BEFORE THE PUBLIC UTILITIES COMMISSION

OF THE STATE OF CALIFORNIA

Application of San Diego Gas & Electric

Company (U 904 M) for Authority to Application 17-04-027
Implement the Customer Information (Filed April 28, 2017)
System Replacement Program.

PROTEST OF THE UTILITY REFORM NETWORK

Robert Finkelstein
General Counsel

The Utility Reform Network

785 Market Street, Suite 1400
San Francisco, CA 94103
Phone: (415) 929-8876
Fax: (415) 929-1132
E-mail: bfinkelstein@turn.org
June 5, 2017
 TABLE OF CONTENTS

I. Introduction .............................................................................................................................. 1

II. Grounds of the Protest And Issues To Be Considered ............................................................ 3

1. SDG&Es Application Is Deficient Due To Its Failure To Provide A Meaningful

List Of Issues To Be Considered. ........................................................................................ 3

2. Is The Need For A CSI Replacement Project The Product Of Imprudent Past
Management Of The Utilitys Customer Service Facilities And Spending And, If So,
Should SDG&E Ratepayers Bear Any Of The Costs? ........................................................ 4

3. Are The Proposed Programs And Their Associated Costs Reasonable? ............................. 5

4. The Commission Should Consider Accelerating Inclusion Of Forecasted Benefits In

Rates, Both To Offset The Revenue Requirement Impact of SDG&Es Proposed
Replacement, And To Ensure SDG&E Customers Realize Promised Cost Savings. ......... 6

5. Using A Balancing Account To Set Rate Recovery To Match Actual Costs Protects
SDG&E More Than Its Customers, and Would Seem To Render Forecasts Academic. .... 6

III. Need for Supplemental Testimony ........................................................................................ 7

IV. Proposed Categorization, Need for Evidentiary Hearings, Need for Public
Participation Hearing, and Proposed Schedule ...................................................................... 8

V. Conclusion ............................................................................................................................ 10
 PROTEST OF THE UTILITY REFORM NETWORK

On April 28, 2017, San Diego Gas & Electric Company (SDG&E) filed an application

seeking authority to establish and implement the Customer Information System (CIS)

replacement program, and to establish a balancing account to recover in rates the costs associated

with the program. The proposed CIS replacement program is forecasted to require a one time

expenditure of $253.6 million to implement, with a total revenue requirement of $996.6 million

for the 15-year asset life.

Pursuant to Rule 2.6 of the Commissions Rules of Practice and Procedure, The Utility

Reform Network (TURN) submits this protest to the SDG&E application.

I. Introduction

SDG&Es application asks the Commission to believe that the utility has been caught

largely if not entirely unaware that its Customer Information System was about to collapse under

the weight of the growing demands that have been placed on it in recent years. According to the

utility, the situation is so dire that it warrants an investment of over a quarter billion dollars, with

an associated revenue requirement of a billion over the next fifty years. And SDG&E would

have the Commission believe that the need for immediate action is such that relatively expedited

review is warranted, as any delay might hinder its ability to move expeditiously on replacing

what it is now calling its legacy CIS.

SDG&Es story starts to unravel, though, if one looks at the utilitys recent GRC requests

and the resulting decisions authorizing, among other things, spending forecasts associated with

investing in, operating and maintaining its Customer Information System. For example, in

SDG&Es GRC for a 2016 test year, the utility served direct testimony in late 2014 that

identified challenges faced by its Customer Information Service operations and facilities, such as

the rise in NEM customers, whose billing is unique and variable [and] is putting additional

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demands on our billing operations. The utilitys CIS-specific testimony in the GRC was

extensive and detailed. TURNs initial review for purposes of preparing this protest revealed

nothing that would indicate or even suggest that the legacy equipment was so problematic that

a wholesale change-out was on the horizon. Indeed, the capital expenditure forecast for
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technical obsolescence totaled approximately $10 million over the 2014-2016 period. And

the utilitys proposals covered spending to enable customers to make use of self-service options,

rate programs, and information about their energy usage and how they can save on energy bills,

all of which SDG&E now claims is driving the need for its $253 million investment with its
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billion dollar price tag.

When SDG&E served rebuttal testimony in July 2015, nearly a year later, it still gave no

indication that the condition or capability of its Customer Information System had reached a

point at which there might be cause to consider its wholesale replacement. Yet according to the

current application, it was approximately then that the utility saw fit to deploy Ernst and Young

Consulting to evaluate the current state of the legacy CIS and related subsystems, and to

provide a recommended strategy for either maintaining, extending or replacing the legacy CIS
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and related subsystems.

1
SDG&E 2016 GRC Testimony SDG&E-1 (Policy Testimony of Steven Davis), p. SDD-3.
2
SDG&E 2016 GRC Testimony SDG&E-14 (Direct Testimony of Bradley Baugh (Customer
Service Operations, Information and Technologies)), p. BMB-122 (Table 57).
3
SDG&E Application p. 3; SDG&E 2016 GRC Testimony SDG&E-14 (Direct Testimony of
Bradley Baugh (Customer Service Operations, Information and Technologies)), pp. 54 (self-
service), 129 (SPP rates), 130 (rate changes from GRC Phase 2), 138 (Centralized Calculation
Engine (to automate rate and complex billing calculations)).
4
SDG&E Application, p. 4.

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 TURN submits that such inconsistencies between what SDG&E said or did not say in its

GRC and the claims presented in this application raise at least potential issues regarding both the

reasonableness of the current request and whether it is rooted in the correction of past imprudent

actions. SDG&Es Customer Information System has been the subject of at least some degree of

review every three or four years as part of the utilitys GRC proceedings. Throughout the recent

GRC reviews, SDG&E proposed continuing to rely on its legacy system, with nothing to

suggest that doing so might in any way compromise its ability to provide a reasonable level of
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customer service. To the extent the legacy system remains a viable option for some if not all of

SDG&Es needs going forward, there is reason to question the reasonableness of SDG&Es

proposed spending. And to the extent the need for a replacement system is driven even in part

by SDG&Es practices with regard to its management of its legacy system or related utility

action or inaction, the Commission will need to address whether SDG&E has adequately

established the prudence of those actions or failures to act.

In the sections that follow, TURNs protest briefly describes the issues identified to date,

and addresses the proposed category, need for hearing, and proposed schedule.

II. Grounds of the Protest And Issues To Be Considered

1. SDG&Es Application Is Deficient Due To Its Failure To Provide A

Meaningful List Of Issues To Be Considered.

The Commission should direct SDG&E to provide an actual statement of the issues the

utility believes should be considered in the application, rather than a generic reference that is the

equivalent of theyre in here somewhere. Rule 2.1(c) of the Commissions Rules of Practice

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Again, TURNs review of the GRC materials in order to prepare this protest was somewhat
limited in time and scope. However, TURN saw nothing in the prepared testimony reviewed that
indicated anything other than SDG&Es expectation that continuing reliance on the existing CIS
facilities would enable the utility to provide reasonable service.

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and Procedure requires that a utility application include a statement of the issues to be

considered including relevant safety considerations. In its discussion of Rule 2.1(c) topics,

SDG&E states, in part, The issues to be considered are described in this Application and the
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accompanying testimony and exhibits. The Commission should reject such an approach as

failing to comply with the spirit if not the letter of Rule 2.1(c). It should direct the utility to

provide a complete list of the issues it believes should be considered as part of this application,

and it should further direct SDG&E to cease taking such an approach in any future application.

2. Is The Need For A CSI Replacement Project The Product Of Imprudent Past
Management Of The Utilitys Customer Service Facilities And Spending
And, If So, Should SDG&E Ratepayers Bear Any Of The Costs?

As the applicant seeking to increase rates, SDG&E bears the burden of proving that its proposed
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costs are just and reasonable, in accordance with Public Utilities Code Sections 451 and 454. It
is a longstanding and well established principle of California public utilities regulation that costs
that result from a utilitys imprudence are not reasonable under Section 451 and should not be
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recovered from ratepayers. As the Commission emphatically stated in D.84-09-120, it would
be unconscionable from a regulatory perspective to reward such imprudent activity by passing
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the resultant costs through to ratepayers.
The Commission reaffirmed its approach as recently as last year:

6
SDG&E Application, p. 10.
7
See, e.g., D.12-12-030, p. 41; D.09-03-025, p. 8.
8
See, e.g., D.12-12-030, pp. 61, 87 (disallowing recovery of proposed pressure testing costs for
pipe segments for which PG&E lacks required records and further disallowing proposed costs of
gas system records search and organization costs); D. 09-06-027, pp. 35-36 (in a rate case
decision, excluding from rate base the costs of a retaining wall for which the water utility failed
to meet its burden of proof of demonstrating that the work would have been necessary in the
absence of the utilitys imprudence); D.01-06-047, p. 2) (disallowing Southwest Gas Company
gas procurement costs based on imprudent managerial action); D. 95-12-046, 1995 Cal. PUC
Lexis 959 (disallowing costs associated with PG&Es imprudent long-term commitment to
interstate gas pipeline capacity); D.94-03-048, 53 CPUC 2d 452, 456 (holding that it is not
reasonable to pass on to Southern California Edison ratepayers costs resulting from the Mojave
Coal Plant accident); D.85-08-102, 18 CPUC 2d 700, 715-716 (holding that ratepayers are not
responsible for bearing the consequences of PG&Es imprudence with respect to the Helms
Pumped Storage Project).
9
16 CPUC 2d 249, 283.

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 Costs are just and reasonable when they have been prudently incurred
by competent management exercising the best practices of the era, and
using well-trained, well-informed and conscientious employees and
contractors who are performing their jobs properly. In considering
whether proposed costs are just and reasonable, it is true we will often
consider the prudency of the utilitys actions. PG&Es forecast costs are
not unreasonable and subject to ratemaking disallowance simply because
its management delayed or deferred work. Thus, a disallowance is
warranted when the forecast work is necessary because: (1) the
utility had not originally performed the work properly; (2) the
utility had failed to comply with regulatory requirements that it was
previously funded to satisfy; or (3) the costs to be incurred are due
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to clear and identifiable failures and errors.
The Commission should determine that SDG&Es application requires the utilitys

demonstration that the need for its forecasted work are not the result of such imprudence. This

will require SDG&Es submission of supplemental testimony, since its initial showing failed to

adequately address such issues.

3. Are The Proposed Programs And Their Associated Costs Reasonable?

In addition to the prudence showing described above, SDG&E needs to demonstrate that

its proposed programs and their associated costs are reasonable. This should include not only a

demonstration that SDG&E has achieved the lowest practicable cost for the option selected, but

also that the option selected was the most cost-effective available. SDG&Es supporting

testimony appears to have some discussion of the evaluation performed of its legacy CIS

system, and references options it might have pursued that would be different than the wholesale
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replacement it proposes here, but TURN did not see any analysis or comparison of the costs

and benefits of the different non-replacement options. The Commission should direct SDG&E to

10
D.16-06-056 (PG&E 2015 GT&S Rate Case), pp. 22-23 (quote from D.14-06-007 (Sempra
PSEP Decision), p. 31).
11
SDG&E Testimony, Chapter 3.

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make such a showing as part of its initial demonstration of reasonableness, and to include that

showing in supplemental testimony.

4. The Commission Should Consider Accelerating Inclusion Of Forecasted

Benefits In Rates, Both To Offset The Revenue Requirement Impact of
SDG&Es Proposed Replacement, And To Ensure SDG&E Customers
Realize Promised Cost Savings.
12
SDG&Es testimony presents tables with forecasted revenue requirement summaries.

According to the tables, the future benefits will outweigh the forecasted costs if considered over

the 2017-2042 time frame. However, the benefits are distinctly back-loaded, with a forecast of

zero for the 2017-2021 period, and a forecast of $212 million for 2022-2026 (as compared to

$374.5 million of forecasted costs for revenue requirement calculation for the same period). The

Commission should consider ways to front-load the benefits as part of the ratemaking adopted

here, rather than commit SDG&E customers to paying for a quarter-billion dollar project with a

billion dollar price tag with only the hope that the forecasted benefits will appear in the amounts

and on the schedule SDG&E includes in its testimony. The Commission authorized AMI based

at least somewhat on forecasts of demand response benefits that were never achieved. It should

take steps to protect ratepayers from similar failures going forward, and front-loading (and

ensuring) benefits could be an important step in that direction.

5. Using A Balancing Account To Set Rate Recovery To Match Actual Costs

Protects SDG&E More Than Its Customers, and Would Seem To Render
Forecasts Academic.

SDG&E claims that a two-way balancing account is reasonable here because it allows

the utility to compare the authorized revenue for the project to actual costs, thereby ensuring that

12
SDG&E Testimony, Chapter 7, Table 3.

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the utility does not make or lose money due to uncertainties in the scope of the work.

TURN appreciates that the utility also claims that such an account protects ratepayers should the

actual costs come in at a lower-than-forecast amount. However, in TURNs experience a project

of the magnitude of the CIS Replacement proposed here rarely (if ever) has come in at a level

below the Commission-approved forecasts. The Commission should address whether such a

balancing account is appropriate under the circumstances. It should also consider what purpose

the forecasts serve, either as proposed by the utility or other parties or as adopted by the

Commission, if the balancing account serves to permit recovery of all actual costs, regardless of

the forecasts.

Finally, the Commission should direct SDG&E to explain where it anticipates the

Commission would review the reasonableness of any higher-than-forecast costs incurred as part

of this project. SDG&Es testimony forecasts O&M costs of approximately $75 million during
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2017-2021, and capital costs of approximately $225 million during that same period. If the

utility records costs 50% higher than those figures during those periods, the two-way balancing

account would serve to ensure rate recovery of the above-forecast amounts. It is not clear how

the Commission would know the reasonableness of the above-forecast increments without some

sort of reasonableness review of that spending, and it is not clear from SDG&Es application and

testimony where or how such reasonableness would occur.

III. Need for Supplemental Testimony

The burden of proof is squarely upon SDG&E for each element of its application and the

requested relief:

13
SDG&E Testimony, Chapter 9, p. 2.
14
SDG&E Testimony, Chapter 7, Table 3.

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 As the applicant, [the utility] has the burden of affirmatively establishing the
reasonableness of all aspects of its application, including that it is entitled to the
relief it is seeking in this proceeding. Other parties do not have the burden of
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proving the unreasonableness of [the utilitys] showing.

As described earlier, SDG&E has failed to present sufficient evidence to affirmatively establish

that its proposal is not the product of past imprudence. Similarly, the utility has failed to present

sufficient evidence of reasonableness in terms of the costs, benefits, and other attributes of the

options SDG&E considered that would not have entailed the wholesale replacement proposed in

the application.

The Commission should direct the utility to submit supplemental testimony that meets its

burden in the first instance. Any approach that relies upon intervenors to fill in the gaps through

discovery on the application and testimony as originally submitted would serve to place upon

them the burden of establishing the unreasonableness of the utilitys request, contrary to the

Commissions longstanding recognition of the inappropriateness of such an approach.

IV. Proposed Categorization, Need for Evidentiary Hearings, Need for Public
Participation Hearing, and Proposed Schedule
16
SDG&E proposes that this application be categorized as ratesetting. TURN agrees that

this is the appropriate category.

On the need for evidentiary hearings, SDG&E states that it believes that approval of this
17
Application may require hearings. TURN submits that for a project with a one-time cost of

a quarter billion dollars and a proposed revenue requirement of virtually one billion dollars, the

15
D.12-11-051 (SCE 2012 GRC), p. 8; see also D.09-03-025 (SCE 2009 GRC), p. 8, and D.06-
05-016 (SCE 2006 GRC), p. 7.
16
SDG&E Application, p. 9.
17
SDG&E Application, p. 10.

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Commission should assume that its consideration of the application will require evidentiary

hearings.

The utility-proposed schedule seeks to have intervenor testimony due approximately four

weeks after the prehearing conference, followed by rebuttal testimony approximately four weeks
18
later, and then hearings beginning approximately three weeks after that. TURN submits that

such a schedule fails to provide sufficient opportunity for intervenors to conduct necessary

discovery and to prepare testimony, and also to conduct necessary discovery on the rebuttal

testimony in order to prepare for evidentiary hearings. After all, SDG&E acknowledges that it

took its third-party consultant fully nine months to evaluate the circumstances of the utilitys

Customer Information System, and then another nine months or so for SDG&E to perform an
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initial risk analysis and [take] preparatory steps to file this Application. If it took more than a

year for SDG&E, relying not only on its internal resources but also Ernst and Young Consulting,

to get a handle on these issues before presenting its request in this application, the Commission

should recognize intervenors will need substantially more than a month in order to review and

analyze that request. Furthermore, the supplemental testimony that TURN believes the

Commission should order would not be able to be accommodated within the SDG&E proposed

schedule.

The Commission has already authorized a memorandum account for the CIS replacement

program, and SDG&Es proposed cost forecasts are relatively low in 2017 and 2018, with far
20
higher amounts of capital and O&M spending expected in 2019 and 2020. Therefore, the

18
Id.
19
Id., p. 4.
20
SDG&E Testimony, Chapter 7, p. 2.

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Commission should adopt a schedule that provides intervenors sufficient time after the scoping

memo and, if ordered, supplemental testimony to conduct discovery and perform the analysis

warranted by a project of this magnitude. The adopted schedule should also provide ample time

between the service of rebuttal testimony and the start of hearings, as parties will need an

opportunity to conduct discovery and to use the results of that discovery in preparing for

hearings.

TURN does not have a specific schedule to offer at this time, but hopes to work with

other intervenors to develop a joint schedule proposal before the prehearing conference.

V. Conclusion

TURN looks forward to further discussing these issues at an upcoming prehearing

conference.

June 5, 2017 Respectfully submitted,

By: ____________________________

Robert Finkelstein
General Counsel

THE UTILITY REFORM NETWORK

785 Market Street, Suite 1400
San Francisco, CA 94103
Phone: (415) 929-8876
Fax: (415) 929-1132
E-mail: bfinkelstein@turn.org

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