Witnesses: G. Higashi E. Helm (U 338-E) Before the. Public Utilities Commission of the State of California. Rosemead, California.

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1 Application No.: Exhibit No.: Witnesses: A SCE- G. Higashi E. Helm (U -E) Rebuttal Testimony in Support of Southern California Edison Company s Application for Authorization to Update and Revise the Direct Access and Other Service Fees in Schedules ESP-DSF, CC-DSF, and ESP-NDSF Before the Public Utilities Commission of the State of California Rosemead, California July 1, 00 LAW-#

2 Rebuttal Testimony Table Of Contents Section Page Witness I. INTRODUCTION...1 G. Higashi II. III. IV. LABOR OVERHEAD IS APPROPRIATELY INCLUDED IN LABOR RATES USED IN CALCULATING THE SERVICE FEES... THE OPERATIONAL EXPERT ANALYSIS IS APPROPRIATE AND SUFFICIENT FOR DETERMINING INCREMENTAL LABOR REQUIRED FOR DIRECT ACCESS ACTIVITIES... SCE PROVIDES DIRECT ACCESS SERVICES IN AN EFFICIENT MANNER... E. Helm G. Higashi V. THE SERVICE FEES REFLECT COSTS RESULTING FROM AN ESP OR DA CUSTOMER REQUEST, ERROR, OR FOR ACTIONS OTHERWISE REQUIRED TO SERVE ESPs OR DA CUSTOMERS... VI. VII. VIII. SCE DOES NOT MISCHARACTERIZE THE CHANGES IN THE SERVICE FEES... THE PROPOSED MONTHLY ACCOUNT MAINTENANCE FEE IS APPROPRIATE AND WILL REDUCE COST- SHIFTING TO BUNDLED CUSTOMERS...1 THE COMMISSION SHOULD PERMIT SCE TO IMPLEMENT SERVICE FEES FOR NEW PRODUCTS OR SERVICES THROUGH THE ADVICE LETTER PROCESS...1 Appendix A Witness Qualifications -ii-

3 I. INTRODUCTION Southern California Edison Company (SCE) submits this rebuttal testimony in response to the testimony of Mark E. Fulmer served on behalf of the Alliance for Retail Energy Markets (AReM) and the California Manufacturers and Technology Association (CMTA). 1 AReM/CMTA s Testimony raises issues regarding (1) the inclusion of overheads in labor rates; () the use of the operational expert analysis method for estimating time required for performing some services; () SCE s efficiency in delivering Direct Access (DA) services; () whether the service fees include time for SCE error ; () the impact of certain service fees, including the Monthly Account Maintenance Fee; and () the use of the advice letter process to request the California Public Utilities Commission s (Commission) approval of fees for new DA services or products between General Rate Cases (GRCs). AReM/CMTA s Testimony often misses the point and relies on unsupported and speculative allegations in an attempt to distract the Commission and reduce the revised DA service fees (Service Fees) proposed in SCE s Application. AReM/CMTA s claims must be rejected. SCE s Application proposes to update the Service Fees using cost-causation principles in order to better align the Service Fees with the actual cost of the services provided, thereby reducing costshifting among DA participants and bundled service customers. The proposed Service Fees were calculated using accepted and valid methods, which will help assure that the Service Fees are more accurate than the % across-the-board increase in Service Fees currently in effect pursuant to Decision (D.) AReM/CMTA do not deny that the services are necessary for DA participants and agree that cost-shifting or cross-subsidization is not the desired outcome. 1 Testimony of Mark E. Fulmer on Behalf of the Alliance for Retail Energy Markets and the California Manufacturers and Technology Association Concerning Southern California Edison s Application to Update its Direct Access and Other Service Fees, dated June, 00 ( AReM/CMTA s Testimony ). The revised Service Fees contain fees applicable to Energy Service Providers (ESPs) (in proposed Schedule ESP-SF) and customers on DA service, bundled service and Community Choice Aggregation (CCA) service (in proposed Schedule CC-SF). A , filed January, 00 ( Application ); see also Testimony of Southern California Edison Company in Support of Application for Authorization to Update and Revise the Direct Access and Other Service Fees in Schedules ESP-DSF, CC-DSF, and ESP-NDSF, served January, 00 ( SCE s Opening Testimony ). 1

4 As shown in SCE s Opening Testimony and herein, the proposed Service Fees are appropriate and should be adopted. It is not necessary to revise and re-file the Application as AReM/CMTA suggest.

5 II. LABOR OVERHEAD IS APPROPRIATELY INCLUDED IN LABOR RATES USED IN CALCULATING THE SERVICE FEES Q.1 On pages - of their testimony, AReM/CMTA argue that corporate administrative and general overhead costs should not be included in the labor rates. Do you agree? A.1 No. SCE incurs corporate administrative and general costs in support of all activities, including DA, and therefore a portion of such costs should be recovered from DA participants. SCE separately tracks DA activities and costs, provides payroll and human resources support for the additional personnel hired to do the work, and responds to regulatory and intervenor inquiries during and between active proceedings. These activities require support from SCE s administrative, financial, regulatory, legal, and human resources departments. The costs for these support activities are appropriately recovered from DA participants through the corporate administrative and general overhead rate. Exclusion of the corporate administrative and general overhead from the labor rates would result in DA participants receiving services for less than the actual cost to provide them and subsidization of these services by SCE s bundled service customers Q. On pages - of their testimony, AReM/CMTA argue that division overheads should not be included in labor rates. Do you agree? A. No. The division overheads are appropriately included as part of the incremental labor costs attributable to DA participants. AReM/CMTA misrepresent the nature of the division overheads. The overall approach to determining the labor costs included in the Service Fees was to determine the amount of incremental direct labor involved in each task and price the labor at the appropriate rate, which includes incremental overhead costs. For each operating organization, there are direct incremental costs which are associated with direct labor, such as direct supervision and non-labor

6 costs. These direct and unavoidable costs related to direct labor are expressed as a percentage of the total direct labor costs and titled division overhead. These rates are specific to each operating group (Customer Communication Organization, Revenue Services Organization, Meter Services Organization) and based on the supervisor-to-worker ratios and non-labor costs specific to that group. Each organization provides necessary support which enables the front-line worker to perform effectively. 1 1 Q. Is SCE s proposed approach to including labor overhead in the Service Fees consistent with its approach in similar proceedings? A. Yes. The Commission adopted the use of division overheads and corporate administrative and general overheads for similar service in D and Resolution E-01 (Community Choice Aggregation (CCA) Proceeding). These authorized CCA service fees are contained in Schedule CCA-SF Q. Does AReM/CMTA s Testimony misstate the potential for double collection of SCE s costs? A. Yes. SCE is proposing that the forecast Service Fee revenue continue to be treated as Tariffed Other Operating Revenue (OOR). The OOR from the Service Fees will be credited against SCE s overall revenue requirement, which eliminates the possibility that SCE would double collect for any of these services. Likewise, the forecast expenses for providing these services are included in SCE s GRC forecast. SCE will propose continued OOR treatment of the Service Fees revenues in its 00 GRC, which will result in crediting what DA customers pay for the services to bundled service customers. Q. On page, lines - of their testimony, AReM/CMTA recommend that the fees be recalculated without these overhead loaders in the labor rates. Is this recommendation flawed? See AReM/CMTA s Testimony, :1-1.

7 1 A. Yes. The issue at hand in this proceeding is how best to eliminate, or at least minimize, any costshifting or cross-subsidy between DA participants and SCE s bundled service customers. As stated previously, SCE employed a cost-based approach to ensure that DA participants pay SCE s incremental costs of providing DA services. This is consistent with the method used to originally develop the service fees in 1 and the method used to develop the CCA fees, which have already been adopted by the Commission. AReM/CMTA s recommendation to recalculate the Service Fees without the labor overhead results in artificially low fees. Not only is this unfair to bundled service customers, but it sends an inaccurate price signal to current and prospective DA participants about the true cost of providing service to them. AReM/CMTA agree that costshifting is not a desirable outcome (at least with respect to shifting costs from bundled service customers to DA participants). But AReM/CMTA cannot have it both ways. Bundled service customers should also not bear the burden of costs incurred to the benefit of DA participants. Id. at :1-0.

8 III. THE OPERATIONAL EXPERT ANALYSIS IS APPROPRIATE AND SUFFICIENT FOR DETERMINING INCREMENTAL LABOR REQUIRED FOR DIRECT ACCESS ACTIVITIES Q. On pages - of their testimony, AReM/CMTA claim that SCE s operational expert analysis is insufficient and that a full time-and-motion study is necessary to determine incremental labor required for DA services. Do you agree? A. No. SCE s operational expert analysis is appropriate and sufficient for identifying the amount of incremental labor required for performing certain DA services. A full time-and-motion study is not required in every instance SCE utilized three primary estimation methods in order to fit the most accurate time and cost estimation technique to the varied activities required to provide DA support. These methods included time-and-motion studies, analysis of historical records, and operational expert analysis. For the DA activities that contain sub-tasks, SCE determined which estimation method was most applicable for each sub-task. Accordingly, SCE used a combination of estimation methods to arrive at many of the proposed Service Fees Time-and-motion studies are appropriate for standard activities that are performed regularly. However, time-and motion-studies are less accurate for activities with significant variations in time duration or unpredictability in occurrence. For example, SCE utilized a time-and-motion analysis for determining the duration of meter reading. This activity is a prime candidate for a time-and-motion study because it is performed regularly for both bundled service and DA customers, which provides a frequent and high volume of activity to observe and analyze. SCE utilized historical operational records for activities such as average driving time in different zones; material costs; the validate, edit and estimate (VEE) function for interval data; and Information Technology (IT) maintenance of systems supporting DA. In specific instances

9 where the historical records contained both the time duration and frequency of occurrence, the historical records provided an estimation basis with a relatively large data sample similar to running a time-and-motion study of the activity. If the historical data did not contain the time duration information, the historical records were referenced to provide a basis for estimating the frequency of occurrence utilized for the operational expert analysis described below The operational expert analysis utilized by SCE is frequently employed when activity durations are difficult to estimate and are influenced by a number of factors. For example, the operational expert analysis of the time duration for activities related to Direct Access Service Requests (DASRs) referenced the number and type of DASRs received (which were based on historical data). There is significant variability in the frequency of DASR processing and the amount of time taken to complete a DASR. For example, while the manual review of a DASR to ensure compliance with DA suspension rules is estimated at one minute, this activity will take more time for a service account that has switched multiple times between ESPs when compared to a service account that has stayed with the same ESP for a long period of time. This variation in time results from the requirement by Rule.1 (DA Switching Exemption Guidelines) to determine DA eligibility, determine whether the DA-eligible customer has completed any commitment to Bundled Portfolio Service and other switching rule requirements, in addition to reviewing the Cost Responsibility Surcharge to ensure that the customer is correctly categorized as Continuous DA and verifying the customer s eligibility for Historical Procurement Charge exempt status. Time-and-motion studies of activities that experience this type of variation will result in time duration observations both above and below the expected time duration, but the longer time durations in the sample will skew the resulting calculated average towards the high side due to the magnitude of deviation from the expected time duration. See e.g., SCE s Opening Testimony, :-.

10 Utilizing the methods described above, SCE has provided accurate estimation information to support the Service Fees. If SCE was required to perform time-and-motion studies on all activities related to the Service Fees, tasks with variability in duration or frequency could be misrepresented if the work observed by the study was not representative of the typical or normal work encountered. Accordingly, the operational expert analysis performed is appropriate and sufficient, and the proposed Service Fees based on such analysis should be approved.

11 IV. SCE PROVIDES DIRECT ACCESS SERVICES IN AN EFFICIENT MANNER Q. On pages - of their testimony, AReM/CMTA suggest that SCE does not perform DA Services in an economical or efficient manner. Do you agree? A. No. Prior to filing the Application, SCE identified ways in which to increase operational efficiencies, improve processes, and reduce costs. For instance, an improvement in the way UDC Consolidated Billing exceptions are processed resulted in a decrease in billing costs. Additionally, because of SCE s increased experience with installing and maintaining Interval Data Recorder (IDR) meters, meter maintenance service fees have also decreased AReM/CMTA do not identify or provide any factual basis for arguing that there are additional efficiencies that could be gained. Instead, AReM/CMTA simply suggest that processes could be automated at a lower cost. AReM/CMTA fail to consider the costs of automating, which typically require software and other IT costs. These additional costs would need to be borne by DA participants as the upgrades would not be performed but for the services required by DA participants and therefore could have the undesirable effect of unnecessarily increasing fees. The relatively low volume of DA customers (and certain DA-related activities) does not make additional automation of DA services cost-effective at this time Finally, AReM/CMTA argue that SCE does not have the incentive to explore how it might provide the services in a more cost-effective manner. This claim is without basis and should be rejected by the Commission. See id. at, fn. 1. Id. at :-; Appendix B, B-. AReM/CMTA s Testimony, :-.

12 V. THE SERVICE FEES REFLECT COSTS RESULTING FROM AN ESP OR DA CUSTOMER REQUEST, ERROR, OR FOR ACTIONS OTHERWISE REQUIRED TO SERVE ESPs OR DA CUSTOMERS Q. On page, lines 0-1 of their testimony, AReM/CMTA state that Service Fees for Commission-ordered activities, ESP requests or errors are appropriate, but that they would like assurances that ESPs and community choice aggregators (CCAs) are not charged for incremental activities that are due to SCE error. Do the relevant Service Fees reflect costs attributable to an ESP error, request or actions otherwise required to serve ESPs? A. Yes. The relevant Service Fees are attributable to an ESP or customer request or error or are otherwise required for actions taken on behalf of and for ESPs. For example, DASR fees are charged to ESPs to support the costs of enrolling a customer in DA (Connect DASR), removing a customer from DA to return to bundled service (Disconnect DASR), updating information (Update DASR), etc. An ESP is only charged a DASR fee if the customer or the ESP requests the particular service. The Monthly Account Maintenance Fee (MAMF), as noted by AReM/CMTA, does include a component for processing billing and metering exceptions. AReM/CMTA express uncertainty as to whether exception processing is attributable to SCE error. Exception processing (i.e., processes that are not built into the Customer Service System) is not synonymous with error, and is performed if requested by the ESP, due to ESP error or otherwise required to provide services to the ESP. 1 While the Service Fees are not designed to include additional specific labor, non-labor, or other allowances for errors resulting from SCE s actions, human error, as part of the ordinary course of business, cannot be eliminated entirely. Under the proposed Service Fees, the following fees are applicable to ESPs: ESP Establishment Fee; Direct Access Request (DASR) Fees; UDC Consolidated Billing Fees; Meter Reading Fees; ESP Termination of Service Fees; certain miscellaneous fees (including the Monthly Account Maintenance Fee) and Metering Fees.

13 VI. SCE DOES NOT MISCHARACTERIZE THE CHANGES IN THE SERVICE FEES Q. In their testimony, AReM/CMTA claim that SCE has mischaracterized the magnitude of the revised Service Fees. Do you agree with this assessment? A. No. SCE s Opening Testimony sets forth the revised Service Fees in great detail, including the number of service fees that have increased, decreased, are new or have been eliminated. Appendix B of SCE s Opening Testimony also provides a side-by-side comparison of the current service fees and the revised service fees for easy reference AReM/CMTA claim that while SCE s discussion of a net decrease in OOR as a result of the revised Service Fees is strictly accurate, 1 SCE should have made different comparisons between the impact of the current fees and the revised Service Fees. AReM/CMTA s argument misses the mark. No matter how the fees are compared, the proposed Service Fees are still costbased such that the costs of providing DA services are recovered from those who cause the costs to be incurred. AReM/CMTA do not dispute that the revised Service Fees are for services necessary for DA. Nor do AReM/CMTA provide any evidence to reject the Service Fees. See e.g., SCE s Opening Testimony, :-1. 1 AReM/CMTA s Testimony, :1.

14 VII. THE PROPOSED MONTHLY ACCOUNT MAINTENANCE FEE IS APPROPRIATE AND WILL REDUCE COST-SHIFTING TO BUNDLED CUSTOMERS Q. In their testimony, AReM/CMTA raise concerns about the proposed MAMF for ESPs serving smaller customers, primarily residential customers. Is the MAMF appropriate? A. Yes. On pages 1-1 of their testimony, AReM/CMTA argue that ESPs will see virtually no savings from meter-related fees, but will see massive increases from the MAMF. AReM/CMTA s Testimony not only misses the point, but provides no justification for arguing against the adoption of the MAMF. Instead, AReM/CMTA argue only that the MAMF will impact ESPs and attempt to illustrate their point through examples that, by their own admission, are speculative AReM/CMTA do not dispute that the MAMF is for necessary services provided to DA participants. Indeed, the MAMF is necessary to capture the incremental costs of performing account maintenance activities for DA participants and includes costs of responding to credit inquiries, processing billing and metering exceptions, operating account maintenance support systems (e.g., the DA tracking system), notifying ESPs of changes to customers service accounts and processing non-energy billing charges. AReM/CMTA do not challenge the validity of these components. 0 1 Nor do AReM/CMTA provide any justification for shifting these costs to bundled service customers. The proposed Service Fees (including the MAMF) are cost-based in order to better align the fees with the actual costs of the services provided, and thereby reduce cost-shifting or cross-subsidy between DA participants and SCE s bundled service customers. The proposed Service Fees were not designed to artificially lower costs to provide savings to DA participants 1 See id. at pp. 1-1, fn. & fn. 1. 1

15 in order to make DA a more attractive option; nor were they designed to push DA participants out of the DA market (despite what AReM/CMTA s Testimony may suggest). Rather, the purpose of the revised Service Fees is to recover actual costs from those who cause those costs to be incurred. Finally, AReM/CMTA fail to provide any reasonable alternative to the MAMF. The only alternative AReM/CMTA would appear to suggest is that bundled service customers subsidize DA participation. As discussed above, this alternative is inequitable. 1

16 1 1 1 VIII. THE COMMISSION SHOULD PERMIT SCE TO IMPLEMENT SERVICE FEES FOR NEW PRODUCTS OR SERVICES THROUGH THE ADVICE LETTER PROCESS Q. On pages 1-1 of their testimony, AReM/CMTA argue that the advice letter process is not appropriate for requesting and implementing service fees for new products or services between GRCs. Do you agree? A. No. The advice letter process is an appropriate procedural mechanism for SCE to implement a new fee for a new DA product or service. The advice letter process will enable SCE to offer customers new DA products or services in a more timely manner. The more expeditious nature of the advice letter process is necessary in order to keep pace with technological improvements in, for instance, metering products and services. Formal applications, on the other hand, require a more lengthy process and can take over a year to resolve. The advice letter process presents a more effective use of the Commission s and the parties time, and can accommodate the implementation of new fees, on a fee-by-fee basis, as new products and services arise SCE does not expect the fees for new DA services or products that it intends to introduce through the advice letter process to be controversial. Nor does SCE intend for the advice letter process to supplant the revision of the Service Fees in future GRCs. Rather, SCE proposes to use the advice letter process in limited circumstances where technological advances provide for new, and potentially cost-saving, products and services for DA participants. DA participants should not have to wait a year or potentially more for these products and services if they can benefit from them earlier. In response to AReM/CMTA s concern that advice letters fly under the radar, 1 advice letters are public documents that the public may review and protest. Advice letters are served on 1 Id. at 1:-. 1

17 relevant service lists and published on SCE s website on the day filed with the Commission. Accordingly, interested parties will have the opportunity to comment on any proposal for new fees that SCE files through an advice letter. As such, SCE requests that the Commission approve its request to implement service fees for new DA products or services through the advice letter process. 1

18 Appendix A Witness Qualifications

19 SOUTHERN CALIFORNIA EDISON COMPANY QUALIFICATIONS AND PREPARED TESTIMONY OF GAIL M. HIGASHI Q. Please state your name and business address for the record. A. My name is Gail M. Higashi, and my business address is: W. San Bernardino Road, Covina, California 1. Q. Briefly describe your present responsibilities at the Southern California Edison Company. A. I am the manager of Tariff Compliance and Implementation in the Revenue Services Organization. My responsibilities include managing the implementation of regulatory initiatives, activities and directives that have operational impact on the billing process; developing and managing the protocols for successful introduction of rates, revisions, services and pricing into the billing process; and managing development of strategic objectives and initiatives that maintain regulatory compliance for the billing process. Q. Briefly describe your educational and professional background. A. I hold a Bachelor of Arts Degree in Economics and Political Science from the University of Arizona, Tucson, Arizona; and a Master of Science Degree in Economics from Arizona State University, Tempe, Arizona. I began working as a Tariff Analyst for Southern California Edison in 1 and was promoted to the Supervisor of Pricing Design in the Regulatory Policy and Affairs Department in 1. In December 1, I joined the Customer Service Business unit in the Billing Process Organization to work on direct access implementation activities. I assumed my current position in July 1. I have previously testified before this Commission. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this proceeding is to sponsor portions of Exhibit SCE-, entitled Rebuttal Testimony of Southern California Edison Company in Support of Application for Authorization to Update and Revise the Direct Access and Other Service Fees in Schedules ESP- DSF, CC-DSF, and ESP-NDSF, as identified in the Table of Contents thereto. Q. Was this material prepared by you or under your supervision? A-1

20 A. Yes, it was. Q. Insofar as this material is factual in nature, do you believe it to be correct? A. Yes, I do. Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best judgment? A. Yes, it does. Q. Does this conclude your qualifications and prepared testimony? A. Yes, it does. A-

21 SOUTHERN CALIFORNIA EDISON COMPANY QUALIFICATIONS AND PREPARED TESTIMONY OF ERIC S. HELM Q. Please state your name and business address for the record. A. My name is Eric S. Helm, and my business address is Walnut Grove Avenue, Rosemead, California. Q. Briefly describe your present responsibilities at the Southern California Edison Company. A. As Manager of Financial Planning and Analysis for the Customer Service Business Unit, I am currently responsible for financial modeling, project analysis, and product and service pricing for major projects within the business unit. Q. Briefly describe your educational and professional background. A. I hold a Bachelor of Arts degree in Economics from Claremont McKenna College, and an MBA with a Finance concentration from California State University at Long Beach. I hold the Chartered Financial Analyst (CFA) designation and am a member of both CFALA and the CFA Institute. I joined Edison s Residential Energy Management staff in 1, working on residential rebate and home energy survey programs. I held analyst positions in the Revenue Requirements department from 1-, and analyst and management positions in SCE s Treasurer s department from 1-1, primarily in the Investor Relations group. I have managed the CSBU Financial Planning function since 1. I have previously testified before this Commission. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this proceeding is to sponsor portions of Exhibit SCE-, entitled Rebuttal Testimony of Southern California Edison Company in Support of Application for Authorization to Update and Revise the Direct Access and Other Service Fees in Schedules ESP- DSF, CC-DSF, and ESP-NDSF. Q. Was this material prepared by you or under your supervision? A. Yes, it was. Q. Insofar as this material is factual in nature, do you believe it to be correct? A-

22 A. Yes, I do. Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best judgment? A. Yes, it does. Q. Does this conclude your qualifications and prepared testimony? A. Yes, it does. A-