Docket Exhibit Number Commissioner ALJ Witness : : : : : A.14-10-007/008 ORA-27 L. Randolph R. Lirag C. Lambert OFFICE OF RATEPAYER ADVOCATES CALIFORNIA PUBLIC UTILITIES COMMISSION Report on the Results of Operations for San Diego Gas & Electric Company Southern California Gas Company Test Year 2019 General Rate Case Depreciation San Francisco, California April 13, 2018 TABLE OF CONTENTS DEPRECIATION ................................................................................................... 1 I. INTRODUCTION ..................................................................................... 1 II. OVERVIEW OF REQUESTS ................................................................... 1 A. SDG&E ................................................................................................. 1 B. SoCalGas ............................................................................................. 2 III. SUMMARY OF RECOMMENDATIONS................................................... 2 A. SDG&E ................................................................................................. 2 B. SoCalGas ............................................................................................. 4 IV. TERMINOLOGY ...................................................................................... 4 V. BACKGROUND ....................................................................................... 5 PART I: SAN DIEGO GAS & ELECTRIC .............................................................. 8 I. AVERAGE SERVICE LIVES .................................................................... 8 A. Electric Production Plant ...................................................................... 8 1. Desert Star Energy Center (DSEC) .............................................. 8 2. Wind Energy Project (WEP)........................................................ 12 B. Electric Distribution Plant.................................................................... 13 1. Accounts E370.10 and E370.20 – Legacy Meters and Installations ................................................................................. 13 II. NET SALVAGE RATES ......................................................................... 15 A. Electric Distribution Plant.................................................................... 18 1. Account E365 – Overhead Conductors and Devices .................. 18 2. Account E366 – Underground Conduit ....................................... 18 3. Account E367 – Underground Conductors and Devices ............. 18 4. Account E368.2 – Capacitors ..................................................... 19 5. Account E371 – Installations on Customers’ Premises............... 20 6. Account E373.2 – Street Lighting and Signal Systems ............... 20 PART II: SOUTHERN CALIFORNIA GAS ......................................................... 22 WITNESS QUALIFICATIONS ............................................................................. 23 APPENDIX A - SDG&E and SoCalGas Depreciation Parameters APPENDIX B - Data Requests cited in Ex. ORA-27 i DEPRECIATION 1 2 I. INTRODUCTION 3 This exhibit presents the analyses and recommendations of the Office of 4 Ratepayer Advocates (ORA) regarding the Depreciation Expense and Reserve 5 proposals of San Diego Gas & Electric Company (SDG&E) and Southern California 6 Gas Company (SCG or SoCalGas) for Test Year (TY) 2019. 7 Depreciation is the ratemaking mechanism that allocates the original cost of 8 capital investments for recovery over the useful life of each asset. Depreciation 9 expense is related to the magnitude of the company’s plant-in-service. As new plant 10 is placed in service, the level of depreciation concomitantly increases. 11 For purposes of this exhibit, amortization refers to the analogous ratemaking 12 mechanism for non-depreciable plant, such as software and land rights. The 13 depreciation and amortization expenses and reserve balances for the test year are 14 calculated in the Results of Operations (RO) model, which incorporates estimated 15 expenses based on net plant addition forecasts and automatically calculates the 16 reserve requirement for the test year. 17 II. OVERVIEW OF REQUESTS 18 A. SDG&E 19 SDG&E proposes a TY 2019 depreciation expense of $560 million and a 1 20 depreciation reserve of $5.718 billion. These proposals include changes to the 21 average service lives and net salvage rates of various plant accounts. SDG&E’s 22 proposed net salvage forecast would increase by $1.456 billion (28%) over the life of 23 the assets, excluding additional net salvage associated with plant additions. 2 1 This Ex. SDGE-34-R, p. MCV-2 et seq. 2 Ex. SDG&E-34-WP-R “Depreciation Model Rates 2,” Tab “SDGE-34-WP-3,” Cell N154. These forecasted amounts are based upon SDG&E’s reported 2016 year-end recorded gross plant. These (continued on next page) 1 1 increase is driven by SDG&E’s proposals to lower various account-level net salvage 2 rates by 25%, consistent with Commission precedent that limits changes in net 3 salvage rates over a given general rate case (GRC) cycle. 3 4 B. SoCalGas 5 SoCalGas proposes a TY 2019 depreciation expense of $607 million and a 4 6 depreciation reserve of $8.08 billion. 7 average service lives and net salvage rates. In general, these proposals include 8 partially offsetting requests to extend certain average service lives and to increase 9 certain net salvage rates. SoCalGas’s proposed net salvage forecast would These proposals reflect changes to certain 10 increase by $405 million (5%) over the life of the assets, excluding additional net 11 salvage associated with plant additions. 12 III. 5 SUMMARY OF RECOMMENDATIONS 13 A. SDG&E 14 Table 27-1, below, provides a comparison of ORA’s recommended 15 parameters to SDG&E’s proposed parameters for those accounts with different 16 forecasts. 17 (continued from previous page) amounts are presented for reference, as the actual collection of pre-funded net salvage will vary with plant growth and authorized net salvage rates. 3 See discussion of gradualism in net salvage changes in D.14-08-032 at p. 598. 4 Ex. SCG-36-R, page FN-1. 5 Ex. SCG-36-WP-R, p. 3 et seq. These forecasted amounts are based upon SoCalGas’s reported 2016 year-end recorded gross plant. These amounts are presented for reference, as the actual collection of pre-funded net salvage will vary with plant growth and authorized net salvage rates. 2 1 2 3 Table 27-1 Comparison of ORA Recommended to SDG&E Proposed Depreciation Parameters Test Year 2019 SDG&E ORA SDG&E > Proposed Recommended ORA (a) (b) (c) = (a)–(b) Desert Star Energy Ctr. (DSEC) 5.5699% 4.2687% 1.3012% Wind Energy Projects (WEP) 10.3190% 5.9413% 4.3777% E370.10 (Legacy Meters) 5.3210% 2.0112% 3.3098% E370.20 (Legacy Meter Installs.) 5.2412% 2.0417% 3.1995% E365 (OH Cond. & Devices) (70)% (65)% (5)% E366 (UG Conduit) (75)% (65)% (10)% E367 (UG Cond. & Devices) (90)% (80)% (10)% E368.2 (Capacitors) (95)% (80)% (15)% E371 (Inst. On Cust. Premises) (106.25)% (65)% (41.25)% E373.2 (Street Lt. & Signal Sys.) (110)% (85)% (25)% Composite Depreciation Rate Net Salvage Rates 4 5 The following summarizes ORA’s recommendations regarding SDG&E’s depreciation proposals: 6 7 8 ORA opposes SDG&E’s proposed increase of the depreciation rate of the Desert Star Energy Center (DSEC). ORA recommends the Commission adopt a composite depreciation rate of 4.2687%; 9 10 11 ORA recommends maintaining the current survivor curve of SQ-20 for SDG&E’s Wind Energy Project (WEP), in contrast to SDG&E’s proposed survivor curve of S5-13; 12 13 14 15 ORA recommends maintaining the current survivor curve of R0.548 for Account 370.10 (Legacy Meters) and Account 370.20 (Legacy Meter Installations), in contrast to SDG&E’s proposed survivor curve of O2-19 5/12; 3 1 2 3 ORA recommends a net salvage rate of negative 65% for Account E365 (Overhead Conductors and Devices), in contrast to SDG&E’s proposed net salvage rate of negative 70%; 4 5 6 ORA recommends a net salvage rate of negative 65% for Account E366 (Underground Conduit), in contrast to SDG&E’s proposed net salvage rate of negative 75%; 7 8 9 ORA recommends a net salvage rate of negative 80% for Account E367 (Underground Conductors and Devices), in contrast to SDG&E’s proposed net salvage rate of negative 90%; 10 11 12 ORA recommends a net salvage rate of negative 80% for Account E368.2 (Capacitors), in contrast to SDG&E’s proposed net salvage rate of negative 95%. 13 14 15 ORA recommends a net salvage rate of negative 65% for Account E371 (Installations on Customers’ Premises), in contrast to SDG&E’s proposed net salvage rate of negative 106.25%. 16 17 18 19 ORA recommends maintaining the current net salvage rate of negative 85% for Account E373.20 (Street Lighting and Signal Systems), in contrast to SDG&E’s proposed net salvage rate of negative 110%. 20 B. SoCalGas 21 ORA has reviewed SoCalGas’s proposed depreciation and amortization 22 parameters. At this time, ORA does not take issue with SoCalGas’s proposed 23 parameters. Differences in ORA’s recommended depreciation and amortization 24 expenses and reserves follow from recommendations made by ORA’s capital 25 witnesses. 26 IV. 27 TERMINOLOGY In most instances, the cost of removal of plant exceeds its gross salvage 28 value. As a result, most net salvage rates are negative. However, some accounts 29 do exhibit positive net salvage rates. To avoid confusion, this exhibit defines words 30 such as “increased” or “greater” to reflect changes in absolute magnitude – that is, 31 distance from zero, whether positive or negative. When the parameter in question is 32 negative, ORA includes a clarifying parenthetical, such as, “The proposed net 33 salvage rate is higher (more negative).” 4 1 V. BACKGROUND 2 In general, a utility recovers both the original cost of a capital investment and 6 3 its end-of-life net salvage value by claiming annual depreciation accruals over the 4 useful life of the asset. This conventional ratemaking mechanism allocates the cost 5 of plant to ratepayers over its estimated useful life. Depreciation also provides for 6 the ongoing loss of an asset’s service value that cannot be avoided by maintenance. 7 Such loss may be caused by wear and tear, obsolescence, regulatory requirement, 8 or other factors. The FERC defines depreciation in 18 Code of Federal Regulations 9 (CFR), Part 101: 10 11 12 13 14 15 16 17 18 Depreciation, as applied to depreciable electric plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of electric plant in the course of service from causes which are known to be in current operation and against which the utility is not protected by insurance. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities. 19 The guidelines set forth in the Commission’s Standard Practice (SP) U-4, 20 Determination of Straight-Line Remaining Life Depreciation Accruals, establish the 21 following depreciation expense formula: 22 = − − 23 Where: 24 Original cost refers to the gross dollar value of plant in service; 25 26 Depreciation reserve refers to the account within which the annual depreciation expenses accumulate; 6 For purposes of this exhibit, depreciation includes the amortization of non-depreciable plant, such as land rights and software assets. 5 1 2 3 Net salvage refers to the gross salvage value of plant at the end of its life, less the cost of its removal. The level of depreciation expense is a function of the amount of plant in 4 service (i.e., recorded gross plant). The level of depreciation expense increases to 5 incorporate the depreciation of new plant that has been placed into service, and it 6 declines as plant is retired. The level of depreciation expense is also a function of 7 the depreciation parameters that a utility claims for each mass property account. 8 These parameters include an average service life, a survivor curve type, and a net 9 salvage rate. 7 9 8 These parameters inform the calculation of the expected remaining 10 life of plant. The company collects the total depreciable sum of the original cost of 11 plant and its future net salvage over this estimated remaining life. 12 Depreciation expenses do not escalate over time. Rather, depreciation 13 accruals are calculated in nominal terms, based upon depreciation rates adopted by 14 the Commission in each GRC. Depreciation rates remain in effect during the 15 pendency of each GRC cycle and apply to capital additions upon placement into 16 service. 17 The depreciation expense and reserve proposals of SDG&E and SoCalGas 18 incorporate the companies’ capital additions forecasts as well as their proposed 19 depreciation parameter changes. This exhibit addresses ORA’s analysis and 20 recommendations that pertain to the proposed depreciation parameters of SDG&E 21 and SoCalGas. This exhibit does not address differences in ORA’s recommended 22 capital additions from the forecasts of SDG&E and SoCalGas, although these 7 The average service life is the expected lifespan of a unit of plant at the time it is placed into service. It estimates the mean useful life achieved by plant, over which time it will become fully depreciated. 8 The survivor curve type is drawn from the commonly used Iowa curve system, which was developed at the Iowa Engineering Experiment Station of Iowa State University, based on observations of the retirement behavior of industrial property. The Iowa curves categorize plant according to the location of the modal age at retirement relative to the average age at retirement and to the dispersion of retirements around the mode. 9 Net salvage refers the difference of gross salvage value less cost of removal. A net salvage rate (percentage) is applied to the amount of plant in service to provide for any forecasted net salvage value in the calculation of the depreciation expense. 6 1 differences are responsible for a large share of differences in ORA’s recommended 2 depreciation expense and reserve amounts. 3 The Results of Operations (RO) Model incorporates the recommendations of 4 ORA’s capital additions witnesses, as well as the recommendations contained in this 5 exhibit. The RO Model supplies the summarized depreciation expense and reserve 6 amounts presented in this exhibit. 7 PART I: SAN DIEGO GAS & ELECTRIC 1 2 I. AVERAGE SERVICE LIVES A. Electric Production Plant 3 4 1. Desert Star Energy Center (DSEC) 5 SDG&E proposes to change the decommissioning date of the DSEC from 10 6 mid-2029 to mid-2026. This would reduce the remaining life of the DSEC by 3.17 7 years. SDG&E proposes to increase the composite depreciation rate of the DSEC 8 from 4.4094% to 5.5699% in order to re-allocate the original depreciation accruals of 9 those 3.17 years across the reduced remaining life of the DSEC and to incorporate a 10 new net salvage forecast. ORA accepts SDG&E’s net salvage forecast and the 11 proposed 3.17-year lifespan reduction of the DSEC but opposes the recovery of the 12 depreciation expenses for those 3.17 years. ORA recommends maintaining the 13 current life rate 14 in a composite depreciation rate of 4.2687%. 11 15 of the DSEC. Including SDG&E’s net salvage forecast, this results SDG&E states that its proposed lifespan reduction of 3.17 years is a 12 16 consequence of its 2017 “review of the DSEC lease.” 17 lease that SDG&E holds with the City of Boulder City, Nevada, provide for an 18 original lease period of twenty years, with the possibility of two consecutive five-year 19 extensions. 20 April 2027, assuming the invocation of both extensions. The lease also requires the 21 removal of most improvements within 180 days of the expiration of the lease. 22 SDG&E states that it would need to begin decommissioning activities by mid-2026 in 13 The terms of the DSEC site The lease became effective as of April 30, 1997, and will expire in 10 Ex. SDG&E-34, p. MCV-17, line 6. 11 “Life rate” refers to the difference of the depreciation rate and its net salvage component. 12 Ibid., line 4. 13 SDG&E response to data request ORA-SDGE-052-CL8, Attachment 1. 8 14 1 order to meet this deadline. 2 estimate depreciation parameters for the DSEC. 3 SDG&E has not previously used this timeline to In Resolution (Res.) E-4465, issued August 3, 2012, the Commission 4 approved SDG&E’s Advice Letter (AL) 2292-E, which provided updated depreciation 5 expenses and other revenue requirements for the purchase of the DSEC. However, 6 SDG&E did not use the site lease duration to estimate the remaining life of the 7 DSEC for purposes of its depreciation calculation. SDG&E confirms that “the 8 revenue requirements approved in Resolution E-4465 did not consider the lease 9 terms” with respect to the correct decommissioning date. 15 In using the incorrect 10 date, SDG&E utilized depreciation rates for the DSEC that were lower than they 11 should have been, relative to the actual remaining life of the DSEC. 12 The depreciation of the DSEC was specifically examined in the review of 13 Advice Letter (AL) 2292-E. Deloitte and Touche conducted an independent audit of 14 the balance sheet of the DSEC, which formed the basis of the Commission’s 15 approval of AL 2292-E. 16 computed using the straight-line method over the assets’ estimated original 17 composite useful life or the remaining term of the site lease, whichever is less 18 [emphasis added].” 19 description of the audit report. 20 practices of the plant’s previous owner, El Dorado Energy, LLC, which was then 21 wholly owned by Sempra Energy Power I: “The Company has determined that the 22 useful life of the asset to be [sic] the period from which the assets are placed into 16,17 18 The audit report specified that “[d]epreciation is Res. E-4465 acknowledged this specific finding in its 19 The audit report also noted the depreciation 14 SDG&E response to data request ORA-SDGE-052-CL8, Question 2(h). 15 Ibid., Question 2(g). 16 Res. E-4465, p. 19, Findings and Conclusions No. 17. 17 Ibid., Findings and Conclusions No. 19. 18 Deloitte & Touche LLP, El Dorado Energy, LLC (wholly owned subsidiary of Sempra Energy Power I) Balance Sheet as of September 30, 2011 and Independent Auditors’ Report, p. 4. 19 Res. E-4465, p. 12, citing to ibid. 9 1 service, to the date at which the lease agreement of the land on which the assets 2 are located terminates or cancels, or 27 years.” 3 depreciating the DSEC according to a 27-year lifespan, not a 30-year lifespan, due 4 to the lease terms. That 27-year lifespan corresponds to the period between mid- 5 2000, when the DSEC began commercial operation, and the correct lease expiration 6 date of mid-2027. 20 7 El Dorado Energy, LLC, was SDG&E currently utilizes depreciation rates for the DSEC that are based 8 upon the later date of mid-2029. It has used these depreciation rates ever since 9 assuming ownership of the DSEC in October 2011, for a total of six and one-half 10 years. During this time, SDG&E did not bring its mistaken depreciation parameters 11 to the attention of the Commission for rectification, despite opportunities to do so. 12 In its 2016 GRC, SDG&E submitted testimony arguing that “the end-life is forecasted 13 at 29 years of operation (i.e. 30 years less the final year needed for 14 decommissioning) and is currently set for the year 2029 using the SQ Iowa curve. 15 Because it is still early in its life cycle, not enough historical information is available 16 to deviate from this proposed end-life.” 17 various sources of historical information described in the previous paragraph, 18 including the terms of the DSEC site lease, the report of the independent auditor that 19 examined the balance sheet of the DSEC at the time of its sale to SDG&E, and the 20 depreciation practices of El Dorado Energy, LLC. 21 22 21 This position is inconsistent with the SDG&E failed to conduct basic due diligence in its purchase of a major asset, 22 the DSEC. During the subsequent six years, SDG&E failed to rectify its mistaken 23 depreciation rates. In this GRC, SDG&E offers the justification that it did not 24 correctly read the terms of the DSEC site lease until 2017. 23 20 Ibid., p. 4. 21 SDG&E response to data request ORA-SDGE-052-CL8, Question 2(e). 22 A.14-11-003, Ex. SDG&E-28-R, p. BJW-25, lines 18-21. 23 Ibid., Question 2(f). 10 1 ORA recommends that the Commission deny SDG&E the recovery of the 2 final 3.17 years of currently scheduled depreciation accruals. Ratepayers should not 3 bear the costs of SDG&E’s failure. Because ORA accepts the lifespan reduction of 4 3.17 years, ORA’s recommendation is to maintain the current composite life rate for 5 the DSEC and to adopt SDG&E’s proposed mid-2026 decommissioning date. As a 6 result, ratepayers will not fund the depreciation accruals that are currently scheduled 7 for the final 3.17 years of the (incorrect) DSEC lifespan. ORA estimates that this 8 amount comprises approximately $41.069 million in total, exclusive of net salvage. 9 24 For net salvage, ORA does not take issue with the net salvage allocations 10 presented in the decommissioning study conducted by Sargent & Lundy, LLC. 11 However, the study does not contemplate the reduction in remaining life by 3.17 12 years. To account for this, ORA recommends that the Commission reduce the 13 composite future net salvage rate for the DSEC from 2.8979% to 2.6714%. This will 14 recognize 3.17 years of escalation, based on an average annual rate of 2.6%. This 15 average annual rate is the average percentage change in the Labor O&M Index 16 proposed by SDG&E. 17 wages during the period from 1983 to 2017. 18 appropriateness of using labor escalation factors or nominal wage growth to proxy 19 net salvage, please see Part I: San Diego Gas & Electric, Section II (Net Salvage 20 Rates). 25 It is also the average change in nominal construction 26 21 For a discussion of the The currently authorized depreciation rate for the DSEC is 4.4094%. This 22 includes a life rate of 4.1587% and a composite net salvage rate of 6.0295%. ORA 23 recommends a composite depreciation rate for the DSEC of 4.2697%, which 24 25 $311,533,882 $ , $ , , , , , . % 3.17 = $41,069,298 Ex. SDGE-39, p. SRW-5, Table SRW-2. 26 Economic Research Division, Federal Reserve Bank of St. Louis, Series CES2000000008_PC1, “Average Hourly Earnings of Production and Nonsupervisory Employees: Construction, Percent Change from Year Ago, Annual, Seasonally Adjusted,” available at https://fred.stlouisfed.org. 11 1 incorporates the current composite life rate of 4.1587% and the updated composite 2 net salvage rate of 2.6714%. 3 2. Wind Energy Project (WEP) 4 SDG&E proposes to change the survivor curve for its Wind Energy Project 5 (WEP) from SQ-20 to S5-13. ORA recommends maintaining the current S5-13 6 survivor curve. SDG&E states that this will “align more closely with equipment- 7 failure curves suggestive of inherent risk potential,” and that the new curve “is 8 representative of a theoretical maximum life similar to that of the SQ-20,” the current 9 curve. 27 SDG&E’s proposal would result in a composite depreciation rate of 10 10.3190% compared to the currently authorized rate of 5.0322%. ORA recommends 11 5.9413%, which reflects the incorporation of SDG&E’s proposed net salvage rate 12 and the current life rate. 13 The current SQ-20 curve ascribes a minimum, average, and maximum life of 14 20 years to all units of plant. The “theoretical maximum life” is also the minimum 15 and average, as all units are ascribed the same lifespan. Square curves are 16 generally appropriate curves for assets that depreciate as one entire unit. By 17 proposing to switch to the S5 survivor curve type, SDG&E indicates that it does not 18 expect a 100% survival rate up to the average life and a 0% survival rate after this 19 age is reached. SDG&E clarifies that it adduces “equipment-failure curves” not to 20 invoke a specific survivor curve but rather to address the possibility of “life dispersion 21 (i.e. variance) around the mean (i.e. average service life).” 22 concern, interim retirement activity should be present for this account. However, 23 SDG&E has not demonstrated that there has been retirement activity for this 24 account. 28 29 If life dispersion is a The possibility of life dispersion is speculative at this time. SDG&E has 27 Ex. SDG&E-34-R, page MCV-20. 28 SDG&E response to data request ORA-SDG&E-005-CL8, Question 7. 29 Ex. SDG&E-34-WP, p. 44. 12 1 not provided evidence that its wind generation assets will be subject to significant life 2 dispersion, rather than retire as one discrete unit. 3 SDG&E also has not provided evidence that only the longest-lived wind 4 generation asset will reach 20 years, as suggested by SDG&E’s proposed S5-13 5 curve. SDG&E’s proposal would reduce the average lifespan of its wind facilities by 6 35%, from 20 years to 13 years. This would be a significant reduction. ORA 7 recommends that the current SQ-20 curve be retained. ORA does not oppose 8 SDG&E’s proposed net salvage rate of (15)%. Incorporating this net salvage rate, 9 ORA recommends a depreciation rate of 5.94% for the WEP. B. Electric Distribution Plant 10 11 12 1. Accounts E370.10 and E370.20 – Legacy Meters and Installations 13 SDG&E proposes to reduce the average service life for these two 30 14 subaccounts by nearly 29 years. The average annual accrual rates for these 15 accounts would more than double. The depreciation rate for Account E370.10 would 16 increase from 2.0112% to 5.3210%. The depreciation rate for Account E370.20 17 would increase from 2.0417% to 5.2412%. ORA recommends maintaining the 18 respective currently authorized depreciation rates for these two accounts. 19 SDG&E justifies its proposal with recourse to the observed life characteristics 20 of legacy meters that remain in service. After Smart Meter implementation, SDG&E 21 has a much smaller population of legacy meters. These assets serve customers 22 who elected to opt out of Smart Metering, as well as customers in rural areas where 23 Smart Meter deployment is not possible. SDG&E argues that this smaller asset 24 population will “hav[e] an expected decrease in necessary service life,” 25 though the technology of legacy meters has not changed over the course of Smart 31 30 Ex. SDG&E-34-R, p. MCV-24, at lines 18-27. 31 Ibid., line 25. 13 even 32 1 Meter implementation. SDG&E proposes to reduce the currently authorized 48- 2 year average service life by 60%. 3 In this case, the change proposed by SDG&E is premature and too large in 4 magnitude. It is possible that spillovers from Smart Meter implementation affected 5 the observed life characteristics of legacy meters. During Smart Meter 6 implementation, SDG&E provided a high level of attention to customer metering, 7 including for customers who ultimately retained service by legacy meters. SDG&E 8 states, “[a]s the roll-out [of Smart Meters] moved forward, it was discovered that 9 there were some areas in SDG&E’s more remote and rural service territory that 10 could not support the Smart Meter technology.” 11 33 If SDG&E’s attention uncovered an unusually high number of legacy meters 12 for proactive replacement, the result would appear in the depreciation study as a 13 drop in average lifespan. It would also appear in SDG&E’s plant records as a high 14 ratio of the dollar-weighted expectancy (remaining life) to the average service life. 15 For Account 370.10, SDG&E reports an expectancy of approximately 44 years, 16 compared to the currently authorized average service life of 48 years. 17 Account 370.20, SDG&E reports an expectancy of 46 years, compared to the 18 currently authorized average service life of 48 years. 19 proportion of plant in these two accounts was only recently placed into service. As 20 such, it is unlikely that the retirement activity reported for these accounts is 21 representative. It is unclear if the depreciation study’s conclusions reflect the long- 22 term conditions that extant legacy meters will face, or if the study reflects the short- 23 term spillover effects of Smart Meter implementation. 24 25 35 34 For This indicates that a large There is currently insufficient data to determine if the life characteristics of legacy meters have changed at all, let alone so significantly as to warrant a lifespan 32 SDG&E response to data request ORA-SDGE-005-CL8, Question 8(b). 33 Ibid., Question 8(a). 34 Ex. SDG&E-34-WP-R, p. 8. 35 Ibid. 14 1 reduction of 60%. Given the relatively small amount of plant in these accounts, ORA 2 does not recommend any change to the currently authorized parameters of these 3 accounts. ORA recommends that the issue be re-evaluated in a future GRC, when 4 more comprehensive data will be available, to determine if any change is 5 reasonable. 6 II. 7 NET SALVAGE RATES At its proposed net salvage rates, SDG&E’s total forecast of net salvage for 36 8 its 2016 recorded year-end plant would increase to $6.625 billion. This is an 9 increase of $1.456 billion, or 28%, from the current forecast of $5.169 billion. 10 Additional net salvage would accrue for new investments in plant. Of this amount, 11 SDG&E has already collected an accumulated balance of $1.205 billion. 12 remainder of $5.420 billion would be recovered from ratepayers through future 13 depreciation accruals. 37 14 The At the Federal Energy Regulatory Commission (FERC) account level, 15 SDG&E’s proposed future net salvage rates include some that are greater (more 16 negative) than the 15-year historical average. For those accounts, ORA 17 recommends that the Commission adopt lower (less negative) future net salvage 18 rates than those proposed by SDG&E. ORA’s recommendations are based upon a 19 rounding of the 15-year average net salvage rate of the given account. These 20 accounts are listed and described in more detail below. 21 22 Commission precedent endorses the 15-year historical net salvage rate as a reasonable basis for the calculation of net salvage rates, unless clear evidence 36 Ex. SDG&E-34-WP-R “Depreciation Model Rates 2,” Tab “SDGE-34-WP-3,” Cell N154. These forecasted amounts are based upon SDG&E’s reported 2016 year-end recorded gross plant. These amounts are presented for reference, as the actual collection of pre-funded net salvage will vary with plant growth and authorized net salvage rates. 37 SDG&E response to data request ORA-SDGE-052-CL8, Question 1 (b). 15 38 1 compels a deviation. The Commission’s reasoning is described in D.06-05-016: 2 averages that are calculated across a band of fewer years may be less reliable, as 3 the smaller amount of data may result in the overstatement of temporary trends. 4 Using the 15-year average rate permits the Commission to avoid unnecessary 5 ratepayer impacts by adopting conservative parameters, in recognition of the high 6 uncertainty that attends the forecasting of actual salvage values and costs of 7 removal that will not be realized until many years after these amounts are recovered 8 in rates. 39 9 SDG&E generally justifies its net salvage proposals in part with recourse to 40 10 the role of inflation. 11 unreasonable. SP U-4 elaborates upon the issue by noting labor costs as the 12 primary determinant of cost of removal, rather than changes in the price level. 13 SDG&E confirms that “removal cost is direct charged at today’s labor values.” 14 Cost of removal typically predominates in the calculation of net salvage, so inflation 15 in this context is better understood as shorthand for nominal wage growth rather 16 than changes in the general price level. This distinction between inflation and 17 nominal wage growth is important because the two are not perfectly correlated. 18 Nominal wage growth has historically been lower than inflation during periods of high 19 inflation. Inflation does not justify net salvage rates that may be 41 42 43 As a result, adducing inflation rather than nominal wage growth can 38 As of 2006, the Commission has considered and accepted the 15-year average net salvage rate for each of SDG&E, SoCalGas, Pacific Gas & Electric Company (PG&E), and Southern California Edison Company (SCE). See D.06-05-016 at 209. 39 D.06-05-016, p. 186 et seq. 40 Ex. SDG&E-34-R, p. MCV-6. 41 SP U-4, Chapter 4, Paragraph 7, and Chapter 7, Paragraph 4. 42 SDG&E response to data request ORA-SDG&E-005-CL8, Question 1. 43 See Economic Research Division, Federal Reserve Bank of St. Louis, Series CES2000000008_PC1, “Average Hourly Earnings of Production and Nonsupervisory Employees: Construction, Percent Change from Year Ago, Annual, Seasonally Adjusted,” for exemplary nominal wage growth variable, and U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; (continued on next page) 16 1 provide an inappropriate narrative justification for unreasonably high net salvage 2 rates. 3 For certain accounts, the 15-year average includes data that SDG&E 4 adjusted in order to “normalize” the observations, primarily by reducing or 5 redistributing removal costs. 6 following bases for its adjustments: 44 In response to a data request, SDG&E included the 7 “Recast of net salvage between concurrent years. 8 Adjustment to forecast rate based on linear regression analysis. 9 10 Adjustment to forecast net salvage rate as linear trend between two years. 11 12 Adjustment of net salvage rate to historical, 15-year, ten-year, or five-year average as calculated at the prior year. 13 14 Adjustment of net salvage rate to a previous or subsequent year’s rate. 15 Adjustment of net salvage rate down to next highest year’s rate. 16 Removal of negative net salvage and retirement data from study.” 17 When an adjustment extrapolates data for the most recent years, the 45 18 adjustment itself can cause the salvage study to depict worsening net salvage, 19 regardless of actual patterns of gross salvage and cost of removal. SDG&E’s 20 adjustments cast doubt on the quality of the salvage study’s conclusions regarding 21 these accounts. Where ORA’s account-level analyses identify an affected account 22 (below), ORA removes the adjusted data and provides alternative bases for its 23 recommendations. (continued from previous page) https://fred.stlouisfed.org/series/CPIAUCSL, for exemplary inflation index, both available at https://fred.stlouisfed.org. For a descriptive summary of the correlation, see Juan M. Sanchez, Research Division, Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/on-theeconomy/2015/november/relationship-between-wage-growth-inflation. Accessed January 29, 2018. 44 Ex. SDG&E-34-R, p. MCV-10, line 16 et seq. 45 SDG&E response to data request ORA-SDG&E-005-CL8, Question 3(b). 17 A. Electric Distribution Plant 1 2 1. Account E365 – Overhead Conductors and Devices 3 As shown below, the currently authorized net salvage rate is negative 70%, 4 and SDG&E proposes to maintain that rate for this GRC. The 15-year average net 5 salvage rate is negative 65.98%. 6 consistent with the 15-year average. 46 ORA recommends negative 65%, which is 15-year average Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -65.98% -70% -70% -65% 5% 7 2. Account E366 – Underground Conduit 8 As shown below, the currently authorized net salvage rate is negative 50%, 9 and SDG&E proposes a rate of negative 75% for this GRC. The 15-year average 47 10 net salvage rate is negative 63.09%. 11 consistent with the 15-year average. 12 13 ORA recommends negative 65%, which is 15-year average Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -63.09% -50% -75% -65% 10% 3. Account E367 – Underground Conductors and Devices 14 As shown below, the currently authorized net salvage rate is negative 65%, 15 and SDG&E proposes a rate of negative 90% for this GRC. The 15-year average 16 net salvage rate is negative 78.71%. 17 consistent with the 15-year average. 48 ORA recommends negative 80%, which is 18 46 Ex. SDG&E-34-WP-R “WP-281 Depreciation FNS 3,” Tab “E365.00.” 47 Ex. SDG&E-34-WP-R “WP-281 Depreciation FNS 3,” Tab “E366.00.” 48 SDG&E revised response to data request ORA-SDG&E-011-CL8, Question 1. 18 1 15-year average Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -78.71% -65% -90% -80% 10% 2 4. Account E368.2 – Capacitors 3 As shown below, the currently authorized net salvage rate is negative 70%, 4 and SDG&E proposes a rate of negative 95% for this GRC. ORA recommends 5 negative 80%, as described below. 6 This account includes adjustments that were extrapolated from previous 7 years’ data. SDG&E adjusts the observed 2015 and 2016 net salvage rates to 8 match the 2014 net salvage rate. The 2014 net salvage rate was an outlier; it was 9 44 percentage points higher (more negative) than the next-highest net salvage rate 10 in the 2002-2014 range. In response to discovery, SDG&E has explained that some 11 adjustments are necessary to address the timing differences of retirements and 12 costs of removal, 13 particular adjustment. ORA recommends that the net salvage rates for 2015 and 14 2016 be adjusted to match the average of the prior years (2002-2014). This 13-year 15 average (2002-2014) was negative 78.89%. 16 which is consistent with both the 13-year average (2002-2014) and the unadjusted 17 15-year average. 49 but SDG&E has not demonstrated the reasonableness of this 50 ORA recommends negative 80%, 15-year average 13-year average Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -80.63% -78.89% -70% -95% -80% 15% 18 49 SDG&E response to data request ORA-SDG&E-005-CL8, Question 3(a). 50 Ex. SDG&E-34-WP-R “WP-281 Depreciation FNS 3,” Tab “E368.20.” 19 1 2 5. Account E371 – Installations on Customers’ Premises 3 As shown below, the currently authorized net salvage rate is negative 90%, 4 and SDG&E proposes a rate of negative 106.25% for this GRC. ORA recommends 5 negative 65%, as described below. 6 This account includes adjustments that were extrapolated from previous 7 years’ data. SDG&E adjusts the observed rates for years 2012-2016 to match the 8 previous linear regression beta (trend) for years 2002-2011 of 7.51 percentage 9 points (decreased) per year. Some adjustments are necessary to address the timing 10 differences of retirements and costs of removal, but SDG&E has not demonstrated 11 the reasonableness of this particular adjustment. The data do not evince a clear 12 trend that would support extrapolation by linear regression. ORA recommends that 13 the net salvage rates for the affected years (2012-2016) be adjusted to match the 14 average of the prior years (2002-2011). This 10-year average (2002-2011) was 15 negative 62.56%. 16 10-year average (2002-2011). Negative 65% is also a reasonable approximation of 17 the unadjusted 15-year average. 51 ORA recommends negative 65%, which is consistent with the 15-year average 10-year average (2002-2011) Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -72.08% -62.56% -90% -106.25% -65% 41.25% 18 6. Account E373.2 – Street Lighting and Signal Systems 19 As shown below, the currently authorized net salvage rate is negative 85%, 20 and SDG&E proposes a rate of negative 110% for this GRC. ORA recommends 21 negative 85%, as described below. 22 This account includes adjustments that were extrapolated from previous 23 years’ data. SDG&E adjusts the rates for years 2012-2016 to match the previous 24 linear regression beta (trend) for years 2002-2011 of 11.57 percentage points 51 Ex. SDG&E-34-WP-R “WP-281 Depreciation FNS 3,” Tab “E371.00.” 20 1 (decreased) per year. Some adjustments are necessary to address the timing 2 differences of retirements and costs of removal, but SDG&E has not demonstrated 3 the reasonableness of this particular adjustment. The data do not evince a clear 4 trend that would support extrapolation by linear regression. ORA recommends that 5 the net salvage rates for the affected years (2012-2016) by adjusted to match the 6 average of the prior years (2002-2011). This 10-year average (2002-2011) was 7 negative 84.54%. 8 negative 85%, which is consistent with the 10-year average (2002-2011). 52 ORA recommends no change to the current parameter of 15-year average 10-year average (2002-2011) Current SDG&E proposal ORA recommendation Amount SDG&E>ORA -97.59% -84.54% -85% -110% -85% 25% 9 10 52 Ex. SDG&E-34-WP-R “WP-281 Depreciation FNS 3,” Tab “E373.20.” 21 PART II: SOUTHERN CALIFORNIA GAS 1 2 At its proposed net salvage rates, SoCalGas’s total forecast of net salvage for 53 3 its 2016 recorded year-end plant would increase to $8.545 billion. 4 increase of $0.405 billion, or 5%, from the current forecast of $8.140 billion. 5 Additional net salvage would accrue for new investments in plant. Of this amount, 6 SoCalGas has already collected an accumulated balance of $2.130 billion. 7 remainder of $6.415 billion would be recovered from ratepayers by means of future 8 depreciation accruals. 9 This is an 54 The SoCalGas proposes changes to a number of average service lives and net 10 salvage rates. In total, these proposals account for approximately 5% of the overall 11 proposed increase in SoCalGas’s depreciation expense. Most of the proposed 12 increase is due to plant growth. ORA has reviewed the proposed parameter 13 changes and has no proposed adjustments. 53 Ex. SCG-36-WP-R, p. 3 et seq. These forecasted amounts are based upon SoCalGas’s reported 2016 year-end recorded gross plant. These amounts are presented for reference, as the actual collection of pre-funded net salvage will vary with plant growth and authorized net salvage rates. 54 SoCalGas response to data request ORA-SCG-061-CL8, Question 2. 22 WITNESS QUALIFICATIONS 1 2 My name is Christian F. Lambert. My business address is 505 Van Ness 3 Avenue, San Francisco, California. I am employed by the Office of Ratepayer 4 Advocates (ORA) as a Public Utilities Regulatory Analyst in the Energy Cost of 5 Service and Natural Gas Branch. 6 I received a Master of Public Policy degree from the University of California- 7 Berkeley and a Bachelor of Science in Foreign Service degree from Georgetown 8 University. 9 Since joining ORA in 2017, I have worked on: Application (A.) 17-05-004, the 10 Bear Valley Electric Service 2018 General Rate Case, where I was responsible for 11 analyzing depreciation; and A.17-05-008, SDG&E’s Mobilehome Park Utility 12 Upgrade Program application, where I was responsible for analyzing SDG&E’s 13 proposed program modifications. Prior to joining ORA, I worked on energy and 14 environmental policy issues for local governments and policy think tanks while 15 earning a graduate degree. I was a graduate student assistant with the California 16 Public Utilities Commission’s Energy Division in 2015. 17 This completes my prepared testimony. 23 APPENDIX A - AND SOCALGAS DEPRECIATION PARAMETERS 24 mm whwuwemhmn? M?mvn?m Depredetlnn Aueunt [Al Fum 31 E11 {mptf Eemmnn IT Hardware ?-lmpw-Dther [391.1115th Pu 111 E1 Eq?Dther [392.11] - Trans Eq - Autos. [392.20-Tn3n5prtn Eq-Tra'rFer [392.3B-Tr5n5prtn Eq-Aviaticln 13?51310-5111113 E11 nip-[11113 5394.11?Pnrtah1e Tours-other 533411-5'1955995 - 911191 [394.31?Gar53e Equip Other 111115th E11 -Dther 13523545511111.1111 E11 uip -Dther 5395.15911115: Equip - 1:111:51 Eemrnen TAHGIBLE PLMIT and mpr119-[PEP 13341139435131 Hulders FEETCPEW -E?i?W?ime 53155111155555.1119 59.15.?? 5345591515: 1251121121111 E: {5515' Eurarnne Peel: Energy F?I'ant E311.DD-Struct and Imprev -D SEE Eurrent Degeela?en Parameters mm* 55-51 5 1-34] 55-13 511-111 _1.111 L919 52.5-23 11.5;35 53-19 55-25 55-13 5115-13 111 15-2522 111 Id 21122 @7551?- 111 15-2522 111 15-2112 2_ 1n 15-21122 rrI Iii-2029 Hete' Expectanev' 51115115 {Cl - 1 21'12 24.455155 - 1 2112 24.455155 [15.511151 15.51111. 21 314 - 9 115. - 5 2112 3.323215 5.529915 . - 111 114 5.2115215 - 11 115 2.1125215 - 15 113 4.295215 .11'3. 32333355 - 12 113 5.921515 - 12 115 4.353215 "2.552515? - 2 11112 5.994515 '11} 115 [9-112151 4.555215 15 5112 {5.311151 15 114 5.4421115 "111511151 {195553 155.055". . [2.1111151 111 112 2.1154415 a - 111 11_2_ #5255915 111 112 {190953 12-1.1.1. - 111 112 2.1538511 5.922055 {11.35151 15 112 5.9311115 {5.1111151 12 112 4.5951115 Pregnsed Deprecletlnn Para-meta: l? Curve-ASL 511515 511-5 - 1 112 - 1 112 511.941 11112 [15.111115] 511?15 3.2315 23731.13. 511-23 - - 511-5 21.111115 - 511123 4 114 511-23 - 15 2112 15.51:29 1.11.1? 511-21 - 13 112 511-25 - 12 314 551-13 - ?2?1'1'112 551-14 1.51115 9 1112 35 5112 9 .1112 2 .2112 5515? 111' IDI - {31' 511511. - {El 25.325451: - - 25325-151: - Pregnant] 121111535 Btu-1:145:11: In} [1112} [11'12] 9515* {ll-IE1 1.3593511 1.3593511 1.542515 1111112 5.5515 5.422215 - 3.2315 35-23% 11.5-5131 3 - 5 5.3255115 '4 - 4.5513515 - - 51141592 1.53.. 5.359315 2 - 4.154515 1 - 2352515 - - 5-519515 '1 [9.51115] [5.5315] 25 114 [5.3215] 23 113 mid-1112? [211.5515] 111 112 21151-21121 15.2515] "111 112 - mid-.1113? .3.-- .. 3 mid-21322 [111.4515] 15 112 191111.031- 115-5551 .59 11111 H1 - 11'2 4.1112415 3.1915 14 213 111111 [111 1141 [5 111121 13141 113.753! 1 115 5.1.11 [1 11121 5 515 [1.4255151 [5.3522151 [5.2552151 3.295315 5.255515 1555331- [5.5525151 19-19955}. 1.5251115 [9.5213151 5.253251: 2.9451?: 5 1112 [5.5935151 9255215 - [19.5515] 2 414115 - [3.2515] 5.255915 - - 3.115956 - [9-9515] 111.111 [1.3592515 1.121.115 - 117131511 6.922055 - - [4.22151 19 112 rum-2525 [12.21115] 9 113 2.345515 [4.3515] 5.255515 [31151 [521115] {3 11551 1.395215 0.415555 2.103556 E311.BD-Bniter Plant Equip-DEB: "53'141115'1125?55255 15151? 111111-9555 Elect _Eq Fewer Pint Eg' 5341119511511 and 11555 Holders PEA 53531151111512 11555153151551: 51.121.115.159 E1551. 59.113.551.11 Power P1n1._Eq_ Desert Star Energy Center Imprev -.Mi15ma.r -Mir5m5lr [1151:5955 mid-21129 mid-21129 and-21129? mid-21329 1511:5555 mid-1.111 5111:1111 mid-1.111 15-21132 mid -21132 1511111151 - 15:09.51 . 13-03953- [5.115151 12 112 4.499315 5.252515 1411111 I 5.259215 4.192515 5.5211315 4.1115315 511535.55. 4.1112515 112 12312 12 112 12 112 [5.115151 12 112 155151" 15.111111 [5.511151 155.5353. 151111111 [5.113151 12 112 44119415 1.150111. {2.011111 _15 112 15 11% 4.4311415 4.4521115 mid-1132 5 515321325 mid-21325 4151"? mid-2525 mid-21325 1515'9'21325 - 1111121325 [5.51115]. 9 mid-1015. .. _9 9 -5551.- [12.51115} 11.1111] [35.5915] 9 113 [29.115151 .5. .315.- .9 113 9 113 mid-21125 - mid-25132 19111-21332 12.111151 1.1 111 1.1. 112 26 9 113 5.559515 1.13.1151 2.255515 [3 1151 5.555515 115: .5355. 11 1151 12.1115] . 13.1515}. [3 1151 5.111115 [31151 5.5515 13.1.19} 235.521 [3 1151 5.111115 . [IE-mi 3 10.2355?? 14111.11 5.5121115 4.9115515 4.511515 4.2315515. 1.3.1.111 11 1141 1.3 11111 11.1.15! 11 1141 11.1.1111- 11 1151 [3 1.151 [3 11151 [3 11551 1.4321155 2355515" 11111.15 1.3322515 5.072355 1141.511 . .-. .. 5.5113515 11.215215 3.1355 5355195 4.5591115 - 15-3055} 1113551} [3 1151 1.1541555 11.435215 11.555915 Depredatlnn Atcnunt Current Parameters mm? l?l IEI Expectanwl ?air [Ell Pmpased Depreclutlnn Parameter: Experiment FHSH ASL - (Ell 1 Rate (Hll [llI FHSH {El - (Cl mange mm: - 9919? [ll - (Ell E343.m?Prime Mmers?eramar 1395111131115 9199' E11 -l'9'l r'arna; Ppwer le. Eq -Mirarnar Miramar Energy till-0959999999 91999 19199991 E9999 1999991 Elem Eq -Falumar .9119-9999'99 11911971999399 Haldersjl A?Palpmar Movers-Palomar Elect Eq-Palnrnar 'in'er Fln1Eq 453mm 3r Palmer Energy center - 51mm 3: Impw - Solar - Fuel Helders - Salar _mid-2939 mid-11132 1_5_ _112 4.053055 7911-1515 11191-2932 mid-2932 mid-1:135 mid-2939 mid-2036 mid?1035 mid?2035 mid-2939 99-196 {9.99991 {2.99991 15 112 1.5. 151 15 112 {911?199 5.392999 {9.52991 15 112 4.3290% {19.99991 99919:? {2.9999 {2.90993 {3.99991 "11.9999 19.0999 112 19.112. 9359.999 .. 1929999 - 1?1 1.5238519 3.435056- 4.1?5459. 1.552111. . mid-2031 - 9991-931 mid-313.31 Id-l?ill .i 101%]- {1.2499} 4E3999 - - 12.5 1991' 9.2999 15 112 4.992999'_ - 92.91219 f. - 5.301331": 15 112 15 112 1.9 112 {9.9499991 [1.3399] Wild-21135 94391 1919132939 13.2499] mid-11335 19.4599] 1 9291. 9.4991 15 112 4.391299 [9.9199] 0.351159 19 112 3.912999 - 1.9 912 932229.. - 9-2999 19 9:911. 3.499499 - 1.5599 4.939999 2.9499 19 112 13.9299} 19'_ 1119499} 14.17159 19 112 19 112 33533-1? . 3.229399 - 192929.91 9296999 1.9991291 {9.9299991 9.195599 9.991999. 91?19-2959 mid-2939 {9.59991 E12939 50:25 1'9 {2.99_99: 19 112 '19 112 3.49999 4.515999 {4.25991 19 113 3.595355 mid-2939 - 19 112 3.392999 - 19.3599} 19 112 3.252199 - 19111 4.51599 - 14125 13-15- 19 11'? 3.51.7396. 11.! {9.9219993 {9.323399} 11'5 19.129599]: Mwers Sula-r Snlar . [3945.11] - Eq_- Solar Solar Energy Prajem ?341.11] - 51 ruct E: Impnr - Wind 1291.9 +19 Holden -md. - Prime Movers E34410 - Generators - Wind 13475279495959 92929 3199.93" 1349.29 - 995d Eq - 99999 Energy Prniects Steam Other Production Beetrl: and Imnrau. E??ll??Statlun Equip-Other - 59193119 19919919993999 9 999 [and Bell: 59-25 591-15? 511-15 511-25 511-23 59-29 59-39 59-29 99-29 I911429 591-29 REE-63 FILE-51 19. 114 19 2112 3.429299 7 3.9556513 19 1112 19 112 5.932299 19 112 5.031255- {9.22991 {2.29991 {4.49991 (125.9999: (125.9999: 12 112 19 1112 19 314 43?115 99 119 159-59 99-592 99.595 999-9999 {2.919999 . l3 39 4? .13 4.049555. 43110519 41132395- 3.361015- 931?5 13-25 211.5 13-25 4.233499 - 4.911299__ - 19 1.13 19 314 11 116 9.259299 9.959199 19 119 4.232599 - l7l_ -99. .lYl. . Fl 9 1112? 1113199299__ 1112 El. 0.7533315 5.2358515- 9 11'2 1&3 191155 5.255399 [3.1999] [2.1999] [2.9999] $92 5112 915?53 112 [145.9999] [145.9999] 35399 GETS-E 1.?359 19 2112 15 114 1511112 4.312999 4.342999 4.322299 4911112 4.132299 :21_12} 42 314 4.94999 2112 [29;9999] [29.9999]_ 71933593119 - 9.192299. . 9.991.699 nd Banduit 9353 {59.9999} 42 119 2.525356 {1129999} 9999-99991 129.9999} 9593.1?. 99-599 219. 91991112 9 12.199199 15.9999]~ 149. 11.3 3-5151? . 1313. 15?1-3111? 4 313?- 125.9999] 44. 314 3.932499 2 213' 111112] ?515} :51'6} 1 213 2 15112 .1121? 2 2112 252599 0.325599 0.194959 9.221299 9.199499 {9.199991 {9.192499} 93-59-213 125.9999} I Deprudatlnn Anna-uni current Depreclatlnn Parameters mwm' 215544 Expemnq' 5.5.- Cur-4541* {El In} 55:44 Expectanq? 13610441513513er [and E: D512 Transfunngs 44444444444444 . [3133245351555 Overhead [36910-535555 Underground 5545 [55.5544] 31?1232 15.5-34 [25.5544] 25 2212 . 1414' {44344943. 9. 124. 555-55 [115.5544] 45 123 54-53 3.3541945. 333-49 5.518995 LBS-34 12'3 1452444. . 44.14 .124. 3.4324444545442112 2.953095 Prapaied Depreclann Parameter: 5515* 451? - [Bl Planned Change FREE {El - (CI (HI - 5555* - (Ell [55.5544] 34 11212 3.323595 4 [5.4551 3 324 5.3444? 24:44: .4 524' . 45 2212 [155.5544] 32 5212 144-4441. 144.4441 [132.5544] 532?5344 _123 4.5547 .44 3.255544 3 2212' [44-4444 54.4445. 52.4444] 44 5.555444- 1350.754. 43331.3: 3.459694: 2 12E (1.495594 35 124 L555 125 55.545 2.511244 15223 5.321544 {25 2212] [25.5544] 4444-4514445 .144444444 54355 [25.5544] - 44 1212 52-155212 512-15 - 5 525 5.213544 445-15 144-444 . - 44414.44. [ii-14.4212. 55?15 - 5.555444 {ust F_rern 5 525 .1141? - 45 122 53.139?! . . 5.1341194 - {2.3 34.1.2}. 1.355344 35125 HIDE-34 {90.00943 3.043395- 01-40 [155.2544] 35 5212 1.330996 [15.2544] [22 5212] 444. 12.14] 32 5212 2 122 3339395 313944.. [5.355144] [5.212444] Sanl 5'25 Ebechll: 3444444545 and Improv- Eq-TrailE-I E393.1?I?5t5r55 Equlp.-Dther L535 [55.5544] 4.515144 [25.5344] 3.525544 25 5212 35 223 9114.? 2.2193494 REE-51 4.425495. 1.3301945. SCI-25 {10-99553 17 L522 - 55:35. ?1i'123? 2_ 125 44947147444344'4464?444444 4294-4445445 444.44.414.44 E393.10?1.5l15r545w Eqr?ther . 33345754: _5_~2212_ 2.525344 551-24 15 2212 4.545544 551-25 5522 - F4435 - 14?324 [39110?435211 mu 5. Equip-Other [115.5544] 25 223 [55.5544] 35 1.23 12 1.23 1'21 12 ?324 - .5. .144 - 12 2212 35 5212 4.954996 .4 4.330396. 1.555444 12 [5.5544] [15.5544] 3 124 2 223 -44 444 4.415496. - 4424244 1 {1.3435 [1.335396 [1.254395 [1.154344] 3.555544 3.234544 5.155244 {55.5544] 2?2? 2212 4.553444 525-3411212 [25.5544] 25 11213 4 11212 [25.5544] I3. 34119.. 4 33 13959539 5.522544 0.131391:- [39110?435211 mu 5. Equip.?5WF 53525555512554. 55515?554]. ?397. 255551 Tali-5525 .4455154444'4444 4.4-5 Equip. - 515551: General ELECTRIETANEIELE PLANT 52?35 [55.5544] 14 5212 4.255544 525-3411212 52?35 - 25 3.151544 52.534 11212 41-42 154-4451 44. 124 L4-15 - 13 124 54514 2212 4.551244. {325-3411212 [25.5544] 12 324 [25.5544] 35 324 245-44441 14 1211. - 11 525 5.353244 4 11212 5.112544 _4 11212 5.555444 4 11212 5.555344 5212] 1244441 44m}. 3 123 4 324?1.545544 4 525 [1 5212] 444.4244 424254- [35.5144] 21 5212 4.532244 [55.5244] 32 124 3.555444 [15.5544] ..5 [55.5144] 25 2212 [25.2244] 34 2212 4.523495 4. 141494: [15.5544] 12134395] 5 12 [15.4544] 2123 El 1195196 [11531395 Distrih Stars Eu: Shrug: ES?EpD?tyq? and Land Imp. 5352.555141ns 54-21] - 11 - 11 2212 2212 4.533394 4.533396 ?53-?34- - 19 121.2. . . 2.233544. 5445 [25.5544] 32 1212 . . . 33:53. 2.552244 133-64 Stain Eq E3EE.DB-M555 1355 5mm Eq - 11 2212 4.633394: - 11 2212 4.633394: [14-4441 .44. 4.4 [444441 51 44 19 2.255544 15' [45-5934]. [5.5544] 4144 FILE-51 54-35 {5445] 14_124_ 1.5.254 53-31 [5-5544] 154441 554 [15.5544] 1.552544 25 1.515344 25 .15 .3254 15 125 15 22 [5.452344] 552 144] [5.255544] [5.0095] 25 1212 [5.555544] Ei?p?-?ther Eqpipment Ea: E: Imp 12 1212 1.515144 511-22 - 25 122 3.542544 [15.5544] 22 123 2.515544 53-44 - 7 12'! - SID-44 [55.5544] 54_125 2.552244 32 125 [15.5544] 4.223344 22 2212 [32.5244] 45 223 [1454441 15 123 1.553996. 2.553544 [15.5544] [3 11212] 1.0?5496 [15.2244] 15 123 2 525 [5.545544] SEEM-M555 31 Reg Slam Eq Iii-4? {25.0096} 35 324 2.250994 332-52 5355.5555r4ice4 Ecl?eglulamyrr 5351.55.541424-54345455555 535255544142 5. 54311115514 9:531 1.5.1.1411 551-15 - 5 122 1.3933474? ?52-52 44544.", 444:5 43-44 - B. 221.4 5 525 . - 19542515.. . [35.5544] 23 5212 3.525344 L2-351212 AV 23122 [225544] 1.593395. 5 4 11212 13325544 "2 2.144144 [123] 5.553244 3 455544 1212 7.5095 3 3212 44 [5.245544] {5.332 244] Acnuunt current mwm? IEI 111511 Expectanw' 1111:? 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Equipment Ea: I General GAS TAHGIBLE PLANT TAHEIBLE PLANT 512-15 "513-211 111} 111' ?3:115 1521 1113-24 'u-11I 2212 5.536355 1112115 Enl? ?145355 2 211 - 111. 1,14 4.1911111 111 1,112 .314. 2 213 111-11111 . 11211111 13.825353 51115 ?1125-19 11 2112 15 115 5.922556 5.519130% . 115534112 .1 .. 11_ 1.2225111 111-1111112 213-15 511211 112-25 511-21 511-23 511-23 5121-12 50:15 5517.1? {42.15111 {42.13111 @2511] 2.403556 2.432955 312111199 45 1,14 41 2112 3211112 29 15113511] 1152.111111] 152.2211L 9.1131511 11: - 11.! 45 11112 415 :15 532111111 1.2111211 11119112111 1211112 251991: 1.522911 111 5,!12 {0.311231%} 'El' .5 211' 1? 5111 1121?121 H.213) 113313.121]. {?091.35} 0.432525 32.1.2133 5.2211511 221113-11 2.5211311 1.1152211 [1533531 3 12 11 1111 1'11 1111 111121 111:] 1,13 4 51'12 5.355595 1112112111. 1221111.. [1.053495 0.191115% 33-52% [1.137436 ILITDEH Account Description Structures and Improvements Wells Lines Compressor Station Equip. Meas and Reg Equipment Purification Equipment Other Equipment 351x 352x 353x 354 355 356x 357x Rights-of-Way Structures and Improvements Mains Compressor Station Equip. Meas and Reg Equipment Communication Equipment Other Equipment 365.29 366x 367x 368x 369 370 371x Transmission Rights 350x Underground Storage Acct. 21 L0.5 15 SQ 46 S0 50 R1 64 R3 47 R2 40 Amort 37 R2.5 39 R2.5 22 L0 41 L0.5 54 R3 49 R2.5 48 R1.5 40 Amort Curve -10 0 -50 -15 -60 -40 0 -100 -30 5 -15 -40 -70 -70 0 FNS 2016 Authorized 3.87% 7.10% 3.34% 1.84% 2.49% 2.92% 2.50% 5.60% 2.97% 3.73% 2.35% 1.67% 3.47% 3.55% 1.51% Rate 23 L0.5 15 SQ 45 R1 49 R1.5 64 R3 53 R2 40 Amort 39 R1.5 40 R2.5 29 R0.5 41 S-.5 54 R3 53 R1 52 R1.5 40 Amort Curve SoCalGas Depreciation Parameters -10 0 -60 -25 -65 -45 0 -100 -30 5 -20 -45 -80 -80 0 FNS 2019 Proposed 3.45% 7.10% 3.67% 2.24% 2.59% 2.62% 2.50% 5.15% 2.87% 2.78% 2.53% 1.82% 3.20% 3.46% 1.51% Rate Structures and Improvements Mains Meas and Reg Equipment Services Meters AMI Modules Meter Installations Meter Installations (Other) AMI Module Installations House Regulators Other Equipment 375 376x 378 380x 381x 381.15 382x 382.6 382.15 383 387x Land Rights Structures and Improvements Office Furniture & Equipment Computer Equipment Software 2-4 Yrs (3yr ASL) Software 5 Yrs (AMI) 389.2 390 391.1 391.2 391.3 391.35 General Land Rights 374.2 Distribution 5 Amort 3 Amort 5 SQ 14 SQ 33 R1.5 40 Amort 21 O1 33 L5 15 SQ 30 S1 25 S0.5 67 R2 47 S0.5 68 R2.5 40 S0 40 Amort 0 0 0 0 -15 0 5 5 0 -10 5 -115 -95 -80 -10 0 20.00% 33.33% 19.29% 13.40% 1.95% 2.50% 2.93% 2.97% 5.01% 5.35% 3.43% 5.01% 4.04% 2.75% 3.48% 2.48% 2.68% 2.50% 5 Amort 3 Amort 5 SQ 14 SQ 38 R1.5 40 Amort 22 L0 33 R5 20 SQ 15 SQ 29 S1.5 20 SQ 25 S0.5 67 R2 52 S0.5 68 R3 44 S0 40 Amort 0 0 0 0 -15 0 0 5 0 0 -5 0 5 -115 -100 -85 -15 0 20.00% 33.33% 19.29% 13.40% 1.84 2.50 2.85% 3.00% 5.01% 5.35% 3.39% 5.01% 4.04% 2.75% 3.20% 2.62% 2.52% 2.50% 15 SQ 5 SQ 7 SQ 10 SQ 15 SQ 40 SQ 20 SQ Shop and Garage Equipment Large Portable Tools Laboratory Equipment Construction Equipment Communication Equipment Gen Network Equip-5yr ASL PBX/Voice Equip-7yr ASL Microwave/Radio-10yr ASL Communication Structures AMI Communication Poles Miscellaneous Equipment 394x 394.19 395 396.1 397x 397.1 397.2 397.3 397.4 397.55 398 12 SQ 25 SQ 24 SQ 29 SQ 20 SQ Stores Equipment 20 Amort Software 20 Yrs (20yr ASL) 393 15 Amort Software 15 Yrs (15yr ASL) 7 SQ 10 Amort Software 9-12 Yrs (10yr ASL) Transportation Equipment 6 Amort Software 5-8 Yrs (6yr ASL) 392x 391.6 391.55 391.5 391.4 0 0 -5 0 0 0 0 25 0 0 0 0 5 0 0 0 0 12.42% 2.50% 7.01% 10.05% 16.08% 21.20% 6.99% 22.53% 4.37% 4.16% 4.03% 2.23% 7.03% 5.00% 6.67% 10.00% 16.70% 20 SQ 40 SQ 15 SQ 10 SQ 7 SQ 5 SQ 15 SQ 12 SQ 25 SQ 24 SQ 29 SQ 20 SQ 7 SQ 20 Amort 15 Amort 10 Amort 6 Amort 0 -5 -5 0 0 0 0 0 0 0 0 0 15 0 0 0 0 12.42% 2.64% 7.01% 10.05% 16.08% 21.20% 6.99% 27.97% 4.37% 4.16% 4.03% 2.23% 4.36% 5.00% 6.67% 10.00% 16.67% APPENDIX - DATA REQUESTS CITED IN EX. ORA-27 ORA DATA REQUEST ORA-SDG&E-DR-005-CL8 SDG&E 2019 GRC – A.17-10-007 SDG&E RESPONSE DATE RECEIVED: OCTOBER 26, 2017 DATE RESPONDED: NOVEMBER 09, 2017 Subject: Depreciation Please provide the following: 1. Referring to page MCV-6, lines 12-14, please explain the methodology SDG&E uses to allocate actual removal costs across depreciation accounts. SDG&E Response 1: The cost to remove capital assets is recorded on specific internal orders and direct charged by operational field personnel. Based on the budget codes assigned to specific cost of removal internal orders, the removal cost is summarized at the functional level. During the monthly closing process, the monthly total of removal cost, by functional area, is allocated across the appropriate utility accounts/depreciation groups using a 12-month rolling average of retirements segregated by depreciation account. Since removal cost is direct charged at today’s labor values and is not impacted by the age of the asset removed, the 12-month rolling average of retirements is escalated to current cost, to mitigate any impact of the age/dollar value of the asset retired. … 3. Referring to page MCV-10, lines 16-20: a. Please explain what typical “timing differences” SDG&E encounters between the retirement of an asset, its removal, and the final disposition of materials. b. Please explain the methodology used to “transfer net salvage between periods to align data and retirements” and reduce “removal costs for an activity year to visually normalize data.” SDG&E Response 3: a. Various timing differences result throughout the process of retiring an asset from service. Company resources will charge labor to remove an asset, which will be direct-charged to a project. Depending on whether a job involves a replacement or just removal, “street repair” and other effort may be necessary after-the-fact. Various engineering and mapping reviews and processes then occur to provide for the safe and reliable update of system data. After completion of such steps and depending upon the asset type, information is issued to Accounting via an automated/electronic or manual process, resulting in the actual retirement of an asset from the financial book of record. The actual process of preparing and selling any materials for scrap/salvage value will then occur in bulk at a later date. Should any of these processes be in-process at year-end, it will result in alignment challenges between salvage, removal costs, and retirements during the future net salvage analysis, necessitating some level of visual and analytical data shifting. b. Several methods were applied to “transfer net salvage between periods to align data and retirements” and reduce “removal costs for an activity year to visually normalize data.” The net result was the removal of $16.1M of net removal costs (i.e., negative net salvage) and $8.6M of asset retirements. The analytical methods applied to analytical data were: Recast of net salvage between concurrent years. Adjustment to forecast rate based on linear regression analysis. Adjustment to forecast net salvage rate as linear trend between two years. Adjustment of net salvage rate to historical, 15-year, ten-year, or five-year average as calculated at the prior year. • Adjustment of net salvage rate to a previous or subsequent year’s rate. • Adjustment of net salvage rate down to next highest year’s rate. • Removal of negative net salvage and retirement data from study. • • • • … 7. Referring to page MCV-20, lines 2-12: a. Please provide the referenced “equipment-failure curves.” b. Please confirm whether the 30% FNS described in line 10 is [positive] 30% or [negative] (30%). SDG&E Response 7: a. The statement, “to align more closely with equipment-failure curves suggestive of inherent risk potential” is not intended to represent specific curves. This statement is intended to describe the generalized expectation that equipment does not tend to have a strict service life, but rather a life dispersion (i.e., variance) around the mean (i.e., average service life). For example, provided a statistically-normal life dispersion, as essentially selected for this account through the symmetrical (S-type) Iowa curve, 68.2% of retirements will occur within one standard deviation of the mean, 95.4% within two standard deviations, and 99.7% within three standard deviations. Exhibit SDG&E-34-WP, pages 875 through 880, provides a visual summary of the standardized survivor curves that were utilized in development of the depreciation study. b. The 30% FNS% described in line 10 on page MCV-20 was intended to describe a negative future net salvage rate (i.e., retirement costs in excess of salvage). 8. Referring to page MCV-24, lines 18-27: a. Please explain why legacy electro-mechanical meters will experience “an expected decrease in necessary service life.” b. Is the legacy meter technology currently used to serve customers who have opted out of the Smart Meter program different from the meter technology used prior to the implementation of the Smart Meter program? c. Please explain why this expected decrease will result in an ASL that is less than half the current ASL. SDG&E Response 8: a. At the onset of SDG&E’s Smart Meter Program (AMI), it was anticipated that approximately 98% of the legacy electro-mechanical meters would be replaced by a Smart Meter. As the roll-out moved forward, it was discovered that there were some areas in SDG&E’s more remote and rural service territory, that could not support the Smart Meter technology. As a result, the customers in these remote areas as well as any ‘Opt Out’ customers, will continue to utilize the legacy electro-mechanical meters. This resulted in a dramatically lower number of meter assets to analyze for future depreciation studies. As stated in Exhibit SDGE-34, page MCV-24, lines 2123, in deriving the survivor-curve proposal, the mortality was limited to 2009 through 2016 to exclude data from prior to smart meter implementation, resulting in the proposed ASL. b. No, the legacy meter technology currently used to serve customers who have opted out of the Smart Meter program is not different from the meter technology used prior to implementation of the Smart Meter program. c. Please see the response above to (a). … ORA DATA REQUEST ORA-SDG&E-DR-011-CL8 SDG&E 2019 GRC – A.17-10-007 SDG&E REVISED RESPONSE DATE RECEIVED: NOVEMBER 1, 2017 DATE REVISED RESPONSE: DECEMBER 21, 2017 Exhibit Reference: SDG&E-33; SDG&E-34; SDG&E-47 SDG&E Witness: R. Craig Gentes; Matthew C. Vanderbilt; Joseph S. Velasquez Subject: Rate Base; Depreciation; Mobilehome Park Utility Upgrade Program Please provide the following: 1. Please provide electronic copies of all workpapers pertaining to Exhibits SDG&E-33, SDG&E-34, and SDG&E-47, including any Excel or other working spreadsheets, that have not yet been provided to ORA. Please maintain all formulas intact in those Excel or other working spreadsheets. SDG&E Revised Response 1: In an email received from ORA on December 18, 2017, it was identified that one of the net salvage workpapers for SDG&E’s depreciation proposals may be mistaken, in both the original submission and in the response the data request ORA SDG&E 011 CL8. That page 297 of Volume I of Matthew Vanderbilt’s workpapers provides the net salvage activity for account G367 (gas mains), rather than account E367 (underground conductors and devices), as expected. The attached workpaper replaces the previous workpaper provided on November 20, 2017 (correction to tab E367). Please see the attached document:  ORA-SDGE-011-CL8-Q1-SDG&E-34-WP-281 MVanderbilt_Depreciation_FNS-R.xlsx o (Revised version for correction to tab E367) sanleA a?enues-zan guawamau $10,000,000 $5,000,000 5( 10,000,000) 15,000,000) - - - - Ten-Year Average Five-Year Ave rage Retirements Adjusted :1 Net Salvage Net Salvage Rate 0% (100%) - (120%) (140%) 9I02 SI02 VI02 EIOZ 2I02 II02 0I02 6002 8002 ?002 9002 5002 7002 $002 2002 Activity Year emu a?enles RN ORA DATA REQUEST ORA-SDGE-052-CL8 SDG&E 2019 GRC – A.17-10-007 SDG&E RESPONSE DATE RECEIVED: DECEMBER 6, 2017 DATE RESPONDED: DECEMBER 20, 2017 Exhibit Reference: SDG&E-34 and SDG&E-34-WP SDG&E Witness: Matthew C. Vanderbilt Subject: Depreciation Please provide the following: 1. Follow-up question to the Master Data Request response, Chapter 27, Question 2. a. Please provide 5 years of historical data (2012-2016) of actual net salvage dollars collected in rates. b. Please provide 5 years of historical data (2012-2016) of year-end accumulated net salvage, i.e., total accumulated net salvage dollars accounted for within the depreciation reserve. c. Please explain why 2012 appears to be a historical outlier with a particularly high recorded cost of removal, whereas subsequent years start at a much lower level and show a time trend towards increasing costs. SDG&E Response 1: a. The actual net salvage dollars collected in rates for 2012-2016 are the amounts authorized per the Commission’s decision on SDG&E’s TY 2012 GRC (D.13-05010) and TY 2016 GRC (D.16-06-054). As stated in the Master Data Request response, Chapter 27, Question 2: “The annual negative net salvage authorized in rates for 2012 through 2015 was approximately $319,604,000 and $118,607,000 for 2016.” b. Shown below is 5 years of historical data (2012-2016) of year-end accumulated net salvage accounted for within the depreciation reserve. 2012 = $ (1,036,952,763) 2013 = $ (1,065,827,421) 2014 = $ (1,106,367,549) 2015 = $ (1,142,188,481) 2016 = $ (1,204,601,037) c. When preparing the responses for the Master Data Request, some removal costs related to the San Onofre Nuclear Generating Station (SONGS) Steam Generator Replacement Project, which were never a part of any SDG&E General Rate Case, were inadvertently included. The correct amount for 2012, excluding the SONGS Steam Generator Replacement Project, is $45,394,037.52. 2. Follow-up question to Data Request ORA-SDG&E-005-CL8, Question 5: a. Please provide a copy of the DSEC lease. Reference the section(s) of the lease that govern the return of the property to the City of Boulder. b. Please provide a copy of the independent auditor’s report regarding DSEC, as referenced in Finding and Conclusion 19 on page 19 of Resolution E-4465. c. Please provide historical data for the DSEC for each year since 2011, inclusive, as of December 31 of each year, plus data that were current when SDG&E assumed ownership of DSEC in October 2011. Break the data down by FERC account. Please include: i. Accumulated cost; ii. Additions; iii. Retirements; iv. Accumulated reserves; v. Future net salvage; vi. Recoverable balance (accumulated cost plus net salvage, less reserves); vii. Any applicable adjustments. d. Please provide a reconciliation of each annual amount of capital additions. Include crossreferences to all relevant regulatory filings according to which the additions were approved. e. Were the terms of the lease reviewed during the Commission’s examination of any of the regulatory filings identified under (d) above? f. Please explain why SDG&E did not request this change to the decommissioning date during its 2016 GRC proceeding. g. Do the depreciation amounts embedded within the revenue requirements that were identified and approved by Resolution E-4465 correspond to a date for the commencement of decommissioning in mid-2026? i. If so, please explain why this differs from the 2016 GRC filing. ii. If not, please explain what date was used for the estimated date of decommissioning commencement when the Commission issued Resolution E-4465, and explain why this date did not account for the lease terms that require a mid-2026 date. h. Given the 18-month decommissioning schedule noted in response to Question 5(a), please explain why the commencement of decommissioning in “mid-2026” noted in response to 5(b) is apparently less than 18 months prior to April 2027. SDG&E Response 2: a. Please refer to Sections 1.3, 2.10, 28.1, and 28.2 of the attached document: ORASDGE052-CL8_Attachment1.xlsx.1 b. Please refer to the attached document: ORA-SDGE-052-CL8_Attachment 2.xlsx. c. Please refer to the attached document: ORA-SDGE-052-CL8_Attachment 3.xlsx. d. Please refer to the attached document for a summary of capital additions: ORASDGE-052CL8_Attachment3.xlsx. D.07-11-046 approved SDG&E’s request to exercise an option to purchase the Desert Star Energy Center (DSEC), formerly the El Dorado Power Plant. SDG&E assumed ownership of DSEC on October 1, 2011. SDG&E is not aware of any regulatory filings approving upgrades to DSEC outside of the general rate case proceedings. Capital costs related to SEC are addressed in SDG&E’s General Rate Case. DSEC was first included in SDG&E’s TY 2016 GRC. e. SDG&E is not aware of a Commission review of the lease terms during its 2016 GRC or any other regulatory filings. f. Review of the lease terms in 2017 necessitated a change in the decommissioning date. g. No, the revenue requirements that were identified and approved by Resolution E4465 did not correspond to commencement of decommissioning in mid-2026. The revenue requirements approved in Resolution E-4465 did not consider the lease terms. h. Pursuant to Section 2.10 of the lease, the Tenant must remove all improvements from the leased premises “within one hundred eighty (180) days after (i) the expiration or earlier termination of this Lease or (ii) notice from Landlord given not later than one hundred (180) days after the expiration or termination of this Lease, whichever is later, as to that portion of the Leased Premises upon which Improvement to be removed is situated”. Commencement of decommissioning in mid-2026 is based on the requirement that removal of improvements is complete 180 days after expiration of the lease in April 2027. With an 18-month decommissioning schedule, work must begin in approximately mid-2026 to be complete 180 days after termination of the lease.1 1. Original effective date of the lease is April 30, 1997. ORA DATA REQUEST ORA-SCG-061-CL8 SOCALGAS 2019 GRC – A.17-10-008 SOCALGAS RESPONSE DATE RECEIVED: DECEMBER 27, 2017 DATE RESPONDED: JANUARY 10, 2018 Exhibit Reference: SCG-36 and SCG-36-WP SCG Witness: Flora Ngai Subject: Depreciation 2. Follow-up question to ORA-SCG-032-CL8, Question 1 (b). ORA requested the following: “Please provide 5 years of historical data (2012-2016) for year-end accumulated net salvage (i.e., accumulated net salvage dollars accounted for within the depreciation reserve).” SoCalGas responded, “The net salvage dollars accounted for within the depreciation reserve is the “Net Salvage Recorded” column as shown in the table provided in response to the Master Data Request, Chapter 30, Question 2. For your convenience, the table is reproduced below...” SoCalGas provided the actual (current-year) recorded net salvage, but not the requested data for the accumulated net salvage. The total amount of pre-funded future net salvage held by SoCalGas increases with each year that SoCalGas collects net salvage dollars in rates in excess of the recorded actual net salvage of that year. This accumulation is a regulatory liability arising from removal obligations, as reported on Sempra Energy’s balance sheet. Please provide the originally requested 5 years (2012-2016) of historical data for yearend accumulated net salvage. SoCalGas Response 2: In response to Data Request ORA-SCG-032-CL8 Question 1(b), SoCalGas provided the salvage and cost of removal activity for 2012-2016. In this follow-up request, ORA clarifies that the reserve balance is being requested and not the activity for salvage and cost of removal. As explained in response to Question 1 above, SoCalGas’ accounting data records gross salvage as part of the life accrual and not separately. Therefore, a net salvage provision and accumulated provision is not available. In response to this request, below is the accumulated cost of removal reserve balances for 2012-2016. *Excludes SECCBA (PSEP) which has separate rate-making.