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1. Purpose of a General Rate Case (GRC)
2. Main Components in GRC
3. Utility Rate Case Plans
4. GRC Filing Requirements
5. GRC Process and Schedule
6. Results of Operations
7. Resource Commitment
8. Forecasting Methods
9. Post Test Year Ratemaking (Attrition)
10. Natural Gas Proceedings
11. Summary of GRC Process
12. Reference Tables & Additional Background
Overview
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1. Purpose of a General Rate Case (GRC)
Examine a utility’s costs (excluding fuel and purchased power).
Water utilities costs include – purchase water, power, and pump taxes.
Set revenue requirement.
Recover forecast of future reasonable costs.
Ensure safe and reliable operation of the utility.
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2. Main Components in Energy and Water Ratemaking
GRCs - Revenue Requirement: The total amount of money a utility collects from its customers. Determines the size of the pie
Revenue Allocation and Rate Design: Allocating the revenue requirement to different customer classes and setting rates. Determines how the pie is sliced
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Main Components in a Water GRC
9 Class A water utilities with a total of 58 districts, and a combined total of over 1.1 million service connections. Serves 6.5+ million Californians.
Legislative Mandate requires all large regulated (Class A) utilities to file a general rate case every three years.
Costs of Service are reviewed in individual General Rate Cases (GRCs) for each water service district.
Main Components of costs of service review include operation & maintenance, administrative & general, general office, taxes, payroll, and return on capital investments.
Total Revenue Requirement for Class A regulated water utilities is over $1.4 billion.
Water Supply Costs are a pass-through to ratepayers and tracked in balancing accounts.
Water Customer Bills consist of a monthly service charge and a usage-based charge.
Return on Rate Base
14%
Taxes & Payroll 17%
Operation &
Maintenance 6%
Water Supply 39%A&G & General Offi ce
23%
Components of Water Service Costs
Includes Costs for all Water Utilities in 2007
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What’s Not Included in a GRC
Cost of Capital (Rate of Return) Conducted in a generic proceeding Energy Exception: Included in Small Utility GRC’s Water Exception: Valencia Water Company
Energy Efficiency Program Costs Conducted in the EE Proceeding Energy Exception: Included in Small Utility GRC’s
Fuel Costs and Purchase Power Agreements (Electric) Conducted in the ERRA (Energy Resource Recovery Accounts)
or Energy Cost Adjustment Clause (ECAC) Proceedings Energy Exception: Also included in small electric utility GRCs
Rate Base Offsets (Water) Submitted through Tier 2 or 3 Advice Letter
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3. Utility Rate Case Plan
Initially established in D.89-01-040 and modified by D.07-07-004.
Three year cycle for major energy utilities. Some variances have been adopted
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Energy:
Water: Initially established in D.04-06-018 and
modified by D.07-05-062. To develop schedules and facilitate the issuing of
general rate case decisions
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4. GRC Filing Requirements
Master data request (prepared by DRA) Five years of historical data Forecasts of future costs Reference and support
documentation Notice of Intent (NOI)
Deficiency review / DRA approval
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GRC Filing Requirements
Minimum data required by Rate Case Plan. DRA still requires a Supplemental Data Request (SDR)
Proposed Application is tendered, reviewed, and corrected before acceptance and Application filing. Deficiency review conducted by DRA
SDR not part of deficiency review
- Additional Water Requirements -
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5. GRC Process and Schedule
Notice of Intent (NOI): Tendered, reviewed, corrected, and accepted
Application filed: ALJ assigned and schedule set (by Commissioner’s Scoping Memo)
One Year Schedule: After application is filed
Water: 14 to 20 months
Discovery Process
Filings: Reports filed, Hearings held, and Briefs submitted
Proposed Decision: Comments, Alternates, and Final Decision
Resources: Requires significant DRA commitment The Voice of Consumers, Making a Difference!
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6. Results of Operations
Summarizes results of GRC-related financial activity attributed to a utility’s operations.
A summary of the Results of Operations is captured in the “Summary of Earnings” table. See reference slides, p. 24
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Results of Operations
Components include:
Operating Revenues
Operating Expenses Operation and Maintenance (O&M) Expenses
Distribution, Transmission (non-FERC), Utility Owned Generation (UOG)
Customer-related Administrative & General (A&G) Taxes Franchise Fees & Uncollectibles Depreciation / Salvage Value of Assets Return on Investment (Return on Rate Base) Rate Base – Net investment in facilities and equipment
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Leak Surveys and Repair Work Distribution / Transmission Integrity Management
Programs Cathodic Protection
Control corrosion of steel pipes Maintenance of Gas Facilities Gas Pipeline Replacement Gas Reliability
Results of Operations
- Gas Functions Within a GRC -
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Leak Surveys and Repair Work
Distribution / Transmission Pipeline Repairs and Replacement Management Programs (aging infrastructure)
Water Quality - Compliance with California Department of Public Health (CDPH)and EPA drinking water rules
Sources of Water Supply
Water Storage Needs
Conservation
Water Reliability
Water Results of Operations
- Water Functions Within a GRC -
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7. Resource Commitment
Typical GRC filing for Energy & Water Approximately 30 functional areas / 100 sub-accounts Numerous boxes of workpapers and supporting
documentation 7-20+ DRA Witnesses
DRA Resource Commitment: Energy 20 DRA staff analysts 3 to 4 attorneys Management oversight
DRA Resource Commitment: Water 3 to17 DRA staff analysts depending on size of utility 1 to 2 attorneys Management oversight
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Notice of Intent (NOI) Ensure five years of historical data Ensure requests have explanation / support / backup / breakdown Check cross references Identify reasons for increases Issue deficiencies Accepts NOI
Specific Utility Accounts / Sub-Accounts / Major Work Categories Detailed review of utility testimony & workpapers Obtain utility studies / reports / programs Issue data requests / gathering data Audit utility records Phone conferences Field investigations
Resource Commitment: DRA Staff Analysis
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Resource Commitment: DRA Staff Analysis
Results of Operations Modeling: Energy Run computer model to produce
the “Summary of Earnings” Dynamically-link Excel
spreadsheets and files Compare utility’s requested
vs. DRA’s recommended revenue requirement
Sign non-disclosure agreement: Run alternate scenarios for ALJs and Commissioners
Results of Operations Modeling: Water Water IOU RO models not as sophisticated as Energy
Non-disclosure requirement not invoked at this time
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8. Forecasting Methods
Historical Data (3 - 5 year data) Latest Recorded Year Budget based Unit cost / Work units Independent approach and analysis Benchmarking / comparison to other utilities Normalizing for variances Ratemaking adjustments
Charitable Contributions Promotions / Advertising Lobbying Executive Incentives Supplemental Pension for
Executives / Stock Options
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9. Post Test Year Ratemaking (Attrition)
Energy: Provides increases between rate cases Prior to 1981
No Attrition Low Inflation Higher Customer Growth
Historic Attrition Expense Escalation (Labor and Non-labor) Average Plant Estimates
CPI Basis Negotiated
Water: IOUs have two test years for plant, two attrition years for expenses, one attrition year for plant.
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10. Natural Gas Proceedings
Biennial Cost Allocation Proceeding (BCAP) Allocation of costs to customer classes
PG&E – Gas Transmission & Storage Rate Case
SoCalGas - Firm Access Rights (FAR)
Gas Procurement Incentive Mechanisms Annual monitoring and evaluation report prepared by
DRA
Storage Expansions of existing storage facilities
Construction of new storage facilities
Gas Hedging
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11. Summary of GRC Process
Evaluation and Acceptance of NOI
Independent analysis and forecasts of Utility Request
Modeling results
Written reports, spreadsheets, testimony
Serving as expert witness under utility cross examination
- DRA Work Products -
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Summary of GRC Process
PG&E: D.11-05-018; D.07-03-044
Sempra - SDG&E and SoCalGas: D.08-07-046
Edison: D.09-03-025
- Recent GRC Decisions for Large Energy Utilities -
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NOI Tendered: July/August Deficiency Review: 25 days after NOI NOI Filed: October Application Filed: December Pre-Hearing Conference: January DRA Reports: April/May Rebuttal: May Hearings: June Briefs: July Reply Briefs: August PD / Alternate: November Final Decision: December+
Summary of GRC Process
- Typical GRC Timeline -
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PG&E Electric Distribution Summary of Earnings
P G & E 200 7 G e neral R ate C a se R es u lts o f O p erat io ns – Tes t Y e ar 2 00 7
E lec tr ic D istribu tion (Tho usa nd s o f D o lla rs )
L in e N o . D e s c rip tio n A d o pte d
R E VE N U E 1 G e n e ra l R a te C a se R e ve n ue $2 ,9 6 5 ,6 0 0 2 L e ss N o n -G e n e ra l R e ve nu e 9 0 ,0 2 7 3 R e ve n ue a t E ffe c tive R a te s $ 2 ,8 7 5,5 7 3
O P ER AT IN G E X PE N SE S 4 T ra nsm iss ion 72 6 5 D is tr ib u tio n 4 8 8 ,04 0 6 C u s to m e r A cco un ts 2 4 3 ,42 1 7 U n co lle c tib le s 7 ,6 5 5 8 C u s to m e r S erv ice s 3 ,3 7 3 9 A dm in is tra tive & G e n era l 3 3 7 ,79 5
1 0 F ran ch ise R e q u irem e n ts 2 2 ,4 4 9 1 1 O th e r A djus tm e n ts (3 32 ) 1 2 Su b to ta l Exp e n se s $1 ,1 0 3 ,1 2 7
T A X ES 1 3 P ro p e r ty 9 7 ,4 0 2 1 4 P a yro ll 3 7 ,4 0 9 1 5 B us ine ss 38 6 1 6 O th e r 10 8 1 7 S ta te C o rp . F ra nch is e 7 0 ,9 7 8 1 8 F e de ra l In co m e 3 0 6 ,02 4 1 9 T o ta l Ta xe s 5 1 2 ,30 8
2 0 D E PR E C IA T IO N 5 9 6 ,77 4 2 1 T o ta l O pe ra tin g E xp e ns es $2 ,2 1 2 ,2 1 0
2 2 N E T FO R R E T U R N 7 5 3 ,39 0
2 3 R AT E B A S E $8 ,5 7 2 ,3 5 9
R AT E O F R E T U R N 2 4 O n R a te B a se 8 .7 9% 2 5 O n E q u ity 1 1 .3 5%
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PG&E Electric Distribution Rate Base
PG&E 2007 General Rate Case Rate Base – Test Year 2007
Electric Distribution (Thousands of Dollars)
Line No. Description Adopted
WEIGHTED AVERAGE PLANT
1 Plant $16,807,749 2 Plant Held for Future Use 0 3 Total Weighted Average Plant $16,807,749
WORKING CAPITAL
4 Material and Supplies - Fuel 0 5 Material and Supplies - Other 29,880 6 Working Cash 53,941 7 Total Working Capital $83,821
ADJUSTMENTS FOR TAX REFORM ACT 8 Deferred Capitalized Interest 2,751 9 Deferred Vacation 22,661 10 Deferred CIAC Tax Effects 265,556 11 Total Adjustments $290,969
LESS DEDUCTIONS
12 Customer Advances 95,939 13 Accumulated Deferred Taxes - Fixed Assets 1,305,797 14 Accumulated Deferred Taxes - Other 0 15 Deferred ITC 55,854 16 Deferred Tax - Other 0 17 Total Deductions $1,457,590
18 DEPRECIATION RESERVE $7,152,589
19 TOTAL RATE BASE $8,572,359
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PG&E Electric Generation Summary of Earnings
P G & E 2 0 0 7 G e n e r a l R a te C a s e R e s u l ts o f O p e r a t io n s – T e s t Y e a r 2 0 0 7
E le c tr ic G e n e r a t io n (T h o u s a n d s o f D o l la rs )
L in e N o . D e s c rip tio n A d o p t ed
R E V E N U E
1 G e n e ral R ate C a s e R e v e n u e $ 1 ,0 19 ,7 5 5 2 L e s s N o n -G en e r a l R e v e n ue 1 ,3 5 1 3 R e v e n u e a t E ff ec t iv e R a te s $ 1 ,0 18 ,4 0 4 O P E R A T I N G E X P E N S E S
4 O th e r P r od u c t io n 4 45 ,0 1 8 5 T r a ns m is s io n 5 ,6 0 3 6 U nc o ll ec tib le s 2 ,6 3 2 7 A d m ini s tra t iv e a n d G e n e r al 1 82 ,4 4 9 8 F ra nc h is e R e q u ir e m en ts 7 ,7 1 9 9 A m or t iz a t io n 6 ,4 7 6
10 O th e r A d ju s tm e nts ( 17 9 ) 11 S u b to ta l E x p e n s e s $ 64 9 ,7 1 9
T A X E S 12 P ro p e r ty 24 ,5 1 8 13 P a y ro ll 21 ,4 8 5 14 B u s in e s s 2 2 2 15 O th e r 6 2 16 S ta te C o r p o ra t io n F r a n c h is e 12 ,2 9 8 17 F e d e ra l In c o m e 46 ,2 4 5 18 T o ta l T a x e s $ 10 4 ,8 3 0
19 D ep re c ia t io n 1 35 ,4 1 6 20 F o s s il D e c o m m is s io n in g ( 2 6,8 1 2 ) 21 N uc l ea r D e c o m m is s io ni ng 0 22 T o ta l O p e r at i ng E x pe n s e s $ 86 3 ,1 5 3
23 N e t f o r R e t u r n $ 15 6 ,6 0 3 24 R a te B a s e $ 1 ,7 81 ,8 8 6
R A T E O F R E T U R N 25 O n R a te B a s e 8 .79 % 26 O n E qu it y 1 1.3 5 %
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PG&E Electric Generation Rate Base
PG&E 2007 General Rate Case Rate Base - Test Year 2007
Electric Generation (Thousands of Dollars)
Line No. Description Adopted WEIGHTED AVERAGE PLANT 1 Plant $10,953,693 2 Plant Held for Future Use 0 3 Total Weighted Average Plant $10,953,693
WORKING CAPITAL 4 Material and Supplies – Fuel 831 5 Material and Supplies – Other 65,586 6 Working Cash 33,420 7 Total Working Capital $99,837
ADJUSTMENTS FOR TAX REFORM ACT 8 Deferred Capitalized Interest (1,054) 9 Deferred Vacation 11,769 10 Deferred CIAC Tax Effects 0 11 Total Adjustments $10,715
LESS DEDUCTIONS 12 Customer Advances 0 13 Accumulated Deferred Taxes – Defense (42,088) 14 Accumulated Deferred Taxes – Fixed Assets 333,670 15 Accumulated Deferred Taxes – Other 0 16 Deferred ITC 2,320 17 Deferred Tax – Other 0 18 Total Deductions $293,902
19 DEPRECIATION RESERVE $8,988,459
20 TOTAL RATE BASE $1,781,886
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Utility-Owned Generation
Nuclear Diablo Canyon (PG&E) SONGS (SCE and SDG&E) Palo Verde (SCE)
Coal Four Corners (SCE)
CPUC-approved sale effective Oct 2012
Hydroelectric Helms Pumped Storage (PG&E) Small hydro plants throughout CA
(PG&E and SCE)
Gas Palomar (SDG&E) Mountain View (SCE)
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Presenters
Mark Pocta – [email protected] Manager, DRA Energy Cost of Service Branch
Danilo Sanchez – [email protected] Manager, DRA Water Branch
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