SOCALGAS REBUTTAL TESTIMONY OF CHRISTOPHER R. … · 2019-12-18 · 1 . SOCALGAS REBUTTAL TESTIMONY...

Company: Southern California Gas Company (U904G) Proceeding: 2016 General Rate Case Application: A.14-11-004 Exhibit: SCG-218

SOCALGAS

REBUTTAL TESTIMONY OF CHRISTOPHER R. OLMSTED

(INFORMATION TECHNOLOGY)

June 2015

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

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TABLE OF CONTENTS I. SUMMARY OF DIFFERENCES .......................................................................................1 II. INTRODUCTION.................................................................................................................1 III. REBUTTAL TO PARTIES’ O&M PROPOSALS ............................................................2

A. Flawed Analysis Used in ORA’s O&M Proposals .......................................................2 1. ORA used inconsistent forecast methodologies throughout its

testimony ....................................................................................................................2 2. ORA lacks any basis for rejecting SoCalGas’ consistent base year plus

adjustments forecast methodology ..........................................................................4 B. O&M Labor Forecast .....................................................................................................5

1. SoCalGas provides sufficient detail and analysis in support of SoCalGas’ request of incremental TY 2016 labor expenses of $3.3 million.........................................................................................................................5

2. SoCalGas’ use of “professional judgement” and “management experience” is valid and supported .........................................................................6

C. O&M Non-Labor Forecasts ...........................................................................................8 1. Undisputed Costs – O&M Non-Labor ....................................................................8

IV. REBUTTAL TO PARTIES’ CAPITAL PROPOSALS ....................................................8 A. ORA did not challenge the merits or implementation timing of any IT

capital projects proposed by SoCalGas ........................................................................8 B. Disputed Costs - 2015 Capital Expenditures ................................................................9 C. Undisputed Costs - 2016 Capital Expenditures..........................................................13

V. INFORMATION SECURITY ...........................................................................................13 A. Labor O&M ...................................................................................................................13 B. Tracking of Cybersecurity and Risk Management expenditures.............................13

VI. CONCLUSION ...................................................................................................................14 Appendix A. SoCalGas Shared Services Workpaper 2200-2418.000 – Director – SCG Applications Services Appendix B. SoCalGas Response to Data Request ORA-SCG-DR-048-PM1, Question 11 Appendix C. SoCalGas Response to ORA Master Data Request Chapter 11 – Information Technology, Question 24.B. Appendix D. SoCalGas Response to Data Request ORA-SCG-DR-029-PM1, Question 5

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SOCALGAS REBUTTAL TESTIMONY OF CHRISTOPHER R. OLMSTED 1

(INFORMATION TECHNOLOGY) 2

I. SUMMARY OF DIFFERENCES 3

Only the Office of Ratepayer Advocates (“ORA”) submitted testimony regarding 4

SoCalGas’ Information Technology (“IT”) requested funding in this proceeding. 5

ORA submitted testimony regarding SoCalGas’ IT operations and maintenance (“O&M”) 6

funding in this proceeding. Table CRO-1 depicts the difference between SoCalGas’ total Test 7

Year (“TY”) 2016 O&M forecast and ORA’s recommended amount. 8

Table CRO-1 9 Total O&M (Non-Shared & Shared) 10

TOTAL O&M - Constant 2013 ($000)

Base Year

2013 Test Year

2016 Change

SoCalGas 18,936 23,6241 4,688 ORA 18,936 20,438 1,502

ORA also submitted testimony regarding SoCalGas’ IT requested capital funding in this 11

proceeding. Table CRO-2 depicts the difference between SoCalGas’ 2014-2016 capital forecast 12

and ORA’s recommended amount. 13

Table CRO-2 14 Total Capital 15

TOTAL CAPITAL - Constant 2013 ($000) 2014 2015 2016 SoCalGas 103,739 119,916 104,796 ORA 79,709 99,824 104,796

II. INTRODUCTION 16

ORA issued its report on SoCalGas IT on April 24, 2015.2 The following is a summary 17

of ORA’s positions: 18

19

1 See Revised Direct Testimony, Ex. SCG-18-R (C. Olmsted), at CRO-iv (Summary Table). ORA cites to data response SCG-DR-082 Q3- Attachment in support of a slightly smaller number ($23,619k). The difference between the two numbers is due to rounding. 2 Exhibit (“Ex.”) ORA-15, Report on the Results of Operations for San Diego Gas & Electric Company and Southern California Gas Company, Test Year 2016 General Rate Case – Information Technology, ORA Witness P. Morse, April 24, 2015.

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• ORA recommends $16.8 million for SoCalGas’ O&M labor expenses, which is $3.2 1 million, or 68%, less than SoCalGas’ TY 2016 incremental request;3 2

• ORA accepts SoCalGas’ TY 2016 non-labor expense forecast of $3.6 million;4 3

• ORA recommends as part of SoCalGas’ next GRC filling to track O&M expenses and 4 capital expenditures for Cybersecurity and Risk Management in the four areas 5 presented in this TY 2016 GRC: Governance and Compliance, Awareness and 6 Outreach, Security Engineering and Security Operations;5 7

• ORA recommends utilizing actual recorded 2014 capital expenditures of $79.7 8 million, which is $24.1 million, or 23%, lower than SoCalGas’ forecast of $103.8 9 million;6 10

• ORA recommends $48.6 million for 2015 Information Technology sponsored capital 11 expenditures, which is the highest recorded spending from 2009-2014. ORA’s 12 recommendation is $20.1 million, or 29%, lower than SoCalGas’ forecast of $68.7 13 million. ORA’s recommendation results in a total IT capital forecast for 2015 of 14 $99.8 million compared to SoCalGas’ forecast $119.9 million;7 and 15

• ORA accepts SoCalGas’ 2016 capital expenditure forecast of $104.8 million.8 16

III. REBUTTAL TO PARTIES’ O&M PROPOSALS 17

A. Flawed Analysis Used in ORA’s O&M Proposals 18

There are several fundamental flaws in how ORA has analyzed SoCalGas’ O&M labor 19

request for TY 2016 IT funding. The following sections identify these flaws in ORA’s analysis 20

and describe why SoCalGas believes the California Public Utilities Commission (“Commission”) 21

should reject ORA’s recommendations and instead adopt SoCalGas’ position. 22

1. ORA used inconsistent forecast methodologies throughout its testimony 23

As described in my Revised Direct Testimony, in order to reflect the fact that IT is a 24

shared services organization with cost centers that provide services to both utilities, SoCalGas 25

and SDG&E use base year 2013 adjusted recorded cost plus incremental activity adjustments to 26

forecast TY 2016 costs for every IT cost category.9 This forecast methodology is consistently 27

3 Ex. ORA-15 at 3, lines 9-10. 4 Ex. ORA-15 at 4, lines 1-2. 5 Ex. ORA-15 at 31, line 22 through 32, line 1. 6 Ex. ORA-15 at 4, lines 10-12. 7 Ex. ORA-15 at 4, lines 13-18. 8 Ex. ORA-15 at 4, line 19. 9 Ex. SCG-18-R (C. Olmsted) at CRO-2, line 4 through CRO-3, line 8.

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used across all workgroups and was similarly used by IT in the prior rate case (TY 2012) for 1

both SoCalGas and SDG&E.10 2

Unlike SoCalGas, ORA used a variety of forecasting methodologies when developing its 3

final recommendations across SoCalGas and SDG&E IT cost categories. For example, ORA 4

used inconsistent approaches for similar incremental labor cost forecasts for the two utilities and 5

three different approaches for non-labor cost forecasts. Table CRO-3 depicts the varying 6

forecast methodologies used by ORA in contrast to the base year plus incremental activities 7

adjustments methodology consistently applied for all cost categories by SoCalGas and SDG&E. 8

Table CRO-3 9 Comparison of 10

SoCalGas, SDG&E and ORA Forecasting Methodologies – O&M 11 SoCalGas / SDG&E

Forecast Basis ORA

Forecast Basis SoCalGas IT Labor Base year plus adjustments Highest recorded, 2009-1411 Labor - Information Security Base year plus adjustments Accepts SoCalGas proposal12 Non-Labor Base year plus adjustments Accepts SoCalGas proposal13

SDG&E IT Labor Base year plus adjustments Six-year average, 2009-1414 Labor - Information Security

Base year plus adjustments Accepts SDG&E proposal15

Non-Labor Base year plus adjustments Five-year average16 Non-Labor – Contracts Base year plus adjustments Five-year trend17 Non-Labor - Information

Security Base year plus adjustments Accepts SDG&E proposal18

12

10 D.13-05-010 at (issued May 14, 2013); see Direct Testimony of Jeffery C. Nichols, A.10-12-006, Ex. SCG-12R, at JCN-23, line 19 through JCN-34, line 21. 11 Ex. ORA-15 at 26, lines 7-10. 12 Ex. ORA-15 at 31, lines 12-14. 13 Ex. ORA-15 at 31, lines 2-4. 14 Ex. ORA-15 at 10, lines 7-8. 15 Ex. ORA-15 at 18, lines 10-12. 16 Ex. ORA-15 at 14, lines 7-10. 17 Ex. ORA-15 at 14, lines 6-7. 18 Ex. ORA-15 at 18, lines 10-12.

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ORA’s inconsistent approach ignores the fact that IT is a shared services organization 1

with cost centers that provide services to SoCalGas and SDG&E.19 As a shared service, IT is 2

performing a consistent set of activities and services for SoCalGas and SDG&E and thereby has 3

similar cost structures for providing such services. A consistent forecast methodology should be 4

used. 5

ORA’s use of multiple forecast methodologies is arbitrary and inconsistently applied 6

among the cost categories. In addition, ORA’s inconsistent methodology approach across the 7

complex IT organization is questionable. In contrast, SoCalGas uses a single forecasting method 8

that is applied consistently across all IT cost categories. 9

2. ORA lacks any basis for rejecting SoCalGas’ consistent base year plus 10 adjustments forecast methodology 11

Not only did ORA arbitrarily use a variety of different forecast methodologies, but it also 12

failed to provide any basis for rejecting SoCalGas’ consistent use of base year plus adjustments. 13

SoCalGas adopted and consistently uses the same forecast methodology for all O&M 14

labor forecasts.20 As I explain in my Revised Direct Testimony, the use of base year 2013 15

adjusted recorded O&M labor expenses plus adjustments for TY 2016 incremental resource 16

requirements is appropriate and justified due to the nature of IT-related costs.21 The consistent 17

use of base year 2013 adjusted recorded O&M labor expenses plus adjustments is reasonable for 18

SoCalGas because:22 19

• The pace of change in the technology industry continues to accelerate when compared 20 to prior years.23 21

• A rapidly changing security threat landscape drives our current cybersecurity risk 22 management activities.24 23

• Evolving regulatory requirements around customer data privacy are not fully reflected 24 in a historical average.25 25

• The level of support provided by the IT Division continues to grow as new IT capital 26 projects and technologies are implemented.26 27

19 Ex. SCG-18-R at CRO-4, lines 1-2. 20 Ex. SCG-18-R at CRO-2, line 4 through CRO-3, line 8. 21 Ex. SCG-18-R at CRO-2, line 4 through CRO-3, line 8. 22 Ex. SCG -18-R at CRO-2, line 4 through CRO-3, line 8. 23 Ex. SCG-18-R at CRO-2, lines 6-7. 24 Ex. SCG-18-R at CRO-2, lines 12-13. 25 Ex. SCG-18-R at CRO-2, lines 15-16. 26 Ex. SCG-18-R at CRO-2, lines 17-18.

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SoCalGas consistently applies this methodology across the entire forecast because these 1

themes do not change when considering the various IT cost categories. The same methodology 2

is also applied to SDG&E IT forecasts since much of IT is a shared service and provides similar 3

services to both utilities.27 4

ORA does not provide any support or rational basis for its request that the Commission 5

reject SoCalGas’ consistent application of base year plus adjustments forecasting methodology 6

in favor of inconsistent alternative methodologies. 7

B. O&M Labor Forecast 8

ORA recommends $16.8 million for SoCalGas’ O&M labor expenses, which is $3.2 9

million, or 68%, less than SoCalGas’ TY 2016 request.28 Table CRO-4 depicts the difference 10

between SoCalGas’ TY 2016 O&M labor forecast and those provided by ORA in this 11

proceeding. 12

Table CRO-4 13 Total O&M Labor (Non-Shared & Shared) 14

O&M - Constant 2013 ($000)

Base Year

2013 Test Year

2016 Change

SoCalGas 16,667 19,998 3,331 ORA 16,667 16,807 140

As explained in detail below, SoCalGas provides sufficient detail through its testimony, 15

workpapers and responses to data requests for ORA to analyze SoCalGas’ labor forecast. The 16

Commission should adopt SoCalGas’ TY 2016 incremental forecast of $3.3 million, for a total of 17

$20.0 million, as reasonable. 18

1. SoCalGas provides sufficient detail and analysis in support of SoCalGas’ 19 request of incremental TY 2016 labor expenses of $3.3 million. 20

ORA asserted that “SCG’s direct testimony provides little narrative for requested labor 21

increases, and no analytical support.”29 ORA does not question any particular incremental labor 22

expenses. Contrary to ORA’s assertion, SoCalGas’ direct testimony, O&M workpapers and 23

discovery responses provide sufficient narrative and analytical support for its incremental labor 24

27 See Ex. SDG&E-19-R-A (Direct Revised Testimony – Amended of SDG&E witness S. Mikovits at SJM-2, line 4 through SJM-3, line 8. 28 Ex. ORA-15 at 3, lines 9-10. 29 Ex. ORA-15 at 26, lines 12-13.

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expenses request.30 SoCalGas’ workpapers provide details of SoCalGas’ O&M labor expense 1

forecast as summarized in my Direct Revised Testimony. Forecasted costs are categorized by 2

shared and non-shared forecasts, and further into IT functional groupings (i.e., Applications, 3

Infrastructure, Information Security and IT Support). Workpapers include additional details, 4

such as include cost center and activity descriptions, forecast methodology explanations, 2009 5

through 2013 recorded costs (labor and non-labor), year-to-year (2014-2016) line item 6

incremental activities for 37 cost centers (shared and non-shared), and explanations for 7

incremental changes for each of the forecast years. 8

For example, a portion of SoCalGas’ overall labor forecast is tied to the increase in 9

application support responsibilities identified for SoCalGas Application Services (cost center 10

2200-2418) as a result of the implementation of capital projects.31 This forecast appears in my 11

Direct Revised Testimony as part of Shared Application costs and is also included in my O&M 12

workpapers.32 For the reader’s ease, Appendix A (attached) includes the set of workpapers for 13

cost center 2200-2418 as an example of the level of detailed data that SoCalGas has provided in 14

support of its labor forecast.33 15

SoCalGas also has provided additional analytical support for its requested labor increases 16

to ORA during discovery. In one response, (provided hereto as Appendix B), SoCalGas 17

provided ORA with additional information on its incremental labor forecast.34 This response 18

provides a comprehensive overview of SoCalGas’ entire incremental labor request (without 19

having to sift through all 272 pages of O&M workpapers) and documents all of SoCalGas’ 20

estimating assumptions and calculations that were utilized for its forecast. 21

In summary, SoCalGas provides sufficient detail and analysis in support of its request of 22

incremental TY 2016 labor expenses of $3.3 million. 23

2. SoCalGas’ use of “professional judgement” and “management 24 experience” is valid and supported 25

SoCalGas’ labor request was forecasted, in part, using the professional judgement of its 26

IT staff on a cost center by cost center basis.35 As with any forecast, judgement and experience 27

30 See Ex. SCG-18-WP. 31 See Ex. SCG-18-WP at page 36 through page 42. 32 Ex. SCG-18-R at CRO-16, lines 1 - 26. 33 See generally, Appendix A attached hereto. 34 SoCalGas Response to ORA-SCG-DR-048-PM1 question 11, provided hereto as Appendix B. 35 SoCalGas Response to ORA-SCG-DR-048-PM1 question 11, attached hereto as Appendix B.

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come into play when developing estimates. SoCalGas’ IT O&M forecast methodology is no 1

different. Identifying upward cost pressures (or downward relief in the form of cost savings) in 2

an IT organization is not always directly correlated to a simple business metric or key 3

performance indicator (“KPI”), such as meter count or customer growth. Furthermore, not all 4

IT costs can be linked to specific business transactions and/or activity levels or forecasted using 5

a simple arithmetic-based method. 6

Instead, IT forecasting and planning typically consists of experienced IT professionals 7

taking a wide variety of factors into consideration when developing an IT-related cost estimate, 8

such as an understanding of industry technology trends, hardware and software computing 9

capabilities, scope of specific operations, maintenance and support activities, evolving business 10

priorities, changing regulatory landscape, and/or workforce skillset needs. This is typically done 11

based on factors, such as the requirements of the project, staff’s experience with implementing 12

similar projects and discussions with impacted operating groups. This analysis is included as 13

part of SoCalGas IT’s project approval process and is taken into account when an assessment of 14

a project for approval is performed. 15

ORA asserts that “SCG’s reliance on ‘professional judgment’ and ‘management 16

experience’ to forecast incremental labor expenses provides the Commission no analytical basis 17

or data to evaluate or determine the reasonableness of SCG’s request.”36 Nowhere in its 18

testimony does ORA dispute that “professional judgment” and “management experience” are 19

tools when forecasting labor expenses. In fact, SoCalGas’ use of professional judgement and 20

management experience is an acceptable forecast methodology in a GRC, according to the 21

guidelines governing these proceedings.37 22

Contrary to ORA’s assertion, SoCalGas provides sufficient support describing how it 23

used its IT staff’s judgement and experience, to the extent applicable, when developing its 24

forecasted labor request. For example, in the workpapers for cost center 2200-2418, SoCalGas 25

explains how it used its staff’s judgement and experience when forecasting the need for 26

incremental full-time equivalents (“FTEs”) associated with a capital project implementation:38 27

36 Ex. ORA-15, at 28, lines 10-12. 37 Rate Case Plan, as updated by D.07-07-004, Appendix A, at A31 (stating that “Where judgment is involved in setting an estimate level” the applicant must “explain why that particular level was adopted”). 38 Ex. SCG-WP-18, attached hereto as Appendix A, at page 40 of 272.

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8.7 incremental FTEs related to capital project implementations in 2015 and in 1 2016. Assumes 96% O&C ratio and $100k average salary plus 10k per employee 2 in associated NL costs (9 employees). 3

Three assumptions from this statement contribute to the increased forecast – the number 4

of FTEs projected, the amount of time to be spent on operational activities and assumed average 5

salary. The O&C [Operating & Clearing] ratio and average salary figures are numbers that are 6

calculated based on data that was available from SoCalGas’ financial systems. Professional 7

judgement and management experience were used to project the number of required FTEs. In 8

this example, the FTE’s projected were developed by project managers who identified increased 9

IT support needs due to the implementation of their capital projects. The use of professional 10

judgement and management experience, as in this case, to forecast FTEs, is typically done based 11

on factors such as the requirements of the project, experience with implementing similar projects 12

and discussions with impacted operating groups. This analysis is included as part of SoCalGas 13

IT’s project approval process and is taken into account when an assessment of the project for 14

approval is performed. Controls and/or checkpoints of this type are methods implemented to 15

ensure that IT costs are effectively managed across the division. 16

In summary, SoCalGas provides a sufficient analytical basis and data to demonstrate the 17

reasonableness of SoCalGas’ use of “professional judgment” and “management experience” to 18

forecast labor expenses. 19

C. O&M Non-Labor Forecasts 20

1. Undisputed Costs – O&M Non-Labor 21

ORA agreed with SoCalGas’ forecast for Non-Labor O&M.39 The Commission should 22

adopt SoCalGas’ TY 2016 incremental forecast of $1.4 million, for a total of $3.6 million, as 23

reasonable. 24

IV. REBUTTAL TO PARTIES’ CAPITAL PROPOSALS 25

A. ORA did not challenge the merits or implementation timing of any IT capital 26 projects proposed by SoCalGas 27

ORA recommends reduced capital expenditures for SoCalGas in 2014 and 2015,40 but it 28

fails to provide any support for its recommendation based on the individual merits or details of 29

39 Ex. ORA-15 at 4, lines 1-2. 40 Ex. ORA-15 at 34, lines 10-12.

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any particular IT capital project proposed by SoCalGas.41 1

SoCalGas’ 2014-2016 IT capital request is sufficiently supported by project-by-project 2

information.42 SoCalGas has provided over 800 pages of detailed capital workpapers, 3

representing 146 capital projects. SoCalGas’ capital workpapers specifically identify the types 4

of investments needed for the forecast period.43 SoCalGas also included forecasted in-service 5

dates for each project listed in the SoCalGas IT 2014-2016 capital forecasts.44 In my Direct 6

Revised Testimony, I also provide individual narratives in support of the 24 largest SoCalGas 7

IT-sponsored individual capital projects.45 8

B. Disputed Costs - 2015 Capital Expenditures 9

ORA recommends 2015 capital expenditures of $99.8 million, which is $20.1 million less 10

than SoCalGas’ 2015 forecast of $119.9 million.46 ORA’s recommended reduction is specific to 11

SoCalGas IT-sponsored projects and does not dispute forecasts for business unit-sponsored 12

projects that utilize IT capital funding.47 ORA recommends funding of $48.6 million in IT 13

projects, equal to the highest recorded capital spending on IT projects from 2009-2014, as 14

opposed to $68.7 million requested by SoCalGas. 15

When making its recommendation, ORA does not question the merit of any individual IT 16

capital project, but rather arbitrarily recommends that the Commission adopt a level of funding 17

based on the highest year of historical capital expenditures. ORA does not offer any rationale for 18

this forecasting methodology other than “approving 2015 capital expenditures for twice the 19

amount of capital spent in 2014 appears unreasonable.”48 Much like O&M, capital spending 20

within IT does not always follow historical averages or linear trends, and instead is lumpy in 21

nature. Occasionally, there are significant investments required to replace or update large scale 22

systems or services. This is the case for the large increase in SoCalGas’ 2015 capital forecast 23

where two significant investments planned within the IT portfolio account for $33.9 million of 24

the $68.6 million requested by SoCalGas: 25

41 Ex. ORA-15 at 34, line 9 through page 36, line 19. 42 See also Ex. SCG-18-R at CRO-19, line 16 through CRO-34, line 13. 43 See generally, Ex. SCG-18-CWP-R. 44 SEU Master Data Request, Chapter 11 Q24B, provided hereto as Appendix C. 45 Ex. SCG-18-R at CRO-22, line 24 through CRO-34, line 13. 46 Ex. ORA-15 at 4, lines 13-18. 47 Ex. ORA-15 at 37, lines 1-3 (Table 15-17). 48 Ex. ORA-15 at 36, lines 5-6.

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SoCalGas Field Area Network ($17.8 million in 2015, $1.4 million 2016) 1

SoCalGas plans to build and place in service by TY 2016 the SoCalGas Field Area 2 Network. This is a suite of private communication infrastructures supporting field voice 3 communication for Customer Service Field, Distribution & Transmission and Storage. It 4 includes a Land-Mobile-Radio (“LMR”) network and voice dispatch console system. 5 The console systems are end-of-life and either already are, or will soon be, without 6 vendor support. The dispatch system is limited to a finite number of console positions 7 that no longer meet the needs of the business. The radio system also requires the use of 8 other legacy network infrastructure that needs to be retired from the environment. These 9 systems are critical to business operations, especially during emergencies, as the primary 10 voice channel during incident management, priority work orders and emergency 11 response. The call recording system used by dispatch is also end-of-life and incompatible 12 with newer dispatch console systems. Communication for fixed assets in the field, 13 including remote terminal units (“RTU”) on pipelines, currently served by AT&T 3002 14 circuits needs to be addressed due to aged infrastructure and lack of investment by 15 AT&T. A digital LMR and Internet Protocol (“IP”)-based console system has been 16 evaluated as the solution.49 17

Converged Computing Infrastructure ($16.1 million in 2015) 18

The requests and needs of business units are dynamic and often require computing 19 infrastructure to be delivered quickly. Current ‘just-in-time’ infrastructure purchasing is 20 not nimble enough to meet the needs of clients for small-to-medium sized projects or for 21 organic growth of existing computing environments as data volume increases. Existing 22 computing systems will continue to reach vendor end-of-life and end-of-support dates 23 and will need to be replaced or upgrade to provide reliable and available IT systems. 24 This Converged Computing Infrastructure project will provide on-demand and elastic 25 computing capacity to meet business needs without the delays associated with just-in-26 time infrastructure purchases. This project will increase the capacity and functionality of 27 the computing self-provisioning portal empowering clients to fulfill their computing 28 requests without involving the IT infrastructure department, resulting in a reduced 29 delivery time. Aging systems will be replaced or upgraded providing higher reliability 30 and performance for business applications as systems reach end-of-life or end-of-support. 31 As aging systems are replaced or upgraded, annual maintenance costs, required data 32 center floor space, and power consumption will all be reduced.50 33

A large portion of the projected costs for these two projects are hardware (“HW”) 34

purchases. It is reasonable for IT to achieve higher spending levels when these types of HW 35

projects are proposed. To illustrate, Table CRO-5 shows that the two highest years of capital 36

spending (2009 and 2013) included significant hardware investment as compared to the total 37

capital spending, 11% and 26% respectively: 38

49 Ex. SCG-18-R at CRO-28, lines 1 - 18. 50 Ex. SCG-18-R at CRO-29, lines 6 -22.

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Table CRO-5 1 Historical Project Hardware Costs as a % of Total Capital Project Spending 2

$2013 (in millions)51 3

2009 2010 2011 2012 2013

Hardware Cost

$6.3

$1.1

$1.3

$4.2

$15.6 All Direct Cost (incl. HW)

$55.7

$49.6

$45.1

$37.7

$59.9

HW % of All Cost 11% 2% 3% 11% 26%

Furthermore, ORA’s recommendation for SoCalGas’ 2015 Capital should not be adopted 4

because it does not reflect the fact that several of the capital projects SoCalGas had forecasted in 5

2014 have actually been moved into 2015 (or even 2016). Table CRO-6 lists those capital 6

projects, which had been included in SoCalGas’ forecasted 2014 capital projects but will now 7

require funding in SoCalGas’ 2015 capital plan instead. 8

// 9

// 10

// 11

51 Hardware costs related to IT capital projects were provided to ORA in SoCalGas’ Response to ORA-SCG-DR-029-PM1 question 5, attached hereto as Appendix D.

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Table CRO-6 1 2014 Capital Project Variance 2

WP # Project Name 2014 (2013$ 000s) Revised Explanation

GRC

Forecast Actuals52 Variance In-Service Date

772X Data Center Network Rebuild 4,661 679 (3,982) 12/31/2015

Postponed implementation due to business priorities and weather conditions.

770AE

Server Replacement -AIX Retirement 2,351 1,569 (782) 5/31/2015

Delayed due to dependencies on Data Center Network Rebuild project.

770AG

ROWS Refresh Out of Warranty Servers. 4,520 3,748 (772) 12/31/2015

Delayed due to dependencies on Data Center Network Rebuild project.

770C End Point Security 2,541 45 (2,496) 9/30/2015

Delay in vendor negotiations pushed equipment acquisition into 2015.

776B Business Planning Simulation (BPS) Replacement Project

1,860 631 (1,229) 9/30/2015 Delay in vendor selection and contract negotiations.

810B SCG CPD Enhancement Phase 1 11,479 8,783 (2,696) 3/31/2015

Ramping up vendor consulting services delayed 2014 deliverables.

780A Identity & Access Management, Phase 2 – 4

2,678 639 (2,039) 12/31/2016 Delay in phase approval.

772W

Private Network Expansion and Refresh 2,797 0 (2,797) 12/31/2015 Project started in

2015.

776D Click and SAP Disaster Recovery Tier Upgrade 1,053 0 (1,053) 06/01/2016 Project started in

2015.

770B Mobile Device Management Infrastructure

1,023 0 (1,023) 09/30/2015 Project started in 2015.

Totals 34,963 16,094 (18,869)

The IT capital program is managed as a portfolio. There will be shifts in scope, schedules and 3

budgets across the suite of projects being proposed in SoCalGas’ capital testimony. These 4

52 SoCalGas provided information about its 2014 capital recorded spending to ORA on March 13, 2015.

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adjustments are managed by the IT Project Management Office in accordance with guidelines 1

established by Central Business Planning. ORA’s recommendation to reduce SoCalGas’ 2

forecasts based on a one year view of recorded costs does not take into consideration the 3

adjustments made by SoCalGas’ capital committees to address changing priorities and individual 4

project deviations from plan. As shown in Table CRO-6, ORA’s recommendation to reduce 5

SoCalGas’ 2015 capital expenditure forecast by $20.1 million would severely hamper SoCalGas’ 6

ability to achieve its multi-year capital project plan, and it should be rejected. 7

C. Undisputed Costs - 2016 Capital Expenditures 8

ORA agreed with SoCalGas’ forecast for 2016 Capital expenditures.53 The Commission 9

should adopt SoCalGas’ forecast of $104.8 million as reasonable. 10

V. INFORMATION SECURITY 11

A. Labor O&M 12

ORA agreed with SoCalGas’ forecast for Information Security labor O&M.54 The 13

Commission should adopt SoCalGas’ TY 2016 incremental forecast of $140,000 for a total of 14

$761,000 as reasonable. 15

B. Tracking of Cybersecurity and Risk Management expenditures 16

SoCalGas respectfully recommends that the Commission decline ORA’s suggestion55 to 17

track and report expenses for Cybersecurity and Risk Management efforts in the next GRC. 18

Cybersecurity and Risk Management efforts in the information technologies area are varied and 19

address many different systems, applications, infrastructure components and network topology. 20

Additionally, many efforts that provide risk management benefits also provide companion 21

benefits, such as increased system reliability and robustness, which make the risk management 22

aspect of those efforts difficult to unwind. Tracking and reporting is both administratively 23

burdensome and imprecise, and may in and of itself be revelatory of the nature and types of 24

measures undertaken which may unintentionally compromise the Cybersecurity and Risk 25

Management measures employed. 26

Furthermore, the Risk Decision, D.14-12-025, adopts a Risk Spending Accountability 27

Report requirement, which will have the effect of tracking risk-related spending, including 28

spending on cybersecurity and risk management, in some fashion. SoCalGas anticipates that the 29

53 Ex. ORA-15 at 4, line 19. 54 Ex. ORA-15 at 31, lines 12-14 55 Ex. ORA-15 at 31, lines 22-24 through 32, line 1.

CRO-13 Doc#297684

Safety Model Assessment Proceeding (“SMAP”) and subsequent Risk Assessment Mitigation 1

Phase (“RAMP”) filings will help shape the content of the Risk Spending Accountability Report. 2

SoCalGas believes any discussions concerning the tracking of cybersecurity and risk 3

management costs are better suited to take place during the SMAP and RAMP proceedings, 4

instead of the GRC. 5

VI. CONCLUSION 6

SoCalGas has addressed the proposed recommendations presented by ORA and 7

demonstrated that ORA’s proposals are not warranted. In summary, SoCalGas has demonstrated 8

the following: 9

• SoCalGas’ TY 2016 O&M Labor forecast is reasonable; 10

• SoCalGas’ TY 2016 O&M Non-Labor forecast is reasonable; 11

• SoCalGas’ Capital Expenditure forecasts are reasonable; 12

• SoCalGas’ Information Security Labor O&M and Non-Labor forecasts are 13 reasonable; and 14

• Tracking of Cybersecurity and Risk Management expenditures should be addressed in 15 the upcoming SMAP filings. 16

Accordingly, SoCalGas’ forecast for TY 2016 IT O&M labor and non-labor expenses 17

and SoCalGas’ IT Capital Expenditure forecasts should be adopted by the Commission. 18

This concludes my prepared rebuttal testimony. 19

CRO-14 Doc#297684

APPENDIX

TO REBUTTAL TESTIMONY

OF CHRISTOPHER R. OLMSTED

ON BEHALF OF SOCALGAS

INFORMATION TECHNOLOGY

CRO-A-1

Appendix Attachments

A. SoCalGas Shared Services Workpaper

2200-2418.000 – Director – SCG Applications Services

B. SoCalGas Response to Data Request ORA-SCG-DR-048-PM1, Question 11

C. SoCalGas Response to ORA Master Data Request

Chapter 11 – Information Technology, Question 24.B.

D. SoCalGas Response to Data Request ORA-SCG-DR-029-PM1, Question 5

CRO-A-2

Appendix A

SoCalGas Shared Services Workpaper

2200-2418.000 – Director – SCG Applications Services

CRO-A-3

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Southern California Gas Company2016 GRC - APP

Shared Services Workpapers

SCG/INFORMATION TECHNOLOGY/Exh No:SCG-18-WP/Witness: C. OlmstedPage 36 of 272

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CRO-A-10

Appendix B

SoCalGas Response to Data Request ORA-SCG-DR-048-PM1, Question 11

CRO-B-1

ORA DATA REQUEST

ORA-SCG-DR—048-PM1

SOCALGAS 2016 GRC – A.14-11-004

SOCALGAS RESPONSE

DATE RECEIVED: JANUARY 26, 2015

DATE RESPONDED: FEBRUARY 9, 2015

11. Regarding SCG’s response to SCG_Reponse_DEF-001-B, please update the Excel file to

include the following information:

a. O&M decreases, including explanations for decreases.

b. Accounts where forecast has no change from recorded 2013 to TY2016.

c. A column with TY2016 total by account.

SoCalGas Response 11:

Please see attachment ORA-SCG-DR-048-PM1 Q11 Attachment.xlsx.

CRO-B-2

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ts r

ange

fro

m

$3

0 t

o $

25

0k

each

.

22

00

-24

95

Infr

astr

uct

ure

IT P

OR

TFO

LIO

MA

NA

GEM

ENT

Org

anic

IT g

row

th t

o s

up

po

rt e

xpan

din

g p

rogr

ams

app

licat

ion

-

-

56

1

12

1

12

1

.1 in

crem

enta

l FTE

s to

su

pp

ort

new

IT in

itia

tive

s

acro

ss t

he

com

pan

y in

20

15

an

d in

20

16

. A

ssu

mes

42

% O

&C

rat

io a

nd

$1

00

k av

erag

e sa

lary

plu

s $

10

k p

er

emp

loye

e (1

em

plo

yee)

in a

sso

ciat

ed N

L co

sts.

22

00

-23

72

Infr

astr

uct

ure

DIR

ECTO

R IT

SO

CA

LGA

S

AP

PLI

CA

TIO

NS

Org

anic

IT g

row

th t

o s

up

po

rt e

xpan

din

g p

rogr

ams

app

licat

ion

2

16

-

18

1

3

62

5

78

1

.8 in

crem

enta

l FTE

s to

su

pp

ort

new

IT in

itia

tive

s

acro

ss t

he

com

pan

y in

20

15

an

d in

20

16

. A

ssu

mes

89

% O

&C

rat

io a

nd

$1

00

k av

erag

e sa

lary

plu

s $

10

k p

er

emp

loye

e (2

em

plo

yees

) in

ass

oci

ated

NL

cost

s.

22

00

-24

69

Info

rmat

ion

Secu

rity

IT IN

FOR

MA

TIO

N S

ECU

RIT

Y

SCG

Org

anic

IT g

row

th t

o s

up

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rt e

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din

g p

rogr

ams

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licat

ion

6

28

-

80

1

60

7

88

1

.2 in

crem

enta

l FTE

s to

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pp

ort

new

IT in

itia

tive

s

acro

ss t

he

com

pan

y in

20

15

an

d in

20

16

. A

ssu

mes

60

% O

&C

rat

io a

nd

$1

00

k av

erag

e sa

lary

plu

s $

10

k p

er

emp

loye

e (1

em

plo

yee)

in a

sso

ciat

ed N

L co

sts.

22

00

-24

96

IT S

up

po

rtSC

G IT

ASS

OC

IATE

PR

OG

RA

MN

ew IT

ass

oci

ate

pro

gram

an

d r

elat

ed n

on

-lab

or

exp

ense

s

4

-

72

1

43

1

47

2

new

ass

oci

ates

(6

1.5

k p

er p

erso

n)

plu

s $

10

k in

asso

ciat

ed N

L, o

ne

in 2

01

5, a

nd

an

oth

er in

20

16

22

00

-23

13

IT S

up

po

rtSV

P &

CIT

OB

usi

nes

s P

lan

nin

g A

nal

yst

to p

rovi

de

dir

ect

sup

po

rt

for

SCG

23

-

85

8

5

1

08

1

Bu

sin

ess

Pla

nn

ing

An

alys

t @

75

k +

10

k in

ass

oci

ated

NL

22

00

-20

47

Infr

astr

uct

ure

IT A

CC

OU

NT

MA

NA

GEM

EN

4

6

-

-

-

4

6

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-21

66

IT S

up

po

rtV

P IN

FOR

MA

TIO

N T

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N

1

9

-

-

-

1

9

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-23

19

IT S

up

po

rtIT

OP

EX E

NTE

RP

RIS

E T

13

-

-

-

13

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

05

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plic

atio

ns

SCG

AP

PS

CU

STO

MER

SE

8

50

-

-

-

85

0

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

44

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plic

atio

ns

SCG

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PP

LY C

HA

IN S

ER

34

4

-

-

-

3

44

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

46

Ap

plic

atio

ns

SCG

GIS

& C

AD

SER

VIC

3

12

-

-

-

31

2

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

47

Ap

plic

atio

ns

SCG

SO

FTW

AR

E D

EV -

D

98

2

-

-

-

9

82

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

51

Ap

plic

atio

ns

SCG

AP

PS

MA

J M

RK

AP

P

1

,33

7

-

-

-

1

,33

7

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

52

Ap

plic

atio

ns

CO

LLA

BO

RA

TIO

N S

ERV

CS

4

81

-

-

-

48

1

No

ch

ange

fro

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01

3 r

eco

rded

(it

em b

)

22

00

-24

53

Infr

astr

uct

ure

CLN

T TE

CH

& D

EPO

T SV

2

21

-

-

-

22

1

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

55

Infr

a str

uct

ure

IT B

USI

NES

S IN

SIG

HT

8

20

-

-

-

82

0

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

56

Infr

astr

uct

ure

ENTE

RP

RIS

E C

MM

D C

TR-

2

13

-

-

-

21

3

No

ch

ange

fro

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01

3 r

eco

rded

(it

em b

)

22

00

-24

57

Infr

astr

uct

ure

SEM

PH

LP &

IT S

RV

C M

G

14

9

-

-

-

1

49

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

58

Infr

astr

uct

ure

BU

SIN

ESS

CO

MM

SER

VS-

1

11

-

-

-

11

1

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

59

Infr

astr

uct

ure

SCA

LAB

LE P

LATF

OR

M S

E

18

7

-

-

-

1

87

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

60

Infr

astr

uct

ure

VO

ICE

ENTE

RP

RIS

E SU

P

22

7

-

-

-

2

27

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

63

Infr

astr

uct

ure

CI O

PER

ATI

ON

S SE

RV

IC

80

4

-

-

-

8

04

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

64

Infr

astr

uct

ure

CI C

OM

PU

TE S

UP

PO

RT

S

73

4

-

-

-

7

34

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

66

Infr

astr

uct

ure

CI C

OM

PU

TE P

RO

VIS

ION

7

62

-

-

-

76

2

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

22

00

-24

67

Infr

a str

uct

ure

CI S

TAN

DA

RD

S

13

4

-

-

-

1

34

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

68

Ap

plic

atio

ns

CU

STO

MER

EN

GA

GEM

ENT

17

-

-

-

17

N

o c

han

ge f

rom

20

13

rec

ord

ed (

item

b)

22

00

-24

70

Ap

plic

atio

ns

IT IN

FOR

MA

TIO

N M

AN

AG

6

61

-

-

-

66

1

No

ch

ange

fro

m 2

01

3 r

eco

rded

(it

em b

)

11

,99

3

-

2,2

98

3

,98

9

1

5,9

82

SCG

To

tal

18

,93

4

4

49

2,9

97

4

,68

8

2

3,6

22

CR

O-B

-4

Appendix C

SoCalGas Response to ORA Master Data Request

Chapter 11 – Information Technology, Question 24.B.

CRO-C-1

ORA MASTER DATA REQUEST

SOCALGAS 2016 GRC – A.14-11-XXX

SOCALGAS RESPONSE

DATE RECEIVED: AUGUST 8, 2014

DATE RESPONDED: AUGUST 8, 2014

24. List each capital project by name, department, direct, indirect, and job/budget and blanket

code.

a. Show the amount of the requested expenditure in each forecast year and 5 years of

historic capital data by job/budget and blanket code.

b. Provide a spreadsheet showing the date each project is schedule to become used

and useful.

SoCalGas Response:

Please refer to the Attachment folder for Chapter 19.

a. Please see SoCalGas MDR Ch. 11 Attachment to Q24A.

b. Please see SoCalGas MDR Ch. 11 Attachment to Q24B.

CRO-C-2

MD

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Appendix D

SoCalGas Response to Data Request ORA-SCG-DR-029-PM1, Question 5

CRO-D-1

ORA DATA REQUEST

ORA-SCG-DR-029-PM1

SOCALGAS 2016 GRC – A.14-11-004

SOCALGAS PARTIAL RESPONSE

DATE RECEIVED: DECEMBER 16, 2014

DATE RESPONDED: DECEMBER 12, 2014

5. Please provide the yearly capitalized hardware costs 2009-2013 and forecast from 2014-2016

(in nominal 2013 and base year dollars) delineated by the “Categories of Management” listed

on Table CRO-13. Include an itemized list of the hardware replaced (2011-2013) and

forecast to be replaced (2014-2016) with number of units, cost per unit, installation cost and

any other cost associated with the hardware (if other costs are included explain why these

costs were incurred).

SoCalGas Response 05:

A list of itemized hardware that is being replaced is not available. Individual hardware

replacements are not currently tracked at the individual project level for GRC purposes.

Historical cost for capitalized hardware cost from 2009-2013 by the categories of management is

available in attachment ORA-SCG-029-PM1 Q5. The requested information for forecast costs

(years 2014-2016) are also attached on ORA-SCG-029-PM1 Q5. Please note that the forecasted

cost shown is cost related to proposed hardware project. All non-labor related cost is listed and

can include non-labor cost associated with the hardware purchase.

CRO-D-2

ORA-SCG-DR-029-PM1 Question 5 Attachment (Historical)

SCG-029-PM1 Q5

Categories of Management 2009 2010 2011 2012 2013

CS - Field & SCG Mtr Reading (159,901) 545,342 286,810 1,887,949 6,455,617

CS - Information 27

CS - Office Operations 30 14,773 20,167 1,966,099 437,097

Engineering & ES 50,018

Gas Operations 680,460 974,253 206,317 3,068,866

Information Technology 6,456,450 (104,318) 6,726 75,730 5,588,265

Supply Management 24,027 651 18,335 36,527

So Cal Gas Total 6,320,606 1,136,908 1,306,319 4,172,621 15,599,863

Categories of Management 2009 2010 2011 2012 2013

CS - Field & SCG Mtr Reading (130,191) 463,104 266,590 1,893,990 6,455,617

CS - Information 25

CS - Office Operations 24 12,545 18,745 1,972,390 437,097

Engineering & ES 50,018

Gas Operations 577,847 905,568 206,977 3,068,866

Information Technology 5,256,841 (88,587) 6,252 75,972 5,588,265

Supply Management 19,563 553 17,042 36,643

So Cal Gas Total 5,146,237 965,462 1,214,223 4,185,973 15,599,863

Fiscal year

Capital Hardware Purchases (2013 $)

Capital Hardware Purchases (Nominal Base Dollars)

Fiscal year

CRO-D-3

ORA-SCG-DR-029-PM1 Question 5 Attachment (Forecast)

SCG-029-PM1 Q5

Categories of Management 2014 2015 2016

CS - Field & SCG Mtr Reading 2,792 200 6,685

CS - Office Operations 432 946 833

CS- Information 40 75 -

Engineering & ES 100 100 -

Environmental - - -

Gas Distribution 3,993 819 130

Information Technology 24,688 28,104 40,999

Supply Management 949 200 -

So Cal Gas Total* 32,994 30,444 48,647

*Cost are hardware related estimates. May include other associated non-labor cost related to hardware

Fiscal year

CRO-D-4

SOCALGAS REBUTTAL TESTIMONY OF CHRISTOPHER R. … · 2019-12-18 · 1 . SOCALGAS REBUTTAL TESTIMONY...

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