Application No.: A.18-03-009 Exhibit No.: SCE-11 Witnesses: Jose L. Perez

(U 338-E)

Decommissioning Cost Categorization

Before the

Public Utilities Commission of the State of California

Rosemead, California September 27, 2019

SCE-11 DECOMMISSIONING COST CATEGORIZATION Table Of Contents

Section Page Witness

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I. INTRODUCTION .............................................................................................1 J. Perez

II. DISTRIBUTED AND UNDISTRIBUTED COSTS .........................................3

III. COST CATEGORIZATION GUIDELINES ....................................................5

A. Decommissioning Project Oversight Costs ...........................................5

B. Site Costs ...............................................................................................5

C. Administrative and General (A&G) Support Costs ...............................6

D. Implementation ......................................................................................6

1. DCEs ..........................................................................................6

2. Recorded Costs ..........................................................................7

IV. CONCLUSION ..................................................................................................8

Appendix A Cost Categorization Agreement

Appendix B Supplemental Cost Tables

Appendix C Witness Qualifications

1

I. 1

INTRODUCTION 2

In Decision (D.) 18-11-034, the Commission ordered the following in ordering paragraphs 5 3

and 12: 4

5. SCE and SDG&E shall meet with Energy Division staff and interested 5 parties to develop protocols and guidance for recording staff time 6 designated to Distributed activities, and to define what activities will be 7 considered Undistributed and Distributed activities. SCE, SDG&E, and 8 any interested parties participating in the discussion shall file a report in 9 Application 18-03-009 setting forth the protocols and guidance agreed by 10 the parties. 11

12. SCE shall consistent with this decision, in consultation with Energy 12 Division staff and other interested parties, update its cost categorization 13 structure for tracking expenditures as discussed herein, which includes a 14 reasonable path to compare the decommissioning costs previously 15 estimated to actual costs expended. SCE shall provide more detailed 16 directions and instructions to its staff so that record keeping will directly 17 and transparently reflect the appropriate location, and the appropriate 18 detail, and support for Distributed activities. The revised cost 19 categorization structure must set forth how costs will be recorded in the 20 future, in a manner that can efficiently compare to forecasted costs 21 included in the DCE. The revised cost categorization is to be submitted as 22 testimony in the 2018 Nuclear Decommissioning Cost Triennial 23 Proceeding consistent with this decision and the schedule set forth in 24 A.18-03-009. 25

SCE conducted workshops with the Energy Division, SDG&E, and interested parties (i.e., the 26

Public Advocates Office (Cal Advocates), The Utility Reform Network (TURN), and the Alliance for 27

Nuclear Responsibility (A4NR)) on January 31, February 28, and March 14 of 2019 to discuss, inter 28

alia, protocols and guidance for recording staff time designated to distributed activities, and what 29

activities will be considered distributed and undistributed activities. In addition, SCE conducted several 30

conference calls with SDG&E and some of the interested parties to reach agreement on these topics. In 31

2

June 2019, the parties finalized the Cost Categorization Guidelines (Guidelines), which are provided as 1

Appendix A to this testimony. SCE is submitting this testimony in support of the Guidelines. The 2

testimony includes an explanation of underlying assumptions and modifications of accounting 3

treatments of certain costs. It also includes a supplemental 2017 SONGS 2&3 Decommissioning Cost 4

Estimate (DCE) cost table that breaks out the undistributed costs into alternative cost groupings, 5

including new line items, as prescribed in the Guidelines. The supplemental cost table summarizes 6

decommissioning costs during 2018-2028 and provides mapping to the corresponding line items from 7

the 2017 SONGS 2&3 DCE, which is being reviewed in this proceeding. This supplemental cost table is 8

provided as Appendix B to this testimony. The Guidelines further specify how these supplemental 9

undistributed cost line items will be incorporated in future NDCTPs. 10

Section II of this testimony discusses the differences between distributed and undistributed costs. 11

Section III describes the Cost Categorization Guidelines discussed by SCE, SDG&E (the Utilities), and 12

other interested parties. Section IV concludes SCE’s testimony and discusses the reasons that the Cost 13

Categorization Guidelines will assist the Commission and interested parties in reviewing the 14

reasonableness of recorded decommissioning costs.15

3

II. 1

DISTRIBUTED AND UNDISTRIBUTED COSTS 2

The SONGS decommissioning project includes two broad categories of costs: (1) distributed 3

costs and (2) undistributed costs. Distributed costs are typically activity-specific costs that include costs 4

associated with the physical work performed by the project team assigned to that activity—the activity 5

has been forecast with a defined scope and duration. These costs also include the costs for planning and 6

preparation costs as well as costs for decontamination, dismantling, packaging, disposal, and removal of 7

major components and systems.1 Examples of SONGS distributed costs include discrete physical 8

decontamination and dismantling (D&D) activities such as the segmentation, packaging, and disposal of 9

the SONGS 2&3 reactor vessel internals or the demolition and removal of the SONGS 2&3 turbine 10

buildings. The estimation of distributed decommissioning project costs is relatively straightforward. 11

Consistent with industry practices, the estimator uses material quantity take-offs, unit cost factors, 12

executed contract pricing or actual cost data when available, lessons learned from on-site performance to 13

date, other industry experiences, and an appropriate contingency factor to estimate the cost of each 14

discrete physical D&D activity. To the extent that utility labor is directly required to perform the 15

activity, that labor cost is included in the estimated cost for the distributed activity.2 Each major D&D 16

activity and its estimated cost is identified with a specific line item in the DCE. Following SCE policy, 17

each utility staff employee who is assigned to work on a distributed activity is instructed to charge his or 18

her time to that activity.3 19

Undistributed costs, on the other hand, are costs or fees for activities, programs, and other 20

requirements that are necessary to oversee, manage, and support the overall decommissioning project. 21

1 See 2014 SONGS 2&3 Decommissioning Cost Estimate at p. 12 of 37. 2 See Exhibit SCE-03C, Appendix B, p. B-20. 3 At the beginning of each year, SONGS Finance sends instructions to each project team assigned to a

distributed activity. The instructions contain account charging information so that the project team can record their time and costs to the distributed activity. SONGS Finance also reviews recorded costs and may make manual corrections if it identifies cost-recording errors.

4

By their nature, such costs are not assignable to specific activities representing the physical work 1

performed to decommission a nuclear plant. Undistributed activities and cost items generally are 2

characterized by a uniform rate of activity over a specific timeframe. Undistributed costs include: (1) 3

time-dependent costs incurred throughout the duration of the project regardless of whether 4

decontamination and dismantling (D&D) is actively in progress (i.e., utility staff, including core 5

contractor staff, service level agreements (SLAs), and security); and (2) unavoidable recurring expenses 6

required to comply with regulatory and contractual requirements (i.e., NRC fees, insurance, lease and 7

easement payments, and environmental fees and permits). 8

Undistributed cost activities are required on an ongoing basis to support the overall 9

decommissioning project, including the performance of D&D activities. However, undistributed costs 10

are also incurred during periods when active D&D projects are not being performed. Utility staff is the 11

largest component of undistributed costs, and includes functions such as plant management, finance, and 12

security. Varying levels of utility staff are required throughout the entire decommissioning project 13

schedule, including periods in which active D&D projects are being performed and periods when they 14

are not being performed. Utility staff oversight of decommissioning projects performed by contractors, 15

including D&D activities performed by the DGC, is a substantial component of utility staff work. 16

During the 2015 and 2018 NDCTP proceedings, TURN raised questions regarding the 17

categorization of utility staff costs between distributed and undistributed cost activities. TURN offered 18

multiple recommendations, including developing a process to allocate undistributed costs to distributed 19

activities. The utilities oppose any process of allocating undistributed costs to distributed activities as it 20

would be the antithesis of the Commission’s direction to develop an efficient process to compare costs 21

(see Section V for further discussion on the problems raised by allocation). The purpose of the Cost 22

Categorization Guidelines negotiated by the Utilities, Energy Division, and other interested parties, is to 23

provide a greater level of detail regarding undistributed costs for the Commission’s review of such costs. 24

5

III. 1

COST CATEGORIZATION GUIDELINES 2

Under the Cost Categorization Guidelines, the cost tables already provided in the DCEs will not 3

change. Beginning with the 2017 SONGS 2&3 DCE, SCE will provide a supplemental cost table that 4

will group the DCE undistributed cost line items into three main categories: (1) Decommissioning 5

Project Oversight Costs, (2) Site Costs, and (3) Administrative and General Support Costs. Each of these 6

main categories will be further divided into subcategories that will provide a more detailed breakdown 7

of the category’s costs. This increased level of detail will provide interested parties with additional 8

information regarding the costs being recorded and continue to facilitate a comparison of undistributed 9

costs to the estimated cost. 10

A. Decommissioning Project Oversight Costs 11

Decommissioning Project Oversight Costs include costs related to the planning, monitoring, 12

supervision, and management of decommissioning work which is primarily the work to be accomplished 13

by the DGC. This category includes the following subcategories: 14

• Key Oversight personnel (including senior site/decommissioning management) 15

• Decommissioning oversight personnel 16

• DGC undistributed costs 17

• Non-labor undistributed costs associated with planning, monitoring, supervision, and 18

management of decommissioning work 19

B. Site Costs 20

Site Costs are those costs necessary to maintain and operate the site as a whole that adjust over 21

time based on the completion of decommissioning phases, and are not part of the Decommissioning 22

Project Oversight functions. This category includes the following subcategories: 23

• Security 24

• Plant Management (includes operations, other plant management costs, and emergency 25

planning) 26

• Non-labor undistributed costs associated with maintaining and operating the site 27

6

C. Administrative and General (A&G) Support Costs 1

A&G Support Costs provide corporate and site administrative activities necessary to support 2

decommissioning that is not part of the Decommissioning Project Oversight or Site Cost categories. This 3

category includes the following subcategories: 4

• Site Management and Administration 5

• Service Level Agreements 6

• Non-labor undistributed costs associated with A&G Support 7

• Other A&G support costs that can be separately identified 8

D. Implementation 9

1. DCEs 10

As explained above, the line items for undistributed costs in the current DCE cost tables and 11

future DCE cost tables will not change. To provide the additional information that the parties agreed to 12

in the Guidelines, SCE will create a new account for SCE’s Key Oversight personnel. Additionally, in 13

this proceeding and in each subsequent NDCTP, SCE will provide a supplemental cost table that 14

organizes all undistributed costs into three main categories and their corresponding subcategories as 15

described above. These supplemental cost tables will include mapping to corresponding DCE 16

undistributed cost line items. SDG&E also will forecast and record their additional costs in the same 17

categories and subcategories as described above for SCE. 18

The above changes will be made for the 2017 SONGS 2&3 DCE in a supplemental table4 for 19

2018-2028 that presents annual forecasts for each of the main categories, subcategories and each SLA 20

with references to the relevant DCE line items. In future NDCTPs, the Utilities will provide similar 21

supplemental cost tables for undistributed costs through the end of the decommissioning project. 22

4 See Appendix B to this testimony.

7

2. Recorded Costs 1

In future NDCTPs, SCE will provide recorded cost data by the categories identified in the 2

Guidelines. To the extent that complete information on recorded costs is not available for 2018 and the 3

first half of 2019, SCE will provide an approximation of recorded costs for each main category and 4

subcategory, as well as, any recorded costs associated with incentive payments made each year to utility 5

staff supporting SONGS decommissioning, including results sharing incentive compensation. 6

8

IV. 1

CONCLUSION 2

The Cost Categorization Guidelines fulfill the requirements of D.18-11-034 to develop protocols 3

and guidance for recording staff time designated to distributed activities; define what activities will be 4

considered distributed and undistributed activities;5 and set forth how costs will be recorded in the 5

future. The Guidelines accomplish this by providing additional information for the Commission and 6

other interested parties to reconcile recorded costs to estimated costs for distributed and undistributed 7

activities. 8

The Guidelines strike the right balance. Whereas it would be impractical and burdensome for 9

utility personnel (who currently record their time as undistributed costs) to record portions of their time 10

to specific distributed projects, it would be impossible for SCE or a third party cost estimator to 11

accurately estimate (in advance) the amount of time and associated costs that each utility oversight 12

employee would work on among the hundreds of distributed activities in the SONGS decommissioning 13

project. Similarly, it would be unreasonable to expect SCE or a cost estimator to accurately allocate in 14

advance the amounts of utility oversight costs that will be required for each distributed activity. To do so 15

would build estimating or allocation errors into the DCE that would inevitably result in false variances 16

to recorded costs. This was discussed during workshops, and interested parties agreed that an allocation 17

method that introduced false variances should be avoided. 18

The Guidelines achieve the Commission’s goal of providing additional cost transparency and 19

facilitating the Commission’s reasonableness reviews. It maintains the Commission-approved Milestone 20

Framework, including the “checkpoints” for the Commission’s reasonableness reviews of undistributed 21

costs while not imposing burdensome recordkeeping or cost estimating changes upon the utilities. Each 22

of the parties who participated in the negotiations has agreed to the Guidelines. 23

Therefore, the Commission should find that the Cost Categorization Guidelines are reasonable. 24

5 D.18-11-034, Ordering Paragraph 5.

Appendix A

Cost Categorization Agreement

1 

Cost Categorization Guidelines 

SCE will organize all undistributed costs into the three main categories and subcategories described in the following sections. All undistributed costs include utility staff, contractors, Service Level Agreements, and any other expenditure categorized as undistributed. 

The three main cost categories are: 

1. Decommissioning Project Oversight2. Site Costs3. Administrative and General Support Costs

Descriptions of the three main categories and subcategories are described in detail in the following sections. 

1. Decommissioning Project Oversight

Decommissioning Project Oversight includes all costs related to the planning, monitoring, supervision, and management of decommissioning work which is primarily the work to be accomplished by the DGC. This category includes the following subcategories: 

a. Key Oversight (including top site/decommissioning management)b. Decommissioning oversight personnelc. DGC undistributed costsd. Non‐labor undistributed costs associated with planning, monitoring, supervision,

and management of decommissioning work1

2. Site Costs

Site Costs are those necessary to maintain and operate the site as a whole, that adjust over time based on completion of decommissioning phases, and are not part of the Decommissioning Project Oversight functions. This category includes the following subcategories: 

a. Securityb. Plant Management (includes operations, other plant management costs and

emergency planning)c. Non‐labor undistributed costs associated with maintaining and operating the site2

1 This includes the decommissioning advisor and associated contracted services. 2 These include contracted services, environmental permits and fees, emergency preparedness fees, association fees, NRC fees, site lease and easement expenses, health physics supplies, security related expenses, spent fuel maintenance, DAW disposal, tools and equipment, community engagement panel, energy, utilities, computers, telecommunications, and information technology. 

A-1

2 

3. Administrative and General (A&G) Support Costs

A&G Support Costs provide corporate and site administrative support necessary for support of decommissioning not part of the Decommissioning Project Oversight or Site Cost categories. This includes the following subcategories: 

a. Site Management and Administration (includes Regulatory Affairs and NuclearOversight, accounting, finance and personnel costs)

b. Service Level Agreementsc. Non‐labor undistributed costs associated with A&G Support3d. Other A&G support costs that can be separately identified

Additional considerations: 

a. SDG&E will forecast and record their additional costs in the same categories and subcategories as described above for SCE.

b. SCE will report any recorded costs associated with incentive payments made eachyear to utility staff supporting SONGS decommissioning, including Results SharingIncentive Compensation.

c. No changes to the milestone framework relating to checkpoints and timing forreview of undistributed costs.

d. The above changes will be made for the 2017 DCE in the form of a supplement for2018‐2028 that presents annual forecasts for each of the main categories,subcategories and each service level agreement with references to the relevant DCEline items. In future NDCTPs, the utilities shall provide similar supplements forundistributed costs through the end of the decommissioning project.

e. The utilities will provide annual recorded cost data by Category and Subcategoryalong with any additional breakdown of costs by Division, Service Level Agreement,or other account within each subcategory.4 To the extent that complete informationon recorded costs is not available for 2018 and the first half of 2019, the utilitiesshall provide an approximation of recorded costs for each main category andsubcategory.

3 These include bank fees and interest, insurance, workers compensation, severance, property tax, and third party legal. 4 Core contractor staffing (utility staff augmentation) will be treated as separate line items for recorded costs within the corresponding main category and subcategory for the related utility staff where the augmentation is being provided. 

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Appendix B

Supplemental Cost Table

2017 SONGS Units 2 & 3 Decommissioning Cost EstimateUndistributed Cost Estimate - Supplemental Cost Table

(2014 Dollars In Thousands, 100% Share)

Description 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 20282018-2028

Total1 Undistributed Activities2 Decommissioning Project Oversight3 Key Oversight Personnel 6,918$ 7,511$ 7,166$ 7,166$ 7,166$ 7,166$ 7,166$ 7,166$ 7,166$ 6,720$ 3,687$ 74,999$ 4 Decommissioning Oversight 4,380 7,009 8,599 8,599 8,599 8,599 8,599 8,599 8,599 8,599 4,113 84,294 5 DGC Staffing 32,363 17,668 18,678 14,664 9,301 9,047 8,851 6,795 6,581 2,118 - 126,067 6 Non-Labor (1) 10,007 4,098 4,036 3,765 3,495 3,468 3,468 3,468 2,927 2,657 2,640 44,029 7 Decommissioning Project Oversight - Subtotal 53,668$ 36,286$ 38,478$ 34,195$ 28,561$ 28,280$ 28,084$ 26,028$ 25,274$ 20,094$ 10,441$ 329,390$ 89 Site Costs

10 Security Force 21,861$ 8,829$ 2,962$ 2,962$ 2,962$ 2,962$ 2,962$ 2,962$ 2,962$ 2,962$ 2,962$ 57,345$ 11 Plant Management 16,102 10,697 3,931 3,931 3,931 3,931 3,931 3,931 3,931 3,931 3,931 62,176 12 Non-Labor (2) 20,769 15,325 13,354 13,623 11,666 11,722 13,838 13,471 13,269 14,310 12,718 154,064 13 Site Costs - Subtotal 58,732$ 34,851$ 20,246$ 20,515$ 18,558$ 18,615$ 20,730$ 20,364$ 20,162$ 21,202$ 19,610$ 273,585$ 1415 Administration and General (A&G) Support Costs16 Site Management & Administration 7,037$ 6,128$ 5,937$ 5,937$ 5,937$ 5,937$ 5,937$ 5,937$ 5,937$ 5,937$ 5,937$ 66,597$ 17 Non-Labor (3) 11,953 19,862 4,670 4,670 4,670 4,129 4,129 4,129 4,129 4,315 5,245 71,900 18 Service Level Agreements19 Audit Services 788 788 788 788 788 788 788 788 788 788 788 8,669 20 Controllers 933 933 933 933 933 933 933 933 933 933 933 10,264 21 Corporate Communications 154 154 154 154 154 154 154 154 154 154 154 1,693 22 Corporate Security 503 503 503 503 41 41 41 41 41 41 41 2,299 23 CPUC Regulatory Affairs 858 858 858 858 858 858 858 858 858 858 858 9,441 24 Decommissioning Finance - - - - - - - - - - - - 25 Environmental Policy 131 131 131 131 131 131 131 131 131 131 131 1,440 26 Environmental Services 285 285 285 285 176 176 176 - - - - 1,668 27 Human Resources 626 626 626 626 626 626 626 626 626 626 626 6,891 28 Information Governance 94 94 94 94 94 94 94 94 94 94 94 1,033 29 Information Technology 4,602 2,456 1,240 1,240 1,240 1,240 1,240 1,240 1,240 1,240 1,240 18,220 30 Legal 1,211 1,211 964 718 718 718 718 718 718 718 718 9,129 31 Local Public Affairs 58 58 58 58 58 58 58 58 58 58 58 636 32 Real Properties 64 64 64 64 64 64 64 64 64 64 64 701 33 Risk Management 24 24 24 24 24 24 24 24 24 24 24 259 34 Short Term Incentive Plan (STIP) 517 517 517 517 517 517 517 517 517 517 517 5,684 35 Supply Management 773 773 773 773 773 773 773 773 773 773 773 8,506 36 Tax 158 158 158 158 158 158 158 158 158 158 158 1,738 37 Transportation Services 370 370 370 370 370 370 370 370 370 370 370 4,071 38 Treasurers 289 289 289 289 289 289 289 289 289 289 289 3,177 39 Administration and General - Subtotal 31,428$ 36,281$ 19,435$ 19,189$ 18,619$ 18,078$ 18,078$ 17,901$ 17,901$ 18,087$ 19,017$ 234,014$ 40

41 Undistributed Activities Total 143,828$ 107,417$ 78,160$ 73,899$ 65,739$ 64,973$ 66,892$ 64,293$ 63,337$ 59,383$ 49,068$ 836,989$

Notes:(1) Decommissioning Project Oversight - Non-Labor includes the following DCE line items: Contracted Services - Decommissioning Oversight; Decommissioning Advisor; DGC Executive Oversight Committee.

General Note:The following line items are not included within non-labor as they are not used in the 2017 DCE: Telecommunications, computers, workers compensation, spent fuel maintenance, bank fees, and property taxes.Totals may not tie due to rounding.

(2) Site Costs - Non-Labor includes the following DCE line items: Contracted Services - Plant Management; Environmental Permits and Fees; Emergency Preparedness Fees; Association Fees and Expenses; NRC Fees; Site Lease and Easement Expenses; Office Space; Utility Staff Health Physics Supplies; Security Related Expenses; DAW Disposal; Tools and Equipment; Community Engagement Panel; Energy; Water; Information Technology; Aging Management; Ground Water Monitoring; Loading Spent Fuel & GTCC Waste To DOE.(3) Administration and General (A&G) Support Costs - Non-Labor includes the following DCE line items: Contracted Services - Site Management & Admin; Insurance; Third Party Legal; Severance.

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Appendix C

Witness Qualifications

C-1

SOUTHERN CALIFORNIA EDISON COMPANY 1

QUALIFICATIONS AND PREPARED TESTIMONY 2

OF JOSE LUIS PEREZ 3

Q. Please state your name and business address for the record. 4

A. My name is Jose Luis Perez, and my business address is 2244 Walnut Grove Ave, Rosemead, 5

CA 91770. 6

Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7

A. I am a Principal Manager, Nuclear CPUC Regulatory Affairs and Compliance, in the Regulatory 8

Affairs Organization responsible for CPUC regulatory activities and financial planning & 9

analysis for SONGS issues. 10

Q. Briefly describe your educational and professional background. 11

A. I earned an MBA from the University of California, Irvine in 1997. I earned a Bachelor of 12

Science Degree in Civil Engineering from California State University, Long Beach in 1977. I 13

am a Registered Professional Engineer in the State of California. Since joining Edison in 1982, I 14

have held various management positions in nuclear generation business, finance, regulatory 15

affairs, planning & strategy, and project controls organizations. In addition, I have managed 16

various projects, including SONGS 1 decommissioning shortly after permanent shutdown and 17

industry restructuring financial analysis. Prior to joining Edison, my professional background 18

included various home office and jobsite positions in the civil engineering, nuclear power plant 19

start-up, and project controls organizations of Bechtel Power Corporation and the collection and 20

analysis of construction cost data for publication in cost estimating manuals for Marshall and 21

Swift Publications. 22

Q. What is the purpose of your testimony in this proceeding? 23

A. The purpose of my testimony in this proceeding is to sponsor Exhibit SCE-11: 24

Decommissioning Cost Categorization, as identified in the Table of Contents thereto. 25

Q. Was this material prepared by you or under your supervision? 26

C-2

A. Yes, it was. 1

Q. Insofar as this material is factual in nature, do you believe it to be correct? 2

A. Yes, I do. 3

Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 4

judgment? 5

A. Yes, it does. 6

Q. Does this conclude your qualifications and prepared testimony? 7

A. Yes, it does. 8