1 The Voice of Consumers, Making a Difference! GRCs: Process & Evaluation DRA FORUM May 2012.

1The Voice of Consumers, Making a Difference!

GRCs: Process & EvaluationDRA FORUM

May 2012

The Voice of Consumers, Making a Difference!

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1. Purpose of a General Rate Case (GRC)

2. Main Components in GRC

3. Utility Rate Case Plans

4. GRC Filing Requirements

5. GRC Process and Schedule

6. Results of Operations

7. Resource Commitment

8. Forecasting Methods

9. Post Test Year Ratemaking (Attrition)

10. Natural Gas Proceedings

11. Summary of GRC Process

12. Reference Tables & Additional Background

Overview


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1. Purpose of a General Rate Case (GRC)

Examine a utility’s costs (excluding fuel and purchased power).

Water utilities costs include – purchase water, power, and pump taxes.

Set revenue requirement.

Recover forecast of future reasonable costs.

Ensure safe and reliable operation of the utility.

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2. Main Components in Energy and Water Ratemaking

GRCs - Revenue Requirement: The total amount of money a utility collects from its customers. Determines the size of the pie

Revenue Allocation and Rate Design: Allocating the revenue requirement to different customer classes and setting rates. Determines how the pie is sliced


Main Components in a Water GRC

9 Class A water utilities with a total of 58 districts, and a combined total of over 1.1 million service connections. Serves 6.5+ million Californians.

Legislative Mandate requires all large regulated (Class A) utilities to file a general rate case every three years.

Costs of Service are reviewed in individual General Rate Cases (GRCs) for each water service district.

Main Components of costs of service review include operation & maintenance, administrative & general, general office, taxes, payroll, and return on capital investments.

Total Revenue Requirement for Class A regulated water utilities is over $1.4 billion.

Water Supply Costs are a pass-through to ratepayers and tracked in balancing accounts.

Water Customer Bills consist of a monthly service charge and a usage-based charge.

Return on Rate Base

14%

Taxes & Payroll 17%

Operation &

Maintenance 6%

Water Supply 39%A&G & General Offi ce

23%

Components of Water Service Costs

Includes Costs for all Water Utilities in 2007

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What’s Not Included in a GRC

Cost of Capital (Rate of Return) Conducted in a generic proceeding Energy Exception: Included in Small Utility GRC’s Water Exception: Valencia Water Company

Energy Efficiency Program Costs Conducted in the EE Proceeding Energy Exception: Included in Small Utility GRC’s

Fuel Costs and Purchase Power Agreements (Electric) Conducted in the ERRA (Energy Resource Recovery Accounts)

or Energy Cost Adjustment Clause (ECAC) Proceedings Energy Exception: Also included in small electric utility GRCs

Rate Base Offsets (Water) Submitted through Tier 2 or 3 Advice Letter


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3. Utility Rate Case Plan

Initially established in D.89-01-040 and modified by D.07-07-004.

Three year cycle for major energy utilities. Some variances have been adopted


Energy:

Water: Initially established in D.04-06-018 and

modified by D.07-05-062. To develop schedules and facilitate the issuing of

general rate case decisions

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4. GRC Filing Requirements

Master data request (prepared by DRA) Five years of historical data Forecasts of future costs Reference and support

documentation Notice of Intent (NOI)

Deficiency review / DRA approval


GRC Filing Requirements

Minimum data required by Rate Case Plan. DRA still requires a Supplemental Data Request (SDR)

Proposed Application is tendered, reviewed, and corrected before acceptance and Application filing. Deficiency review conducted by DRA

SDR not part of deficiency review

- Additional Water Requirements -

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5. GRC Process and Schedule

Notice of Intent (NOI): Tendered, reviewed, corrected, and accepted

Application filed: ALJ assigned and schedule set (by Commissioner’s Scoping Memo)

One Year Schedule: After application is filed

Water: 14 to 20 months

Discovery Process

Filings: Reports filed, Hearings held, and Briefs submitted

Proposed Decision: Comments, Alternates, and Final Decision

Resources: Requires significant DRA commitment The Voice of Consumers, Making a Difference!

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6. Results of Operations

Summarizes results of GRC-related financial activity attributed to a utility’s operations.

A summary of the Results of Operations is captured in the “Summary of Earnings” table. See reference slides, p. 24


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Results of Operations

Components include:

Operating Revenues

Operating Expenses Operation and Maintenance (O&M) Expenses

Distribution, Transmission (non-FERC), Utility Owned Generation (UOG)

Customer-related Administrative & General (A&G) Taxes Franchise Fees & Uncollectibles Depreciation / Salvage Value of Assets Return on Investment (Return on Rate Base) Rate Base – Net investment in facilities and equipment


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Leak Surveys and Repair Work Distribution / Transmission Integrity Management

Programs Cathodic Protection

Control corrosion of steel pipes Maintenance of Gas Facilities Gas Pipeline Replacement Gas Reliability

Results of Operations

- Gas Functions Within a GRC -


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Leak Surveys and Repair Work

Distribution / Transmission Pipeline Repairs and Replacement Management Programs (aging infrastructure)

Water Quality - Compliance with California Department of Public Health (CDPH)and EPA drinking water rules

Sources of Water Supply

Water Storage Needs

Conservation

Water Reliability

Water Results of Operations

- Water Functions Within a GRC -


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7. Resource Commitment

Typical GRC filing for Energy & Water Approximately 30 functional areas / 100 sub-accounts Numerous boxes of workpapers and supporting

documentation 7-20+ DRA Witnesses

DRA Resource Commitment: Energy 20 DRA staff analysts 3 to 4 attorneys Management oversight

DRA Resource Commitment: Water 3 to17 DRA staff analysts depending on size of utility 1 to 2 attorneys Management oversight


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Notice of Intent (NOI) Ensure five years of historical data Ensure requests have explanation / support / backup / breakdown Check cross references Identify reasons for increases Issue deficiencies Accepts NOI

Specific Utility Accounts / Sub-Accounts / Major Work Categories Detailed review of utility testimony & workpapers Obtain utility studies / reports / programs Issue data requests / gathering data Audit utility records Phone conferences Field investigations

Resource Commitment: DRA Staff Analysis


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Resource Commitment: DRA Staff Analysis

Results of Operations Modeling: Energy Run computer model to produce

the “Summary of Earnings” Dynamically-link Excel

spreadsheets and files Compare utility’s requested

vs. DRA’s recommended revenue requirement

Sign non-disclosure agreement: Run alternate scenarios for ALJs and Commissioners

Results of Operations Modeling: Water Water IOU RO models not as sophisticated as Energy

Non-disclosure requirement not invoked at this time


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8. Forecasting Methods

Historical Data (3 - 5 year data) Latest Recorded Year Budget based Unit cost / Work units Independent approach and analysis Benchmarking / comparison to other utilities Normalizing for variances Ratemaking adjustments

Charitable Contributions Promotions / Advertising Lobbying Executive Incentives Supplemental Pension for

Executives / Stock Options


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9. Post Test Year Ratemaking (Attrition)

Energy: Provides increases between rate cases Prior to 1981

No Attrition Low Inflation Higher Customer Growth

Historic Attrition Expense Escalation (Labor and Non-labor) Average Plant Estimates

CPI Basis Negotiated

Water: IOUs have two test years for plant, two attrition years for expenses, one attrition year for plant.


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10. Natural Gas Proceedings

Biennial Cost Allocation Proceeding (BCAP) Allocation of costs to customer classes

PG&E – Gas Transmission & Storage Rate Case

SoCalGas - Firm Access Rights (FAR)

Gas Procurement Incentive Mechanisms Annual monitoring and evaluation report prepared by

DRA

Storage Expansions of existing storage facilities

Construction of new storage facilities

Gas Hedging


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11. Summary of GRC Process

Evaluation and Acceptance of NOI

Independent analysis and forecasts of Utility Request

Modeling results

Written reports, spreadsheets, testimony

Serving as expert witness under utility cross examination

- DRA Work Products -


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Summary of GRC Process

PG&E: D.11-05-018; D.07-03-044

Sempra - SDG&E and SoCalGas: D.08-07-046

Edison: D.09-03-025

- Recent GRC Decisions for Large Energy Utilities -


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NOI Tendered: July/August Deficiency Review: 25 days after NOI NOI Filed: October Application Filed: December Pre-Hearing Conference: January DRA Reports: April/May Rebuttal: May Hearings: June Briefs: July Reply Briefs: August PD / Alternate: November Final Decision: December+

Summary of GRC Process

- Typical GRC Timeline -


12. Reference Tables & Additional Background


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PG&E Electric Distribution Summary of Earnings

P G & E 200 7 G e neral R ate C a se R es u lts o f O p erat io ns – Tes t Y e ar 2 00 7

E lec tr ic D istribu tion (Tho usa nd s o f D o lla rs )

L in e N o . D e s c rip tio n A d o pte d

R E VE N U E 1 G e n e ra l R a te C a se R e ve n ue $2 ,9 6 5 ,6 0 0 2 L e ss N o n -G e n e ra l R e ve nu e 9 0 ,0 2 7 3 R e ve n ue a t E ffe c tive R a te s $ 2 ,8 7 5,5 7 3

O P ER AT IN G E X PE N SE S 4 T ra nsm iss ion 72 6 5 D is tr ib u tio n 4 8 8 ,04 0 6 C u s to m e r A cco un ts 2 4 3 ,42 1 7 U n co lle c tib le s 7 ,6 5 5 8 C u s to m e r S erv ice s 3 ,3 7 3 9 A dm in is tra tive & G e n era l 3 3 7 ,79 5

1 0 F ran ch ise R e q u irem e n ts 2 2 ,4 4 9 1 1 O th e r A djus tm e n ts (3 32 ) 1 2 Su b to ta l Exp e n se s $1 ,1 0 3 ,1 2 7

T A X ES 1 3 P ro p e r ty 9 7 ,4 0 2 1 4 P a yro ll 3 7 ,4 0 9 1 5 B us ine ss 38 6 1 6 O th e r 10 8 1 7 S ta te C o rp . F ra nch is e 7 0 ,9 7 8 1 8 F e de ra l In co m e 3 0 6 ,02 4 1 9 T o ta l Ta xe s 5 1 2 ,30 8

2 0 D E PR E C IA T IO N 5 9 6 ,77 4 2 1 T o ta l O pe ra tin g E xp e ns es $2 ,2 1 2 ,2 1 0

2 2 N E T FO R R E T U R N 7 5 3 ,39 0

2 3 R AT E B A S E $8 ,5 7 2 ,3 5 9

R AT E O F R E T U R N 2 4 O n R a te B a se 8 .7 9% 2 5 O n E q u ity 1 1 .3 5%


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PG&E Electric Distribution Rate Base

PG&E 2007 General Rate Case Rate Base – Test Year 2007

Electric Distribution (Thousands of Dollars)

Line No. Description Adopted

WEIGHTED AVERAGE PLANT

1 Plant $16,807,749 2 Plant Held for Future Use 0 3 Total Weighted Average Plant $16,807,749

WORKING CAPITAL

4 Material and Supplies - Fuel 0 5 Material and Supplies - Other 29,880 6 Working Cash 53,941 7 Total Working Capital $83,821

ADJUSTMENTS FOR TAX REFORM ACT 8 Deferred Capitalized Interest 2,751 9 Deferred Vacation 22,661 10 Deferred CIAC Tax Effects 265,556 11 Total Adjustments $290,969

LESS DEDUCTIONS

12 Customer Advances 95,939 13 Accumulated Deferred Taxes - Fixed Assets 1,305,797 14 Accumulated Deferred Taxes - Other 0 15 Deferred ITC 55,854 16 Deferred Tax - Other 0 17 Total Deductions $1,457,590

18 DEPRECIATION RESERVE $7,152,589

19 TOTAL RATE BASE $8,572,359


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PG&E Electric Generation Summary of Earnings

P G & E 2 0 0 7 G e n e r a l R a te C a s e R e s u l ts o f O p e r a t io n s – T e s t Y e a r 2 0 0 7

E le c tr ic G e n e r a t io n (T h o u s a n d s o f D o l la rs )

L in e N o . D e s c rip tio n A d o p t ed

R E V E N U E

1 G e n e ral R ate C a s e R e v e n u e $ 1 ,0 19 ,7 5 5 2 L e s s N o n -G en e r a l R e v e n ue 1 ,3 5 1 3 R e v e n u e a t E ff ec t iv e R a te s $ 1 ,0 18 ,4 0 4 O P E R A T I N G E X P E N S E S

4 O th e r P r od u c t io n 4 45 ,0 1 8 5 T r a ns m is s io n 5 ,6 0 3 6 U nc o ll ec tib le s 2 ,6 3 2 7 A d m ini s tra t iv e a n d G e n e r al 1 82 ,4 4 9 8 F ra nc h is e R e q u ir e m en ts 7 ,7 1 9 9 A m or t iz a t io n 6 ,4 7 6

10 O th e r A d ju s tm e nts ( 17 9 ) 11 S u b to ta l E x p e n s e s $ 64 9 ,7 1 9

T A X E S 12 P ro p e r ty 24 ,5 1 8 13 P a y ro ll 21 ,4 8 5 14 B u s in e s s 2 2 2 15 O th e r 6 2 16 S ta te C o r p o ra t io n F r a n c h is e 12 ,2 9 8 17 F e d e ra l In c o m e 46 ,2 4 5 18 T o ta l T a x e s $ 10 4 ,8 3 0

19 D ep re c ia t io n 1 35 ,4 1 6 20 F o s s il D e c o m m is s io n in g ( 2 6,8 1 2 ) 21 N uc l ea r D e c o m m is s io ni ng 0 22 T o ta l O p e r at i ng E x pe n s e s $ 86 3 ,1 5 3

23 N e t f o r R e t u r n $ 15 6 ,6 0 3 24 R a te B a s e $ 1 ,7 81 ,8 8 6

R A T E O F R E T U R N 25 O n R a te B a s e 8 .79 % 26 O n E qu it y 1 1.3 5 %


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PG&E Electric Generation Rate Base

PG&E 2007 General Rate Case Rate Base - Test Year 2007

Electric Generation (Thousands of Dollars)

Line No. Description Adopted WEIGHTED AVERAGE PLANT 1 Plant $10,953,693 2 Plant Held for Future Use 0 3 Total Weighted Average Plant $10,953,693

WORKING CAPITAL 4 Material and Supplies – Fuel 831 5 Material and Supplies – Other 65,586 6 Working Cash 33,420 7 Total Working Capital $99,837

ADJUSTMENTS FOR TAX REFORM ACT 8 Deferred Capitalized Interest (1,054) 9 Deferred Vacation 11,769 10 Deferred CIAC Tax Effects 0 11 Total Adjustments $10,715

LESS DEDUCTIONS 12 Customer Advances 0 13 Accumulated Deferred Taxes – Defense (42,088) 14 Accumulated Deferred Taxes – Fixed Assets 333,670 15 Accumulated Deferred Taxes – Other 0 16 Deferred ITC 2,320 17 Deferred Tax – Other 0 18 Total Deductions $293,902

19 DEPRECIATION RESERVE $8,988,459

20 TOTAL RATE BASE $1,781,886


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Utility-Owned Generation

Nuclear Diablo Canyon (PG&E) SONGS (SCE and SDG&E) Palo Verde (SCE)

Coal Four Corners (SCE)

CPUC-approved sale effective Oct 2012

Hydroelectric Helms Pumped Storage (PG&E) Small hydro plants throughout CA

(PG&E and SCE)

Gas Palomar (SDG&E) Mountain View (SCE)


Presenters

Mark Pocta – [email protected] Manager, DRA Energy Cost of Service Branch

Danilo Sanchez – [email protected] Manager, DRA Water Branch


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mailto:[email protected]

mailto:[email protected]

1 The Voice of Consumers, Making a Difference! GRCs: Process & Evaluation DRA FORUM May 2012.

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