sce-06 2016 decommissioning financial assumptions · 2018. 6. 12. · 2 as of december 31, 2015,...
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Application No.: 16-03-XXX Exhibit No.: SCE-06 Witnesses: Paul Hunt Todd Cameron Alfred Lopez Greg Henry
(U 338-E)
2016 SCE Trust Fund Contributions
and Financial Assumptions
Before the
Public Utilities Commission of the State of California
Rosemead, California
March 1, 2016
SCE-06: 2016 SCE Trust Fund Contributions and Financial Assumptions
Table Of Contents
Section Page Witness
-i-
I. INTRODUCTION .............................................................................................1 P. Hunt
II. DECOMMISSIONING TRUST FUND CONTRIBUTIONS ...........................1
A. Background ............................................................................................1
B. Present Funding Levels For SONGS 1 And PVNGS ............................1
C. Proposed Funding Levels for SONGS 1 and PVNGS ...........................2
1. SONGS 1 ...................................................................................2
2. PVNGS ......................................................................................2
D. Proposed Funding Levels Remain At Zero ............................................2
E. The Commission Should Adopt The Proposed Annual Contributions..........................................................................................4
F. The Commission Should Update Annual Contributions In This Application.....................................................................................4
1. General Policy ............................................................................4
G. Amount to Decommission .....................................................................4
III. FINANCIAL ASSUMPTIONS AND RATE OF RETURN .............................5 T. Cameron
A. Introduction ............................................................................................5
1. Escalation ...................................................................................5
a) Labor Escalation ............................................................5
b) Nonlabor - Material, Equipment, and Other Escalation .......................................................................6
c) LLRW Disposal Escalation ............................................6 P. Hunt
2. Tax Treatment Of Trusts ............................................................8 A. Lopez
a) Income Tax Treatment Of Decommissioning Trusts..............................................................................8
SCE-06: 2016 SCE Trust Fund Contributions and Financial Assumptions
Table Of Contents (Continued)
Section Page Witness
-ii-
b) Qualified Trusts .............................................................8
(1) Private Letter Rulings ........................................9
c) Non-Qualified Trusts ...................................................11
3. Rate of Return Estimates .........................................................12 G. Henry
a) Qualified Trust .............................................................12
b) Non-Qualified Trust .....................................................13
(1) Forecasting Sources Related To Trust Returns ....................................................13
(2) Projected After-Tax Trust Fund Returns .............................................................15
(3) Asset Allocation ...............................................15
IV. CALCULATING DECOMMISSIONING CONTRIBUTIONS .....................17 T. Cameron
A. Method for Calculating Decommissioning Contributions ...................17
1. Annual Contribution Amount ..................................................17
B. Recommended Contributions Levels Commencing January 1, 2017..................................................................................................17
1. SONGS 1 .................................................................................17
2. PVNGS ....................................................................................18
Appendix 1 Witness Qualifications .................................................................................
SCE-06: 2016 SCE Trust Fund Contributions and Financial Assumptions
List Of Tables
Table Page
-iii-
Table II-1 SONGS 1 Economic and Financial Assumptions 2012 NDCTP Versus 2015
NDCTP ..................................................................................................................................................3
Table II-2 PVNGS Economic and Financial Assumptions 2012 NDCTP Versus 2015
NDCTP ..................................................................................................................................................3
Table III-3 Tax Rates and Trust Investment Strategies .............................................................................15
Table III-4 Equity Allocation and After-Tax Trust Fund Returns Employed by SCE ..............................16
Table IV-5 Proposed Nuclear Decommissioning Recovery SONGS 1 (SCE Share) 2012
NDCTP Versus 2015 NDCTP (Nominal $000, unless otherwise stated) ............................................18
Table IV-6 Proposed Nuclear Decommissioning Recovery PVNGS (SCE Share) 2012
NDCTP Versus 2015 NDCTP (Nominal $000, unless otherwise stated) ...........................................19
Table IV-7 Authorized and Proposed Nuclear Decommissioning Contribution Amounts
by Unit (SCE Share) (Nominal $000) ..................................................................................................19
1
1
I. 1
INTRODUCTION 2
This testimony explains Southern California Edison Company’s (SCE) determination that 3
contributions to the nuclear decommissioning trust (NDT) funds for San Onofre Nuclear Generating 4
Station Unit 1 (SONGS 1) and Palo Verde Nuclear Generating Station Units 1, 2, & 3 (PVNGS) are not 5
needed at this time based upon the current estimate of decommissioning costs, current level of funding 6
of the NDTs, and projected financial market conditions. The current funds in SCE’s NDTs for these 7
units are sufficient at this time to meet SCE’s share of the estimated cost of decommissioning for 8
SONGS 1 and PVNGS, as outlined in the respective decommissioning cost estimates (DCEs). 9
In this testimony, SCE requests that the Commission find a $0.00 (zero) contribution level for 10
the SONGS 1 and PVNGS NDTs to be reasonable. 11
1
II. 1
DECOMMISSIONING TRUST FUND CONTRIBUTIONS 2
A. Background 3
In Decision (D.) 87-05-062, the California Public Utilities Commission (Commission or CPUC) 4
adopted externally managed trust funds as the vehicle for accumulating funds for the ultimate 5
decommissioning of the nuclear power plants owned by California utilities. In response to D.87-05-062, 6
SCE established two master trust agreements for SCE’s share of nuclear decommissioning costs. 7
SCE established one trust agreement as the vehicle to hold the decommissioning funds for contributions 8
that qualify for an income tax deduction under Internal Revenue Code Section 468A (Qualified Trust).1 9
SCE also established one non-qualified master trust agreement that creates a Non-Qualified Trust 10
designed to hold the remaining decommissioning funds that cannot be held in the Qualified Trust.2 11
Within each master trust, SCE established separate accounts for each nuclear unit. The Commission 12
approved SCE’s master trust agreements, and following Internal Revenue Service approval of SCE’s 13
Schedules of Ruling Amounts,3 the trusts were initially funded in February 1988. 14
B. Present Funding Levels For SONGS 1 And PVNGS 15
There are no annual contributions required for the SONGS 1 or PVNGS NDTs at this time. 16
The market value of SCE’s NDTs (Qualified and Non-Qualified) for SONGS 1 is $308 million and for 17
Palo Verde is $1,107 million, as of December 31, 2015. This equates to net liquidation values of $271 18
million (SONGS 1) and $1,037 million (PVNGS) after adjusting the market value for estimated taxes 19
that will be paid on net investment gains, when trust fund securities are sold in the future. SCE’s 20
1 26 U.S.C. § 468A. 2 As of December 31, 2015, the Non-Qualified Trust fund for SONGS 1 has $39 million and the Non-Qualified
Trust funds for PVNGS have $122,000, which accounts for 3.03% of the entire SONGS 1 & PVNGS NDTs. The Qualified and Non-Qualified Trusts are explained in further detail in Section II.A.2.
3 These schedules provide maximum allowable annual deductible contribution amounts, and are updated at various times in accordance with the tax rules, or as necessary.
2
modeling of required contributions assumes that the remaining $271 million4 (SONGS 1) and $1,037 1
million (PVNGS) will be available to fund decommissioning activities. 2
C. Proposed Funding Levels for SONGS 1 and PVNGS 3
1. SONGS 1 4
SCE’s SONGS 1 NDT funds, including the realized tax benefits associated with SCE’s SONGS 5
1 Non-Qualified Trusts, contain sufficient monies to complete SCE’s share of SONGS 1 6
decommissioning based on the updated 2016 SONGS 1 DCE of $191.5 million (SCE share, 2014$) for 7
remaining decommissioning work.5 SCE proposes continuing zero annual contributions to the SONGS 8
1 NDTs beginning January 1, 2017. Chapter IV of this exhibit explains why the recommended 9
contribution of zero is reasonable. 10
2. PVNGS 11
The PVNGS NDT funds contain sufficient monies to complete SCE’s share of the PVNGS 12
decommissioning project based on the updated 2016 PVNGS DCE of $521.9 million (SCE share, 13
2013$) for remaining decommissioning work.6 SCE proposes continuing zero annual contributions to 14
the for PVNGS NDTs beginning January 1, 2017. Chapter IV of this exhibit explains why the 15
recommended contribution of zero is reasonable. 16
D. Proposed Funding Levels Remain At Zero 17
Table II-1 and Table II-2 summarize the differences between the economic and financial 18
assumptions that supported SCE’s proposed annual contributions in A.12-12-013 and SCE’s proposed 19
4 D.14-12-082 disallowed $13.9 million (100% share) in 2009-2012 SONGS 1 decommissioning expenses and
directed SCE to return the funds to the SONGS 1 Non-Qualified NDT. As explained in SCE Advice Letter 3192-E (dated March 17, 2015), SCE has complied with this order and returned $6.8 million, which represents the amount SCE had withdrawn from the SONGS 1 NDTs for SCE’s share of the disallowed expenses and after accounting for various tax issues. Therefore, the SONGS 1 Non-Qualified NDT contains these additional funds. Exhibit SCE-02 provides testimony seeking the Commission’s reasonableness review of 2009-2012 SONGS 1 decommissioning expenses. The Commission’s resolution of these expenses could affect the amount available in the SONGS 1 NDTs.
5 2016 Decommissioning Cost Analysis of the San Onofre Nuclear Generating Station Unit 1, performed by EnergySolutions, January 14, 2016
6 2013 Decommissioning Cost Analysis of the Palo Verde Nuclear Generating Station Units 1, 2, & 3, performed by TLG (December, 2013) and modified by SCE (January 2016).
3
zero annual contributions for SONGS 1 and PVNGS in this application. However, despite the 1
differences, SCE’s recommended contribution levels for the NDT funds remain at zero. 2
Table II-1 SONGS 1 Economic and Financial Assumptions
2012 NDCTP Versus 2015 NDCTP
Table II-2 PVNGS Economic and Financial Assumptions
2012 NDCTP Versus 2015 NDCTP
2012 NDCTP December, 2012
2015 NDCTPMarch, 2016
SONGS 1 Cost (100% Share) $182 million (2011$) $239 million (2014$)Escalation
Labor 2.77% 3.07%Material, Equipment, & Other 1.89% 2.36%
Low Level Radioactive Waste Disposal 7.33%2016 - 2026 2.36%2027 - 2051 7.47%
Qualified Trust Rate of Return (SCE)Stocks, Pre-Tax 7.79% 6.58%Bonds, Pre-Tax 4.27% 3.36%10-Year After-Tax Fund Return 2013 - 2022 = 4.07% 2016 - 2025 = 3.35%Post-10-Year After-Tax Fund Return 2023 - 2051 = 4.18% 2026 - 2051 = 3.31%
SONGS 1 Contribution Period 2014 - 2022 (9 years) 2017 - 2022 (6 Years)
2012 NDCTP December, 2012
2015 NDCTPMarch, 2016
PVNGS Cost (SCE Share) $513 million (2010$) $522 million (2013$)Escalation
Labor 2.77% 3.04%Material, Equipment, & Other 1.89% 2.42%Low Level Radioactive Waste Disposal 7.33% 7.47%
Qualified Trust Rate of Return (SCE)Stocks, Pre-Tax 7.79% 6.58%Bonds, Pre-Tax 4.27% 3.36%10-Year After-Tax Fund Return 2013 - 2022 = 4.07% 2016 - 2025 = 3.34%Post-10-Year After-Tax Fund Return 2023 - 2051 = 4.18% 2026 - 2079 = 3.06%
Palo Verde Contribution Period 2014 - 2022 (9 Years) 2017 - 2047 (31 Years)
4
E. The Commission Should Adopt The Proposed Annual Contributions 1
The Commission should adopt SCE’s proposed annual contribution levels of zero. 2
The contribution estimate is based upon the latest available decommissioning cost estimates, SCE’s 3
December 31, 2015 SONGS 1 and PVNGS NDT balances, and reasonable projections of cost escalation 4
and trust fund asset returns. Of course, actual outcomes will differ from projections. 5
F. The Commission Should Update Annual Contributions In This Application 6
1. General Policy 7
One of the major factors affecting SCE’s proposed contributions is the current level of SCE’s 8
NDT balances. SCE’s experience in recent NDCTP applications has been that NDT balances can 9
change considerably between the time of the application and the time when the Commission decides on 10
that application. 11
SCE calculates its NDT balances at the end of each month. SCE proposes that the Commission 12
permit the updating of SCE’s NDT balances after the close of hearings in this Application and update 13
SCE’s required contribution levels accordingly,7 so the Commission can have the latest information 14
available as it decides SCE’s Application. This is similar to the updating for interest rates that occurs in 15
cost of capital applications.8 A post-hearing update will allow the Commission to consider changes in 16
trust fund balances after the application is filed. The settlement agreement in SCE’s 2009 NDCTP 17
application included a trust fund balance update.9 18
G. Amount to Decommission 19
SCE estimated $239.4 million (100% share, 2014$) as the cost to decommission SONGS 1 and 20
$521.9 million (SCE share, 2013$) as the cost to decommission PVNGS. SCE discusses the SONGS 1 21
and PVNGS DCEs in Exhibits SCE-04 and SCE-05, respectively. 22
7 Because decommissioning of SONGS units is underway, this update should also account for
decommissioning expenditures between the time of the application and the time of the update. 8 The Rate Case Plan provides for a late-filed exhibit at day 122 in annual cost of capital applications. D.89-
01-040, Appendix C, 1989 Cal. PUC LEXIS 37, *88. In SCE’s 2013 cost of capital application, A.12-04-015, this exhibit was filed on October 9, 2012.
9 D.10-07-047, Appendix B, Section 3.1.
5
III. 1
FINANCIAL ASSUMPTIONS AND RATE OF RETURN 2
A. Introduction 3
To estimate the contributions needed to fully fund decommissioning of the SONGS 1 and 4
PVNGS nuclear units, SCE uses trust fund liquidation values, current dollar cost estimates, trust fund 5
forecast returns, tax rates, and escalation rates. In this proceeding, SCE has calculated separate 6
escalation rates for: (1) labor, (2) nonlabor (the combined category of material, equipment, and other) 7
and (3) low level radioactive waste (LLRW) burial. These escalation rates are described in more detail 8
below. Next, projected earned rates of return for the trusts and applicable tax rates are forecast to 9
project the future after-tax earnings of the trusts. SCE based its projections of future trust returns upon 10
equity and fixed income forecasts provided by capital market sources and IHS, Inc. (IHS).10 11
1. Escalation 12
SCE based its projections for labor escalation and nonlabor (material, equipment, and other) 13
escalation upon projections provided by IHS’ long-term macro economic forecasting service. IHS is a 14
reliable, independent, and accurate source for cost escalation forecasts. SCE subscribes to certain IHS 15
products and has used IHS’ projections in numerous proceedings before the Commission.11 16
a) Labor Escalation 17
To escalate labor costs from base-year dollars to future-year dollars, SCE used IHS' projection of 18
the employment cost index for total compensation, private sector.12 One important feature of the 19
employment cost index for total compensation is that it covers both direct compensation (wages and 20
salaries) and the cost of employee benefits provided by employers. 21
10 IHS, Inc., previously known as “IHS Global Insight, Inc.” 11 For instance, SCE has used IHS' indexes in all of its general rate cases and nuclear decommissioning cases
since the 1980s. Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Gas Company also use various IHS’ indexes in their general rate cases.
12 IHS, Inc., Long Term Macro Forecast, Quarter 4, 2015, variable JECIWSSP.
6
b) Nonlabor - Material, Equipment, and Other Escalation 1
To escalate costs from base-year dollars to future-year dollars for the nonlabor categories of 2
material, equipment, and other, SCE constructed an index that is a weighted average of Producer Price 3
Indexes for fuels and related products and power (WPI05), metals and metal products (WPI10), 4
construction machinery and equipment (WPU112), general purpose machinery and equipment 5
(WPU114), and the chain-weighted price index for the Gross Domestic Product (GDP; the acronym for 6
the associated price index is JPGDP). SCE directly used WPI05, WPI10, and JPGDP projections 7
through 2045 by IHS.13 For the period beyond the IHS forecast, the average escalation rate of the last 8
three-years (2043-2045) was applied to the remaining period of the projects.14 9
For the variables WPU112 and WPU114, only historical data is available from the U.S. Bureau 10
of Labor Statistics (BLS).15 To estimate a 30-year projection for WPU112 and WPU114, SCE 11
constructed an econometric forecasting model that related the historical changes in WPU112 and 12
WPU114 to JPGDP, the chain-weighted price index for the GDP. The regression was performed on 13
historical data ranging from 1960 to 2014.16 The regression coefficients were applied to the IHS growth 14
forecasts of JPGDP. 17 The projected growth rates for each variable represent the WPU112 and 15
WPU114 forecast. 16
c) LLRW Disposal Escalation 17
SCE has contracts for the disposal of Class-A, Class-B, and Class-C low level radioactive waste 18
(LLRW). The Class A LLRW is contracted with EnergySolutions through 2022 and the Class B and 19
Class C LLRW is contracted with Waste Control Specialists (WCS) through 2019. Both contracts 20
include an annual cost-escalation clause. SCE is assuming an extension and/or renewal of the LLRW 21
disposal contracts under the current contract terms, through the end of radiological decontamination and 22
13 IHS, Inc., Long Term Macro Forecast, Quarter 4, 2015, variables WPU05, WPU10, JPGDP. 14 For SONGS 1, the average escalation rate for the 2043-2045 period was applied to the 2046 – 2051 period.
For PVNGS the average escalation rate for the 2043-2045 period was applied to the 2046 – 2079 period. 15 BLS, variables WPU112 (Construction machinery and equipment) and WPU114 (General purpose machinery
and equipment). 16 BLS, WPU112, WPU114, WPI11. 17 IHS, Inc., Long Term Macro Forecast, Quarter 4, 2015, variable JPGDP.
7
dismantlement (D&D) period (2026). The LLRW disposal cost escalation rates reflect the contract 1
annual escalation rate through the end of D&D period (2026). The LLRW disposal escalation rate 2
through the D&D period (2016-2026) is projected to be, on average, 2.36%18. 3
To project the disposal escalation rates beyond the D&D period, SCE has examined historical 4
trends in disposal cost escalation factors published by the Nuclear Regulatory Commission (NRC).19 5
The NRC report is written to be an “appropriate source of information for obtaining . . . waste 6
burial/disposition costs”20 for use by nuclear power reactor licensees in providing to the NRC 7
“reasonable assurance . . . that funds will be available for decommissioning.”21 Various revisions of this 8
report provide historical LLRW disposal cost escalation factors from 1986 through 2012 for disposal 9
sites in the states of Nevada, South Carolina, and Washington.22 10
SCE used the disposal cost escalation factors to statistically estimate the range of annual disposal 11
cost escalation rates that occurred over the period from 1986 to 2012 for the three LLRW disposal sites. 12
For the South Carolina and Washington sites, two rates were calculated: one for direct disposal, and 13
another for disposition of waste by vendors. For the Nevada site, there is only a single rate. The 14
statistical model was an exponential growth model. 15
The analysis estimated five annual disposal escalation rates. The mean rate was 7.47 percent and 16
the median rate was 8.81 percent. SCE proposes to use the mean rate of 7.47 percent as the escalation 17
rate for disposal costs not covered by a disposal contract. Although SCE recognizes that none of the 18
disposal sites referenced in the NRC reports are currently available for SONGS 1 and PVNGS 19
decommissioning, the escalation rates in the reports are the most representative of any disposal 20
escalation rate data available. SCE’s disposal escalation rate should be adopted to estimate SCE’s 21
LLRW disposal costs in the post D&D period. 22
18 IHS, Inc., Long Term Macro Forecast, Quarter 4, 2015, variable CPI-U. 19 Division of Policy and Rulemaking, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory
Commission, “Report on Waste Burial Charges/Changes in Decommissioning Waste Disposal Costs at Low-Level Waste Burial Facilities”, NUREG-1307, Revision 15, January 2013, plus older revisions.
20 Id., Foreword. 21 10 C.F.R. 50.75(a). 22 NUREG-1307, Table 2.1.
8
2. Tax Treatment Of Trusts 1
a) Income Tax Treatment Of Decommissioning Trusts 2
The external funds maintained by SCE to satisfy its decommissioning obligations are subject to a 3
Qualified Master Trust Agreement or a Non-Qualified Master Trust Agreement that each provide 4
separate trust accounts for each of the nuclear power plant units. The Qualified Master Trust Agreement 5
applies to tax-advantaged trusts that satisfy the requirements of Internal Revenue Code (IRC) Section 6
468A. The Non-Qualified Master Trust Agreement applies to trusts that are not subject to the 7
requirements of IRC Section 468A. The vast majority of these external funds are in trusts that satisfy 8
the requirements of IRC Section 468A (Qualified Trusts), with the remaining funds in trusts that are not 9
subject to the requirements of IRC Section 468A (Non-Qualified Trusts). 10
b) Qualified Trusts 11
The tax-advantaged attributes of a Qualified Trust include a federal income tax rate of 20% on 12
realized investment gains instead of the regular corporate income tax rate of 35%. In addition, SCE was 13
able to deduct amounts contributed into Qualified Trusts and, as a result, was able to fund its 14
decommissioning liability on a pre-tax basis. IRC Section 468A(e)(4) states that once funds are 15
contributed into a Qualified Trust, such funds can only be used to: (1) satisfy SCE’s liability for the 16
decommissioning of the unit, (2) pay administrative and other incidental expenses of the trust in 17
connection with the operation of the trust, and (3) make investments. To meet the requirement to satisfy 18
SCE’s decommissioning liability, funds extracted from the Qualified Trusts must be used only for 19
“nuclear decommissioning costs” as defined in Treasury Regulations (Treas. Reg.) Section 1.468A-20
1(b)(6). The definition of nuclear decommissioning costs include costs to prepare for decommissioning 21
(e.g., engineering and other planning expenses); to entomb, decontaminate, dismantle, remove and 22
dispose of structures, systems and components of the plant; and to construct, operate and ultimately 23
decommission a facility used solely to store, pending acceptance by the government for permanent 24
storage or disposal, spent nuclear fuel from units located on the same site as the storage facility. 25
Nuclear decommissioning costs are generally deductible by SCE when incurred. As amounts are 26
withdrawn from the Qualified Trusts, SCE must recognize such amounts as taxable income in its tax 27
9
returns. If the trusts continue to satisfy the requirements of IRC Section 468A, they will continue to be 1
treated as Qualified Trusts until the decommissioning process of the nuclear units is substantially 2
completed, at which time the trusts shall be terminated. However, failure to comply with the 3
requirements of IRC Section 468A and related regulations can cause the Qualified Trusts to be 4
disqualified, which would result in the trusts being treated as having distributed all of their funds in a 5
taxable transaction to SCE on the date of such disqualification. 6
(1) Private Letter Rulings 7
(a) Transitional Decommissioning Costs 8
On August 23, 2013, SCE requested a ruling from the Internal Revenue Service (IRS) that the 9
term “nuclear decommissioning costs” in IRC Section 468A and Treas. Reg. Section 1.468A-1(b)(6) 10
include (i) separation payments made to employees as a result of the permanent retirement of SONGS 11
2&3, and (ii) transitional decommissioning costs incurred as a result of the permanent retirement of 12
these units and prior to the date that physical dismantling of major components of the units begin. In its 13
request, SCE described “transitional decommissioning costs” to include costs related to (i) planning and 14
designing the logistical and technical aspects required to take the units from an operational-ready status 15
to a fully dismantled and restored site, (ii) ensuring the safe and orderly transition of the plants from an 16
operational-ready status through safe shutdown status, and (iii) maintaining the plants in a safe condition 17
prior to the physical dismantling of the major components of the units. SCE also stated that transitional 18
decommissioning costs would not include costs that are not related to the decommissioning process, 19
such as (i) costs related to the onsite function of facilities that will continue to support the reliability of 20
the transmission grid, (ii) costs associated with efforts to repair the steam generators, (iii) costs 21
associated with environmental remediation for off-site locations that were required in the past by 22
regulatory agencies for SCE to continue to operate its units, or (iv) costs related to the permanent 23
disposal of spent nuclear fuel under the Nuclear Waste Policy Act of 1982 (Public Law 97-425). 24
On December 4, 2013, the IRS issued its private letter ruling to SCE. In its private letter ruling, 25
the IRS stated the following: 26
10
“We have examined the representations and information submitted by the Taxpayer in 1 relation to the requirements set forth in §468A and the regulations thereunder. Based 2 solely upon these representations of the facts, we conclude that severance payments and 3 transitional decommission costs are nuclear decommissioning costs within the meaning 4 of §468A and §1.468A-1(b)(6). The expenses, as broadly described by Taxpayer, are 5 incurred in connection with the entombment, decontamination, dismantlement, removal, 6 and disposal of the structures, systems, and components of a nuclear power plant. We 7 note that we are not ruling on any particular expense but on broad categories of expense 8 and emphasize that each specific expense must satisfy the tests in §468A and the 9 regulations thereunder.” 10
(b) Independent Spent Fuel Storage Installation Costs Subject to 11
Department of Energy Reimbursement 12
In March 2015, the IRS issued a private letter ruling to an owner of a nuclear power plant other 13
than SCE concluding that independent spent fuel storage installation (ISFSI) costs (along with other 14
decommission costs) were costs “related to the decommissioning of Plant and are within the definition 15
of nuclear decommissioning costs.”23 However, the IRS did not rule on whether any of these costs were 16
“otherwise deductible,” and also included a statement that Treas. Reg. Section 1.468A-1(b)(6) requires 17
all nuclear decommissioning costs to be “otherwise deductible’ in order “to be included in the ambit” of 18
the definition of nuclear decommissioning costs that are eligible to be paid out of a Qualified Trust. 19
Furthermore, the private letter ruling stated that “if there is a reasonable chance of recovery” of costs 20
incurred in connection with ISFSI costs, such costs “may not be deductible” and, as such, “may not be 21
paid out of a qualified trust.” 22
This private letter ruling, although issued to another company, was troubling to SCE because of 23
SCE’s efforts to utilize funds from its Qualified Trusts to initially pay for ISFSI costs prior to its 24
litigation efforts against the Department of Energy (DOE) to be reimbursed by DOE in the future. 25
To the extent that the IRS could assert that SCE’s ISFSI costs are not “otherwise deductible” nuclear 26
decommissioning costs because “there is a reasonable chance of recovery” from DOE, SCE would be 27
precluded from using Qualified Trust funds to pay for such costs pending possible recovery from DOE. 28
This result would place undue and unnecessary financial hardship to both SCE customers and SCE to 29
find other sources of funding ISFSI costs pending possible DOE recovery in the future. 30
23 PLR 2015100300.
11
On June 10, 2015, SCE requested a ruling from the IRS on whether ISFSI costs incurred by SCE 1
that will be subject to litigation between SCE and the DOE and the possibility of eventually being 2
reimbursed from the DOE are “otherwise deductible” nuclear decommissioning costs within the 3
meaning of Treas. Reg. Section 1.468-1(b)(6). In its request, SCE asserted that it was entitled to a 4
deduction of ISFSI costs even though such costs could eventually be reimbursed from DOE. SCE’s 5
rationale for this position rested on the fact that SCE, under tax law, would not have actual or 6
constructive receipt of the DOE proceeds because of SCE’s regulatory obligation to return all DOE 7
proceeds (net of certain litigation costs) related to ISFSI costs that were initially paid for by customers. 8
On December 22, 2015, the IRS provided SCE with the private letter ruling in response to SCE’s 9
request in June. In its ruling, the IRS agreed with SCE, stating that SCE did not have “actual or 10
constructive receipt of the [DOE] proceeds” because of SCE’s obligation to refund such proceeds to 11
customers. As such, the IRS stated that “costs associated with the construction and decommissioning of 12
the ISFSI are otherwise deductible under section 165.” In addition, the IRS stated that “[a]ccordingly, 13
we rule that these costs constitute decommissioning costs within the meaning of section 1.468A-1(b)(6) 14
of the regulations and, to the extent they are used for the purposes specified in section1.468A-1(b)(6), 15
may be paid out of the Funds.” 16
c) Non-Qualified Trusts 17
SCE’s Non-Qualified Trusts are treated as grantor trusts of SCE, and any contributions paid into 18
these Non-Qualified Trusts are not deductible by SCE. In addition, any realized investment gains are 19
taxed at SCE’s federal corporate income tax rate of 35%. Funds placed into the Non-Qualified Trusts 20
are not subject to the “use limitations” of IRC Section 468A(e)(4), but must comply with the terms of 21
the Non-Qualified Master Trust Agreement. As amounts are withdrawn from the Non-Qualified Trusts, 22
SCE is not required to recognize such amounts as taxable income in its tax returns. 23
Non-Qualified Trusts were originally established to hold the portion of decommissioning funds 24
that did not meet the requirements of IRC Section 468A because the units were placed in service prior to 25
enactment of IRC Section 468A in 1984. Because only SONGS 1 and 2 were originally placed in 26
service for tax purposes prior to enactment of IRC Section 468A, a portion of each of these unit’s 27
12
decommissioning liability were not originally permitted to be funded through Qualified Trusts.24 1
Thus, SONGS 1 and 2 Non-Qualified Trusts were originally established to hold funds for their 2
nonqualified portion of decommissioning liability. However, in 2005, IRC Section 468A was amended 3
to allow all decommissioning liability to be funded through Qualified Trusts and to allow for the transfer 4
of funds from Non-Qualified Trusts to Qualified Trusts.25 In November 2011, SCE transferred all of the 5
funds from its SONGS 1 and SONGS 2 Non-Qualified Trust to their related Qualified Trusts.26 SCE’s 6
transfer of its Non-Qualified Trust funds into the Qualified Trusts generated a tax deduction and related 7
tax benefit that was not completely monetized until 2015. On November 17, 2015, SCE placed these tax 8
benefits of $45,869,223 into the Non-Qualified Trusts of SONGS 1 and SONGS 2, in the amounts of 9
$32,664,483 and $13,204,740, respectively.27 10
3. Rate of Return Estimates 11
a) Qualified Trust 12
Prior to January 1, 1993, the Qualified Trust investments were subject to certain restrictions, 13
known as “Black Lung” restrictions. In October 1992, the Energy Policy Act of 1992 eliminated these 14
restrictions and lowered the tax rate on trust earnings from the maximum corporate rate (then 34%) to 15
22% beginning in 1994, and to 20% beginning in 1996. Subsequent to the passage of the Energy Policy 16
Act of 1992, PG&E, SDG&E, and SCE all filed petitions for modification of D.87-05-062 in OII-86,28 17
seeking relaxation of previous restrictions on the investments of the Qualified Trust. 18
In D.13-01-039, the Commission determined that up to 80% of the funds of a Qualified Trust 19
may be invested in equities.29 In D.13-01-039, the Commission determined that up to 30% of the funds 20
invested in equities within a Qualified Trust may be invested in international equities.30 At least 50% of 21
24 SONGS 3 and PVNGS were placed in service after enactment of IRC Section 468A. Therefore, the entire
decommissioning liability for each of these units were eligible to be funded through qualified trusts. 25 IRC § 468A(f). 26 See SCE Advice Letter 2639-E, Oct. 13, 2011. 27 See Advice Letter 3312-E, Nov. 19, 2015. 28 These petitions were filed on May 18, 1993 (PG&E), May 21, 1993 (SCE), and August 18, 1993 (SDG&E). 29 D.07-01-003, Appendix B, Section 4.1.1.2.1. 30 D.13-01-039, Conclusions of Law 7.
13
the equity portion of the funds of a Qualified Trust must be invested passively.31 Up to 100% of the 1
funds of a Qualified Trust may be invested in investment grade fixed-income securities.32 2
b) Non-Qualified Trust 3
D.13-01-039 also established investment restrictions for the Non-Qualified Trust. These are 4
identical to those of the Qualified Trust.33 5
(1) Forecasting Sources Related To Trust Returns 6
SCE based its projections of future trust returns on forecasts provided by capital market sources 7
and IHS. For the thirty-year equity return forecast, SCE used capital market equity return projections 8
from six investment managers and consultants for the first twenty-years and IHS' forecast of the S&P 9
equity return and dividend yield for the last ten-years. For the thirty-year fixed income return forecast, 10
SCE used capital market fixed income return projections from six investment consultants for the first 11
twenty-years and IHS’ fixed income return projections for last ten years.34 Projections are made on a 12
pre-tax basis and the returns are averaged for the entire forecast period. SCE adjusted the returns for 13
applicable taxes and fees. The average forecast for equity and fixed income returns for the thirty-year 14
forecast period (2016-2045) were utilized for periods beyond 2045.35 15
(a) Equity Returns 16
SCE utilized long-term capital market forecasts for U.S. and non-U.S. equity returns developed 17
by current investment consultants and investment managers and IHS’ long-term macro forecast in order 18
to forecast a thirty-year equity return. SCE utilized U.S. and non-U.S. equity forecasts from investment 19
consultants and managers including Russell Investments, BlackRock, Aon Hewitt, Callan Associates, 20
Goldman Sachs, and JP Morgan. The equity return forecast utilizes a weighted average of U.S. equities 21
31 A passive investment strategy is one that seeks to match the return of a benchmark index, such as the
Standard & Poor’s 500 index, by replicating the composition of the index. D. 13-01-039, Conclusion of Law 9.
32 Investment grade securities are those rated BBB- or higher by Standard & Poor’s or equal to or higher than the equivalent rating by other rating agencies. D.95-07-055, Finding of Fact 9.
33 D.13-01-039, Conclusions of Law 4. 34 IHS, Inc. Long Term Macro Forecast Quarter 2, 2014, variable RMTCM10Y. 35 2046-2051 for SONGS 1 and 2046-2079 for PVNGS.
14
at 70% and non-U.S. equities at 30%. The weighted-average return across the six investment 1
consultants was applied to the first twenty-years of the equity forecast (2016-2035). The U.S. equity 2
return forecast from the investment consultant group ranged from 6.5% (BlackRock) to 8.2% (JP 3
Morgan), and averaged 7.14% for the group. For non-U.S. equities returns, the forecasts ranged from 4
6.45% (Goldman) to 9.88% (JP Morgan) and averaged 7.76% for the group. To forecast the remaining 5
ten-years (2036-2045) of equity returns, SCE utilized IHS’ long-term macro forecasts for S&P 500 price 6
appreciation and dividend returns.36 The average S&P 500 equity return for the last ten-years of the 7
forecast is 5.08%. The overall weighted-average equity return for the thirty-year forecast period is 8
6.58%. 9
(b) Fixed-Income Returns 10
For fixed income return projections, SCE utilized capital market fixed income return projections 11
from investment consultants, investment managers and IHS’ long-term macro projected yield on ten-12
year constant maturity U.S. Treasury bonds. For the first twenty-years of the forecast (2016-2035), SCE 13
utilized capital market forecasts from investment consultants and managers including Russell 14
Investments, BlackRock, Aon Hewitt, Callan Associates, Goldman Sachs, and JP Morgan.37 The fixed 15
income return forecast from the investment consultant group ranged from 2.5% (BlackRock) to 3.4% 16
(Russell) and averaged 2.93% for the group. A twenty-five basis point performance adder is included in 17
the investment manager group fixed income return, increasing the rate from 2.93% to 3.18%. For the 18
last ten-years of the forecast period (2036-2045), SCE used the IHS’ projected yield on ten-year 19
constant-maturity U.S. Treasury bonds. 38 The average yield for ten-year Treasury bonds is 3.72% 20
(2036-2045), assuming the instrument is held through maturity. The overall average fixed income return 21
for the thirty-year forecast period is 3.36%. 22
36 IHS, Inc. Long Term Macro Forecast, Quarter 2, 2014, variable SP500 and SP500YLD. 37 The capital market fixed income return projection includes a twenty-five basis-point performance hurdle. 38 IHS, Inc. Long Term Macro Forecast, Quarter 4, 2015, variable RMTCM10Y.
15
(2) Projected After-Tax Trust Fund Returns 1
Projected after-tax returns for the Qualified Trust and the Non-Qualified Trust depend on: 2
(1) the pre-tax returns discussed immediately above, (2) the tax rates applicable to the different financial 3
instruments held by each trust, (3) trust management fees, and (4) the projected investment strategy 4
chosen by the Decommissioning Trust Investment Committee that each trust is projected to pursue 5
within the restrictions set by the Commission. The tax rates and the trust investment strategies are 6
summarized in Table III-3: 7
Table III-3 Tax Rates and Trust Investment Strategies
(3) Asset Allocation 8
Callan Associates was hired by SCE in 2012 to conduct an asset allocation study. Callan has 9
performed asset allocation studies for SCE’s NDTs and other nuclear facilities’ trusts. 10
In 2016, Callan performed an update to the equity glidepath based upon the updated DCEs. 11
SCE supplied the most-recent SONGS 1, SONGS 2&3, and PVNGS DCEs and associated financial 12
assumptions for Callan to utilize in its equity glidepath analysis. For the contribution analysis, SCE 13
used Callan’s 2016 equity glidepath update. 14
Based on the decommissioning cash flows, tax rates and trust investment strategies shown in the 15
testimony and Table II-1, Table II-2 and Table III-3 above, the equity allocation and after-tax trust fund 16
returns are presented in Table III-4: 17
Characteristic Qualified Trust Nonqualified Trust
Federal tax rate 20.00% 35.00%
State tax rate 8.84% 8.84%
Combined tax rate 27.07% 40.75%
Trust management fees (pre tax) 0.10% annually 0.10% annually
Equity portfolio turnover 24.67% annually 24.67% annually
Federal dividend exclusion 0% 70%
Fixed income asset 10-Year Treasury Bonds 10-Year Treasury Bonds
16
Table III-4 Equity Allocation and After-Tax Trust Fund Returns Employed by SCE
Year
Equity
Allocation
After‐Tax Rate
of Return
2016 38.0% 3.37%
2017 38.0% 3.37%
2018 38.0% 3.37%
2019 38.0% 3.37%
2020 39.0% 3.39%
2021 41.0% 3.43%
2022 42.0% 3.46%
2023 44.0% 3.50%
2024 47.0% 3.57%
2025 47.0% 3.57%
2026 47.0% 3.57%
2027 47.0% 3.57%
2028 47.0% 3.57%
2029 48.0% 3.59%
2030 53.0% 3.70%
2031 59.0% 3.83%
2032 61.0% 3.87%
2033 60.0% 3.85%
2034 59.0% 3.83%
2035 58.0% 3.81%
2036 57.0% 3.78%
2037 56.0% 3.76%
2038 54.0% 3.72%
2039 51.0% 3.65%
2040 47.0% 3.57%
2041 42.0% 3.46%
2042 37.0% 3.35%
2043 31.0% 3.22%
2044 26.0% 3.11%
2045 22.0% 3.02%
2046 18.0% 2.93%
2047 15.0% 2.87%
2048 12.0% 2.80%
2049 11.0% 2.78%
2050 9.0% 2.74%
2051 9.0% 2.74%
2052 9.0% 2.74%
2053 10.0% 2.76%
2054 10.0% 2.76%
2055 13.0% 2.82%
2056 22.0% 3.02%
2057 27.0% 3.13%
2058 43.0% 3.48%
2059 42.0% 3.46%
2060 40.0% 3.41%
2061 39.0% 3.39%
2062 37.0% 3.35%
2063 36.0% 3.33%
2064 34.0% 3.28%
2065 32.0% 3.24%
2066 29.0% 3.17%
2067 27.0% 3.13%
2068 24.0% 3.06%
2069 21.0% 3.00%
2070 17.0% 2.91%
2071 13.0% 2.82%
2072 9.0% 2.74%
2073 6.0% 2.67%
2074 3.0% 2.60%
2075 1.0% 2.56%
2076 0.0% 2.54%
2077 0.0% 2.54%
2078 0.0% 2.54%
2079 0.0% 2.54%
17
IV. 1
CALCULATING DECOMMISSIONING CONTRIBUTIONS 2
A. Method for Calculating Decommissioning Contributions 3
1. Annual Contribution Amount 4
There are four key elements used to determine the annual contribution amount: (1) trust fund 5
balances, (2) current-dollar decommissioning cost studies, (3) cost escalation, and (4) projected after-tax 6
rates of return of the trust. To determine the necessary contribution levels, annual escalation rates 7
convert the decommissioning cost estimates from current dollars39 to the dollars of the year when they 8
will be incurred. The estimated rate of return and taxes are used to calculate an expected growth in the 9
decommissioning trust fund balances. The future annual decommissioning costs will be treated as 10
annual withdrawals from the projected trust fund balances. The escalation rates and rate of return 11
assumptions are discussed in Chapter III of this exhibit. 12
B. Recommended Contributions Levels Commencing January 1, 2017 13
1. SONGS 1 14
The updated SONGS 1 contribution analysis is based upon the updated 2016 SONGS 1 DCE 15
described in Exhibit SCE-04, the SONGS 1 NDT balance as of December 31, 2015, the estimated 16
escalation rates, and the rates of return established in Chapter III above. 17
Based on these parameters, the analysis shows that SONGS 1 does not require customer 18
contributions at this time to meet the future decommissioning liabilities. This is primarily due to the 19
actual trust fund performance, changes in estimated escalation rates, after-tax rates of return, updated 20
cost estimates and project scheduling. The total annual decommissioning fund contribution requirement 21
commencing January 1, 2017 for SONGS 1 is zero (SCE share). Table IV-5 below provides this 22
estimate and the associated variables. Table IV-5 below shows the estimated zero contribution and 23
revenue requirement for SONGS 1 starting January 1, 2017. 24
39 Exhibit SCE-04. The 2016 SONGS 1 DCE is in 2014 dollars.
18
Table IV-5 Proposed Nuclear Decommissioning Recovery SONGS 1 (SCE Share)
2012 NDCTP Versus 2015 NDCTP (Nominal $000, unless otherwise stated)
2. PVNGS 1
The updated PVNGS contribution analysis is based upon the updated decommissioning cost 2
estimate described in Exhibit SCE-05, the PVNGS NDT balances as of December 31, 2015, the 3
estimated escalation rates, and the rates of return established in Chapter III above. 4
Based on these parameters, the analysis shows that PVNGS does not require customer 5
contributions at this time to meet the future decommissioning liabilities. This is primarily due to the 6
actual trust fund performance, changes in estimated escalation rates, after-tax rates of return, updated 7
cost estimates and project scheduling. The total annual decommissioning fund contribution requirement 8
commencing January 1, 2017 for the PVNGS units is zero (SCE share). Table IV-6 below provides this 9
estimate and the associated variables, and shows the estimated contributions and revenue requirements 10
for each unit starting January 1, 2017. Table IV-7 provides a summary of SONGS 1 and PVNGS 11
authorized and proposed zero contribution amounts and revenue requirements. 12
Description 2012 NDCTP 2015 NDCTP
Estimated Costs (SCE share) $145,846 (2011$ Dollars)
$191,549 (2014$ Dollars)
Fund Liquidation Value $195,589 $271,179
Fund Date 09/30/2012 12/31/2015
Annual Contribution $0.00 $0.00
Annual Revenue Requirement $0.00 $0.00
19
Table IV-6 Proposed Nuclear Decommissioning Recovery PVNGS (SCE Share)
2012 NDCTP Versus 2015 NDCTP (Nominal $000, unless otherwise stated)
Table IV-7
Authorized40 and Proposed Nuclear Decommissioning Contribution Amounts by Unit (SCE Share)
(Nominal $000)
40 Contributions authorized in D.14.12.082.
Description 2012 NDCTP 2015 NDCTP
Estimated Costs (SCE share) $513,468 (2010$ Dollars)
$ 521,905 (2013$ Dollars)
Fund Liquidation Value $868,780 $1,036,807
Fund Date 09/30/2012 12/31/2015
Annual Contribution $0.00 $0.00
Annual Revenue Requirement $0.00 $0.00
SONGS 1
Authorized: (D.14.12.082) QualifiedNon-
Qualified QualifiedNon-
Qualified
Edison's Authorized Contribution Amount $0.00 $0.00 $0.00 $0.00 $0.00Edison's Authorized Revenue Requirement $0.00 $0.00 $0.00 $0.00 $0.00Proposed: Edison's Proposed Contribution Amount $0.00 $0.00 $0.00 $0.00 $0.00Edison's Proposed Revenue Requirement $0.00 $0.00 $0.00 $0.00 $0.00
Palo Verde 1, 2, & 3Total
Appendix 1
Witness Qualifications
1
SOUTHERN CALIFORNIA EDISON COMPANY 1
QUALIFICATIONS AND PREPARED TESTIMONY 2
OF PAUL T. HUNT, JR. 3
Q. Please state your name and business address for the record. 4
A. My name is Paul T. Hunt, Jr., and my business address is 2244 Walnut Grove Avenue, 5
Rosemead, California 91770. 6
Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7
A. I am the Director of Regulatory Finance, Economics, and Risk Operations, supervising the 8
Regulatory Finance Division of the Treasurer’s Department. My present responsibility is to 9
apply economic, financial, and statistical analysis to regulatory issues and for internal corporate 10
purposes. 11
Q. Briefly describe your educational and professional background. 12
A. I received a Bachelor of Arts degree in Economics from Pomona College in 1975, a Master of 13
Arts degree in Economics from Stanford University in 1976, and a Doctor of Philosophy degree 14
from Stanford University in 1981. I joined the Southern California Edison Company as an 15
Associate Economist in the Treasurer’s Department in July 1980. I was promoted to Economist 16
in 1982 and Senior Economist in 1984. In 1989, I transferred to the Regulatory Policy and 17
Affairs Department as a Regulatory Economics Consultant. I returned to the Treasurer’s 18
Department in 1996 as a Senior Economist. In 1997, I was promoted to Project Manager. In 19
2000, I was promoted to Manager of Regulatory Finance and Economics. I was promoted to my 20
present position in 2010. 21
I have testified before the California Public Utilities Commission and the Federal Energy 22
Regulatory Commission. 23
In late 2009, I was invited to write, with a co-author, a book chapter on cost of capital in 24
regulated industries. The book chapter is titled “Cost of Capital in Regulated Industries,” and it 25
appears in Cost of Capital in Litigation: Applications and Examples, published by John Wiley & 26
Sons, Inc., in November 2010. (ISBN: 978-0-470-88094-4.) A revised version of that book 27
2
chapter appears in The Lawyer’s Guide to Cost of Capital: Understanding Risk and Return for 1
Valuing Businesses and Other Investments, published by ABA (American Bar Association) 2
Publishing in July 2014. (ISBN: 978-1-62722-723-0.) 3
Q. What is the purpose of your testimony in this proceeding? 4
A. The purpose of my testimony in this proceeding is to sponsor portions of Exhibit SCE-06: 2016 5
SCE Trust Fund Contributions and Financial Assumptions, as identified in the Table of Contents 6
thereto. 7
Q. Was this material prepared by you or under your supervision? 8
A. Yes, it was. 9
Q. Insofar as this material is factual in nature, do you believe it to be correct? 10
A. Yes, I do. 11
Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 12
judgment? 13
A. Yes, it does. 14
Q. Does this conclude your qualifications and prepared testimony? 15
A. Yes, it does. 16
3
SOUTHERN CALIFORNIA EDISON COMPANY 1
QUALIFICATIONS AND PREPARED TESTIMONY 2
OF TODD CAMERON 3
Q. Please state your name and business address for the record. 4
A. My name is Todd Cameron, and my business address is 2244 Walnut Grove Avenue, Rosemead, 5
California 91770. 6
Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7
A. I serve as a Project Manager for the Treasurer’s department focusing on escalation and economic 8
services. My present responsibilities include applying economic and financial analysis to 9
regulatory issues. 10
Q. Briefly describe your educational and professional background. 11
A. I received a Bachelor’s degree in Economics from San Diego State University and a Master’s 12
degree in Economics from California State University at Fullerton. Prior to joining SCE I was 13
an Econometrician for Xactware Software (1992 – 1996) and an Economist for the Regional 14
Economic Studies Institute (1996 – 1998). In 1998 I joined SCE as a Project Manager focusing 15
on electric market deregulation. At SCE, I have served as a Project Manager in various 16
departments including Customer Service, Human resources, Transmission and Distribution, 17
Controller’s, and Treasurer’s. 18
Q. What is the purpose of your testimony in this proceeding? 19
A. The purpose of my testimony in this proceeding is to sponsor portions of Exhibit SCE-06: 2016 20
SCE Trust Fund Contributions and Financial Assumptions, as identified in the Table of Contents 21
thereto. 22
Q. Was this material prepared by you or under your supervision? 23
A. Yes, it was. 24
Q. Insofar as this material is factual in nature, do you believe it to be correct? 25
A. Yes, I do. 26
4
Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 1
judgment? 2
A. Yes, it does. 3
Q. Does this conclude your qualifications and prepared testimony? 4
A. Yes, it does. 5
5
SOUTHERN CALIFORNIA EDISON COMPANY 1
QUALIFICATIONS AND PREPARED TESTIMONY 2
OF GREGORY HENRY 3
Q. Please state your name and business address for the record. 4
A. My name is Gregory Henry, and my business address is 2244 Walnut Grove Avenue, Rosemead, 5
California 91770. 6
Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7
A. I am the Manager of Investments in the Treasurer’s Department. I am responsible for managing 8
the trust investment programs for Edison’s pension fund, PBOP trusts, nuclear decommissioning 9
trusts, and investment funds for the 401k plan. In this capacity, I work to establish strategic trust 10
investment strategies, select and monitor investment managers, investment funds and other 11
service providers. I am also responsible for trust fund administration related to contributions, 12
withdrawals and investment activity for the pension fund, PBOP trusts and nuclear 13
decommissioning trusts. 14
Q. Briefly describe your educational and professional background. 15
A. I received a Bachelor’s degree in Economics and Accounting from the University of the West 16
Indies in 1987; a Master of Business Administration (Finance) from California State University, 17
San Bernardino in 1997 and I am a CFA charter holder. 18
I joined the Southern California Edison Company as a Financial Analyst in the Planning and 19
Analysis group of the Treasurer’s Department in 1998 and transferred to the Investments 20
Division in 2000. 21
Q. What is the purpose of your testimony in this proceeding? 22
A. The purpose of my testimony in this proceeding is to sponsor a portion of Exhibit SCE-06: 2016 23
SCE Trust Fund Contributions and Financial Assumptions, as identified in the Table of Contents 24
thereto. 25
Q. Was this material prepared by you or under your supervision? 26
A. Yes, it was. 27
6
Q. Insofar as this material is factual in nature, do you believe it to be correct? 1
A. Yes, I do. 2
Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 3
judgment? 4
A. Yes, it does. 5
Q. Does this conclude your qualifications and prepared testimony? 6
A. Yes, it does. 7
7
SOUTHERN CALIFORNIA EDISON COMPANY 1
QUALIFICATIONS AND PREPARED TESTIMONY 2
OF ALFRED L. LOPEZ 3
Q. Please state your name and business address for the record. 4
A. My name is Alfred L. Lopez, and my business address is 2244 Walnut Grove Avenue, 5
Rosemead, California 91770. 6
Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7
A. I am a manager in the Tax Department. My primary responsibilities include tax research and 8
tax-related matters before regulatory commissions. 9
Q. Briefly describe your educational and professional background. 10
A. I am a Certified Public Accountant. I hold a Bachelor of Science Degree in Business, with an 11
emphasis in Accounting from California State University, Los Angeles, and a Master of Science 12
Degree in Taxation from Golden Gate University. I have been employed in the Edison Tax 13
Department for 25 years. Prior to joining Edison, I worked in the tax group of a public 14
accounting firm and other large corporations. 15
Q. What is the purpose of your testimony in this proceeding? 16
A. The purpose of my testimony in this proceeding is to sponsor a portion of Exhibit SCE-06: 2016 17
SCE Trust Fund Contributions and Financial Assumptions, as identified in the Table of Contents 18
thereto. 19
Q. Was this material prepared by you or under your supervision? 20
A. Yes, it was. 21
Q. Insofar as this material is factual in nature, do you believe it to be correct? 22
A. Yes, I do. 23
8
Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 1
judgment? 2
A. Yes, it does. 3
Q. Does this conclude your qualifications and prepared testimony? 4
A. Yes, it does. 5