Docket Exhibit Number Commissioner ALJs Witness

: : : : :

A.19-08-013 PAO-15P _______ Shiroma Wildgrube/Seybert Leon Diaz

PUBLIC ADVOCATES OFFICE CALIFORNIA PUBLIC UTILITIES COMMISSION

Report on the Results of Operations for

Southern California Edison Company General Rate Case

Test Year 2021

Rate Base and Cash Working Capital

PUBLIC VERSION

San Francisco, California April 10, 2020

TABLE OF CONTENTS

RATE BASE AND CASH WORKING CAPITAL ..................................................1 I. INTRODUCTION .......................................................................................1 II. SUMMARY OF RECOMMENDATIONS .................................................1 III. NET PLANT-IN-SERVICE ..............................................................................3 IV. WORKING CAPITAL ......................................................................................3

A. Materials and Supplies .....................................................................3 1. Overview of SCE’s Request ............................................................3 2. The Public Advocates Office’s Analysis .........................................3

B. Mountainview Emissions Credits ............................................................3 1. Overview of SCE’s Request ............................................................3 2. The Public Advocates Office’s Analysis .........................................4

C. Working Cash ..........................................................................................4 1. Operational Cash ..............................................................................5

a. Overview of SCE’s Request .......................................................6 b. The Public Advocates Office’s Analysis ....................................6

2. Lead-Lag Working Cash ..................................................................6 a. Overview of SCE’s Request .......................................................6 b. The Public Advocates Office’s Analysis ....................................7

i. Revenue Lag ..........................................................................7 ii. Expense Lag ..........................................................................8 iii. Fuel and Purchased Power – Fall 2019 Forecast ..................8 iv. Fuel and Purchased Power – Four-Year Moving

Average .................................................................................9 v. Income Tax Accrual Midpoints ..........................................11 vi. Wildfire Insurance Premium – Lead-Lag Study .................12 vii. RO Model Outputs ........................................................13

D. Customer Advances .......................................................................14 1. Overview of SCE’s Request ..........................................................14 2. The Public Advocates Office’s Analysis .......................................14

E. Customer Deposits .................................................................................14 1. Overview of SCE’s Request ..........................................................14 2. The Public Advocates Office’s Analysis .......................................14

F. Unfunded Pension Reserves ..................................................................16 1. Overview of SCE’s Request ..........................................................16 2. The Public Advocates Office’s Analysis .......................................16

V. ACCUMULATED DEFERRED TAXES ............................................................16 VI. WITNESS QUALIFICATIONS ...............................................................17

1

RATE BASE AND CASH WORKING CAPITAL 1

I. INTRODUCTION 2

This exhibit presents the analyses and recommendations of the Public 3

Advocates Office (Cal Advocates) regarding Southern California Edison Company’s 4

(SCE or Edison) forecasts of rate base and cash working capital for Test Year (TY) 5

2021. 6

The rate base is the net investment value on which the company’s return is 7

determined. Rate base represents the deposited depreciated asset value of SCE’s 8

properties used to provide service to customers. The major components of Rate Base 9

are: Net Plant-In-Service, Working Capital, and Accumulated Deferred Taxes. This 10

report does not include the analysis of Accumulated Deferred Taxes because that 11

issue is the responsibility of another witness and can be found in Exhibit PAO-16. 12

SCE is allowed to earn a return on the sum of these rate base components. All rate 13

base components are developed on a weighted average basis. The Public Advocates 14

Office rate base estimates reflect adjustments made by several different witnesses. 15

Some of these adjustments are discussed in this exhibit while the others are discussed 16

in the exhibits where they were originally analyzed and developed. 17

II. SUMMARY OF RECOMMENDATIONS 18

The following summarizes the Public Advocates Office’s recommendations 19

regarding SCE’s weighted average depreciated rate base for TY 2021: 20

• The Commission should adopt a Total Lead-Lag Working Cash 21 Requirement of $625.44 million, in contrast to SCE’s proposed 22 $844.24 million. This recommendation includes an adoption of 23 SCE’s updated Fall 2019 fuel and purchased power forecast, 24 modifications to the accrual midpoints for Federal Income Tax and 25 California State Corporation Franchise Tax, and modifications to the 26 lag day calculation for the Wildfire Insurance Premiums, Fuel, and 27 Purchased Power components of the lead-lag study. 28

• The Commission should treat Customer Deposits as a source of debt, 29 resulting in an $8.46 million revenue reduction. This 30

2

recommendation is consistent with precedent established for Pacific 1 Gas and Electric in Decision (D.)14-08-032. 2

Table 15-1 compares the Public Advocates Office’s and SCE’s TY 2021 3

weighted average depreciated rate base forecasts: 4 Table 15-1 5

Weighted Average Depreciated Rate Base for TY 2021 6 (In Thousands of Nominal Dollars) 7

Description (a)

Public Advocates Office

Recommended (b)

SCE Proposed1

(c)

$ Amount SCE > Public

Advocates Office

(d=c-b)

% SCE > Public

Advocates Office (e=d/b)

Net Plant in Service Gross Plant $55,856,687 $56,405,438 $548,751 0.98% Accum. Depreciation and Amortization ($15,765,298) ($15,890,494) ($125,196) -0.79%

Total Fixed Capital $40,091,389 $40,514,943 $423,554 1.06% Working Capital Customer Deposits $0 $0 $0 0.00% Customer Advances ($62,365) ($62,365) $0 0.00% Materials & Supplies $240,527 $240,527 $0 0.00% Mountainview Emission Credits $4,354 $4,354 $0 0.00%

Unfunded Pension Reserve ($52,594) ($52,700) ($106) -0.20%

Working Cash $630,648 $836,178 $205,530 32.59% Total Working Capital $760,571 $965,995 $205,424 27.01%

Accumulated Deferred Taxes

Accum. Def. Taxes – Plant ($5,494,621) ($5,470,701) $23,920 0.44%

Accum. Def. Taxes – CIAC $63,550 $69,505 $5,955 9.37%

Accum. Def. Taxes – Vacation Accrual $8,980 $0 ($8,980) -100.00%

Total Deferred Tax ($5,422,091) ($5,401,196) $20,895 0.39% Rate Base Adjustment ($159,092) ($172,553) ($13,461) -8.46%

TOTAL RATE BASE $35,270,777 $35,907,189 $636,412 1.80%

1 Ex. SCE-07, Vol. 2CA, p. 2, Table I-1.

3

III. Net Plant-In-Service 1

Net Plant-In-Service generally comprises the equipment that is used and useful 2

in rendering service to SCE’s customers. The Public Advocates Office’s Net Plant-3

In-Service estimates are generated through the Results of Operations (RO) model and 4

are based on its capital expenditure forecasts. 5

IV. Working Capital 6

Working Capital comprises Materials and Supplies, Mountainview Emissions 7

Credits, Working Cash, and Working Capital Adjustments. Working Capital 8

Adjustments are offsets to rate base and consist of Customer Advances, Customer 9

Deposits, and Unfunded Pension Reserves. 10

A. Materials and Supplies 11

1. Overview of SCE’s Request 12 Materials and Supplies refers to inventory maintained for either new plant 13

construction or O&M activities required for existing plant.2 SCE forecasts a 2021 14

Materials and Supplies inventory totaling $240.53 million.3 15

2. The Public Advocates Office’s Analysis 16 The Public Advocates Office has reviewed SCE’s testimony and workpapers 17

related to Materials and Supplies and concluded that it does not oppose SCE’s 18

request. 19

B. Mountainview Emissions Credits 20

1. Overview of SCE’s Request 21 Mountainview Emissions Credits are emissions credits required by the South 22

Coast Air Quality Management District (SCAQMD) to operate SCE’s Mountainview 23

2 Ex. SCE-07, Vol. 2CA, p. 23. 3 Ex. SCE-07, Vol. 2CA, p. 24, Table III-11.

4

plant. The Mountainview Emissions Credits were obtained at a value of $18.8 million 1

and are recovered as O&M costs in ERRA as they are consumed.4 SCE forecasts 2

2021 Mountainview Emissions Credits totaling $4.4 million.5 3

2. The Public Advocates Office’s Analysis 4 The Public Advocates Office has reviewed SCE’s testimony and workpapers 5

related to Mountainview Emissions Credits and concluded that it does not oppose 6

SCE’s request. 7

C. Working Cash 8

Working cash includes two basic components: (1) working funds required for 9

day-to-day operations, or operational cash; and (2) funds used to pay operating 10

expenses in advance of receiving customer revenues, or lead-lag working cash. The 11

lead-lag working cash estimate is developed using the lead-lag approach described in 12

Standard Practice (SP) U-16. The Public Advocates Office’s analysis responds to 13

SCE’s working cash calculations as provided in SCE’s workpapers to Ex. SCE-07, 14

Vol. 2, adjusted for values presented in Ex. SCE-07 Vol. 2CA. Table 15-2 compares 15

the Public Advocates Office’s and SCE’s TY 2021 working cash forecasts: 16

4 Ex. SCE-07, Vol. 2CA, p. 25. 5 Ex. SCE-07, Vol. 2CA, p. 23, Table III-10.

5

Table 15-2 1 Working Cash Forecast for TY 2021 2 (In Thousands of Nominal Dollars) 3

Description (a)

Public Advocates Office Recommended

(b)

SCE Proposed6

(c)

$ Amount SCE > Public

Advocates Office

(d=c-b)

% SCE > Public

Advocates Office (e=d/b)

Operational Cash Requirements

Special Deposits $720 $720 $0 0.00% Working Funds $84 $84 $0 0.00% Prepayments $54,381 $54,381 $0 0.00% Other Accounts Receivable $76,997 $76,997 $0 0.00% LESS: Paid Absence ($83,726) ($89,044) ($5,318) -6.35% Long Term Incentive $0 ($7,993) ($7,993) N/A Workers’ Compensation ($11,611) ($11,621) ($10) -0.09% User Taxes ($31,641) ($31,641) $0 0.00%

Total Operational Cash $5,204 ($8,057) ($13,261) -254.82% Total Lead-Lag Working

Cash $625,444 $844,235 $218,791 34.98%

TOTAL WORKING CASH REQUIREMENT

$630,648 $836,178 $205,530 32.59%

4

1. Operational Cash 5 SP U-16 calls for the recognition of certain balance sheet items that must be 6

funded by investors to meet the utility’s day-to-day operational needs. 7 Operational 7

cash supplied by investors includes special deposits, working funds, prepayments not 8

otherwise accounted for in the lead-lag study, and certain notes receivable; and are 9

offset with operational cash not supplied by investors, such as paid absence and 10

workers’ compensation. 11

6 Ex. SCE-07, Vol. 2CA, p. 27, Table III-12. 7 See SP U-16, beginning at paragraph 7.

6

a. Overview of SCE’s Request 1

SCE forecasts a total operational cash requirement surplus of $8 million for TY 2

2021 due to the operational cash not supplied by investors surpassing that supplied by 3

investors.8 4

b. The Public Advocates Office’s Analysis 5

The Public Advocates Office has reviewed SCE’s testimony and workpapers 6

related to Operational Cash and concluded that it does not oppose SCE’s request. 7

However, due to other witnesses’ forecasts modeled in the RO model, the Public 8

Advocates Office’s Paid Absence, Long Term Incentive, and Workers’ Compensation 9

forecasts for TY 2021 are $83.73 million, $0, and $11.61 million, respectively.9 10

2. Lead-Lag Working Cash 11 SP U-16 provides additional working cash to recognize the utility’s average 12

payment of expenses in advance of the receipt of offsetting revenues, or lead-lag 13

working cash.10 The methodology for determining the lead-lag working cash involves 14

calculating the revenue lag and reducing it by the weighted average of the utility’s 15

expense lags. 16

a. Overview of SCE’s Request 17

SCE proposes a revenue lag of 45.1 days, including a greenhouse gas (GHG) 18

adjustment of -0.5 days,11 and an expense lag of 20.0 days.12 Additionally, SCE 19

forecasts an average daily expense of $33.66 million, leading to a total lead-lag 20

working cash requirement of $844.24 million.13 21

22

8 See Table 15-2. 9 See Table 15-2. 10 See SP U-16, beginning at paragraph 29. 11 Ex. SCE-07, Vol. 2CA, p. 33. 12 Ex. SCE-07, Vol. 2CA, p. 32. 13 Ex. SCE-07, Vol. 2CA, p. 32.

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b. The Public Advocates Office’s Analysis 1

The Public Advocates Office recommends modifying SCE’s total lead-lag 2

working cash requirement from $844.24 million to $625.44 million. Table 15-3 3

compares the Public Advocates Office’s and SCE’s TY 2021 lead-lag working cash 4

forecasts: 5

Table 15-3 6 Working Cash Forecast for TY 2021 7 (In Thousands of Nominal Dollars) 8

Description (a)

Public Advocates Office Recommended

(b)

SCE Proposed14

(c)

Amount SCE > Public

Advocates Office

(d=c-b)

% SCE > Public

Advocates Office (e=d/b)

Total Operating Expenses $11,696,482 $12,285,884 $589,402 5.04% Average Days Lag in Collection of Revenues

45.1 45.1 0.0 0.00%

Average Days Lag in Payment of Expenses

25.6 20.0 -5.6 -21.88%

Difference between Revenue and Expense Lag Days

19.5 25.1 5.6 28.72%

Average Daily Expense (Total Operating Expenses / 365 days)

$32,045 $33,660 $1,615 5.04%

TOTAL LEAD-LAG WORKING CASH

REQUIREMENT

$625,444 $844,235 $218,791 34.98%

i. Revenue Lag 9 The Public Advocates Office has reviewed SCE’s testimony and workpapers 10

related to revenue lag calculation, including the calculation and integration of the 11

GHG revenue lag days adjustment to account for the return of GHG revenue to 12

customers as adopted in D.19-05-020,15 and concluded that it does not oppose SCE’s 13

request. 14

14 Ex. SCE-07, Vol. 2CA, p. 32, Table III-15. 15 See D.19-05-020, p. 332.

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ii. Expense Lag 1 SCE proposes using a forecasted 2021 expense of $12,285.89 million and a 2

weighted average expense lag of 20.0 days. The Public Advocates Office 3

recommends modifying the forecasted 2021 expense to $11,696.48 million and the 4

weighted average expense lag to 25.6 days due to five adjustments: (1) the fuel and 5

purchased power 2021 expense values are updated from the Spring 2019 forecast to 6

the Fall 2019 forecast;16 (2) the lag day calculations for fuel and purchased power are 7

forecast using a four-year moving average instead of using SCE’s method of adopting 8

the 2018 recorded lag days for each fuel and purchased power item;17 (3) the accrual 9

midpoints for Federal Income Tax and California State Corporation Franchise Tax are 10

modified from 07/13/2009 to 07/02/2009 and 07/09/2016 to 07/02/2016, respectively; 11

(4) the Wildfire Insurance Premium lead-lag study is modified to first take the 12

weighted average of lag days for each service period midpoint year before averaging 13

the resulting lag days for each service period midpoint year, and (5) updates to other 14

lead-lag study item forecasts due to other witnesses’ forecasts modeled in the RO 15

model. Each adjustment will be individually discussed in the following sections. 16

iii. Fuel and Purchased Power – Fall 2019 Forecast 17 In A.16-09-001, The Utility Reform Network (TURN) proposed updating 18

SCE’s purchased power forecast from its Spring 2016 forecast to its Fall 2016 19

forecast because of outdated costs that were not reflective of the current market.18 In 20

the corresponding D.19-05-020, the Commission adopted the updated Fall 2016 21

forecast and the subsequent lag day adjustments.19 Accordingly, the Public 22

16 SCE response to Public Advocates Office data request PubAdv-SCE-132-FLD, Q.02, “PubAdv-SCE-132-FLD Q.2 (Updated Fall 2019 Forecast) & Q.3 (2013-2017 Recorded Payments)-CONFIDENTIAL.xlsx” SCE asserts this response is confidential. 17 SCE response to Public Advocates Office data request PubAdv-SCE-132-FLD, Q.02, “PubAdv-SCE-132-FLD Q.2 (Updated Fall 2019 Forecast) & Q.3 (2013-2017 Recorded Payments)-CONFIDENTIAL.xlsx” SCE asserts this response is confidential. 18 See Prepared Testimony of Eric Borden, A.16-09-001, at p. 46. 19 See D.19-05-020 at pp. 334-335.

9

Advocates Office recommends that the Commission adopt SCE’s updated Fall 2019 1

fuel and purchased power forecast to better reflect current market trends. Table 15-4 2

compares the Spring 2019 and Fall 2019 fuel and purchased power forecasts: 3

Table 15-4 4 Spring and Fall 2019 Fuel and Purchased Power Forecast for TY 2021 5

(in Thousands of Nominal Dollars) 6

Description Spring 2019 Forecast Fall 2019 Forecast

Total Fuel $164,894 $170,322

Total QF Purchased Power $x,xxx,xxx $x,xxx,xxx

Total Non-QF Purchased Power $x,xxx,xxx $x,xxx,xxx

Total Purchased Power $x,xxx,xxx $x,xxx,xxx

Source: Ex. SCE-07, Vol. 2CA, Ch. III, Workpapers p. 27 for Spring 2019 Forecast; and SCE response to 7 Public Advocates Office data request PubAdv-SCE-132-FLD, Q.02, “PubAdv-SCE-132-FLD Q.2 (Updated 8 Fall 2019 Forecast) & Q.3 (2013-2017 Recorded Payments)-CONFIDENTIAL.xlsx, ||RO Model Inputs||” for 9 Fall 2019 Forecast. SCE asserts this response is confidential. 10

iv. Fuel and Purchased Power – Four-Year Moving Average 11 When performing the lag day calculation for fuel and purchased power, SCE 12

uses the recorded lag days from 2018 for the forecast years of 2019-2023 and then 13

multiplies them with the respective expense forecast to develop a dollar-day lag for 14

each fuel and purchased power line item.20 However, SCE’s method does not account 15

for trends in lag day data nor does it buffer the lag day estimate for line items with 16

highly variability. Accounting for data trends mitigates multi-year over- and/or 17

under-forecasting, which in turn would represent a more accurate recovery of costs 18

from ratepayers. Highly variable data sets represent a similar concern, especially 19

since SCE’s method is prone to the selection of overly high or low lag day values and 20

then applies them to all the forecast years. To remedy the shortfalls of SCE’s method, 21

20 SCE response to Public Advocates Office data request PubAdv-SCE-132-FLD, Q.02, “PubAdv-SCE-132-FLD Q.2 (Updated Fall 2019 Forecast) & Q.3 (2013-2017 Recorded Payments)-CONFIDENTIAL.xlsx” SCE asserts this response is confidential.

10

the Public Advocates Office uses a four-year simple moving average (SMA) to 1

forecast the lag days for each fuel and purchased power line item. Table 15-5 2

compares SCE’s 2021 lag day assumptions with the Public Advocates Office’s 2021 3

lag day recommendation for the fuel and purchased power lead-lag study: 4

Table 15-5 5 Fuel and Purchased Power Lag Days for TY 2021 6 Description SCE

Assumptions21 Public Advocates Office

Recommendation Fuel

SCE Peakers Variable Costs 43.5 43.5

Mountainview Variable Costs 43.5 43.5

Catalina Diesel 27.2 34.2

Catalina Propane 29.0 34.0

PV Fuel Amortization 0.0 0.0

Total Fuel 29.9 30.6

QF Purchased Power

CHP Renewables Expense xx.x xx.x

Total QF Purchased Power xx.x xx.x

Non-QF Purchased Power

Existing Bilateral Expense xx.x xx.x

Uncommitted Bilateral Expense xx.x xx.x New System Gen xx.x xx.x

Other Financial Costs xx.x x.x

Short Term Market Activity x.x x.x

GHG Compliance Expense xx.x xx.x

Non-Energy CAISO Expense -xxx.x -xx.x

Total Non-QF Purchased Power xx.x xx.x

7

21 SCE response to Public Advocates Office data request PubAdv-SCE-132-FLD, Q.02, “PubAdv-SCE-132-FLD Q.2 (Updated Fall 2019 Forecast) & Q.3 (2013-2017 Recorded Payments)-CONFIDENTIAL.xlsx, Fuel & Purch Power Summary” SCE asserts this response is confidential.

11

The SMA forecasting method employs a running average over the last m years. 1

To select an appropriate value of m, a balance must be struck: select a value of m too 2

low, and the noise of highly variable data will not be filtered out; however if you 3

select a value too high, the forecast will be slow to respond to trends in the data. 4

Accordingly, a sensitivity analysis was run for m values of 2, 3, and 4 years, 5

comparing corresponding root-mean squared error (RMSE), mean absolute error 6

(MAE), and mean absolute percentage error (MAPE) to select the best m value for the 7

SMA average. Thus, based on this sensitivity analysis, the Public Advocates Office 8

selected 4 years for the value of m. 9

v. Income Tax Accrual Midpoints 10 For the Federal Income Tax and California State Corporation Franchise Tax 11

components of the lead-lag study, SCE uses its authorized revenue requirement for 12

2009 and 2016, respectively, to determine the date where SCE has recovered 50% of 13

its revenue requirement.22 SCE claims that these dates, 07/13/2009 and 07/09/2016, 14

should be the accrual midpoint for determining the Federal Income Tax and California 15

State Corporation Franchise Tax lag days, respectively. However, it is not 16

appropriate to use revenues from years it runs under a net operating gain for 17

determining the accrual midpoint for a year it runs under a net operating loss, as is the 18

case for SCE since 2010.23 19

The Public Advocates Office proposes a simpler method for determining the 20

accrual midpoint for the Federal Income Tax and California State Corporation 21

Franchise Tax components of the lead-lag study, that does not rely on outdated 22

information: taking the whole day difference between January 1st and December 31st, 23

dividing the difference by two, and then adding the resulting days to January 1st. This 24

accrual midpoint method yields a date of 07/02/2009 and 07/02/2016 for determining 25

22 SCE response to Public Advocates Office data request PubAdv-SCE-132-FLD, Q.04, Attachment A – Midpoint. 23 Ex. SCE-07, Vol. 2CA, Ch. III, Workpapers p. 37.

12

the Federal Income Tax and California State Corporation Franchise Tax lag days, 1

respectively. The Commission has already adopted this accrual date for SCE in D.19-2

05-020 for its TY 2018 GRC.24 Accordingly, the Public Advocates Office 3

recommends using accrual midpoint dates of 07/02/2009 and 07/02/2016 for 4

determining the Federal Income Tax and California State Corporation Franchise Tax 5

lag days, respectively. Table 15-6 compares SCE’s 2021 lag days with the Public 6

Advocates Office’s 2021 lag days for Federal Income Tax and California State 7

Corporation Franchise Tax, based on each party’s proposed accrual midpoint dates: 8

Table 15-6 9 Federal and State Income Tax Lag Days for TY 2021 10 Description SCE Proposed25 Public Advocates

Office Proposed Federal Income Tax 50.8 61.8

California State Corporation Franchise Tax 48.4 55.4

11

vi. Wildfire Insurance Premium – Lead-Lag Study 12 To determine the lag days for the Wildfire Insurance Premium of the lead-lag 13

study, SCE uses the standard method of dividing the sum of the dollar day lag by the 14

sum of the expenses. SCE states that wildfire insurance costs began to be tracked 15

separately from general prepaid insurance,26 and uses data that spans from a recorded 16

06/15/2017 payment to an expected 04/14/2020 payment.27 Over half of the recorded 17

payments are for Service Periods with midpoints of 2019.28 18

While it is appropriate to consider payments for SCE’s 2019 wildfire insurance 19

premium, the Public Advocates Office does not agree with SCE’s lag day calculation 20

24 See D.19-05-020, p. 334, adopting ORA’s (now the Public Advocates Office) proposal. See A.16-09-001, Ex. ORA-20C, pp. 20-21, proposing the July 2nd accrual midpoint. 25 Ex. SCE-07, Vol. 2CA, p. 32, Table III-15. 26 Ex. SCE-07, Vol. 2CA, p. 39. 27 Ex. SCE-07, Vol. 2CA, Ch. III, Workpapers, p. 41. 28 28 out of the 49 payments SCE uses to determine its Wildfire Insurance Premium lag day occur in 2019, see Ex. SCE-07, Vol. 2CA, Ch. III, Workpapers, p. 41.

13

because it places too much weight on 2019’s payments. When comparing payments 1

with 2017, 2018, and 2019 service period midpoints, it is apparent that an increase in 2

total payment for the year does not correlate with an increase or decrease in lag days 3

for the year. The Public Advocates Office’s analysis revealed that in 2018 and 2019, 4

payments increased 143% and 270% from the previous year, respectively. However, 5

in 2018 and 2019, lag days decreased 7% and increased 30% from the previous year, 6

respectively. 7

Without data spanning more years, it is impossible to determine an appropriate 8

trend or forecast for wildfire insurance premiums. Therefore, the Public Advocates 9

Office recommends a different approach: calculating the Wildfire Insurance Premium 10

lag days for each year, based on the date of the service period midpoint, and then 11

averaging the lag days. This method gives one the average lag day based on each 12

year’s total recorded payments and dollar-lag days and is a more conservative 13

estimate of what future years’ total wildfire insurance premium lag day will be. The 14

result of this calculation is -171.7 days, which lands between the 2018 and 2019 15

Wildfire Insurance Premium lag days of -152.4 and -198.6, respectively. Table 15-7 16

compares SCE’s 2021 lag days with the Public Advocates Office’s 2021 lag days for 17

Wildfire Insurance Premium: 18

Table 15-7 19 Wildfire Insurance Premium Lag Days for TY 2021 20 Description SCE Proposed29 Public Advocates

Office Proposed Wildfire Insurance Premiums -186.9 -171.7

21

vii. RO Model Outputs 22 Due to other witnesses’ forecasts modeled in the RO model, expense forecasts 23

for the TY 2021 lead-lag study line items were modified. These modifications 24

amount to an additional reduction of $817.11 million to the total operating expenses. 25

29 Ex. SCE-07, Vol. 2CA, p. 32, Table III-15.

14

D. Customer Advances 1

1. Overview of SCE’s Request 2 Customer Advances are refundable amounts provided by developers prior to 3

the construction of new distribution facilities that will be served by SCE. SCE does 4

not pay the developers interest for holding their advances. Accordingly, SCE 5

proposes treating Customer Advances as an interest-free source of funds, and 6

therefore serving as an offset to rate base.30 SCE forecasts a 2021Customer Advances 7

balance of $62.4 million.31 8

2. The Public Advocates Office’s Analysis 9 The Public Advocates Office has reviewed SCE’s testimony and workpapers 10

related to Customer Advances and concluded that it does not oppose SCE’s request. 11

E. Customer Deposits 12

1. Overview of SCE’s Request 13 Customer Deposits are funds collected from customers as a form of security 14

deposit in the event of non-payment. SCE does not include any balance for Customer 15

Deposits in its rate base, and requests that the Commission allow SCE to no longer 16

reduce rate base by 90% of the amount of the Customer Deposits balance, which is 17

similar to the treatment adopted for San Diego Gas & Electric Company (SDG&E) 18

and Southern California Gas Company (SoCalGas) in D.19-09-051.32 19

2. The Public Advocates Office’s Analysis 20 Consistent with prior Pacific Gas and Electric Company (PG&E) GRCs, the 21

Public Advocates Office recommends that SCE compensate customer deposits at the 22

long-term cost of debt, with a resulting reduction to the GRC revenue requirement. 23

30 Ex. SCE-07, Vol. 2CA, p. 39. 31 Ex. SCE-07, Vol. 2CA, p. 40, Table III-16. 32 Ex. SCE-07, Vol. 2CA, p. 42.

15

This treatment is consistent with precedent established in D.14-08-032 and continued 1

by the Settlement terms approved in D.17-05-013.33 2

To calculate the revenue requirement reduction, the Public Advocates Office 3

uses the same methodology the Commission in D.14-08-032 adopted.34 The 4

methodology includes the following steps: (1) taking the difference of the utility’s 5

authorized return on long-term debt and the 3-month non-financial commercial paper 6

rate that SCE currently pays on Customer Deposits, and (2) multiplying that amount 7

by the 2021 Customer Deposit Forecast SCE provided. SCE’s cost of long-term debt 8

is 4.74%,35 and the April 2020 average 3-month non-financial commercial paper rate 9

is 1.51%.36 The difference between these two rates is 3.23%. SCE’s 2021 Customer 10

Deposit forecast is $262.082 million.37 Multiplying the rate difference by the 2021 11

Customer Deposit forecast results in a revenue requirement reduction of $8.46 12

million. Table 15-8 summarizes the above calculation: 13

Table 15-8 14 Customer Deposit Revenue Requirement Reduction for TY 2021 15

(in Thousands of Nominal Dollars) 16

Description Value

Cost of Long-Term Debt 4.74%

- 3-Month Non-Financial Commercial Paper Rate 1.51%

= Difference of Rates 3.23%

x 2021 Customer Deposit Forecast $(262,082)

= Total Revenue Requirement Adjustment $(8,460)

17

33 See D.14-08-032 at p. 629 and D.17-05-013 at p. 110. 34 See D.14-08-032 at pp. 629-630. 35 SCE Advice Letter 4136-E. 36 The Federal Reserve System H.15 Selected Interest Rates, https://www.federalreserve.gov/releases/h15/default.htm. 37 Ex. SCE-07, Vol. 2CA, Ch. III, Workpapers, p. 1.

https://www.federalreserve.gov/releases/h15/default.htm

16

F. Unfunded Pension Reserves 1

1. Overview of SCE’s Request 2 Unfunded Pension Reserves are the portion of accumulated provision for 3

employee retirement benefits that SCE does not hold in external trust funds, which are 4

a liability to SCE until payments are made.38 After adjusting for tax, the balance 5

represents an offset to rate base. SCE forecasts a 2021 Unfunded Pension Reserves 6

balance of $52.7 million.39 7

2. The Public Advocates Office’s Analysis 8 The Public Advocates Office has reviewed SCE’s testimony and workpapers 9

related to Unfunded Pension Reserves and concluded that it does not oppose SCE’s 10

request. However, due to other witnesses’ forecasts modeled in the RO model, the 11

Public Advocates Office Unfunded Pension Reserves forecast for TY 2021 is $52.6 12

million.40 13

V. Accumulated Deferred Taxes 14

The rate base table includes deductions for accumulated deferred taxes. The 15

discussion and development of these deductions can be found in Ex. PAO-16. 16

38 Ex. SCE-07, Vol. 2CA, p. 41. 39 Ex. SCE-07, Vol. 2CA, p. 41, Table III-17. 40 See Table 15-1.

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VI. WITNESS QUALIFICATIONS 1

My name is Fidel A. Leon Diaz. My business address is 505 Van Ness 2

Avenue, San Francisco California. I am employed by the Public Advocates Office as 3

a Utilities Engineer in the Energy Infrastructure Branch. 4

I received a Master of Science degree in Civil and Environmental Engineering 5

from the University of California, Berkeley and a Bachelor of Science degree in Civil 6

and Environmental Engineering from Lipscomb University. 7

Since Joining the Public Advocates Office in 2018, I have worked on: 8

• A.15-04-013 and A.18-05-007. In these proceedings I aided in the 9

analysis of a variety of issues related to cost-effectiveness, need, and 10

environmental implications of transmission projects, including 11

sponsoring testimony in A.18-05-007. 12

• A.14-10-014, A.17-01-020 et. al., A.18-01-012, A.18-06-015, A.18-07-13

020 et. al., A.18-07-021, A.19-10-012, and R.18-12-006, in which I 14

have sponsored testimony, drafted comments, and provided technical 15

analysis on a wide range of electric vehicle infrastructure issues, 16

including demand forecasting, cost-effectiveness, cost-recovery, and 17

rates. 18

Prior to Joining the Public Advocates Office, I worked on transportation 19

infrastructure and equity issues for Bike East Bay, a local bike advocacy organization. 20

I was a Physics graduate student instructor at the University of California, Berkeley in 21

2017, while earning my graduate degree, and was a Roadway/Bridge Intern for HDR | 22

ICA in 2016 and 2015, while earning my undergraduate degree. 23

This completes my prepared testimony. 24

RATE BASE AND CASH WORKING CAPITALI. INTRODUCTIONII. SUMMARY OF RECOMMENDATIONSIII. Net Plant-In-ServiceIV. Working CapitalA. Materials and Supplies1. Overview of SCE’s Request2. The Public Advocates Office’s Analysis

B. Mountainview Emissions Credits1. Overview of SCE’s Request2. The Public Advocates Office’s Analysis

C. Working Cash1. Operational Casha. Overview of SCE’s Requestb. The Public Advocates Office’s Analysis

2. Lead-Lag Working Casha. Overview of SCE’s Requestb. The Public Advocates Office’s Analysisi. Revenue Lagii. Expense Lagiii. Fuel and Purchased Power – Fall 2019 Forecastiv. Fuel and Purchased Power – Four-Year Moving Averagev. Income Tax Accrual Midpointsvi. Wildfire Insurance Premium – Lead-Lag Studyvii. RO Model Outputs

D. Customer Advances1. Overview of SCE’s Request2. The Public Advocates Office’s Analysis

E. Customer Deposits1. Overview of SCE’s Request2. The Public Advocates Office’s Analysis

F. Unfunded Pension Reserves1. Overview of SCE’s Request2. The Public Advocates Office’s Analysis

V. Accumulated Deferred TaxesVI. WITNESS QUALIFICATIONS