Financial, Legal, and Operational Services (FL&OS) Volume ... · 16 facilities (in whole or in part) that occurred subsequent to filing SCE’s Application. SCE disputes SCE disputes

Application No.: A.13-11-003 Exhibit No.: SCE-24, Vol. 03 Witnesses: J. Alderete

R. Park

(U 338-E)

2015 General Rate Case

Rebuttal Testimony

Financial, Legal, and Operational Services (FL&OS) Volume 3 Operational Services - O&M and Capital

Before the

Public Utilities Commission of the State of California

Rosemead, CaliforniaSeptember 2014

SCE-24: Financial, Legal, and Operational Services (FL&OS) Volume 03 – O&M and Capital

Table Of Contents Section Page Witness

-i-

I.� INTRODUCTION .............................................................................................1 R. Park�

A.� Summary of Operational Services’ O&M Forecast ...............................1�

B.� Summary of Operational Services’ 2013-2015 Capital Expenditures ..........................................................................................2�

II.� OPERATIONAL SERVICES’ O&M 2015 TY FORECAST BY DEPARTMENT AND FERC ACCOUNT .......................................................4�

A.� Corporate Real Estate (CRE) .................................................................5�

1.� FERC Account 920/921 .............................................................5�

a)� SCE Application ............................................................5�

b)� ORA Position .................................................................5�

c)� SCE’s Rebuttal to ORA .................................................6�

d)� TURN’s Position ............................................................7�

e)� SCE’s Rebuttal to TURN ...............................................8�

f)� Conclusion .....................................................................9�

2.� FERC Account 931 ..................................................................10�

a)� SCE’s Application .......................................................10�

b)� TURN Position ............................................................10�

c)� SCE’s Response to TURN ...........................................10�

3.� FERC Account 935 – Corporal Real Estate .............................11�

a)� SCE’s Application .......................................................11�

b)� ORA Position ...............................................................11�

c)� SCE’s Rebuttal .............................................................11�

B.� Supplier Diversity and Development Division ....................................12 J. Alderete�

SCE-24: Financial, Legal, and Operational Services (FL&OS)

Volume 03 – O&M and Capital

Table Of Contents (Continued) Section Page Witness

-ii-

1.� SCE’s Application ...................................................................12�

2.� Small Business Utility Advocates Position..............................12�

3.� SCE’s Rebuttal .........................................................................12�

III.� CORPORATE REAL ESTATE ......................................................................14 R. Park�

A.� Summary of SCE’s Capital Forecast for Operational Services ................................................................................................14�

B.� Summary of ORA’s Recommendations...............................................15�

C.� Summary of TURN’s Recommendations ............................................16�

D.� SCE’s Response to ORA’s and TURN’s Recommendations Re: 2013 Capital Forecasts ..................................................................17�

1.� SCE’s Acceptance of ORA’s Recommendation for Funding at Operational Services’ 2013 Recorded Levels .......................................................................................17�

2.� SCE’s Acceptance of TURN’s Recommendation for Funding at CRE’s 2013 Recorded Levels. ...............................18�

E.� TURN’s Proposed Disallowance of Contingency Adjustments in CRE’s 2014-2015 Forecasts .......................................18�

1.� TURN Position ........................................................................18�

2.� SCE’s Rebuttal to TURN .........................................................19�

F.� Corporate Communications Media Center ..........................................22�

1.� SCE Application ......................................................................22�

2.� TURN Position ........................................................................22�


G.� GO5 Parking Structure .........................................................................24�

1.� SCE Application ......................................................................24�




-iii-

2.� TURN’s Position ......................................................................24�


H.� GO2 Conference/Training Center ........................................................26�

1.� SCE Application ......................................................................26�

2.� TURN Position ........................................................................26�


I.� Rancho Cucamonga Lease Optimization .............................................27�

1.� SCE Application ......................................................................27�

2.� TURN Position ........................................................................27�


J.� Emergency Operation Center (EOC) ...................................................29�

1.� SCE Application ......................................................................29�

2.� TURN Position ........................................................................29�


K.� Irwindale Business Center (IBC) Remodel Project .............................31�

1.� SCE Application ......................................................................31�

2.� ORA Position ...........................................................................32�

3.� SCE Rebuttal to ORA ..............................................................32�

4.� TURN Position ........................................................................33�

5.� SCE Rebuttal to TURN ............................................................33�

L.� Capital Maintenance Blanket ...............................................................34�

1.� SCE Application ......................................................................34�




-iv-

2.� TURN’s Position ......................................................................34�


M.� Energy Efficiency Blanket ...................................................................37�

1.� SCE Application ......................................................................37�

2.� TURN Position ........................................................................38�


N.� Ongoing Furniture Modification Blanket ............................................39�

1.� SCE Application ......................................................................39�

2.� TURN Position ........................................................................39�


O.� Garage Infrastructure Upgrade Program ..............................................41�

1.� SCE Application ......................................................................41�

2.� TURN Position ........................................................................41�


P.� Service Center Infrastructure Upgrade ................................................42�

1.� SCE Application ......................................................................42�

2.� TURN Position ........................................................................43�


Q.� IT Equipment and Infrastructure Blanket ............................................46�

1.� SCE’s Application ...................................................................46�

2.� ORA Position ...........................................................................46�

3.� SCE Rebuttal to ORA ..............................................................47�




-v-

4.� TURN Position ........................................................................47�

5.� SCE Rebuttal to TURN ............................................................48�

Appendix A Index�



List Of Tables Table Page

-vi-

Table I-1 Summary of Operational Services A&G Expenses 2008-2012 Recorded and

Adjusted/2015 Forecast (Constant 2012 $000) ....................................................................................2�

Table I-2 Comparison of Parties’ Operational Services 2013-2015 Forecast (Nominal

$000) ......................................................................................................................................................3�

Table II-3 Summary of Operational Services O&M Forecasts (Constant 2012 $000) ...............................5�

Table II-4 Cost Centers Excluded from TURN’s Calculation of 2013 Recorded Costs in

Corporate Real Estate FERC Account 920/921 .....................................................................................9�

Table III-5 CRE Capital Projects at Issue (Nominal $$$) .........................................................................15�

Table III-6 SCE 2012 GRC Planning Estimates vs Recorded Costs from TURN 13 Q.35b

(Nominal $000) ....................................................................................................................................20�

Table III-7 Contingency Allowances .........................................................................................................21�

Table III-8 Corporate Communications Media Center ..............................................................................23�

Table III-9 GO5 Parking Structure ............................................................................................................24�

Table III-10 GO2 Conference/Training Center .........................................................................................26�

Table III-11 Rancho Cucamonga Lease Optimization ..............................................................................28�

Table III-12 Emergency Operation Center ................................................................................................30�

Table III-13 Irwindale Business Center Remodel .....................................................................................33�

Table III-14 Capital Maintenance Blanket Projects ...................................................................................35�

Table III-15 Comparison of FCI Evaluation Rating ..................................................................................35�

Table III-16 Scenario 1–Maintain the Current Condition FCI ..................................................................36�

Table III-17 Energy Efficiency Projects 2013-2017 Forecast Capital Expenditure

(Nominal $000) ....................................................................................................................................37�

Table III-18 Energy Efficiency Projects ....................................................................................................38�

Table III-19 Payback for Completed Energy Efficiency Projects .............................................................38�

Table III-20 Ongoing Furniture Modification Blanket Projects 2014 - 2015 Forecast

Capital Expenditures (Nominal $000) .................................................................................................40�

Table III-21 Garage Infrastructure Upgrade Program ...............................................................................41�


List Of Tables (Continued) Table Page

-vii-

Table III-22 Summary of Service Center Infrastructure Upgrades ...........................................................43�

Table III-23 Service Center Infrastructure Upgrade Blanket ....................................................................44�

Table III-24 Comparison of SCE Preliminary FCI Scores and Parsons Final FCI Scores ........................45�

Table III-25 IT Infrastructure and Equipment Blanket (CRE) ..................................................................48�

Table III-26 IT Infrastructure and Equipment ...........................................................................................49�


List Of Figures

Figure Page

-viii-

Figure III-1 Scenario 1 ...............................................................................................................................36�

1

I. 1

INTRODUCTION 2

This testimony rebuts various recommendations of the Office of Ratepayer Advocates (ORA), 3

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

Operational Services’ (OS) Operations and Maintenance (O&M) and Capital forecast. This volume is 5

organized into three chapters following this introductory chapter. Chapter II contains SCE’s rebuttal to 6

the specific ORA, TURN, and SBUA intervenor recommendations for OS’ O&M 2015 Test Year (TY) 7

forecast in each applicable FERC account. Chapter III contains SCE’s rebuttal to the recommendations 8

raised by ORA and TURN on OS’ forecast capital expenditures for 2013-2015. SCE’s Application also 9

discussed O&M and Capital savings in OS related to SCE’s Operational Excellence (OpX) initiatives. 10

ORA and TURN’s recommendations related to OpX-related savings (as well as TURN’s 11

recommendation related to clothing and other Edison gear1) are addressed separately in SCE-28 and, 12

therefore, are not addressed herein. 13

A. Summary of Operational Services’ O&M Forecast 14 OS is comprised of four departments: Corporate Real Estate, Planning and Performance 15

Organization, Supplier Diversity and Development, and Transportation. For Operational Services’ 16

O&M expenses, we forecast $64.313 million in 2015, a 4.49% increase over 2012 recorded/adjusted 17

levels. As described in SCE-08, Vol. 3, Part 1, this modest increase is attributable, in part, to 18

uncertainty surrounding the decision in SCE’s 2012 GRC, which led to temporary and unsustainable 19

reductions and delays in non-safety or compliance related activities for both the Corporate Real Estate 20

and Supplier Diversity and Development departments. O&M expenses for Transportation were not 21

included in OS’ request as those costs are charged back to other SCE Operating Units and included in 22

those respective Operating Unit’s recorded costs and forecasts. The table below provides a summary of 23

OS’ 2008-2012 recorded/adjusted and 2013-2015 forecast. 24

1 TURN-05, Marcus, pp. 121-122.

2

Table I-1 Summary of Operational Services A&G Expenses 2008-2012 Recorded and Adjusted/2015 Forecast

(Constant 2012 $000)

Department 2008 2009 2010 2011 2012 2013 2014 2015Corporate Real Estate 920/921 26,036 27,795 28,966 26,529 22,490 25,097 25,362 26,129

931 8,257 10,559 12,425 16,466 20,471 20,753 20,334 18,106 935 10,068 9,150 10,840 13,188 7,731 10,280 10,233 10,905

44,361 47,504 52,231 56,183 50,692 56,130 55,929 55,140

Planning and Performance 920/921 4,926 12,673 7,607 9,341 9,021 7,885 7,452 7,339 4,926 12,673 7,607 9,341 9,021 7,885 7,452 7,339

Supplier Diversity and Development 920/921 2,158 810 683 807 750 750 750 750 923 220 1,249 1,089 1,211 1,085 1,085 1,085 1,085

2,378 2,059 1,772 2,018 1,835 1,835 1,835 1,835

TOTAL 51,665 62,236 61,610 67,542 61,548 65,850 65,216 64,314

Recorded and Adjusted ForecastFERC Account

B. Summary of Operational Services’ 2013-2015 Capital Expenditures 1

Although OS submitted testimony concerning its capital expenditures from 2013 through 2017 in 2

SCE-08, Vol. 3, Part 2, ORA and TURN only reference OS’ 2013-2015 forecast. OS forecasts a 3

cumulative $314.043 million in capital expenditures over the 2013-2015 period. OS’ capital forecast is 4

primarily driven by Corporate Real Estate’s projects required to support SCE’s non-electric facilities 5

and accommodate SCE’s workforce while maintaining the performance and life cycle of our non-6

electric facilities and infrastructure assets. OS’ capital forecast includes certain projects needed to 7

support SCE’s warehouse and aircraft operations and maintain a dependable vehicle fleet to support safe 8

and reliable delivery of electric service to our customers. The table below summarizes the SCE, ORA, 9

and TURN 2013-2015 capital forecasts. 10

3

Table I-2 Comparison of Parties’ Operational Services 2013-2015 Forecast

(Nominal $000) �

4

II. 1

OPERATIONAL SERVICES’ O&M 2015 TY FORECAST BY DEPARTMENT 2

AND FERC ACCOUNT 3

Table II-3 below compares the ORA, TURN and SCE TY 2015 O&M forecasts. 4

ORA accepts SCE’s proposed TY forecast for SCE’s Planning & Performance Organization 5

(PPO) and Supplier Diversity and Development (SDD) Departments. ORA accepts Corporate Real 6

Estate’s (CRE) proposed TY forecast for FERC Account 931, but recommends reductions in FERC 7

Accounts 920/921 and 935. Overall, ORA recommends a TY forecast of $49.079 million for CRE, 8

$6.060 million below SCE’s CRE forecast of $55.139 million. ORA’s reductions rely upon deflated 9

2012 recorded data to establish their estimate for CRE’s TY expenses, which ignores SCE testimony on 10

the cost drivers. 11

TURN only addresses CRE’s TY forecast in FERC Accounts 920/921 and 931 and does not 12

discuss any other O&M forecasts in CRE or other OS departments (PPO or SDD). In total, TURN 13

recommends reductions of $10.247 million from CRE’s TY forecast. SCE accepts TURN’s proposal 14

relative to FERC Account 931 as reasonable given the finalization of plans to exit certain leased 15

facilities (in whole or in part) that occurred subsequent to filing SCE’s Application. SCE disputes 16

TURN’s recommendation regarding the TY forecast for FERC Account 920/921 based upon TURN’s 17

incorrect use of unadjusted 2013 recorded costs and use of a three-year average incorporating those 18

unadjusted 2013 figures. 19

Although neither ORA nor any intervenor challenge the SDD forecast, SCE submits testimony 20

rebutting SBUA’s recommendation regarding tracking and publication of certain supplier data and 21

requests that such recommendation be rejected. 22

5

Table II-3 Summary of Operational Services O&M Forecasts

(Constant 2012 $000) �

Department FERC AccountSCE

Application ORA Position TURN PositionSCE Rebuttal

Position920/921 Labor $14,347 $14,347 $13,815 $14,347

920/921 Non-Labor $11,781 $6,921 $9,205 $11,781931 $18,106 $18,106 $10,951 $11,115935 $10,905 $9,705 $10,905 $10,905

$55,139 $49,079 $44,876 $48,148920/921 Labor $5,022 $5,022 $5,022 $5,022

920/921 Non-Labor $2,317 $2,317 $2,317 $2,317$7,339 $7,339 $7,339 $7,339

920/921 Labor $549 $549 $549 $549920/921 Non-Labor $201 $201 $201 $201

923 $1,085 $1,085 $1,085 $1,085$1,835 $1,835 $1,835 $1,835

TOTAL $64,313 $58,253 $54,050 $57,322

Subtotal

Subtotal

Corporate Real Estate

Planning and Performance Organization

Supplier Diversity and Development

Subtotal

A. Corporate Real Estate (CRE) 1

1. FERC Account 920/921 2 a) SCE Application 3

CRE records labor and non-labor expenses for managing SCE’s non-electric 4

facility portfolio, presently comprising 226 buildings, to FERC Accounts 920/921. Covered activities 5

include planning, design, construction, relocation management, and maintenance. This account also 6

records expenses for business support services provided to the occupants of these non-electric facilities, 7

such as mailing services, corporate travel management, and meeting/event logistics. CRE’s TY forecast 8

of $26.13 million was based on a three-year average of recorded costs in this account. SCE’s recorded 9

2012 spending was unsustainable and increased non-labor costs are needed to restore sustainable levels 10

of facility maintenance, the expected significant increase in expected employee moves arising from 11

organizational realignments and exiting leased facilities, and the need for more contingent workers and 12

outside services due to CRE’s reduced workforce. 13

b) ORA Position 14 ORA proposes $21.268 million in 2015 for FERC Accounts 920/921 or a $4.860 15

million reduction to SCE’s $26.128 million forecast. While ORA takes no issue with CRE’s labor 16

forecast, it recommends a $4.860 million reduction in SCE’s non-labor forecast, bringing it down to the 17

2012 recorded levels($6.921 million). ORA contends that CRE’s three-year historical average is 18

6

excessive since SCE was able to reduce its spending in 2012 through reducing the scope of work and 1

maintenance service levels (e.g., less frequent janitorial, landscaping, and preventative maintenance) and 2

should be able to maintain those levels through the TY. ORA argues that CRE’s lower 2012 level 3

spending is evidence that spending was excessive in prior years, and claiming the 2015 forecast also 4

excessive.2 5

c) SCE’s Rebuttal to ORA 6 The 33% decrease between 2011 and 2012 is tied to a reduced scope of 7

maintenance and service levels. ORA incorrectly assumes that this significant decrease reflects 8

excessive spending during prior years. A three-year average, with adjustments for anticipated increases 9

in non-labor costs, is a reasonable forecast for 2015. ORA appears to dismiss SCE’s testimony detailing 10

why 2012 levels of non-labor spending are unsustainable and will result in unacceptable deterioration of 11

SCE’s non-electric facility portfolio and risk safety and habitability issues with facilities housing SCE’s 12

workforce. As detailed in SCE-08, Vol. 3, Part 1, CRE set aside its protocols for industry standard 13

levels of maintenance for its facility and equipment to address uncertainty while awaiting the issuance of 14

the decision in SCE’s 2012 GRC. SCE reduced the frequency of major janitorial services, reduced the 15

service level on our equipment maintenance contracts to provide only for the repair of malfunctioning 16

systems, and reduced the preventative maintenance contracts on equipment that would ordinarily help 17

prevent unexpected equipment failure. Maintenance, such as painting to prevent water damages and 18

repairs on cracked paving, damages walls and appliances, can only be deferred for limited periods of 19

time without severe impacts to either safety or facility asset life. Continuation of this course of below-20

standard property maintenance of facilities and equipment as seen during 2012 risks long-term negative 21

impacts to SCE’s non-electric facility portfolio, including permanent deterioration of facilities, 22

shortening the useful lifespan of equipment and infrastructure and safety issues for inhabitants of those 23

facilities. CRE’s TY 2015 forecast reflects a return of preventative maintenance to sustainable levels 24

which are consistent with achieving facility asset life expectancies. 25

While ORA accepted CRE’s lower TY labor forecast due to reduced 26

staffing, ORA refused to accept the corresponding increases in CRE’s non-labor costs associated with 27

such reduced staffing. This results in ORA significantly underestimating CRE’s TY 2015 expenses. The 28

Commission should not accept the savings in one FERC account, but reject the attendant, incremental 29 2 ORA-20, p. 9.

7

costs in another. CRE’s testimony described in detail how reduced CRE staffing (in FERC 920) and 1

lease exits (in FERC 931) will increase non-labor costs due to the need for supplemental workers to 2

offset reduced CRE staffing and increased CRE-related services to support employee moves arising 3

from lease exits and organizational realignments. Returning to adequate levels of facility maintenance, 4

combined with higher costs to relocate employees from leased spaces to SCE-owned facilities and 5

additional maintenance costs arising from higher employee density as the workforce consolidates into 6

SCE owned facilities, necessitate higher levels of non-labor spending than the unnaturally low level of 7

spending during 2012. ORA’s recommended reduction would ultimately lead to higher capital 8

expenditures to compensate for the deterioration of facilities and equipment arising from continuing 9

reduced levels of maintenance from the 2012 period. 10

SCE’s TY non-labor forecast in this account uses a three-year historical 11

average to reflect the appropriate level of maintenance spending and increased non-labor costs to 12

address reduced CRE staffing and increases employee movement arising from lease exits. With a 13

reduced full-time CRE work force, CRE will require supplemental workers to meet peaks in demand for 14

CRE services, including retention of third party architectural firms to plan and design space for larger 15

and more complex employee moves and supplemental workers to assist with process mapping, data 16

entry and validation of data for the Integrated Work Management System which CRE has already 17

commenced implementation of, 3 and supplemental workers to assist with corporate travel and event 18

needs of CRE’s client operating units. As further detailed in its testimony, CRE anticipates higher rates 19

of occupancy in its non-electric facilities as employees move away from leased facilities and the 20

increased populations within those facilities will only cause facilities and supporting equipment to 21

deteriorate at enhanced rates. Without appropriate funding for these levels of needed activity, CRE 22

cannot provide the support that SCE requires in order to provide our customers the safe and reliable 23

electric service that they expect. 24

d) TURN’s Position 25 TURN recommends a $3.108 reduction to CRE’s TY forecast in FERC Account 26

921 on the grounds that SCE’s forecast is too high. ORA cites to 2013 recorded costs, which show a 27

decline from 2012 recorded costs. TURN uses a three-year average of 2011-2013 costs for labor and 28

3 See SCE-05, Vol. 2, Part 1, pp. 89-94, for testimony regarding the Integrated Work Management Systems

(IWMS).

8

non-labor costs. TURN accepts SCE’s labor reduction of $1.222 million for Operational Excellence and 1

retroactively applies this reduction of $1.222 million to the 2011-2012 recorded labor costs before 2

calculating a three-year average. 3

e) SCE’s Rebuttal to TURN 4 TURN’s forecast is mistaken for several reasons. First, TURN’s application of 5

future savings related to Operational Excellence initiatives to SCE’s 2011-2012 recorded expense is 6

inappropriate. CRE’s forecast already reflects a downward future-year adjustment to incorporate the 7

savings SCE expects to achieve. By applying the same adjustment to prior years and incorporating it 8

into the three-year average, TURN is essentially double-counting the savings and unjustifiably lowering 9

CRE’s forecast. 10

Second, TURN’s forecast incorporates 2013 unadjusted, recorded labor and non-11

labor expenses. 4 The 2013 data has not been adjusted for this proceeding and does not provide a proper 12

comparison to the 2008-2012 recorded adjusted expenses that were included in SCE’s Application. SCE 13

provided five years of recorded-adjusted expenses by FERC activity consistent with the Rate Case Plan 14

(D.89-01-040). To prepare this data, SCE underwent a comprehensive and analytical process.5 The 15

2013 expense data that TURN relies on has not undergone this level of analysis, and therefore, is not 16

comparable or complete. TURN’s use of unadjusted figures does not reflect Affiliate Credits, which are 17

refunded to customers through the Base Revenue Requirement Balancing Account (BRRBA). Absent 18

this adjustment, SCE’s 2013 unadjusted expenses appear approximately $640,000 lower as compared to 19

2012 recorded and adjusted costs. In addition and as shown by the table below TURN’s depiction of the 20

2013 expenses ($12.143 million labor and $7.249 million non-labor) excludes approximately $2 million 21

in new FCCs that were created in 2013 as a result of departmental reorganizations and new activity 22

associated with FCI Planning.6 As such, TURN’s forecast significantly underestimates CRE’s 2015 TY 23

expenses. 24

4 Appendix A, pp. A-56 to A-97 (response to DRA-Verbal-57, Q.1). 5 There are approximately 10,000 Final Cost Centers (FCCs) where expenses are recorded, which are then

summarized in a file with recorded data that will have close to one million lines of data. Each department analyzes and adjusts their expenses to (1) remove one-time expenses or adjust to reflect other ratemaking mechanisms, (2) transfer FCC between departments, and (3) organize FCCs for the most effective and representative Test Year forecast. This entire process is a monumental task, requiring every department in the Company to participate. (Response to DRA-277-DFB.Q4a)

6 Appendix A, pp. A-98 to A-105 (response to SCE-TURN-017, Q.3).

9

Table II-4 Cost Centers Excluded from TURN’s Calculation of 2013 Recorded Costs in

Corporate Real Estate FERC Account 920/921 Year Final Cost Center Labor Non-Labor SumOfAmount2013 F513338 $807.83 $831,628.52 $832,436.352013 F513719 -$7.15 $2,584.05 $2,576.902013 F514196 $376.50 $376.502013 F514304 $201.32 $201.322013 F514573 -$1.30 $12,488.75 $12,487.452013 F514579 -$2.71 $2,493.43 $2,490.722013 F514591 $449.36 $449.362013 F526994 $447.50 $447.502013 F526995 $1,014.66 $1,014.662013 F528711 $618,124.82 $12,395.84 $630,520.662013 F529075 $266,013.37 $547,455.75 $813,469.122013 F529126 $47,345.79 $2,618.23 $49,964.022013 F529215 -$2.55 $1,457.15 $1,454.602013 F529216 -$8.30 $7,411.83 $7,403.53

$932,269.80 $1,423,022.89 $2,355,292.69$906,965.47 $1,391,165.21 $2,298,130.67

TotalTotal in 2012$

Finally, as with ORA’s forecast in this account, TURN’s forecast fails to take into 1

account SCE’s testimony detailing the reasons for CRE’s higher non-labor forecast, including, 2

restoration of sustainable levels of preventative maintenance and other costs, higher employee move 3

costs due to lease exits and organizational realignments, higher maintenance costs arising from increased 4

employee density following workforce consolidation into SCE owned facilities, and higher supplemental 5

worker costs for space planning, process mapping and data validation for the Integrated Work 6

Management System (IWMS). 7

SCE maintains TURN’s forecast methodology is flawed for the reasons explained 8

above and does not accurately reflect CRE’s projected expenses. Therefore, SCE respectfully requests 9

the Commission authorize SCE’s 2015 TY forecast of $26.13 million. 10

f) Conclusion 11 Returning to adequate levels of facility maintenance, combined with higher levels 12

of costs to provide support for SCE’s organizational units as SCE relocates employees from leased 13

spaces to SCE owned spaces, will require levels of non-labor spending in line with those that CRE is 14

requesting in FERC Account 920/921. SCE, therefore, respectfully requests that the Commission fund 15

10

CRE FERC Accounts 920/921 activities at the full $26.13 million level (including $11.781 million in 1

non-labor costs). 2

2. FERC Account 931 3 a) SCE’s Application 4

CRE records expenses in FERC account 931 for rental and lease costs of property 5

and buildings that SCE uses, occupies and/or operates, but does not own. Those expenses include base 6

rent payments, standard lease escalations, parking charges, and other miscellaneous building charges. 7

The TY2015 forecast of $18.106 million was calculated using the actual lease agreement terms 8

negotiated and agreed to by SCE for each facility. At the time the Application was filed in November 9

2013, SCE had not finalized plans relative to exiting certain facilities, either in whole or in part, 10

governed by lease agreements with terms expiring in 2015 and 2016. 11

b) TURN Position 12 TURN cites SCE’s updated forecast of facility lease costs from 2012 through 13

2017 (as provided in data request responses). The updated forecast shows that SCE’s current plans for 14

leased facilities will result in lease costs decreasing from $18.106 million in 2015, to $12.106 million in 15

2016, and to $2,657 million in 2017. TURN proposes normalizing SCE’s forecast 2015-2017 lease 16

savings by averaging SCE’s 2015-2017 lease cost forecast, resulting in a TY 2015 forecast of $10.951 17

million, a figure $7.139 million below SCE’s TY forecast of $18.106 million. 18

c) SCE’s Response to TURN 19 As SCE’s plans to exit leased facilities have solidified since the filing of the 20

Application and allow for greater precision relative to future costs charged to this account, SCE has 21

reviewed TURN’s proposal relative to normalizing SCE’s 2015-2017 lease cost forecast and accepts it 22

as reasonable. The only modification to TURN’s proposed forecast figure is an upward adjustment of 23

approximately $164,000 to include lease costs in 2016-2017 for Innovation Village 2. The ground lease 24

for Innovation Village 2 was negotiated and finalized subsequent to the lease forecast provided to and 25

cited by TURN in connection with TURN’s proposed forecast.7 Accordingly, SCE respectfully requests 26

that the Commission authorize TY funding in FERC Account 931 of $11.115 million, a net decrease of 27

$6.991 million from the original TY forecast. 28

7 See SCE’s Supplemental Response to TURN-SCE-068, Q.1.

11

3. FERC Account 935 – Corporal Real Estate 1 a) SCE’s Application 2

CRE’s FERC Account 935 is for non-labor repairs and maintenance (non-capital) 3

of facility structures and parking areas that SCE owns, uses, occupies, or operates, including repairs to 4

infrastructure and equipment. SCE’s 2015 TY $10.905 million estimate is $3.2 million over the 2012 5

costs of $7.7 million and is based on a three-year average. The increase is primarily attributable to the 6

increase in critical facility maintenance resulting from the addition of the Alhambra Data Center and 7

restoration of sustainable maintenance at SCE’s other critical facilities. 8

b) ORA Position 9 ORA proposes $9.705 million in 2015 for FERC Account 935. This represents 10

CRE’s 2012 recorded costs in this account plus $2.0 million in support of higher levels of critical facility 11

maintenance. ORA contends that, “[s]ince SCE was able to reduce its spending in 2012 and maintain its 12

facilities, it should be able to continue to maintain its facility at this funding level in 2015.”8 ORA 13

further contends that SCE can achieve this “by limiting the scope of work and service levels (e.g. less 14

frequent janitorial, landscaping and preventative maintenance)” just as it did in 2012.9 15

c) SCE’s Rebuttal 16 Similar to ORA’s position on CRE’s FERC Account 920/921 forecast, ORA 17

completely discounts SCE’s testimony that clearly explains maintenance levels recorded during 2012 are 18

unsustainable as it stemmed from uncertainty surrounding the ultimate decision in the 2012 GRC 19

proceeding. Restoration of proper maintenance levels at critical facilities is essential since they require 20

extensive 24/7/365 support, including higher levels of maintenance staffing, testing, and expenditures to 21

properly maintain the extensive Heating Ventilation & Air Conditioning, electrical, mechanical, and 22

security systems necessary to support the IT and telecom equipment housed at these sites. As such, 23

CRE fully expects the level of costs in the TY to be consistent with SCE’s forecast. 24

ORA also reiterates its incorrect forecast methodology, even though ORA does 25

not dispute the substantial fluctuations in recorded expenses during the period from 2008 – 2012 which 26

varied between $7.7 million and $13.2 million with no clear trend. In D.89-12-057, the Commission 27

stated for those accounts which have significant fluctuations in recorded expenses from year to year, an 28 8 ORA-20, p. 11. 9 Id.

12

average of recorded expenses is appropriate. SCE’s expenses in FERC account 935 in 2011 were 1

$12.785 million and the three year average in account 935 from 2010 to 2012 was $10.281 million. The 2

costs recording to FERC Account 935 are controlled by the condition of the facilities and their 3

equipment and the trade-off between adequate maintenance and capital expenditures to replace 4

deteriorated facility equipment and systems. Adequate facility maintenance to support meeting the 5

designed life cycles of systems and equipment requires the level of spending requested. ORA has not 6

offered any evidence that SCE’s pre-2012 spending levels were wasteful or overstated and, as such, 7

incorrectly assumes that the expenses in 2012 for FERC account 935 (augmented by additional needs for 8

critical facilities), represent an adequate level of spending to allow SCE’s facility systems to meet their 9

design lives. Therefore, ORA’s proposal should be rejected and the Commission should adopt CRE’s 10

$10.905 million TY forecast for FERC Account 935 as reasonable. 11

B. Supplier Diversity and Development Division 12 1. SCE’s Application 13

SCE records its administrative and general cost for its Supplier Diversity and 14

Development (SD&D) Division in FERC Accounts 920/921. SCE also records expenses associated with 15

the Commission’s Clearinghouse in FERC Account 923. For these FERC Accounts, SCE’s 2015 16

forecasts are based on the company’s 2012 recorded expenses.10 No intervenor challenges SD&D’s 17

forecasts or expenses. 18

2. Small Business Utility Advocates Position 19 The Small Business Utility Advocates (SBUA) proposes that SCE establish a goal of 20

30% of its contract expenditures for California certified small businesses.11 Similar to how utilities track 21

and report information on diverse business enterprises (WMDVBEs) under General Order 156 (GO 22

156), SBUA proposed that SCE be required to track and publish its percentage of spending with these 23

small businesses.12 24

3. SCE’s Rebuttal 25 The Commission should not adopt SBUA’s proposed requirements. Currently, the 26

Commission’s Clearinghouse collects and verifies WMDVBE certifications and maintains the data base 27

10 SCE-08, Vol. 3, Part 1, pp. 43-48. 11 SBUA Expert Report on Issues Affecting Small Businesses, pp. 4, 7, and 8. 12 SBUA Expert Report on Issues Affecting Small Businesses, pp. 7-8.

13

for this type of information, which the utilities use in their GO 156 reports. SCE and other utilities 1

subject to GO 156 obtain from the Clearinghouse the data on the revenues reported to the Clearinghouse 2

by WMDVBEs. Pursuant to Commission Decision No. 06-11-028, SCE and the other utilities submit 3

their WMDVBE revenue reports to the Commission, which provides information on the utilities’ 4

spending based on whether the WMDVBE’s reported revenue to the Clearinghouse is under $1 million, 5

$5 million, $10, million, or above $10 million. 6

SCE does not possess the type of information SBUA is seeking. If the Commission 7

wishes to expand the Clearinghouse’s function to include collecting and verifying small business 8

certifications for WMDVBEs (and non-WMDVBEs), the Commission should do so on a state-wide 9

basis and would need to authorize additional funds in SD&D’s FERC Account 923 for this effort. 10

Because a vendor’s revenue fluctuates, the Commission should seek input from all stakeholders to best 11

ensure that the data provided by vendors is accurate and not stale. 12

14

III. 1

CORPORATE REAL ESTATE 2

A. Summary of SCE’s Capital Forecast for Operational Services 3 Operational Services supports SCE’s Operating Units, including Transmission and Distribution 4

(T&D) and Customer Service (CS), with a wide range of facility and transportation support activities. 5

As detailed in SCE-08, Volume 3, Part 2, planned capital expenditures by Operational Services (OS) 6

cover projects and blankets for existing and needed facilities, services, vehicles and aircraft to support 7

the continued delivery of safe and reliable service to our customers. OS’ total capital expenditure 8

forecast for the period of 2013-2017 totals $546.19 million and includes requests for three separate 9

departments: Corporate Real Estate (CRE), Transportation and Supply Management. The vast majority 10

of the forecast is for CRE projects and activities representing $506.7 million of the OS capital forecast. 11

ORA and TURN only provide recommendations on CRE’s capital forecast for the period from 12

2013 through 2015. Table I-2 in the Introduction Chapter compares SCE’s 2013-2015 forecasts of 13

capital expenditures for OS with ORA’s and TURN’s recommended forecasts. Briefly, ORA 14

recommends a forecast of $281.791 million for the 2013-2015 periods, $32.252 million below SCE’s 15

forecast, while TURN recommends a forecast of $201.476 million over the 2013-2015 period, $112.567 16

million below SCE’s forecast. As SCE accepts ORA and TURN’s recommendations for 2013, Table 17

III-5 below compares SCE’s 2014-2015 forecast of capital expenditures for projects disputed by ORA 18

and/or TURN. 19

15

Table III-5 CRE Capital Projects at Issue

(Nominal $000) �

Project No. ActivitySCE

Application 2014-2015

ORA Position

2014-2015

TURN Position

2014-2015

COS-00-RE-MA-NE0001 Capital Maintenance $41,358 $41,358 $28,840

COS-00-RE-NA-698200 Emergency Operating Center $5,000 $5,000 $0

COS-00-RE-RC-EE0001 Energy Efficiency Blanket $5,114 $5,114 $0

COS-00-RE-BR-698600 Garage Infrastructure Upgrade $10,340 $10,340 $0

COS-00-RE-NA-698200 Corp Com Media Center $1,000 $1,000 $0

COS-00-RE-NA-698200 GO2 Conference/Training Center $1,000 $1,000 $0

COS-00-RE-NA-698200 GO5 Parking Structure $10,900 $10,900 $0

COS-00-RE-NA-698200 Irwindale Business Center $20,000 $0 $0

CIT-00-OP-NS-000154 IT Infrastructure & Equipment Blanket $13,330 $0 $0

COS-00-RE-BR-FM0000 Ongoing Furniture Mods Blanket $5,898 $5,898 $3,038

COS-00-RE-NA-698200 RCRO Building Optimization $5,000 $5,000 $0

COS-00-RE-BR-698700 Service Center Infrastructure Upgrade Blanket $20,679 $20,679 $7,000

Various Projects Contigency Forecast $0 $0 -$12,904$139,619 $106,289 $25,974Total

B. Summary of ORA’s Recommendations 1 As noted earlier, ORA’s testimony concerning OS’ Capital Forecast only addresses the period 2

from 2013 through 2015 and does not discuss the two subsequent years covered by OS’ Capital 3

Forecast, namely, 2016-2017. 4

With respect to OS’ Capital Forecast for 2013, ORA recommends funding equal to OS’ 2013 5

recorded level of capital expenditures. This recommendation results, on a project by project base, a 6

higher authorized amount than OS’ forecast for some projects and a lower authorized amount than OS’ 7

16

forecast in other cases.13 1

ORA accepts OS’ forecast of Capital Expenditures for 2014 and 2015, with the exception of two 2

projects: (1) the Irwindale Business Center (IBC) Remodel and (2) the IT Equipment and Infrastructure 3

Blanket. With respect to the IBC Remodel, ORA contends that the IBC Remodel was described in 4

SCE’s 2012 GRC testimony and, therefore, was already addressed in SCE’s post test-year construction. 5

ORA recommends zero funding of the IT Equipment and Infrastructure blanket for 2014 and 2015 on 6

the grounds that SCE’s submission of supporting testimony was untimely.14 7

In summary, ORA recommends funding of $282 million for OS’ capital expenditures for the 8

2013-2015 period, an amount $32 million below SCE’s forecast. 9

C. Summary of TURN’s Recommendations 10 TURN also recommends the Commission use SCE’s 2013 recorded expenditures for capital 11

projects over SCE’s 2013 forecasts, resulting in a net increase in funding of approximately $3.2 million 12

over SCE’s 2013 forecast. 13

With respect to SCE’s forecast for the period from 2014 – 2015, TURN recommends the 14

following disallowances: 15

� Disallow $12.904 million from CRE’s capital forecasts for 2014 and 2015 to remove 16

contingency adjustments ranging from 2% - 15% for construction projects and blanket 17

programs based on prior Commission decisions rejecting system-wide contingency 18

adjustments; 19

� Disallow $13.3 million for IT Equipment and Infrastructure for CRE Projects based on 20

SCE’s failure to adequately describe and justify the funds requested in a timely manner; 21

� Deny funding ($1 million) for the General Office Media Center based on SCE’s failure to 22

provide sufficient evidence of ratepayer benefit; 23

� Deny funding ($10.9 million) for the GO5 Parking Structure based on SCE’s failure to 24

demonstrate sufficient need; 25

13 ORA-20, p. 13. (“In some cases, ORA’s 2013 forecast are higher than SCE’s as well as lower.”) 14 ORA recommends funding of SCE’s 2013 recorded capital expenditure of $1.294 million on IT Equipment

and Infrastructure. See ORA-20, p. 18.

17

� Deny funding ($1million) for the Conference /Training Center on the grounds that it should 1

be funded from savings SCE will achieve from leasing meeting/training facilities rather than 2

from rates; 3

� Deny funding ($5 million) for the Rancho Cucamonga Lease Optimization on the grounds 4

SCE will not exit the lease by the end of 2015; 5

� Deny funding ($5 million) for the Emergency Operation Center (EOC) based on SCE’s 6

failure to justify why it needs a new EOC; 7

� Deny funding ($20 million) for the remodeling of the Irwindale Business Center (IBC) since 8

the IBC will not be used by the end of 2015 based upon SCE’s continued occupation of the 9

Rancho Cucamonga facility through 2015; 10

� Deny funding ($5.11 million) for Energy Efficiency Projects on the grounds SCE’s past 11

energy efficiency projects have not been cost-effective; 12

� Disallow ($12.52 million) from the Capital Maintenance forecast on the grounds that SCE’s 13

forecast is overstated and should apply a 6-year average instead; 14

� Deny funding ($10.84 million) for the Garage Modernization Project on the grounds the 15

Commission authorized funding for the project in two prior rate cases; 16

� Disallow $2. 86 million from the Ongoing Furniture Modifications forecast based on 17

application of 6-year average of recorded costs and reduction in seated employees forecast by 18

SCE; and 19

� Disallow $13.67 million from the Service Center Infrastructure Upgrade on the grounds that 20

SCE received funding to modernize its service center in the two prior rate cases. 21

In total, TURN recommends reducing CRE’s capital forecast to $201.476 million over the 2013-22

2015 period, $112.567 million less than the forecast. 23

D. SCE’s Response to ORA’s and TURN’s Recommendations Re: 2013 Capital Forecasts 24 1. SCE’s Acceptance of ORA’s Recommendation for Funding at Operational Services’ 25

2013 Recorded Levels 26

ORA notes that its use of 2013 recorded levels of spending was intended to “eliminate 27

one year of estimating uncertainty.” 15 Although ORA’s testimony regarding OS’ 2013 capital forecast 28 15 ORA-20, p. 13. (“ORA tries to obtain an additional recorded year of plant data (in this case 2013) in order to

eliminate one year of estimating uncertainty.”)

18

leaves out certain projects, namely, CRE’s “Projects and Blankets under $1 Million” and those 1

sponsored by Transportation and Supply Management, ORA has since confirmed that ORA’s adoption 2

of OS’ 2013 recorded level of spending was also intended to cover those additional projects.16 3

Based upon the foregoing, ORA’s actual recommendation relative to OS’ 2013 Capital 4

Forecast totals $93.589 million. Based upon the corrected forecast presented by ORA adopting 2013 5

recorded levels for all OS Capital Expenditures discussed in SCE-08, Vol. 3, Part 2, SCE finds ORA’s 6

approach reasonable and accepts ORA’s recommended 2013 OS Capital Forecast. 7

2. SCE’s Acceptance of TURN’s Recommendation for Funding at CRE’s 2013 8 Recorded Levels. 9

As noted earlier, TURN’s testimony only addresses the capital forecast for CRE and does 10

not address the capital forecasts of the other OS departments, namely, Supply Management and 11

Transportation. With respect to the CRE’s capital expenditures for 2013, TURN recommends the 12

Commission use 2013 recorded capital expenditures over the 2013 forecast.17 SCE finds this approach 13

reasonable and accepts TURN’s recommended 2013 CRE Capital Forecast. 14

E. TURN’s Proposed Disallowance of Contingency Adjustments in CRE’s 2014-2015 15 Forecasts 16

1. TURN Position 17 TURN proposes that the Commission disallow $12.904 million from CRE’s capital 18

forecasts in 2014 (a $4.549 million reduction) and 2015 (an $8.365 million reduction) related to 19

contingency adjustments (ranging from 2% - 15% depending upon the type of project/blanket) applied 20

by SCE on construction projects and blankets. TURN cites to the 2009 and 2012 GRC Commission 21

decisions rejecting system-wide contingency adjustments that SCE applied to increase CRE capital cost 22

estimates. 23

16 See ORA’s Response to SCE-DRA-042-LJL, Q.1– “The Transportation Garage Safety Upgrades, Lease Exits

(Brea, La Palma, San Dimas), CRE Operational Equipment, OS Operational Equipment, Supply Management Operational Equipment and Related Improvements, Vehicle Purchase, Garage Tools, Helicopter Parts and Equipment, Operational Equipment, and Helicopter Lease Buyout projects should be considered incremental to ORA’s total forecast of Operation Services (bottom of Table 20-2)”

17 TURN-08, Nahigian, pp. 2-3.

19

2. SCE’s Rebuttal to TURN 1 TURN cites the Commission’s 2009 GRC decision rejecting SCE’s use of a 15% system-2

wide contingency adjustment since: (1) SCE’s cost estimates remain at a very preliminary stage and (2) 3

the uniform application of a 15% contingency rate on each project is arbitrary.18 TURN also briefly 4

references the Commission’s 2012 GRC decision which disallowed a 10% system-wide contingency 5

adjustment. 6

SCE’s purpose in presenting Planning Estimates is to provide its best forecast of the 7

capital expenditures required for the projects which SCE is requesting. SCE requests these projects in 8

support of providing an appropriate level of safe and reliable service to our ratepayers while providing 9

SCE employees with a safe and productive workplace. Contingencies are appropriate in construction 10

cost estimating and widely accepted in the commercial real estate industry as a necessary element in 11

construction cost estimating. 19 In the 2012 GRC, SCE cited government and industry guidance 12

confirming that contingency is an integral part of the total estimated cost of a project to account for 13

unforeseeable elements of cost within a defined project scope.20 Those sources recommend 14

contingency percentages of 15% to 30% for facility projects depending on the project type and the phase 15

at which the project estimate is made.21 16

In order to highlight the need for contingency adjustments, SCE compared the recorded 17

costs of seven specific projects from SCE’s 2012 GRC with the Planning Estimates submitted by SCE 18

for those projects in relation thereto.22 19

18 TURN-08, Nahigian, pp. 3-4. 19 See, AACE International Recommended Practice No. 40R-08, Contingency Estimating- General Principles

(available at http://www.aacei.org/non/rps/40R-08.pdf). 20 A.10-11-015, SCE-24, Vol. 2, pp. 41-42. 21 Id. 22 See Appendix A, pp. A-52 to A-53 (response to TURN-SCE-013, Q.35.b).

20

Table III-6 SCE 2012 GRC Planning Estimates vs Recorded Costs from TURN 13 Q.35b

(Millions of Nominal $)

Table III-6 above illustrates that for each of those seven projects, the Planning Estimate 1

forecasts (submitted as part of SCE’s 2012 GRC which included a uniform 10% contingency 2

adjustment), were still $19.27 million less than the final recorded costs for these projects. These 3

projects were all competitively bid and carefully managed. The variance highlights the need for 4

contingency adjustments as projects progress from planning to construction and unknown conditions are 5

encountered resulting in cost impacts. The contingency adjustment accounts for the occurrence of the 6

need for additional expenditures and leads to a more accurate estimate of the total cost of the project. 7

Therefore, the removal of contingency from the Planning Estimate forecasts provides less accurate 8

estimates of the actual project costs than otherwise. 9

In this GRC, SCE sought to apply a percentage of contingency that took into account the 10

stage of planning at which the cost estimate is made and the nature of the project. Estimates made for 11

projects that are in conceptual planning are expected to have a higher percentage of contingency while 12

projects in advanced stages of planning or construction will have lower contingency percentages. In 13

addition, projects where the total cost is heavily weighted towards equipment typically carry a lower 14

contingency since the cost of the specific equipment can be more easily determined by reference to 15

market price. 16

Accordingly, rather than apply a single system-wide contingency adjustment in the 17

manner previously rejected by the Commission in the 2009 and 2012 GRC Decisions, SCE analyzed 18

each of its projects and applied varying contingency adjustments based upon the nature and scope of the 19

21

subject project and in consultation with its construction cost estimating vendor (Cumming, Inc.) Table 1

III-7 below provides a sampling of projects from SCE’s 2015 GRC filing showing the reasons for the 2

varying contingency percentages: 3

Table III-7 Contingency Allowances

Project TitleProject Cost

EstimateContingency

% Contingency LogicHeadquarters

GO Complex Plumbing Infrastructure Upgrade $1,999,944 12% Plumbing generally not accessible for inspectionGO1 Cafateria Infrastructure Upgrade $1,698,471 6% Originally estimated to be mostly equipment replacement

Administrative Facilities (Headquarters)Conference Training Center $21,499,291 16% Early stages of planning change of use in buildingMetro East Parking Structure $9,500,160 9% Previous experience with construction at this site

Field Facility Asset PreservationTransportation Garage Hoist Upgrades $5,996,403 2% Primarily installation of equipment at sites with similar conditionsCatalina Island Facility Improvements $5,020,567 9% Advanced stage of planning with drawings completed

Administrative Facilities Upgrade ProgramHotel Workspace $4,000,223 9% Mostly furniture with wide variet of locations and conditionsAlhambra Regional Operating Facility Master Plan $22,800,270 11% Large project in early stages of planning

Critical Facilities

IOC Upgrades $19,389,100 11%Complex systems with electrical & plumbing components not accessbile for inpection

Administrative Facilities Upgrade ProgramEmergency Operations Center $15,000,100 11% Specilaized construction, early stages of planningIBC Remodel $19,997,036 13% Early stages of planning change of use in building

BlanketsEnergy Efficiency $10,482,078 9% Equipment based with significant system integrationGarage Infrastructure Upgrade Program $21,599,908 13% Older buildings with wide variety of conditions

TURN has cited no other authority rejecting individual contingency percentages 4

developed by SCE (in consultation with Cumming Inc., a professional cost estimating firm23) on a 5

project by project basis. In recognizing the basis of previous Commission disallowances of single 6

system-wide contingency adjustments, SCE took reasonable steps to forecast contingency on project-by-7

project basis incorporating precise contingency amounts within each project. SCE’s Planning Estimates 8

incorporate contingency adjustments ranging from 8% to 13% for individual projects and 2% to 15% for 9

blanket projects. SCE maintains that these percentages represent reasonable levels of contingency for 10

CRE projects based on the project type and phase of planning. Consequently, TURN’s proposed 11

23 In 2006, Cumming Corp was named to Engineering News-Record’s listing of the Top 100 CM-for-Fee firms

in the United States, and continues to receive the honor, ranking in the top 40 every year since.

22

disallowances of $4.549 million and $8.365 million from CRE’s 2014 and 2015 capital forecasts should 1

be rejected. 2

If the Commission disallows contingency adjustments in CRE’s projects, TURN’s 3

proposed contingency-related disallowances must be adjusted to remove contingency adjustments tied to 4

any CRE projects where the Commission accepted TURN’s recommendation of zero ratepayer funding 5

for 2014-2015. TURN’s disallowance figures incorrectly incorporate contingency adjustments totaling 6

$2.476 million (out of $4.549 million) in 2014 and $5.629 million (out of $8.365 million) in 2015 which 7

are already accounted for in TURN’s recommendations for zero funding on certain CRE capital projects. 8

Hence, any denial of funding for CRE capital projects with expenditures forecast during 2014 and 2015 9

will already remove the respective contingency adjustment associated with such project and any further 10

disallowance of funding is unwarranted. 11

F. Corporate Communications Media Center 12 1. SCE Application 13

To provide secure space suitable for press conferences and where members of the local 14

community and media can gather, CRE plans to convert 1,200 square feet of existing office space on the 15

garage level of its General Office facility in Rosemead (GO1) into a media center. The space will be 16

configured with sufficient seating capacity to host 30-50 attendees, and will provide data and video 17

capability and controlled access for the media and community representatives. The space will be used 18

for press conferences and to film videos of the officers communicating to the public and SCE’s 19

workforce on various topics for internal and external use. Ratepayers benefit from accurate and timely 20

communication of information about SCE’s business activities, including public communications about 21

SCE’s response to potential and actual emergency situations. SCE included a forecast of $1 million in 22

2014 for planning; permitting, construction, and project close out. 23

2. TURN Position 24 TURN recommends the Commission deny the $1 million funding for the Media Center 25

project as not necessary or prudent. TURN suggests that any upgrade of SCE’s media facilities should 26

be paid out of shareholder funds. TURN maintains that SCE has been able to disseminate information to 27

ratepayers and stakeholders without a dedicated Media Center and its historical frequency of press 28

conferences held at SCE does not justify one. 29

23

Table III-8 Corporate Communications Media Center 2014 – 2015 Forecast Capital Expenditures

(Nominal $000)

3. SCE’s Rebuttal to TURN 1 Construction of the Corporate Communications Media Center is needed to improve 2

SCE’s communications to the public about its activities, including responses to potential and actual 3

emergency situations. Currently, SCE holds press conferences and briefings on sidewalks outside of its 4

headquarters and video production and editing equipment and personnel are housed in disparate 5

workspaces. The demands for faster communication with our customers and dissemination of 6

information to the public have increased due to new Internet and mobile technologies. The proposed 7

media center will provide a dedicated facility to generate and disseminate public video communications. 8

The media center will also include editing bays to facilitate Corporate Communication’s ability to 9

quickly produce videos and expedite transmission to our target audience. 10

TURN notes SCE does not track the volume of public attendees at press conference to 11

challenge SCE’s need for the media center. With no dedicated and secure media space, SCE has not 12

invited members of the public to press conferences so had no need to track their attendance at such 13

events. TURN also ignored SCE’s key aspects of a dedicated media center, that it would provide a 14

secure environment to hold and film press conferences and briefings and mitigate safety and security 15

concerns with the publicly accessible location directly adjacent to street traffic which becomes 16

congested at various points of the day. This existing area is also subject to varying weather and lighting 17

conditions. In 2014, SCE initiated the Corporate Communications Media Center project as planned. To 18

date, the planning and permitting has been completed, construction has begun, and the project is 19

expected to be completed in 2015. The Commission should adopt SCE’s $1 million forecast for this 20

project. 21

24

G. GO5 Parking Structure 1 1. SCE Application 2

The General Office Headquarters Building 5 (GO5), located in Rosemead, California, 3

was originally constructed in 1984. When GO5 was originally constructed, parking space allocations 4

were based on its original design of 40% office space and 60% computer lab and document storage 5

space. Over the past 20 years, GO5’s occupancy has transformed to 90% office, and 10% support space 6

as SCE’s Human Resources OU (HR) centralized in GO5 and Customer Service OU (CS) were also 7

moved into GO5. GO5 now hosts thousands of employees, candidates, and supplemental workers 8

every year. Higher employee density, along with the CS and HR visitor traffic at GO5, means that it is 9

frequently difficult for customers, candidates, and employees to find parking spaces, especially when 10

large events are held. This high volume of pedestrian and vehicular traffic in the existing lots exposes 11

GO5’s occupants and visitors to safety hazards that would be ameliorated by the new parking structure. 12

SCE plans to construct a 450 space parking structure which will yield a net increase of 300 parking 13

spaces for the use of employees and visitors to GO5. As the GO5 site is located in an area with limited 14

off-site parking, the construction of a parking structure is the best solution to ameliorate the safety issues 15

and maximize efficient use of GO5. The forecast for this project is shown below: 16

2. TURN’s Position 17 TURN contends that the $10.9 million cost of the GO5 Parking Structure should be 18

disallowed because SCE’s need for incremental parking spaces does not justify the cost of the parking 19

structure. TURN further contends that SCE should explore alternatives for meeting its parking needs, 20

namely, increasing efforts to encourage employees to use alternative transportation and continue leasing 21

overflow parking at or near its Rosemead headquarters. 22

Table III-9 GO5 Parking Structure

2014 – 2015 Forecast Capital Expenditures (Nominal $000)

25

3. SCE’s Rebuttal to TURN 1 TURN’s position on the GO5 Parking Structure is based on incorrect assumptions. 2

Although the GO5 Parking Garage will contain 450 spaces on three levels, the ground level of the 3

parking structure will displace 150 existing surface parking spaces. As such, the net increase in parking 4

at GO5 will be 300 spaces, not 450 spaces.24 Hence, TURN’s reference to a deficit of only 94 parking 5

spaces based on historic building occupancy is inaccurate. Moreover, given SCE’s plan to exit leased 6

office space and move employees to owned facilities, such as GO5, occupancy levels will be even 7

higher in the future. GO5, at full occupancy, is projected to require 894 spaces versus the 700 currently 8

available, resulting in a shortfall of 194 parking spaces. TURN’s position also fails to take into account 9

the high volume of visitors to GO5, including job applicants visiting HR personnel, new employees that 10

visit for pre-employment screening and other HR services, or the SCE employees who come to this site 11

for training. The GO5 parking structure will also help accommodate additional parking needs for other 12

GO campus facilities (GO1-GO4) when their parking capacities become constrained. 13

TURN’s suggestion that “SCE should re-double its efforts to encourage alternatives to 14

single-occupancy car commuting” is not an adequate substitute and implies SCE does not already 15

encourage alternative forms of commuting. SCE’s existing Commuter Benefit Program provides a 16

range of benefits to employees who avail themselves of commuting alternatives. Among these 17

alternatives is a Pretax Commuter Benefit Program which allows employees to pay for eligible 18

commuter-related expenses (vanpools, Metro-link pass, remote parking) through automatic pre-tax 19

payroll deductions. SCE also subsidizes 25% of employee’s eligible commuting expenses up to $58 per 20

month. SCE encourage vanpools and other ride sharing arrangements through Enterprise’s ride sharing 21

portal. To encourage employees who might consider more active forms of commuting, SCE also offers 22

bicycle lockers at the Rosemead General Office campus. 23

Moreover, given the large widespread geographical areas from which SCE draws 24

employees and the suburban location of the Rosemead campus away from major mass transit hubs, SCE 25

anticipates no major change in the number of its employees engaged in single occupancy vehicle 26

commuting and the need to provide adequate parking for those employees and other visitors to GO5. 27

24 SCE submitted an errata to clarify its Application testimony relative to the net increase. See Errata to SCE-

08, Vol. 3, Part 2, pp. 19-20.

26

Finally, TURN incorrectly assumes that readily available overflow parking will always 1

exist for GO5 employees and visitors. While SCE has been able to lease overflow parking in recent 2

years to account for deficits at GO5, the existing alternative parking is not guaranteed to be available 3

beyond the immediate terms of the existing lease (expiring on November 17, 2014) and no agreement on 4

an extension has been reached to date. Shuttling employees from more remote parking locations to GO5 5

would also add to building operating costs. SCE respectfully requests that the Commission approve 6

funding of this project at SCE’s forecast of $10.9 million. 7

H. GO2 Conference/Training Center 8 1. SCE Application 9

The General Office Headquarters Building 2 (GO2), located in Rosemead, California, 10

was originally constructed in 1975 and currently operates as one of SCE’s primary data centers. GO2’s 11

use will change as data center operations are migrated to the newly built Alhambra Data Center. Once 12

the migration is complete, CRE will transform GO2 into a Conference and Training Center. SCE 13

currently requires a facility with large meeting and training spaces. Training events and meetings are 14

frequently held far from SCE’s Headquarters in rented locations. A dedicated training and conference 15

space on the GO campus will not only reduce time and safety risks associated with employees traveling 16

to distant training and meeting locations, but also will reduce expenses to rent meeting and training 17

space. 18

2. TURN Position 19 TURN recommends no ratepayer funding for the GO2 Conference/Training Center. 20

TURN maintains that the GO2 Conference/Training Center should be funded not out of rates, but from 21

the savings that SCE will experience from avoiding rental space costs for the meetings and trainings. 22

Table III-10 GO2 Conference/Training Center


27

3. SCE’s Rebuttal to TURN 1 Notably, TURN does not contest the need for GO2 Conference/Training center and 2

appears to agree with SCE’s projection of potential savings from the reduction in offsite meeting costs 3

following the completion of the GO2 Conference/Training Center.25 TURN is wrong to recommend no 4

ratepayer funding for the GO2 Conference/Training Center project and that it instead be funded by 5

savings from lower meeting costs. TURN does not dispute that ratepayers will receive the added benefit 6

of lower O&M costs in future rates as SCE expects to realize savings from meeting costs. However, any 7

savings that will arise from the creation of the GO2 will not be realized until the facility is completed in 8

late 2017. Therefore, any O&M savings will not be realized until 2018, which is outside the scope of 9

this rate case. Ratepayers will receive the benefit of employees who are well-trained. Beyond the 10

savings, employees benefit from shorter commuting distances and reduced safety risks associated with 11

extended commutes. Given that TURN and SCE agree that the GO2 Conference/Training Center will 12

ultimately yield significant savings through avoidance of off-site meeting costs, the Commission should 13

approve recovery of this project. 14

I. Rancho Cucamonga Lease Optimization 15 1. SCE Application 16

The Rancho Cucamonga Office Building lease is scheduled to expire in 2015. At the 17

time SCE filed this Application, we planned to exit all 234,000 square feet leased at this location. SCE 18

has a contractual obligation to return the leased premises to the landlord in accordance with the 19

conditions set forth in the lease. The work envisioned for this project includes demolition and removal 20

of the specialized infrastructure built into these facilities for the 24/7 call center, including the 21

information technology network center, extensive telephone system, network cabling, power backup 22

systems and HVAC systems. The capital lease exit expenditures were estimated at $5 million in 2015, 23

as shown in the table below. Subsequent to the filing of the Application, SCE decided to exit only two 24

of the three floors covered by the Rancho Cucamonga Office Building lease and indicated such in data 25

request responses. 26

2. TURN Position 27 TURN recommends disallowance of $5 million for the Rancho Cucamonga Lease 28

Optimization project based on the assumption that SCE’s extension of the lease for one of three floors 29 25 TURN-08, Nahigian, p. 13.

28

negates the need to incur lease exist costs. Alternatively, TURN requests a funding adjustment to 1

benefit the ratepayers, by amortizing the lease exit as an expense ($1.67 million annually) from 2015 to 2

2017. 3

Table III-11 Rancho Cucamonga Lease Optimization


3. SCE’s Rebuttal to TURN 4 TURN mistakenly assumes that since SCE is only exiting two out of three floors covered 5

by the Rancho Cucamonga lease at the end of 2015, SCE will no longer have to incur capital lease exit 6

expenditures to restore the relinquished space. Although SCE plans to now extend the lease for a 7

portion of the space, SCE will still be exiting 144,000 square feet (out of the 234,000 square feet under 8

the original lease) and the restoration of the vacated space must be accomplished by the current lease 9

expiration date of April 29, 2015. SCE’s $5.0 million forecast was based on the planned exit of all 10

leased space at the Rancho Cucamonga facility. Given the updated plan, SCE has reduced its project 11

forecast by 33%. As a result of this post-filing change in project scope, SCE now requests funding for 12

this project in the amount of $3.3 million, rather than the original forecast of $5.0 million. 13

TURN’s inaccurately asserts that SCE’s 2015 lease cost forecast has not been adjusted to 14

reflect the reduction in space at Rancho Cucamonga. This assertion does not take into account SCE’s 15

contractual obligation to pay rent for the entire 234,000 square feet for the first 4 months of 2015 16

(through April 29, 2015). From approximately February 2015 to the lease expiration date on April 29, 17

2015, SCE will be carrying out the work necessary to fulfill the lease exit terms for the two floors which 18

SCE is exiting. After April 30, 2015, SCE will pay rent on approximately 90,000 square feet for the 19

remaining eight months of 2015. The rent saved by the reduction of leased space is roughly $2 million 20

in 2015 and those savings are reflected in CRE’s 2015 forecast for FERC Account 931. 21

TURN’s objection to rate base treatment for lease exit expenses is also misguided. 22

Capital treatment for salvage costs is a normal component of SCE’s capital projects. Facility space, 23

29

where improvements to the space have been capitalized, as in the case of Rancho Cucamonga, must be 1

restored just like transmission and distribution facilities and equipment. These lease exit costs are, 2

therefore, analogous to salvage or restoration costs and should be included as part of the capital 3

necessary for maintaining SCE’s facilities. TURN’s argument that restoring the building to pre-lease 4

conditions does not provide a tangible benefit to ratepayers is inapposite. SCE must incur the expense to 5

comply with the lease. SCE respectfully requests that the Commission reject TURN’s proposal and 6

adopt SCE’s adjusted forecast of $3.3 million. 7

J. Emergency Operation Center (EOC) 8 1. SCE Application 9

SCE is continually striving to enhance and refine its ability to respond to major disruptive 10

events, like severe storms or earthquakes, and restore service at a time when customers may need it the 11

most. In order to meet this challenge, CRE plans to construct a 20,000 square foot Emergency 12

Operations Center (EOC) and ancillary functions. The EOC must be capable of supporting 24 hours, 7 13

days a week operations, and the building must meet Uniform Building Code standards for “essential 14

facilities” and include additional upgrades to provide seismic quake resistance. The building of the EOC 15

enhances programs needed to operate and maintain critical infrastructure in response to emergencies of 16

varying scale and will benefit the ratepayers and the community through enhanced response to and 17

timely and efficient recovery from disasters. The EOC will need to withstand conceivable natural 18

disasters and to support and sustain SCE incident management teams will enable strong linkage and 19

interconnectivity of SCE’s internal communications systems during emergency events. SCE’s forecast 20

of the funding required for this project in 2015 is shown in Table III-12 below. 21

2. TURN Position 22 TURN recommends the Commission deny SCE’s EOC project and reduce its 2015 23

capital forecast by $5.0 million. TURN bases its recommendation on: (1) SCE already received funding 24

for the Pomona Transportation Services Department building which included a space for an emergency 25

operations command center in the 2012 GRC and (2) SCE spent $3.015 million in 2011 and 2012 for an 26

Emergency Operations Center at the Gateway facility in Irwindale. If the Commission approves this 27

EOC project, TURN recommends removal from rate base of the undepreciated portion of the $3.015 28

million spent from 2011 to 2012 on the Emergency Operations Center at the Gateway facility. 29

30

Table III-12 Emergency Operation Center


3. SCE’s Rebuttal to TURN 1 In its Application, SCE provided an extensive description of the disaster recovery 2

services that the EOC will facilitate to maintain and operate critical infrastructure and enhance SCE’s 3

ability to respond to and recover from emergency situations of various scales. SCE’s testimony also 4

describes the Emergency Operations Center at its Gateway facility and explains it was intended as an 5

interim solution while the EOC project was planned and completed. The existing Center at Gateway, 6

while providing a valuable service, occupies space in a pre-existing office building which is not built to 7

Uniform Building Code standards for “essential facilities”. An “essential facility” such as the EOC 8

needs to be designed to resist a major earthquake. SCE’s current EOC project will construct the EOC in 9

a facility designed to resist a major earthquake so that SCE will have the best chance of being able to 10

immediately initiate and control, on a 24/7 basis, the restoration of electrical service while coordinating 11

with other public and private agencies. 12

TURN also incorrectly contends that SCE received funding for an emergency operations 13

center in connection with the Pomona Transportation Services Department (TSD) Remodel since that 14

project included a space for “an emergency operations command center” in the 2012 GRC. However, a 15

review of SCE’s supporting testimony in the 2012 GRC clearly denotes that this feature of the Pomona 16

TSD Remodel was never intended to serve the same purpose as the EOC project presented here and, 17

instead, reflects an emergency communications center solely for SCE’s vehicle fleet.26 In contrast, the 18

26 TURN-18, YAP, Attachment 12 (A. 10-11-015, SCE-09, Vol. 3, p. 71 (“This command center will provide

centralized communications and direction for SCE’s vehicle fleet in the event of a widespread emergency or natural disaster.”)

31

interim Emergency Operations Center at Gateway and the current EOC project were both designed as a 1

company-wide emergency operations center.27 2

With regard to TURN’s objection to SCE having constructed the Emergency Operations 3

Center at Gateway, SCE maintains that, having concluded that enhanced emergency response 4

capabilities were needed, an interim solution that provided some of those capabilities while a more 5

permanent solution was studied, is a prudent investment on behalf of the ratepayers. Given the priority 6

to mitigate risk to public and ratepayers’ safety arising from emergency events and disasters, SCE felt it 7

was essential to construct an interim solution. Since its completion, the interim Emergency Operations 8

Center at Gateway has been activated to respond to six emergency events (including wild fire, 9

windstorm, substation fire, and water distribution issue on Catalina Island), has hosted 66 training 10

classes for SCE’s Incident Management Teams (IMT) and has been used for 33 IMT training exercises. 11

The space has also regularly used for meeting space, project planning and emergency preparedness 12

activities. However, given the need for a more seismic resistant and advanced facility, the funding for 13

the construction of the EOC has been requested. The interim Emergency Operation Center can be 14

converted into office space and continue to be utilized by SCE’s workforce after the EOC’s 15

construction. As the EOC project will enhance and support SCE’s ability to respond to a wide variety of 16

emergencies and disasters on behalf of ratepayers, SCE respectfully requests that the Commission adopt 17

SCE’s forecast for the EOC project. 18

K. Irwindale Business Center (IBC) Remodel Project 19 1. SCE Application 20

SCE’s Application Testimony described plans to move the Rancho Cucamonga call 21

center to IBC. The IBC was originally built to house call center operations and is, therefore, well suited 22

to house members of the Customer Service (CS) call center. This move is currently anticipated to occur 23

by the end of 2015. Once the IT organization vacates the IBC building, it will be necessary to remodel 24

and reconfigure the building for CS Customer Call Center space and furniture standards. SCE engaged 25

in very limited work when we initially purchased the IBC building because the needs of the Enterprise 26

Resource Planning (ERP) organization, which initially occupied the building, were met with a limited 27

27 A.10-11-05 (from SCE’s 2012 GRC), SCE-09, Vol. 3, p. 71, lines 17-19. (“In addition, we will earmark

space for an emergency operations command center. This command center will provide centralized communications and direction for SCE’s vehicle fleet in the event of a widespread emerge

Documents

Financial, Legal, and Operational Services (FL&OS) Volume ... · 16 facilities (in whole or in part) that occurred subsequent to filing SCE’s Application. SCE disputes SCE disputes