 22

important and ambitious energy and environmental policy goals. 23

39 See, e.g., Insurance Information Institute website (“A Commercial General Liability (CGL) policy protects

your business from financial loss should you be liable for property damage or personal and advertising injury caused by your services, business operations or your employees. It covers non-professional negligent acts. Understanding this coverage is an important first step in managing CGL risks.”) (emphasis in original). Available at https://www.iii.org/article/commercial-general-liability-insurance.

40 Cal. Pub. Util. Code § 3293 (requiring that “[a] participating electrical corporation shall maintain reasonable [wildfire] insurance coverage.”) SCE acknowledges that the policies at issue here pre-date the passage of AB 1054, but the Commission has always and appropriately approved of SCE’s standard practice of carrying liability insurance.

41 See PAO-10, p. 21.

23

Cost recovery for insurance premiums is particularly important for the 1

Investor-Owned Utilities (IOUs) because it is inextricably linked to the regulatory compact. Consider 2

the specific example of wildfire insurance. Due to California’s unique application of the inverse 3

condemnation doctrine, IOUs are strictly liable for the full cost of wildfire-related losses resulting from 4

ignitions associated with their equipment, including property damage and the fire suppression and 5

firefighting costs public agencies incur fighting the fire and providing rescue or emergency medical 6

services.42 That is the case even if the IOU was not negligent in its wildfire risk mitigation actions and 7

even though IOUs have no choice but to provide service in high risk areas within their territories.43 8

Unlike other for-profit businesses, the IOUs have no authority to deny service in high-risk areas or to 9

high-risk customers or to unilaterally raise prices, as any other business would do to guard against or 10

finance risk. For example, unlike the IOUs, FedEx could refuse to deliver to customers in high-risk 11

areas. 12

Moreover, rising liability insurance costs are by no means solely a 13

California issue. Premiums have risen for everyone due to worldwide losses and losses in the United 14

States, particularly California, as well as extensive industrial and commercial losses outside of 15

California. The amount of premium expenses related directly to SCE’s loss history cannot be untangled 16

from the rising premium expenses due to losses suffered in California, the U.S., and worldwide 17

generally. Regardless, the premiums at issue in this application are a cost-effective way for customers 18

and SCE to finance risk.44 19

As a result of California’s regulatory regime, paired with decades of fire 20

suppression, increased development in the wildland-urban interface, and climate change-induced longer 21

fire seasons – all factors outside the IOUs’ control – wildfires in 2017 and 2018 resulted in massive 22

losses for the IOUs, their contractors, and the insurance companies that insure them. SCE has not been 23

found negligent or imprudent with respect to any of those events. Commercial insurers are for-profit 24

businesses. They will therefore have to, at least temporarily, raise premiums for a period to recoup those 25

42 See Cal. Health & Safety Code § 13009(a), (b). 43 With the exception of periodic and temporary Commission-approved Public Safety Power Shutoffs (PSPS) to

protect the public safety during extreme weather events. 44 For example, as will be discussed in more detail below, SCE recently entered into settlements with certain

public entities relating to the 2017 and 2018 Wildfire and Mudslide events. Those settlements were covered by SCE’s insurance policies (i.e., customers did not pay for the settlement amounts). Those settlements did not in any way admit utility “negligence” (let alone “imprudence”).

24

losses, but rates should stabilize in the future as losses diminish. Thus, the Commission should assess 1

premium prices over a longer period than just one or two years.45 2

Cal Advocates and TURN suggest that the utility’s shareholders should 3

pay 25% and 50%, respectively, of insurance premiums, despite it being a reasonable and ordinary cost 4

of business, and not including those premiums in customer rates would undermine the regulatory 5

compact. Both the Cal Advocates and TURN positions suggest that they view the financial health of the 6

utilities to be separate and distinct from the best interest of customers. However, safeguarding the 7

financial health of the IOUs is not only inextricably linked to the best interests of customers, but also is 8

in the best interest of the state and its goals. If the IOUs are not financially healthy, they may suffer a 9

credit rating downgrade, struggle to borrow, and have less cash on hand. Cash flow limitations and 10

reduced capacity to borrow could jeopardize the IOUs’ ability to make critical investments, including 11

those to mitigate wildfire risk, as well as to support the state’s important and ambitious energy and 12

environmental policy goals. If adopted, both Cal Advocates and TURN requested disallowance could 13

chill investors’ willingness to invest in California utilities. 14

(a) TURN’s Claims that SCE’s Forecast is Unreasonable Because it 15

Covers the Costs of Risks that Customers Do Not Bear is Entirely 16

Devoid of Merit 17

TURN asserts that customers should not pay for the full cost of 18

wildfire liability insurance because it covers personal injury claims, which are only recoverable for 19

negligence actions and not pursuant to the doctrine of inverse condemnation.46 As TURN did in SCE’s 20

2019 WEMA proceeding, once again TURN fundamentally conflates the concepts of “negligence” and 21

“imprudence.” Protecting against allegations of negligence (which can lead to personal injury) is one of 22

the primary reasons utilities have always and continue to carry liability insurance (in addition to 23

protecting against inverse condemnation claims). Insurance policies protecting against allegations of 24

negligence have always and correctly been viewed by the Commission as a customer cost-of-service on 25

a forecast basis. Imprudence on the other hand, is an entirely different regulatory ratemaking concept, 26

under which the Commission has (on one relevant occasion) on a retrospective basis disallowed the 27

45 California’s unique application of the inverse condemnation doctrine to the IOUs may prevent insurance

premiums from ever being considered “low”. 46 Exhibit TURN-01, p. 9.

25

costs of third-party claims when the Commission determined that a utility had operated its system 1

imprudently in relation to a wildfire event. 2

TURN’s argument fails for another, independent reason as well: It 3

is premised on TURN’s contention that “if SCE were seeking to obtain wildfire liability insurance for 4

2021 to cover only potential losses associated with inverse condemnation claims (that is, property 5

damage and attorney fees), the cost for $1 billion of coverage would likely be substantially below the 6

$624 million SCE forecasts.”47 TURN’s witness’s (who offers no insurance industry experience) only 7

support for that statement is the conclusory statement: “The difference would be the product of the 8

higher cost associated with wildfire liability insurance coverage for personal injury, wrongful death, and 9

the other types of claims (in addition to property damage claims) that would come with a finding of 10

utility negligence.”48 TURN offers no evidence that such a hypothetical insurance product (i.e., covering 11

only inverse condemnation claims) is commercially available, and SCE is unaware of any such product. 12

In any event, as discussed above, it is ultimately unnecessary to consider the hypothetical because the 13

answer to it is irrelevant: protecting against allegations of negligence is one of the core functions of 14

liability insurance. 15

TURN’s arguments about punitive damage coverage, on the other 16

hand, are somewhat different. In that case, TURN is correct that punitive damages awards would not be 17

recoverable from customers. But TURN is completely incorrect in its unsupported statement that “the 18

Commission can reasonably assume that the incremental coverage [for punitive damages coverage] 19

comes at a cost.”49 First, while some of SCE’s insurance policies include the boilerplate language of 20

coverage for “punitive damages” it is unclear why TURN believes such “coverage” is enforceable as a 21

matter of California law. Second, SCE has made clear to TURN and re-confirms here that it is indeed is 22

not paying one incremental dollar for punitive damages “coverage.”50 23

47 See Exhibit TURN-01, p. 10. 48 Exhibit TURN-01, pp. 10-11. 49 TURN-01, p. 11. 50 See, e.g., March 16, 2020 SCE Rebuttal Testimony in A.19-07-020.

26

(b) SCE Wildfire Liability Insurance Forecast Methodology is 1

Adequate 2

TURN’s assertion that SCE’s wildfire liability insurance forecast is 3

inadequate is unfounded. Also, TURN’s arguments lack support since TURN mostly questions SCE’s 4

wildfire liability insurance forecast simply by comparing the forecast to historical recorded expenses 5

from 2018 and stating that SCE’s “forecast is thin, particularly in light of the magnitude of the amount 6

requested.”51 Since there is no model to forecast what future insurance premiums will be, the forecast 7

methodology which SCE has used consistently in prior General Rate Cases, and which the Commission 8

has accepted consistently, is based on the expert opinion of SCE’s insurance broker, Marsh. SCE 9

recognizes that the forecasted wildfire liability insurance expense for TY2021 is significantly greater 10

than prior years, TURN agrees that we are “in an era when there may be no dispute that wildfire liability 11

insurance prices are climbing dramatically.”52 That indisputable fact has been demonstrated on a 12

recorded - not forecast -- basis in SCE’s 2018 Z-Factor and 2019 WEMA proceedings.53 Here, SCE’s 13

2021 forecasts are in line with those recent actual expenses, which are much more relevant than that the 14

2015 and 2018 forecast GRC expenses TURN cites in its testimony. SCE also recognizes, however, that 15

in the current insurance environment, it is impossible to forecast wildfire liability insurance premiums 16

precisely. As a result, SCE has proposed a two-way Risk Management Balancing Account (RMBA) to 17

address these uncertainties (see SCE-18, Volume 1 for further details). If anything, at this time SCE 18

believes its 2021 premium amounts will be higher than forecast, not lower. In either event, the 19

establishment of the RMBA will eliminate customer under- or over-payment risk associated with the 20

forecast uncertainty. Finally, it is noteworthy that TURN cannot recommend any “specific quantitative 21

adjustment” related to what is in its view SCE’s inadequately supported forecast amount.54 22

(c) SCE’s Alternative Risk Transfer Instruments Should Be Expressly 23

Permitted 24

SCE has proposed using alternatives such as catastrophe bonds or 25

funded self-insurance at times when those alternatives provide better or less expensive coverage than 26

51 See TURN-01, p.12 52 TURN-01, p. 19. 53 See Advice Letter 3768-E and A.19-07-020. 54 TURN-01, p. 16.

27

traditional wildfire liability insurance. TURN describes these alternatives as “new and untested,” but in 1

fact they are neither new nor untested. Both San Diego Gas & Electric Company and Pacific Gas and 2

Electric Company have entered into catastrophe bond transactions in recent years, and SCE believes it is 3

prudent to have authorization from the Commission to use this instrument if there is a time in the future 4

when accessing the capital markets through a catastrophe bond can provide better or less expensive 5

wildfire risk protection for its customers. Likewise, SCE believes there are times when wildfire 6

insurance is overpriced in the market relative to its true actuarial value, and at those times customers can 7

benefit from funding some level of self-insurance rather than being forced to rely solely on the 8

overpriced insurance market. TURN is simply incorrect when it states that that SCE having self-9

insurance would have customers bear “100% of a risk that, without the self-insurance, would be borne 10

by ratepayers and shareholders both.”55 SCE would pursue customer-funded self-insurance in lieu of an 11

offsetting amount of customer-funded traditional insurance. In other words, to take the example in 12

TURN’s testimony, if the Commission appropriately authorizes SCE to pursue self-insurance, SCE 13

would fund $200 million in self-insurance and $800 million in traditional insurance. If it does not, SCE 14

would procure $1 billion in traditional insurance. The only difference is under SCE’s proposal 15

customers would pay less for the total coverage. Therefore, SCE urges the Commission to expressly 16

authorize SCE to use these alternatives when appropriate to more cost-effectively protect customers. 17

e) Conclusion 18

In sum, insurance is an essential and ubiquitous risk mitigation instrument which 19

all responsible corporate entities and private individuals use to cover losses resulting from claims of 20

negligence. That basic concept holds true for all forms of liability insurance, whether one is buying car 21

insurance, homeowners’ insurance, legal or medical malpractice insurance, commercial general liability 22

insurance, excess coverage, etc. Payment of claims where a litigant alleges negligence (often among a 23

variety of other alleged causes of action) is a common cost of doing business (any business) and 24

insurance premiums protecting against such claims are part and parcel of the regulatory compact. No 25

prudent business, including the IOUs, should operate without insurance if reasonably feasible.56 26

55 TURN-01, p. 17. 56 At some premium threshold, it may be more cost-effective to self-insure against certain risks rather than

purchase commercial liability insurance. SCE has proposed to use funded self-insurance to cover a portion of its risk exposure under these circumstances.

28

For this reason, the Commission has always treated the cost of insurance as a 1

cost-of-service appropriately recoverable in customer rates. While it is the case that the Commission can 2

deny rate recovery of losses from claims incurred as a result of utility imprudence, there is absolutely 3

nothing imprudent about maintaining insurance coverage. The Commission should therefore reject the 4

Cal Advocates and TURN proposals to allocate 25% and 50%, respectively, of wildfire insurance 5

premiums to shareholders. 6

2. Non-Wildfire 7


SCE’s non-wildfire liability insurance programs include general liability, 9

fiduciary liability, directors and officers (D&O), workers compensation, nuclear liability, cyber liability 10

and miscellaneous liability insurance and surety bonds. SCE purchases non-wildfire general liability 11

insurance to limit exposure to unpredictable losses that may occur as a result of lawsuits alleging third-12

party bodily injury, personal injury, or property damage. Prior to 2018, SCE’s wildfire liability 13

insurance expense was combined and recorded with non-wildfire general liability insurance expense. 14

Consistent with prior GRCs, SCE based its non-wildfire liability insurance forecast for TY2021 on 15

forward-looking guidance from its insurance broker. 16

29

Table III-11 Non-Wildfire Liability Insurance Expense57



b) Cal Advocates 1


Cal Advocates recommends a reduction of 10%, or $3.585 million, to 3

SCE’s non-wildfire liability insurance forecast.58 SCE’s recorded 2019 non-wildfire liability insurance 4

expense was approximately 10% below SCE’s forecast, which was developed by SCE’s insurance 5

broker, Marsh. SCE’s forecasted non-wildfire liability insurance expense for 2019 was $32.360 million, 6

and recorded expense was $28.976 million. Based solely on SCE’s experience in one year – 2019, Cal 7

Advocates recommends a reduction of 10%, or $3.585 million, in SCE’s Test Year 2021 non-wildfire 8

liability insurance expense. 9

c) SCE’s Rebuttal to Cal Advocates Position 10

Cal Advocates’ argument is that since SCE’s forecasted 2019 non-wildfire 11

liability insurance expense exceeded recorded expense by 10%, SCE’s forecasted 2021 expense will also 12

exceed recorded expense by 10%. This is not a logical argument. The nature of any forecast is that the 13

forecasted number will almost always be either greater than or less than the actual number being 14

forecasted. There is no reason to assume that the percentage difference between forecast and actual will 15

remain constant through time. In fact, with respect to non-wildfire liability insurance expense, current 16

insurance market pricing information suggests that SCE will have higher non-wildfire liability insurance 17

expense in 2020 than SCE’s forecasted 2020 expense, not lower. If Cal Advocates’ methodology were 18

to be applied to 2020 expense rather than 2019 expense, that would mean that SCE should be allowed to 19

57 Non-Wildfire General Liability Insurance Expenses were combined and recorded with Wildfire Insurance

Expense prior to 2018. 58 See PAO-10, p. 22

30

recover more than it forecasted for Test Year 2021. Since SCE’s forecast was higher than recorded in 1

2019, and will be lower than recorded in 2020, the methodology used by SCE and its broker is not 2

systematically overestimating expense in the Test Year 2021. As with any unbiased forecast, in some 3

years the forecast exceeds recorded, and in other years the forecast is below recorded. The Commission 4

has accepted the use of the forecast of SCE’s insurance broker, Marsh, in prior General Rate Cases and 5

should adopt it for Test Year 2021 as well. 6

d) Conclusion 7

The Commission should reject Cal Advocates’ recommendation and approve 8

SCE’s request for the Test Year non-wildfire liability insurance forecast of $35.9 million. SCE has 9

demonstrated that consistent with prior rate cases, a forecast prepared based on guidance from SCE’s 10

insurance broker has been a sound forecasting methodology. While Cal Advocates is correct that SCE’s 11

2019 forecast is higher than actual recorded, Cal Advocates did not factor in the current insurance 12

market conditions, which can result in higher or lower forecast variance ranges. In fact, SCE’s 2020 13

non-wildfire liability insurance expense is expected to exceed the forecast for that year. Hence, SCE’s 14

forecasting methodology, based on its insurance broker’s guidance, is more reasonable than Cal 15

Advocates’ proposed methodology, based solely on one year’s experience. 16

3. Property 17


SCE property insurance includes non-nuclear property, nuclear property and 19

blanket crime insurance. SCE purchases property insurance to protect SCE’s property against potential 20

physical loss or damage caused by natural disasters such as fire, earthquake, flood, or accidental 21

mechanical breakdown, and acts of terrorism. SCE also purchases nuclear property insurance to cover 22

the SONGS switchyard59 and a portion of the nuclear property insurance cost is for SCE’s participant 23

share at the Palo Verde Nuclear Generating Station.60 Additionally, SCE’s property insurance includes 24

blanket crime insurance coverage for losses due to theft, robbery, and computer and wire fraud. 25

Consistent with past GRCs, SCE based its property insurance request on forward-looking guidance from 26

its insurance broker to forecast Test Year insurance expense of approximately $20.5 million. 27

59 Refer to WP SCE-06, Vol. 2 Book A, pp. 87-88, Insurance FCCs Detail Recorded/Adjusted & Forecast and

SCE A.19-08-013, Exhibit SCE-06, Vol 2, Chapter III, p.36. 60 APS purchases insurance for Palo Verde on behalf of the participants.

31

Table III-12 Property Insurance Expense



b) Cal Advocates 1


Cal Advocates, using the same logic as was used for non-wildfire liability 3

insurance expense in the previous section, recommends a reduction of 6% or $1.228 million to SCE’s 4

property insurance. SCE’s recorded 2019 property insurance expense was approximately 6% below 5

SCE’s forecast, which was developed by SCE’s insurance broker, Marsh. SCE’s forecasted property 6

insurance expense for 2019 was $16.596 million, and recorded expense was $15.55 million. Based 7

solely on SCE’s experience in one year – 2019 , Cal Advocates recommends a reduction of 6%, or 8

$1.228 million, in SCE’s Test Year 2021 property insurance expense. 9

c) SCE’s Rebuttal to Cal Advocates Position 10

Similar to the previous section on non-wildfire liability insurance, Cal Advocates’ 11

argument is that since SCE’s forecasted 2019 property insurance expense exceeded recorded expense by 12

6%, therefore SCE’s forecasted 2021 expense will also exceed recorded expense by 6%. As SCE 13

pointed out in the previous section, this is not a logical argument. As was the case with SCE’s non-14

wildfire liability insurance, SCE’s recorded 2020 property insurance expense is expected to exceed its 15

forecasted expense. SCE’s forecasted expense is greater than recorded in some years and less than 16

recorded in other years indicates that SCE’s forecast is unbiased and does not systematically overstate or 17

understate the recorded expense. Therefore, it would not be appropriate to apply Cal Advocates’ 18

methodology to reduce Test Year 2021 forecast simply because the 2019 forecast exceeded recorded 19

expense for that year. The Commission has accepted use of the forecast of SCE’s insurance broker, 20

Marsh, in prior General Rate Cases and should adopt it for Test Year 2021 as well. 21

32

d) Conclusion 1

The Commission should reject Cal Advocates’ recommendation and approve 2

SCE’s request for the Test Year 2021 property insurance forecast of $20.5 million. SCE has 3

demonstrated that consistent with prior rate cases, basing a forecast on guidance from SCE’s insurance 4

broker is a sound forecasting method, and is superior to Cal Advocates’ proposed methodology of 5

looking solely at one year’s experience in 2019. 6

4. Proposed Acceleration of Recovery of Previously Authorized (Capitalized) Wildfire 7

Liability Insurance 8


SCE proposes to accelerate cost recovery, over this GRC cycle,61 of the $95 10

million balance of unrecovered wildfire-related insurance premiums that were already authorized in the 11

201562 and 2018 GRCs. Consistent with the 2018 GRC decision, for the 2018-2020 period, SCE applied 12

its pensions and benefits capitalization rate (45.5%) to wildfire-related liability insurance coverage 13

authorized in the prior GRC. SCE now forecasts that at the end of 2020, the unrecovered balance of the 14

capitalized wildfire-related insurance amounts will be $95 million. However, the Federal Energy 15

Regulatory Commission (FERC) requires expensing, not capitalizing, wildfire-related insurance 16

premiums (FERC Order on Compliance Filing, August 3, 2012, Docket No. ER11-4318-001, hereinafter 17

“FERC Order” and attached as Appendix B hereto). Therefore, SCE proposes to accelerate recovery of 18

the $95 million of unrecovered wildfire premiums authorized in prior GRCs. Because SCE’s proposal is 19

to recover this expense over more than one year, it is reasonable to retain capitalization treatment for just 20

the GRC recovery period.63 21

b) Cal Advocates and TURN 22


Cal Advocates opposes SCE’s request. Cal Advocates states that in SCE’s 24

2018 GRC, the Commission made the determination to capitalize the premiums over a long time 25

horizon, and the Commission is not mandated to follow FERC guidance. In addition, Cal Advocates 26

61 SCE’s initial proposal was to accelerate recovery over 2021-2023, but with the extension of the GRC cycle to four years, SCE is open to extending accelerated recovery over four years -- 2021-2024.

62 There’s roughly $4 million unrecovered balance in this $95 million that is 2017-related. The gross amount was calculated by applying the pensions and benefits capitalization rate authorized in the 2015 GRC (39.8%) to wildfire-related liability insurance coverage authorized for 2017.

63 See Exhibit SCE-06, Vol. 2, Ch. III, p. 47, lines 17-19.

33

claims that SCE’s proposal provides no evidence that the current accounting treatment violates any 1

accounting rules or that changing the current treatment would benefit ratepayers.64 Thus, Cal Advocates 2

supports status quo capitalization treatment of the previously-authorized insurance premiums. 3

(2) TURN Position 4

TURN joins Cal Advocates in opposing SCE’s request to accelerate 5

recovery of the $95 million of wildfire-related insurance expense that is currently capitalized.65 Similar 6

to Cal Advocates’ points, TURN argues that “[t]here is nothing in the cited FERC order that ‘requires 7

expensing, not capitalizing, stand-alone wildfire insurance premiums.’”66 TURN also questions whether 8

the governing FERC guidance is consistent with SCE’s characterization of it. TURN further asserts that 9

the $95 million is associated with previously authorized wildfire-related insurance amounts, and is 10

already being collected (on a capitalized basis) in currently authorized rates. TURN does not support 11

unsettling the status quo ratemaking treatment and asserts there is “nothing that would compel the 12

[California Public Utilities] Commission to provide SCE with accelerated rate recovery of these costs.”67 13

TURN’s objections are also rooted in a concern over rate impacts. It notes 14

that the proposal to accelerate recovery over a few years would “add approximately $20 million to $28 15

million to [SCE’s] test year 2021 revenue requirement.”68 It also notes that capitalizing the accelerated 16

recovery will result in $16 million more than a simple amortization of the $95 million as an expense 17

over the same period.69 18

As a fallback to its primary position that the Commission should maintain 19

status quo ratemaking treatment, TURN states in a footnote that if SCE’s proposal to accelerate recovery 20

of the $95 million is allowed, then at the very least SCE should not continue to be permitted to capitalize 21

64 See Exhibit PAO-10, p. 23, lines 21-25; p. 24, lines 1-2. 65 See Exhibit TURN-01, p. 21, lines 12-14. 66 See Exhibit TURN-01, p. 21, lines 16-17. 67 See Exhibit TURN-01, p. 22, lines 9-11. TURN states that “[r]ejection of SCE’s proposal would continue the

amortization of these costs over an approximately 30-year remaining life,” (p. 22, lines 16-17), but it refers to a “twenty-year period” two pages earlier (p. 20, lines 10-11). If SCE’s depreciation proposals are adopted, the amortization period for this regulatory asset under status quo treatment would be 23.4 years. This was made clearer to TURN in a supplemental data request response that SCE transmitted after service of TURN’s direct testimony. See Appendix A with the supplemental DR.

68 Id., lines 15-16. 69 See Exhibit TURN-01, p. 22, lines 12-14.

34

the expensed amount for the recovery period; for a three-year cycle, this outcome would mean a 1

reduction of $8.33 million in the test year.70 2

c) SCE’s Rebuttal to both Cal Advocates’ and TURN’s Positions 3

SCE acknowledges that accelerating rate recovery would result in near-term rate 4

increases, but it maintains that FERC accounting guidelines require SCE to expense wildfire insurance 5

premiums. The Commission is not bound by FERC’s guidance, but SCE cannot unilaterally maintain the 6

status quo in light of FERC’s directives. Should the Commission generally follow FERC’s guidance but 7

order recovery over the GRC cycle, as SCE proposes, then it is reasonable for SCE to continue to earn a 8

return for that period. 9

(1) SCE strives to follow the FERC Uniform System of Accounts where 10

applicable, and expensing the wildfire insurance premiums is consistent 11

with the cited FERC guidance 12

Regardless whether the CPUC is forced to mandate that utilities follow 13

FERC guidance, it is a fact that SCE strives to adhere to requirements in the FERC Uniform System of 14

Accounts (USofA) and that it strives to treat CPUC-jurisdictional costs consistent with FERC 15

requirements when applicable. That has been SCE’s general practice for a very long time. In general, 16

deviation between CPUC and FERC accounting treatment is disfavored because it is inefficient and 17

increases costs. It is also important that SCE apply consistent accounting and ratemaking principles for 18

the same or similar costs over multiple years and across various proceedings. SCE respectfully notes that 19

TURN and Cal Advocates already recognize the move towards expensing (not capitalizing) wildfire 20

premium costs, as that is the proposed ratemaking treatment for SCE’s 2021 test year forecast for 21

wildfire insurance premiums; it is also SCE’s proposed treatment for recovery of insurance premiums in 22

the Wildfire Expense Memorandum Account (WEMA) proceeding, A.19-07-020.71 Following the 23

USofA facilitates transparency and consistency across proceedings. 24

TURN questions whether the cited FERC Order is consistent with SCE’s 25

claims that FERC requires utilities to expense, not capitalize, wildfire insurance premiums. TURN notes 26

that the cited FERC Order is mainly focused on recovery of insurance expenses incurred above what 27

70 See Exhibit TURN-01, p. 23, footnote 61. 71 TURN may oppose recovery of wildfire insurance premiums for reasons not discussed here, but it does not

lodge an objection to expensing the cost of the incurred premiums subject to the WEMA proceeding and the 2021-and-beyond forecast period.

35

was previously authorized and does not use the word “stand-alone” wildfire insurance. Regardless of 1

whether the FERC Order was reviewing costs above the adopted revenue requirement, it does refer 2

clearly to the issuance of a FERC deficiency letter in response to an SDG&E compliance filing in which 3

FERC requested that SDG&E “explain its rationale for capitalizing any portion of any wildfire costs, 4

including . . . the bifurcated insurance premiums, under the Commission’s accounting regulations.”72 5

(“Deficiency Letter” #6, emphasis added.) TURN’s observation that the term “stand-alone” does not 6

appear in the Order misses the point, and SCE’s use of that phrase in direct testimony apparently led to 7

unnecessary confusion. The FERC Order bars expensing what it calls the “bifurcated insurance 8

premiums,” i.e., the premiums that relate specifically to wildfire-related insurance. SCE, in this 9

proceeding, is seeking to conform to that Order by expensing wildfire-related insurance premiums that 10

the Commission previously authorized us to capitalize.73 We are in the same position that SDG&E was 11

when, as the FERC Order describes, “beginning in 2009, insurance policies reflected a bifurcation of 12

general liability insurance coverage between wildfire-related and non-wildfire-related coverage and 13

premiums” (“Background” #2).74 14

For avoidance of doubt, the FERC Order stated unequivocally that 15

“SDG&E improperly capitalized wildfire insurance premiums” (“Commission Determination” #14) and 16

that “We [FERC] find that the wildfire insurance premiums . . . incurred by SDG&E represent A&G 17

expenses necessary to operating its business and should not be capitalized because such costs did not 18

have a relation at all to any past or ongoing construction activities” (“Commission Determination” 19

#19).75 These are the statements on which SCE was relying when it determined that FERC “requires” 20

expensing wildfire insurance premiums. 21

As TURN notes, SCE acknowledges that the FERC Order also recognized 22

that the CPUC may reach a different conclusion on already authorized insurance premiums, stating that 23

“to the extent that certain wildfire costs are recoverable in future periods in CPUC-jurisdictional rates, 24

SDG&E may defer the costs, as appropriate, in Account 182.3 (Other Regulatory Assets).” 25

72 See Appendix B, p. B-3. 73 Of the $95 million of the unrecovered balance of the capitalized wildfire-related insurance amounts by the

end of 2020, a portion is related to pure supplemental wildfire insurance and the remainder is wildfire-related insurance bifurcated from general liability insurance policies. See Exhibit Workpaper SCE-06, Vol. 2, Book A, Ch. III, pp. 153-154, WF CPUC Reg Asset 2017-2020.

74 See Appendix B, pp. B-1-B-2. 75 See Appendix B, pp. B-5 and pp. B-6.

36

(“Commission Determination” #21.)76 In that respect, Cal Advocates and TURN are correct that the 1

CPUC is not mandated to follow the FERC guidance. However, both TURN’s and Cal Advocates’ 2

proposals to retain the status quo do not appropriately acknowledge FERC’s requirements, and they fail 3

to appreciate that inconsistent accounting and ratemaking treatment for wildfire-related insurance costs 4

across over several decades will create unnecessary inefficiency, complication and inconsistency across 5

proceedings and time periods. 6

(a) It is reasonable for SCE to earn a return on the unrecovered 7

premiums during the period over which the expense is collected. 8

Because the FERC order did not specify an amortization period of 9

the Regulatory Asset that results from a change from capitalization to expense, SCE proposes 10

amortizing over the GRC cycle rather than over an abrupt one-year period. That proposal gives rise to 11

the need to continue the prior CPUC-authorized capitalization treatment for just the brief recovery 12

period. SCE’s proposal strikes the right balance between one-time immediate expensing treatment and 13

capitalized treatment that stretches out for decades. SCE’s accelerated recovery proposal also more 14

equitably aligns cost responsibility for historical insurance cost premiums with the customers who 15

benefitted from the underlying coverage. 16

TURN’s primary proposal is rejection of SCE’s proposal in favor 17

of the status quo capitalization treatment because the CPUC is not required to follow the FERC 18

accounting guidance. With respect to its fallback proposal, that SCE be permitted to accelerate recovery 19

of the premiums over a multi-year GRC cycle but not collect a return via capitalization, TURN cannot 20

have it both ways. Expensing treatment of the wildfire-related insurance premiums during the GRC 21

cycle means a portion of the unrecovered $95 million, which was already fronted by SCE, will not be 22

recovered through rates immediately. In prior GRC decisions, the Commission approved these costs to 23

be capitalized, so SCE proposes to continue that treatment during the accelerated recovery period. Until 24

the costs are recovered fully, SCE should be compensated consistently with how the Commission treats 25

plant-in-service, working capital and other components of SCE’s rate base. 26

d) Conclusion 27

In summary, the Commission should reject Cal Advocates’ and TURN’s 28

recommendation and adopt SCE’s proposal to accelerate the recovery of the $95 million during the 29

76 See Appendix B, p. B-7.

37

multi-year 2021 GRC cycle. SCE’s request is reasonable, consistent with FERC directives, and 1

consistent with the accounting treatment SCE is seeking for prospective wildfire premium insurance in 2

this GRC (and recorded wildfire premiums in its WEMA). Because SCE is seeking accelerated recovery 3

over more than one year, it is also reasonable to continue capitalization treatment for just that brief 4

recovery period. For that reason, TURN’s alternative proposal to shift to a three-year expensing 5

treatment without the ability of SCE to benefit from rate base treatment for the prepaid portion of the 6

$95 million is contrary to fundamental ratemaking principles, and therefore, should also be rejected. 7

38

IV. 1

SUPPLY CHAIN MANAGEMENT 2

Table IV-13 Supply Chain Management

2021 O&M Forecast Summary of SCE, Cal Advocates, TURN, and NDC Position


A. O&M Expenses 3

1. Supplier Diversity 4


SCE’s Supplier Diversity and Department (SDD) is part of the Supply Chain 6

Management organization and manages SCE’s efforts to contract with and provide outreach and training 7

to Diverse Business Enterprises (DBEs) in compliance with CPUC General Order 156 (GO156). For test 8

year 2021, SDD’s forecast for O&M is $3.422 million, which represents an increase of $194,000 in 9

labor over 2018 recorded costs and decrease of $12,000 over 2018 non-labor recorded costs. SCE is 10

requesting the increase of $194,000 in labor in order to maintain a staffing level of nine full-time 11

positions and to include one additional position to manage an expanded focus on small business 12

programming and outreach. 13

39

Table IV-14 Supplier Diversity

2014-2018 Recorded/2021 Forecast Summary of SCE, Cal Advocates, TURN, and NDC Position


b) National Diversity Coalition 1

(1) NDC’s Position 2

NDC recommends that the Commission approve a 2021 SDD budget of 3

$3.240 million, in line with 2018 recorded cost levels without any adjustments.77 Although NDC 4

explicitly supports the addition of a position to manage an expanded focus on small business,78 they are 5

apparently unwilling to support the funds requested by SCE to support this additional staff. NDC states 6

that SCE has met and exceeded their SDD performance goals every year since 2013 with steadily 7

decreasing labor costs and that SCE has failed to explain what staff positions are needed and why.79 8

Furthermore, NDC states SCE has no plans to increase SDD performance or expand SDD programs. 9

NDC believes that 2018 SDD recorded cost levels should be sufficient to maintain SDD performance 10

and account for the additional small business focus position.80 11

(2) SCE’s Rebuttal to NDC’s Position 12

(a) 2018 Staffing Levels Are Insufficient For SCE To Do The Work 13

Needed In SDD 14

SCE opposes NDC’s position that for test year 2021 expenses be 15

based on 2018 recorded expenses with no adjustments because 2018 recorded labor expenses reflected a 16

staff level of seven to eight full-time employees (FTE). SDD’s full staff level is nine FTEs, with the 17

exception of 2014 where SDD had ten FTEs to support a management transition. Due to attrition from 18

unplanned retirements, separations, and internal movement, between 2017 and 2018, SDD’s staffing 19

77 See Exhibit NDC-01, p. 36. 78 See Exhibit NDC-01, p. 32. 79 See Exhibit NDC-01, p. 36. 80 See Exhibit NDC-01, p. 36.

40

level fluctuated between seven to eight employees. As SDD’s staffing levels and associated labor 1

expenses decreased, the workload of SDD’s team members increased to unsustainable levels, and 2

programs and projects were reprioritized or postponed. For example, SDD postponed the launch of an 3

additional phase of its flagship EDGE 18-month mentorship program, as well as reprioritized projects 4

focused on process enhancements. In 2019, SDD returned to a full staff level of nine FTEs. SCE does 5

not agree with NDC’s implied direct correlation between SDD’s staffing level and SCE’s DBE spend 6

performance. SCE’s corporate procurement activities and spend results are influenced by a variety 7

factors, such as changes to work priorities or project schedules driven by customer needs, regulatory 8

requirements, safety matters, weather conditions, invoicing timing, etc. In addition, SCE is unable to 9

predict suppliers’ marketplace availability, capabilities, capacity, or interest. 10

Per section 6.1 of CPUC GO 156, each utility is required to 11

maintain an appropriately sized staff to provide overall WMDVLGBTBE program direction and 12

guidance and to implement WMDVLGBTBE program requirements. SDD maintains its need for a full 13

staffing level of nine FTEs to perform multiple work functions necessary to sustain the notable supplier 14

diversity program performance for which SCE has been recognized. Due to SDD returning to a full staff 15

level of nine FTEs in 2019, SDD’s 2019 recorded labor costs were $1.083 million, an increase of 16

$103,000 over 2018 recorded labor costs. With the return to a full staff level of nine FTEs, SCE has 17

been able to launch its supplier development refresh project, update our supplier diversity training 18

content for internal stakeholders, and launched a project to formalize SDD’s end-to-end DBE sourcing 19

process. SCE is requesting the Commission to allow SDD to remain at full staffing level, plus fund an 20

additional employee to focus on small business programming and outreach, as discussed below. 21

(b) NDC Supports An Additional Position To Focus On Small 22

Business Programming And Outreach, But Without Funding 23

As indicated in Mr. Frierson ‘s direct testimony, SCE seeks to 24

expand its staff by one additional person to address the emergent issues relating to small businesses.81 25

Small businesses have been essential to our economy and given the effects of COVID-19, small 26

businesses will need support over the next several years. 27

81 See Exhibit SCE-06, Vol. 2, Ch. VI, p. 115, lines 7-16.

41

NDC explicitly supports the additional position requested by SDD 1

to manage an expanded focus on small business programming and outreach.82 NDC also acknowledges 2

small businesses are essential to our economy, and it is appropriate to commit resources to meeting their 3

specific needs and supporting their growth.83 Furthermore, NDC acknowledges that many DBEs are 4

small businesses and can also benefit from such a focused support position and dedicated small business 5

support is all the more appropriate, given the additional challenges ahead for small businesses with the 6

recent unprecedented economic downturn related to the COVID-19 pandemic.84 Finally, NDC states that 7

it is appropriate for the Commission to protect ratepayer interests and the public benefit by directing 8

support towards helping small businesses survive the financial harm caused by COVID-19.85 Given the 9

above, it is untenable for NDC to not support SCE’s original request for funding of this needed position. 10

(c) SDD’s Supplier Diversity Program Activities Are Evolving And 11

Not Statistic 12

In support of NDC’s view that test year 2021 expenses be based on 13

2018 recorded expenses, NDC claims that SCE has no plans to increase SDD performance or expand 14

programs.86 NDC’s assessment of SCE’s supplier diversity performance commitment and program 15

activities is incorrect. SCE has actively improved its supplier diversity program beyond the NDC’s 16

narrow definition that SDD performance is measured solely in terms of diverse spend percentage and the 17

number of EDGE program activities. NDC acknowledges SCE has achieved great success with its 18

supplier diversity program.87 Key to SCE’s supplier diversity program success has been regular 19

enhancements to SDD’s various activities, approaches, processes, and tools. In addition, per section 20

6.2.1.2 of CPUC GO 156, SDD also supports and sponsors supplier diversity programs efforts of 21

organizations experienced in the field who promote the interests of WMDVLGBTBE suppliers. SDD 22

utilizes different information and metrics to assess SCE’s supplier diversity program effectiveness and 23

progress. Below are examples of program enhancements made between 2016 - 2019, representing 24

evidence of SCE’s supplier diversity performance commitment and expanded program activities. 25

82 See Exhibit NDC-01, p. 32, line 15. 83 See Exhibit NDC-01, p. 32, lines 17-18. 84 See Exhibit NDC-01, p. 32, lines 18-20 & p. 33, lines 1-2. 85 See Exhibit NDC-01, p. 33, lines 4-6. 86 See Exhibit NDC-01, pp. 34-35. 87 See Exhibit NDC-01, p. 31, line 6.

42

• Enhanced and implemented new reporting systems and tools, 1

such as online DBE Dashboard spend reports. 2

• Expanded the EDGE business education workshop program 3

from five to 46 unique courses. 4

• Developed and deployed custom training and outreach events, 5

such as the Contractor Safety work, Environmental “Meet the 6

Primes”, Legal and IT forums. 7

• Launched and sponsored, in partnership with various advocacy 8

and community-based organizations, focused initiatives: 9

Women of Color, Power of Networks, Corporate Board 10

Pathways, etc. 11

• Host annual meetings with external partners to share SCE’s 12

business outlook, as well as discuss supplier diversity program 13

objectives and sponsorship for upcoming year. 14

c) Conclusion 15

SCE opposes NDC’s position that test year 2021 expenses be based on 2018 16

recorded expense without any adjustments and believes it should be rejected by the commission. SDD’s 17

decrease in recorded labor costs from 2014 – 2018 is explained by variations in staffing levels due to 18

unplanned retirements, separations, and internal movement. The 2018 recorded labor costs did not 19

reflect a full staff, as two positions were vacant for five months of the year. Therefore, 2018 recorded 20

labor cost is not a viable forecast for test year 2021. SCE explained and provided evidence that the 21

additional labor costs of $194,000 accounts for nine full-time positions, plus the additional Program 22

Manager position requested to manage an expanded focus on small business programming and outreach, 23

which NDC explicitly supports. 24

SCE maintains our original request and forecast for test year 2021 of an increase 25

of $194,000 over 2018 recorded labor costs. 26

Appendix A

Supplemental Response to TURN-SCE-038 Q. 13a-b

Southern California Edison A.19-08-013 – SCE 2021 General Rate Case

DATA REQUEST SET T U R N - S C E - 0 3 8

To: TURN Prepared by: David Gunn

Job Title: Sr. Advisor Received Date: 3/18/2020

Response Date: 6/10/2020

Question 13.a-b Supplemental: In SCE-06, Vol. 2, at pages 46-48, SCE proposes to accelerate recovery of previously authorized wildfire liability insurance amounts.

a. If the Commission were to adopt SCE’s proposal here, would the annual revenuerequirement be approximately $32 million? If not, please provide the annual revenue requirement that would result if the Commission were to adopt SCE’s proposal here, including all underlying assumptions.

b. If the Commission were to reject SCE’s proposal here and retain the status quo,please provide the annual revenue requirement associated with the $95 million in unrecovered expense for wildfire insurance premiums.

Response to Question 13.a-b Supplemental:

a. The $32 million annual revenue requirement reflects only the annual cost of amortizing the$95 million of previously authorized, but unrecovered liability insurance amounts. SCEproposes to include in its 2021-2023 revenue requirements $40 million, $37 million, and$34 million in each year respectively, which reflects both the previously authorizedpremiums and the associated return on the unrecovered cost, franchise fees, uncollectibles,and income taxes.

b. In the event the Commission were to reject SCE’s proposed acceleration of the previouslyauthorized wildfire recovery in favor of status quo capitalization, SCE would continue torecover the regulatory asset over the approximately 23.4-year remaining life of all assetsproposed in SCE’s depreciation study. Amortizing the costs over 23.4 years results in a$13.3 million, $12.9 million, and $12.5 million revenue requirement for each year between2021-2023 and would leave $82.8 million of unrecovered historical costs (plus associatedreturn, taxes, and FF&U) to be recovered from customers in future time periods. Please referto the table below for a summary of the revenue requirements resulting from amortizing thecosts over 3, 4, and 23.4 years.

A-1

TURN-SCE-038: 13.a-b Supplemental Page 2 of 3

SCE Application 2021 2022 2023 2024 TotalDepreciation 31,674 31,674 31,674 95,021Return, Taxes, and FF&U 8,157 5,039 1,921 15,116Total 39,831 36,713 33,594 110,138in millions 39.8 36.7 33.6 -- 110.1

4-year recovery 2021 2022 2023 2024 TotalDepreciation 23,755 23,755 23,755 23,755 95,021Return, Taxes, and FF&U 8,456 6,118 3,779 1,440 19,794Total 32,212 29,873 27,534 25,196 114,815in millions 32.2 29.9 27.5 25.2 114.8

23.4-year recovery 2021 2022 2023 2024 TotalDepreciation 4,061 4,061 4,061 4,061 16,243Return, Taxes, and FF&U 9,201 8,801 8,402 8,002 34,406Total 13,262 12,862 12,462 12,063 50,649in millions 13.3 12.9 12.5 12.1 50.6

A-2

TURN-SCE-038: 13.a-b Supplemental Page 3 of 3

A-3

Appendix B

FERC Order on Compliance Filing, August 3, 2012, Docket No. ER11-4318-001

140 FERC ¶ 61,108 UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, John R. Norris, Cheryl A. LaFleur, and Tony T. Clark. San Diego Gas & Electric Company Docket No. ER11-4318-001

ORDER ON COMPLIANCE FILING

(Issued August 3, 2012) 1. On November 14, 2011, San Diego Gas & Electric Company (SDG&E) filed its compliance filing to comply with the Commission’s directive in an October 14, 2011 order issued in this proceeding.1 In this order we reject SDG&E’s compliance filing because its proposed accounting treatment for its uninsured, wildfire-related, third-party property losses and legal expenses (Wildfire Property Costs), and wildfire insurance premiums is inconsistent with the Commission’s accounting regulations, and direct a further compliance filing.

I. Background

2. On August 15, 2011, SDG&E filed its annual Transmission Owner (TO3) formula rate mechanism informational filing as required by a previously approved settlement (TO3 Settlement).2 SDG&E’s filing included costs associated with several wildfires that occurred in SDG&E’s service area. SDG&E stated that three specific wildfires occurred in 2007: the Witch, Rice, and Guejito wildfires. SDG&E stated that, as a result of the 2007 wildfires, the cost of wildfire insurance increased significantly and, beginning in 2009, insurance policies reflected a bifurcation of general liability insurance coverage

1 San Diego Gas & Elec. Co., 137 FERC ¶ 61,041 (2011) (October 14 Order).

2 San Diego Gas & Elec. Co., 119 FERC ¶ 61,169 (2007). Pursuant to the terms of SDG&E’s TO3 Settlement, which is in effect from July 1, 2007 through August 31, 2013, SDG&E is required to file an annual informational filing that reflects adjustments to its transmission formula rate mechanism based on certain recorded and estimated costs.

B-1

Docket No. ER11-4318-001 - 2 -

between wildfire-related and non-wildfire-related coverage and premiums. SDG&E stated that one of the factors that contributed to SDG&E’s insurers increasing their premiums and the bifurcation of the insurance coverage is that the insurers were concerned about California’s imposition of inverse condemnation on utilities in California that imposed strict liability for third-party property damages caused by the wildfires.3 SDG&E stated that, as a result of California’s inverse condemnation law, SDG&E incurred costs related to land owners affected by the wildfires who are pursuing compensation from SDG&E for the “taking” of private property for public use, i.e., Wildfire Property Costs. As described by SDG&E, these Wildfire Property Costs include the legal expenses and claims paid by SDG&E that were not covered by insurance. Consequently, SDG&E represented that it incurred injuries and damages of $128.3 million in 2010, including $68.4 million related to wildfire insurance premiums, $44.5 million related to Wildfire Property Costs, and $15.4 million related to other injuries and damages.4

3. SDG&E’s informational filing proposed that the Wildfire Property Costs be classified as condemnation costs related to the acquisition of a limited-term interest in land, and capitalized as transmission and distribution utility plant in Account 350 (Land and Land Rights) and Account 360 (Land and Land Rights) of the Uniform System of Accounts (USofA).5 SDG&E also proposed to expense 100 percent of capitalized Wildfire Property Costs in Account 404 (Amortization of Limited-Term Electric Plant) in the same month.

4. In its October 14 Order, the Commission found that SDG&E improperly capitalized Wildfire Property Costs that should have been expensed to Account 925 (Injuries and Damages). The Commission stated that, in so doing, SDG&E bypassed using the labor ratio allocation required by its current formula, and therefore failed to

3 SDG&E defines an “inverse condemnation” action as “an eminent domain

proceeding initiated by the property owner instead of by the public utility in which the property owner claims that his or her property was taken or damaged, either on a temporary or permanent basis, for a public use without justification.” SDG&E T03-Cycle 5 Filing, Volume 2-A, Part I-D. SDG&E stated that, because the land owners affected by the Witch Fire are pursuing compensation for the “taking” of private property for public use, as defined under California law, SDG&E proposed to account for these real property-related costs in its Cycle 5 filing.

4 SDG&E T03-Cycle 5 Filing, Volume 3, Statement AH, Page AH3 – Administrative & General Expenses.

5 18 C.F.R. Part 101 (2012).

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charge the rate on file with the Commission. Having made this determination, the Commission rejected SDG&E’s proposed accounting treatment for its Wildfire Property Costs, finding it inconsistent with the USofA. The October 14 Order directed SDG&E to file revised worksheets recording Wildfire Property Costs in Account 925 instead of using Account 350, Account 360, and Account 404, as SDG&E proposed in its August 15, 2011 informational filing. The October 14 Order also directed SDG&E to allocate the Wildfire Property Cost using labor ratios.

II. Compliance Filing

5. On November 14, 2011, SDG&E filed revised worksheets to comply with the October 14 Order. SDG&E recorded the Wildfire Property Costs as an administrative and general (A&G) expense in Account 925 and capitalized $4.8 million of the total $44.5 million in Wildfire Property Costs. SDG&E proposed to capitalize the Wildfire Property Costs to future construction projects.6

III. Deficiency Letter

6. In response to the November 14, 2011 compliance filing, a deficiency letter was issued on February 24, 2012 directing SDG&E to provide a written explanation supporting the capitalization of the Wildfire Property Costs. The deficiency letter requested that SDG&E explain its rationale for capitalizing any portion of any wildfire costs, including Wildfire Property Costs and the bifurcated insurance premiums, under the Commission’s accounting regulations. In addition, the deficiency letter sought information connecting the wildfire costs with specific construction projects to justify the capitalization of these costs. Finally, the deficiency letter requested information regarding the impact of capitalizing wildfire costs on retail rates.

6 SDG&E stated that the reclassification of uninsured wildfire related losses as

inverse condemnation from Accounts 350, 360, and 404 to Account 925 impacted the following cost statements: the Cost of Plant under Cost Statement AD was reduced by $820,000; Accumulated Depreciation and Amortization under Cost Statement AE decreased by $820,000; Operating and Maintenance expenses under Cost Statement AH increased by $2.373 million; Transmission-related Depreciation and Amortization expenses decreased by $19.687 million; Taxes Other than Income Taxes under Cost Statement AK increased by $14,000; Working Capital under Cost Statement AL increased by $297,000 (as a result of the increase to A&G expenses); and the transmission rate base increased by $314,000 under Cost Statement AV (Rate of Return). Compliance Filing Attachment 1 at 2-3.

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IV. SDG&E’s Response to Deficiency Letter

7. On April 25, 2012, SDG&E provided a response to the February 24, 2012 deficiency letter. SDG&E asserted that its proposed accounting treatment complies with the USofA, the October 14 Order, and SDG&E’s currently effective TO3 formula rate.

8. SDG&E stated that its capitalization of Wildfire Property Costs complies with the Commission’s accounting requirements in Account 925, Note B, which expressly requires that “the costs of injuries and damages or reserve accruals capitalized shall be charged to construction directly or by transfer to construction work orders from this account.” SDG&E explained that it did not interpret the Commission’s finding in the October 14 Order – that SDG&E improperly capitalized costs to Account 350 and Account 360 and amortized those costs 100 percent to Account 404 in the same month – to mean that SDG&E was precluded from capitalizing a portion of its uninsured wildfire damage claim costs. According to SDG&E, compliance with the Commission’s directive required a portion of the total costs in Account 925 to be allocated to capital, because the extent to which SDG&E’s labor force works on transmission capital projects is reflected in the labor ratio allocations provided for in SDG&E’s current formula.

9. Finally, SDG&E argued that its responses to the deficiency letter demonstrate that the currently effective rates, which are being collected subject to refund, are unaffected by whether or not construction overhead costs associated with the wildfire property losses are capitalized or expensed. SDG&E explained this issue will have rate implications for subsequent rates that will become effective September 1, 2013, subject to refund.7

V. Notice of Filing and Responsive Pleadings

10. Notice of SDG&E’s compliance filing was published in the Federal Register, 76 Fed. Reg. 72,695 (2011), with interventions and protests due on or before December 5, 2011.

11. Timely comments were filed by the Cities of Anaheim, Azusa, Banning, Colton, Pasadena and Riverside, California (collectively, the Six Cities). SDG&E filed an answer on December 13, 2011, and Six Cities filed a motion for leave to respond and response on December 28, 2011.

12. Six Cities asserted that SDG&E’s compliance filing does not provide an adequate level of information to allow a full assessment of the impact of the Account 925 treatment. Specifically, Six Cities argued that SDG&E has not provided in its compliance filing a breakdown showing how the $44.5 million in inverse condemnation

7 SDG&E Response at 2.

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expenses have been allocated to SDG&E’s various corporate functions according to SDG&E’s labor ratios. Six Cities also stated that SDG&E failed to provide enough information to show the impact of capitalizing wildfire costs on future rates. Six Cities argued that any proposal by SDG&E to record the inverse condemnation costs in Account 925 and then capitalize them would appear to be inconsistent with the October 14 Order. Six Cities noted that capitalizing the inverse condemnation costs would permit SDG&E to earn a return on the costs while they are reflected in rate base and result in higher costs for customers. Six Cities argued that the Commission should require SDG&E to provide supplemental information.

VI. Discussion

A. Procedural Matters

13. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.213(a)(2) (2012), prohibits an answer to a protest and/or answers unless otherwise ordered by the decisional authority. We are not persuaded to accept SDG&E’s answer or Six Cities’ response and will, therefore, reject them.

B. Commission Determination

14. We will reject SDG&E’s compliance filing, subject to a further compliance filing due within 60 days from the date of this order. We find that SDG&E improperly capitalized wildfire insurance premiums and Wildfire Property Costs. SDG&E failed to demonstrate that these costs were reasonably related to construction as required under the Commission’s accounting regulations.

15. Under the Commission’s accounting regulations, when a company incurs costs for injuries and damages, it can expense such costs to Account 925 or capitalize these costs as a construction overhead cost in Account 107 (Construction Work in Progress – Electric) under Electric Plant Instruction (EPI) No. 4.8 To treat injuries and damages as a construction overhead cost under the Commission accounting regulations, SDG&E must demonstrate that these costs are reasonably related to construction. Absent such demonstration, injuries and damages costs are properly expensed in Account 925 in conformance with the Commission’s accounting regulations.

16. In SDG&E’s compliance filing, it represented that it recorded wildfire insurance premiums and Wildfire Property Costs in Account 925, and then capitalized 10.9 percent of the balance in Account 925 to construction projects as a construction overhead cost. In

8 18 C.F.R. Part 101, Electric Plant Instruction No. 4.

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support of its position that these wildfire costs are properly capitalized as an overhead cost, SDG&E cites EPI No. 4, which states overhead costs includes:

construction costs, such as engineering, supervision, general office salaries and expenses, construction engineering and supervision by others than the accounting utility, law expenses, insurance, injuries and damages, relief and pensions, taxes and interest, shall be charged to particular jobs or units on the basis of the amounts of such overheads reasonably applicable thereto . . . .9

17. SDG&E also argued that because the majority of injury and damage costs typically relate to numerous lower dollar incidents, it does not try to evaluate and charge each cost directly to expense or capital. SDG&E asserted that the best correlation to construction activities is the activities of its employees and, therefore, transfers injuries and damages costs to construction work orders from Account 925 on the basis of labor ratios. However, we find SDG&E’s arguments to be unpersuasive and contrary to EPI No. 4.

18. Under EPI No. 4, A&G costs, such as the cost of injuries and damages included in Account 925, may be charged to construction work orders as a construction overhead cost under the basis that the costs are reasonably related to the construction project. Specifically, overhead construction costs are expenditures that have a proven relation to construction activities, but cannot be traced to, or specifically identified with an individual construction project as a direct cost. The relation could be supported by time card distributions or other special studies for labor costs assigned to construction projects as an overhead. However, where A&G costs do not have a definite relation to construction activities, those costs should not be capitalized as a construction overhead cost and must be recorded in the appropriate A&G expense account.

19. We find that the wildfire insurance premiums and Wildfire Property Costs incurred by SDG&E represent A&G expenses necessary to operating its business and should not be capitalized because such costs did not have a relation at all to any past or ongoing construction activities. As discussed above, SDG&E’s wildfire costs relate to the increased costs for wildfire insurance policies and the claims it paid to third parties for wildfire property losses not covered by insurance. In addition, SDG&E failed to name or describe a single construction project connected with the wildfire costs in its

9 Id.

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response to the Commission’s specific questions in the deficiency letter.10 Accordingly, SDG&E did not demonstrate that these costs bore any relationship to construction as required by the USofA in order to capitalize these costs. Therefore, we conclude that the methodology used to capitalize the wildfire insurance premiums and the Wildfire Property Costs in Account 925 is not sufficiently supported.

20. We also find that the majority of injuries and damages costs that SDG&E incurred related to costly wildfire expenditures rather than lower dollar incidents as SDG&E indicated. Wildfire costs represented $112.9 million (which is 88 percent of injury and damage costs) and only $15.4 million (or the remaining 12 percent) was related to other injuries and damages. SDG&E’s capitalization policy for assigning injuries and damages to construction is inconsistent with EPI No. 4 because it is not able to establish that the injuries and damages associated with the wildfires are related to construction. Moreover, SDG&E’s tariff does not require it to capitalize amounts recorded in Account 925 based on the allocation labor ratios.

21. We also note that SDG&E stated that the California Public Utility Commission (CPUC) has authorized it to track all wildfire property loss costs not recovered from insurance or transmission customers in a Wildfire Expense Memorandum Account. SDG&E did not specify which account under the Commission’s accounting regulations it intends to use for the Wildfire Expense Memorandum Account. Therefore, we clarify that all wildfire costs should be recorded in Account 925 as discussed above. However, to the extent that certain wildfire costs are recoverable in future periods in CPUC-jurisdictional rates, SDG&E may defer the costs, as appropriate, in Account 182.3 (Other Regulatory Assets).11

(continued…)

10 Deficiency letter Question 1d stated:

Please provide the following information pertaining to the wildfires: a) date wildfire started, b) date wildfire ended, c) cause of the wildfires (e.g. environmental phenomenon, equipment failure, or other), d) cost incurred, e) location of construction projects to which wildfire property losses were assigned, and f) proximity of these construction projects to the damaged property. 11 18 C.F.R. Part 101, Definition 31:

Regulatory Assets and Liabilities are assets and liabilities that result from rate actions of regulatory agencies. Regulatory assets and liabilities arise from specific revenues, expenses, gains, or losses that would have been included in net income determination in one period under the general

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22. Finally, we direct SDG&E to make correcting journal entries that remove improperly capitalized amounts from plant accounts. Additionally, within 60 days from the date of this order SDG&E must resubmit all FERC Form No. 1 filings with the corrected amount recorded in Account 925 and all other accounts affected.

The Commission orders:

(A) SDG&E’s compliance filing is hereby rejected, as discussed in the body of this order.

(B) SDG&E is hereby directed to submit a compliance filing related to the wildfire insurance premiums and Wildfire Property Costs within 60 days of the date of this order, as discussed in the body of this order.

By the Commission. ( S E A L )

Kimberly D. Bose, Secretary.

requirements of the Uniform System of Accounts but for it being probable: (A) that such items will be included in a different period(s) for purposes of developing the rates the utility is authorized to charge for its utility services; or (B) in the case of regulatory liabilities, that refunds to customers, not provided for in other accounts, will be required.

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enterprise planning & governance...2 1 a. summary of rebuttal position 2 the forecasts for...

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