2015 General Rate Case Rebuttal Testimony · 2014-09-15 · 2015 General Rate Case Rebuttal...

Application No.: A.13-11-003 Exhibit No.: SCE-20 Witnesses: D. Bernaudo

J. Bubb K. Devore T. Felix C. Hu L. Miller C. Prescott T. Walker

(U 338-E)

2015 General Rate Case

Rebuttal Testimony

Customer Service

Before the

Public Utilities Commission of the State of California

Rosemead, CaliforniaSeptember 2014

SCE-20: Customer Service

Table Of Contents Section Page Witness

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I. INTRODUCTION .............................................................................................1 J. Bubb

II. REBUTTAL TO CUSTOMER SERVICE’S O&M ISSUES RAISED BY FERC ACCOUNT .......................................................................2

A. Account 902 – Meter Reading Operations.............................................2

1. Test Year Forecast Summary .....................................................2

2. ORA’s Position and SCE’s Rebuttal..........................................2

3. TURN’s Position and SCE’s Rebuttal .......................................8

4. Account 902 Conclusion ..........................................................15

B. Account 903.100 – Postage .................................................................15 C. Hu

C. Account 903.200 – Credit and Payment Services ................................16

1. Test Year Forecast Summary ...................................................16

2. ORA Test Year Forecast Position ............................................17

3. SCE’s Rebuttal for the Test Year Forecast ..............................17

4. SBUA’s Proposal to Stop Unnecessary Disconnections to Small Businesses ........................................17

5. SCE’s Rebuttal – SBUA Cannot Support Its Assertion That Small Businesses Are Concerned That Their Power Is Being Shut Off Unnecessarily ................17

6. Account 903.200 Conclusion ...................................................18

D. Account 903.500 – Billing Services ....................................................18


2. ORA’s Recommendation Regarding Service Guarantees ................................................................................18

3. SBUA’s Position Regarding SCE’s Self-Reported Service Guarantee Results .......................................................20


Table Of Contents (continued) Section Page Witness

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4. Program Services’ Manual Enrollment Processing for Medical Baseline ................................................................21

5. Program Services’ Manual Enrollment Processing for Lifestyle Packages ..............................................................25


E. Account 904 – Uncollectible Expenses ...............................................26


2. ORA’s Position Regarding the Uncollectible Factor Forecast ....................................................................................27

3. TURN Proposes to Remove $1.3 Million in California Climate Credits from SCE’s Uncollectible Forecast .............................................................30


F. Account 903.800 – Customer Contact Center (CCC) ..........................30 T. Felix


2. ORA’s and TURN’s Test Year Forecast Positions ..................31

3. SCE’s Rebuttal to ORA’s and TURN’s Test Year Forecast Position ......................................................................34


G. Account 905.900 – Marketing, Communications, and Digital Customer Services ...................................................................43 T. Walker


2. TURN’s Test Year Forecast Positions .....................................44

3. SCE’s Rebuttal for the Test Year Forecast – TURN Does Not Address the Basis for SCE’s Forecast .....................44


H. Account 907.700 – Program Management Organization (PMO) ..................................................................................................45 L. Miller



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2. ORA and TURN Propose Use of a Multi-Year Average to Forecast PMO Expenses........................................45


I. Account 908.600 – Business Customer Division ................................46 K. Devore


2. SBUA’s Recommendations .....................................................47

3. SCE’s Rebuttal to SBUA’s Recommendations .......................47


J. Account 586.400 – Test, Inspect and Repair Meters ...........................49 D. Bernaudo


2. ORA’s Test Year Forecast Positions .......................................50

3. SCE’s Rebuttal to ORA’s Recommendations ESC Steady-State Incremental Funding ...........................................52


K. Account 587 – Customer Installation and Energy Theft Expense ................................................................................................57


2. ORA’s Test Year Forecast Position .........................................58


III. REBUTTAL TO CAPITAL ISSUES RELATED TO THE CUSTOMER SERVICE OPERATING UNIT ................................................61

A. Metering Capital Requirements ...........................................................61

1. Meter Growth Forecast ............................................................61

2. Residential Replacement Meters ..............................................63



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3. C&I, Agricultural, and RTEM Replacement Meters and Agricultural Growth Meters Volume Forecast .................66

B. Structures and Improvements ..............................................................68 K. Devore

1. BCD Structures and Improvements .........................................68

C. Business Customer Division Specialized Equipment ..........................68

1. BCD Specialized Equipment Summary ...................................68

2. ORA’s Positions.......................................................................69

3. SCE’s Rebuttal .........................................................................69

4. BCD Specialized Equipment Capital .......................................70

D. Customer Service Overall Capital Request ..........................................70

1. ORA Recommends a PTYR Mechanism .................................70

IV. REBUTTAL TO CUSTOMER SERVICE OTHER OPERATING REVENUE (OOR) ISSUES ............................................................................71 J. Bubb

A. The Commission Should Adopt Opt-Out Fees Proposed In This Application...................................................................................71

B. SCE Should Eliminate the $10 Monthly Opt-Out Fee.........................71

1. SBUA’s Position ......................................................................71

2. SCE’s Rebuttal .........................................................................72

V. REBUTTAL TO OTHER ISSUES ..................................................................73 C. Prescott

A. TURN Recommends a Reduction to the Base Year for Amounts Transferred to Claims ...........................................................73

B. SCE’s Rebuttal – TURN Wrongly Assumes There Are 2012 Costs Transferred to Claims That Were Never Removed From the Ongoing Costs in Customer Service ....................73

C. TURN Recommends a Reduction to the Test Year Forecast Clothing and Other Edison Gear ..........................................................73 K. Devore

D. SBUA’s Position ..................................................................................74



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E. SCE’s Rebuttal .....................................................................................74

1. SBUA Underestimates the Role of Technology in SCE’s Customer Service Strategy and the Technical Savvy of Small Business Customers........................................75

2. SCE Employs Adequate Resources to Address the Customer Service Needs of Customers Preferring to Conduct Business in a Language Other Than English .....................................................................................76

3. Energy Efficiency Funding Levels Are Outside the Scope of This Proceeding ........................................................77

4. SCE’s Small Business Engagement Efforts Are Adequate ..................................................................................77

5. SCE Plans to Allow Small Business Customers the Ability to Easily Opt Out of CPP .............................................78

6. SBUA’s Position Regarding SCE’s Need to Access and Retain Customers’ Power Usage Data ..............................78

7. SBUA’s Position Regarding Customers’ Right to Privacy .....................................................................................79

Appendix A ......................................................................................................................

Appendix B ......................................................................................................................


List Of Figures Figure Page

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Figure II-1 Actual and Forecast Medical Baseline Enrollment Volumes ..................................................23

Figure II-2 2009-2017 Average Handle Time (Updated with 2013 Recorded Data) ................................35

Figure II-3 Total Calls Handled 2008-2013 (millions) ..............................................................................40

Figure II-4 Other Contact Channel Volumes .............................................................................................41


List Of Tables Table Page

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Table II-1 SCE’s Forecast of Medical Baseline Enrollment Volume ........................................................22

Table II-2 Forecast of Medical Baseline Enrollment Processing Incremental Costs ................................24

Table II-3 SCE, ORA and TURN Forecast Adjustments for FERC Account 903.800 .............................33

Table II-4 AHT Supplemental Workpapers Showing Phone Expenses Separate From

Labor-Related Non-Labor Expenses ....................................................................................................38

Table III-5 ORA’s Proposed Meter Volumes for Residential and C&I Growth Meters

2013 – 2015..........................................................................................................................................61

Table III-6 TURN’s Proposed Meter Volumes for Residential and C&I Growth Meters

2013 – 2017..........................................................................................................................................62

Table III-7 C&I and Agricultural Meters Proposed and Revised Per Unit Cost 2013 –

2015 (Nominal $) .................................................................................................................................63

Table III-8 ORA’s Calculation for Residential Replacement Meters 2014 – 2015 Forecast ....................63

Table III-9 Correct Calculation for Residential Replacement Meters 2014 – 2015

Forecast ................................................................................................................................................64

Table III-10 Residential Meter Volume Recorded and Forecast 2008 – 2015 ..........................................65

Table III-11 Fluctuation of Agricultural Growth Meters and Replacement Meters (2008 –

2013) ....................................................................................................................................................67

Table III-12 Comparison of SCE’s and ORA’s BCD Specialized Equipment Forecast

2013-2017 (nominal $000) .................................................................................................................69

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I. 1

INTRODUCTION 2

This exhibit addresses the various recommendations raised by the Office of Ratepayer Advocates 3

(ORA), The Utility Reform Network (TURN) and Small Business Utility Advocates (SBUA) 4

concerning SCE’s 2015 GRC proposals for (a) Customer Service-related forecast Operations and 5

Maintenance (O&M) expenses for Test Year 2015 and (b) capital expenditures for 2013 through 2017. 6

This exhibit is organized into five chapters, including this Introduction. Chapter II of this exhibit 7

sets forth SCE’s rebuttal to many of the specific ORA and intervenor recommendations for SCE’s 8

Customer Service 2015 Test Year forecast for each FERC account. Chapter III of this exhibit provides 9

SCE’s rebuttal to the recommendations raised by ORA and interveners on SCE’s forecast capital 10

expenditures for 2013 through 2017. Chapter IV of this exhibit addresses ORA and intervenor proposals 11

regarding the treatment of Other Operating Revenues generated by SCE’s customer service fees and 12

charges. Chapter V of this exhibit provides SCE’s rebuttal to other Customer Service recommendations 13

by TURN and SBUA. The rebuttal to ORA and intervenor recommendations regarding Customer 14

Service’s forecast technology systems needed to engage customers and to achieve State and 15

Commission energy policy goals is included in Exhibit SCE-21. Finally, SCE’s rebuttal to ORA 16

recommendations regarding Customer Service’s forecast for Operational Excellence productivity 17

savings is included in Exhibit SCE-28. 18

2

II. 1

REBUTTAL TO CUSTOMER SERVICE’S O&M ISSUES RAISED BY FERC ACCOUNT 2

The purpose of this Chapter is to address Customer Service Operations and Maintenance (O&M) 3

expenses by FERC Account for those Customer Service activities contested by ORA, TURN, and 4

SBUA. 5

A. Account 902 – Meter Reading Operations 6

1. Test Year Forecast Summary 7

FERC Account 902 includes all of the costs incurred by the SmartConnect Operations 8

Center (SOC) and SCE’s remaining manual meter reading costs. SCE’s forecast of $19.255 million in 9

FERC Account 902 for Test Year 2015 is based on 2012 recorded adjusted expenses of $13.220 million. 10

The 2012 Base Year cost includes the adjustments for Edison SmartConnect (ESC) incremental costs 11

and benefits. These adjustments include the removal of non-recurring legacy meter reading costs, and 12

the addition of ESC steady-state costs incurred in 2012. Future year adjustments include ongoing 13

incremental ESC costs of $5.740 million, customer growth of $273,000, a program change adjustment of 14

$1.146 million for ESC opt-out meter reading costs, and Operational Excellence savings of $1.123 15

million to be achieved by lowering staffing levels. 16

2. ORA’s Position and SCE’s Rebuttal 17

ORA recommends removing $4.712 million of SCE’s forecast expense for FERC 18

Account 902, yielding an amount 24 percent below SCE’s 2015 Test Year forecast of $19.255 million. 19

ORA states that its recommendation is consistent with SCE’s 2013 recorded expenses because “2013 20

recorded expenses should be representative of the level of expenses under ESC steady-state 21

operations.”1 ORA also states that it is concerned about SCE’s “upward adjustments for ESC SOC costs 22

and Opt-Out Program cost.”2 SCE addresses ORA’s concerns and recommendations in the sections that 23

follow. 24

1 ORA-13, p. 27, lines 8-9. 2 ORA-13, p. 13, lines 2-3.

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a) SOC Steady-State Labor Expense 1

(1) ORA Does Not Support SCE’s Test Year Forecast of FTEs for the 2

SmartConnect Operations Center 3

SCE forecast an increase of $3.587 million3 for an increase in SOC FTEs 4

from 21 in 2012 to 41 in 2015. ORA reduces that forecast by $2.391 million,4 asserting that the SOC’s 5

2013 average of 34 FTEs should be adequate for 2015 steady-state operations. ORA states, “SCE’s four 6

year ESC deployment program was completed in December 2012. Therefore, the average number of 7

FTEs working in the SOC operations during 2013 is at a steady-state operations basis. As of September 8

30, 2013, SCE had 34 FTEs in SOC operations.”5 9

(2) SCE’s Rebuttal – The SOC Was Not at a Full Steady-State Operating 10

Level for 2013 11

ORA incorrectly concludes that the 2013 SOC operations were at full 12

steady state because the ESC deployment program was completed in December 2012. ORA relies only 13

on the fact that, in December 2012, the four-year ESC deployment program was completed. However, 14

ORA ignores the fact that, during 2013-2014, Customer Services Operations Division will focus on 15

stabilizing its core operations that were affected by the ESC program.6 This fact clearly shows that SOC 16

steady-state operations would be achieved over the 2013-2014 period. 17

The SOC was one of the “core operations,” in which program stabilization 18

was SCE’s primary objective for 2013. The SOC was not at a full steady-state operating level for all of 19

2013 and requires increased staffing in 2014 and 2015. During 2012, the SOC continued to transition 20

from deployment to steady-state operations as the deployed ESC meter population increased by over one 21

million meters during 2012. Additionally, in 2013, the SOC focused on increasing network speed and 22

stabilizing the Over-the-Air (OTA) network, which required firmware downloads to update the system. 23

This was vital as SCE was still deploying meters as part of the “meter left behind” project authorized by 24

D.08-09-039. 25

3 SCE-04, Vol. 2, Pt. 1, Workpapers, p. 36. 4 ORA-13, p. 15, Table 13-10. 5 ORA-13, p. 13, lines 16-19. 6 See SCE-04, Vol. 2, p. 2, lines 18-20.

4

In 2013 and 2014, the SOC continued to stabilize and optimize the meter 1

communication network and operations to improve system performance, providing additional OTA 2

services, such as storm support and outage management capabilities.7 An example is the installation of 3

148 Broadband Global Area Networks (BGAN) since 2013 to improve the communication capabilities 4

of the system for hard-to-reach customers. This type of system improvement requires resources to 5

support radio frequency mitigation solution planning, monitoring, tracking, and field engineers to 6

support these post-program steady-state activities. The specific assumptions and rationale SCE used to 7

forecast the increase of 20 additional FTEs in the SOC from 2012 (21 FTEs) to 2015 (41 FTEs) were 8

provided to ORA in SCE’s response to a data request.8 9

b) ORA Contests SCE’s Cost per Individual FTE for SOC Operations 10

ORA does not support the average expense of $127,962 per FTE used by SCE to 11

forecast labor expense. Instead, ORA recommends $92,000 per FTE resulting in a reduction of 12

$468,0009 from SCE’s 2015 forecast. 13

(1) ORA’s Average Salary Forecast Does Not Reflect All Expected 14

Positions 15

ORA states, “SCE calculated the salary by dividing the total 2012 labor 16

cost, which includes the salary of management positions, by 13 FTEs. By using the salary of 17

management positions, SCE overestimates the average cost of the additional FTEs.”10 Instead, ORA 18

recommends the use of a labor rate based on a simple, non-weighted average of the four non-19

management positions in the SOC, which is not representative of the positions SCE will need.11 20

(2) SCE Rebuttal – SCE’s Costs Per FTE Salary Forecast Is Reasonable 21

ORA’s use of a select number of non-management positions to calculate 22

its per-FTE salary forecast does not reflect the actual SOC positions SCE will need. As SCE achieves 23

steady-state operations, a full range of non-management skills will be necessary in the SOC, not just the 24

7 See Appendix A, SCE response to data request DRA-020-SWC-Q.4. 8 Id. 9 Calculation: ($127,962 - $92,000) x 13 FTEs = $468,000. 10 ORA-13, p. 13, lines 21-24. 11 See ORA-13, p. 13, line 24 – p. 14, line 1. These positions include Technical Specialist/Scientist 3, IT

Specialist/Engineer 2, Analyst-Business 3, and an Analyst Program/Project 3.

5

four positions selected by ORA. SCE’s labor rate of $127,962 reflects a reasonable salary level for non-1

management staff with the skills necessary to operate the SOC. 2

In its recommended labor rate, ORA chose to use four of the five lowest 3

paid positions to comprise its wage forecast. Specifically, ORA did not include four senior non-4

management positions with the specialized technical skills that will be essential to SOC operations. 5

ORA’s selective elimination of these necessary employees from its calculation results in a labor rate that 6

is inadequate to secure the set of skills necessary to properly operate the SOC. 7

c) ORA Does Not Support SCE’s Proposed Increase for Professional Services 8

ORA recommends no additional forecast in SOC for Professional Services above 9

the cost recorded in 2012. 10

(1) ORA Recommends That the Additional FTEs Can Meet the Need for 11

Professional Services 12

With regard to SCE’s incremental forecast of $321,000 for Professional 13

Services, ORA “recommends no additional funding for Professional Services because the additional 13 14

FTEs should meet the workload of the SOC in 2015.”12 15

(2) SCE Rebuttal – SCE’s Estimate of Professional Services Is 16

Reasonable and Necessary 17

Professional Services are reasonable and necessary to supplement SCE’s 18

workforce in performing SOC steady-state activities in 2015. The SOC will continue to utilize 19

Professional Services to deliver the full functionality of the ESC meter system. In 2012, SCE recorded 20

$778,594 for Professional Services to supplement operational positions related to firmware downloads, 21

new product development, radio frequency communications mitigation, data analysis and reporting, 22

project management, and training. In 2013, Professional Services totaling $2.925 million (in constant 23

2012 dollars) were utilized to meet system stabilization, communication mitigation, field engineering 24

support and planning and execution for a major firmware update to all ESC meters.13 The forecast level 25

of Professional Services in 2015 of $1.100 million is a decrease of $1.824 million compared to the 2013 26

unadjusted recorded amount. Professional Services in the Test Year will be necessary to perform highly 27

skilled technical activities, including data analytics, system engineering and OTA software updates. 28

12 ORA-13, p. 14, lines 6-8. 13 See Appendix B, Workpaper: Professional Services, FERC Account 902 – 2013 Unadjusted Recorded Costs.

6

Additional FTEs are not sufficient to meet SCE’s needs for Professional Services because Professional 1

Services provide specific, necessary expertise that SCE’s personnel may not have. 2

d) ORA Does Not Support SCE’s Forecast of Leased Air Time Expense 3

SCE’s O&M forecast for the SOC included $1.408 million increase over the 2012 4

Base Year recorded cost for the cost of leased air time in the 2015 Test Year. ORA recommends a 5

leased air time expense increase of $225,278, which is $1.2 million below SCE’s forecast. 6

(1) ORA Recommends a Reduced Forecast for Leased Air Time Expense 7

ORA does not support SCE’s forecast for leased air time and instead 8

recommends a forecast for leased air time expense based on actual 2013 leased air time expense through 9

September 2013 that was annualized. ORA contends, “SCE’s four year ESC deployment program was 10

completed in December 2012; therefore, the 2013 recorded air time leased expense provides an 11

indication of the level of expenses of the SOC operations on a steady state basis.”14 12

(2) ORA Ignores Increased Costs for Leased Air Time 13

The SOC was not at a full steady-state operating level for 2013, and the 14

use of the actual annualized 2013 recorded leased air time cost to forecast 2015 expense does not factor 15

in additional leased air time expenses at full steady state. These factors include providing OTA service 16

to the hard-to-reach customers, meters left behind, and increased data usage for expanding ESC system 17

capabilities, including voltage information that will be used for storm and outage management support. 18

These factors will drive the increase in costs for the leased air time forecast in 2015. Cellular device 19

costs are also expected to increase with the amount of data transfers required to process the voltage 20

information capabilities being added to the ESC system.15 Additional costs will be incurred as SCE 21

expands the reach of the OTA network with BGAN and other technologies to service the hard-to-reach 22

customers. Lastly, the actual 2013 unadjusted recorded leased air time expense was $1.934 million, 23

which is $118,000 higher than ORA’s estimated annualized 2013 expense of $1.816 million.16 24

e) ORA Recommends a Lower Forecast of SOC Employee Training Costs 25

SCE forecast $50,400 for SOC training for all of its 41 employees in the 2015 26

Test Year. ORA recommends a forecast of $15,600 for training associated with only the additional 13 27

14 ORA-13, p. 14, lines 10-13. 15 See Appendix A, SCE response to data request DRA-020-SWC-Q.8. 16 See Appendix B, Workpaper: SOC Leased Air Time – 2013 Unadjusted Recorded Expense.

7

employees that ORA claims are needed in 2015. ORA incorrectly assumes that SOC training costs for 1

2012 are imbedded in the Base Year recorded cost. ORA reasons that training costs for the 2012 2

recorded employees should be embedded in the historical recorded expenses.17 ORA thus forecasts 3

incremental training for the 13 FTEs that were added in 2013. However, no training costs were recorded 4

the Base Year recorded, and no training costs were separately identified in the ESCBA that were 5

transferred into the Base Year adjusted recorded amount. 6

f) ESC Opt-Out Expense Forecast Issues ORA Recommends a Lower 7

Forecast of Opt-Out Meter Reading Cost and Customer Participation 8

Both ORA and TURN recommend reductions to SCE’s forecast in FERC 9

Account 902 for the Program Changes resulting from the manual meter reading of electro-mechanical 10

meters used for the ESC Opt-Out Program. Both ORA and TURN dispute SCE’s expected cost per 11

meter read and its forecast number of ESC Opt-Out Program participants. 12

ORA recommends a reduction of $710,000 in SCE’s forecast cost for reading 13

Opt-Out Program meters. ORA’s recommendations for Opt-Out Program costs lowers SCE’s forecast 14

from $1.146 million to $436,000. ORA forecasts the number of Opt-Out Program participants at 15

24,132, an increase of 2,832 more than existed at the end of 2012. ORA’s participant forecast increase 16

of 2,832 multiplied by its forecast cost per read of $12.84 and multiplied by 12 reads per year results in 17

ORA’s recommended incremental funding of $436,000 for the Test Year. 18

(1) ORA Uses an Outdated Cost per Meter Read in Its Forecast 19

ORA used an outdated average cost per meter read of $12.84, which was 20

SCE’s estimated average cost per read in the Opt-Out Proceeding18 as presented to the Commission in 21

2011. SCE has updated its cost per read forecast based on the significant reduction in the number of 22

legacy meters that will be read routinely each month. At the time the Opt-Out Proceeding commenced 23

in 2011, SCE assumed 123,300 meters would be read each month, including 100,000 hard-to-reach 24

meters for ESC and 23,300 Opt-Out meters. At the time this GRC was prepared, this estimate was cut 25

by 57 percent to 25,000 hard-to-reach meters and 27,500 Opt-Out meters. 26

17 See ORA-13, p. 15, lines 2-4. 18 SCE filed its Smart Meter Opt-Out Cost Estimates and Cost Recovery Proposal in CPUC proceeding A.11-

07-020 on August 10, 2012.

8

This significant reduction in the number of routine monthly manual meter 1

reads causes the cost per read to increase because of the increased distance between meters, which 2

results in added drive time of approximately one minute per read. Opt-Out meters are less efficient to 3

read because they tend to be randomly located and geographically dispersed more than hard-to-reach 4

meters, which tend to be clustered in topographically challenging areas. There is also an additional 5

increase of approximately one minute per meter to collect the daily reads stored for the month. The 6

increased drive time causes the average cost per read to increase from $12.84 used in the Opt-Out 7

Proceeding to $14.88, which was used for this GRC.19 ORA’s use of $12.84 per read presented in A.11-8

07-020 does not reflect the changing operating environment. The appropriate cost per manual meter 9

read to use is $14.88, which reflects the current and expected operating conditions that underlie the 10

operations and costs forecast in this proceeding. 11

(2) ORA Understates the Increase in the Number of Opt-Out Program 12

Participants 13

ORA forecasts an expected increase in the number of Opt-Out participants 14

to be 24,132 at the end of 2014, up 2,832 customers from 21,300 at the end of 2012.20 This is not 15

correct. The increase for the number of program participants should include the increase expected 16

through 2015. ORA’s error causes its Opt-Out customer increase, based on 118 new Opt-Out customers 17

per month, to be understated by 33 percent (24 months instead of 36 months). Using ORA’s 118-18

customer-per-month increase, the expected three-year increase is from 21,082 in 2012 to 25,330 in the 19

2015, or an increase of 4,248 customers, rather than ORA’s calculated increase of 2,832 customers. 20

SCE’s participant forecast of 27,500 is reasonable and should be adopted by the Commission. 21

3. TURN’s Position and SCE’s Rebuttal 22

TURN recommends that costs for FERC Account 902 be authorized at $11.281 million, 23

which is $7.973 million less than SCE’s forecast of $19.255 million. TURN recommends a $5.5 million 24

19 See Appendix B, Workpaper: Manual Meter Reading – 2015 Forecast Cost Per Meter Read 20 See ORA-13, p. 17, lines 1-4.

9

reduction to SCE’s forecast for the manual meter reading of legacy meters.21 TURN also recommends a 1

$2.4 million reduction to SCE’s forecast cost for remote (automated) meter reading of ESC meters.22 2

a) TURN’s Recommended Downward Adjustment of SCE’s Forecast of Manual 3

Meter Reading Cost of $14.88 to $8.44 per Read Is Based on Outdated Data 4

and Erroneous Assumptions 5

In recommending a reduction of $5.5 million to SCE’s manual meter reading 6

costs, TURN does not support SCE’s forecast manual meter reading cost per read of $14.88 and instead 7

uses the same $8.44 cost per read that TURN claims to have recommended in SCE’s Opt-Out 8

Proceeding.23 TURN explains, “In the Edison Opt Out proceeding, TURN adjusted Edison’s proposed 9

meter reading costs downward using a prorated adjustment based on the ratio of meter readers it forecast 10

it needed in 2013 to read opt out customer meters (23.6 meter readers) to its 2013 forecast of meter 11

readers presented in its 2012 GRC (50 meter readers).”24 In fact, however, in errata, TURN changed its 12

proposal in SCE’s Opt-Out Proceeding to “approximately $10/ meter read.”25 13

Notwithstanding TURN’s information regarding its Opt-Out proposal, there are 14

several problems with TURN’s use of $8.44 per manual meter read for this GRC. First, TURN does not 15

provide a calculation for its proposed $8.44 cost per manual meter read. Second, TURN’s fails to 16

explain why its use of a ratio of Opt-Out meter readers (23.6 FTEs) to the meter readers forecast in the 17

2012 GRC for 2013 (50 FTEs) is a reasonable assumption. The ESC Opt-Out Program did not exist 18

when SCE’s 2013 forecast was developed for the 2012 GRC. In the 2012 GRC, SCE’s 2013 forecast of 19

$12.340 million (in constant 2012 dollars) for manual meters was based on an estimated 100,000 meters 20

for an estimated cost per read of $13.57. The 2012 GRC’s 2013 forecast for manual meter reading did 21

not include 23.6 FTEs for Opt-Out meter readers as TURN claims.26 The 2013 GRC forecast of 50 22

21 TURN Testimony on Corporate Real Estate and Customer Service Issues in SCE’s 2015 GRC, Testimony of

Jeffrey A. Nahigian on behalf of TURN, dated August 18, 2014 (TURN-08, Nahigian), p. 33, Table 17. 22 Id. 23 Id. at p. 37. 24 Id. at p. 34. 25 See A.11-07-020, Exhibit TURN-2, p. 23. Additionally, TURN recommended that “SCE’s manual Meter

Reading Costs be reduced from $12.84 per customer per month to $10.” A.11-07-020, Opening Brief of TURN Concerning Opt-Out Costs and Fees, dated January 11, 2013, p. 24.

26 See A.10-11-015 (SCE’s 2012 GRC), Exhibit SCE-04, Vol. 2, p. 130, Figure IV-10.

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meter readers was consistent with the ESC financial model, which was the only information available at 1

the time. The ESC financial model assumption was that one percent, or 50,000 ESC meters, would need 2

to be manually read each month, requiring the full-time equivalent of 50 meter readers per year. Third, 3

using SCE’s 2013 unadjusted recorded costs for manual meter reading (Opt-Out and non-Opt Out 4

meters), the manual cost per meter read was $13.02 ($9,530,846 divided by 732,144 manual meter 5

reads). 6

TURN’s use of $8.44 per manual meter read to forecast 2015 manual meter 7

reading costs based on the ratio of SCE’s 2012 GRC forecast of 50 meter readers to its 23.6 meter 8

readers is incorrect and unsupported. Because TURN’s downward adjustment of SCE’s $14.88 cost per 9

read to its proposed $8.44 per read is based on unexplained calculations and outdated financial data, the 10

Commission should reject TURNS unjustified reduction. 11

b) TURN’s Recommended Reduction in SCE’s Non-Opt-Out Meter Reading 12

Costs Suffers from the Same Outdated Data and Erroneous Assumptions as 13

Its Forecast Cost of Opt-Out Meter Reads 14

TURN’s $2.532 million27 forecast (a recommended reduction of $1.932 million) 15

to SCE’s non-Opt-Out manual meter reading cost is based on the same outdated data contained in SCE’s 16

2012 GRC and the same erroneous assumptions regarding its prorated adjustment based on the ratio of 17

meter readers SCE forecast it needed in 2013 to read Opt-Out customer meters (23.6 meter readers) to 18

its 2013 forecast of meter readers presented in its 2012 GRC (50 meter readers). As discussed above in 19

Section (2)(a), TURN’s downward adjustment of SCE’s $14.88 cost per read to its proposed $8.44 per 20

read is based on outdated customer forecasts and erroneous assumptions and should be rejected. 21

Accordingly, the Commission should also TURN’s recommended removal of $1.932 million in SCE’s 22

non-Opt-Out manual meter reading cost. 23

27 See TURN-08, Nahigian, p. 38.

11

c) TURN’s Forecast of Automated Meter Reading Cost Erroneously Applies 1

SCE’s 2013 FERC Form-1 Recorded Data to SCE’s 2012 Legacy Meter 2

Reading Cost Centers and Includes an Unexplained 25 Percent Upward 3

Adjustment 4

TURN’s 2015 forecast for SCE’s remote (automated) meter reading cost totals 5

$7.45 million is erroneously based on unadjusted 2013 manual meter reading costs.28 To calculate this 6

forecast, TURN used SCE’s workpapers and recorded (unadjusted) 2013 FERC Form-1 data.29 TURN 7

started with its estimate of SCE’s recorded costs to FERC Account 902 in 2013 of $9.7 million based on 8

individual Final Cost Centers (FCC) and subtracted 2013 Opt-Out manual meter reading costs of $3.3 9

million, resulting in $6.4 million, which TURN then adjusted upward by 25 percent for a total of $7.45 10

million.30 TURN explains that it “understands that the $6.4 million 2013 recorded costs should include 11

the costs for manually reading (non-opt-out) legacy meters which Edison forecast at 65,000.”31 12

One of the problems with TURN’s 2015 forecast of remote/automated meter 13

reading is that the 2012 FCCs used by TURN32 included only the manual meter reading FCCs totaling 14

$6.4 million33 that were used by SCE to develop its 2012 Base Year cost before adding the ESC steady-15

state automated meter reading costs that were recorded in the ESCBA in 2012. TURN’s forecast fails to 16

include any of the automated SOC costs, all of which were recorded in the ESCBA in 2012. If TURN 17

had included all of the correct FCCs from the 2013 unadjusted recorded FERC Form-1 data for FERC 18

Account 902, the total would have been $18.0 million.34 The $18.0 million was comprised of $3.4 19

million for Opt-Out manual meter reading, $6.1 million of non-Opt-Out manual meter reading, and $8.4 20

million for automated meter reading.35 TURN’s starting point for its forecast of remote/automated 21

28 Id. 29 SCE provided unadjusted 2013 recorded amounts by Final Cost Center to ORA in SCE’s response to data

request DRA-Verbal-57-Q.1. 30 See TURN-08, Nahigian, p. 39. 31 Id. 32 See SCE-04, Vol. 2, Workpapers, pp. 32-33. 33 There were actually $6.1 million in 2013 non-Opt Out manual meter reading expenses. 34 See Appendix B, Workpaper: Meter Reading FERC 902 - 2013 Unadjusted Recorded Costs. 35 See SCE-04, Vol. 2, p. 16, line 8.

12

meter reading costs—non-Opt Out manual meter reading costs—is neither logical nor supported by 1

appropriate facts. 2

Another problem with TURN’s forecast is its application of an upward adjustment 3

of 25 percent. TURN does not explain the reason for the 25 percent upward adjustment in its calculation 4

that adds $1.05 million to $6.4 million to arrive at its total remote meter reading forecast of $7.45 5

million.36 TURN explains that its calculation for “Edison’s remote meter reading costs is moderated 6

because of our concerns over the large differential between recorded and forecast costs that are subject 7

to future adjustment by Edison.”37 This does not support TURN’s unexplained 25 percent adjustment. 8

The Commission must reject TURN’s recommended forecast of $7.45 million in 9

FERC Account 902 for remote meter reading because TURN’s forecast calculation is based on 2013 10

non-Opt-Out manual meter reading costs with an unexplained upward adjustment of 25 percent. The 11

Commission should adopt SCE’s forecast of $9.880 million for automated meter reading. 12

d) TURN’s Proposal to Read Opt-Out Meters Once Every Two Months Should 13

Be Rejected 14

TURN proposes that converting Opt-Out customers to bimonthly meter reading 15

would cut meter reading costs in half, from $2.6 million per year to $1.3 million.38 TURN states, 16

“TURN recognizes that bimonthly meter reading is a lower level of service. However, Opt Out 17

customers have already decided to forgo access to the plethora of information about their energy usage 18

that would be available with a smart meter. In this sense, Opt Out customers are requesting a lower 19

level of service than that offered to the body of ratepayers.”39 20

SCE does not support TURN’s proposed “lower level of service” and is 21

committed to providing all customers, including Opt-Out customers, adequate service. The Commission 22

should reject TURN’s proposal. 23

36 The upward adjustment of $1.05 million is actually a 16.4 percent increase to the $6.4 million base amount:

$1.05 million/ $6.4 million = 16.4 percent. 37 TURN-08, Nahigian, p. 39. 38 Id. at p. 36. 39 Id.

13

(1) SCE’s Rebuttal - TURN’s Recommendation for Bimonthly Meter 1

Reading Ignores the Commission’s Established Energy Policy Goals 2

Through Demand-Side Resources and to Achieve Mandated 3

Greenhouse Gas Emissions Reductions 4

The dynamic pricing goals of the State’s Energy Action Plans (EAPs) 5

depend on customer education and outreach regarding the benefits of dynamic rate options, as well as 6

enabling technologies that can empower customers to actively and automatically manage their electricity 7

usage, thereby make dynamic pricing rates a feasible alternative for SCE’s customers. The mandated 8

ESC Opt-Out Program hampers achievement of these EAP goals. Implementation of bimonthly meter 9

reading for Opt-Out participants would be an even further step in the wrong direction. Even though 10

Opt-Out customers cannot take advantage of dynamic pricing options, the information they receive each 11

month (e.g., overall usage) on their monthly bill will still allow them to make decisions to manage their 12

energy usage. If TURN’s bimonthly bill option were adopted, Opt-Out customers will not have such 13

information and will have no reasonable opportunity to manage their energy bills. 14

(2) TURN’s Conclusion That Bimonthly Meter Reading Would Cut 15

Meter Reading Costs in Half Fails to Consider Other Customer 16

Satisfaction and Costs That Would Be Impacted by Bimonthly Meter 17

Reads 18

If the Commission ordered a switch to bimonthly meter reading, the 19

overall cost of manual meter reading in FERC Account 902 would be reduced, but customer satisfaction 20

would suffer. Billing-related costs would also increase because of customer inquiries about estimated 21

bills and the Public Utility Code’s requirement restricting estimated bills to be correct with the next 22

regular billing. Additionally, significant programming costs may be incurred by SCE to accommodate 23

relatively few Opt-Out customers to update the information systems to accommodate bimonthly billing 24

for Opt-Out customers. 25

These concerns were addressed in the SCE’s Smart Meter Opt-Out Phase 26

2 Rebuttal Testimony: “While quarterly or bi-monthly reads could result in a potential reduction in 27

SCE’s proposed monthly fee, there are numerous factors related to the implementation of such a 28

program that would need to be addressed. For example, there would be the potential for delayed bills if 29

SCE is unable to read the meter during the scheduled quarterly read and customer satisfaction issues if 30

14

estimated bills are inaccurate, resulting in a high quarterly true-up bill.”40 Whatever A.11-07-020 1

decides regarding bimonthly meter reading should be applied in this proceeding and not re-litigated. 2

e) TURN’s Recommendation to Apply the Opt-Out Fees Adopted in A.11-07-3

020 to SCE’s Proposed Opt-Out Fees Used to Calculate OOR in This 4

Proceeding Should Be Rejected 5

In D.12-04-018, the Commission set SCE’s Opt-Out Fees on an interim basis as 6

shown in the table below. The Commission’s adopted interim fees do not provide full cost recovery 7

from Opt-Out customers, and SCE’s Opt-Out costs are currently subsidized by non-Opt-Out customers. 8

In the Opt-Out proceeding, SCE proposed regular fees that would fully recover its Opt-Out program 9

costs from participating Opt-Out customers, based on meter reading cost estimates and the forecast 10

number of program participants that were developed in 2012. Those proposed fees have been updated in 11

this proceeding as shown in the table below. 12

Table II-141 FERC Account 451-820

Opt-Out Program Fee Comparison (Updated Table X-73)

(Nominal $s)

Line No.

FERC Account Account Name

2012 Filing Proposed

Fees

2012 Interim

Fees

2015 GRC Proposed

Fees

2012 Interim vs. 2015 GRC

Proposed Variances

1 451.820 Opt-Out CARE – Initial $ 74 $ 10 $ 57 $ 47 2 451.820 Opt-Out CARE – Monthly $ 19 $ 5 $ 17 $ 12 3 451.820 Opt-Out NON-CARE – Initial $ 93 $ 75 $ 71 $ (4)4 451.820 Opt-Out NON-CARE – Monthly $ 24 $ 10 $ 22 $ 12

TURN recommends, “When the Commission issues a final decision in that 13

proceeding (i.e., A. 11-07-020), its effects on the final opt-out fees should be automatically and 14

mechanically passed through as an adjustment to Edison’s Other Operating Revenues.” 15

Contrary to TURN’s recommendation, the Commission should adopt the updated 16

fees that SCE’s has proposed for 2015 in this proceeding as shown in the above table. 17

40 A.11-07-020, Exhibit SCE-2 (SCE Smart Meter Opt-Out Phase 2 Rebuttal Testimony), p. 21, lines 8-12. 41 See SCE-04, Vol. 2, p. 213, Table X-73.

15

4. Account 902 Conclusion 1

The primary reason for ORA’s recommended reductions in SCE’s forecast for FERC 2

Account 902 SOC costs is ORA’s assumption that steady-state operations and costs were achieved in 3

2013. ORA’s assumption is wrong, as SCE clearly states that it does not expect to achieve full steady-4

state operations of the ESC systems until the end of 2014.42 As discussed in this testimony, the SOC’s 5

forecast staffing levels, training costs, professional services, and Air Time Lease expenses are 6

reasonable. The Commission should adopt SCE’s forecast and reject ORA’s recommendation for this 7

FERC Account. 8

TURN’s recommendations for SCE’s FERC 902 forecast cost should be rejected because 9

its fundamental assumptions were not correct, including its interpretation of SCE’s FCC 2013 data. 10

SCE’s forecast of $14.88 per manual read is the best estimate of future cost to be used in the forecasting 11

manual meter reading expenses. TURN’s recommended $8.44 cost-per-meter read used to forecast the 12

Opt-Out Service Fee should be rejected because it is based on incorrect 2013 data and unexplained 13

assumptions. Additionally, TURN’s forecast for remote meter reading should be rejected because it is 14

based on 2013 manual meter reading costs with an unexplained 25 percent increase. 15

In conclusion, SCE’s forecast of $19.225 million for FERC Account 902 is reasonable 16

and should be adopted by the Commission. ORA’s and TURN’s suggested reductions are not supported 17

and/or include errors and should be rejected by the Commission. 18

B. Account 903.100 – Postage 19

FERC Account 903.100 includes costs incurred in the mailing process of SCE’s bills, associated 20

notices, reminders, and correspondence. In 2012, SCE sent over 45 million billing statements and 7.7 21

million notices, reminders, and correspondence at a total postage expense of $20.009 million. SCE’s 22

2015 expense forecast of $18.096 million includes anticipated growth in the number of mailings before 23

taking into account adjustments to reflect savings of $1.599 million for continuing customer migration 24

to online billing options and further postage savings of $761,000 through an enhanced customer 25

engagement initiative to encourage the use of new mobile technologies to pay bills online. SCE has 26

withdrawn its proposed Prepayment Program, and the $84,000 annual savings adjustment for the 27

Prepayment Program has been added back into the forecast for this account, making SCE’s 2015 Test 28

Year Forecast $18.180 million. 29

42 See SCE-04, Vol. 2, p. 2, lines 18-20.

16

On September 24, 2013, the United States Postal Service voted for a price increase above the 1

typical annual increase associated with changes in the Consumer Price Index (CPI) to be effective 2

January 26, 2014.43 This postal rate increase will result in an increase of $1.1 million,44 increasing 3

SCE’s Test Year Forecast from $18.180 million to $19.280 million. This postal rate increase of $1.1 4

million will be added to SCE’s forecast revenue requirement in update testimony to be submitted later in 5

this proceeding as allowed by the Rate Case Plan.45 6

ORA, TURN, and SCE agree on the proposed forecast of $18.180 million for FERC Account 7

903.100. The Prepayment Program has been removed through Errata, resulting in a Test Year forecast 8

of $18.180 million. The Commission should approve the forecast of $18.180 million for FERC Account 9

903.100. 10

C. Account 903.200 – Credit and Payment Services 11


SCE’s forecast of $18.104 million in FERC Account 903.200 for the Test Year 2015 is 13

based on the 2012 adjusted recorded expenses of $17.870 million and originally included adjustments of 14

(a) $369,000 to reflect customer growth, (b) $908,000 for program changes related to SCE’s proposed 15

prepayment program, and (c) $40,000 for manual field disconnections and reconnections for Opt-Out 16

customers. SCE’s proposed Prepayment Program has been withdrawn, thus lowering the program 17

change adjustment for this account to $40,000 for the Opt-Out Program disconnections and 18

reconnections. An additional downward adjustment of $1.083 million in Test Year 2015 reflects savings 19

resulting from Operational Excellence. This reduction includes (1) a $635,000 reduction for 20

consolidation of Management Support functions for Field Services personnel who work on credit-related 21

service connections and disconnections in each of SCE’s 26 field district locations and (2) the Visa 22

credit card payment option forecast to result in a $448,000 reduction in costs incurred for other payment 23

options. 24

43 See Appendix B, Workpaper: USPS Notice of Market-Dominant Price Adjustment (to be effective January

26, 2014), filed on September 26, 2013, in Docket No. R2013-10 before the Postal Regulatory Commission, available at http://www.prc.gov/Docs/87/87921/Notice%20(Price%20Adjustment).pdf [as of September 12, 2014].

44 See Appendix B, Workpaper: Updated Table IV-50: Postal Rates and Total Expense by Type of Mailing. 45 See D.07-07-004, Appendix A, p. A-6.

17

2. ORA Test Year Forecast Position 1

ORA recommends a forecast of $17.196 million, which is $908,000 less than SCE’s 2

forecast. ORA removes the $908,000 cost for the Prepayment Program in light of SCE’s withdrawal of 3

the Prepayment Program from its 2015 GRC forecast. 4

3. SCE’s Rebuttal for the Test Year Forecast 5

SCE has removed the proposed Prepayment Program through Errata. Therefore, SCE 6

and ORA agree on the forecast for FERC Account 903.200. 7

4. SBUA’s Proposal to Stop Unnecessary Disconnections to Small Businesses 8

SBUA suggests, “The Commission should require SCE to change its practices related to 9

the request for revenue to support field services and credit risk analysis to prevent unnecessary 10

disconnections to small businesses.”46 SBUA claims, “Many small businesses are concerned their 11

power is being shutoff unnecessarily.”47 SBUA further states, “Customers may be unnecessarily 12

punished for a mistake in billing by SCE by having their electricity shutoff. This practice is inefficient, 13

unfriendly, and potentially dangerous in situations where air conditioning or heat is necessary for the 14

safety of employees. This practice must stop immediately.”48 15

5. SCE’s Rebuttal – SBUA Cannot Support Its Assertion That Small Businesses Are 16

Concerned That Their Power Is Being Shut Off Unnecessarily 17

The unnecessary disconnection of a small business customer is a very rare occurrence. 18

SCE’s records show only 14 occurrences of disconnection in error out of a total of over 15,000 non-19

residential disconnections that occurred in 2013. This is a rate of occurrence of less than 0.1 percent of 20

total non-residential disconnections. The most common cause for an unnecessary disconnection is 21

related to mailing address errors and payment arrangement issues. When such a rare situation does 22

occur, customer inquiries are investigated immediately to determine the cause and corrected 23

immediately. SCE makes a field visit to the customer’s location and manually disconnects service if 24

payment has not been received, while ensuring it is safe to disconnect for non-payment. The RSS is 25

currently utilized only for turn-ons and turn-offs and excludes disconnections for nonpayment for small 26

non-residential customers. 27

46 Expert Report on Issues Affecting Small Businesses, Testimony of Michael Brown on behalf of Small

Business Utility Advocates, dated August 18, 2014 (SBUA-01, Brown), p. 19. 47 Id. 48 Id. at p. 20.

18

SBUA has no support for its claim that “[m]any small businesses are concerned their 1

power is being shut off unnecessarily.” SCE does not agree that 0.1 percent erroneous disconnections 2

out of over 15,000 total non-residential disconnections per year can be characterized as “many small 3

businesses” as SBUA has asserted in its report. 4

6. Account 903.200 Conclusion 5

SCE agrees with ORA that the $17.196 million forecast for this account should be 6

approved. 7

SBUA’s recommendation that “[t]he Commission should require SCE to change its 8

practices related to the request for revenue to support field services and credit risk analysis to prevent 9

unnecessary disconnections to small businesses” is unsupported and should be denied. 10

D. Account 903.500 – Billing Services 11



based on the 2012 recorded adjusted expenses of $21.735 million and includes upward adjustments of 14

(1) a $2.057 million adjustment for incremental Meter Data Management System (MDMS) steady-state 15

billing exception related costs; (2) a $435,000 adjustment to reflect customer growth; and (3) a $1.069 16

million adjustment for program changes including program enrollments, support for the enlarged font 17

and Braille bill format, and funding for a base level of credits for two of SCE’s Service Guarantees. 18

Downward adjustments include (1) $246,000 in savings resulting from the Budget Assistant Program, 19

(2) a $2.554 million reduction for Operational Excellence Savings attributed to various support activities 20

and streamlining several exception processing events, and (3) a $219,000 adjustment to reflect that the 21

Policy Adjustment component of this account was forecast using a five-year average, rather than the last 22

recorded year expense. 23

2. ORA’s Recommendation Regarding Service Guarantees 24

a) ORA Opposes SCE’s Proposed Funding of a Base-Level of Credits in Rates 25

ORA opposes SCE’s proposed funding of a base-level credit to be paid to 26

customers under the provisions of the Commission approved Service Guarantee programs. ORA based 27

its objection simply on the fact that the Commission has denied inclusion of this Service Guarantee 28

Credit in rates in SCE’s last three GRC proceedings. 29

19

b) SCE’s Rebuttal – ORA Proposes to Deny SCE’s Ability to Collect in Rates 1

the Reasonable Cost of Providing Basic Customer Services 2

A review of the history of SCE’s 10-year-old Service Guarantee program shows 3

this program was originally intended as an assurance that SCE would not let its service standards 4

deteriorate as a result of the Direct Access program moratorium.49 Importantly, in D.06-05-016 (SCE’s 5

2006 GRC Test year Decision), the Commission found that not enough operational information was 6

available to allow the Commission to adopt a base level of credits for the Service Guarantee program. 7

This concern regarding inadequate data to establish a baseline of service guarantee credits has been 8

resolved with 10 years of operational data. SCE’s 2015 Test Year will be the eleventh year of the 9

Service Guarantee program. With this long history of deployment for a program that the Commission 10

has found to benefit all ratepayers, the Service Guarantee program should be considered as part of 11

SCE’s basic services provided to all customers. SCE has diligently met this obligation to serve under 12

these Service Guarantees as mandated by the Commission.50 As such, it is appropriate for the 13

Commission to adopt full cost recovery of the reasonable cost of providing such services. 14

As discussed in direct testimony, SCE tracks and self-reports those occasions 15

where it fails to meet the 100 percent service guarantee standards.51 In doing so, customers are not 16

inconvenienced, and most customers receiving payment do not know the service standard was not met 17

and did not expect to receive a service guarantee credit. 18

With 10 years of recorded costs, SCE submits that the credits for the four separate 19

guarantees as forecast in SCE’s direct testimony are a reasonable base level of cost for this program. By 20

providing for this level of cost recovery in rates, the Commission will not reduce SCE’s incentive to 21

maintain its excellent level of providing these basic services. To the contrary, SCE’s incentive would be 22

enhanced because shareholders will continue to be required to pay for any credits that exceed the 23

authorized base levels. 24

49 See D.04-07-022, pp. 161-164. 50 See D.04-07-022, Ordering Paragraph No. 12. 51 See SCE-04, Vol. 2, p. 7, lines 5-8.

20

3. SBUA’s Position Regarding SCE’s Self-Reported Service Guarantee Results 1

a) SBUA Misstates SCE’s Position Regarding the Reporting of Service 2

Guarantee Results 3

SBUA states, “In 2012, SCE ‘self-reported’ approximately 96 percent of the 4

claims paid. We would request this program continue. SCE is meeting its service goals by stating its 5

metrics in this report. However, it is SCE and its contractors that are reporting these successes. We 6

question the validity of these results.”52 7

b) SCE’s Rebuttal – SCE has Consistently Sought Recovery of a Base Level of 8

Service Guarantee Program Funding 9

SBUA misstates SCE’s position about meeting its service guarantee goals. SCE 10

has never claimed that it is meeting its service goals by “stating its metrics” in the Service Guarantee 11

report. To the contrary, SCE has an established record of proposing that a base level amount for the 12

Service Guarantee credits be included as part of the normal, ongoing expenses so as to provide adequate 13

service.53 SCE is committed to customer service and has consistently requested that the standard of 14

performing 100 percent timely and accurate billing and meeting 100 percent of all customer 15

appointments on time be included in the cost of service. 16

c) SCE’s Rebuttal – SBUA Provides No Support for Its Questioning of the 17

Validity of SCE’s Service Guarantee Program Reported Results 18

SCE has diligently reported Service Guarantee Program results to the 19

Commission semi-annually for the last 10 years with required program information. These reports have 20

been reviewed by the Commission, and there has never been a single instance in which the Commission 21

or any interested party has questioned the validity of these results.54 22

52 SBUA-01, Brown, p. 21. 53 See SCE-04, Vol. 2, p. 8, lines 8-17. 54 See Appendix B, Workpaper: Service Guarantees Semi-Annual Report.

21

4. Program Services’ Manual Enrollment Processing for Medical Baseline 1

a) ORA Does Not Support SCE’s Funding for Program Services Manual 2

Enrollments 3

ORA opposes SCE’s proposed forecast adjustment of $250,000 for Medical 4

Baseline enrollments by the Program Services organization.55 ORA also takes issue with SCE’s use of a 5

three-year average (2015-2017) to forecast expenses.56 6

b) SCE’s Rebuttal 7

(1) ORA Is Mistaken to Focus on 2013 Recorded Enrollments While 8

Ignoring the Growth Trend 9

ORA opposes SCE’s forecast adjustment, in part, because SCE’s forecast 10

enrollment levels for 2013 and 2014 were less than the recorded level in 2012. As shown in Table II-1, 11

SCE’s enrollment forecast was based on the historic growth in medical baseline program participation 12

and the historic ratio of enrollment volume to total program participation. ORA does not dispute the 13

nine percent historic growth rate in total medical baseline participation.57 The historic ratio of 14

enrollment volume to total participation averages 85 percent but varies between 72 percent and 102 15

percent with the highest value occurring in 2012. This ratio reflects the full range of enrollment 16

activities, including the processing of new enrollments, renewals, and updated applications.58 Given the 17

volatility of this ratio, it is reasonable to expect that individual points will lie above and below the 18

average based forecast as illustrated in Figure II-1. Such was the case in 2013. 19

55 See ORA-13, p. 33, lines 2-7. 56 See ORA-13, p. 33, lines 8-12. 57 See ORA-13, p. 33, line 13 – p. 34, line 3. 58 If the Medical Baseline Program participant’s medical condition is permanent, the participant must complete a

form self-certifying his/her continued eligibility for Medical Baseline every two years. If the participant’s medical condition is not permanent, the participant must complete a form self-certifying his/her continued eligibility for Medical Baseline each year and must submit a new application with a doctor’s certification every two years.

22

Table II-1 SCE’s Forecast of Medical Baseline Enrollment Volume59

2008 2009 2010 2011 2012 2013 2014 2015 2016 20171 Critical Care 9,200 10,913 12,261 12,870 13,790 10.6% 15,258 16,883 18,681 20,670 22,8712 Non-Critical Care 42,173 46,883 50,395 52,555 58,733 8.6% 63,803 69,312 75,295 81,796 88,8573 Total 51,373 57,796 62,656 65,425 72,523 9.0% 79,062 86,195 93,976 102,466 111,728

2009 2010 2011 2012 2013 2014 2015 2016 2017

4 47,057 44,946 55,673 73,787 67,201 73,264 79,878 87,093 94,966

5 81% 72% 85% 102% 85% 85% 85% 85% 85% 85%

6 -6,586 -523 6,091 13,306 21,179

Note 1: CAGR is the compound annual growth rate.

Medical Baseline Program ParticipationLine No. Description Actual 2008-2012

CAGR (1)

Forecast

Program Total Enrollment VolumeTotal Enrollment Volume (% of Participation)

Incremental Enrollment Volume

Program Enrollment Activity VolumeLine No. Description Actual Average Forecast

59 See Appendix A, SCE response to data request DRA-040-SWC-Q.3.a. Data in this table was provided to

ORA in this data request response.

23

Figure II-1 Actual and Forecast Medical Baseline Enrollment Volumes60

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015 2016 2017

Med

ical

Bas

elin

e E

nrol

lmen

t Vol

ume

(thou

sand

s)

Year

ForecastRecorded2013 Updated / Recorded

2013 Recorded

Although forecast enrollments for 2013 and 2014 were below the actual 1

2012 amount, ORA does not mention that the actual enrollments for 2013 exceeded SCE’s forecast. 2

SCE’s Medical Baseline Enrollment forecast is based on the undisputed historical trends and should be 3

adopted. 4

(2) SCE’s Forecast Method for This Activity Is Reasonable and Has Been 5

Accepted by ORA for Other Related Activities 6

As noted above, SCE’s forecast is based on a historic growth rate in total 7

program participation of nine percent per year. As shown in the Table II-2 below, this growth rate 8

results in the incremental expense forecast with forecast incremental expenses in 2017 at 30 percent 9

above the forecast 2015 amount. Given this disparity, it is reasonable to average 2015 – 2017 expected 10

expenses to produce the Test Year forecast. Indeed, SCE used this method to forecast expenses for the 11

60 See Appendix A, SCE response to data request DRA-287-SWC-Q.2. Historic medical baseline enrollment

volumes were also provided at SCE-04, Vol. 2, p. 73, Table IV-29 (for 2009-2012).

24

Lifestyle Packages (where the forecast amount for 2016 and 2017 is zero, thus resulting in a reduced 1

Test Year forecast relative to amount forecasted for 2015) and the increased notification expenses in 2

FERC Account 905.900. ORA did not take issue with the use of this forecast method for Lifestyle 3

Packages in this FERC Account,61 and accepted SCE’s forecast for FERC Account 905.900.62 Thus, 4

ORA’s approach to forecasting this expense is inconsistent with its position on the forecasting in this 5

FERC Account, as well as other FERC Accounts. 6

Table II-2 Forecast of Medical Baseline Enrollment Processing Incremental Costs63

Line No. (2012 $000) 2015 2016 2017 Average1 Forecast Expense (Incremental to 2012) 206 256 286 2502 Increase above 2015 Forecast 24% 39%

(3) ORA’s Observation That Annual Applications Are Not Necessary Is 7

Irrelevant 8

To support its rejection of SCE’s forecast for Medical Baseline enrollment 9

processing, ORA correctly notes that “SCE does not require the Medical Baseline customer to submit an 10

application annually depending on the medical condition of the customer” and cites the re-certification 11

requirements based upon whether the customer’s medical condition is temporary or permanent. As 12

noted in Section II.D.4.b)(1), the 85 percent ratio of total program participation to total program 13

enrollment already reflects full range of enrollment activities, including new enrollment activity, 14

renewals (both annual and semi-annual, dependent upon the customer’s medical condition, and updated 15

enrollments). SCE does not expect this ratio to change. As a result, SCE’s forecast enrollment volumes 16

already reflect this mix of activities. ORA’s observation is, in effect, already incorporated into SCE’s 17

forecast and is, therefore, not a basis for rejecting SCE’s Medical Baseline adjustment. 18

c) SCE’s Rebuttal – ORA Fails to Recognize the Continuing Increase in 19

Medical Baseline Enrollments 20

For the Medical Baseline Program, SCE forecast incremental funding of $250,000 21

over 2012 recorded expense based on levelized enrollment forecast for three years 2015 – 2017. The 22

61 See ORA-13, p. 34, lines 18-21. 62 See ORA-13, p. 55, line 9-19. 63 See SCE-04, Vol. 2, Pt. 2, Workpapers, p. 73.

25

levelized (average) forecast amount during the GRC period of 2015 through 2017 is an accepted forecast 1

method and accurately reflects the average cost over those three years. ORA is correct that SCE’s 2

forecast enrollment for 2013 was less than 2012 recorded enrollment by 6,586, but SCE’s actual number 3

of enrollments for 2013 was only 290 less than 2012 actual enrollments, and SCE’s actual enrollment 4

for 2013 is greater than 2014 forecast by 233. When comparing 2014 actual (47,936) enrollment 5

numbers (year-to-date as of July 2014) to the same period in 2013 (42,047), SCE’s Medical Baseline 6

enrollment numbers are 5,916 ahead of where they were July 2013. To support this activity level, 7

Program Services will continue to manually process applications, customer enrollments, customer 8

renewals, update agreements, application rejections, enhanced customer support customer 9

communication and outreach, quality control, audit support, system maintenance, system enhancements, 10

and reporting. SCE has demonstrated that continued growth in the Medical Baseline Program 11

enrollments supports the $250,000 incremental increase to the 2012 recorded Base Year. 12

5. Program Services’ Manual Enrollment Processing for Lifestyle Packages 13

a) ORA Does Not Support Incremental Funding of $79,000 for Lifestyle 14

Package Enrollments 15

ORA opposes SCE’s forecast incremental funding of $79,000 to support customer 16

enrollments in customer Lifestyle Packages and recommends no additional funding as SCE has 17

discontinued the program.64 18

b) SCE’s Rebuttal – ORA Mistakenly Focuses Too Narrowly on SCE’s Lifestyle 19

Package Instead of Bundled Service Offerings 20

In opposing SCE’s incremental forecast, ORA mistakenly focuses too narrowly 21

on SCE Lifestyle Package manual enrollments. SCE plans to continue to develop and employ bundled 22

offers for residential and non-residential customers, including potential future Lifestyle Package offers.65 23

SCE-04, Volume 2, page 187 states, “SCE will create and offer Lifestyle Plans that include bundled 24

offerings that match customer interests based on past or intended behavior captured through intelligence 25

and customer feedback.” These bundled offering assumptions were partially responsible for the 2015 26

Test Year forecast reduction in FERC Account 905.900 (Marketing, Communications and Digital 27

Delivery of Customer Services) of $1.207 million, which the ORA has readily accepted. 28

64 See ORA-13, p. 34, lines 19-21, citing SCE response to data request DRA-287-SWC-Q.1. 65 See Appendix A, SCE Supplemental response to data request DRA-287-SWC-Q.1.

26


ORA has not presented any reasonable basis for rejecting SCE’s Service Guarantee 2

Credit forecast or why a base level amount should not be included in rates. ORA also has not provided 3

any reasonable justification to reject SCE’s incremental funding forecast for Medical Baseline or 4

Lifestyle Package bundled program enrollments. SBUA has not offered any specific reductions to SCE 5

forecast and has not presented any reasonable basis for rejecting any portion of FERC Account 903.500. 6

The Commission should reject ORA’s and SBUA’s recommendations with respect to Service 7

Guarantees, Medical Baseline, and Lifestyle Packages bundled enrollments. 8

E. Account 904 – Uncollectible Expenses 9


There are two components to SCE’s Uncollectible Factor forecast in this GRC. First, the 11

Uncollectible Factor attributable to SCE’s business-as-usual credit operations has been forecast at 0.243 12

percent based on the recorded five-year average of uncollectible expense, after removing the Disconnect 13

OIR impact component for each year, plus adjustments for the residual impact of retaining the deposit 14

criteria established in the Disconnect OIR,66 and the impact that a reduction in Service Connection Fees 15

(OOR) will have on customer bills. Second, the $16.6 million in incremental uncollectible expense 16

allocated to the Residential Service Disconnection Memorandum Account (RSDMA) is now recorded 17

through the end of 2013 and forecast through the end of 2014.67 This incremental impact on 18

uncollectible expense is to be reviewed for reasonableness by the Commission in this GRC and should 19

be approved by the Commission if found to be the result of the temporary provisions of D.12-03-054 20

issued in R.10-02-005, the Residential Disconnection OIR (Disconnection OIR). 21

As proposed by SCE, the FERC Account 904 uncollectible factor forecast of 0.230 22

percent for Test Year 2015 is based on the adjusted five-year average of SCE’s recorded Uncollectible 23

Factor (after removal of the Disconnection OIR impacts) for 2008 through 2012. The five-year average 24

also includes a downward adjustment of 0.002 percent to reflect a reduction in Other Operating 25

Revenues as they affect uncollectibles and an upward adjustment of 0.015 percent for the residual 26

66 Deposits are now established based on two times the average monthly customer bill, whereas prior to the

Disconnection OIR the deposit amount was set at two times the highest monthly customer bill. 67 See Appendix B, Workpaper: R.10-02-005 Disconnection OIR Impact on Uncollectible Expense 2010-2014.

27

impact of the permanent Disconnection OIR provision affecting customer deposits.68 The resultant 1

Uncollectible Factor forecast is 0.243 percent. This uncollectible factor also assumes that the 2

Commission will find SCE’s RSDMA balance of $16.6 million to be reasonable and approve the entire 3

amount to be collected in rates in this GRC. SCE’s forecast Uncollectible Factor for 2015 through 2017 4

could range from 0.243 percent to 0.257 percent,69 depending on whether the Commission finds the 5

RSDMA component to be completely reasonable, completely unreasonable, or somewhere in between. 6

If the Commission finds any portion of the RSDMA recorded expense not to be reasonably caused by 7

the Residential Disconnection OIR, then that same portion must be assumed to be part of the business-8

as-usual uncollectible expense (i.e., not associated with the Disconnection OIR), and it should be added 9

to the five-year average used in calculating SCE’s forecast for the 2015 Test Year Uncollectible Factor. 10

2. ORA’s Position Regarding the Uncollectible Factor Forecast 11

a) ORA Recommends a Forecast Based on the Last Recorded Year 12

Uncollectible Factor of 0.222 Percent (After Removing the Disconnect OIR 13

Impact) 14

The ORA recommends the use of the last recorded year, citing a single Forbes 15

online article, “With the economic outlook for 2014 and 2015 better than in the recent past, SCE’s 2015 16

Uncollectible Factor is not likely to be higher than SCE’s 2012 recorded Uncollectible Factor, and may 17

be lower than 2012 given the most recent historical trend.”70 In its review of SCE’s forecast for this 18

FERC account, ORA reiterated SCE’s intent to add back any portion of the cost recorded in the RSDMA 19

that is rejected by the Commission as being reasonable,71 and went so far as to recommend that, “[i]f the 20

Commission extends the provisions of the Residential Disconnection Decision beyond the sunset date of 21

December 31, 2013, ORA recommends a TY 2015 Uncollectible Factor of 0.222 percent and SCE’s 22

68 Note: SCE’s direct testimony included a third adjustment for the Prepayment Program benefit to

uncollectible expense. See Exhibit SCE-04, Vol. 2, p. 137, lines 3-4. SCE has withdrawn its proposed Prepayment Program in “Errata” submitted with SCE’s rebuttal testimony. As such, the Prepayment Program benefit (0.003 percent) to uncollectible expense no longer applies.

69 See Appendix B, Workpaper: Uncollectible Factor Range – 2015 Forecast. 70 ORA-13, p. 50, lines 7-10. 71 See ORA-13, p. 48, lines16-21, and p. 49, Table 13-34.

28

RSDMA to remain open to track any O&M charges and any uncollectible expenses that result from 1

extending the Residential Disconnect Decision provisions.”72 2

ORA reviewed the detail of SCE’s proposed adjustments for the OOR impacts (-3

0.002 percent) and the residual Disconnection OIR impacts (+0.015 percent) and listed them in its Table 4

13-35 on page 49 of its report. ORA did not explain why these two additional adjustments to its 5

Uncollectible Factor forecast of 0.222 percent were not included. 6

b) SCE’s Rebuttal – ORA’s Use of the Last Recorded Year to Forecast 7

Uncollectible Expense Does Not Take Year-to-Year Variability Into Account 8

As was shown in SCE’s direct testimony,73 there is significant variability in the 9

uncollectible factor from year-to-year. SCE’s use of the five-year average corrects for this variability, 10

while using the most recent five years to forecast the factor for the 2015 through 2017 rate period. 11

Given that 2012 was the lowest of the last five years, ORA’s selection of just the last recorded year 12

(2012 without the Disconnection OIR impact) to forecast the uncollectible factor to be applied to SCE’s 13

revenue requirement for three future years is speculative and unreasonable. This is especially true given 14

the high degree of leveraging that takes place when the uncollectible factor is applied to SCE’s gross 15

revenues in excess of $11 billion. The seemingly small factor difference of 0.008 percent between the 16

SCE’s proposed five-year average of 0.230 percent and the last recorded year at 0.222 percent as 17

proposed by ORA, when applied to SCE gross revenue, is equal to approximately one million dollars per 18

year.74 19

c) SCE’s Rebuttal – ORA’s Uncollectible Factor Forecast Does Not Include 20

Necessary Adjustments Related to OOR and the Disconnection OIR’s 21

Permanent Change That Lowers Residential Customer Deposits 22

SCE’s direct testimony described adjustments to the 2015 Uncollectible Factor 23

forecast for the expected reduction in the uncollectible expense of minus 0.002 percent resulting from 24

the reduced level of OOR75 and the increase in uncollectible expense of 0.015 percent resulting from the 25

72 ORA-13, p. 50, lines 11-15. 73 See SCE-04, Vol. 2, p. 132, Figure IV-22. 74 See Appendix B, Workpaper: Uncollectible Factor Variance – 2015 Forecast. 75 Service Connection charge reduction from $6.00 to $5.00 and the elimination of the $17.00 Field

Assignments Charge.

29

permanent change in lower residential customer deposits as a condition of the Residential Disconnection 1

OIR.76 In 2015, the permanent impact of the Residential Disconnection OIR from lowering residential 2

customer deposits will not be accounted for in the Residential Disconnection Memorandum Account 3

(RSMDA). In 2015, RSDMA will contain only incremental write-off associated with new pilot 4

programs resulting from the Settlement Agreement. Neither of these adjustments is included in the 5

historical period. 6

ORA does not provide any explanation as to why the OOR impacts (-0.002 7

percent) and the permanent Residential Disconnection OIR impact of lower customer deposits (+0.015 8

percent) were not added to their Test Year forecast. The Commission should adopt an Uncollectible 9

Factor forecast that includes both of these adjustments. 10

d) SCE’s Rebuttal – ORA’s Reliance on One Economic Outlook for 2014 and 11

2015 Is Not Reasonable 12

ORA’s dependence on a single online Forbes economic forecast dated January 22, 13

2014 to support its assumptions about the economic outlook for 2014 and 2015 should be disregarded. 14

SCE’s review of more recent news articles and information support the opposite result.77 15

ORA’s assumption is already proving to be wrong. Although SCE’s 2013 16

recorded uncollectible factor without the Disconnection OIR impact was 0.222 percent, SCE’s 17

projection for the year-end 2014 factor is 0.226 percent, halfway between ORA’s forecast and SCE’s 18

forecast of 0.230 percent. This suggests a trend that would make SCE forecast correct by 2015. This is 19

a classic example of why the Commission has adopted a practice of applying a historical average to 20

76 See SCE-04, Vol. 2, pp.136-137. 77 See Appendix B, Workpaper: Annalyn Kurtz, “U.S. economy: Not looking so good – When it comes to the

US economy, the glass just went from half full to half empty,” CNN Money, June 16, 2014, available at http://money.cnn.com/2014/06/16/news/economy/imf-us-forecast/index.html [as of September 12, 2014]; Appendix B, Workpaper: “Labor Market Dynamics and Monetary Policy,” Remarks by Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System, presented at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 22, 2014, available at http://www.federalreserve.gov/newsevents/speech/yellen20140822a.htm [as of September 12, 2014]; Appendix B, Workpaper: CBS News, “Estimate: Economy will grow by 1.5 percent in 2014,” August 27, 2014, available at http://www.cbsnews.com/news/economy-will-grow-by-1-5-percent-in-2014-feds-say/ [as of September 12, 2014].

30

forecast cost when the historical record shows a high degree of variability with no clearly established 1

trend.78 2

3. TURN Proposes to Remove $1.3 Million in California Climate Credits from SCE’s 3

Uncollectible Forecast 4

TURN recommends reducing SCE’s uncollectible accounts expenses by $1.3 million in 5

Test Year 2015, stating, “A portion of customer bills will be paid by the California Climate Credit and 6

other GHG revenues.”79 7


The Commission should accept as reasonable SCE’s recorded incremental cost attributed 9

to the more lenient credit provisions of the Residential Disconnection OIR. The Commission should 10

also accept SCE’s uncollectible factor forecast of 0.243 percent based on the five-year average of 0.230 11

percent, with the adjustment of -0.002 percent for the OOR impact and +0.015 percent for the residual 12

Disconnection OIR impact of permanently retaining the reduced deposit amount, which began during 13

the initial phases of the Disconnection OIR. 14

The Commission should reject ORA’s proposed forecast of 0.222 percent based on the 15

last recorded year. ORA’s contention that the economic outlook for 2014 and 2015 is improving is not 16

supported, as more recent reports indicate no improvement in the economic outlook. ORA’s rejection of 17

the 0.015 percent increase adjustment permanently reducing the level of residential deposits and the 18

0.002 percent decrease adjustment for the decrease related to the OOR should be denied. ORA provides 19

no explanation why these two adjustments are not necessary and reasonable. TURN’s recommendation 20

to disallow $1.3 million in California Climate Credits from SCE’s Uncollectible expense is unnecessary 21

as shown in SCE-26, Volume 1. 22

F. Account 903.800 – Customer Contact Center (CCC) 23


SCE’s original forecast of $50.254 million in FERC Account 903.800 for the Test Year 25

2015 has been revised downward in Errata because of SCE’s withdrawal of its Prepayment Program. 26

The revised forecast for FERC Account 903.800 of $49.756 million is based on the 2012 recorded 27

78 See D.89-12-057, p. 15; see also D.14-08-032, pp. 203-204, 607-608. 79 Report on Various Results of Operations Issues in Southern California Edison’s 2015 Test Year General Rate

Case, Testimony of William B. Marcus on behalf of TURN, dated August 18, 2014 (TURN-05, Marcus), pp. 116-117.

31

adjusted expenses of $46.373 million and includes adjustments for (a) incremental ESC-related costs of 1

$3.533 million,80 (b) customer growth of $956,000, (c) program changes of $2.625 million for emerging 2

customer contact channels and increased compensation for Customer Service Representatives (CSRs) 3

commensurate with required additional skills and training, and (d) a cost reduction of $3.731 million for 4

Operational Excellence initiatives related to call deflection resulting from continued customer adoption 5

of self-service channels and the consolidation of support resources. 6

2. ORA’s and TURN’s Test Year Forecast Positions 7

In ORA-13, ORA forecasts $45.269 million for FERC Account 903.800, $4.983 million 8

less than SCE’s original forecast. For FERC Account 903.800, ORA accepts SCE’s Productivity and 9

Operational Excellence adjustments.81 In ORA-19, however, ORA recommends additional reductions 10

associated with SCE’ s Operational Excellence forecast reducing the forecast of this FERC Account 11

down to $42.627 million, $3.746 million (or eight percent) below Base Year expenses, as shown in 12

Table II-3. ORA rejects, in whole or in part, of all of SCE’s forecast adjustments. 13

ORA’s proposed reduction is comprised of the following components.82 First, for 14

increases in Average Handle Time (AHT) and growth in other contact channels, ORA recommends an 15

adjustment of $3.125 million.83 SCE’s original AHT adjustment included CCC Prepayment Program 16

costs of $498,000 that have been removed through errata. When the Prepayment Program costs are 17

removed from these figures, ORA is recommending an adjustment of $2.627 million ($3.125 million 18

minus $498,000 of Prepayment Program Costs). Second, ORA rejects phone bill costs of $210,000 19

associated with increased AHT ($247,000 minus $37,000 of Prepayment Program costs).84 Third, ORA 20

rejects SCE’s forecast adjustment of $693,000 to increase its supervisor to CSR ratio.85 Fourth, ORA 21

80 ESC-related costs include increases in Average Handle Time (AHT), increases in phone bills associated with

increases in AHT, and an increased supervisor-to-Customer Service Representative (CSR) ratio. 81 See ORA-13, p. 41, Table 13-31. 82 ORA presented all of its Operational Excellence testimony in ORA-19, pp. 6-29, with recommendations

related to SCE’s Customer Service activities on pp. 20-22. 83 This amount includes SCE’s proposed Prepayment Program. ORA mistakenly combined other contact

channel growth (of which web chat is but one component) with ESC incremental costs (see ORA-13, p. 42, lines 6-8). ORA’s rejection of the proposed increase for this activity is clear, however, in ORA-13, p. 41, Table 13-31. Costs associated with AHT also include the in incremental phone costs associated with increased AHT except where noted.

84 See ORA-13, p. 42, lines 5-6 and line 20 – p. 43, line 2. 85 See ORA-13, p. 42, line 4, and p. 44, lines 17-20.

32

rejects SCE’s forecast adjustment of $956,000 for customer growth.86 Fifth, ORA rejects SCE’s 1

forecast adjustment of $755,000 for Other Contact Channels.87 Sixth, ORA rejects SCE’s forecast 2

adjustment of $1.868 million to increase CSR wages to support increased skills and training 3

requirements.88 SCE’s original forecast adjustments, the amounts associated with the removal of the 4

Prepayment Program, SCE’s revised forecast, and ORA’s recommendations for this FERC Account are 5

shown in Table II-3. 6

Although TURN comments at length about SCE’s forecast increase in AHT, it does not 7

recommend adjusting SCE’s forecast in this area.89 TURN “does not oppose a wage increase for CSRs 8

based on Edison’s reasoning”90 but recommends rejecting SCE’s forecast adjustment necessary to 9

effectuate such an increase.91 10

86 See ORA-13, p. 43, line 16 – p. 44, line 15. 87 See ORA-13, p. 42, lines 3-4. 88 See ORA-13, p. 45, lines 1-22. 89 See TURN-08, Nahigian, pp. 40-41. 90 Id. at p. 42. 91 Id. at pp. 42-43.

33

Table II-3 SCE, ORA and TURN Forecast Adjustments for FERC Account 903.800

Original SCE

Forecast

Prepayment Program

Revised Forecast

TURN Recommen-

dation

1 Excluding the Prepayment Program 2,630$ n.a. 2,630$ 2,627$ a 2,630$

2 Prepayment Program 461$ (461)$ -$ -$ b (461)$

3 Excluding the Prepayment Program 210$ n.a. 210$ -$ a 210$

4 Prepayment Program 37$ (37)$ -$ -$ b (37)$

5 693$ n.a. 693$ -$ n.t.

6 4,031$ (498)$ 3,533$ 2,627$ n.t.

7 755$ n.a. 755$ -$ a n.t.

8 1,868$ n.a. 1,868$ -$ -$

9 956$ n.a. 956$ -$ n.t.

10 Productivity and Operational Excellence (3,731)$ n.a. (3,731)$ (6,373)$ c n.t.

11 3,879$ (498)$ 3,381$ (3,746)$

12 2012 Adjusted, Recorded 46,373$ -$ 46,373$ 46,373$ 13 50,252$ (498)$ 49,754$ 42,627$

Line No. Forecast Adjustment

Increased Supervisor Ratio

AHT Phone Bills

ESC Costs

ESC Subtotal

Constant 2012 $000

Total O&M Forecast Adjustments

2015 Forecast

Other Contact Channel Growth

Average Handle Time (AHT)

CSR Wage Increase

Program Changes

Customer Growth

ORA Recommen-

dation

n.t. No testimony on this adjustment was filed. Accepting TURN's recommended reductions to SCE’s revised

forecast would result in Test Year forecast of $47.886 million FERC Account 903.800. a. ORA’s recommendation of $3.125 million is before the removal of the Prepayment Program and includes Other

Contact Channel Growth (including web chat). The $2.627 million shown here reflects the removal of the Prepayment Program.

b. ORA’s acceptance of the removal of the Prepayment Program is reflected in line 1. c. ORA accepts Productivity and Operational Excellence adjustments throughout ORA-13, but recommends

increased reductions in ORA-19. See Appendix B for the supporting document titled “2015 Productivity & Operational Excellence Forecast – FERC Account 903.800 – ORA Position.”

34

3. SCE’s Rebuttal to ORA’s and TURN’s Test Year Forecast Position 1

a) ORA’s Recommendations Do Not Take Into Consideration the Factors 2

Driving Increases in AHT 3

In reducing SCE’s forecasts for AHT and growth in other contact channels, ORA 4

asserts that incremental funding for the 54 FTEs hired following the final decision in SCE’s 2012 GRC 5

“should meet the needs of the Customer Contact Center in TY 2015.”92 In so doing, ORA does not 6

address the many ESC-related factors that SCE reasonably expects to result in increased upward 7

pressure on AHT. Specifically, the availability of ESC-provided interval data will enable CSRs to serve 8

as Energy Advisors who provide expertise to customers to identify usage issues and to inform them of 9

and enroll them in ESC-enabled programs that make sense for their homes, business, and institutions. 10

For the reasons presented in SCE’s direct testimony and described above, these activities will place 11

upward pressure on AHT.93 12

ORA points to the fact that many of these programs had already been 13

implemented by 2013 and then mistakenly concludes, “Customer Contact Center resources for these 14

ESC-enabled programs and services should be embedded in recorded data.”94 While this observation is 15

correct, it fails to acknowledge that the adoption of these tools and technologies will likely continue to 16

grow. In fact, the implementation of these ESC-enabled tools and technologies has been accompanied 17

by a steady increase in AHT as shown in Figure II-2. 18

92 ORA-13, p. 42, lines 11-17. The decision (D.12-11-051) in SCE’s 2012 GRC (A.10-11-015) was issued on

December 10, 2012. 93 See SCE-04, Vol. 2, pp. 152-159. 94 ORA-13, p. 43, lines 8-12.

35

Figure II-2 2009-2017 Average Handle Time

(Updated with 2013 Recorded Data)

200

250

300

350

400

2009 2010 2011 2012 2013 2014 2015 2016 2017

Aver

age

Han

dle T

ime

(AH

T, S

econ

ds)

Year

AHT Forecast (Application)

AHT Recorded (Application)

AHT Updated Recorded

Edison SmartConnect

Deployment Period

2013 Recorded

4.9 million customersbilled using (ESC)interval data as ofJanuary 1, 2013

Mandatory TOU for smallC&I <200 kW

Default CPP for smallC&I <200 kW

Finally, ORA does not address the potential impact of the implementation of 1

mandatory TOU and Default CPP rates that are not reflected in the Base Year and 2013 recorded 2

expenses.95 It is reasonable to expect that the phased implementation of these rates, impacting 3

approximately 600,000 customers,96 will result in an increase in calls—many of them complex calls—to 4

help customers understand these new rates resulting in upward pressure on AHT. 5

95 D.13-03-031 directs SCE to begin the transition of eligible non-residential customers with demands less than

200 kW to mandatory TOU rates beginning in January 2014 (at pp. 23-24 and 39) and to default CPP rates in January 2016 (at pp. 23-24).

96 See SCE-04, Vol. 3, p. 3, lines 5-7.

36

b) ORA Miscalculates Its Recommended Forecast 1

ORA calculates its recommended forecast for incremental ESC costs based upon 2

the 54 FTEs added to the CCC between December 10, 2012 and December 31, 2013 as described in 3

SCE’s response to DRA-096-SWC, Question 8d.97 In its calculation, however, ORA makes two errors. 4

First, it states that the 54 FTE included two Technical Specialists. In fact, the 54 FTEs included two 5

Training Specialists, not two Technical Specialists. Second, ORA assumes a CSR salary of $54,574 for 6

these two Training Specialist positions.98 The labor rate for Training Specialists, however, is $87,345.99 7

When ORA’s recommendation is recalculated using the corrected labor rate, the result is $3.289 million 8

compared to ORA’s original recommendation of $3.125 million forecast (before the removal of 9

Prepayment Program costs).100 10

c) ORA Incorrectly Concluded That Phone Expenses Are Included in CSRs’ 11

Non-Labor Expenses 12

Although ORA recommends an adjustment for an increase in AHT, albeit not at 13

the level forecast by SCE, ORA “recommends no additional funding for the increase of phone bills 14

because SCE’s Workpapers show CSRs’ non-labor expense includes phone bills and system expense, 15

headsets, mileage, training, office supplies, recognition and safety equipment.”101 ORA’s assertion is 16

incorrect and is based on an incorrect interpretation of SCE’s workpapers. 17

Table II-4 below is an annotated copy of the AHT workpaper. Non-labor costs 18

are shown in two columns. The first column, labeled FERC Account 903.800, shows the non-labor cost 19

for the CSRs including mileage, training, office supplies, and other employee expenses. ORA used an 20

annual rate of $54,574 comprised of labor expenses ($43,680 / year) and non-labor employee related 21

97 See ORA-13, p. 42, lines 11-20. See also Appendix A, SCE response to data request DRA-096-SWC-Q.8.d. 98 ORA-13, p. 42, lines 18-20. The $54,574 labor figure is comprised of labor expenses of $43,680 and related

non-labor expenses of $10,894. Though ORA references workpapers to SCE-04, Vol. 2, Pt. 2, p. 234, SCE assumes ORA is referring to p. 225 of the referenced workpapers, as that is the page supporting SCE’s AHT forecast.

99 The $87,345 labor figure is comprised of labor expenses of $69,909 and related non-labor expenses of $17,435.

100 See Appendix B, Workpaper: Correction of ORA’s Recommended Forecast Calculation for FERC Account 903.800.

101 ORA-13, p. 42, line 20 – p. 43, line 2. Although ORA references workpapers to SCE-04, Vol. 2, Pt. 2, p. 230, SCE assumes ORA is referring to p. 225 of the referenced workpapers, as that is the page supporting SCE’s AHT forecast.

37

expenses of $10,894 / year, or 25 percent of the labor expenses, consistent with the first column of the 1

AHT workpaper. The second column, labeled FERC Account 905.100, shows phone bills and related 2

expenses.102 Phone bill expenses are not included in the non-labor component of the CSRs wages used 3

in ORA’s calculation for its AHT recommendation. SCE’s adjustment of $210,000 is necessary to cover 4

the phone bill expenses associated with SCE’s AHT increase of $2.630 million. 5

102 Prior to this GRC, SCE presented FERC Accounts 903.800 (CCC expenses excluding phone bills) and

905.100 (CCC phone bills) separately. In this GRC, recorded and forecast expenses were combined into FERC Account 903.800 were to simplify the presentation.

38

Table II-4 AHT Supplemental Workpapers Showing Phone Expenses Separate From Labor-

Related Non-Labor Expenses

d) ORA’s Rejection of SCE’s Adjustment for Customer Growth Is Unfounded 1

and Unsupported 2

The costs of many activities in the Customer Services Operating Unit (CSOU) 3

and the Operating Unit Management and Support (OUMS) functions are directly related to the number 4

of customers SCE serves. ORA has accepted SCE’s adjustments for customer growth in every account 5

it was applied, except in FERC Account 903.800. The impact of customer growth on customer services 6

39

such as call volumes in the Customer Contact Center has been recognized by the Commission and is 1

well supported in this proceeding.103 2

(1) ORA’s Rejection of SCE’s Customer Growth Adjustment for the 3

Customer Contact Center (CCC) Ignores the Fact That SCE 4

Accounts for the Reduced Number of Agent Handled Calls Separately 5

as a Productivity Benefit 6

As the number of customers increases, so does the total number of 7

customer contacts increase. SCE accounts for the reduction in the volume of live-agent handled calls by 8

providing an Operational Excellence reduction for self service/call deflection of $2.953 million.104 By 9

removing SCE’s customer growth adjustment, ORA is effectively double counting this reduction in 10

O&M expenses. 11

(2) ORA Incorrectly Focuses on Growth for Live Agent Calls to Oppose 12

SCE’s Customer Growth Adjustment 13

ORA correctly notes that Live Agent Call Volume Handled has decreased 14

between 2008 and 2013 but does not acknowledge the fact that total customer contact volume has grown 15

by an average of 1.7 percent annually during this same period as shown in Figure II-3 below.105 While 16

an increasing fraction of the total contact volume may be handled by means other than live agents, the 17

systems to support non-live agent calls also require maintenance, updates, and quality assurance 18

verifications. Furthermore, should the Commission adopt ORA’s recommended reductions in customer 19

facing systems (e.g., SCE’s Digital Customer Experience), SCE will not be able to keep pace with 20

customer expectations for simpler online services, and this trend may reverse, resulting in an increase in 21

live agent calls.106 22

103 See, e.g., the Commission’s decisions adopting customer growth adjustments for the CCC in SCE’s 2012

GRC (D.12-11-051, p. 334) and 2009 GRC (D.09-03-025, pp. 104 and 109). 104 See SCE-04, Vol. 2, p. 162, lines 6-18. 105 See Appendix B, Workpaper: Growth In Total Call Volume and Total Contacts – FERC Account 903.800. 106 See ORA-14, pp. 47-50. ORA recommended eliminating funding for SCE’s Digital Customer Experience

projects.

40

Figure II-3 Total Calls Handled 2008-2013107

(millions)

13.0

13.5

14.0

14.5

15.0

15.5

2008 2009 2010 2011 2012 2013

Tota

l Cal

l Vol

ume

Han

dled

(mill

ions

)

e) ORA Provides No Support For Its Recommendation to Reject Other Contact 1

Channel Costs 2

Without explanation, ORA includes “web chat” in its discussion of its 3

recommended adjustment for ESC costs.108 Web Chat, however, is but one of many Other Contact 4

Channels and SCE’s forecast adjustment for Other Contact Channels is unrelated to SCE’s forecast of 5

ESC costs in the CCC.109 In its summary in Table 13-31, however, ORA clearly indicates that it is not 6

recommending an increase for SCE’s Other Contact Channel growth.110 It is unclear whether ORA 7

intended its recommended ESC cost adjustment to cover the growth in Other Contact Channels or if 8

107 See Appendix A, SCE response to data request DRA-096-SWC-Q.7.a. 108 ORA-13, p. 42, lines 6-2. 109 SCE’s Other Contact Channel adjustment is described at SCE-04, Vol. 2, p. 159, line 23 – p. 160, line 17.

SCE’s AHT adjustment is described at SCE-04, Vol. 2, p. 152, line 10 – p. 159, line 7. 110 ORA-13, p. 41, Table 13-31.

41

ORA intended to reject the adjustment altogether. In either case, ORA does not provide any rationale 1

for its rejection of SCE’s adjustment. As shown in Figure II-4 below, activity levels in Other Contact 2

Channels at the CCC have grown an average of 13.6 percent over the period of 2008 through 2013.111 3

SCE expects this growth trend to continue as more customers adopt self-service options and 4

technologies. For this reason, SCE’s adjustment for increasing Other Contact Channel costs should be 5

approved. 6

Figure II-4 Other Contact Channel Volumes

-

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013

Oth

er C

onta

ct C

hann

el V

olum

es(th

ousa

nds)

Year

eChannel Service Orders

Web Chat

Compound Annual Growth Rate (2008-2013) = 13.6%

f) ORA Does Not Address the Need for Increased Supervisors in the CCC 7

The ORA provides no explanation to support its recommendation to maintain the 8

current CSR-to-Supervisor ratio at 16-to-1 (rather than the 12-to-1 ratio proposed by SCE) other than 9

noting that SCE hired four supervisors in 2013 when it hired 48 CSRs. In response to ORA, SCE 10

provided a recent study, “Staff to Supervisor Ratio,” that notes “many [contact] centers today have 11

between 8 and 12 staff per supervisor” and that “complex environments can have as few as five staff per 12

111 This data is also shown, although not reflected in ORA’s recommendation at ORA-13, p. 44, Table 13-32.

42

supervisor.”112 Lowering the CSR-to-supervisor ratio from 16 to 12 will enable supervisors to provide 1

the necessary assistance, coaching, and feedback to CSRs to handle increasingly complex calls. 2

g) A CSR Wage Increase Is Necessary to Support CSRs’ Expanded Role 3

ORA states, “SCE’s Total Compensation Study for the 2015 GRC shows that the 4

total compensation of SCE’s CSRs are above the market rate.”113 The role of the CSR, however, is 5

expanding as CSRs are increasingly being expected to handle more complex inquiries requiring 6

additional skills and training. As noted by SBUA in its response to a discovery request, “Small 7

businesses customers would prefer to speak with a knowledgeable professional on the telephone for 8

complicated problems such as what billing plan to select, what energy efficient devices to install, and 9

other complicated matters.”114 These types of calls tend to increase AHT and require expanded job 10

skills more closely resembling that of an Energy Advisor than those of a traditional CSR, and the base 11

salary of Energy Advisors range from $28/hour to $30/hour, or 33 percent to 43 percent higher than 12

SCE’s CSR hourly wage rates.115 13

Finally, ORA mischaracterizes the decision in SCE’s 2012 GRC on this point, 14

stating that the decision “disallowed SCE’s request for additional funding to increase CSR wages.”116 In 15

its 2012 GRC, SCE sought increased O&M funding for CSR wages, and, while the Commission did not 16

grant SCE’s request in full, it did authorize an increase of $1.000 million per year (2012 – 2014).117 17

h) ORA and TURN Confuse Real and Nominal Labor Forecast Adjustments 18

Both ORA and TURN oppose SCE forecast adjustment for a CSR wage increase 19

on similar grounds. ORA states, “SCE receives additional funding to increase all wages through the 20

labor escalation rate.”118 TURN, while clearly stating that it “does not oppose a wage increase for CSRs 21

112 See Appendix A, SCE response to data request DRA-SWC-096-Q.10.b., “Staff to Supervisor Ratio,” Brad

Cleveland, June 13, 2012. 113 ORA-13, p. 45, lines 5-7. 114 See Appendix A, SBUA response to data request SCE-SBUA-001-Q.2.a. 115 See SCE-04, Vol. 2, Pt. 2, Workpapers, p. 230. 116 ORA-13, p. 45, lines 8-10. 117 In D.12-11-015, p. 335-336, the Commission, in rejecting SCE’s full request, concludes that “SCE should be

able to address this claimed deficiency through redirection of existing funds, new and embedded training funds, and $1 million in each of 2012 and 2013.” [Emphasis added].

118 ORA-13, p. 45, lines 19-20.

43

based on Edison’s reasoning,”119 asserts that adopting SCE’s forecast adjustment necessary to effectuate 1

this wage increase would amount to a “double-escalation of wage rates for CSRs.”120 Both ORA and 2

TURN confuse real and nominal labor forecast adjustments. 3

In this GRC, SCE presents its O&M recorded data and forecasts in constant Base 4

Year (2012) dollars. O&M forecast adjustments—including this increase in CSR wages—are also 5

expressed in constant 2012 dollars. Both ORA and TURN are correct in noting that SCE’s Results of 6

Operation exhibit includes labor escalation rates. The escalation factors in the Results of Operation 7

exhibit are necessary to reflect annual labor costs to offset inflation but do not result in a real wage 8

increase, i.e., the increase maintains, but does not increase, an employee’s purchasing power. The intent 9

of the CSR wage increase is to provide CSRs with a real wage increase commensurate with the required 10

increase in skills, training, and experience necessary to successfully fill the role of Energy Advisor. 11

Such an increase is not a “double-escalation of wage rates for CSRs,” as TURN mistakenly asserts. 12

SCE’s forecast adjustment is necessary to grant CSRs a real wage increase to reflect increased job skills 13

combined with a nominal wage increase to offset inflation. 14


ORA has not presented any reasonable evidence for rejecting SCE’s Test Year forecast 16

adjustments to FERC Account 903.800 for ESC-related costs (increased AHT, phone bills associated 17

with increased AHT, and increased CSR supervision), other contact channel growth, the CSR wage 18

increase, and customer growth. As a result, ORA’s recommendations should be rejected, and SCE’s 19

Test Year forecast for this FERC Account should be adopted by the Commission. TURN’s support for a 20

wage increase should be recognized, but its recommendation not to fund that increase should be 21

rejected. 22

G. Account 905.900 – Marketing, Communications, and Digital Customer Services 23


FERC Account 905.900 includes all O&M expenses for SCE’s Marketing, 25

Communications and Digital Delivery of the Customer Services functions. These functions enable 26

SCE’s residential and non-residential customers to be aware of and make informed decisions about 27

rates, programs, and services that benefit them and facilitate safe energy usage. For the Test Year, SCE 28

119 See TURN-08, Nahigian, p. 42. 120 Id. at pp. 42- 43.

44

forecasts O&M expenses of $11.497 million for FERC Account 905.900 based upon the 2012 recorded 1

adjusted expenses of $10.763 million with the two adjustments: (a) a reduction of $1.207 million 2

associated with Operational Excellence improvements in Marketing and Communications and (b) an 3

increase of $1.941 million for increased outbound e-mail and text notifications to support increased 4

customer demand for digital services. 5

2. TURN’s Test Year Forecast Positions 6

TURNs recommends a Test Year forecast for FERC Account 905.900 of $9.680 million, 7

a reduction of $1.817 million from SCE’s forecast.121 TURN’s recommendation is that the four-year 8

(2009-2012) linear trend of recorded expenses be used to forecast Test Year O&M expenses for this 9

FERC Account 10

3. SCE’s Rebuttal for the Test Year Forecast – TURN Does Not Address the Basis for 11

SCE’s Forecast 12

TURN bases its recommendation on its observation that recorded costs in this FERC 13

Account have generally shown a downward trend from 2009 to 2012.122 To bolster its observation that 14

recorded expenses in this FERC Account are trending lower, TURN states that the recorded expenses for 15

this FERC Account totaled $7.51 million in 2013, less than half of SCE’s forecast of $16.298 million.123 16

In fact, unadjusted recorded expenses for this FERC Account totaled $15.635 million in 2012 constant 17

dollars,124 consistent with the increase SCE forecasted but inconsistent with TURN’s flawed 18

calculation.125 Indeed, if one adopts TURN’s proposed forecast method using recorded 2013 expenses 19

121 See TURN-08, Nahigian, p. 45. 122 Id. 123 Id. 124 This figure is calculated based upon a review of 2013 recorded costs by final cost center, as TURN has

attempted, and was adjusted from 2013 dollars to 2012 dollars. This process did not include the detailed, department-wide review of recorded costs that is undertaken when presenting historic recorded, adjusted O&M amounts in the GRC.

125 TURN’s calculation of 2013 recorded costs relies on SCE’s response to an ORA data request that included 12,566 lines of recorded cost data organized by cost center. It appears that TURN relied on cost centers included in workpapers for SCE’s 2008-2012 recorded costs but did not include (a) new cost centers created in 2013 and (b) existing cost centers whose FERC Account mapping changed in 2013. SCE received no data requests from TURN seeking to verify its calculation. TURN also notes that “using a 5-year linear trend (2009-2013) results in test year costs of $5.840 million.” Id. SCE is unable to duplicate this result using TURN’s erroneous 2013 figure. See Appendix B, Workpaper: FERC Account 905.900 - 2013 Unadjusted Recorded Costs.

45

based upon the correct Final Cost Centers (i.e., a four year linear trend based on 2010-2013 recorded 1

data), the Test Year forecast for this FERC Account would total $16.655 million or $5.158 million more 2

than SCE’s forecast. TURN’s forecast method is erroneous and should be rejected. 3

In its testimony, TURN does not mention, let alone take issue with, any of the 4

forecast adjustments included in SCE’s forecast. In 2015, FERC Account 905.900 includes adjustments 5

for outbound e-mail and text notifications that either were not included in the Base Year recorded costs 6

or are expected to grow significantly in this GRC period relative to the Base Year period. The 7

appropriate method to forecast of significant new activities, partially offset by cost reductions, is not to 8

rely on a simple expense trend but to develop a detailed forecast that explicitly includes these factors as 9

SCE did. 10


TURN relies on a trend in recorded costs, augmented by an erroneous calculation of 2013 12

recorded costs, and fails to address the substance of SCE’s forecast adjustments. TURN’s 13

recommendation should be rejected. 14

H. Account 907.700 – Program Management Organization (PMO) 15


SCE’s forecast of $7.415 million in FERC Account 907.700 for Test Year 2015 is based 17

on the 2012 recorded adjusted expenses of $5.978 million and includes three upward adjustments of (1) 18

$630,000 for development of optimized data management and complex business analytics, (2) $267,000 19

to reflect the total annual costs associated with three employees hired in 2012, and (3) $541,000 to 20

support 2014 to 2017 forecast of capital software projects. 21

2. ORA and TURN Propose Use of a Multi-Year Average to Forecast PMO Expenses 22

a) ORA and TURN Reject SCE’s Budget-Based Forecast and Instead Propose 23

the Use of a Multi-Year Average to Forecast PMO Expenses 24

ORA and TURN share concerns regarding the large year-to-year fluctuations in 25

historical recorded expense for PMO. ORA recommends a $6.343 million forecast, which is a reduction 26

of $1.072 million from SCE’s forecast of $7.415 million. To support this recommendation, ORA uses a 27

four-year (2009–2012) average that results in an increase of $365,000 over 2012 recorded expenses. 28

TURN recommends using a six-year (2008-2013) average to forecast PMO’s expenses, which results in 29

a reduction of $2.051 million from SCE’s forecast of $7.415 million. TURN’s forecast of $5.364 30

million is $979,000 less than ORA’s forecast of $6.343 million. 31

46

b) SCE’s Rebuttal – ORA and TURN Ignore SCE’s Budget Based Forecast, 1

Instead Inappropriately Applying a Multi-Year Average Approach 2

SCE acknowledges the year-to-year historical cost fluctuations highlighted by 3

ORA and TURN. SCE addressed the year-to-year fluctuations in testimony, noting that labor and non-4

labor costs were in line with the project life cycles and took into account the number and size of the 5

projects being managed in a given year.126 ORA and TURN completely ignore the known increased 6

activities in SCE’s budget based forecast and instead inappropriately use a multi-year average to 7

calculate their forecasts. This forecast approach does not take into account SCE’s increasing needs for 8

known activities such as Data Management,127 Portfolio Oversight Staffing,128 and O&M related to 9

Capital Programs.129 Additionally, the 2013 unadjusted recorded cost TURN used as part of the six-year 10

average was calculated incorrectly at $4.73 million130 and instead should have been $6.05 million, which 11

would result in a six-year average forecast of $5.70 million.131 TURN did not include all of the cost 12

centers that were added and recorded to FERC 907.700 in 2013, which resulted in the lower number. 13


ORA and TURN have not presented any reasonable basis for rejecting SCE’s FERC 15

Account 907.700 budget-based forecast of $7.415 million. Instead they both rely upon multi-year 16

averages that ignore the additional resources required to perform expanding PMO activities for Data 17

Management, Portfolio Oversight Staffing, and O&M related to Capital Programs. SCE’s 2015 Forecast 18

for this FERC account should be adopted by the Commission. 19

I. Account 908.600 – Business Customer Division 20


FERC Account 908.600 includes all O&M expenses for SCE’s Business Customer 22

Division (BCD) Activities, including Account Management Services, Technical Services, Energy 23

Education Centers, Economic Development Services, Consumer Choice Services, and related support 24

126 See SCE-04, Vol. 2. p. 165, line 8 – p.166, line 2. 127 See SCE-04, Vol. 2, p. 167, lines 5-10. 128 See SCE-04, Vol. 2, p. 168, lines 3-10. 129 See SCE-04, Vol. 2, p. 168, lines 11-24. 130 See TURN-08, Nahigian, p. 46. 131 See Appendix B, Workpaper: FERC Account 907.700 - 2013 Unadjusted Recorded Costs.

47

activities. For the Test Year, SCE forecasts O&M expenses of $18.879 million for FERC Account 1

908.600 based upon the 2012 recorded adjusted expenses of $20.219 million and the three adjustments: 2

(a) a reduction of $1.402 million associated with the optimization of Account Management support 3

activities, (b) an increase of $258,000 to support increases in O&M costs in the Account Management 4

function associated with customer growth, and (c) a reduction of $195,000 associated with an 5

optimization in Economic Development Services activities. 6

2. SBUA’s Recommendations 7

In its testimony, SBUA makes a number of recommendations related to serving small 8

businesses. Many of its recommendations are related to activities undertaken by SCE’s BCD and other 9

SCE customer service organizations and are addressed in Chapter V of this Volume. SBUA also 10

recommends, “The Commission should condition approval of SCE’s Economic Development Services 11

(EDS) funding on the promise that SCE will spend 30 percent of this funding to support retention of 12

small businesses as defined under the California Department of General Services.”132 13

3. SCE’s Rebuttal to SBUA’s Recommendations 14

While SCE agrees with SBUA that the Commission should approve funding for SCE’s 15

Economic Development Services, SCE does not agree with the conditions SBUA places on that funding. 16

a) SBUA Offers No Evidence to Support Its Proposed Funding Segregation 17

Beyond the opinion of its expert witness (i.e., “[W]e believe the money is best 18

spent on providing rate incentives to high-potential businesses (including small businesses) in 19

California”) in recommending that SCE devote 30 percent of EDS funding to “support retention of small 20

businesses,” SBUA provides no evidence that this would increase the benefits to ratepayers.133 In fact, 21

many of the beneficiaries of SCE’s EDS efforts are small businesses that, as noted by SBUA, play a 22

vital role in the Southern California economy and are impacted by the retention of any business. 23

b) SBUA’s Recommendation Is Impractical 24

Devoting 30 percent of EDS funding to small business issues would require that 25

SCE implement an accounting mechanism to segregate and track EDS expenses by customer size. 26

Many of the activities undertaken by EDS benefit at-risk businesses in SCE’s service territory regardless 27

132 SBUA-01, Brown, p. 18. 133 Id. See also Appendix A, SBUA response to data request SCE-SBUA-001-Q.9.a. SBUA acknowledges that

it did not rely on any reports or analysis in making its recommendation.

48

of size. For example, EDS’s leadership on initiatives that strengthen California’s business 1

infrastructure, as well as working with state and local economic development organizations, benefits all 2

of SCE’s at-risk business customers.134 It is unclear from SBUA’s testimony whether the costs of those 3

foundational activities would be allocated to the small business effort or excluded from the analysis. In 4

addition, it is often unclear during initial contact whether a specific customer would qualify as a small 5

business under the guidelines cited by SBUA.135 Regardless of the details of how SBUA’s 6

recommendation might be implemented, the effort would detract attention from the primary mission of 7

EDS and would likely reduce ratepayer benefits. 8

c) SBUA’s Recommendation Does Not Acknowledge SCE’s EDS Activities and 9

Achievements 10

Without evidence to support its proposed 30 percent funding set aside for small 11

businesses, SBUA seems to assume that SCE’s EDS programs currently do not adequately address small 12

businesses. In fact, in the Base Year, SCE’s EDS group played a significant role in 30 retention and 13

attraction projects. Of those projects, 11 were associated with entities with 100 or fewer employees.136 14

Depending on the specific issues a small business is facing, SCE’s EDS group may also refer that 15

customer to SCE’s Business Solutions group to help that customer better manage its energy costs by 16

switching to an electric rate that better fits that customer’s operations or by participating in Integrated 17

Demand Side Management (IDSM) programs. Finally, EDS also leverages other resources, such as 18

external partners, including local, regional, and state economic development organizations. For 19

example, SCE recently hosted the Sixth Annual Green, Conserve & Health Expo sponsored by the 20

Filipino American Chamber of Commerce at SCE’s Energy Education Center in Irwindale. In support 21

of the event, EDS arranged for a representative from the Governor’s Office of Business and Economic 22

134 See SCE-04, Vol. 3, p. 38, line 22 – p. 42, line 19, for a description of the range of SCE’s EDS activities. 135 It is unclear how SBUA defines “small business” for the purposes of each of its recommendations. For

example, SBUA states, “For purposes of this proceeding, the small business community consists of those small commercial customers that individually do not have the resources to participate or intervene.” SBUA also refers to the eligibility requirements for California’s Small Business and Disabled Veteran Business Enterprise Services certification program which includes local ownership, having fewer than 100 employees, and gross receipts less than $14 million over the last three tax years. (See SBUA-01, Brown, p. 3 and Appendix A). While the later definition is precise, it relies on data that SCE typically does not gather or retain.

136 See SCE-04, Vol. 3, Workpapers, p. 60.

49

Development (GoBIZ) to attend and present the small business components of the Governors Economic 1

Development Initiative Program to the attendees. 2


SBUA has not presented any compelling basis for establishing a fixed 30 percent 4

spending set-aside for small businesses, and thus its recommendation should be rejected. 5

J. Account 586.400 – Test, Inspect and Repair Meters 6



based on the 2012 recorded adjusted expenses of $13.483 million and includes adjustments for (a) ESC 9

incremental costs of $2.831 million; (b) customer growth related expenses of $278,000; (c) program 10

changes of $1.263 million for acceptance testing of 50 percent of all SmartConnect meters that are 11

returned from the manufacturer under warranty; and (d) Operational Excellence savings of $1.183 12

million for consolidation of management and supervisory positions, as well as technical specialists, 13

engineering, administrative, and analytical support personnel throughout all functional areas and in 26 14

field locations. 15

Although ORA centered its review for this account on Engineering and Meter Shop 16

operations, it is important to understand that the Test, Inspect and Repair Meters function includes 17

SCE’s Electrical Metering Services (EMS) and the field maintenance and repair of electric billing and 18

load survey meters. EMS administers the required meter test and meter maintenance programs to ensure 19

the accuracy of SCE’s metering population. EMS performs all of SCE’s routine and sample meter 20

testing in the field. EMS operations involve approximately 47 Single Phase Meter Technicians, 84 21

Three Phase Meter Technicians, and 6 Primary Metering Test Technicians located in 34 districts 22

throughout SCE’s service territory. In contrast, the Engineering and Meter Shop operations are only 27 23

percent of the cost recorded in FERC Account 586.400. The EMS function comprises approximately 73 24

percent of expenses charged to this account for field maintenance, testing, and repair. 25

During the deployment stage of the ESC Project from 2010 through the 2012 Base Year, 26

SCE appropriately suspended most of its routine and sample test programs because of the major 27

disruption of the metering population while approximately five million new ESC meters were being 28

installed. During this period, the majority of EMS personnel were reassigned to ESC meter installation 29

testing, which was properly reflected as a capital expenditure in the ESCBA consistent with the 30

50

Commission’s treatment of these costs in D.08-09-039.137 The routine and sample testing programs, 1

which are recorded in this O&M account, were resumed in 2013 in accordance with SCE’s Rule 22 and 2

the Commission-approved Direct Access Standards for Metering and Meter Data (DASMMD).138 In 3

similar fashion, Meter Shop testing routines were also disrupted during 2010 through 2012, as most 4

meter shop acceptance tests were related to new ESC meters prior to their installation; these activities 5

were properly recorded in the ESCBA as a capital expenditure and had no effect on FERC Account 6

586.400, which is an O&M-related FERC Account. 7

The disruption in the normal patterns of acceptance and routine testing of meters during 8

the deployment of the ESC resulted in O&M expenses recorded in FERC Account 586.400 in the 2012 9

Base Year far below what would be expected during a normal operating year. The $745,000 in O&M 10

that was transferred from the ESCBA to FERC Account 586.400 in the 2012 Base Year made up for 11

only a portion of the $3.6 million expense that would be charged to this FERC Account in the 2015 Test 12

Year.139 This required that a future year incremental cost adjustment of $2.8 million be added to the 13

2015 Test Year forecast to account for the resumption of routine and sample testing in the field140 and 14

another adjustment of $1.263 million for a shift from capital to O&M associated with Meter Shop tests 15

now being performed for warranty acceptance testing, rather than new meter acceptance testing.141 16

ORA’s rejection of the ESC steady-state expense adjustment and 50 percent of SCE’s adjustment for 17

testing meters returned under warranty from the manufacturer makes up the $3.464 million that ORA 18

recommends should be removed from SCE’s forecast expense for this account. 19

2. ORA’s Test Year Forecast Positions 20

ORA’s 2015 Test Year forecast for FERC Account 586.400 is $13.210 million, which is 21

$3.464 million lower than SCE’s $16.674 million forecast for this account. ORA’s forecast reductions 22

are contained in two general categories: (1) $2.831 million of ORA’s proposed reduction is based on 23

ORA’s failure to include SCE’s upward adjustment of $2.831 million in incremental ESC steady-state 24

costs that occur for the first time, starting in 2013, and (2) ORA takes issue with 50 percent of SCE’s 25

137 See SCE-04, Vol. 2, p. 27, lines 1-9. 138 The CPUC established DASMMD standards in D.98-12-080. See SCE-04, Vol. 2, p. 23, lines 18-25, for

more details. 139 See SCE-04, Vol. 2, Workpapers, p. 82. 140 See SCE-04, Vol. 2, p. 32, lines 1-5.

51

upward adjustment of $1.263 million to reflect the added O&M costs to perform acceptance testing of 1

ESC meters returned under warranty from the manufacturer. 2

a) ORA Recommendations Related to SCE’s Incremental ESC Steady-State 3

Costs 4

ORA stated six specific reasons upon which it based its rejection of SCE’s 5

proposed incremental ESC steady-state costs:142 6

1. The fact that SCE already included an incremental cost adjustment for ESC 7

steady-state costs in the 2012 Base Year ($745,000); 8

2. ORA’s 42 percent reduction in SCE’s forecast for residential new meter 9

growth, a 36 percent reduction in SCE’s forecast for commercial new meter growth, and 2013 recorded 10

capital expenditures that were 33 percent below SCE’s forecast for 2013; 11

3. The number of Lab Technician FTEs and Meter Shop Technicians remained 12

steady from 2012 to 2013, and 100 percent of their cost was included in the 2012 Base Year cost; 13

4. The number of recorded meter tests and inspections in 2013 was 29,725 or 25 14

percent less than SCE’s 2013 forecast of 120,000 meter tests; 15

5. The number of meter shop tests is decreasing from 2013 to 2015; and 16

6. The recorded expenses for FERC Account 586.400 remained relatively stable 17

for the last five years from 2008 through 2012. ORA states “The historical recorded expenses provide a 18

reasonable estimate of future expenses.”143 19

SCE addresses each of these issues in the sections that follow. 20

b) Issues Relating to ESC Warranty Expenses 21

ORA bases its 50 percent reduction in SCE’s forecast cost of warranty meter tests 22

on its forecast for new residential meter growth, which is 42 percent below SCE’s forecast, and its 23

forecast for commercial meter growth, which is 36 percent less than SCE’s forecast. ORA also points 24

out that the number of meter shop tests in 2013 is lower than SCE forecast for 2013. SCE addresses this 25

issue in Section 3. g) below. 26

Continued from the previous page 141 See SCE-04, Vol. 2, p. 33, lines 5-15. 142 See ORA-13, p. 19, line 19 – p. 22, line 12. 143 See ORA 13, p. 22, line 10.

52

3. SCE’s Rebuttal to ORA’s Recommendations ESC Steady-State Incremental 1

Funding 2

ORA described six issues as the basis for opposition to SCE’s proposed incremental ESC 3

steady-state costs. ORA is misguided on each of these recommendations, none of which should be 4

adopted by the Commission. 5

a) ORA Mistakenly Bases Its Rejection of SCE’s Inclusion of ESC Incremental 6

Costs on the Fact That SCE Already Included an Incremental Cost 7

Adjustment for ESC Steady-State Costs in the 2012 Base Year 8

ORA misstates SCE’s direct testimony when it says, “SCE already made an 9

upward adjustment in the 2012 Base Year expense to account for 100 percent of the cost that was 10

recorded to the ESC Balancing Account in 2012.”144 ORA has not properly interpreted Exhibit SCE-4, 11

Volume 2, page 30. The referenced SCE testimony specifically states, “The costs shown for the 2012 12

Base Year include an upward adjustment of $745,000 for ESC ongoing steady-state meter request 13

testing and inspection cost, which was 100 percent of the cost that was recorded to the ESCBA in 2012 14

for this function” (emphasis added).145 The operative words in SCE’s direct testimony are “for this 15

function,” which is an O&M function. There were many other charges to the ESCBA in 2012, most of 16

which were recorded as “capital” cost. As previously discussed in Section 1. above, “[a]s new meters 17

were being installed, the routine and sample testing schedules for these large accounts were deferred in 18

2011 and 2012. This reduced sample test volume was recognized in the ESC business case as a 19

temporary benefit.”146 20

ORA does not recognize that the $745,000 for ESC ongoing steady-state meter 21

request testing and inspection cost, which was 100 percent of the O&M cost that was recorded to the 22

ESCBA in 2012 for FERC Account 586.400, was only a fraction of the costs that are expected to occur 23

in the 2015 Test Year, as the EMS field operations resume their regular routine and sample testing 24

schedules. As SCE described in its direct testimony, “To reflect the ongoing ESC meter test, inspect, 25

and repair costs as steady-state operations occur from 2013 through 2015, an adjustment of $2.831 26

million was made to the 2015 Test Year forecast. With the completion of ESC deployment, technicians 27

144 ORA-13, p.19, lines 19-21. 145 SCE-04, Vol. 2, p. 30, lines 13-17. 146 SCE-04, Vol. 2, p. 27, lines 6-9.

53

now perform ongoing steady-state work, as well as newly added work generated by the ESC metering 1

system.”147 2

Because the $745,000 that was charged to the ESCBA in 2012 did not include any 3

routine and sample testing of the new ESC meters, that amount represented only about 20 percent of the 4

total incremental cost of these programs that is expected to occur with the resumption of routine and 5

sample testing once full steady-state testing of ESC meters is reached in 2015.148 6

ORA states, “SCE anticipates newly added work generated by the ESC metering 7

system. However, ORA anticipates that the ESC metering system reduces work and expenses as 8

well.”149 ORA misunderstands that there are incremental ESC costs not only in 2012 but also in 2013 9

and 2014 because the ESC systems were not fully operational through all of 2012, and the EMS sample 10

and routine test programs will not reach full steady-state levels until 2015.150 ORA presents no evidence 11

to support its conclusion that “the ESC metering system reduces work (related to this account).” As 12

discussed in the following sections, ORA’s conclusions are not appropriate because they are based 13

entirely on Meter Shop operations and the reduction in capital expenditures-related testing that occurred 14

after 2013. 15

b) ORA’s Forecast for New Residential Meter Growth at 42 Percent Less Than 16

SCE’s Forecast Is Not Related to SCE’s O&M Forecast for This FERC 17

Account 18

ORA contends that its 42 percent reduction in residential new meter growth in 19

2015, along with a 36 percent reduction in SCE’s forecast for commercial new meter growth151 20

combined with 2013 recorded capital expenditures that were 33 percent below SCE’s forecast for 2013, 21

justifies its rejection of SCE’s inclusion of $2.8 million in incremental O&M funding in FERC Account 22

147 SCE-04, Vol. 2, p. 32, lines 2-5. 148 The only routine and sample testing that occurred in 2012 was for SCE’s largest customers (i.e., 200 kW and

above), and the legacy meters that had not yet been replaced with ESC meters. These tests were not charged to the ESCBA and therefore were not part of the $745,000 Base Year cost adjustment.

149 ORA-13, p. 19, line 21 – p. 20, line 2. 150 As described in SCE-04, Vol. 2, p. 23, lines 22-24, SCE’s routine test function includes “biennial testing of

meters with annual usage between 720,000 kWh and two million kWh.” The last ESC meters deployed at the end of 2012 do not qualify for biennial testing until the end of 2014. Thus, the first full steady-state year for biennial testing will be the 2015 Test Year.

151 See ORA-13, p. 20, lines 8-10.

54

586.400 in the 2015 Test Year.152 ORA is wrong. In fact, new meter growth has no immediate O&M 1

expense impact on the volume of routine and sample testing, which is driven by SCE’s total meter 2

population and the statistical requirements of the sample design. New meter growth will impact the 3

volume of new meter acceptance testing and installation testing. However, the cost of that testing is 4

charged as capital and has no impact on FERC Account 586.400, which is an O&M expense account. 5

c) The Number of Lab Technician FTEs and Meter Shop Technicians From 6

2012 to 2013 Is Not Related to SCE’s O&M Forecast for This Account. 7

ORA claims that SCE is forecasting an additional 42 FTEs when “[t]he recorded 8

average number of Meter Shop Technician FTEs remains relatively stable during 2008 to 2013 between 9

20 FTEs in 2012 to 24 FTEs in 2013.”153 ORA confuses field meter test technicians with meter shop 10

technicians. As discussed in the previous sections, the number of Meter Shop Technicians remains 11

relatively stable from 2008 to 2013 because the high volume of new ESC acceptance testing, which was 12

charged to capital in 2012, is being replaced in 2013 with testing of meters returned from the 13

manufacturer under warranty, which is recorded as O&M in this account. Although ORA references 14

page 82 of Exhibit SCE-04, Volume 2, Part 1 workpapers, only the Meter Shop Technician FTEs are 15

cited when that workpaper specifically includes Field Meter Technicians and shows that the total 16

number of FTEs is expected to go down from 151 FTEs in 2012, to 134 in 2015. The significant change 17

is in the number of Field Meter Technicians recording as capital, going down from 110 in 2012 to 53 in 18

2015, and the number of Field Meter Technicians recording to this O&M account, going up from 41 in 19

2012 to 80 in 2015. 20

d) ORA Makes Selective Use of Updated 2013 Data to Forecast the 2015 Test 21

Year 22

Citing SCE’s response to a data request, ORA states, “[T]he 2013 recorded 23

number of Forecast Meter Test and Inspection of 90,275 is 29,725 or 25 percent less than SCE’s 2013 24

forecast of 120,000.”154 ORA’s observation for 2013 is not directly related to SCE’s GRC Test year 25

152 ORA makes selective use of a single SCE data request response regarding meter capital expenditures in 2012

and 2013, which naturally went down with the conclusion of SCE $1.6 billion ESC deployment program in 2012. This reduction in ESC capital expenditures has no bearing on SCE’s business-as-usual capital expenditures once the ESC project was completed.

153 ORA-13, p. 20, lines 13-14. 154 ORA-13, p. 21, lines 6-8, citing SCE response to data request DRA-278-SWC-Q.2.a.

55

forecast. As discussed in Section 3. a) above, “EMS sample and routine test programs will not reach full 1

steady-state levels until 2015.”155 Sample and routine testing make up a large portion of expense 2

recorded in this account, and the volume of these tests completed in 2013 were based on the number of 3

ESC meters that were installed two years prior in 2011, when, on average, only about 50 percent of ESC 4

meters were installed.156 5

e) The Number of Meter Shop Tests Is Not the Only Cost Driver for This FERC 6

Account 7

Citing SCE’s direct testimony, ORA states that “the number of meter shop tests is 8

decreasing from 2012 to 2013. SCE forecasts that meter shop tests will continue to decrease from 2013 9

to 2015.”157 As was the case with ORA’s position regarding the number of Lab Technician and Meter 10

Shop Technician FTEs addressed in Section 3. a) (3) above, the number of Meter Shop tests does not 11

alone drive the expense level recorded to this FERC account. The majority of the new incremental costs 12

expected to occur in the 2015 Test Year are driven by the number of field tests, primarily attributable to 13

the resumption of the sample and routine test programs. 14

f) ORA’s Recommendations Do Not Reflect the Significant Changes Brought 15

About by the Completion of the ESC Program 16

ORA states that “the recorded expenses for FERC Account 586.400 show that the 17

expenses remained relatively stable for the last five years except for 2010 when overall costs increased 18

because of inefficiencies caused by the deployment of ESC meters and the implementation of the 19

Personal Qualification Standard Program. The historical recorded expenses provide a reasonable 20

estimate of future expenses.”158 21

ORA claims that its $13.210 million forecast for FERC Account 586.400 “is 22

consistent with the 2012 recorded expenses of $13.483 million.”159 In order to reach this conclusion, 23

ORA disregards SCE’s basic premise used to determine its Test Year estimating method for FERC 24

Account 586.400. In direct testimony, SCE states, “Because of the impact ESC has had on testing, 25

155 SCE-04, Vol. 2, p. 23, lines 22-24. 156 See SCE-04, Vol. 2, Pt. 1, Workpapers, p. 10. 157 ORA-13, p. 21, lines 14-15, citing SCE-04, Vol. 2, p. 29, Table III-10. 158 ORA-13, p. 22, lines 5-9. 159 ORA-13, p. 22, lines 11-12.

56

inspecting, and repairing meters, operating costs incurred before 2012 are not representative of future 1

expectations and thus are not suitable to support the use of historical averages or trends to forecast future 2

costs.”160 This basic premise was used consistently by SCE for purposes of developing its Test Year 3

forecast for those accounts that were impacted by the ESC Program and ORA’s simplistic observations 4

do not change this basic premise in any way. Thus, ORA’s recommendations should be rejected. 5

g) Removal of 50 Percent of SCE’s Forecast O&M Costs of Performing 6

Warranty Meter Acceptance Testing 7

(1) ORA’s Recommendation 8

ORA recommends a decrease of $631,000, a 50 percent reduction of 9

SCE’s forecast increase for warranty meter acceptance tests. ORA claims, “One factor to determine the 10

number of meters repaired and returned under the manufacturer’s warranty is the forecasts for new 11

meter growth. SCE performs acceptance testing on 50 percent of these repaired and returned meters. 12

ORA’s 2015 forecast for residential new meter growth is 42 percent less than SCE’s forecast. ORA’s 13

forecast for commercial new meter growth is nine percent less than SCE’s forecast. Furthermore, Table 14

13-16 shows that the number of Meter Shop Tests is lower than recorded 2012 and lower than forecast 15

2013. Therefore, ORA recommends adjusting SCE’s request by fifty percent.”161 16

(2) ORA’s Rejection of SCE’s Upward Adjustment of $1.263 Million to 17

Reflect the Added O&M Costs of Performing Warranty Meter 18

Acceptance Testing Is Not Related to New Meter Growth 19

ORA’s 2015 forecast for new meter growth has nothing to do with SCE’s 20

cost of testing meters returned from the manufacturer under warranty. In fact, new meter growth has 21

little impact on the volume of meters returned to the manufacturer under warranty, which is driven by 22

SCE’s total current ESC meter population and the failure rates of all five million meters. New meter 23

growth will impact the volume of new meter acceptance testing and installation testing. However, the 24

cost of that testing is recorded as a capital expenditure and has no impact on the costs recording to 25

FERC Account 586.400, as these costs record as O&M expense. 26

ORA’s second argument that “the number of Meter Shop Tests is lower 27

than recorded 2012 and lower than forecast 2013” does not consider the fact that 95 percent of the 2012 28

160 SCE-04, Vol. 2, p. 31, lines 4-6. 161 ORA-13, p. 22, lines 21-22.

57

tests were acceptance tests of new meters recorded as a capital expenditure.162 In contrast, over 25,000 1

Meter Shop Tests forecast to be performed per year in 2013 through 2015 are warranty tests on meters 2

that have already been capitalized and will be charged to O&M in FERC Account 586.400. 3


ORA’s recommendations for this account are not appropriate for two basic reasons. 5

First, ORA’s positions relate entirely to the work performed by Lab and Meter Shop Technicians in 6

2012 and 2013, when the majority of expense charged to FERC Account 586.400 is for EMS personnel 7

in the field who are performing routine and sample testing as well as field maintenance and the repair of 8

meters in the field. Second, ORA confuses meter acceptance testing of new ESC meters in the Meter 9

Shop in 2012 (the majority of which was charged as capital in the ESCBA) with Meter Shop testing of 10

ESC meters returned to the manufacturer under warranty (all of which is charged directly to FERC 11

Account 586.400 as O&M). 12

As SCE explained in direct testimony,163 most of the field test activities that are recorded 13

in this account were suspended in 2011 and 2012 because of the major disruption of SCE’s meter 14

population while five million ESC meters were being installed during that period. The majority of 15

activities charged to this FERC Account did not resume until 2013 and will not reach full steady state 16

until the 2015 Test Year. While most of ORA’s arguments rely on updated 2013 data obtained through 17

discovery, ORA simply does not recognize that 2013 is not reflective of the Test Year, as significant 18

changes are taking place related to FERC Account 586.400 up to the Test Year. 19

K. Account 587 – Customer Installation and Energy Theft Expense 20


SCE’s forecast of $7.946 million in FERC Account 587 for the Test Year 2015 is based 22

on the 2012 recorded adjusted expenses of $6.976 million and includes adjustments for (a) ESC 23

incremental costs of $1.180 million for two new energy theft programs, (b) customer growth related 24

expenses of $144,000, and (c) Operational Excellence savings of $355,000 through the reduction of six 25

Supervising FSRs in the revenue protection function. 26

For the 2015 Test Year, SCE forecast that SmartConnect incremental costs will increase 27

by $1.180 million to fund the cost of two new energy theft programs associated with the implementation 28

162 See SCE-04, Vol.2, Pt. 1, Workpapers, p.84. 163 See SCE-04, Vol. 2, p. 27, lines 6-8.

58

of ESC as operations reach steady state in 2015. These new programs include the ESC-enabled meter 1

tamper flags and the MDMS customer consumption data mining analyses. Development of both of 2

these programs is underway and is expected to be operational in 2015. 3

2. ORA’s Test Year Forecast Position 4

ORA recommends $1.180 million, which is 15 percent below SCE’s forecast for FERC 5

Account 587. ORA does not take issue with SCE’s upward adjustment of $144,000 for customer 6

growth. ORA also accepts the Operational Excellence savings of $355,000. 7

a) ORA Does Not Support SCE’s $1.2 Million Future Year Adjustment Needed 8

to Fund Field Investigations Generated by Two New Energy Theft Programs 9

ORA relies on SCE’s 2013 Energy Theft Program results obtained in discovery as 10

the basis for its opposition to SCE’s incremental adjustment for two new ESC Energy Theft programs. 11

Citing SCE Workpapers,164 ORA states, “SCE estimated 4,950 investigations generated by MDMS and 12

10,891 investigations generated by Tamper flags during each year of 2013 to 2015. SCE’s 2013 13

recorded data as of October 2013 for energy theft investigations generated by MDMS data mining were 14

109 and ESC tamper flags were 2,246 which are significantly lower than SCE’s 2013 forecasts. 15

Therefore, ORA recommends no additional funding for energy theft investigations because the latest 16

recorded data does not support the increase forecast.”165 17

b) SCE’s Rebuttal – ORA Proposes to Disallow the Same $1.2 Million That the 18

Commission Already Authorized for SCE’s Two New Energy Theft 19

Programs in SCE’s 2012 GRC 20

In the final decision issued in SCE’s 2012 GRC, the Commission recognized the 21

transformation in SCE’s energy theft programs that was brought about by the ESC systems: “In D.09-22

09-026, the Commission acknowledged that energy theft losses would likely increase once meter readers 23

were gone unless replaced with AMI assisted energy theft programs.”166 In SCE’s 2012 GRC, which 24

included two Test Years, 2012 and 2013, the Commission authorized an increase for Energy Theft 25

Programs in the 2013 Test Year of $1.27 million.167 That authorized increase for 2013 was not spent in 26

164 See SCE-04, Vol. 2, Pt. 1, Workpapers, p. 145. 165 ORA-13, p. 26, line 23 – p. 27, line 5. 166 D.12-11-051, Finding of Fact No. 557. 167 See D.12-11-051, p. 342.

59

the 2012 Base Year for this GRC. As such, SCE has included this same $1.2 million as an incremental 1

cost adjustment in its budget based forecast for this GRC, which uses the 2012 Base Year recorded cost 2

as the basis for its forecast. 3

With the late decision issued in SCE’s 2012 GRC168 and delays in developing the 4

new energy theft programs, as ESC communications stabilization activities were still underway in 2013, 5

SCE Energy Theft program requirements remain the same as for the 2013 Test Year as presented in the 6

2012 GRC. In direct testimony, SCE set forth the need for these programs: 7

With the deployment of ESC and the elimination of meter readers, the Energy 8 Theft program is undergoing a major transformation…169 The cost for the 9 Tamper Flag and Unusual Usage Programs are not included in the Base Year, 10 as ESC deployment was completed in December 2012. As the meter reading 11 activities were converted from manual to automatic reading processes, fewer 12 meter tampering investigations occurred, as the number of leads originating 13 from meter readers diminished in 2011 and 2012. This was a temporary 14 reduction in energy theft investigations because the two new energy theft 15 programs, ESC tamper flags and MDMS data mining, are just beginning and 16 are expected to generate nearly triple the number of field theft investigations 17 and confirmed theft cases that occurred previously.170 18

The current status of SCE’s two new Energy Theft Programs is described in the 19

following sections. 20

(1) Meter Tamper Flag Program 21

Implemented in early 2013, the Tamper Flag Program is in the early 22

deployment stage and is being tested for a variety of potential detection functions. SCE is in the process 23

of developing more defined procedures and expects the program to be fully implemented and 24

operational in 2015. SCE expects that the Tamper Flag program will result in 10,900 investigations in 25

2015.171 26

(2) Unusual Usage Program 27

With the availability of hourly usage patterns for nearly all customers, the 28

MDMS Unusual Usage Program is expected to generate over 4,000 high quality leads annually with a 29

20 to 30 percent success rate of confirmed theft cases in the first full year. Like the Tamper Flag 30

168 D.12-11-051 was issued on December 10, 2012. 169 SCE-04, Vol. 2, p. 47, lines 1-2. 170 SCE-04, Vol. 2, p. 51, lines 2-9.

60

program, the Unusual Usage energy theft program is still in the early development stages. SCE is in the 1

process of developing more defined procedures and expects the program to be fully implemented and 2

operational in 2015.172 3


SCE plans to move forward with the ESC-enabled Energy Theft programs as authorized 5

by the Commission in 2009 in D.08-09-039.173 SCE’s proposed incremental spending proposed in this 6

GRC is the same $1.180 million that the Commission authorized in the 2012 GRC for these programs 7

for SCE’s 2013 Test Year. These costs are not in the 2012 Base Year recorded cost for this GRC and 8

therefore need to be added to the 2015 forecast in order to fund these programs, which are now 9

scheduled to be fully implemented by 2015. 10

Continued from the previous page 171 See SCE-04, Vol. 2, p. 43, lines 1-2. 172 See SCE-04, Vol. 2, p. 43, lines 23-26. 173 See D.08-09-039, p. 35.

61

III. 1

REBUTTAL TO CAPITAL ISSUES RELATED TO THE CUSTOMER SERVICE OPERATING 2

UNIT 3

The purpose of this chapter is to address the Customer Service Capital recommendations of ORA 4

and TURN regarding SCE’s capital expenditures forecasts for Metering, Structures and Improvements, 5

and Specialized Equipment. 6

A. Metering Capital Requirements 7

1. Meter Growth Forecast 8

a) ORA and TURN’s Positions – Use of a New Model for the Retail Sales and 9

Customer Growth Forecast 10

ORA and TURN both propose a new meter volume forecast for Residential and 11

Commercial and Industrial (C&I) Growth Meters based on a new Meter Sales and Customer Growth.174 12

ORA disagrees with several assumptions used within SCE’s forecasting model 13

and developed its own forecasting model. ORA’s reductions to the meter growth volumes are shown in 14

Table III-5 below. 15

Table III-5175 ORA’s Proposed Meter Volumes

for Residential and C&I Growth Meters 2013 – 2015

Res C&I Res C&I Res C&I Res C&I1 2013 - 5,114 13,217 4,656 13,217 (458) N/A 9.0%2 2014 30,647 6,541 18,470 5,947 (12,177) (594) 39.7% 9.1%3 2015 51,238 8,607 29,561 6,943 (21,677) (1,664) 42.3% 19.3%

YearLine No.

SCE ORA Difference Change

TURN proposes using a similar forecasting model to SCE’s but with certain 16

changes to SCE’s econometric equation to update recorded data for 2013.176 TURN’s reductions to the 17

meter volumes are shown in Table III-6 below. 18

174 See ORA-03, pp. 1-13; TURN-05, Marcus, pp. 43-47. 175 See ORA-13, p. 66. 176 See TURN-05, Marcus, pp. 43-44.

62

Table III-6177 TURN’s Proposed Meter Volumes

for Residential and C&I Growth Meters 2013 – 2017

Res C&I Res C&I Res C&I Res C&I1 2013 - 5,114 - 5,252 - 138 0.0% -2.7%2 2014 30,647 6,541 15,708 5,649 (14,939) (892) 48.7% 13.6%3 2015 51,238 8,607 46,419 7,078 (4,819) (1,529) 9.4% 17.8%4 2016 56,320 10,689 57,101 9,527 781 (1,162) -1.4% 10.9%5 2017 55,939 11,897 59,632 11,609 3,693 (288) -6.6% 2.4%

Line No. Year SCE TURN Difference Change

SCE objects to ORA’s and TURN’s proposals to forecast meter growth capital 1

expenditures. For SCE’s rebuttal to ORA’s and TURN’s proposed changes to the meter forecasting 2

model, please see SCE-26, Vol. 1. 3

b) ORA’s Position – SCE’s Forecast of Unit Costs for Residential, Commercial, 4

and Agricultural Meters 5

In responding to discovery from ORA, SCE discovered an error in the unit cost 6

for C&I and Agricultural meters.178 SCE identified the error in its discovery response and indicated that 7

SCE would revise the per-unit costs as part of its Errata. ORA is aware of this revision and accepted the 8

revision in its testimony.179 SCE provides the revised per unit costs for C&I and Agricultural meters in 9

Table III-7. 10

177 Id. at pp. 61-62. 178 See ORA-13, p. 64. 179 See ORA-13, p. 67, line 5.

63

Table III-7180 C&I and Agricultural Meters

Proposed and Revised Per Unit Cost 2013 – 2015 (Nominal $)

Proposed Revised Proposed Revised Proposed Revised Proposed Revised Proposed Revised1 C&I 849$ 579$ 897$ 611$ 915$ 624$ 920$ 627$ 934$ 637$ 2 Agricultural 849$ 579$ 897$ 611$ 915$ 624$ 920$ 627$ 934$ 637$

2013 2014 2015 2016 2017MetersLine No.

2. Residential Replacement Meters 1

a) ORA’s Position – ORA Uses a Ratio of Replacement Meters to Growth 2

Meters to Determine a Reduced Meter Replacement Volume 3

Because ORA is reducing the forecast volume of meters for growth (please see 4

A.1 of this section above), ORA recommends using a ratio of SCE’s original forecast of Residential 5

Replacement Meters to Residential Growth Meters to determine a new volume for SCE’s replacement 6

meters based on ORA’s new Residential Growth Meter forecast. Table III-8 below provides ORA’s 7

calculation for Residential Replacement Meters. 8

Table III-8 ORA’s Calculation for Residential Replacement Meters181

2014 – 2015 Forecast

RatioReplmt Growth Growth Replmt

A B C D E1 2014 Forecast 5,890 30,647 19.2% 26,466 5,086 2 2015 Forecast 5,275 51,238 10.3% 29,561 3,042

C = A / B E = C x D

Line No. Years

SCE Meter Forecast ORA Meter Forecast

180 See Appendix A, SCE response to data request DRA-009-SWC-Q.07.f. 181 See ORA-13, p. 68, and footnote 212.

64

b) SCE’s Rebuttal – Replacement Meters Are Not Correlated to Growth Meter 1

Replacements 2

ORA’s proposed use of Residential Growth Meters to determine the Residential 3

Replacement Meters forecast is flawed. ORA proposes a new forecasting model for Residential Growth 4

Meters and then uses the results from the new model as a base to forecast Residential Replacement 5

meters. This is improper because the base has been incorrectly reduced by ORA’s forecasting model. 6

Please see A.1 of this section for SCE’s rebuttal to ORA’s Growth Meter forecast. 7

ORA’s forecasting approach for Residential Replacement meters is also flawed 8

because ORA improperly relies on an assumption that a ratio of Residential Replacement Meters to 9

Residential Growth Meters is appropriate. This would be true if SCE only used Residential 10

Replacement Meters to replace the Residential Growth Meters installed in that particular year. This is 11

not the case. SCE’s must make replacements to its approximately five million customer meter base, not 12

just Residential Growth Meters. Table III-9 below shows ORA’s corrected calculation based on an 13

assumption of five million residential meters. 14

Table III-9 Correct Calculation for Residential Replacement Meters

2014 – 2015 Forecast

RatioReplmt Total Meters* Total Meters* Replmt

A B C D E1 2014 Forecast 5,890 5,030,647 0.117% 5,026,466 5,885 2 2015 Forecast 5,275 5,051,238 0.104% 5,056,027 5,280

C = A / B E = C x D*For illustrative purposes, assumes a meter base of 5 million plus the corresponding growth meters

Line No. Years

SCE Meter Forecast ORA Meter Forecast

Table III-10 shows the last six years of recorded Residential Growth and 15

Replacement meter volumes, as well as the forecast for 2014 and 2015. Line three of the table shows a 16

large variance in replacement meters as a percentage of growth meters (as ORA is proposing). The 17

percentages change from as low as 10 percent to as high as 685 percent. The year-over-year fluctuation 18

shows there is no specific trend other than the decreasing volume in Residential Replacement meter 19

volumes after the completion of ESC deployment in the end of 2012. 20

65

Table III-10 Residential Meter Volume

Recorded and Forecast 2008 – 2015

2008 2009 2010 2011 2012 2013 2014 20151 Growth 32,695 23,647 19,150 5,590 1,052 13,217 30,647 51,238 2 Replacement 81,070 88,507 62,929 14,437 7,209 24,079 5,890 5,275

3Replacement as a

% of Growth 248% 374% 329% 258% 685% 182% 19% 10%

Recorded ForecastLine No.

Residential Meter

Using R-squared analysis, which evaluates the correlation of data sets based on a 1

factor between zero and 100 percent, where 100 percent shows a strong correlation and zero shows no 2

correlation, the R-squared result was 0.0096 or approximately one percent showing there is no 3

correlation between the Residential Growth meters and the Residential Replacement meters.182 4

As described in SCE’s response to ORA’s data request, DRA-009-SWC, Q.04, 5

SCE calculates one percent of SCE’s entire residential meter population to determine the forecast for 6

Residential Replacement Meter forecast. The one percent amount was based on the 12-month meter and 7

communication failure rate (as of April 2013) of 1.39 percent rounded down to one percent. The meter 8

failure rate was 0.4 percent, and the communication failure rate was 0.99 percent. 9

ORA provides no evidence as to why its forecast method is more reasonable than 10

SCE’s, apart from its goal of selectively reducing SCE’s forecast where possible. If ORA were to 11

correct its ratio to use the total residential meter population instead of only growth meters, the revised 12

calculation is nearly the same as SCE’s original forecast, as shown in Table III-8. For these reasons, the 13

Commission should reject ORA’s Residential Replacement Meter forecast and accept SCE’s forecast. 14

182 See Appendix B, Workpaper: Residential Growth and Replacement Meters Regression Analysis for R-

Squared Factor.

66

3. C&I, Agricultural, and RTEM Replacement Meters and Agricultural Growth 1

Meters Volume Forecast 2

a) ORA’s Position 3

(1) ORA Uses 2013 Recorded Expenditures to Forecast 2014 and 2015 4

ORA recommends using the 2013 recorded expenditures for the 2013, 5

2014, and 2015 forecasts for C&I, Agricultural and RTEM Replacement Meters and Agricultural 6

Growth Meters.183 7

b) SCE’s Rebuttal – ORA’s Use of Last Year Recorded Volumes for the 2014 8

and 2015 Forecast Is Arbitrary 9

SCE uses a five-year historical replacement average to forecast replacement meter 10

volumes with adjustments in 2014 through 2016 to take into account routine and sample testing schedule 11

cycles for C&I Replacement meters.184 Averaging method smooths the fluctuation in the recorded data 12

when there is significant variation in volumes in prior years. The last year recorded alone is not a 13

reliable indication of future expenditures. ORA recognizes this as a valid method of forecasting as ORA 14

uses this method when calculating a forecast amount for Customer Service’s BCD-Structures and 15

Improvements. ORA not only recommends a five-year average but further recommends excluding 2012 16

from the average as it is abnormally low.185 Conversely, ORA provides no evidence or explanation as to 17

why an abnormally low Last Year Recorded amount should be used in its meter forecast method other 18

than such an approach significantly reduces SCE’s meter capital forecast. As shown in Table III-11, 19

volumes for these groups have been declining. SCE expects, however, these volumes to increase 20

consistent with its forecast for the reasons described below. 21

183 See ORA-13, p. 69. 184 See SCE-04, Vol. 2, p. 63, lines 2-21. 185 See ORA-13, p. 73.

67

Table III-11 Fluctuation of Agricultural Growth Meters

and Replacement Meters (2008 – 2013)

VolumeChange from

Prior Year VolumeChange from



Prior Year1 2008 646 1,935 14,104 2,434 2 2009 426 -34% 2,147 11% 13,337 -5% 3,881 59%3 2010 313 -27% 1,306 -39% 11,588 -13% 1,445 -63%4 2011 263 -16% 793 -39% 5,151 -56% 1,273 -12%5 2012 198 -25% 503 -37% 1,306 -75% 1,107 -13%6 2013 212 7% 450 -11% 2,354 80% 450 -59%

7

Overall Change from 2008-2013

-67% -77% -83% -82%

Line No. Year Agricultural Growth Agicultural Replmt C&I Replmt RTEM Replmt

For the 2010 – 2012, the C&I and Agricultural meter volumes are lower than in 1

prior years because some of these meters were being replaced through the ESC deployment program and 2

charged to the ESC balancing account. SCE does not forecast the volumes to be as high as pre-ESC 3

deployment levels or as artificially low as when replacements were also being charged to the ESC 4

balancing account. SCE’s five-year average smooths this variability in meter volumes. ORA’s 5

recommended use of the 2013 meter volumes fails to reflect this fact and results in an inaccurately low 6

forecast. 7

RTEM Replacements were also affected by the ESC deployment. While RTEM 8

meters were not included in the deployment of ESC meters, the resources to replace RTEM meters were 9

focused on ESC deployment and not on RTEM meters that were being replaced because they were past 10

their useful lives. With the completion of the ESC deployment, SCE is forecasting more RTEM 11

replacements can be performed. Similar to C&I Replacement meters, ORA’s recommended use of the 12

2013 meter volumes fails to reflect this and results in an inaccurately low forecast. 13

SCE’s forecast based on the five-year average smooths the variation in meter 14

replacements SCE has historically experienced. The Commission should reject ORA’s recommendation 15

and adopt SCE’s five-year average forecast for replacement meters. For the Agricultural Growth 16

Meters, the Commission should adopt SCE’s use of Meter Sales and Customer Growth forecast. 17

68

B. Structures and Improvements 1

1. BCD Structures and Improvements 2

a) BCD Structures and Improvements Summary 3

SCE’s capital forecast for BCD structures and improvements is necessary for 4

SCE’s Energy Education Centers to meet customer demand and support Commission directives and 5

other essential statewide initiatives.186 6

b) ORA’s Position 7

In response to SCE-DRA-058-SWC, ORA recommends using the 2013 BCD 8

structures and improvements recorded amount of $1.254 million for 2013 and does not take issue with 9

SCE’s capital expenditures request of $1.295 million in 2014 and $1.483 million in 2015 for BCD 10

Structures and Improvements.187 11

C. Business Customer Division Specialized Equipment 12

1. BCD Specialized Equipment Summary 13

BCD specialized equipment is used by SCE engineers and technical specialists to 14

measure energy use, temperatures, pump performance characteristics, and other data at customer sites 15

and laboratory environments in order to support customer Demand Side Management (DSM) program 16

participation. This includes the development of new DSM program measures and evaluation of energy 17

consumption and performance of existing or new equipment being considered by customers. The table 18

below shows SCE’s forecast and ORA’s recommendation for BCD specialized equipment for the period 19

2013 through 2017. 20

186 See SCE-04, Vol. 3, p. 49 line 6 – p. 50, line 17. 187 See Appendix A, ORA response to data request SCE-DRA-058-Q.1.

69

Table III-12 Comparison of SCE’s and ORA’s BCD Specialized Equipment

Forecast 2013-2017 (nominal $000)

Line No. Description 2013 2014 2015 2016 2017

1 SCE Forecast $ 118 $ 123 $ 332 $ 239 $ 244 2 ORA $ 100 $ 100 $ 100 * *

* ORA does not forecast capital expenditures for 2016 and 2017 relying instead on its proposed test year ratemaking described in ORA-25.

2. ORA’s Positions 1

ORA recommends using the 2013 recorded BCD Specialized Equipment capital 2

expenditures of $100,000 for 2013, 2014, and 2015.188 3

3. SCE’s Rebuttal 4

a) ORA Does Not Address SCE’s Detailed Forecast 5

SCE’s capital forecast for BCD specialized equipment is based upon a detailed 6

assessment of SCE’s need to replace existing equipment due to failure or obsolescence, or to purchase 7

new equipment for emerging applications.189 This detailed forecast, averaging $211,000 per year for the 8

forecast period (2013-2017), varies from year to year depending on the specific equipment procurement 9

plans. ORA’s testimony does not address the specifics of SCE’s forecast details and instead focuses on 10

SCE’s 2013 recorded costs—where SCE underspent its forecast of $118,000 by 15 percent—to 11

recommend a 53 percent reduction to SCE’s forecast. Capital funding of BCD specialized equipment at 12

the forecast levels is necessary to continue to provide support for existing DSM programs and SCE’s 13

pump test and hydraulic services and to develop new DSM program measures as existing measures 14

become obsolete due to Codes and Standards updates. 15

b) ORA’s Proposal Does Not Include the Impact of Inflation 16

SCE presents its capital expenditure forecasts in nominal dollars. In 17

recommending setting SCE’s forecast at the level of 2013 recorded expenditures, ORA ignores the 18

impact of inflation and, in essence, recommends a reduction in both 2014 and 2015 relative to 2013 19

188 See ORA-13, p. 74, lines 5-8. 189 See SCE-04, Vol. 3, Workpapers, pp. 131 and 133.

70

recorded levels. If the Commission, against SCE’s recommendation, elects to adopt a Specialized 1

Equipment forecast based on the 2013 recorded amount as recommended by ORA, the correct, inflation-2

adjusted forecast for 2014 and 2015 should be $102,000 and $105,000, respectively.190 3

4. BCD Specialized Equipment Capital 4

ORA’s recommended use of 2013 recorded expenditures for the 2014 and 2015 forecast 5

should be rejected. SCE’s BCD Specialized Equipment forecast is based upon specific equipment 6

replacement needs and should be adopted as forecast. 7

D. Customer Service Overall Capital Request 8

1. ORA Recommends a PTYR Mechanism 9

a) ORA’s Position 10

ORA recommends using a PTYR mechanism of 1.9 percent in 2016 and 2.3 11

percent in 2017 based on the Urban Consumer Price Index.191 12

b) SCE’s Rebuttal 13

SCE’s capital request represents project specific forecasts that can span several 14

years. Aside from the meter capital, they do not represent similar repetitive tasks that occur year after 15

year. The expenditures in one year are not indicative of the expenditures in the following year. Thus, a 16

five-year budget-based forecast is a more accurate forecast method for determining project costs. Please 17

refer to SCE-26, Vol. 1 for the rebuttal to ORA’s PTYR mechanism recommendation. 18

190 See Appendix B, Workpaper: BCD Capital (Specialized Equipment) adjusted for inflation. 191 See ORA-25, pp. 1-2.

71

IV. 1

REBUTTAL TO CUSTOMER SERVICE OTHER OPERATING REVENUE (OOR) ISSUES 2

The purpose of this chapter is to address the Customer Service OOR recommendations of ORA, 3

TURN, and SBUA. 4

The CSOU is responsible for assessing the fees to charge individual customers and third parties 5

who receive services that cause SCE to incur additional operational expenses. These services are cost 6

causation activities and above the basic operational services provided by SCE. As such, SCE funds 7

these activities through fees charged for these services. The revenue received for these services is 8

accounted for as OOR, which is deducted from SCE’s total revenue requirement which lowers SCE’s 9

overall revenue requirement. 10

A. The Commission Should Adopt Opt-Out Fees Proposed In This Application 11

Consistent with SCE’s Smart Meter Opt-Out Cost Estimates, Cost Recovery Proposal testimony, 12

and D.12-04-018, SCE proposed updated Opt-Out fees and volumes in this GRC.192 ORA does not take 13

issue with SCE’s Opt-Out fees or OOR forecast.193 TURN states that, “[w]hen the Commission issues a 14

final decision in that proceeding, its effects on the final opt-out fees should be automatically and 15

mechanically passed through as an adjustment to Edison’s Other Operating Revenues.”194 SCE 16

recommends that, should the Commission issue a decision in A.11-03-014 prior to a decision in this 17

case, the Commission should defer to this decision, as the fees proposed in this Application are based on 18

more recent cost information. Should the Commission modify the fees or participation volumes for the 19

Opt-Out program in this proceeding, the final Results of Operations Model in this proceeding must be 20

updated accordingly. 21

B. SCE Should Eliminate the $10 Monthly Opt-Out Fee 22

1. SBUA’s Position 23

SBUA states, “The Commission should require SCE to eliminate the $10 monthly fee for 24

small business customers who choose to opt-out of Smart Meters.”195 SBUA contends that some 25

customers “do not want a company having instant access to their power usage data” and that “some 26

192 See A.11-07-020, Exhibit SCE-1, p. 1. 193 See ORA-13, p. 61, lines 16-21. 194 TURN-08, Nahigian, pp. 36-38. 195 SBUA-01, Brown, p. 11.

72

customers may desire not to be labeled as a company which has opted out of AMI.” SBUA suggests 1

“that many small business owners would want to hide their energy usage data entirely.”196 To support 2

its claim, SBUA adds a footnote speculating that “it is possible in the coming rate cycle that California 3

could choose to legalize marijuana just as has Colorado. Given polling data in California, this is a real 4

possibility.”197 5

2. SCE’s Rebuttal 6

SCE’s Application A.11-07-020 regarding its Smart Meter Opt-Out Cost Estimates and 7

Cost Recovery Proposal, filed on August 10, 2012, is specifically intended for, and limited to, residential 8

customers only.198 A.11-07-020 was litigated in 2013 and is currently pending a Commission decision. 9

There was no consideration given in that Application to the inclusion of small commercial customers in 10

the proposed Opt-Out Program, nor was there any mention in the Commission’s Interim Decision D.12-11

04-018 (dated April 19, 2012) to include small business customers in SCE’s Opt-Out Program.199 12

Small business customers are not eligible for the ESC Opt-Out Program. Therefore, the 13

$10 monthly opt-out fee does not apply to small business customers. SCE’s SmartConnect meter opt-14

out cost estimates and cost recovery proposal are being litigated by the Commission in a separate 15

proceeding (A.11-07-020). That Application addresses “SCE’s program assumptions” and “the key 16

operational areas and associated costs required to implement and operate the Opt-Out Program. Cost 17

recovery for years beyond 2014, and the applicable customer fees are to be determined in this GRC 18

proceeding.”200 Thus, the only Smart Meter Opt-Out issues being litigated in this proceeding are the 19

dollar amounts for each of the Opt-Out fees, not the waiver of the fee or the definition of eligible 20

customers. In the 2015 GRC, SCE recommends updated Opt-Out costs and corresponding fees.201 21

SBUA’s speculative assertions about the potential for legalizing marijuana in California 22

are irrelevant to the current eligibility for the Opt-Out program and should be ignored by the 23

Commission. 24

196 Id. at p. 11. 197 Id. at p. 11, fn 16. 198 See A.11-07-020, Exhibit SCE-1, p. 1, lines 7-11. 199 A.11-07-020 was litigated in 2013 and is currently pending a Commission decision. 200 A.11-07-020, Exhibit SCE-1, p. 7, lines 3-6. 201 See SCE-04, Vol. 2, pp. 212-213.

73

V. 1

REBUTTAL TO OTHER ISSUES 2

A. TURN Recommends a Reduction to the Base Year for Amounts Transferred to Claims 3

TURN asserts that five202 Customer Service FERC Accounts that are forecast based on the Last 4

Year Recorded include a total of $702,000 that was transferred to Claims (FERC 925) but never 5

removed from the Customer Service FERC Accounts. 6

TURN states, “In the customer service department, in six final cost centers,203 all of which are 7

forecast starting with the last recorded year, there are 2012 costs transferred to claims that were never 8

removed from the ongoing costs in the department. TURN therefore takes a base year adjustment of 9

$700,000 in five FERC subaccounts (six final cost centers), where 2012 costs were also included in 10

claims.”204 11

B. SCE’s Rebuttal – TURN Wrongly Assumes There Are 2012 Costs Transferred to Claims 12

That Were Never Removed From the Ongoing Costs in Customer Service 13

TURN wrongly assumes $702,000 remains in Customer Service FERC Accounts based on the 14

fact that Customer Service’s Final Costs Centers (FCCs) appear in Claim’s SCE-08 Vol. 02 workpapers 15

with recorded costs in 2012.205 16

For this issue, please see SCE-26, Vol.1C, pp. 26-28 for SCE’s rebuttal testimony. 17

C. TURN Recommends a Reduction to the Test Year Forecast Clothing and Other Edison 18

Gear 19

TURN identified clothing and other gear containing Edison’s name and logo (excluding 20

uniforms, hard hats, etc.) in Base Year spending and recommends that these expenses should not be 21

included in rates.206 Of this amount, $22,621 was included in FERC Accounts included in SCE-04.207 22

SCE’s rebuttal to this issue is included in SCE-28. 23

202 FERC Accounts: 903.500, 905.800, 908.600, 908.640 and 907.600. 203 Final Cost Centers: F400609, F400320, F400452, F400521, F525381 and F400301. 204 TURN-05, Marcus, p. 120. 205 See SCE-08, Vol. 2, Workpapers, pp. 123-124. 206 See TURN-05, Marcus, p. 121. 207 See Appendix B, Workpaper: Logo Costs in SCE-04.

74

D. SBUA’s Position 1

Throughout its testimony SBUA notes that “SCE also appears to understand the likely problems 2

of small businesses in the coming rate cycle”208 and goes on to make a number of recommendations 3

relating to customer service. In many cases, its recommendations span multiple organizations and 4

FERC Accounts. Rebuttal for these overarching issues is addressed below; rebuttal to issues impacting 5

a single FERC Account is addressed in the Rebuttal testimony for that FERC Account in Chapter II of 6

this Exhibit. 7

First, SBUA states that it would “prefer to see additional funding to hire two new customer 8

service representatives to answer questions of small businesses in their territory.”209 Second, SBUA 9

expresses concern that “enough Spanish-speaking customer service representatives be hired to 10

adequately respond to customer concerns.”210 Third, SBUA desires that the Commission take up the 11

matter of energy efficiency funding in this proceeding and “require SCE to implement an improved 12

program and devote additional funding to be more successful in enrolling small businesses in energy 13

efficiency programs” and that “SCE should also employ small businesses to implement these [energy 14

efficiency] programs.”211 Fourth, SBUA recommends that “the Commission should require SCE to 15

develop and fund a group focused on the needs of small businesses.”212 Fifth, SBUA recommends that 16

the “Commission should require SCE to minimize data collection of energy usage.”213 Finally, SBUA 17

asks that “SCE implement protections to ensure this information not be sold to marketers without the 18

consent of these businesses.”214 19

E. SCE’s Rebuttal 20

SCE notes that SBUA’s recommendations are generally based solely on its witness’s expert 21

opinions without any supporting evidence. Where additional evidence is provided, it is so generic as to 22

be of little evidentiary value. For example, when questioned about research conducted to support its 23

208 SBUA-01, Brown, p. 9. 209 Id. 210 Id. 211 Id. at p. 11. 212 Id. at p. 19. 213 Id. at pp. 6 and 11. 214 Id. at p. 21.

75

recommendation that SCE should “make it easy” for small business customers to opt out of critical peak 1

pricing (CPP), SBUA responded by stating that “members have repeatedly expressed concerns over 2

time-of-use charges, fair pricing, and the costs of being required to pay more for electricity at certain 3

times of day.”215 Without questioning the validity of these customers’ concerns, they are only 4

tangentially related to SBUA’s recommendation. 5

SCE also notes that many of SBUA’s recommendations are focused on process, not results. For 6

example, SBUA recommends that 30 percent of EDS spending be allocated to serving the needs of small 7

businesses, funding for customer service automation systems be reduced by 20 percent, and a $2 million 8

increase in energy efficiency funding for small business. SBUA provides no support for how these 9

numbers were derived or the quantifiable cost effective results it hopes to achieve with these 10

recommendations. 11

1. SBUA Underestimates the Role of Technology in SCE’s Customer Service Strategy 12

and the Technical Savvy of Small Business Customers 13

SCE provides service to small business customers through a number of channels, 14

including live agents in SCE’s Customer Contact Center (CCC), account managers in SCE’s Business 15

Customer Division (BCD), online via SCE.com, email, and through SCE’s Interactive Voice Response 16

system. SCE’s automated customer service channels provide customers the opportunity to complete 17

simple requests for service (e.g., turn-ons and turn-offs) or acquire information (e.g., account balances 18

and payment due dates) while enabling CSRs and account managers to focus on more complex, time-19

consuming customer requests.216 To address the growth in more complex calls, SCE has requested 20

funding for additional staff to handle these more complex calls in its CCC testimony.217 21

SBUA dismisses the role of technology in a modern customer service environment and 22

underestimates the desire of its constituents to utilize these tools. In its testimony, SBUA dismisses a 23

study by Accenture cited by SCE and does not acknowledge the online usage trends presented in SCE’s 24

direct testimony.218 Without providing evidence other than the experience of its expert witness, SBUA 25

215 See Appendix A, SBUA response to data request SCE-SBUA-001-Q.2.a. 216 Should a customer prefer, CSRs are available to handle all inquiries, including those that can be completed

through self-service channels. 217 See SCE-04, Vol. 2, p. 152, line 10 – p. 159, line 2. 218 SCE-04, Vol. 2, p. 190, lines 7-9, quotes the Accenture study “Actionable Insights for the New Energy

Consumer.” Portions of Accenture’s study are included in SCE-04, Vol. 4, Pt. 2, Workpapers, pp. 319-322, (Continued)

76

asserts that the “majority of small business customers would prefer to deal with a utility by talking with 1

a competent professional customer service agent on the phone rather than fumbling around on the 2

internet or waiting to download an Iphone Application.”219 SCE’s research indicates otherwise. In a 3

recent survey of SCE’s small business customers, over half indicated that they would definitely or 4

probably use SCE’s website instead of a live representative, and over 40 percent of the respondents 5

indicated that they would definitely or probably use SCE’s automated phone system instead of a live 6

representative. Only 22 percent indicated that they would prefer not to use SCE’s automated 7

channels.220 8

Indeed, in response to an SCE data request, SBUA acknowledges that it has no research 9

on customer preferences or experiences utilizing SCE’s self service tools221 and seems to moderate its 10

position, stating, “I agree with the Accenture study in that small businesses would prefer that they be 11

able to complete certain simple transactions online.”222 12

Far from rejecting automated customer service channels, SCE’s small business customers 13

seem to embrace them. 14

2. SCE Employs Adequate Resources to Address the Customer Service Needs of 15

Customers Preferring to Conduct Business in a Language Other Than English 16

SBUA expresses a concern that “enough Spanish-speaking customer service 17

representatives be hired to adequately respond to customer concerns.”223 This concern is unfounded. 18

SCE’s CCC handles inbound calls through in-house bilingual representatives in six languages: English, 19

Spanish, Cambodian, Chinese (Mandarin and Cantonese), Korean, and Vietnamese. In addition, SCE 20

uses a vendor translation service, which enables support of customer inquiries in over 180 languages.224 21

Continued from the previous page

and the full study is available at http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Actionable-Insights-New-Energy-Consumer.PDF [as of September 12, 2014]. SCE’s online usage trends are presented at SCE-04, Vol. 2, p. 189, Table VIII-66.

219 SBUA-01, Brown, p. 18. 220 See Appendix B, Workpaper: Customer Engagement Baseline Study - Q4/YE 2012. 221 See Appendix A, SBUA response to data requests SCE-SBUA-001-Q.4.a. and -Q.4.b. 222 See Appendix A, SBUA response to data request SCE-SBUA-001-Q.8.a. 223 SBUA-01, Brown, p. 9. 224 See SCE-04, Vol. 2, p. 141, lines 23-26.

77

SCE’s BCD organization, which works closely with community and faith-based organizations, 1

chambers of commerce, and small trade and ethnic-based organizations to serve the needs of small 2

businesses, includes individuals proficient in a number of languages, including English, Spanish, 3

Chinese, Korean, and Vietnamese. Customer education and outreach initiatives are also often conducted 4

in these languages. For example, SCE’s 2012 Summer Readiness campaign included in-language 5

outreach in each of these languages.225 On SCE.com, over 80 percent of the content pages is also 6

available in Chinese, Vietnamese, Spanish, and Korean.226 SBUA’s concern that there may not be 7

enough Spanish speaking customer service representatives is misplaced and should be ignored. 8

3. Energy Efficiency Funding Levels Are Outside the Scope of This Proceeding 9

In its testimony, SBUA requests that the Commission require SCE to implement an 10

improved energy efficiency program, devote additional funding to small business enrollment activities, 11

and employ small businesses to implement these programs.227 12

SCE’s energy efficiency programs are funded through its Public Goods Charge (PGC). 13

The overall funding level and issues relating to energy efficiency portfolio composition and delivery are 14

addressed in utilities’ Energy Efficiency and Integrated Demand Side Management Programs and 15

Budget applications.228 Although SCE appreciates SBUA’s concerns regarding the funding and 16

effectiveness of energy efficiency programs, the General Rate Case is not the appropriate venue to 17

address these concerns. 18

4. SCE’s Small Business Engagement Efforts Are Adequate 19

SBUA recommends that “SCE to develop and fund a group focused on the needs of small 20

businesses” as a way of better engaging with the small business community.229 In making its 21

recommendation, SBUA presents no evidence that existing organizations are not meeting this need or 22

that SCE’s funding of another new group would be an effective means of achieving these goals. 23

SCE currently conducts a number of activities to better understand and engage its small 24

business customers. Many of SCE’s marketing and communication programs include specific efforts to 25

225 See SCE-04, Vol. 2, p. 184, line 4. 226 See SCE-04, Vol. 2, p. 192, lines 12-16. 227 See SBUA-01, Brown, pp. 10-11. 228 See, e.g., A.12-07-001, et al. 229 SBUA-01, Brown, p. 19.

78

educate and engage small business customers, including, for example, SCE’s Summer Readiness 1

campaign, the transition of small business customers to mandatory time-of-use (TOU) rates that began 2

earlier this year, and the implementation of default CPP rates beginning in 2016. In addition, BCD 3

account managers work closely with a number of small trade and ethnic-based organizations. 4

SBUA’s current small business engagement efforts are adequate, and SBUA’s proposal 5

should be rejected. 6

5. SCE Plans to Allow Small Business Customers the Ability to Easily Opt Out of CPP 7

In its testimony, SBUA expresses concerns over the implementation of default CPP for 8

non-residential customers with demands less than 200 kW beginning in 2016 as required by D.13-03-9

031. SBUA asks that “SCE make it easy for small businesses to opt-out of critical peak pricing should 10

they choose to do so.”230 11

SCE appreciates SBUA’s concerns. However, as default CPP has not yet been 12

implemented, SBUA’s concerns are premature. SCE plans to provide impacted customers with multiple 13

channels through which they may opt out of default CPP, including speaking to a live agent at SCE’s 14

Customer Contact Center. 15

6. SBUA’s Position Regarding SCE’s Need to Access and Retain Customers’ Power 16

Usage Data 17

a) SBUA’s Position – Minimize Energy Data Collection from Small Business 18

Customers 19

SBUA states, “The Commission should require SCE to minimize data collection 20

of energy usage to the extent possible for small businesses who do not desire to have their energy usage 21

data reported or collected.” SBUA further states, “However, from a policy standpoint, small business 22

customers should not be punished for desiring privacy. Some customers currently opt out of Smart 23

Meters because they do not want a company having instant access to their power usage data.”231 24

230 Id. at pp. 8-9. 231 Id. at p. 11.

79

b) SCE’s Rebuttal – Interval Usage Data is Required Because SCE is Under 1

Order of the Commission to Transfer Small Business Customers to 2

Mandatory TOU Rates by 1/1/2016 3

SBUA’s request is inconsistent with the Commission’s order in D.13-03-031, 4

which directs SCE to begin the transition of eligible non-residential customers with demands less than 5

200 kW to mandatory TOU rates beginning in January 2014 and to default to CPP in 2016.232 Small and 6

medium sized SCE business (GS-1 and GS-2) and agricultural accounts (PA-1 and PA-2) with 12 7

months of interval data as of August 1, 2013 started transitioning in January 2014. Those accounts that 8

did not have 12 months of data by August 1, 2013 will begin transitioning January 2015. Because the 9

Commission has already acted on the issue of mandatory TOU rates for small business customers, SCE 10

is currently mandated to install and maintain TOU metering for these customers and must access and 11

retain their power usage data for billing purposes. SCE’s Rule 17 (Adjustment of Bills and Meter Tests) 12

requires the retention of billing data for up to three years. 13

Contrary to SBUA’s assertion that “[s]ome customers currently opt out of Smart 14

Meters because they do not want a company having instant access to their power usage data,”233 there 15

are no small business customers on SCE’s SmartConnect Opt-Out Program because the Opt-Out 16

Program is limited to residential customers only.234 17

7. SBUA’s Position Regarding Customers’ Right to Privacy 18

a) SBUA’s Position – SBUA’s Concerns about Privacy of Energy Consumption 19

Data 20

SBUA states, “One concern of small businesses is the ownership of their private 21

energy usage and energy usage patterns. This information, when combined with other information could 22

provide marketers, law enforcement, or other groups with information that small commercial customers 23

232 D.13-03-031, pp. 23-24. D.13-03-031 directs SCE to (a) begin the transition of eligible Commercial and

Industrial customers with demands less than 200 kW to mandatory TOU rates beginning in January 2014 (pp. 23-24 and 33), (b) begin the transition of eligible Agricultural customers with demands to mandatory TOU rates beginning in January 2014 (p. 39), and (c) default Commercial and Industrial customers with demands less than 200 kW to CPP rates beginning in January 2016.

233 SBUA-01, Brown, p. 11. 234 See A.11-07-020, Exhibit SCE-1, p. 1, lines 7-11.

80

would not want them to have.”235 SBUA asks that “SCE implement protections to ensure this 1

information not be sold to marketers without the consent of these businesses.”236 2

b) SCE’s Rebuttal – SBUA Has Already the Requested Privacy Protections 3

SBUA’s concern and request are unnecessary because SCE’s Rule 25 (Protecting 4

the Privacy and Security of Customer Usage Information) already requires that “all customer specific 5

information gathered by SCE in the course of providing electric service is maintained as confidential 6

and not disclosed to third parties without prior written customer authorization, unless otherwise required 7

by law, Commission order, or in the event of an emergency or imminent threat of life.”237 Thus, the 8

Commission has already reviewed and approved these customer privacy protections through the 9

acceptance of SCE’s Rule 25. 10

SBUA fails to understand that SCE does not collect electric usage data to sell to 11

third party vendors. SCE collects electric usage data to bill its customers.12

235 SBUA-01, Brown, pp. 20-21. 236 Id. 237 SCE Tariff Rule 25, Protecting the Privacy and Security of Customer Usage Information, Sheet 1,

Introduction, available at https://www.sce.com/NR/sc3/tm2/pdf/Rule_25.pdf [as of September 12, 2014].

Appendix A

Customer Service Data Request Responses

2015 General Rate Case – Rebuttal Exhibit SCE-20

Customer Service Appendix A Workpapers

Data Requests

� DRA-020-SWC, Question 4


� DRA-040-SWC Question 3a

� DRA-287-SWC Question 2


� Supplemental Data Request DRA-287-SWC, Question 1

� DRA-096-SWC, Question 7a

� TURN-018 Question 11b

� DRA-096-SWC, Question 10b

� SCE-SBUA-001, Question 2a


� DRA-009-SWC, Question 7f


� SCE-DRA-058-SWC, Question 1


� SCE-SBUA-001, Question 4b


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A-2

Southern California Edison2015 GRC A.13-11-003

DATA REQUEST SET DRA-020-SWC

To: DRAPrepared by: Lawrence Oliva

Title: DirectorDated: 10/29/2013

Received Date: 10/29/2013

Question 08:

Originator: Sophie Chia

Reference: SCE-04, Volume 2, Chapter III

Subject: FERC Account 902-Meter Reading

Please provide the following:

In work papers to Exhibit SCE-04, Volume 2, page 36, SCE provides the ESC Steady steady-state SOC expenses.

8. Provide the assumptions and calculations for the “air time leased cost” forecast for 2015.

Response to Question 08:

The SOC will complete cellular device installations in 2013 except for additional installations required to support new development/growth. Air Time Lease costs are anticipated to remain steady at 2013 levels through 2015. The table below provides the calculations for the 2015 forecast.

A-3

Line No. Description Units Forecast

1 Cellular devices @ $12/month 15,000 $ 2,160,000 2 Backhaul Interconnection @ $10,000/ month N/A $ 120,000

3Broadband Global Area Network (BGAN) Annual Cost @ $2,000 per unit. 300 $ 600,000

4 IT Network Services Support Team N/A $ 120,000 5 3,000,000$TOTAL

FERC 902 - Meter ReadingAir Time Lease Cost Forecast 2015

A-4



To: DRAPrepared by: Charlie Hu

Title: Director, Revenue Service OrganizationDated: 11/20/2013


Question 03.a:


Exhibit Reference: SCE-04, Volume 2, Chapter IV

Subject: FERC Account 903.5-Billing Services


3. In Exhibit SCE-04, Volume 2, page 90, Table IV-38, SCE provides the Program Services Projected Enrollment Volumes for 2013 to 2017. In work papers to Exhibit SCE-04, Volume 2, part 2, page 73, SCE provides the workpaper for the Medical Baseline forecast.

a. Provide the basis and supporting documentation to support the Medical Baseline enrollment volumes forecasted for 2013 to 2017.

Response to Question 03.a:

The third column of Table IV-38 in Exhibit SCE-04, Volume 2, page 90 provides the enrollment related activity volumes for the Medical Baseline program. The basis for SCE's forecast Medical Baseline enrollment activity volumes is shown in the table below. During the period 2008-2012, Critical Care participation increased an average of 10.6% per year (line 1 of the table) and Non-Critical Care participation increased 8.6% per year (line 2 of the table). SCE assumed that Critical Care and Non-Critical Care participation rates will continue during the 2013-2017 period at these rates. Historically, Medical Baseline enrollment activity volumes, including new, renewal and updated applications, average 85% of overall participation. SCE used this average annual activity level to forecast program enrollment activity volume shown in line 4 in the table below.

A-5




Title: Director, Revenue Services OrganizationDated: 04/15/2014


Question 02:


Exhibit Reference: SCE-04, Volume 2

Subject: FERC Account 903.500


2. In Workpapers to Ex. SCE-04, Volume 2, Part 2, page 73, SCE provides the incremental volume for the Medical Baseline Program. Provide the monthly sign-ups for the Medical Baseline Program for each month of 2013 to 2014 year-to-date.


Medical Baseline Program enrollments processed by Program Services are shown in the table below for each month of 2013 and 2014 year-to-date through March.

A-7


DATA REQUEST SET DRA-287-SWC Supplemental




Question 01:





1. In Workpapers to Ex. SCE-04, Volume 2, Part 2, page 72, SCE provides the incremental volume for the Lifestyle Packages Program. Provide the monthly sign-ups for the Lifestyle Packages Program for each month of 2013 to 2014 year-to-date.


SCE’s initial response to DRA-287 focused on Lifestyle Package enrollment activities but did not include a description of other bundled offer activities. This revised response expands the scope of the earlier response.

The Lifestyle Packages effort (also referred to as Lifestyle Plans or Lifestyle Bundles) is one approach to bundle offers of rates, programs, and services for residential customers (described in SCE-04, Vol. 2, p. 187, lines 17-28). The use of bundled offers is one example of Intelligent Delivery – the use of various strategies and processes, such as data analytics and automated systems, to segment customers and deliver tailored, bundled offerings (described in SCE-04, Vol. 1, p. 11, line 26 and p. 12, line 23). SCE plans to continue to develop and employ bundled offers for residential and non-residential customers, including potential future LifeStyle Package offers, throughout the 2015 Rate Case Cycle.

Presently, processing enrollments requires Program Services (PS) support, including manual application processing and other activities described in SCE-04, Vol. 2, p. 91, lines 2-5. As noted in workpapers (SCE-04, Vol. 2, Pt. 2, p. 72), SCE expects that the manual processing of bundled enrollments will be eliminated in 2016 with the full automation of the enrollment

A-9

process.

The initial pilot testing of Lifestyle Packages concluded in late 2012, and the processing of manual enrollments from that effort continued into January and February 2013. In 2013, SCE’s Intelligent Delivery efforts included Time-of-Use (TOU) Transition Bundles in preparation for the implementation of mandatory TOU Rates for its non-residential customers with demands less than 200 kW in compliance with D.13-03-031. The TOU Transition Bundles effort launched in late 2013 enabled non-residential customers to enroll in Budget Assistant, MyAccount, and Choose Your Bill Date. This effort continued in 2014 with IDSM Bundles aimed at customers recently transitioned to TOU rates who were most impacted by the transition. This effort provided customers the ability to enroll in MyAccount and Budget Assistant, as well as referred them to appropriate Energy Efficiency and Demand Response programs.

Monthly enrollments processed by PS for TOU Transition Bundles are shown in the table below for 2013 and January through March 2014.

* IDSM bundles enrollment figures are not included in this table because that effort had not been launched during the timeframe above.

A-10


DATA REQUEST SET DRA-287-SWC Supplemental




Question 01:





1. In Workpapers to Ex. SCE-04, Volume 2, Part 2, page 72, SCE provides the incremental volume for the Lifestyle Packages Program. Provide the monthly sign-ups for the Lifestyle Packages Program for each month of 2013 to 2014 year-to-date.


SCE’s initial response to DRA-287 focused on Lifestyle Package enrollment activities but did not include a description of other bundled offer activities. This revised response expands the scope of the earlier response.

The Lifestyle Packages effort (also referred to as Lifestyle Plans or Lifestyle Bundles) is one approach to bundle offers of rates, programs, and services for residential customers (described in SCE-04, Vol. 2, p. 187, lines 17-28). The use of bundled offers is one example of Intelligent Delivery – the use of various strategies and processes, such as data analytics and automated systems, to segment customers and deliver tailored, bundled offerings (described in SCE-04, Vol. 1, p. 11, line 26 and p. 12, line 23). SCE plans to continue to develop and employ bundled offers for residential and non-residential customers, including potential future LifeStyle Package offers, throughout the 2015 Rate Case Cycle.

Presently, processing enrollments requires Program Services (PS) support, including manual application processing and other activities described in SCE-04, Vol. 2, p. 91, lines 2-5. As noted in workpapers (SCE-04, Vol. 2, Pt. 2, p. 72), SCE expects that the manual processing of bundled enrollments will be eliminated in 2016 with the full automation of the enrollment

A-11

process.

The initial pilot testing of Lifestyle Packages concluded in late 2012, and the processing of manual enrollments from that effort continued into January and February 2013. In 2013, SCE’s Intelligent Delivery efforts included Time-of-Use (TOU) Transition Bundles in preparation for the implementation of mandatory TOU Rates for its non-residential customers with demands less than 200 kW in compliance with D.13-03-031. The TOU Transition Bundles effort launched in late 2013 enabled non-residential customers to enroll in Budget Assistant, MyAccount, and Choose Your Bill Date. This effort continued in 2014 with IDSM Bundles aimed at customers recently transitioned to TOU rates who were most impacted by the transition. This effort provided customers the ability to enroll in MyAccount and Budget Assistant, as well as referred them to appropriate Energy Efficiency and Demand Response programs.

Monthly enrollments processed by PS for TOU Transition Bundles are shown in the table below for 2013 and January through March 2014.

* IDSM bundles enrollment figures are not included in this table because that effort had not been launched during the timeframe above.

A-12



To: DRAPrepared by: Tracy M. Felix

Title: Director of Customer Contact CenterDated: 01/13/2014


Question 07.a:


Exhibit Reference: SCE-04, Volume 2, Chapter V

Subject: FERC Account 903.800-Customer Contact Center


7. In Exhibit SCE-04, Volume 2, page 147, Table V-57, SCE provides the CCC Performance Metrics (2008 to 2012).

a. Provide the same data for 2013.


Table V-57 in Exhibit SCE-04, Volume 2, page 147 has been updated to include the 2013 CCC Performance Metrics, as shown in the attached file “DRA-096-SWC Question 7a Attachment.xlsx."

A-13

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A-14


DATA REQUEST SET TURN-SCE-018

To: TURNPrepared by: Carter Prescott

Title: Principal Manager, FinanceDated: 03/07/2014


Question 11.b:

Originator: Bob Finkelstein

11. The response to TURN-4, Question 6h refers to the Customer Contact Center self-service call deflection targets for 2015 discussed in SCE-4, Volume 2, page 162. The response notes SCE’s assumption of Commission authorization of 100% of SCE’s proposed cost of the capital software prgrams and marketing costs related to SCE’s proposed self-service functionality.

b. At page 162 of SCE-4, Volume 2, footnote 99 refers to “SCE’s 2015 internal operational savings target.” Please provide all documents supporting the calculation of this operational savings target, and related to its approval or adoption by SCE management.

Response to Question 11.b:

The development of the 2015 operational savings target of $2.953 million for the Customer Contact Center (FERC Account 903.800) is summarized in Attachment 1 and described below.

SCE’s 2015 forecast savings of $2.953 million will result from the self-service productivity initiatives described in SCE-04, Vol. 2, p. 162, lines 8-18, and is the sum of the cumulative impact of these initiatives through 2014 totaling $1.424 million (see line 1 of Attachment 1) and the adjusted incremental internal operational savings forecast for 2015 of $1.529 million (see line 6 of Attachment 1).

SCE’s best case incremental 2015 internal operational savings target before adjustments is $5.287 million (see line 2 of Attachment 1). The adjustments to the best case target savings, with references to the documentation supporting the calculation of the $2.953 million operational target are described as follows:

• SCE is including 50% of the 2015 incremental target amount, or $2.644 million, to reflect the uncertainty factors as described in SCE-04, Volume 2, on page 162 (see line 3 of Attachment 1)• SCE adjusts the incremental savings amount by a savings allocation reduction of

A-15

$593,000 (see line 4 of Attachment 1)• In addition, a severance cost adjustment of $521,792 was made (see SCE-4, Vol.2, Part 2 workpapers, page 239)

As a result, the cumulative productivity savings in 2015 is expected to be $2.953 million as shown on line 6 of Attachment 1.

In preparing the response to this data request it was discovered that footnote 99 is not correctly stated. SCE’s 2015 incremental internal operational savings target is $5.287 million, not $5.906 million. Footnote 99 on page 162 of Exhibit SCE-4, Vol. 2 will be corrected through errata to address this error.

A-16

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To: DRAPrepared by: Tracy M. Felix

Title: Director of Customer Contact CenterDated: 01/13/2014


Question 10.b:


Exhibit Reference: SCE-04, Volume 2, Chapter V

Subject: FERC Account 903.800-Customer Contact Center


10. In Exhibit SCE-04, Volume 2, page 152, lines 4 to 8, SCE states, “As the ESC systems and related MDMS programs approached the full steady-state level of operations by the end of 2012, we have accounted for the remaining portion of incremental ESC costs with upward 2015 Test Year adjustments of $3.091 million for the increase in AHT, $693,000 for the increased Supervisor to Specialist ratio, and $247,000 for increased phone bill expense resulting from longer AHT.”

b. Provide a copy of all analysis and studies that show that the average Supervisor to Specialist ratio needs to be reduced in 2015


The operational need to reduce the Supervisor-to-CSR ratio is described in Exhibit SCE-04, Volume 2, page 158, lines 11 to 27 and page 159, lines 1 and 2. This is a result of the more complex programs and services being offered to customers and the need to ensure that quality information is maintained in the level of service the CCC provides to customers. The 2011 Contact Center Benchmarking Data included in the Customer Contact Leadership Council website is included in the Workpapers to Exhibit SCE-04, Volume 02, Part 02, page 227.

The attached report by International Customer Management Institute (ICMI) notes that one of the developments in today's environment that is reducing the span of supervision is the growing complexity of contacts: "As better applied-technologies offload routine contacts and as new channels proliferate, agents are handling interactions that require more human savvy and

A-19

know-how. The growing complexity of the work tends to inherently require more coaching and feedback." This study provides that many call centers today have between 8 and 12 staff per supervisor, based on their benchmarking study. With the implementation of the Edison SmartConnect system, the span of control should be lower, as SCE is proposing in this proceeding and as in the attached study.

A-20


DATA REQUEST SET SCE-SBUA-001

To: SBUA

Dated: 08/21/2014

Question 02.a:

Exhibit Ref: SBUA-01

Section C.1

2. In its Expert Report on Issues Affecting Small Businesses, p. 10, SBUA states, “SBUA would ask that SCE make it easy for small businesses to opt-out of critical peak pricing should they choose to do so.”

a. Has SBUA conducted any research of its membership related to its concerns regarding the implementation of critical peak pricing? If so, please provide a copy of all reports developed by SBUA based upon this research.


SBUA objects to this request on the grounds that membership information is privileged and confidential. Without waiving said objection, SBUA answers that in response to grassroots outreach efforts, members have repeatedly expressed concerns over time-of-use charges, fair pricing, and the costs of being required to pay more for electricity at certain times of day.

Link to unaltered response:

A-23



To: SBUA

Dated: 08/21/2014

Question 09.a:


Section E.1

9. In its Expert Report on Issues Affecting Small Businesses, p. 18, SBUA states, “The Commission should condition approval of SCE’s Economic Development Services (EDS) funding on the promise that SCE will spend 30% of this funding to support retention of small businesses as defined under the California Department of General Services.”

a. Please provide a copy of all reports and analyses upon which SBUA relied in making its recommendation above.


No reports were used in the formulation of this opinion. The economic health of small businesses is of particular interest to the State of California, the Commission, and the public. Time and again, the Commission has required utilities to give special consideration to small businesses. The purpose of my request cited above is to ensure that small businesses are included in Economic Development Funded Programs. Additionally, any special rates, such as economic development rates should include small businesses as well. By requesting funding to “support retention,” I mean that Economic Development Funding should be used to keep existing small businesses in California, or help attract new small businesses to California.


A-24

Southern California Edison2015 GRC A.13-11-XXX


To: DRAPrepared by: David Bernaudo

Title: Principal ManagerDated: 10/16/2013


Question 07.f:

Originated by: Sophie Chia

Reference: SCE-04, Volume 2, Chapter 3, pages 61 to 67

Subject: Metering Capital Requirements


7. In workpapers to Exhibit SCE-04, Volume 2, Part 2, page 10, SCE provides the workpaper to Meters Routine Business-Growth.

f. Provide the calculation of the weighted average cost by meter type used for the non-labor cost to forecast the 2013 residential, commercial & industrial, agricultural, and PEV meters.

Response to Question 07.f:

Attached is a spreadsheet (Attachment 1) that lists the meter types, non-labor costs, volume of each meter, and the calculated weighted average cost by meter type. The weighted average costs of the residential and non-residential meters are used to forecast the 2013 residential, commercial & industrial, agricultural, and PEV meters. In preparing the response to this data request, SCE discovered that a computational error was made in calculating the non-residential meter weighted average. Because of this error, SCE's Commercial & Industrial and Agricultural meter unit cost estimate used in the 2015 GRC meter capital forecast is overstated. Attachment 2 provides the spreadsheet that updates the non-labor forecast of the Meter Growth and Replacement for C&I and Agricultural meters. The spreadsheet provides the original forecast submitted in SCE's NOI filing, the corrected forecast, and the variance. The residential meter forecast was not impacted by the spreadsheet calculation error.

Given the timing of the discovery of this computational error, SCE will discuss with ORA the appropriate manner to address this issue.

A-25

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A-27

Supporting Worksheet - DRA-009-SWC, Question 7.f.

Type of Meter VolumeNon-LaborUnit Cost

(in $)

Total($ in 000s)

REVISEDNon-Labor

per Unit (in $)

REVISEDTotal

($ in 000s)

Variance($ in 000s)

Commercial & IndustrialGrowth 5,114 579$ 2,961$ 309$ 1,580$ 1,381$ Replacement 9,095 579 5,265 309 2,810 2,456

Sub-total Comm & Industrial 14,209 579 8,226 309 4,389 3,837 AgriculturalGrowth 316 579 183 309 98 85 Replacement 1,337 579 774 309 413 361

Sub-total Agricultural 1,653 579 957 309 511 446 TOTAL 15,862 579$ 9,183$ 309$ 4,900$ 4,283$


(in $)

Total($ in 000s)

REVISEDNon-Labor

per Unit (in $)

REVISEDTotal

($ in 000s)

Variance($ in 000s)



Sub-total Agricultural 1,669 611 1,020 326 545 476 TOTAL 16,011 611$ 9,790$ 326$ 5,224$ 4,566$


(in $)

Total($ in 000s)

REVISEDNon-Labor

per Unit (in $)

REVISEDTotal

($ in 000s)

Variance($ in 000s)





(in $)

Total($ in 000s)

REVISEDNon-Labor

per Unit (in $)

REVISEDTotal

($ in 000s)

Variance($ in 000s)





(in $)

Total($ in 000s)

REVISEDNon-Labor

per Unit (in $)

REVISEDTotal

($ in 000s)

Variance($ in 000s)




2017 Forecast (2015 GRC NOI)

Meters: Routine Growth/Replacement - Commercial & Industrial and Agricultural





A-28

Southern California Edison2015 GRC A.13-11-XXX


To: DRAPrepared by: David Bernaudo

Title: Principal ManagerDated: 10/16/2013


Question 04:

Originated by: Sophie Chia

Reference: SCE-04, Volume 2, Chapter 3, pages 61 to 67

Subject: Metering Capital Requirements


4. In Workpapers to Exhibit SCE-04, Volume 2, Part 2, page 18, footnote 2 states , “Replacement based on 1% of Residential Customers Forecast…” Provide SCE’s supporting data that the assumption to use 1% of the Residential Customers Forecast is the appropriate method to forecast 2013 to 2017 residential meter replacements.


The 1% replacement percentage is based on the 12-month meter and communication failure rate as of April 2013 of 1.39% rounded down to 1%. The meter failure rate was 0.4%, and the communication failure rate was 0.99%.

A-29

Ratepayer Advocates in the Gas, Electric, Telecommunications and Water Industries

ORA Response to SCE Data Request Southern California Edison Company Test Year 2015 General Rate Case

A.13-11-003

Origination Date: August 19, 2014 Due Date: September 3, 2014 Response Date: September 3, 2014

To: Mike Marelli Sue DiBernardo [email protected] [email protected](626) 302-3408 (626) 302-4353

From: Truman Burns, Project Coordinator Donna-Fay Bower, Assistant Project Coordinator Division of Ratepayer Advocates 505 Van Ness Avenue, Room 4205 San Francisco, CA 94102

Response by: Sophie Chia Phone: 415-703-5609 Email: [email protected]

Data Request No: SCE-DRA-058-SWC Exhibit Reference: ORA-13, Chapter VII Subject: Customer Service

The following is ORA’s response to SCE’s data request. If you have any questions, please contact the responder at the phone number and/or email address shown above.

Q.1: In Table 13-52 (p. 73), ORA lists the total nominal recorded amounts for BCD structures and improvements in 2009, 2010, and 2011 as $1.070 million, $1.367 million, and $0.498 million, respectively. In SCE-04, Vol. 3, Table III-14 (p. 50), SCE presents the total nominal recorded amounts for BCD structures and improvements in 2009, 2010, and 2011 as $1.640 million, $2.082 million, and $1.384 million, respectively. ORA's figures seem to be in error and reflect only EEC-Irwindale recorded amounts for the years in question. Please reconcile the nominal recorded amounts shown in ORA's Table 13-52 with SCE's Table III-14, and, if this is not an error, please explain in detail why they vary from the figures presented by SCE in SCE-04, Vol. 3, Table III-14 (p. 50).

A.1: As a result of the error in Table 13-52 on page 73 of Exhibit ORA-13, ORA has changed its recommendation for the 2013 to 2015 capital expenditures forecasts for BCD Structures and Improvements as follows.

A-30

2

� ORA recommends using the 2013 recorded capital expenditures of $1.254 million for the 2013 capital expenditures forecast for BCD Structures and Improvements.

� ORA does not take issue with SCE’s capital expenditures request of $1.295 million in 2014 and $1.483 million in 2015 for BCD Structures and Improvements.

� ORA will revise Table 13-52 on page 73 of Exhibit ORA-13 in errata as shown below (changes are bold and italicized).

Table 13-52 Business Customer Division Capital Requirements

SCE’s Recorded For 2008 to 2013 and Forecasts for 2013 to 2015 (Nominal $ million)

Description Recorded SCE’s Forecast 2008 2009 2010 2011 2012 2013 2013 2014 2015

Structure & Improvements $ 0.623 $1.640 $2.082 $1.384 ($0.025) $1.254 $0.477 $1.295 $1.483

SpecializedEquipment 0.186 0.267 0.254 0.215 0.087 0.100 0.118 0.123 0.332

TOTAL 0.809 1.907 2.336 1.599 0.062 1.354 0.595 1.418 1.815

� ORA will revise Table 13-53 on page 43 of Exhibit ORA-13 in errata as shown below (changes are bold and italicized).

Table 13-53 Business Customer Division’s Capital Expenditures for 2013-2015

(In Millions of Nominal Dollars)

Description ORA Recommended SCE Proposed 2013 2014 2015 2013 2014 2015

Structure & Improvements $1.254 $1.295 $1.483 $0.477 $1.295 $1.483Specialized Equipment 0.100 0.100 0.100 0.118 0.123 0.332 TOTAL 1.354 1.395 1.583 0.595 1.418 1.815

Q.2: At p. 73, lines 18-20, ORA states, "ORA recommends using the five-year average (2008 to 2013 excluding 2012) of $1.0 million to forecast BCD-Structures and Improvements capital expenditures for 2014 and 2015." Please provide the details supporting ORA's calculation of $1.0 million as described.

A.2: See response to Question 1 above.

A-31

3

Q.3: It appears that ORA's calculation of the five-year average (2008 to 2013 excluding 2012) for forecasting purposes is done using nominal dollars. If this is correct,please explain the rationale for using nominal dollars instead of constant dollars.

A.3: See response to Question 1 above.

This response was prepared by Sophie Chia.

END OF RESPONSE ________________________________________________________________________

A-32



To: SBUA

Dated: 08/21/2014

Question 04.a:


Section C.3

4. In its Expert Report on Issues Affecting Small Businesses, p. 9, SBUA states, “The Commission should reject or modify SCE's proposed use of rate revenue to further automate its customer service functions. SCE states that it expects to expand the volume of self service transactions through SCE.com and the IVR.”

a. Has SBUA conducted any research of its membership relating to their preferences or experience using either (i) SCE.com or SCE’s IVR or (ii) utility automated customer service systems in general? If so, please provide a copy of all reports developed by SBUA based upon this research.


SBUA objects to this request on the grounds that membership information is privileged and confidential. Without waiving said objection, SBUA answers that no specific reports on this topic have been created.


A-33



To: SBUA

Dated: 08/21/2014

Question 04.b:


Section C.3

4. In its Expert Report on Issues Affecting Small Businesses, p. 9, SBUA states, “The Commission should reject or modify SCE's proposed use of rate revenue to further automate its customer service functions. SCE states that it expects to expand the volume of self service transactions through SCE.com and the IVR.”

b. Please provide a copy of all reports not developed by SBUA relating to the small business customers’ experiences and/or satisfaction with utility automated customer service tools upon which SBUA relied in making its recommendation.


As of yet, SBUA has not created a report detailing satisfaction with the customer support tools. If necessary, SBUA plans to seek additional discovery or information from third parties regarding a list of any grievances or complaints relevant to customer service at SCE. To the best of my knowledge no similar report has been created by or with the help of any third parties. SBUA may submit such a report if one exists.


A-34



To: SBUA

Dated: 08/21/2014

Question 08.a:


Section C.3

8. In its Expert Report on Issues Affecting Small Businesses, p. 10, SBUA states, “The majority of small business customers would prefer to deal with a utility by talking with a competent professional customer service agent on the phone rather than fumbling around on the internet or waiting to download an Iphone Application.”

a. Please provide the surveys, reports, and/or studies upon which SBUA relied in making this statement.


No studies are cited in my expert report and none were relied on. As stated above, I agree with the Accenture study in that small businesses would prefer that they be able to complete certain simple transactions online. These transactions could include graphs of energy usage, or paying a bill where there is no dispute as to the charges. However, for complicated problems such as what billing plan to select, what energy efficient devices to install, and other complicated matters a small business would prefer to speak with a knowledgeable professional on the telephone.


A-35

Appendix B

Customer Service Workpapers


Customer Service Appendix B Workpapers

Workpapers

�Professional Services, FERC 902 – 2013 Unadjusted Recorded Costs

� SOC Leased Air Time – 2013 Unadjusted Recorded Expense

� Manual Meter Reading – 2015 Forecast Per Meter Read

� Meter Reading FERC 902 – 2013 Unadjusted Recorded Costs

�United States Postal Service Notice of Market-Dominant Price Adjustment, September 26, 2013

�Updated Table IV-50: Postal Rates and Total Expense by Type of Mailing

� SCE Service Guarantee Semi-Annual Report

� Disconnection OIR Impact on Uncollectible Expense 2010 - 2014

� Uncollectible Factor Range – 2015 Forecast

� Uncollectible Factor Variance – 2015 Forecast

� CNN Money, June 16, 2014, “US economy: Not looking so good”

� Labor Market Dynamics and Monetary Policy

�CBS News, August 27, 2014, “Estimate: Economy will grow by 1.5 percent in 2014”

�2015 Productivity & Operational Excellence Forecast - FERC Account 903.800

�Correction of ORA's Recommended Forecast Calculation for FERC Account 903.800

�Growth In Total Call Volume and Total Contacts – FERC Account 903.800

� FERC Account 905.900 2013 Unadjusted Recorded Costs

B-1


Customer Service Appendix B Workpapers

� FERC Account 907.700 2013 Unadjusted Recorded Costs

�Residential Growth and Replacement Meters Regression Analysis for R-Squared Factor

� BCD Capital (Specialized Equipment) Adjusted for Inflation

� Logo Costs in SCE-04

� Customer Engagement Baseline Study – Q4/YE 2012

B-2

Line No. Professional Services Performed2013 Unadjusted

Recorded2013

(Constant 2012 $)

1

SmartConnect Monitoring and Analysis System stabilization, Network Speed Up, RF Mitigation, Data and Business Analysts to augment operational activities: New development RF Mitigation, Data Analytics and reporting in SCMAS, and knowledge transfer to SCE team. 733,387$ 726,092$

2Business Analytics, monitoring and tracking in support of Non-Responding Device Mitigation 80,794$ 79,990$

3 Support for RF mitigation efforts for non-communicating devices. 316,941$ 313,788$

4

Project Management and administration. Field Engineering Support andSupport in mitigating non-communicating devices. Planning, execution and support of Firmware Downloads. 1,822,918$ 1,804,784$

5 2,954,040$ 2,924,654$

Professional Services, FERC 902 -- 2013 Unadjusted Recorded Costs

B-3

Line 2012 Recorded Sep-13ORA

IncrementalTotal ORA

2013 Forecast

SCE 2013 UnadjustedRecorded

ORA Vs SCE 2013

UnadjustedRecorded

1 Airtime Lease Cost 1,591,500$ 1,247,899$ 225,278$ 1,816,778$ 1,934,232$ (117,454)$

SOC Lease Air Time Workpaper2013 Unadjusted Recorded Expense

MSO FERC 902.300 SOC

B-4

Meter Reading 2015 GRC Method Original OptOutIncreasedMinutes

Meter reading 50,000 24,505FTEs 64 25Average Reads Per Month 781 996Average Reads Per Day 36 45Work hours in a day 7.0 7.5Average Reads Per Hour 5 6Average Minutes per Read 12 10 2

MSO - FERC Account 902

SCE 2015 MR forecast was developed by taking all meters and developing average read timAs a result of fewer manual meters drivetime is projected increased by 1 minute as apposed to 7 in Opt out filling

Also the average time to gather read is projected increased by at least 1 minute from 3 minutes to 4. Attributed with the average of 5 minutes per non-communicating ESC meters and 3 minutes for Legacy OptOut Meters.

Work hours in a day account for half an hour for lunch and 2 fifteen minute breaks for 2015 GRC per union contract, and only a half hour break for Original OptOut

Manual Meter Reading -- 2015 Forecast Per Meter Read

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�4B-10

BEFORE THEPOSTAL REGULATORY COMMISSION

WASHINGTON, D.C. 20268-0001

NOTICE OF MARKET-DOMINANTPRICE ADJUSTMENT

Docket No. R2013-10

UNITED STATES POSTAL SERVICE NOTICE OF MARKET-DOMINANT PRICE ADJUSTMENT

(September 26, 2013)

Pursuant to section 3622 of title 39 and 39 C.F.R. part 3010, the United States

Postal Service hereby provides notice that the Governors have authorized the Postal

Service to adjust the prices for its market-dominant products. This adjustment will take

effect at 12:01 a.m. on January 26, 2014, and affects all the market-dominant classes.

This Notice is being filed today along with the Postal Service’s Renewed Exigent

Request of the United States Postal Service in Response to Commission Order No.

1059 (Exigent Request). 1

In this Notice, the Postal Service provides the information required by Rule

3010.14, including a schedule of the new prices set forth in Attachment A.2 The Postal

Service certifies that it will inform customers of these price adjustments, as required by

Rule 3010.14(a)(3). In addition to this Notice, the Postal Service is publishing notice of

these price changes on USPS.com, the Postal Explorer website, and the DMM News

Advisory, as well as issuing a Press Release announcing the changes. Thus,

widespread notice of these prices is being given prior to their planned implementation

1 See Docket No. R2010-4, Renewed Exigent Request of the United States Postal Service in Response to Commission Order No. 1059, Section VIII (September 26, 2013).2 Attachment A also contains the proposed Mail Classification Schedule changes.

Postal Regulatory CommissionSubmitted 9/26/2013 1:52:24 PMFiling ID: 87921Accepted 9/26/2013

B-11

date. Furthermore, the Postal Service plans to provide public notice of these price

changes in future issues of the PCC Insider, Postal Bulletin, and Federal Register.

The Postal Service, pursuant to Rule 3010.14(a)(4), identifies Mr. Steve Monteith

as the official who will be available to provide responses to queries from the

Commission. Mr. Monteith’s contact information is as follows:

Mr. Steve MonteithManager, Pricing475 L’Enfant Plaza S.W.Room 4136Washington, D.C. 20260-5015

The remainder of this Notice is structured as follows. In Part I, the Postal Service

discusses its compliance with the price cap, which limits the average percentage price

increase for each class of mail. In Part II, the Postal Service describes several

temporary promotions that it is proposing as part of this filing. In Part III, the Postal

Service provides a more detailed discussion of its prices, including the “workshare

discounts” associated with the new prices. It also explains how the prices are

consistent with the objectives and factors of section 3622, and the preferential pricing

requirements of section 3626. In Part IV, the Postal Service describes the changes to

the Mail Classification Schedule (MCS) related to this price change.

I. Price Cap Compliance

In compliance with Rules 3010.14(b)(1) through (4), the following section

discusses and describes the applicable CPI-U price cap, the amount of unused price

adjustment authority available for each class of mail, the percentage change in prices

for each class of mail, and the amount of any new unused price adjustment authority

generated by this price change.

B-12

A. Inflation-Based Price Adjustment Authority

Based on the most recently available data from the Bureau of Labor Statistics,

the Postal Service has inflation-based price adjustment authority of 0.636 percent for

Special Services and 1.696 percent for all other mail classes. See Attachment C. This

is based on the Consumer Price Index – All Urban Consumers, U.S. All Items (the

“CUUR0000SA0” series), and is in accordance with the calculated percentage currently

provided on the Commission’s website.

B. Unused Price Adjustment Authority

The existing unused rate authority, by class, is provided below.3

Table 1Available Unused Price Adjustment Authority,

By Mail Class

Class Unused Authority(%)

First-Class Mail® -0.544Standard Mail® -0.441Periodicals -0.556Package Services -0.555Special Services 3.678

C. Overall Price Adjustment Authority

In accordance with 39 C.F.R. § 3010.28, the Postal Service can use up to two

percent of unused price adjustment authority for the Special Services class. Thus, the

Postal Service is authorized to raise the prices for each class by the following

percentages:

3 Order No. 1541, at 9, 62, 68; Order No. 1573 at 3. The banked amounts established in Docket No. R2013-1 include unused price adjustment authority from Docket No. R2008-1 (Order Nos. 66 and 69), which has since expired. Thus, the banked amounts in Table 1 are those reported in Order Nos. 1541 and 1573, minus the banked amounts reported from Order Nos. 66 and 69.

B-13

Table 2Price Adjustment Authority By Mail Class

Class Price Adjustment Authority (%)

First-Class Mail 1.696Standard Mail 1.696Periodicals 1.696Package Services 1.696Special Services 2.636

D. The New Prices

The cap compliance calculation, as defined by the Commission, uses a set of

fixed weights applied to the current and new prices to construct a weighted average

price change for each market-dominant class. These fixed weights are the most recent

twelve months of Postal Service billing determinants, with adjustments that are

supported and reasonable. For example, these adjustments include elimination of rate

cells active in the previous year, and the consequent assignment of billing determinants

to more applicable rate cells. For each of the five classes (First-Class Mail, Standard

Mail, Periodicals, Package Services, and Special Services), the resulting average price

change must be less than or equal to the Postal Service’s available price adjustment

authority in Table 2.

The new prices are in Attachment A. For each class, the Postal Service has

prepared separate workpapers demonstrating how these prices comply with the price

cap. These workpapers are designated as follows:

USPS-LR-R2013-10/1 First-Class Mail Workpapers

USPS-LR-R2013-10/2 Standard Mail Workpapers

B-14

USPS-LR-R2013-10/3 Periodicals Workpapers

USPS-LR-R2013-10/4 Package Services Workpapers

USPS-LR-R2013-10/5 Special Services Workpapers

USPS-LR-R2013-10/NP1 First-Class Mail International Workpapers

Each set of workpapers has a Preface that explains the contents in detail. The

Preface in each of the first five workpapers provides an overview, a discussion of any

necessary adjustments to the billing determinants for the four quarters ending Q3 FY

2013, and an explanation of the revenue calculations.

E. Percentage Change by Mail Class

As demonstrated in USPS-LR-R2013-1/1 through 5, the prices for each class

comply with the annual limitation of price adjustment authority available to the Postal

Service. The percentage change by class is as follows:

Table 32013 Price Change Percentage by Mail Class

Class Percent Change

First-Class Mail 1.587Standard Mail 1.609Periodicals 1.569Package Services 1.565Special Services 2.500

F. Unused Pricing Authority Resulting From this Change

For Periodicals and Package Services, this change adds to the unused pricing

authority resulting from prior market-dominant price changes under the price cap. The

B-15

Postal Service calculates the unused price adjustment authority that it will have

following this price change as follows:4

Table 4Unused Pricing Authority Available Following this Price Change

Class Percentage PointsFirst-Class Mail

R2013-1[1] -0.544R2013-10[2] 0.109Total -0.435

Standard Mail R2013-1 [1] -0.441R2013-10[2] 0.087

Total -0.354Periodicals

R2013-1 [1] -0.556R2013-10 [2] 0.127Total -0.429

Package Services R2013-1 [1] -0.555R2013-10 [2] 0.131Total -0.424

Special Services R2013-7 3.678R2013-10[2] -1.864Total 1.814

[1] Table 1.[2] Cap Calculation worksheets (USPS-LR-R2013-10/1 through 5).

II. Promotions and Incentives

As was the case in Docket No.R2013-1, in this filing the Postal Service seeks

approval for a total of eight promotions, and one incentive, to be held during Calendar

Year 2014. By seeking approval for these promotions and incentives in this price

4 To the extent that the calculated percentage change for any class is revised during the course of this proceeding (or upon the resolution of Docket No. R2010-4R) from what has been calculated by the Postal Service in this Notice, the Postal Service notes that the unused price adjustment authority should be adjusted, regardless of the figures set forth in this Table.

B-16

2013 2014 2015 2013 2014 2015Actual

5 Digit 0.347 0.347 0.347 0.357 0.378 0.378 0.010 0.031 0.0313 Digit 0.371 0.371 0.371 0.381 0.403 0.403 0.010 0.032 0.032

0.371 0.371 0.371 0.381 0.403 0.403 0.010 0.032 0.032

0.401 0.401 0.401 0.402 0.432 0.432 0.001 0.031 0.031

0.374 0.374 0.374 0.384 0.406 0.406 0.010 0.032 0.032

0.374 0.374 0.374 0.384 0.406 0.406 0.010 0.032 0.032

0.450 0.450 0.450 0.460 0.480 0.480 0.010 0.030 0.030

0.698 0.698 0.698 0.954 0.637 0.637 0.256 -0.061 -0.061Non-Manifest 1st Class1 0.374 0.374 0.374 0.384 0.406 0.406 0.010 0.032 0.032Non-Manifest 1st Class Overweights 0.374 0.374 0.374 0.384 0.406 0.406 0.010 0.032 0.032Summary 1st Class2 N/A N/A N/A N/A N/A N/A N/A N/A N/ASummary 1st Class Overweights2 1.924 1.924 1.924 1.579 2.473 2.473 -0.345 0.549 0.549Late Notices 0.374 0.374 0.374 0.384 0.406 0.406 0.010 0.032 0.032Misc Pieces 0.412 0.412 0.412 0.387 0.412 0.412 -0.025 0.000 0.000

0.362 0.362 0.362 0.367 0.390 0.390 0.005 0.029 0.029

5 Digit $13,000 $13,087 $13,201 $13,628 $14,516 $14,643 $627 $1,429 $1,4413 Digit $4,093 $4,120 $4,156 $4,230 $4,501 $4,541 $138 $381 $385

$80 $80 $81 $82 $87 $88 $2 $7 $7

$219 $221 $223 $228 $246 $248 $9 $26 $26

$.2 $.2 $.2 $.1 $.1 $.1 -$.2 -$.2 -$.2

$109 $109 $110 $.3 $ $ -$108.3 -$109 -$110

$80 $80 $81 $89 $93 $94 $9 $13 $13

$.3 $.3 $.3 $.5 $.3 $.3 $.1 $.0 $.0Non-Manifest 1st Class1 $264 $266 $268 $249 $265 $267 -$15 -$1 -$1Non-Manifest 1st Class Overweights $414 $417 $421 $ $ $ -$414 -$417 -$421Summary 1st Class2 N/A N/A N/A N/A N/A N/A N/A N/A N/ASummary 1st Class Overweights2 $389 $391 $395 $174 $274 $276 -$215 -$118 -$119Late Notices $413 $416 $419 $393 $418 $422 -$20 $2 $2Misc Pieces $408 $411 $414 $441 $473 $477 $33 $62 $63

Prepaid Meter Postage3 $4 $4 $4 -$61 $4 $4 -$66 $ $

Other Mailings4 $245 $245 $245 $212 $245 $245 -$33 $ $

Other Postage related activities5 $521 $521 $521 $286 $521 $521 -$235 $ $

$20,239 $20,368 $20,540 $19,952 $21,644 $21,827 -$287 $1,276 $1,287

-$429 -$992 -$1,599 N/A -$1,070 -$1,726 N/A -$78 -$126

-$242 -$423 -$761 N/A -$456 -$821 N/A -$33 -$60

N/A N/A N/A N/A N/A N/A N/A N/A N/A$19,568 $18,954 $18,180 $19,952 $20,117 $19,280 $384 $1,164 $1,100

1 Included all Non-Manifest, Late notices & Miscellaneous pieces2 These pieces did not include late notices or Miscellaneous pieces3 Adjusted amount in Pitney Bowes meters and bank account less roll over from previous year4 Customer correspondence generated by Revenue Services and Customer Contact Center5 Postage related costs associated with Intelligent Mail Barcode, Address Cleansing, EDI Charges, Timing of Bank Reconciliation, and USPS

postage fee corrections/chargesNote: - All historical recorded costs reflect actual postage rate increases. - N/A's indicate mailing category did not exist in recorded year and on occasion new mailing rate will overlap with old rate. - Negative amounts displayed for pre-paid meter postage indicate over budget expenses.

2013 2014 2015

Type of Mailing Forecast

Table IV - 50 (000's)Postal Rates and Total Expense by Type of Mailing

Rebuttal Testimony Updated Forecast Difference

Mixed AADC (Automated Area Distribution Center)

Forecast

Postal Rate Category

AADC (Automated Area Distribution Center)

Mixed AADC (Automated Area Distribution Center)

Misc 1st Class

Misc 1st Class Overweights

Full 1st Class Overweights

Full 1st Class Overweights (Over 2oz)

Weighted AveragePostal Expense (Nominal $000)

AADC (Automated Area Distribution Center)

Misc 1st Class

Misc 1st Class Overweights

Full 1st Class Overweights

Full 1st Class Overweights (Over 2oz)

Sub-total

Online Billing Productivity Adjustment (Organic)

Operational Excellence Productivity Adjustment

Pre-Pay Initiative Productivity AdjustmentTotal

B-17

SCE Service Guarantee Semi-Annual Reports(June 2005 – June 2014)

Since the inception of the Service Guarantee Program, SCE has filed semi-aqnnual reports. A list of the report dates is provided below and a copy of the most recent report is attached.

Line No. Report Date Submission Date 1 June 2005 June 30, 2005 2 December 2005 December 30, 2005 3 June 2006 June 30, 2006 4 December 2006 December 31, 2006 5 June 2007 June 28, 2007 6 December 2007 December 20, 2007 7 June 2008 June 20, 2008 8 December 2008 December 18, 2008 9 June 2009 June 23, 2009

10 December 2009 December 23, 2009 11 June 2010 June 30, 2010 12 December 2010 December 21, 2010 13 June 2011 June 30, 2011 14 December 2011 December 29, 2011 15 June 2012 June 27, 2012 16 December 2012 December 27, 2012 17 June 2013 June 27, 2013 19 December 2013 December 27, 2013 20 June 2014 June 30, 2014

B-18

BEFORE THE PUBLIC UTILITIES COMMMISSION OF THE STATE OF CALIFORNIA

SOUTHERN CALIFORNIA EDISON

SEMI-ANNUAL SERVICE GUARANTEE REPORT

REPORTING PERIOD: December 1, 2013 – May 30, 2014

Dated: June 25, 2014

B-20

Southern California Edison Service Guarantee Report

December 1, 2013 – May 30, 2014

Page 1

OVERVIEW

On July 8, 2004, the California Public Utilities Commission (Commission) issued Decision (D.) 04-07-022 in Southern California Edison Company’s (SCE) 2003 Test Year General Rate Case (GRC). Section 5.5 and Ordering Paragraph 12 of D.04-07-022 directed SCE to implement a Service Guarantee Program (Program) by November 8, 2004. In compliance with that decision, SCE filed Advice Letter 1839-E on November 8, 2004 regarding its implementation of the Program. At the Energy Division’s request, SCE filed supplemental Advice Letter 1839-E-A, which included tariff provisions of the Program and replaced Advice Letter 1839-E in its entirety. The Energy Division approved the updated Advice Letter on April 11, 2005.

D.04-07-022 requires SCE to report the Program results to the Commission on a semi-annual basis. The semi-annual report (Report) must provide information on (1) the number of service guarantee claims made, (2) the number of service guarantee claims paid, and (3) the amount of money paid to customers. This report covers the periods December 1, 2013 – May 30, 2014.

DESCRIPTION OF THE SERVICE GUARANTEE PROGRAM

The Program consists of four service guarantee standards, which are described below. If SCE fails to meet any one of the service guarantee standards, SCE is required to provide a $30 credit to the customer. As discussed in Advice Letter 1839-E-A, SCE has sought to implement control processes and procedures sufficient to identify any customers eligible for a service guarantee credit.

Standard One – Missed Appointments Standard One requires SCE to arrive at the agreed-upon appointment within 30 minutes before or after the scheduled appointment time. This Standard applies only to situations in which the customer or SCE has requested a specific appointment time, and the customer’s presence is required. If SCE is aware in advance that an appointment will be missed, SCE will, if feasible, attempt to notify the customer.

The customer is not entitled to a $30 credit if any of the following exceptions applies:

� There is a Moderate, Severe, or Catastrophic Storm Condition.1

� There is a declared Emergency Event. � There is a need for SCE’s Field Service Representative to respond to an

immediate response event such as a car power pole accident or a downed wire. � Access to the customer’s premise is not available. � The premise is not deemed safe. � There is a cause related to force majeure.

1 Revised storm classification terms approved under SCE 2990-E AL effective January 29, 2014.

B-21

For this reporting period, all appointments scheduled for turn-ons, billing inquiries, or new meter installations that require the customer’s presence were tracked for administration of the Missed Appointment Standard.

SCE reviewed this data to determine the population of appointments in which SCE’s arrival time was more than 30 minutes before or after the scheduled appointment time. SCE then determined whether any of the exceptions to credit payment applied. The number of claims, number of claims paid, the total dollar amount, and significant month-to-month variances for the Missed Appointment Standard are summarized in Attachment A.

As stated in Advice Letter 1839-E-A, for verification of missed appointments, SCE uses the field order delivery system in the Field Service Representative's hand-held device to record the arrival time and the completion time of the scheduled Turn On appointments. In addition, paper forms used to document billing inquiries have been modified to include the appointment and arrival time for the customer to sign or initial. This is in addition to the existing customer signature line to validate that the billing inquiry was completed as well as attempts, when feasible, to notify customers in advance that an appointment may be missed. Advice Letter 1839-E-A also indicated that, “for additional verification, customers will be randomly contacted to confirm onsite arrival times.” During the early part of the implementation of the service guarantee program, SCE determined that implementing this additional verification process, given the low volume of appointments experienced at the time, was not operationally cost-efficient. With a marked increase in the total number of appointments in recent years, SCE reassessed the feasibility of conducting the additional verification as identified in Advice Letter 1839-E. The reassessment concluded that operationally cost-efficient methods existed within SCE operations to perform this additional verification beginning in mid-2011.

Accordingly, SCE developed and documented an additional verification process utilizing resources within the Customer Communication Center. The verification process began on June 24, 2011 and ran for a 12-month period. The additional verification confirmed that SCE’s core verification processes used to determine missed appointments are accurate.2 SCE suspended the additional verification process on June 30, 2012 until such time that an increase in the missed appointment volume exceeds 50 percent of the 2011 missed appointment volume. The operational cost to perform this process is currently being covered through the GRC, and this funding could be more effectively utilized in other areas.

Standard Two – Restoration of Service Within 24 Hours

Standard Two requires SCE to restore electrical service within 24 hours of when SCE first becomes aware of a power outage. The first credit is applied if the outage exceeds 24 hours. Additional credits are applied for each succeeding 24-hour period that the customer is without service. Partial credits are not paid for outage periods less than a full 24-hour increment.

2 The original missed appointment data and the additional verification data differed by 1 percent.

B-22

The customer is not entitled to a $30 credit if any of the following exceptions applies:� There is a Moderate, Severe, or Catastrophic Storm Condition. � There is a declared Emergency Event. � Restoration crews are denied access to the affected areas by a public authority, or

the area is not accessible due to a road closure. � The service interruption is the result of a planned outage. � The affected service location is vacant, an owner authorization agreement exists,

or the premise is a “clean and show.” � Access to the customer’s premise is not available or the customer is not ready for

service. � The premise is not deemed safe. � There is a cause related to force majeure.

All known instances in which a customer was without electric service were tracked for administration of the Restoration of Service Standard. SCE reviewed this data to determine the population of potential claims in which customers were without service for more than 24 hours.3 SCE then determined whether an exception to credit payment applied. The number of claims, number of claims paid, the total dollar amount, and significant month-to-month variances for the Restoration of Service Standard are summarized in Attachment A.

Standard Three – Notification of Planned Outages Standard Three requires SCE to notify customers of a planned outage at least three calendar days prior to the event. SCE may notify customers by US mail, by phone, in-person or door-to-door through door hangers, or by e-mail if SCE has the customer’s e-mail address on file. If a planned outage is rescheduled to a new date not specified in the original notice to the customer, SCE will provide a new notice at least three calendar days before the rescheduled planned outage.

The customer is not entitled to a $30 credit if any of the following exceptions applies:� There is a Moderate, Severe, or Catastrophic Storm Condition. � There is a declared Emergency Event. � The customer provided incorrect contact information at the time of service

initiation, or has failed to update his/her records with SCE (i.e., phone numbers, mailing addresses, etc.)

� The notification was made to the customer of record and the customer failed to inform his/her tenants or occupants of the planned outage.

� According to SCE’s records, the U.S. Postal Service failed to deliver the notification in a timely manner.

� The affected service location is vacant, an owner authorization agreement exists, or the premise is a “clean and show.”

� An emergent outage is required. This includes, but is not limited to the following: equipment failure, imminent equipment failure, ISO-initiated rolling blackouts, high/low voltage conditions, overload conditions, removing hazards from SCE’s

3 The starting time for calculating the duration of an outage begins when SCE first becomes aware of the outage, either through its Outage Management System or by customer notification.

B-23

facilities, Priority-One General Order 95/128 repairs, conditions that may affect public/employee safety, customer meter adjustment, burned cross arms/poles, car hit structure, downed wire, and other short duration outages arising from unanticipated as-found conditions necessary to complete a job.

� The customer agrees to a shutdown without three days notice. SCE will document the date and time of such agreements.

� There is a cause related to force majeure.

All customers who were scheduled for a planned outage were tracked for administration of the Notification of Planned Outages Standard. SCE reviewed this data to determine the population of customers who were impacted by a planned outage and were not notified of the outage at least three days in advance. SCE then reviewed the data to determine whether any exceptions to credit payment applied. The number of claims, number of claims paid, the total dollar amount, and significant month-to-month variances for the Notification of Planned Outages Standard are summarized in Attachment A.

Standard Four –Timely and Accurate First Bill Standard Four requires SCE to issue an accurate first bill to a new customer within 60 days of establishing service. A customer is eligible for a service guarantee credit if that customer’s first bill was either inaccurate or issued beyond 60 days of establishing service. The first bill for any given customer account is eligible for only one service guarantee credit regardless of whether the bill is late, inaccurate, or both.

The customer will not be entitled to a $30 credit if any of the following exceptions apply:� The affected party is attempting to re-establish service following a disconnection

for non-payment. � Access to the meter or the customer’s premise is not available. � The customer fails to request service in a timely fashion after occupying a new

residence, thereby creating a retroactive bill. � According to SCE’s records there is a case of mail theft or a clear failure on the

part of the U.S. Postal service to deliver the first bill in a timely manner. � The customer provides inaccurate information at the time of requesting service

initiation. � A Commission directive requires SCE to adjust rate factors that result in a billing

adjustment and/or a rebill. � An adjustment was made due to unauthorized use as stated in Rule 17 Part E –

Adjustment of Bills and Meter Tests – Adjustment for Bills for Unauthorized Use. � A rebill was a direct result of the customer participating in a SCE or Commission

sponsored or endorsed program such as, but not limited to, Critical Peak Pricing, Demand Bidding, Air Conditioning Cycling, or Interruptible Programs.

� Causes related to force majeure.

All “first” or opening bills were tracked for administration of the Timely and Accurate First Bill Standard. SCE reviewed this data to determine the population of potential claims in which a customer’s opening bill was either inaccurate or untimely. SCE then determined whether an exception to credit payment applied. The number of claims,

B-24

claims paid, the total dollar amount, and significant month-to-month variances for the Timely and Accurate First Bill Standard are summarized in Attachment A.

B-25

Southern California Edison Service Guarantee Report

December 1, 2013 – May 30, 2014

A - 1

ATTACHMENT A

During the period December 1, 2013 – May 30, 2014, there were 11,022 service guarantee “Claims” and 8,488 “Claims Paid” to customers, totaling $254,640.

Table B-I below provides monthly details of “Claims.” There are two ways a claim for a service guarantee credit may be initiated. SCE may receive an inquiry from a customer who believes that he/she had an appointment that was missed, experienced an outage that lasted longer than 24 hours, was not notified three days in advance of a planned outage, or received an opening bill that was inaccurate or received more than 60 days after service was established. SCE may also identify a “claim” on the customer’s behalfthrough its own internal processes, procedures, and systems. If SCE self-identifies a “claim,” the claim is already filtered for exceptions to credit payment when it is recorded as a “claim.” A claim is recorded as “made” in the month in which eligibility for a service guarantee credit is determined by SCE’s Service Guarantee Program Administrator.

Table B-I Number of Claims

Standard December January February March April May TOTAL Missed Appointment 15 11 8 12 6 28 80Restoration of Service Within 24-Hours 618 1688 322 355 137 1677 4,797Notification of Planned Outage 494 486 391 908 1369 403 4,051Timely and Accurate First Bill 296 500 397 265 74 562 2,094TOTAL 11,022

Table B-II provides monthly details of “Claims Paid.” The claims paid data is the number of claims that were qualified and paid to customers (i.e., the number of service guarantee credits paid after SCE determined that an exception to credit payment did not apply). This data also excludes any customer inquiries included in Table B-I that were later determined to be unrelated to the Service Guarantee Program.

Table B-II Number of Claims Paid

Standard December January February March April May TOTAL Missed Appointment 15 11 8 12 6 28 80Restoration of Service Within 24-Hours 559 1607 296 61 20 1513 4,056Notification of Planned Outage 494 126 391 268 832 147 2,258Timely and Accurate First Bill 296 500 397 265 74 562 2,094TOTAL 8,488

B-26

A - 2

Table B-III provides monthly data on the total dollar amount. The amount of money paid is calculated by multiplying the number of claims paid by $30.

Table B-III Total Dollar Amount Paid

Standard December January February March April May TOTAL Missed Appointment $450 $330 $240 $360 $180 $840 $2,400 Restoration of Service Within 24-Hours $16,770 $48,210 $8,880 $1,830 $600 $45,390 $121,680 Notification of Planned Outage $14,820 $3,780 $11,730 $8,040 $24,960 $4,410 $67,740 Timely and Accurate First Bill $8,880 $15,000 $11,910 $7,950 $2,220 $16,860 $62,820 TOTAL $254,640

MONTH-TO-MONTH VARIANCES

Missed Appointments: April and May 2014

� Because of IT server maintenance, a portion of eligible payouts that occurred in April were processed in May reducing April totals and increasing May, reducing April totals and increasing May totals.

24-Hour Service Restoration: December 2013

� Two circuit outages impacting 393 customers because of a pole fire and equipment failure occurred in mid-December 2013; which contributed to a large portion of the totals this period.

January 2014 � A circuit outage impacting over 1,400 customers because of a failed underground

cable also occurred in December 2013. However, it was processed in January 2014. This outage, along with several smaller outages, contributed to the variance during this month.

February 2014 � Favorable weather conditions contributed to the low number of claims received

and paid in February.

March 2014 � Favorable weather conditions contributed to the low number of claims received

and paid in March.

April and May 2014 � Because of IT server maintenance, a portion of eligible payouts that occurred in

April were processed in May reducing April totals and increasing May, reducing April totals and increasing May totals.

B-27

A - 3

� Several outages occurred at the end of the April, but were processed in May, which contributed to the variance this month. The outages impacted over 1,300 customers because of failed equipment.

Notification of Planned Outages: December 2013

� Payouts in December 2013 include processing of March 2013 backlog totaling $14,550, which contributed to the variance during this month.

January 2014 � No processing of backlog occurred during January 2014.

February 2014 � Payouts in February 2014 include processing of April 2013 backlog totaling

$11,760, which contributed to the variance during this month.

March 2014 � No processing of backlog occurred during March 2014.

April 2014 � Payouts in April 2014 include processing of backlog or various months totaling

$23,790, which contributed to the variance during this month.

May 2014 � No processing of backlog occurred during May 2014.

Timely and Accurate First Bill: January 2014

� Because of timing, a portion of the claims received during this period were carried over from December 2013 and processed with January 2014 totals.

April and May 2014 � Because of IT server maintenance, a portion of eligible payouts that occurred in

April were processed in May reducing April totals and increasing May, reducing April totals and increasing May totals.

B-28

2010

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B-30

Letter Description Formulaa Proposed 5-Year Average 0.230%b 2012 (Last Recorded Year) 0.222%c Variance a-b 0.008%

d Estimated Gross Revenue * 11,000,000,000$

e Translated into Dollars d*c 880,000$

* For illustration purposes.

Factor Difference of 0.008%

Uncollectible Factor Variance

B-31

For release on delivery 10:00 a.m. EDT (8:00 a.m. MDT) August 22, 2014

Labor Market Dynamics and Monetary Policy

Remarks by

Janet L. Yellen

Chair

Board of Governors of the Federal Reserve System

at the

Federal Reserve Bank of Kansas City Economic Symposium

Jackson Hole, Wyoming

August 22, 2014

B-35

In the five years since the end of the Great Recession, the economy has made

considerable progress in recovering from the largest and most sustained loss of

employment in the United States since the Great Depression.1 More jobs have now been

created in the recovery than were lost in the downturn, with payroll employment in May

of this year finally exceeding the previous peak in January 2008. Job gains in 2014 have

averaged 230,000 a month, up from the 190,000 a month pace during the preceding two

years. The unemployment rate, at 6.2 percent in July, has declined nearly 4 percentage

points from its late 2009 peak. Over the past year, the unemployment rate has fallen

considerably, and at a surprisingly rapid pace. These developments are encouraging, but

it speaks to the depth of the damage that, five years after the end of the recession, the

labor market has yet to fully recover.

The Federal Reserve’s monetary policy objective is to foster maximum

employment and price stability. In this regard, a key challenge is to assess just how far

the economy now stands from the attainment of its maximum employment goal.

Judgments concerning the size of that gap are complicated by ongoing shifts in the

structure of the labor market and the possibility that the severe recession caused

persistent changes in the labor market’s functioning.

These and other questions about the labor market are central to the conduct of

monetary policy, so I am pleased that the organizers of this year’s symposium chose

labor market dynamics as its theme. My colleagues on the Federal Open Market

Committee (FOMC) and I look to the presentations and discussions over the next two

days for insights into possible changes that are affecting the labor market. I expect,

1 Nonfarm employment contracted by 6.3 percent from its peak in 2008 to its trough in early 2010, compared with a 5.2 percent loss in the 1948-49 recession, previously the largest since the 1930s.

B-36

however, that our understanding of labor market developments and their potential

implications for inflation will remain far from perfect. As a consequence, monetary

policy ultimately must be conducted in a pragmatic manner that relies not on any

particular indicator or model, but instead reflects an ongoing assessment of a wide range

of information in the context of our ever-evolving understanding of the economy.

The Labor Market Recovery and Monetary Policy

In my remarks this morning, I will review a number of developments related to

the functioning of the labor market that have made it more difficult to judge the

remaining degree of slack. Differing interpretations of these developments affect

judgments concerning the appropriate path of monetary policy. Before turning to the

specifics, however, I would like to provide some context concerning the role of the labor

market in shaping monetary policy over the past several years. During that time, the

FOMC has maintained a highly accommodative monetary policy in pursuit of its

congressionally mandated goals of maximum employment and stable prices. The

Committee judged such a stance appropriate because inflation has fallen short of our

2 percent objective while the labor market, until recently, operated very far from any

reasonable definition of maximum employment.

The FOMC’s current program of asset purchases began when the unemployment

rate stood at 8.1 percent and progress in lowering it was expected to be much slower than

desired. The Committee’s objective was to achieve a substantial improvement in the

outlook for the labor market, and as progress toward this goal has materialized, we have

reduced our pace of asset purchases and expect to complete this program in October. In

addition, in December 2012, the Committee modified its forward guidance for the federal

B-37

funds rate, stating that “as long as the unemployment rate remains above 6-1/2 percent,

inflation between one and two years ahead is projected to be no more than a half

percentage point above the Committee’s 2 percent longer-run goal, and longer-term

inflation expectations continue to be well anchored,” the Committee would not even

consider raising the federal funds rate above the 0 to 1/4 percent range.2 This “threshold

based” forward guidance was deemed appropriate under conditions in which inflation

was subdued and the economy remained unambiguously far from maximum employment.

Earlier this year, however, with the unemployment rate declining faster than had

been anticipated and nearing the 6-1/2 percent threshold, the FOMC recast its forward

guidance, stating that “in determining how long to maintain the current 0 to 1/4 percent

target range for the federal funds rate, the Committee would assess progress--both

realized and expected--toward its objectives of maximum employment and 2 percent

inflation.”3 As the recovery progresses, assessments of the degree of remaining slack in

the labor market need to become more nuanced because of considerable uncertainty about

the level of employment consistent with the Federal Reserve’s dual mandate. Indeed, in

its 2012 statement on longer-run goals and monetary policy strategy, the FOMC

explicitly recognized that factors determining maximum employment “may change over

time and may not be directly measurable,” and that assessments of the level of maximum

employment “are necessarily uncertain and subject to revision.”4 Accordingly, the

2 See paragraph 5 in Board of Governors of the Federal Reserve System (2012), “Federal Reserve Issues FOMC Statement,” press release, December 12, www.federalreserve.gov/newsevents/press/monetary/20121212a.htm. 3 See paragraph 5 in Board of Governors of the Federal Reserve System (2014), “Federal Reserve Issues FOMC Statement,” press release, March 19,www.federalreserve.gov/newsevents/press/monetary/20140319a.htm. 4 See paragraph 5 in Board of Governors of the Federal Reserve System (2012), “Federal Reserve Issues FOMC Statement of Longer-Run Goals and Policy Strategy,” press release, January 25, www.federalreserve.gov/newsevents/press/monetary/20120125c.htm.

B-38

reformulated forward guidance reaffirms the FOMC’s view that policy decisions will not

be based on any single indicator, but will instead take into account a wide range of

information on the labor market, as well as inflation and financial developments.5

Interpreting Labor Market Surprises: Past and Future

The assessment of labor market slack is rarely simple and has been especially

challenging recently. Estimates of slack necessitate difficult judgments about the

magnitudes of the cyclical and structural influences affecting labor market variables,

including labor force participation, the extent of part-time employment for economic

reasons, and labor market flows, such as the pace of hires and quits. A considerable body

of research suggests that the behavior of these and other labor market variables has

changed since the Great Recession.6 Along with cyclical influences, significant structural

factors have affected the labor market, including the aging of the workforce and other

demographic trends, possible changes in the underlying degree of dynamism in the labor

market, and the phenomenon of “polarization”--that is, the reduction in the relative

number of middle-skill jobs.7

5 The central role of labor market conditions in monetary policy deliberations has also been apparent abroad. Last year the Bank of England announced its intention not to raise its policy rate at least until the unemployment rate reached 7 percent, subject to conditions on inflation and financial stability. Since that time, the unemployment rate in the United Kingdom has dropped unexpectedly rapidly, prompting policymakers to consider data beyond this single indicator when assessing the extent of spare capacity in the U.K. economy. As in the United States, an unexpectedly swift decline in unemployment has raised questions about the structural and cyclical effects of a severe recession. 6 For a discussion of important differences in the evolution of labor market conditions during the Great Recession relative to typical postwar patterns, see Henry S. Farber (2011), “Job Loss in the Great Recession: Historical Perspective from the Displaced Workers Survey, 1984-2010,” NBER Working Paper Series 17040 (Cambridge, Mass.: National Bureau of Economic Research, May). 7 For convenience, the analysis here is presented as if cyclical factors and structural factors can be neatly delineated. In reality, the line between the two may be indistinct. Moreover, what begins as cyclical weakness may evolve into structural damage. For a discussion of the strategic issues that arise when policymakers believe such evolution from cyclical to structural to be an important feature of the economy, see Dave Reifschneider, William Wascher, and David Wilcox (2013), “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy,” Finance and Economics Discussion Series 2013-77 (Washington: Board of Governors of the Federal Reserve System, November), www.federalreserve.gov/pubs/feds/2013/201377/201377abs.html.

B-39

Consider first the behavior of the labor force participation rate, which has

declined substantially since the end of the recession even as the unemployment rate has

fallen. As a consequence, the employment-to-population ratio has increased far less over

the past several years than the unemployment rate alone would indicate, based on past

experience. For policymakers, the key question is: What portion of the decline in labor

force participation reflects structural shifts and what portion reflects cyclical weakness in

the labor market? If the cyclical component is abnormally large, relative to the

unemployment rate, then it might be seen as an additional contributor to labor market

slack.

Labor force participation peaked in early 2000, so its decline began well before

the Great Recession. A portion of that decline clearly relates to the aging of the baby

boom generation. But the pace of decline accelerated with the recession. As an

accounting matter, the drop in the participation rate since 2008 can be attributed to

increases in four factors: retirement, disability, school enrollment, and other reasons,

including worker discouragement.8 Of these, greater worker discouragement is most

directly the result of a weak labor market, so we could reasonably expect further

increases in labor demand to pull a sizable share of discouraged workers back into the

workforce. Indeed, the flattening out of the labor force participation rate since late last

year could partly reflect discouraged workers rejoining the labor force in response to the

significant improvements that we have seen in labor market conditions. If so, the cyclical

shortfall in labor force participation may have diminished.

8 See Shigeru Fujita (2014), “On the Causes of Declines in the Labor Force Participation Rate,” Federal Reserve Bank of Philadelphia, Research Rap, special report, February 6, http://philadelphiafed.org/research-and-data/publications/research-rap/2013/on-the-causes-of-declines-in-the-labor-force-participation-rate.pdf.

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What is more difficult to determine is whether some portion of the increase in

disability rates, retirements, and school enrollments since the Great Recession reflects

cyclical forces. While structural factors have clearly and importantly affected each of

these three trends, some portion of the decline in labor force participation resulting from

these trends could be related to the recession and slow recovery and therefore might

reverse in a stronger labor market.9 Disability applications and educational enrollments

typically are affected by cyclical factors, and existing evidence suggests that the elevated

levels of both may partly reflect perceptions of poor job prospects.10 Moreover, the rapid

pace of retirements over the past few years might reflect some degree of pull-forward of

future retirements in the face of a weak labor market. If so, retirements might contribute

9 On disability, see Mark Duggan and Scott A. Imberman (2009), “Why Are the Disability Rolls Skyrocketing? The Contribution of Population Characteristics, Economic Conditions, and Program Generosity,” in David M. Cutler and David A. Wise, eds., Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly (Chicago: University of Chicago Press), pp. 337-79; and David H. Autor (2011), “The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options,” NBER Working Paper Series 17697 (Cambridge, Mass.: National Bureau of Economic Research, December). For a focus on developments within the Great Recession, see David M. Cutler, Ellen Meara, and Seth Richards-Shubik (2012), “Unemployment andDisability: Evidence from the Great Recession,” NBER Retirement Research Center Paper Series NB 12-12 (Cambridge, Mass.: National Bureau of Economic Research, September). On school enrollment, see Bridget Terry Long (2013), “The Financial Crisis and College Enrollment: How Have Students and Their Families Responded?” working paper (Cambridge, Mass.: Harvard University, July), http://isites.harvard.edu/fs/docs/icb.topic1232989.files/BLong%20-%20The%20Financial%20Crisis%20and%20College%20Enrollment%20-%20July%202013.pdf. 10 For surveys of students who report job prospects as an important factor for attending or prolonging school, see John H. Pryor, Kevin Eagan, Laura Palucki Blake, Sylvia Hurtado, Jennifer Berdan, and Matthew H. Case (2012), The American Freshman: National Norms Fall 2012 (Los Angeles: Higher Education Research Institute at the University of California, Los Angeles), http://heri.ucla.edu/monographs/TheAmericanFreshman2012.pdf. On the cyclicality of college enrollment, see Andrew Barr and Sarah Turner (2013), “Down and Enrolled: An Examination of the Enrollment Response to Cyclical Trends and Job Loss,” paper presented at the PERC Applied Microeconomics workshop, held at Texas A&M University, College Station, Texas, March 20, https://econweb.tamu.edu/common/files/workshops/PERC%20Applied%20Microeconomics/2013_3_20_Sarah_Turner.pdf. For research showing that the high numbers of workers seeking disability status is correlated with sectoral employment declines and demographics and not correlated with the rate of workplace injuries, see Norma B. Coe and Matthew S. Rutledge (2013), “Why Did Disability Allowance Rates Rise in the Great Recession?” Center for Retirement Research paper 13-11 (Chestnut Hill, Mass.: Center for Retirement Research at Boston College, August), http://crr.bc.edu/wp-content/uploads/2013/08/IB_13-11-508.pdf; and John Merline (2012), “The Sharp Rise in Disability Claims,” Federal Reserve Bank of Richmond, Region Focus (Second/Third Quarter), pp. 24-26, www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature3.pdf.

B-41

less to declining participation in the period ahead than would otherwise be expected

based on the aging workforce.11

A second factor bearing on estimates of labor market slack is the elevated number

of workers who are employed part time but desire full-time work (those classified as

“part time for economic reasons”). At nearly 5 percent of the labor force, the number of

such workers is notably larger, relative to the unemployment rate, than has been typical

historically, providing another reason why the current level of the unemployment rate

may understate the amount of remaining slack in the labor market. Again, however,

some portion of the rise in involuntary part-time work may reflect structural rather than

cyclical factors. For example, the ongoing shift in employment away from goods

production and toward services, a sector which historically has used a greater portion of

part-time workers, may be boosting the share of part-time jobs. Likewise, the continuing

decline of middle-skill jobs, some of which could be replaced by part-time jobs, may

raise the share of part-time jobs in overall employment.12 Despite these challenges in

assessing where the share of those employed part time for economic reasons may settle in

11 The effects of the Great Recession on retirements are difficult to identify. During the recession and immediately after, the losses in wealth may have put upward pressure on labor force participation; the persistently weak labor market may have subsequently contributed to more retirements and thus put downward pressure on participation. Perhaps as a result of these confounding forces, early research on the effects of the Great Recession on retirement finds unclear results. For example, see Alan L. Gustman, Thomas L. Steinmeier, and Nahid Tabatabai (2011), “How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study?” NBER Working Paper Series 17547 (Cambridge, Mass.: National Bureau of Economic Research, October). For a discussion of these developments, see Richard W. Johnson (2012), “Older Workers, Retirement, and the Great Recession” (Stanford, Calif.: Russell Sage Foundation and the Stanford Center on Poverty and Inequality, October), http://web.stanford.edu/group/recessiontrends/cgi-bin/web/sites/all/themes/barron/pdf/Retirement_fact_sheet.pdf. 12 See Tomaz Cajner, Dennis Mawhirter, Christopher Nekarda, and David Ratner (2014), “Why Is Involuntary Part-Time Work Elevated?” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, April 14), www.federalreserve.gov/econresdata/notes/feds-notes/2014/why-is-involuntary-part-time-work-elevated-20140414.html; and Murat Tasci and Jessica Ice (2014), “Job Polarization and the Great Recession,” Federal Reserve Bank of Cleveland, Economic Trends (May 28), www.clevelandfed.org/research/trends/2014/0614/01labmar.cfm?WT.oss=murat tasci&WT.oss_r=380.

B-42

the long run, the sharp run-up in involuntary part-time employment during the recession

and its slow decline thereafter suggest that cyclical factors are significant.

Private sector labor market flows provide additional indications of the strength of

the labor market. For example, the quits rate has tended to be pro-cyclical, since more

workers voluntarily quit their jobs when they are more confident about their ability to

find new ones and when firms are competing more actively for new hires. Indeed, the

quits rate has picked up with improvements in the labor market over the past year, but it

still remains somewhat depressed relative to its level before the recession. A significant

increase in job openings over the past year suggests notable improvement in labor market

conditions, but the hiring rate has only partially recovered from its decline during the

recession. Given the rise in job vacancies, hiring may be poised to pick up, but the

failure of hiring to rise with vacancies could also indicate that firms perceive the

prospects for economic growth as still insufficient to justify adding to payrolls.

Alternatively, subdued hiring could indicate that firms are encountering difficulties in

finding qualified job applicants. As is true of the other indicators I have discussed, labor

market flows tend to reflect not only cyclical but also structural changes in the economy.

Indeed, these flows may provide evidence of reduced labor market dynamism, which

could prove quite persistent.13 That said, the balance of evidence leads me to conclude

13 For an analysis documenting declines in the rates of hiring, layoffs, and quits, along with lower job creation and destruction, see Steven J. Davis, R. Jason Faberman, and John Haltiwanger (2012), “Labor Market Flows in the Cross Section and over Time,” Journal of Monetary Economics, vol. 59 (January), pp. 1-18. For a review of a range of evidence and possible explanations, see Henry R. Hyatt and James R. Spletzer (2013), “The Recent Decline in Employment Dynamics,” IZA Discussion Paper Series 7231 (Bonn, Germany: Institute for the Study of Labor (IZA), February), http://ftp.iza.org/dp7231.pdf. These authors suggest that much additional work is needed to understand the role of different factors in changes in labor market dynamism. For an analysis that raises the possibility that some of these shifts reflect better job matches, see Raven Molloy, Christopher L. Smith, and Abigail K. Wozniak (2014), “Declining Migration within the U.S.: The Role of the Labor Market,” NBER Working Paper Series 20065 (Cambridge, Mass.: National Bureau of Economic Research, April).

B-43

that weak aggregate demand has contributed significantly to the depressed levels of quits

and hires during the recession and in the recovery.

One convenient way to summarize the information contained in a large number of

indicators is through the use of so-called factor models. Following this methodology,

Federal Reserve Board staff developed a labor market conditions index from 19 labor

market indicators, including four I just discussed.14 This broadly based metric supports

the conclusion that the labor market has improved significantly over the past year, but it

also suggests that the decline in the unemployment rate over this period somewhat

overstates the improvement in overall labor market conditions.

Finally, changes in labor compensation may also help shed light on the degree of

labor market slack, although here, too, there are significant challenges in distinguishing

between cyclical and structural influences. Over the past several years, wage inflation, as

measured by several different indexes, has averaged about 2 percent, and there has been

little evidence of any broad-based acceleration in either wages or compensation. Indeed,

in real terms, wages have been about flat, growing less than labor productivity. This

pattern of subdued real wage gains suggests that nominal compensation could rise more

quickly without exerting any meaningful upward pressure on inflation. And, since wage

movements have historically been sensitive to tightness in the labor market, the recent

14 Among the indicators in the “labor market conditions index” are the labor force participation rate, workers classified as part time for economic reasons, hires, and quits. The index does not include the JOLTS job openings series but instead uses the Board staff’s composite help-wanted index, which has a longer history; the two measures generally track each other closely. See Hess Chung, Bruce Fallick, Christopher Nekarda, and David Ratner (2014), “Assessing the Change in Labor Market Conditions,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, May 22), www.federalreserve.gov/econresdata/notes/feds-notes/2014/assessing-the-change-in-labor-market-conditions-20140522.html. For a closely related index of labor market conditions, see Craig S. Hakkio and Jonathan L. Willis (2013), “Assessing Labor Market Conditions: The Level of Activity and the Speed of Improvement,” Federal Reserve Bank of Kansas City, Macro Bulletin, July 18, www.frbkc.org/publicat/research/macrobulletins/mb13Hakkio-Willis0718.pdf.

B-44

behavior of both nominal and real wages point to weaker labor market conditions than

would be indicated by the current unemployment rate.

There are three reasons, however, why we should be cautious in drawing such a

conclusion. First, the sluggish pace of nominal and real wage growth in recent years may

reflect the phenomenon of “pent-up wage deflation.”15 The evidence suggests that many

firms faced significant constraints in lowering compensation during the recession and the

earlier part of the recovery because of “downward nominal wage rigidity”--namely, an

inability or unwillingness on the part of firms to cut nominal wages. To the extent that

firms faced limits in reducing real and nominal wages when the labor market was

exceptionally weak, they may find that now they do not need to raise wages to attract

qualified workers. As a result, wages might rise relatively slowly as the labor market

strengthens. If pent-up wage deflation is holding down wage growth, the current very

moderate wage growth could be a misleading signal of the degree of remaining slack.

Further, wages could begin to rise at a noticeably more rapid pace once pent-up wage

deflation has been absorbed.

Second, wage developments reflect not only cyclical but also secular trends that

have likely affected the evolution of labor’s share of income in recent years. As I noted,

real wages have been rising less rapidly than productivity, implying that real unit labor

costs have been declining, a pattern suggesting that there is scope for nominal wages to

accelerate from their recent pace without creating meaningful inflationary pressure.

However, research suggests that the decline in real unit labor costs may partly reflect

15 See Mary Daly and Bart Hobijn (2014), “Downward Nominal Wage Rigidities Bend the Phillips Curve,” Working Paper Series 2013-08 (San Francisco: Federal Reserve Bank of San Francisco, January), www.frbsf.org/publications/economics/papers/2013/wp2013-08.pdf.

B-45

secular factors that predate the recession, including changing patterns of production and

international trade, as well as measurement issues.16 If so, productivity growth could

continue to outpace real wage gains even when the economy is again operating at its

potential.

A third issue that complicates the interpretation of wage trends is the possibility

that, because of the dislocations of the Great Recession, transitory wage and price

pressures could emerge well before maximum sustainable employment has been reached,

although they would abate over time as the economy moves back toward maximum

employment.17 The argument is that workers who have suffered long-term

unemployment--along with, perhaps, those who have dropped out of the labor force but

would return to work in a stronger economy--face significant impediments to

reemployment. In this case, further improvement in the labor market could entail

stronger wage pressures for a time before maximum employment has been attained.18

16 For a recent study of the decline in labor’s share, see Michael W.L. Elsby, Bart Hobijn, and Aysegul Sahin (2013), “The Decline of the U.S. Labor Share,” Working Paper Series 2013-27 (San Francisco: Federal Reserve Bank of San Francisco, September), www.frbsf.org/economic-research/files/wp2013-27.pdf. The notion that the labor share of income is a good measure of slack was prominent in the empirical literature on the New-Keynesian Phillips Curve (for example, see Jordi Galí and Mark Gertler (1999), “Inflation Dynamics: A Structural Econometric Analysis,” Journal of Monetary Economics, vol. 44 (October), pp. 195-222), and the connections (or lack thereof) between the labor share and traditional measures of slack (in the statistical sense) were highlighted in, among others, Michael T. Kiley (2007), “A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting,” Journal of Money, Credit and Banking, vol. 39 (February), pp. 101-25; and Michael T. Kiley (2013), “Output Gaps,” Journal of Macroeconomics, vol. 37 (September), pp. 1-18. Moreover, recent research has highlighted the challenges that swings in the labor share have presented for the interpretation of inflation developments (for example, Marco Del Negro, Marc P. Giannoni, and Frank Schorfheide (2014), “Inflation in the Great Recession and New Keynesian Models,” NBER Working Paper Series 20055 (Cambridge, Mass.: National Bureau of Economic Research, April)). 17 See Glenn D. Rudebusch and John C. Williams (2014), “A Wedge in the Dual Mandate: Monetary Policy and Long-Term Unemployment,” Working Paper Series 2014-14 (San Francisco: Federal Reserve Bank of San Francisco, May), www.frbsf.org/economic-research/publications/working-papers/wp2014-14.pdf. 18 For example, see Alan B. Krueger, Judd Cramer, and David Cho (2014), “Are the Long-Term Unemployed on the Margins of the Labor Market?” paper presented at the Brookings Panel on Economic Activity, held at the Brookings Institution, Washington, March 20-21, www.brookings.edu/~/media/Projects/BPEA/Spring%202014/2014a_Krueger.pdf; and Robert J. Gordon

B-46

Implications of Labor Market Developments for Monetary Policy

The focus of my remarks to this point has been on the functioning of the labor

market and how cyclical and structural influences have complicated the task of

determining the state of the economy relative to the FOMC’s objective of maximum

employment. In my remaining time, I will turn to the special challenges that these

difficulties in assessing the labor market pose for evaluating the appropriate stance of

monetary policy.

Any discussion of appropriate monetary policy must be framed by the Federal

Reserve’s dual mandate to promote maximum employment and price stability. For much

of the past five years, the FOMC has been confronted with an obvious and substantial

degree of slack in the labor market and significant risks of slipping into persistent below-

target inflation. In such circumstances, the need for extraordinary accommodation is

unambiguous, in my view.

However, with the economy getting closer to our objectives, the FOMC’s

emphasis is naturally shifting to questions about the degree of remaining slack, how

(2013), “The Phillips Curve Is Alive and Well: Inflation and the NAIRU during the Slow Recovery,” NBER Working Paper Series 19390 (Cambridge, Mass.: National Bureau of Economic Research, August). For research highlighting potential alternative interpretations, see Michael T. Kiley (2014), “An Evaluation of the Inflationary Pressure Associated with Short- and Long-Term Unemployment,” Finance and Economics Discussion Series 2014-28 (Washington: Board of Governors of the Federal Reserve System, March), www.federalreserve.gov/pubs/feds/2014/201428/201428pap.pdf; and Christopher Smith (2014), “The Effect of Labor Slack on Wages: Evidence from State-Level Relationships,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, June 2), www.federalreserve.gov/econresdata/notes/feds-notes/2014/effect-of-labor-slack-on-wages-evidence-from-state-level-relationships-20140602.html.

The interaction of labor force participation and inflationary pressures has been understudied, in part because the strong trends in participation due to demographic factors have implied that it is difficult to identify the cyclical component. For an important example of a study demonstrating, within the core macroeconomic framework widely used in research, that movements in participation should be considered in models of wage and price determination, see Christopher J. Erceg and Andrew T. Levin (2013), “Labor Force Participation and Monetary Policy in the Wake of the Great Recession,” IMF Working Paper WP/13/245 (Washington: International Monetary Fund, July), www.imf.org/external/pubs/ft/wp/2013/wp13245.pdf.

B-47

quickly that slack is likely to be taken up, and thereby to the question of under what

conditions we should begin dialing back our extraordinary accommodation. As should be

evident from my remarks so far, I believe that our assessments of the degree of slack

must be based on a wide range of variables and will require difficult judgments about the

cyclical and structural influences in the labor market. While these assessments have

always been imprecise and subject to revision, the task has become especially

challenging in the aftermath of the Great Recession, which brought nearly unprecedented

cyclical dislocations and may have been associated with similarly unprecedented

structural changes in the labor market--changes that have yet to be fully understood.

So, what is a monetary policymaker to do? Some have argued that, in light of the

uncertainties associated with estimating labor market slack, policymakers should focus

mainly on inflation developments in determining appropriate policy. To take an extreme

case, if labor market slack was the dominant and predictable driver of inflation, we could

largely ignore labor market indicators and look instead at the behavior of inflation to

determine the extent of slack in the labor market. In present circumstances, with inflation

still running below the FOMC’s 2 percent objective, such an approach would suggest that

we could maintain policy accommodation until inflation is clearly moving back toward 2

percent, at which point we could also be confident that slack had diminished.

Of course, our task is not nearly so straightforward. Historically, slack has

accounted for only a small portion of the fluctuations in inflation. Indeed, unusual

aspects of the current recovery may have shifted the lead-lag relationship between a

tightening labor market and rising inflation pressures in either direction. For example, as

I discussed earlier, if downward nominal wage rigidities created a stock of pent-up wage

B-48

deflation during the economic downturn, observed wage and price pressures associated

with a given amount of slack or pace of reduction in slack might be unusually low for a

time. If so, the first clear signs of inflation pressure could come later than usual in the

progression toward maximum employment. As a result, maintaining a high degree of

monetary policy accommodation until inflation pressures emerge could, in this case,

unduly delay the removal of accommodation, necessitating an abrupt and potentially

disruptive tightening of policy later on.

Conversely, profound dislocations in the labor market in recent years--such as

depressed participation associated with worker discouragement and a still-substantial

level of long-term unemployment--may cause inflation pressures to arise earlier than

usual as the degree of slack in the labor market declines. However, some of the resulting

wage and price pressures could subsequently ease as higher real wages draw workers

back into the labor force and lower long-term unemployment.19 As a consequence,

tightening monetary policy as soon as inflation moves back toward 2 percent might, in

this case, prevent labor markets from recovering fully and so would not be consistent

with the dual mandate.

Inferring the degree of resource utilization from real-time readings on inflation is

further complicated by the familiar challenge of distinguishing transitory price changes

from persistent price pressures. Indeed, the recent firming of inflation toward our

2 percent goal appears to reflect a combination of both factors.

These complexities in evaluating the relationship between slack and inflation

pressures in the current recovery are illustrative of a host of issues that the FOMC will be

19 See Rudebusch and Williams, “A Wedge in the Dual Mandate,” in note 17.

B-49

grappling with as the recovery continues. There is no simple recipe for appropriate

policy in this context, and the FOMC is particularly attentive to the need to clearly

describe the policy framework we are using to meet these challenges. As the FOMC has

noted in its recent policy statements, the stance of policy will be guided by our

assessments of how far we are from our objectives of maximum employment and

2 percent inflation as well as our assessment of the likely pace of progress toward those

objectives.

At the FOMC’s most recent meeting, the Committee judged, based on a range of

labor market indicators, that “labor market conditions improved.”20 Indeed, as I noted

earlier, they have improved more rapidly than the Committee had anticipated.

Nevertheless, the Committee judged that underutilization of labor resources still remains

significant. Given this assessment and the Committee’s expectation that inflation will

gradually move up toward its longer-run objective, the Committee reaffirmed its view

“that it likely will be appropriate to maintain the current target range for the federal funds

rate for a considerable time after our current asset purchase program ends, especially if

projected inflation continues to run below the Committee’s 2 percent longer-run goal, and

provided that longer-term inflation expectations remain well anchored.”21 But if progress

in the labor market continues to be more rapid than anticipated by the Committee or if

inflation moves up more rapidly than anticipated, resulting in faster convergence toward

our dual objectives, then increases in the federal funds rate target could come sooner than

the Committee currently expects and could be more rapid thereafter. Of course, if

20 See paragraph 1 of Board of Governors of the Federal Reserve System (2014), “Federal Reserve IssuesFOMC Statement,” press release, July 30, www.federalreserve.gov/newsevents/press/monetary/20140730a.htm. 21 See paragraph 5 in Board of Governors, “FOMC Statement” (July 2014), in note 20.

B-50

economic performance turns out to be disappointing and progress toward our goals

proceeds more slowly than we expect, then the future path of interest rates likely would

be more accommodative than we currently anticipate. As I have noted many times,

monetary policy is not on a preset path. The Committee will be closely monitoring

incoming information on the labor market and inflation in determining the appropriate

stance of monetary policy.

Overall, I suspect that many of the labor market issues you will be discussing at

this conference will be at the center of FOMC discussions for some time to come. I thank

you in advance for the insights you will offer and encourage you to continue the

important research that advances our understanding of cyclical and structural labor

market issues.

B-51

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B-56

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B-57

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2012

1,05

2

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2013

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17

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2014

30,6

47

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B-60

BCD Capital (Specialized Equipment) adjusted for inflation

Recorded2013 2014 2015

1 BCD Specialized Equipment $ 100 $ 102 $ 105 2 Escalation Rate (% change) 2.18% 2.49% 2.12%

(Escalation rates are based on 2015 GRC Capital Escalation - Version 4 - Released February 20 2013.)

ForecastNominal $000

DescriptionLineNo

B-61

Logo Costs in SCE-04

SCE Exhibit FERC FERC Account Description $ Amount 1,2

SCE-04, Vol. 2 580.000 Meter Services Operations & Management 1,842$SCE-04, Vol. 2 903.500 Billing 1,621$SCE-04, Vol. 3 907.600 Operating Unit Management & Support 182$SCE-04, Vol. 3 908.600 Business Account Services 18,976$

Total included in SCE-04 22,621$

Notes:1 Costs do not include any vendor credits that may have been provided as a result of a prior period correction2 Does not include materials purchased by SCE employees processed through employee expense reports because the accounting system does not track this level of detail3 Charged to distribution cost center that is allocated to both O&M and capital

Cost of clothing or other items containing the SCE name and logo included in the recorded costs for the 2012 Base Year. These figures were included in SCE's response to TURN-SCE-007 Question 2.

B-62

SCE

Mar

ket

Res

earc

h S

LS12

53

Inte

rnal

Use

Onl

y10

Jan

uary

201

3

Residential

Cus

tom

er E

ngag

emen

t B

asel

ine

Stud

y –

Q4/

YE

2012

1

YE

2012

TOTA

L

Past

yea

r us

e of

SCE

’s w

ebsi

te

or a

utom

ated

pho

ne s

yste

m*

52%

Def

init

ely/

Pro

babl

y W

ould

U

se t

o C

onta

ct S

CE

Inst

ead

of L

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Rep

Web

site

53%

Auto

mat

ed p

hone

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tem

43%

Soci

al m

edia

14%

Men

tion

any

of t

he a

bove

64%

Def

inite

ly/P

roba

bly

wou

ld N

OT

use

all o

f the

abo

ve22

%

a/b/

c/d

= s

igni

fican

tly h

ighe

r th

an a

, b, c

or

d at

95%

con

fiden

ce le

vel

* To

con

tact

SCE

to

get

som

ethi

ng d

one.

Hal

f of

Sm

all B

usin

ess

cust

omer

s ha

ve u

sed

SCE’

s w

ebsi

te a

nd/o

r au

tom

ated

pho

ne s

yste

m

in t

he p

ast

year

to

get

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ethi

ng d

one,

as

wel

l as

defin

itely

or

prob

ably

inte

nd t

o do

so

in

the

futu

re.

Just

one

in fi

ve p

roba

bly

or d

efin

itely

will

not

use

any

of t

he s

elf-

serv

ice

chan

nels

to

cont

act

SCE.

Thre

e-qu

arte

rs o

f Sm

all B

usin

ess

cust

omer

s w

ould

like

to

rece

ive

info

rmat

ion

from

SCE

via

a

digi

tal c

hann

el, w

ith e

-mai

l lea

ding

the

ir pr

efer

ence

s. O

nly

19%

are

inte

rest

ed in

mai

l onl

y.

Smal

l Bus

ines

s C

usto

mer

s

(n=

653)

B-63

2015 General Rate Case Rebuttal Testimony · 2014-09-15 · 2015 General Rate Case Rebuttal...

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Transcript of 2015 General Rate Case Rebuttal Testimony · 2014-09-15 · 2015 General Rate Case Rebuttal...