:RUNSDSHUV...Workpaper Southern California Edison / 2021 General Rate Case . 10 . Exhibit No. SCE...

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2021 General Rate Case A.19-08-

Workpapers

Energy Procurement SCE-05 Volume 02

August 2019

Workpaper – Southern California Edison / 2021 General Rate Case

Exhibit No. SCE-05 Vol.02 Witnesses: M. Palmstrom

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I. 1

INTRODUCTION 2

A. Content and Organization of Volume 3

This Volume is composed of the following four sections: 4

II.A – Overview. This section provides a high-level overview of SCE’s request for the 5

Energy Procurement and Management (EPM) organization and the regulatory background 6

and policies driving the request. 7

II.B – 2018 Decision. This section addresses the Commission’s directive to provide a 8

comparison of the amounts authorized in SCE’s 2018 GRC to 2018 recorded O&M expense 9

and capital expenditures for EPM. 10

II.C – EPM O&M Forecast. This section describes the work activities within EPM and the 11

basis for the O&M expense forecast. 12

II.D – Capital Expenditures. This section describes EPM’s 2019-2023 capital forecast 13

relative to historical spend. 14

B. Summary of O&M and Capital Request 15

The costs associated with performing energy procurement activities include O&M expenses 16

(labor and non-labor) and capital expenditures. This testimony supports $24.568 million (constant 2018 17

dollars) in expenses forecast for 2021. This forecast is based on Last Recorded Year (LRY) 2018 18

expenses with future-year adjustments to reflect EPM’s expected expenses. EPM’s five-year forecast 19

2019-2023 capital forecast of $6.025 million is for communication equipment required for the 20

Generation Management System (GMS) and Remote Intelligent Gateways (RIGs). SCE also requests 21

$32.7 million for 2019-2023 for software projects and communication system upgrades to support 22

EPM’s supporting testimony for these projects is proved in Exhibit SCE-06, Volume 1, Part 2. 23

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II. 1

ENERGY PROCUREMENT & MANAGEMENT (EPM) 2

A. Overview 3

To ensure delivery of safe, reliable, affordable, and clean electricity to SCE’s approximately five 4

million residential and business customer accounts, EPM procures and schedules electricity from 5

independent power producers and suppliers to supplement our utility-owned generation. We enter into 6

multi-year contracts from both conventional and renewable generators, and conduct day-ahead and real-7

time trading to serve our customers’ electricity demands. 8

EPM manages approximately $4 billion of energy procurement spend annually to meet our 9

customers electricity needs while complying with energy-related legislative and regulatory 10

requirements. EPM does this by implementing comprehensive procurement strategies, optimizing its 11

utility-owned generation and energy procurement contracts in the wholesale power market, prudently 12

managing a diverse portfolio of natural gas, renewables, gas-fired, and energy storage contracts, and 13

accurately settling all of its energy procurement transactions. The approximately $4 billion of energy 14

procurement costs are forecast and recorded in SCE’s annual Energy Resource Recovery Account 15

(ERRA Balancing Account) proceeding, whereas O&M costs and capital expenditures associated with 16

performing energy procurement functions are included in GRC proceedings. 17

1. Risk Factors, Safety, and Reliability 18

SCE buys all the electricity it needs from the California Independent System Operator 19

(CAISO), a non-profit public benefit organization that operates a transparent, accessible wholesale 20

energy market to ensure safe and reliable delivery of electricity on California’s power grid. To serve our 21

customers, SCE bids all of its utility-owned generation and contracted resources into the CAISO 22

markets to offset its energy procurement expenses. CAISO optimizes the submitted bids and schedules, 23

subject to market and grid operating limits and economic factors. Every five minutes, the CAISO 24

forecasts electrical demand and dispatches the lowest cost generator to meet demand while ensuring 25

enough transmission capacity for delivery of power. This daily procurement process of buying and 26

selling electricity in the CAISO market is done according to least-cost dispatch (LCD) requirements set 27

forth by the CPUC in Standard of Conduct 4, where the most cost-effective mix of total resources is 28

used, thereby minimizing the cost of delivering electric service. EPM manages these complex energy 29

procurement operations 24 hours a day, seven days a week. 30

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Our power supply portfolio consists of approximately: 1

570 contracts with renewables, gas-fired, energy storage, and other generators, 2

240 master agreements to transact for natural gas products, transmission, and 3

financial products, and 4

40 agreements with brokers and clearing houses. 5

Many of these contracts have terms of 10, 20 or even 30 years, although some are evergreen. 6

These agreements are prudently managed with associated products scheduled into the energy markets, 7

and then settled with counterparties on a monthly basis. Managing more than $4 billion in funds every 8

year drives the need for highly skilled personnel and consultants, accurate and efficient information 9

management systems, strong relationships with regulators, continued training and updates on the 10

industry and energy markets, and professional administrative resources. 11

2. Regulatory Background/Policies Driving SCE’s Request 12

EPM complies with numerous, evolving policies and regulatory mandates that govern 13

SCE’s energy procurement and management activities including: 14

Long-term procurement planning under AB57 which allows the IOUs to procure 15

Commission-approved products, such as electrical capacity, electrical energy, and 16

natural gas, from various markets to provide reliable electric services to bundled 17

service customers and comply with State policies at the least cost to customers; 18

California’s Renewables Portfolio Standard (RPS) requiring 33 percent renewables 19

by 2020, and 60 percent by 2030; and SB 100 requiring all the state's electricity to 20

come from carbon-free resources by 2045; 21

Resource Adequacy (RA) capacity requirements designed to ensure that CPUC 22

jurisdictional Load Serving Entities (LSEs) have sufficient capacity to meet peak 23

demand and ensure system reliability within the CAISO System; 24

California Global Warming Solutions Act of 2006 (AB 32), directed a market-based 25

cap-and-trade program authorized and managed by the California Air Resources 26

Board (CARB) including a schedule of fees paid annually by emitting resources to 27

cover the State’s cost of implementing AB32; 28

The Low Carbon Fuel Standard implemented by CARB to reduce California’s GHG 29

emission under AB32 focuses on reducing the carbon intensity of California gasoline 30

and diesel transportation fuels by at least 10 percent by 2020; 31

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Local Capacity Requirements in accordance with D.13-02-015 to meet incremental 1

capacity needs in the West LA Basin and Moorpark Sub-Areas; 2

AB 2514, adopted by the CPUC, establishes overall energy storage targets for 3

California utilities to procure 1,325 MW by 2020. SCE’s target is 580 MW by 2020. 4

The costs associated with performing EPM’s activities described in this testimony 5

support the above regulations and energy procurement obligations that EPM cost-effectively manages on 6

behalf of SCE’s customers. Additional explanations below are provided to describe EPM’s annual 7

activities to forecast energy needs, procure energy from eligible renewables and other resources, track 8

performance of contracted resources, schedule, bid and trade energy resources and products in the 9

market, and engage in long-term procurement planning for SCE’s customers. 10

B. 2018 Decision 11

1. Comparison of Authorized 2018 to Recorded O&M 12

Figure II-1 compares the requested and authorized O&M expenses from SCE’s 2018 13

GRC with the recorded expense for EPM in compliance with D.19-05-020. As shown in Figure II-1, 14

EPM’s recorded expenses of $24.471 in 2018 were less than authorized of $33.738 million by $9.267 15

million. This variance was the result of lower-than-authorized labor and non-labor expenses on several 16

fronts. 17

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Figure II-1 EPM

2018 Authorized Versus 2018 Recorded O&M Expenses (Constant 2018 $000)

EPM’s labor expense was $7.390 million below authorized because of several structural 1

changes to the organization in support of broader Company objectives over the past few years. 2

These changes resulted in employee separations, permanent movement of various positions and 3

responsibilities to other SCE organizations, hiring deferments, and a reduction in vacancies due to work 4

being shifted into or combined with other roles. For example: 5

In 2016, the team from EPM’s Resource Optimization group was permanently 6

relocated to the Generation group as the work performed more closely aligned with 7

the operations of SCE’s utility-owned generating assets. 8

In 2017, EPM went through a realignment to better position the group to meet 9

increasing work demands without a net increase in authorized staffing levels. 10

Positions were repurposed to focus on continuous improvement, technology-related 11

solutions, and strategy. As part of this realignment, a team developed to work on 12

distributed energy resources (DERs) was transferred to Transmission and Distribution 13

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to centralize the company’s focus on managing a higher penetration of distributed 1

energy resources. Because of the repurposed roles, separations occurred and 2

backfilling more specialized positions took longer than anticipated creating a higher 3

than expected vacancy rate. 4

In 2018 a centralized meteorology role was created in the Safety, Security and 5

Business Resiliency (SSBR) group to support the Company’s focus on wildfire 6

awareness and management. As a result, the meteorologist team in EPM was 7

permanently moved to SSBR. 8

These actions, coupled with involuntary separations to meet cost reduction goals, and a delay in filling 9

vacancies contributed to the reduced spending. The change in employee staffing levels is shown in the 10

Figure II-2 below. 11

Figure II-2 EPM Staffing Levels

2014-2018

SCE’s recorded 2018 non-labor expenses was $1.877 million less than authorized 12

because of a reduction in the use of contractors and consulting services due to cost reduction efforts and 13

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increased efficiencies, as well as fewer employee travel and training expenses resulting from involuntary 1

staffing reductions. 2

2. Comparison of Authorized 2018 to Recorded Capital Expenditures 1 3

As shown below in Figure II-3, the CPUC authorized $1.897 million in the 2018 GRC 4

decision for generation communication equipment and data links primarily related to connecting 5

contracted generating resources to SCE’s GMS and the CAISO-required RIGs. In 2018, SCE recorded 6

approximately $0.691 million, which was $1.206 million less than authorized due to several factors. 7

The underspend was due to more contract terminations, fewer contracts executed than anticipated, and 8

project delays resulting in expenditures beyond the GRC Test Year. 9

1 Refer to WP SCE-07, Vol. 01 – Authorized to Recorded.

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Figure II-3 EPM

2018 Authorized Versus 2018 Recorded Capital Expenditures (Nominal $000)

C. O&M Forecast 1

1. Energy Procurement and Management 2

EPM is responsible for procuring energy and capacity via contracts, and from the 3

wholesale market, under CPUC-approved procurement plans and decisions. This includes selling and 4

procuring emissions products to meet compliance and contractual obligations, and natural gas products 5

(commodity, capacity, and storage) to supply SCE’s utility-owned and contracted gas-fired generation. 6

Additionally, EPM manages the bidding and scheduling of SCE’s energy portfolio with the CAISO to 7

optimize resources on behalf of its customers and to comply with the CPUC’s LCD requirements. 8

a) Work Description 9

EPM work activities include: 1) Portfolio Planning and Analysis, 2) Contract 10

Origination, 3) Energy Contract Management, 4) Trading and Market Operations, 5) Power Supply 11

Compliance, and 6) Center of Excellence. The key functions of each work activity are shown below in 12

Figure II-4. More detailed descriptions are included after the chart. 13

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Figure II-4 Energy Procurement Departments and Their Key Functions

(1) Portfolio Planning & Analysis 1

Portfolio, Planning & Analysis (PP&A) plans, forecasts, analyzes and 2

performs valuation of the energy resources in SCE’s portfolio. These analyses determine and/or forecast 3

the (i) amount of load hedged and un-hedged by time period; (ii) likelihood, magnitude, and duration of 4

price spikes; (iii) availability of natural gas and the potential probabilistic distribution of natural gas 5

prices; (iv) impact of potential generation outages; (v) and SCE’s bundled and retail loads. 6

PP&A develops complex analytical and valuation tools to assess and 7

support the procurement of resources through either competitive solicitations or bilateral negotiations 8

that are consistent and in accordance with least-cost, best-fit principles, the State’s preferred loading 9

order, State law, regulatory mandates, and applicable environmental laws. PP&A also performs analysis 10

of the electrical grid in California and across the Western Electricity Coordinating Council (WECC) 11

supporting short to midterm Congestion Revenue Rights (CRR) bidding strategies as a mechanism to 12

protect customers against adverse congestion costs in CAISO markets. 13

PP&A prepares daily, monthly, and annual reports on the open position of 14

SCE’s power, natural gas, and emissions products. It develops and prepares SCE’s forecasts of 15

purchased power and fuel expense for internal planning purposes and regulatory reporting (e.g., annual 16

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ERRA Forecast proceedings). Also, PP&A manages SCE’s RA reporting and compliance submittal 1

requirements and numerous regulatory reporting requirements for renewables and CHP contracts. 2

Other activities include maintenance and utilization of models and planning tools to prepare balance-of-3

month, prompt-month, and long-term assessments of SCE’s open positions for power, electrical 4

capacity, natural gas, and emissions compliance requirements, including RPS requirements. These 5

analyses are used to forecast and manage SCE’s net open positions, consistent with LCD principles and 6

least-cost, best fit procurement requirements. 7

PP&A provides quantitative and analytical support to assess the impact of 8

federal and state policies on SCE’s energy procurement requirements and costs by analyzing SCE’s 9

regulatory and compliance strategies, new products, and emerging markets. PP&A also supports the 10

development of cost recovery mechanisms to ensure bundled service customer indifference to the effects 11

of departing load. 12

(2) Contract Origination 13

Contract Origination (CO) conducts competitive solicitations for targeted 14

products including renewables, conventional power, capacity, energy storage, emissions credits and 15

allowances, transmission rights, and natural gas. CO manages third-party proposals through negotiations 16

and execution of short-term, mid-term, and long-term structured transactions and power purchase 17

agreements (PPAs). In addition, CO may review and negotiate bilateral deals outside of a solicitation. 18

All activities ensure compliance with the CPUC-approved long-term procurement plan (LTPP), RPS 19

requirements, energy storage, and other procurement mandates and related regulatory requirements. 20

CO also manages the Distribution Investment Deferment Framework (DIDF) which includes the 21

administrative dollars associated with the RFO solicitation process of DIDF contracts whose costs are 22

recovered through an established memo account.2 23

(3) Energy Contract Management 24

Energy Contract Management (ECM) is comprised of three functions – 25

contract management, contract compliance & technical services, and contract settlements. 26

(a) Contract Management 27

Contract management oversees a portfolio of energy-related 28

contracts with third-party generators for delivery of renewable, natural gas, transmission, energy storage, 29

2 See testimony at SCE-07, Vol. 1.

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and combined heat and power resources. Contract managers monitor the development of the project and 1

manage all aspects of onboarding the resource into SCE’s portfolio. This includes monitoring and 2

tracking major project milestones during the permitting, construction, and CPUC approval phases. 3

Contract managers work closely with SCE’s legal department, risk and other groups to exercise 4

contractual options, manage the credit and collateral requirements, renegotiate contract provisions as 5

necessary due to changed circumstances or conditions, resolve disputes, and assign, amend, renew, or 6

terminate contracts as required. 7

(b) Contract Compliance & Technical Services (CC&TS) 8

Contract compliance & technical services monitors contractual 9

requirements through analysis and physical site visits to ensure that counterparties adhere to contractual 10

obligations and comply with the terms of their contracts. These activities/programs, such as efficiency 11

monitoring, capacity testing, and insurance verification confirm that SCE’s customers receive the 12

maximum benefit for the products SCE procures on their behalf. CC&TS also supports regulatory 13

filings, contract origination activities, generation resource on/off-boarding and contract settlements. 14

(c) Contract Settlements 15

The contract settlements team works with the counterparty to 16

facilitate the payment process according to contract requirements. This group ensures accurate and 17

timely payments for all energy-related products procured on behalf of SCE’s customers and validates all 18

contract and market transactions within the terms of the contract or tariff provisions. This requires the 19

collection, validation, and analysis of large amounts of price, quantity, and operational data. Given the 20

large amount of data and the complexity of the underlying transactions ECM relies on computer systems 21

(and where systems are insufficient, manual processes and user-developed applications) to complete the 22

settlement process. 23

Contract settlements validates and processes about 400 contract 24

payments per month totaling approximately $4 billion in annual transactions related to energy products 25

and financial bilateral contracts. There is a review of any CAISO market changes and regulatory policy 26

changes related to the CAISO market to determine the effect on SCE’s customers and on SCE’s 27

settlement systems and processes. Additionally, Contract Settlements validate the three types of CAISO 28

published settlement statements totaling approximately $9 billion (gross) in annual revenues and 29

charges, to ensure that SCE’s customers incur correct costs and receive correct revenues resulting from 30

the bidding, purchase, and sale of energy and ancillary services into the CAISO markets. 31

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(4) Trading and Market Operations 1

Trading and Market Operations (TMO) manages SCE’s energy-related 2

trading, wholesale market participation, and generation asset management activities including: 3

generation outage reporting and optimization for SCE’s utility-owned 4

and contracted generation assets and water resource optimization for 5

SCE’s hydroelectric power plants; 6

development of bidding strategies for the contracts and utility-owned 7

generation that make up SCE’s existing supply portfolio; 8

trading physical and financial energy products to meet energy and 9

generation needs, manage market price risk, and hedge SCE’s fuel-10

related cost exposure; 11

managing SCE’s emissions and greenhouse gas requirements by 12

trading emissions-compliance products; 13

bidding and scheduling all SCE load and generation resources (owned 14

and contracted-for) into the CAISO wholesale power markets, 15

including market and dispatching resources in real-time following 16

CAISO’s instructions; 17

developing processes, documentation and training to facilitate 18

compliance with applicable state and federal rules and regulations; and 19

supporting regulatory processes and filings needed to seek cost 20

recovery of SCE’s procurement, trading and market participation 21

activities. 22

(5) Power Supply Compliance 23

Power Supply Compliance (PSC) provides guidance and advisory services 24

to reinforce compliance with applicable regulatory requirements and corporate policies for EPM and 25

Generation. Specific activities include: 26

establishing effective compliance oversight within EP&M and 27

Generation; 28

defining risk assessment scope (compliance, reliability, operational, 29

and energy market) and conducting a risk assessment to identify and 30

rank risk accordingly; 31

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developing, facilitating, monitoring, and testing compliance controls 1

timely and accurately; 2

compiling and generating regulatory reports and providing audit-3

quality documentation supporting all controls and evidence of 4

performance 5

establishing and providing compliance training standards, and tracking 6

of targeted in-person compliance training; 7

establishing standards and procedures to diligently detect and prevent 8

non-compliance 9

conducting quality assurance compliance reviews and risk assessments 10

related to controls and standards to assess its quality/effectiveness, and 11

identify areas for improvement 12

providing regulatory reporting by tracking regulatory agency reporting 13

requirements (FERC, CPUC, NERC, Dodd Frank, SOX, SEC, CEC, 14

and CARB). 15

(6) Center of Excellence (COE) 16

The COE provides EPM-wide support in several areas including: 17

Project management of the Outstanding Success Possibilities (OSP), a 18

multi-year initiative with aspirational goals focused on reducing costs, 19

eliminating waste, increasing efficiencies, and increasing value. 20

Management of operating plans, budget planning efforts, and 21

alignment with corporate objectives and strategies. 22

Support of daily administrative functions including catering requests, 23

meeting management, purchase orders, and employee on-boarding/off-24

boarding; 25

Serving as a liaison with corporate information governance to ensure 26

records and document management frameworks are in place and 27

followed 28

Maintaining business resiliency plans to ensure continued operations 29

in the event of an emergency; 30

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Documenting and managing business process flow models and 1

functional hierarchies. 2

b) Need for Activity 3

EPM work activities are necessary to meet the electricity needs for our customers. 4

Maintaining energy supply and generation includes optimizing the output from SCE’s generating assets, 5

executing and managing contracts with third-party generating facilities, and procuring from the 6

wholesale market under CPUC-approved procurement plans and decisions. Holding solicitations to buy 7

and sell energy products, monitoring transactions and emissions, and settling contractual obligations are 8

necessary to comply with Commission mandates and State policy goals. Additionally, bidding and 9

scheduling of SCE’s generation and contracted resources with CAISO is required and necessary to 10

optimize SCE’s portfolio on behalf of its customers and to comply with the CPUC’s LCD requirements. 11

c) Scope and Forecast Analysis 12

EPM’s O&M expenses recorded for 2014-2018 and the forecast for 2019-2021 are shown below in 13

Figure II-5. 14

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Figure II-5 Energy Procurement

Recorded 2014-2018/Forecast 2019-20213 (Constant 2018 $000)

(1) Historical Variance Analysis 1

(a) Labor 2

Recorded labor expenses decreased by $2.590 million or nine 3

percent from 2014 to 2016. This decrease was a result of employee separations from a department 4

reorganization, and permanent transfers to other departments to meet changing market and operational 5

needs. From 2016 to 2017 labor expenses decreased by $2.921 million or 10 percent, partially due to a 6

competitive market where EPM employee skills are in high demand by other agencies resulting in a 7

higher-than-anticipated turnover rate, coupled with a delay in filling vacancies and involuntary 8

separations. From 2017 to 2018 labor costs were reduced further by $1.142 million (or five percent) 9

because of attrition, a delay in filling vacancies, and involuntary separations. 10

3 Refer to WP SCE-05, Vol. 2, pp. 2-6 – O&M Summary.

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In 2014 EPM’s recorded staffing level was 228 employees. 1

In 2018, EPM’s recorded staffing level was 168 employees (i.e., a reduction of 60 employees or 35 2

percent). In years 2016 to 2018, EPM carried a higher than expected vacancy rate due to the specific 3

skills required to fill certain roles due to all the reasons outlined above. See Figure II-6 below for the 4

historical staffing and vacancy rate. The 2018 level of work activities and labor expenses is expected to 5

continue into the Test Year. 6

Figure II-6 Energy Procurement Recorded Staffing Levels & Vacancy Rate

2014 – 2018

(a) Non-Labor 7

The non-labor historical variance in expenses for SCE’s energy 8

procurement activities from 2014 to 2018 are shown above in Figure II-5. EPM’s non-labor expenses 9

decreased 2014 to 2018 from $4.460 million to $2.364 million, a decrease of $2.096 million. 10

The decrease was due to a reduction in employee travel directly resulting from the decreased staffing 11

levels mentioned above, a reduction in the subscription services to forecast and monitor market 12

transactions, and a transfer of weather forecasting subscriptions as part of the centralization of the 13

weather forecasting team to the Safety, Security and Business Resiliency (SSBR) organization. 14

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Additionally, other cost saving measures were achieved such as renegotiating existing consulting 1

contracts and eliminating or replacing services that yielded savings with minimal impact to managing 2

and monitoring the energy market. 3

(2) Forecast 4

(a) Labor 5

The 2018 Base Year work activities for EPM described above are 6

planned to continue in the Test Year. Because labor expenses steadily decreased from 2014 through 7

2018, the LRY of $22.108 million is the appropriate basis for the Test Year forecast as it reflects the 8

most recent work activities performed by EPM.4 9

(b) Non-Labor 10

As shown in Figure II-5, non-labor expenses decreased from 2014 11

to 2018. For non-labor expenses, the LRY is an appropriate basis to start with for the Test Year forecast 12

because it accurately reflects the expected base level of EPM’s non-labor activities for the Test Year. 13

SCE then has made certain Test Year adjustments to the LRY non-labor expenses, as discussed below 14

which have been calculated relative to 2018 activity levels and 2018 recorded non-labor O&M expenses 15

and are necessary to accurately reflect EPM activities in the Test Year. Thus, the LRY, combined with 16

the Test Year adjustments detailed below, is the appropriate method for forecasting EPM’s Test Year 17

non-labor expenses. For the Test Year 2021, SCE forecasts non-labor expenses of $2.460 million, which 18

represents an increase of $0.096 million from Base Year 2018 recorded costs of $2.364 million. 19

(c) Non-Labor Test Year Forecast Adjustments 20

SCE proposes a modest $0.096 million Test Year adjustment, and 21

that certain non-labor expenses be recovered through non-GRC recovery mechanisms. The Test Year 22

adjustment and proposed non-GRC recovery of some costs are discussed in the following sub-sections. 23

(i) Forecast Fee and Other Non-Labor Expenses 24

SCE forecasts a Test Year adjustment increase of $0.096 25

million for subscription fees and other non-labor expenses as shown in Table II-1. As discussed below, 26

4 The decision to use Last Recorded Year as the basis for the Test Year O&M labor forecast for EPM is

consistent with the direction provided in D.04-07-022 and D.89-12-057, wherein the CPUC stated that if costs have shown a trend in a certain direction over three or more years, the Last Recorded Year is the appropriate basis for estimating Test Year expenses. For EPM, labor expenses have declined each year in the historical period.

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SCE is proposing certain fees to be recovered through non-GRC recovery mechanisms. If the 1

Commission approves SCEs proposal, the increase for Kiodex, CARB, and the BioRam audits (using 2

Analytical Environmental Services) would be removed from the Test Year forecast adjustment therefore 3

reducing the increase from $0.96 million to $0.038 million. Table II-1 below provides additional details 4

on the non-labor adjustments. 5

Table II-1 EPM

Forecast Non-Labor Test Year Adjustments (Constant 2018 $)

(ii) SCE Proposes to Recover CARB Fees, Subscription 6

Costs, and Consulting Fees through Non-GRC 7

Recovery Mechanisms 8

As shown below in Table II-2, EPM’s 2021 forecast 9

includes CARB fees of $0.723 million, and subscription and consulting fees of $0.322 million for 10

activities that are more suited for recovery in either the GHGRBA, ERRA and/or TMNBCBA. 11

As discussed below, SCE proposes to remove these amounts from the EPM 2021 GRC forecast if the 12

Commission approves recovery through the requested non-GRC recovery mechanism. Each proposal is 13

discussed below. If the Commission approves SCE’s proposal to recover these fees through the 14

GRGRBA, ERRA, and/or TMNBCBA, SCE’s GRC O&M request will be reduced by $1,045,000. 15

LineNo. DescriptionIncremental

Increase

1OATI (Open Access Technology International) / software to manage market

functions$5,000

2 NI Satellite / satellite radio service $12,800

3 SCE Vehicle / fleet usage $4,000

4 Natural Gas Intelligence (NGI) / subscription for market pricing $16,000

5 Tullet‐Liberty / subscription for daily broker quotes $24,000

6 CARB Fees / administrative fees required by CARB $16,200

7Analytical Environmental Services (AES) / performs audits for BioRam

contracts$18,000

8 Total $96,000

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Table II-2 CARB Fees and Subscription Expenses Proposed to Move

to Non-GRC Recovery Mechanisms (Constant 2018 $)

a. CARB Fees – Request to Recover in GHGRBA 1

The California Global Warming Solutions Act of 2

2006 (AB 32) endorsed a market-based cap-and-trade program and authorized the California Air 3

Resource Board (CARB) to adopt a schedule of fees to be paid annually by, among other emitting 4

resources, the electric utilities to cover the State’s costs of implementing AB 32. Under CPUC 5

Resolution G-3447,5 the administrative fee payments to CARB associated with SCE’s utility-owned 6

generation and imported power are recovered through the GRC. SCE has included a forecast of its 7

administrative fee payments to CARB associated with SCE’s utility-owned generation and imported 8

power in its 2012, 2015 and 2018 GRCs consistent with Resolution G-3447. As presented in more detail 9

in Exhibit SCE-07-01, SCE is proposing to shift recovery of these fees paid to CARB from GRC 10

5 Resolution G-3447, p. 2, “Pursuant to our general rate case (GRC) ratemaking policies, the utilities are

typically at risk for any expenses they incur exceeding their authorized GRC revenue requirements. In their GRC applications, the utilities may request to include anticipated AB 32 fee payments in their revenue requirements.”

Line No.

Name Amount DescriptionBalancing Account

1 CARB Fees $723,000 Annual admins fees paid to CARB GHGRBA

2

Total requested to move to GHGRBA $723,000

3Platts $264,924

Subscription for market data, gas pricing, and power prices

ERRA

4 Kiodex $9,613 Subscription for market data services ERRA

5Tullet Liberty $24,000

Subscription for daily broker quotes for power prices

ERRA

6 Bid Week $5,463 Subscription used for energy pricing ERRA

7

Total requested to move to ERRA

$304,000

8Analytical Environmental Services $18,000

Fuel stock audit by independent auditor for BioRam contract audits

TMNBCBA

9

Total requested to move to TMNBCBA $18,000

Total $1,045,000

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recovery, which is based on a forecast of the CARB fees, to the recovery of the actual fees paid to 1

CARB through the GHG Revenue Balancing Account (GHGRBA).6 2

The CARB fees fluctuate year to year based on 3

validated emissions and fuels data for prior years on a dollar per metric ton of CO2 ($/MT-CO2). 4

Due to the fluctuation of payments to CARB, SCE believes it is appropriate to recover the actual fees 5

paid through the GHG Revenue Balancing Account. SCE’s payments to CARB are mandated by law, 6

with the payment amounts prescribed by annual invoices received per facility. These fees are used to 7

fund costs directly related to the development, administration, and implementation of AB 32 programs. 8

The CARB administrative costs are currently charged by unit at a rate determined by CARB to fund the 9

administration of the program, and therefore SCE has no control over the spend, unlike traditional O&M 10

expenses. The rate calculation has typically been years behind, making the costs difficult to forecast. 11

We know the volume far ahead of time, but the rate is uncertain until sometimes years later. 12

Because we are not certain the Commission will 13

adopt this proposal to recover the CARB fees through the GHGRBA rather than through the GRC 14

revenue requirement, SCE is including a forecast of $0.723 million for the CARB payments in its 2021 15

Test Year revenue requirement. Effective upon a decision in this proceeding adopting this proposal, SCE 16

proposes to record its actual administrative fee payments to CARB in its GHGRBA and the Commission 17

should remove the $0.723 million in forecast O&M expenses related to the CARB payments from its 18

adopted 2021 Test Year revenue requirement. SCE would then provide a forecast of these payments in 19

its annual ERRA Forecast proceedings for the 2021 forecast year and beyond to be treated similarly to 20

the set aside of GHG allowance revenue to cover forecast annual administration and customer outreach 21

costs. Put simply, CARB fees are much more analogous to traditional purchased power procurements 22

costs than GRC-appropriate O&M costs, and therefore should be forecast and reviewed in the ERRA 23

proceedings, not in the GRC. In the event the Commission does not authorize the recovery of the 24

administrative fee payments to CARB through the GHGRBA, however, the $0.723 million in forecast 25

6 The purpose of the GHGRBA is to record GHG cap-and-trade-related revenues and to set forth the

methodology for the amount of GHG revenue to be returned to eligible customers pursuant to D.12-12-033. The GHGRBA records the difference between the amount of GHG revenue actually returned to customers via rates and bill credits, and the actual amount of GHG revenue SCE receives through consigning allowances to the cap-and-trade auction.

20



21

O&M expenses related to the CARB payments must be included in the 2021 Test Year revenue 1

requirement authorized by the Commission. 2

b. Subscription and Consulting Fees – Request to 3

Recover in ERRA and TMNBCBA 4

SCE leverages several subscription fees to support 5

and perform key market functions including monitoring independent market data, risk reports, power 6

and natural gas prices, and industry news. In this 2021 GRC, SCE is including $0.322 million in non-7

labor costs for: (1) subscription fees used to calculate Short Run Avoided Cost (SRAC) energy pricing 8

for Qualifying Facilities (QF) contracts and (2) third party fuel stock audits required for its BioRAM 9

program contracts. SCE is currently paying both of these fees from O&M accounting. The subscription 10

fees for SRAC pricing support Energy Resource Recovery Account (ERRA) functions related to fuel 11

and purchased power contracts. Therefore, SCE proposes to record and recover those costs in ERRA. 12

The BioRAM contracts obligate parties to utilize an independent third-party auditor to determine the 13

type of biomass fuel stock burned at the facility. Per the BioRAM program, fuel stock from high hazard 14

locations affords a higher contract energy price compared to other biomass fuels. SCE proposes to 15

record and recover the BioRAM program third party audit costs in the Tree Mortality Non-Bypassable 16

Charge balancing account (TMNBCBA). If these fees are removed, the non-labor request will be 17

decreased by $.0322 million. In the event either of these costs are not approved to be moved to their 18

respective balancing accounts, SCE will maintain these costs in the GRC. 19

d) Basis for O&M Cost Forecast 20

Forecast methods such as the 5-year average, 3-year average, or linear trending 21

reflect the anticipated level of Test Year activity and the specific adjustments that are necessary to 22

accurately forecast EPM’s expenses. Thus, as discussed above, SCE selected the LRY method, plus 23

adjustments, for this GRC activity. 24

D. Capital Expenditures 25

EPM’s communication equipment capital expenditures recorded for 2014-2018 and the forecast 26

for 2019-2021 is shown below in Figure II-7. The capital forecast for 2019-2023 includes 27

communication equipment for $6.025 million that is required for the Generation Management System 28

(GMS) and Remote Intelligent Gateways (RIGs), both of which are systems required to bring new 29

generation resources into SCE’s portfolio. 30

21



22

1. Communications Equipment 1

Figure II-7 EPM Communications Equipment

2014-2018 Recorded and 2019-2023 Forecast7 (Nominal $000)

a) Program Description 2

SCE installs communication equipment such as emergency satellite phone 3

systems at all SCE-owned and contracted generation station locations in its portfolio. A successful 4

integration of these emergency phone systems allows SCE to contact personnel at critical generation 5

resources facilitating a quick response to emergencies. 6

b) Need for Capital Program 7

Table II-3 sets forth the estimated costs for communication equipment based on 8

the 2018 recorded expenditures. Specialized communication data links are installed at every generation 9

resource in EPM’s portfolio to meet contractual obligations and CAISO telemetry requirements. 10

Real-time telemetry is used to manage and monitor generation resources scheduled into the CAISO 11

market and to communicate dispatch information and instructions required to operate within the CAISO 12

7 Refer to WP SCE-05, Vol. 2, pp. 7-3 – Capital Summary.

22



23

control area. Table II-3 below shows, on average, a general assessment of the estimated communication 1

equipment cost per facility. The actual costs vary by facility as all installations are unique. 2

Table II-3 Estimated Expenditure Per Facility

(Nominal $)

c) Basis for Capital Expenditure Request 3

SCE requests $1.365 million for 2021 for the installation and configuration of the 4

communication equipment and telemetry data links. The forecast provides for continued onboarding of 5

new resources into SCE’s portfolio to support California’s aggressive clean energy goals, increases in 6

energy storage facilities, and dispatchable demand response programs. The forecast also accommodates 7

for upgrades to server and communication equipment reaching the end of its useful life. The forecast is 8

based on 32 resources coming on-line annually (i.e., reaching commercial operations status) in 2021 at 9

an estimated average cost of $30,000 per resource for a total of $0.965 million plus an additional $0.400 10

million from 2021-2013 to replace communication equipment that has reached the end of its useful life. 11

The GMS and RIG equipment upgrades will accommodate capacity expansion required to allow for 12

additional communication connections to contracted resources entering SCE’s portfolio, and update 13

software versioning to current vendor supported levels. See Table II-4 below for the capital expenditures 14

forecast. 15

Line

No.Project Cost Per Facility Amount

1 GMS configuration and commissioning 14,000$

2 ARIG configuration and commissioning 7,000$

3 Project management 7,000$

4 Satellite phone installation 2,000$

5 Total 30,000$

23



24

Table II-4 Forecast Capital Communication Equipment Costs

2019-2023 Nominal $ Millions

Line No. Description 2019 2020 2021 2022 2023 Total

1 Communication Services $0.700 $0.700 $0.700 $0.700 $0.700 $3.500

2 Labor $0.250 $0.250 $0.250 $0.250 $0.250 $1.250

3 Communications Equipment $0.015 $0.015 $0.015 $0.015 $0.015 $0.075

4 Upgrades ‐ ‐ $0.400 $0.400 $0.400 $1.200

5 Total $0.965 $0.965 $1.365 $1.365 $1.365 $6.025

24

2021 General Rate Case Index of Workpapers

SCE-05, Vol. 02

DOCUMENT PAGE(S) Energy Procurement Workpaper Title Page 1

O&M Summary 2-6Capital Summary 7-8



(U 338-E)

2021 General Rate Case A.19-08-_____

Workpapers

August 2019

SCE-05 Generation & Energy Procurement Volume 2 - Energy ProcurementEnergy Procurement

1



Forecast

2021

Beginning of Workpapers for:

Labor

Total 24,568

0

2,460

22,108

24,471

0

Recorded/Adj.

2018

2,364

22,108

Other

Non-Labor

Description of Activity:

Energy Procurement & Management (EPM) procures and schedules electricity from independent

power producers and suppliers to supplement our utility-owned generation to ensure delivery of safe,

reliable, affordable, and clean electricity to SCE’s approximately five million residential and business

customer accounts. EPM enters into multi-year contracts from both conventional and renewable

generators, and conduct day-ahead and real-time trading to serve our customers’ electricity demands.

Cost Type

Exhibit: SCE-05 Generation & Energy Procurement

Volume: Vol 2 - Energy Procurement

Business Planning Element: Energy Resource Management

Activity: Energy Procurement

Witness: M. Palmstrom

2021 GRC Summary

(Constant 2018 $000)

Due to rounding, totals may not tie to individual items.

2



Total

23,843

Total

Total

Recorded/Adj.

2014 2015 201820172016Cost Type

28,761 Labor

Non-Labor

Other

4,460

0

33,221

28,167

3,951

0

32,118

26,171

0

3,408

29,579

23,250

2,832

0

26,082

22,108

2,364

0

24,471

Forecast Methods - Summary of Results of Methods Studied


Results of Linear Trending

5 Years: 20214 Years: 20213 Years: 2021

r2*$r2*$r2*$

Results of Averaging

22,679 24,924 25,691

2,598 2,868 3,139 3,403

0 0 0 0

25,277 26,711 28,062 29,094

Other

Non-Labor

Labor

780

0

15,430 16,580

737 748

N/AN/A

0 0

15,717

16,497 16,167 17,327

0.93 0.97 0.96

0.99 0.99 0.99

Cost Type

2017 - 2018

Last Recorded Year

202120202019

24,471

0

2,364

22,108 22,108

2,364

0

24,471

22,108

2,364

0

24,471 Total

Other

Non-Labor

Labor

Cost Type

sd**

2 Years: 3 Years:

sd**2016 - 2018 sd**2015 - 2018

4 Years:

sd**2014 - 2018

5 Years:

571

234

0

1,711

427

0

2,388

597

0

2,630

751

0 Other

Non-Labor

Labor

Cost Type

N/A

N/A N/A N/A N/A

* r2 = R Squared (Based on recorded years data)

** sd = standard deviation (Based on recorded years data)

Itemized Forecast

202120202019

Total

Other

Non-Labor

Labor

Cost Type

0

0

0

0 0

0

0

0 0

0

0

0






3



Cost Type

Recorded/Adj.

2014 2015 Test Year20202019201820172016

28,761 Labor

Non-Labor

Other

Total

4,460

0

33,221

28,167

3,951

0

32,118

26,171

0

3,408

29,579

23,250

2,832

0

26,082

22,108

2,364

0

24,471

2,460

22,201

0

24,661

22,114

2,460

0

24,574

22,108

2,460

0

24,568

Labor Forecast Reason: In D.89-12-057, and subsequently in D.04-07-022, the CPUC stated that if recorded expenses have

been relatively stable for three or more years, the last recorded year is an appropriate base estimate.

Non-Labor Forecast Reason: Please see the explanation for choosing an adjusted Last Recorded Year Forecast in testimony.

Forecast

2021 GRC Selected Forecast Method


($000)

24,568

0

2,460

22,108 0

96

0

97

Method

Selected Forecast TY Forecast

Incr/(Decr) from

2018 Recorded/Adj

LYR

LYR+A

-

Analysis of Forecasting Methods







Analysis of Linear trending Method – In D.89-12-057, and subsequently in D.04-07-022, the CPUC stated that if recorded

expenses have shown a trend in a certain direction for three or more years, the last recorded year is an appropriate base

estimate. The linear trending methods were not selected as the forecast method because they do not reflect the operational

activity levels expected for the Test Year.

Analysis of Averaging Method - In D.89-12-057, and subsequently in D.04-07-022, the CPUC stated that if recorded expenses

have significant fluctuations from year to year, or expenses are influenced by external forces beyond the utility’s control, an

average of recorded-expenses is appropriate. The averaging methods were not selected as the forecast method because they

do not reflect the operational activity levels expected for the Test Year.

Analysis of Itemized Forecast Method - Not Applicable

Other Forecast Methods not Selected

4



Total

Prior Year TotalTotal Change

Change

24,574 24,661 24,471 26,082 29,579 32,118 33,221

(1,103) (2,539) (3,497) (1,611) 190 (87) (6)

28,761 Labor

Non-Labor

Other

Total

4,460

0

33,221

Recorded /

Forecast

28,167

3,951

0

32,118

26,171

0

3,408

29,579

23,250

2,832

0

26,082

22,108

2,364

0

24,471

2,460

22,201

0

24,661

22,114

2,460

0

24,574

22,108

2,460

0

24,568

Labor Prior Year Total

Change

28,761

28,167

28,167

26,171

26,171

23,250

23,250

22,108

22,108

22,201

22,201

22,114

22,114

22,108

(594) (1,996) (2,921) (1,142) 93 (87) (6)

Recorded/Adj.

2014 2015 202120202019201820172016

Non-Labor Prior Year Total

Change

Total

Other Prior Year Total

Change

Total

4,460

(509)

3,951

3,951

3,408

(543)

2,832

(576)

2,832

2,364

(468)

2,364

2,460

96

2,460

2,460

0

2,460

2,460

0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

0 0 0 0 0 0 0

3,408

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2014 2015 2016 2017 2018 2019 2020 2021

NL L

Recorded/Adj. 2014-2018 / Forecast 2019-2021

Total 24,568 24,574 24,661 24,471 26,082 29,579 32,118

Cost Type

2021 GRC Year Over Year Variance


Forecast







5



Summary of Changes:

Recorded (2014-2018)

Recorded/Adj.

2014 2015 202120202019201820172016Cost Type

28,761 Labor

Non-Labor

Other

Total

4,460

0

33,221

Recorded /

Forecast

28,167

3,951

0

32,118

26,171

0

3,408

29,579

23,250

2,832

0

26,082

22,108

2,364

0

24,471

2,460

22,201

0

24,661

22,114

2,460

0

24,574

22,108

2,460

0

24,568

See Testimony

Forecast (2019-2021)

See Testimony

See Testimony

2021 GRC Forecast Commentary


Forecast







6



Southern California Edison - Capital Workpapers

Capital Workpapers Summary

SUMMARY BY GRC Volume

(Nominal $000)


20152014 2016 2017 2018

965 965 1,365 1,365 1,365

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Forecast Capital Expenditures Recorded and Authorized Capital Expenditures

Description 20232022202120202019

Authorized Expenditures

Recorded and Forecast Expenditures

Total Expenditures 6,025

Forecast Capital Expenditures

2019 2020 2021 2022 2023

Recorded, Authorized and Forecast Expenditures

GRC Activity 5 yr Total


Volume: Energy Procurement Volume 2

865 745 781 542 691

2023202220212020201920182017201620152014

1,897

2018

Recorded Authorized Forecast

3,625

965 965 1,365 1,365 1,365 Communications Equipment 6,025

1,365 1,365 1,365 965 965 GRC Total 6,025

7



$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Year

Southern California Edison

2021 GRC Capital Workpapers

Cost Estimates - Nominal ($000)

20202019 2021 2022 2023

965 965 1,365 1,365 1,365


Volume: Energy Procurement Volume 2

Business Plan Group: Energy Procurement

Business Plan Element: Energy Resource Management

GRC Activity: Communications Equipment

1. Witness: M. Palmstrom

2. Asset type: Telecommunications

3. In-Service date: Specific Blanket

4. RO Model ID: 825

5. Pin: 3900

6. CWBS Element: CSB-00-P1

CWBS Description: PPBU Renewable Integration

7. SRIIM Eligible: No

SCE$

2019 - 2023 Total

6,025

2021 GRC - Capital Expenditures Forecast


2019 2020 2021 2022 2023

8

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