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

The Voice of Consumers, Making a Difference! 2 1. Purpose of a General Rate Case (GRC) 2. Main Components in GRC 3. Utility Rate Case Plans 4. GRC Filing Requirements 5. GRC Process and Schedule 6. Results of Operations 7. Resource Commitment 8. Forecasting Methods 9. Post Test Year Ratemaking (Attrition) 10. Natural Gas Proceedings 11. Summary of GRC Process 12. Reference Tables & Additional Background Overview

The Voice of Consumers, Making a Difference! 3 1. Purpose of a General Rate Case (GRC)  Examine a utility’s costs (excluding fuel and purchased power).  Water utilities costs include – purchase water, power, and pump taxes.  Set revenue requirement.  Recover forecast of future reasonable costs.  Ensure safe and reliable operation of the utility.

4 2. Main Components in Energy and Water Ratemaking  GRCs - Revenue Requirement: The total amount of money a utility collects from its customers.  Determines the size of the pie  Revenue Allocation and Rate Design: Allocating the revenue requirement to different customer classes and setting rates.  Determines how the pie is sliced The Voice of Consumers, Making a Difference!

Main Components in a Water GRC  9 Class A water utilities with a total of 58 districts, and a combined total of over 1.1 million service connections. Serves 6.5+ million Californians.  Legislative Mandate requires all large regulated (Class A) utilities to file a general rate case every three years.  Costs of Service are reviewed in individual General Rate Cases (GRCs) for each water service district.  Main Components of costs of service review include operation & maintenance, administrative & general, general office, taxes, payroll, and return on capital investments.  Total Revenue Requirement for Class A regulated water utilities is over $1.4 billion.  Water Supply Costs are a pass-through to ratepayers and tracked in balancing accounts.  Water Customer Bills consist of a monthly service charge and a usage-based charge. Components of Water Service Costs Includes Costs for all Water Utilities in The Voice of Consumers, Making a Difference!

6 What’s Not Included in a GRC  Cost of Capital (Rate of Return)  Conducted in a generic proceeding  Energy Exception: Included in Small Utility GRC’s  Water Exception: Valencia Water Company  Energy Efficiency Program Costs  Conducted in the EE Proceeding  Energy Exception: Included in Small Utility GRC’s  Fuel Costs and Purchase Power Agreements (Electric)  Conducted in the ERRA (Energy Resource Recovery Accounts) or Energy Cost Adjustment Clause (ECAC) Proceedings  Energy Exception: Also included in small electric utility GRCs  Rate Base Offsets (Water)  Submitted through Tier 2 or 3 Advice Letter The Voice of Consumers, Making a Difference! 6

7 3. Utility Rate Case Plan  Initially established in D and modified by D  Three year cycle for major energy utilities.  Some variances have been adopted The Voice of Consumers, Making a Difference! Energy: Water:  Initially established in D and modified by D  To develop schedules and facilitate the issuing of general rate case decisions

8 4. GRC Filing Requirements  Master data request (prepared by DRA)  Five years of historical data  Forecasts of future costs  Reference and support documentation  Notice of Intent (NOI)  Deficiency review / DRA approval The Voice of Consumers, Making a Difference!

GRC Filing Requirements  Minimum data required by Rate Case Plan.  DRA still requires a Supplemental Data Request (SDR)  Proposed Application is tendered, reviewed, and corrected before acceptance and Application filing.  Deficiency review conducted by DRA  SDR not part of deficiency review - Additional Water Requirements - 9 The Voice of Consumers, Making a Difference!

10 5. GRC Process and Schedule  Notice of Intent (NOI): Tendered, reviewed, corrected, and accepted  Application filed: ALJ assigned and schedule set (by Commissioner’s Scoping Memo)  One Year Schedule: After application is filed  Water: 14 to 20 months  Discovery Process  Filings: Reports filed, Hearings held, and Briefs submitted  Proposed Decision: Comments, Alternates, and Final Decision  Resources: Requires significant DRA commitment The Voice of Consumers, Making a Difference!

11 6. Results of Operations  Summarizes results of GRC-related financial activity attributed to a utility’s operations.  A summary of the Results of Operations is captured in the “Summary of Earnings” table.  See reference slides, p. 24 The Voice of Consumers, Making a Difference!

12 Results of Operations Components include:  Operating Revenues  Operating Expenses  Operation and Maintenance (O&M) Expenses  Distribution, Transmission (non-FERC), Utility Owned Generation (UOG)  Customer-related  Administrative & General (A&G)  Taxes  Franchise Fees & Uncollectibles  Depreciation / Salvage Value of Assets  Return on Investment (Return on Rate Base)  Rate Base – Net investment in facilities and equipment The Voice of Consumers, Making a Difference!

13  Leak Surveys and Repair Work  Distribution / Transmission Integrity Management Programs  Cathodic Protection  Control corrosion of steel pipes  Maintenance of Gas Facilities  Gas Pipeline Replacement  Gas Reliability Results of Operations - Gas Functions Within a GRC - The Voice of Consumers, Making a Difference!

14  Leak Surveys and Repair Work  Distribution / Transmission Pipeline Repairs and Replacement Management Programs (aging infrastructure)  Water Quality - Compliance with California Department of Public Health (CDPH)and EPA drinking water rules  Sources of Water Supply  Water Storage Needs  Conservation  Water Reliability Water Results of Operations - Water Functions Within a GRC - The Voice of Consumers, Making a Difference!

15 7. Resource Commitment  Typical GRC filing for Energy & Water  Approximately 30 functional areas / 100 sub-accounts  Numerous boxes of workpapers and supporting documentation  DRA Witnesses  DRA Resource Commitment : Energy  20 DRA staff analysts  3 to 4 attorneys  Management oversight  DRA Resource Commitment: Water  3 to17 DRA staff analysts depending on size of utility  1 to 2 attorneys  Management oversight The Voice of Consumers, Making a Difference!

16  Notice of Intent (NOI)  Ensure five years of historical data  Ensure requests have explanation / support / backup / breakdown  Check cross references  Identify reasons for increases  Issue deficiencies  Accepts NOI  Specific Utility Accounts / Sub-Accounts / Major Work Categories  Detailed review of utility testimony & workpapers  Obtain utility studies / reports / programs  Issue data requests / gathering data  Audit utility records  Phone conferences  Field investigations Resource Commitment: DRA Staff Analysis The Voice of Consumers, Making a Difference! 16

17 Resource Commitment: DRA Staff Analysis  Results of Operations Modeling: Energy  Run computer model to produce the “Summary of Earnings”  Dynamically-link Excel spreadsheets and files  Compare utility’s requested vs. DRA’s recommended revenue requirement  Sign non-disclosure agreement: Run alternate scenarios for ALJs and Commissioners  Results of Operations Modeling: Water  Water IOU RO models not as sophisticated as Energy  Non-disclosure requirement not invoked at this time The Voice of Consumers, Making a Difference!

18 8. Forecasting Methods  Historical Data (3 - 5 year data)  Latest Recorded Year  Budget based  Unit cost / Work units  Independent approach and analysis  Benchmarking / comparison to other utilities  Normalizing for variances  Ratemaking adjustments  Charitable Contributions  Promotions / Advertising  Lobbying  Executive Incentives  Supplemental Pension for Executives / Stock Options The Voice of Consumers, Making a Difference!

19 9. Post Test Year Ratemaking (Attrition) Energy:  Provides increases between rate cases  Prior to 1981  No Attrition  Low Inflation  Higher Customer Growth  Historic Attrition  Expense Escalation (Labor and Non-labor)  Average Plant Estimates  CPI Basis  Negotiated Water: IOUs have two test years for plant, two attrition years for expenses, one attrition year for plant. The Voice of Consumers, Making a Difference!

Natural Gas Proceedings  Biennial Cost Allocation Proceeding (BCAP)  Allocation of costs to customer classes  PG&E – Gas Transmission & Storage Rate Case  SoCalGas - Firm Access Rights (FAR)  Gas Procurement Incentive Mechanisms  Annual monitoring and evaluation report prepared by DRA  Storage  Expansions of existing storage facilities  Construction of new storage facilities  Gas Hedging The Voice of Consumers, Making a Difference!

Summary of GRC Process  Evaluation and Acceptance of NOI  Independent analysis and forecasts of Utility Request  Modeling results  Written reports, spreadsheets, testimony  Serving as expert witness under utility cross examination - DRA Work Products - The Voice of Consumers, Making a Difference!

22 Summary of GRC Process  PG&E: D ; D  Sempra - SDG&E and SoCalGas: D  Edison: D Recent GRC Decisions for Large Energy Utilities - The Voice of Consumers, Making a Difference!

23  NOI Tendered: July/August  Deficiency Review: 25 days after NOI  NOI Filed: October  Application Filed: December  Pre-Hearing Conference: January  DRA Reports: April/May  Rebuttal: May  Hearings: June  Briefs: July  Reply Briefs: August  PD / Alternate: November  Final Decision: December+ Summary of GRC Process - Typical GRC Timeline - The Voice of Consumers, Making a Difference!

12. Reference Tables & Additional Background The Voice of Consumers, Making a Difference! 24

25 PG&E Electric Distribution Summary of Earnings The Voice of Consumers, Making a Difference!

26 PG&E Electric Distribution Rate Base The Voice of Consumers, Making a Difference!

27 PG&E Electric Generation Summary of Earnings The Voice of Consumers, Making a Difference!

28 PG&E Electric Generation Rate Base The Voice of Consumers, Making a Difference!

29 Utility-Owned Generation  Nuclear  Diablo Canyon (PG&E)  SONGS (SCE and SDG&E)  Palo Verde (SCE)  Coal  Four Corners (SCE) CPUC-approved sale effective Oct 2012  Hydroelectric  Helms Pumped Storage (PG&E)  Small hydro plants throughout CA (PG&E and SCE)  Gas  Palomar (SDG&E)  Mountain View (SCE) The Voice of Consumers, Making a Difference!

Presenters Mark Pocta – Manager, DRA Energy Cost of Service Branch Danilo Sanchez – Manager, DRA Water Branch The Voice of Consumers, Making a Difference! 30