2015 General Rate Case - sce.com...Figure IV-11 Workers’ Compensation Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925(Staff) (Constant 2012 $000) .....37 Figure

Application No.: Exhibit No.: SCE-08, Vol. 2 Witnesses: E. Jennerson

R. Ramos J. Smolk R. Swartz

(U 338-E)

2015 General Rate Case

Financial, Legal, and Operational Services (FL&OS) Volume 2 - Legal (Law, Claims, and Workers’ Compensation)

Before the

Public Utilities Commission of the State of California

Rosemead, CaliforniaNovember 2013

SUMMARY

Financial, Legal, and Operational Services (FL&OS) Volume 2 – Legal (Law, Claims, and Workers’

Compensation) is composed of the following four chapters:

• Chapter I – Introduction

• Chapter II – Law

• Chapter III – Claims

• Chapter IV – Workers’ Compensation

Chapter I provides a brief overview of the volume.

Chapter II discusses the request from Law, including the Corporate Governance Division, for $56.8

million for Test Year 2015 expenses, a decrease of $1.5 million over the 2012 spending levels (in

2012 dollars). The decrease is primarily the result of the savings from the implementation of the

Corporate Operational and Service Excellence Initiative.

Chapter III discusses the request from Claims for $23.3 million for Test Year 2015 expenses, an

increase of $2.2 million over the 2012 spending levels (in 2012 dollars). The increase is primarily

the result of an average of historical claims reserve costs used in the expense forecast, which is more

representative of future expenses. Test Year 2015 costs are also reflective of $0.4 million in

additional costs needed to retain physical evidence related to incidents under investigation by

Commission staff.

Chapter IV presents a request from the Workers’ Compensation Division for $21.2 million for Test

Year 2015 expenses, a decrease of $0.3 million over the 2012 spending levels (in 2012 dollars). The

decrease is primarily the result of the savings from the implementation of the Corporate Operational

and Service Excellence Initiative.

SCE-08: Financial, Legal, and Operational Services Volume 2 – Legal (Law, Claims, and Workers’ Compensation)

Table Of Contents

Section Page Witness

-i-

I. INTRODUCTION .............................................................................................1

II. LAW ..................................................................................................................2

A. Summary of Test Year Request .............................................................2 E. Jennerson

B. Overview of Law Department Services Provided .................................2 R. Swartz

C. Corporate Operational and Service Excellence Initiative (OpX) .....................................................................................................4

D. In-House Legal Resources (FERC Accounts 920, 921) ........................4

1. Summary of Activities ...............................................................4

a) Legal Practice Groups Relating to Transmission and Wholesale Markets; Real Properties, Local Governmental Affairs, and Licensing; Environmental and Licensing ......................5

b) Legal Practice Groups Relating to Commercial Litigation; Claims and General Litigation; Generation Policy and Resources ................6

c) Legal Practice Groups Relating to Contracts and Intellectual Property; Base Rates and Grid Support; Corporate Governance, Executive Compensation, and Finance ..........................7

d) Legal Practice Groups Relating to Labor and Employment; Customer and Tariff; Power Procurement; and Resource Policy and Planning .........................................................................8

e) Support Staff ..................................................................9

(1) Paralegals ...........................................................9

(2) Administrative Personnel ...................................9

(3) Corporate Governance Personnel ....................10

(4) Other Support Staff ..........................................10


Table Of Contents (Continued)


-ii-

2. Comparison of In-House Attorney and Outside Counsel Expenses ....................................................................11

3. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for In-House Legal Resources and Corporate Governance (FERC Accounts 920, 921) ......................................................12 E. Jennerson

a) Recorded Costs ............................................................12

b) Staffing Forecast ..........................................................13

c) Expense Forecast .........................................................13

E. Outside Counsel (FERC Accounts 923, 925, 928) ..............................13

1. Summary of Activities .............................................................13 R. Swartz

2. Oversight and Monitoring of Outside Counsel Expenses ..................................................................................13

3. Efforts to Contain Outside Counsel Costs ...............................14

4. The Average Outside Counsel Rates Paid by the Law Department Are Below the Market Rate. ........................15

5. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for Outside Counsel (FERC Accounts 923, 925, 928) ..................16 E. Jennerson

F. Corporate Governance - Miscellaneous Expenses (FERC Accounts 930) ......................................................................................18 R. Swartz

1. Summary of Activities .............................................................18

2. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for Corporate Governance (FERC Account 930) ..........................18 E. Jennerson

3. Director Compensation ............................................................20 R. Swartz

III. CLAIMS ..........................................................................................................24 R. Ramos




-iii-

A. Summary of Test Year Request ...........................................................24

B. Overview of Claims Department Structure and Services Provided ...............................................................................................24

C. Evidence Storage Facility ....................................................................25

D. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for Claims ....................................................27 R. Ramos/

E. Jennerson

1. FERC Accounts 920, 921, and 924 (Administrative, Salaries, Non-Labor Costs, Property Insurance) ......................27

a) Recorded Expenses ......................................................27

b) Expense Forecast .........................................................28

2. FERC Account 925 (Injuries and Damages – Claims Reserves) .....................................................................28

a) Recorded Expenses ......................................................28


IV. WORKERS' COMPENSATION .....................................................................30 J. Smolk

A. Summary of Test Year Request ...........................................................30

B. Overview SCE’s Workers’ Compensation Program............................30

C. Legislative and SCE Program Developments Affecting Workers’ Compensation Costs ............................................................32

1. Benefit Increases ......................................................................32

2. Cost Containment Programs ....................................................33

D. Workers’ Compensation Staff (FERC Account 925) ..........................35

1. Summary of Activities .............................................................35




-iv-

2. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for Workers’ Compensation Staff (FERC Account 925) ..............37 J. Smolk/

E. Jennerson

a) Analysis of Recorded Costs .........................................37


E. Injuries and Damages Reserve Expenses (FERC Account 925) ......................................................................................................39

1. Summary ..................................................................................39

2. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for Reserves (FERC Account 925) ................................................40 J. Smolk/

E. Jennerson

a) Recorded Data ..............................................................40


Appendix A Witness Qualifications ................................................................................


List Of Figures

Figure Page

-v-

Figure II-1 Law Department (Including Corporate Governance) Recorded and Adjusted

2008-2012/Forecast 2013-2015 FERC Accts. 920/921/923/925/928/930 (Constant

2012 $000) .............................................................................................................................................2

Figure II-2 In-House Legal Resources(FERC Accts 920/921) Vs. Outside Counsel Costs

(FERC Accts 923/925/928) Recorded And Adjusted 2008-2012/Forecast 2013-2015

(Constant 2012 $000) ...........................................................................................................................11

Figure II-3 Law Department (In-House Legal Resources and Corporate Governance)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Accts. 920/921

(Constant 2012 $000) ...........................................................................................................................12

Figure II-4 Rates Compared To Real Rate Report .....................................................................................16

Figure II-5 Law Department (Outside Counsel) Recorded And Adjusted 2008-

2012/Forecast 2013-2015 FERC Accts. 923/925/928 (Constant 2012 $000) .....................................17

Figure II-6 Corporate Governance - Miscellaneous Recorded And Adjusted 2008-

2012/Forecast 2013-2015 FERC Acct. 930 (Constant 2012 $000) .....................................................19

Figure III-7 Claims (Including Claims Reserves) Recorded And Adjusted 2008-

2012/Forecast 2013-2015 FERC Accts. 920/921/924/925 (Constant 2012 $000) ..............................24

Figure III-8 Administrative and General – Claims Recorded And Adjusted 2008-

2012/Forecast 2013-2015 FERC Accts. 920/921/924 (Constant 2012 $000) .....................................27

Figure III-9 Injuries And Damages – Claims Reserves Recorded And Adjusted 2008-

2012/Forecast 2013-2015 FERC Acct 925 (Constant 2012 $000) ......................................................28

Figure IV-10 Workers’ Compensation (Including Workers’ Compensation Reserves)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925 (Constant

2012 $000) ...........................................................................................................................................30

Figure IV-11 Workers’ Compensation Recorded And Adjusted 2008-2012/Forecast

2013-2015 FERC Acct 925(Staff) (Constant 2012 $000) ...................................................................37

Figure IV-12 Injuries And Damages (Workers’ Compensation Reserves) Recorded And

Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925 (Constant 2012 $000) .............................40


List Of Tables

Table Page

-vi-

Table I-1 SCE’s Legal Operating Unit ........................................................................................................1

Table I-2 Summary of Costs for Legal Operating Unit Recorded and Adjusted 2008-

2012/Forecast 2013-2015 (Constant 2012 $000) ...................................................................................1

Table II-3 Director Compensation: 2012 ...................................................................................................20

Table II-4 Comparison of Annualized Director Compensation .................................................................22

Table IV-5 Workers’ Compensation Medical Bill Audit Savings ............................................................34

1

I. 1

INTRODUCTION 2

This exhibit presents Southern California Edison Company’s (SCE) Test Year 2015 estimates for 3

Administrative & General (A&G) expenses associated with the Legal Operating Unit. Expenses 4

incurred within the Legal Operating Unit are recorded to the Federal Energy Regulatory Commission’s 5

(FERC’s) Uniform System of Accounts shown next to each department in Table I-1 below. 6

Table I-1 SCE’s Legal Operating Unit

1. Law 920, 921, 923, 925, 928, 930

2. Claims 920, 921, 924, 925

3. Workers' Compensation 925

SCE Department FERC Account(s)

The following Table I-2 summarizes the recorded costs for years 2008-2012 and the forecast for 7

2013-2015 for these departments. 8

Table I-2 Summary of Costs for Legal Operating Unit

Recorded and Adjusted 2008-2012/Forecast 2013-2015 (Constant 2012 $000)

2

II. 1

LAW 2

A. Summary of Test Year Request 3

For Test Year 2015, SCE’s Law Department (including Corporate Governance) forecasts A&G 4

expenses of $56.8 million. Figure II-1 below shows the recorded costs for the years 2008-2012, plus 5

forecast costs for the years 2013-2015. 6

Figure II-1 Law Department

(Including Corporate Governance) Recorded and Adjusted 2008-2012/Forecast 2013-2015

FERC Accts. 920/921/923/925/928/930 (Constant 2012 $000)

B. Overview of Law Department Services Provided 7

SCE’s Law Department continues to serve SCE’s operations primarily by: 8

Advising SCE’s management on compliance with applicable laws and regulations, such as 9

regulatory, environmental, and labor requirements; 10

3

Providing legal advice on contracts and other transactions SCE enters into in order to provide 1

electrical service; and 2

Representing SCE before courts and regulatory agencies on matters related to SCE’s 3

provision of electric service and associated business activities. 4

SCE relies on both in-house and outside counsel to provide legal services. Section C below 5

describes the Corporate Operational and Service Excellence Initiative and its implementation in the Law 6

Department. Section D describes in-house activities, which are associated with expenses recorded in 7

FERC Accounts 920 and 921 relating to SCE’s in-house attorneys, associated legal staff, and Corporate 8

Governance support staff. Section E describes SCE’s use of outside counsel, which is associated with 9

expenses recorded in FERC Accounts 923, 925, and 928. Section F describes the Corporate Governance 10

functions and associated expenses recorded in FERC Account 930 that relate to the Annual Shareholder 11

Meeting, Securities and Exchange Commission (SEC) corporate filings, and non-employee Directors’ 12

fees and expenses. 13

To provide continued cost-effective legal services, SCE’s Law Department controls overall legal 14

expenses largely by: 15

Handling legal matters in-house versus retaining outside counsel as appropriate.1 16

Leveraging legal staff (e.g., paralegals and legal administrative assistants) by maintaining an 17

appropriate ratio of support staff to attorneys.2 18

Selecting cost-effective outside counsel when needed and closely managing the work of 19

outside counsel.3 20

The Law Department closely monitors outside counsel costs to verify that SCE is receiving 21

requisite value from the services being rendered. SCE also considers all reasonable means of avoiding 22

lengthy litigation through Alternative Dispute Resolution, as appropriate. In addition, in-house 23

attorneys receive mandatory continuing legal education and other programs offered both within SCE and 24

through outside programs. The Law Department’s Training Committee typically offers enough 25

continuing legal education programs throughout the year so that in-house attorneys may meet the 26

California Bar’s continuing legal education requirement without the Company incurring the expense of 27

1 See Section D infra.

2 Id.

3 See Section E infra.

4

outside training programs. Attorneys, however, may request to participate in outside training courses 1

specifically tailored to their areas of practice if the Training Committee has not provided a similar 2

program. SCE’s in-house legal training enhances the skill-set and expertise of the Law Department’s 3

attorneys and, consequently, increases the value of the legal services provided to SCE. 4

C. Corporate Operational and Service Excellence Initiative (OpX) 5

The Law Department is engaged in SCE’s Corporate Operational and Service Excellence 6

Initiative (OpX) launched in 2012. The objective of the OpX initiative is to provide increased 7

efficiencies through the centralization of common functions, particularly in the technology and finance 8

area. As part of the OpX initiative, the Law Department, along with other operating units within SCE, 9

identified several avenues to operate more efficiently and, thereby, reduce costs. The Law Department’s 10

OpX efforts during 2012 and 2013 included the following: (1) the centralization of certain financial-11

related tasks from the Law Department to Financial & Operational Services; (2) the consolidation of 12

various management responsibilities; and (3) staff reductions. The Law Department’s commitment to 13

the OpX initiative led to the elimination of four management positions and nine staff positions, all of 14

which occurred through normal attrition, a severance program, or a reduction-in-force.4 15

D. In-House Legal Resources (FERC Accounts 920, 921) 16

1. Summary of Activities 17

SCE’s Law Department relies primarily on in-house resources for the majority of SCE’s 18

legal matters. The in-house resources consist of attorneys and staff (paralegals, case administration, 19

miscellaneous legal administrative, and corporate governance support). 20

The utilization of in-house counsel is advantageous for a number of reasons. First, our 21

in-house attorneys have developed an extensive knowledge of SCE’s policies and operations, and 22

maintain a close and effective working relationship with other SCE organizations. This knowledge base 23

allows the attorneys to provide assistance on a wide-range of assignments required for SCE’s business 24

operations. Also, the Company’s business representatives have more direct access to the Law 25

Department’s attorneys than would typically be the case with outside counsel, which promotes timely 26

legal advice and aids the Law Department in avoiding expensive and time-consuming litigation. 27

Furthermore, SCE’s in-house attorneys provide cost-effective legal services to the Company. SCE’s 28

4 See workpaper entitled “Operational Excellence Savings” for additional information concerning OpX adjustments

affecting the Law Department.

5

attorneys handle numerous matters simultaneously, especially when in the litigation sections, whereas 1

hiring outside counsel to handle each matter would be costly to the Company. 2

The Law Department is led by a Senior Vice President and General Counsel, and 3

supported by four Assistant/Associate General Counsels responsible for various practice areas 4

(including regulatory, litigation, labor, and transactions, among others). In-house attorneys are generally 5

assigned to one of four practice groups (see sections (a)-(d) below), enabling them to develop 6

considerable expertise in fields that are of particular importance to SCE. In-house attorneys, however, 7

are also encouraged to work on projects in different practice areas to broaden their understanding of 8

other legal issues affecting SCE. For example, some of the attorneys whose normal assignments involve 9

litigation or transactions are occasionally assigned to regulatory projects. 10

a) Legal Practice Groups Relating to Transmission and Wholesale Markets; 11

Real Properties, Local Governmental Affairs, and Licensing; Environmental 12

and Licensing 13

As of year-end 2012, approximately 21 percent of the attorneys in the Law 14

Department were assigned to the following practice areas: (1) Transmission and Wholesale Market; 15

(2) Licensing and Environmental Law; and (3) Real Properties, Local Governmental Affairs, & 16

Licensing.5 17

The Transmission and Wholesale Markets Section handles a variety of matters 18

before the CPUC, FERC, the California Independent System Operator (CAISO), and appellate courts. 19

This Section handles issues related to the transmission of electricity and its sale in wholesale markets. 20

Additionally, this Section is responsible for the implementation of, and continuing compliance with, the 21

FERC Standards of Conduct. Before the CPUC, this Section may be involved in matters affecting 22

transmission-related investigations and rulemakings, and related policies. The Transmission and 23

Wholesale Market Section also handles legal issues relating to interconnection requests by the 24

developers of various generation projects. 25

The Real Properties, Local Government Affairs, and Licensing Section provides 26

legal support for negotiation and management of SCE’s real property assets, and advises SCE on the 27

acquisition and interpretation of property rights for a variety of projects, such as easements for 28

5 See workpaper entitled Law Department Attorney Section Responsibilities for a comprehensive and more complete

description of the areas of law handled by these sections.

6

transmission and distribution lines, the construction of new substations, and the leasing of rights-of-way 1

for secondary uses (such as plant nurseries and trailer-truck parking). This Section also provides legal 2

support for the negotiation and interpretation of municipal franchises and other local government 3

ordinances, such as those relating to utility users and business license taxes. 4

The Environmental and Licensing Section advises SCE on legal issues related to 5

licensing, the environment, and safety. For example, this Section evaluates environmental assessment 6

documents prepared for each transmission or distribution project. The Environmental and Licensing 7

Section also provides guidance on environmental and safety compliance, and enforcement matters 8

related to SCE’s operations. Additionally, this Section handles applications for licensing/re-licensing of 9

hydroelectric facilities. 10

b) Legal Practice Groups Relating to Commercial Litigation; Claims and 11

General Litigation; Generation Policy and Resources 12


Department were assigned to the following practice areas: (1) Commercial Litigation; (2) Claims and 14

General Litigation; and (3) Generation Policy & Resources.6 15

The Commercial Litigation Section is primarily responsible for representing SCE 16

in disputes arising out of contracts and other commercial arrangements. This Section also has primary 17

responsibility for handling business-related civil claims such as claims under the Unfair Business 18

Practices Act. In addition, this Section provides pre-litigation advice to SCE operating units including 19

Power Procurement and Customer Service. The Commercial Litigation Section’s attorneys also have 20

primary responsibility for representing SCE or managing outside counsel in cases where the foregoing 21

types of disputes have proceeded to litigation. 22

The Claims and General Litigation Section is primarily responsible for the 23

prosecution and defense of various types of civil actions, such as eminent domain proceedings, customer 24

bankruptcy matters, and cases seeking damages for personal injury, wrongful death, and property 25

damage. In addition to handling their own matters, this Section’s attorneys also closely manage outside 26

counsel in the foregoing types of cases, and often provide pre-litigation advice to SCE’s operating units. 27



7

The Generation Policy and Resources Section provides support for ratemaking, 1

regulatory policy, and contract issues for SCE’s own solar, natural gas, coal, and nuclear generation 2

facilities. This Section provides support for regulatory policy and contract issues concerning fuel use for 3

gas-fired, coal-fired, and nuclear generation facilities. It also handles various matters related to the San 4

Onofre Nuclear Generating Station (SONGS). Finally, the Generation Policy and Resources Section 5

represents SCE in matters before the CPUC, FERC, and NRC. 6

c) Legal Practice Groups Relating to Contracts and Intellectual Property; Base 7

Rates and Grid Support; Corporate Governance, Executive Compensation, 8

and Finance 9


Department were assigned to the following practice areas: (1) Contracts and Intellectual Property; 11

(2) Base Rates and Grid Support; and (3) Corporate Governance, Executive Compensation, and 12

Finance.7 13

The Contracts and Intellectual Property Section provides substantial legal advice 14

and transactional support in connection with negotiating and drafting a wide range of contracts and other 15

commercial documents for the procurement of materials and services necessary to operate and maintain 16

SCE’s facilities and infrastructure. This Section also provides legal advice and support to SCE 17

operating units in connection with the development, ownership, and protection of intellectual property 18

such as patents and copyrights. 19

The Base Rates and Grid Support Section gives legal advice and support for a 20

variety of ratemaking and quasi-legislative proceedings before the CPUC, including the general rate case 21

proceeding, cost of capital applications, and various CPUC rulemakings and investigations relating to 22

SCE’s electric distribution system. The Section also handles water and gas rate proceedings before the 23

CPUC for SCE's Santa Catalina Island operations and also provides legal counsel and support on 24

telecommunications regulation. 25

The Corporate Governance, Executive Compensation, and Finance Section 26

provides legal support to Edison International (EIX) and SCE on corporate governance and finance 27

matters, such as corporate disclosures and other federal and state securities law requirements, including 28



8

Securities and Exchange Commission reports, FERC interlocking director and officer filings, and 1

unclaimed property reporting. This Section also provides legal advice and support related to the Board 2

of Directors’ and shareholders’ meetings. Additionally, this Section provides executive compensation 3

support. 4

d) Legal Practice Groups Relating to Labor and Employment; Customer and 5

Tariff; Power Procurement; and Resource Policy and Planning 6


Department were assigned to the following practice areas: (1) Labor and Employment; (2) Customer 8

and Tariff; (3) Power Procurement; and (4) Resource Policy and Planning.8 9

The Labor and Employment Section provides legal support to SCE’s business 10

representatives on matters related to human resources, manages employee-related litigation, and advises 11

on SCE’s employee benefit plans. This Section handles litigation in both state and federal courts, 12

defends SCE against unfair labor practice charges before the National Labor Relations Board, and 13

represents SCE in labor arbitrations under SCE’s collective bargaining agreements. In addition, this 14

Section provides legal advice to SCE’s Human Resources Operating Unit on numerous issues ranging 15

from labor negotiations to employee benefits and programs. 16

The Customer and Tariff Section provides legal support to various SCE operating 17

units including Regulatory Policy and Affairs, Customer Service, and Transmission and Distribution. 18

Customer and Tariff attorneys advise on various issues including metering and billing, tariff 19

interpretation and municipalization, and cost responsibility surcharges, and line and service surcharges. 20

Additionally, this Section is responsible for legal issues associated with SCE’s energy efficiency and 21

low income customer programs. 22

The Power Procurement Section provides transactional legal support and advice 23

related to SCE’s procurement of electric power, natural gas products, and related financial hedge 24

products. For example, this Section provides advice regarding the structuring and implementation of 25

Requests for Offers (RFOs), including the drafting of pro forma procurement contracts and non-26

disclosure agreements. The Power Procurement Section also handles the drafting of agreements related 27



9

to trading of power products such as broker agreements. In addition, this Section advises SCE on issues 1

related to the administration of existing contracts. 2

The Resource Policy and Planning Section provides legal support to SCE 3

regarding recovery of its energy costs, SCE’s resource planning activities, new generation contract 4

approval, renewable portfolio standard regulatory review and compliance, and qualifying facilities 5

regulation. For example, this Section assists in handling the Commission’s long-term procurement plan 6

proceeding (R.10-05-006), which is an umbrella proceeding to integrate and refine the Commission’s 7

procurement policies. This Section assists SCE in various regulatory proceedings relating to State 8

and/or CPUC initiatives pertaining to renewable resources programs, qualifying facilities contracts, and 9

distributed generation. 10

e) Support Staff 11

SCE’s Law Department has a staff of paralegals, administrative and operational 12

personnel, and technical analysts, who support the Sections described above. 13

(1) Paralegals 14

Paralegals perform substantial legal work under the direction of attorneys. 15

Tasks performed by paralegals include the following: (1) planning and managing certain, generally 16

smaller, litigation matters; (2) researching factual issues; (3) conducting witness interviews; (4) drafting 17

and analyzing documents; and (5) representing SCE at administrative hearings when permitted by the 18

agency. Paralegals contribute to the Law Department’s objectives by performing tasks that do not 19

require the specialized education and training of attorneys, which enables attorneys to focus on more 20

complex legal research, writing, analysis, and counseling. 21

(2) Administrative Personnel 22

Administrative and operational personnel perform various tasks including 23

the following: (1) maintaining master case schedules and service lists for regulatory proceedings; (2) 24

assisting with the submission of data request responses; (3) coordinating the filing and service of 25

pleadings; (4) monitoring the CPUC’s calendar; (5) posting documents to SCE.com; (6) processing and 26

distributing incoming case documents; (7) producing legal and regulatory workpapers; (8) maintaining 27

data requests and other case files; and (9) supporting attorneys at regulatory hearings by providing 28

timely access to appropriate documents. They also support attorneys and paralegals as follows: 29

coordinating correspondence between the attorneys/paralegals they assist on the one hand, and business 30

10

representatives, outside counsel, and opposing counsel on the other hand; maintaining and organizing 1

case files; preparing filings; updating case calendars; and managing travel arrangements when needed. 2

On average, SCE employs one legal administrative assistant for 3

approximately every three-and-a-half attorneys/paralegals, including contract attorneys. The assignment 4

of legal administrative assistants is based on the workload of the attorneys and paralegals in each 5

section. For example, legal administrative assistants in less document-intensive sections may support 6

four attorneys/paralegals, while others assigned to high-volume document sections, such as litigation, 7

may support two attorneys/paralegals. 8

(3) Corporate Governance Personnel 9

Corporate Governance personnel support the attorneys within the 10

Corporate Governance Section, including the Corporate Secretary and Chief Governance Officer, in 11

complying with corporate and securities laws and certain other regulatory filing requirements. For 12

example, corporate governance personnel assist with filing annual and periodic reports, proxy 13

statements, securities registration statements, reports of executive and director stock transactions, listing 14

applications, FERC interlocking director and officer reports, and annual state corporate filings. 15

In addition to regulatory and administrative filings, the Corporate 16

Governance personnel keep the minutes of meetings of the shareholders, the EIX and SCE Boards of 17

Directors (the Boards) and Board committees9. Moreover, the Corporate Governance personnel support 18

the Boards and the Board committees’ actions. 19

(4) Other Support Staff 20

The Law Department’s remaining staff includes electronic and file room 21

personnel, process support personnel, and analysts. These employees provide support related to the 22

following areas: file room; electronic file system; law library; invoice processing and reporting 23

functions; variance analysis; purchase order support; supply order processing; in-house training and 24

development; systems development and deployment; and other operational activities that enable the Law 25

Department to provide legal services efficiently. 26

9 The EIX and SCE Boards and Board committees usually hold joint meetings.

11

2. Comparison of In-House Attorney and Outside Counsel Expenses 1

As shown in Figure II-2 below, the number of attorneys in SCE’s Law Department has 2

increased from 91 in 2008 to 95 in 2012, and is expected to remain at this level through Test Year 2015. 3

Figure II-2 In-House Legal Resources(FERC Accts 920/921) Vs.

Outside Counsel Costs (FERC Accts 923/925/928) Recorded And Adjusted 2008-2012/Forecast 2013-2015

(Constant 2012 $000)

12

3. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast 1

for In-House Legal Resources and Corporate Governance (FERC Accounts 920, 2

921) 3

Figure II-3 Law Department (In-House Legal Resources and Corporate Governance)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Accts. 920/921 (Constant 2012 $000)

a) Recorded Costs 4

SCE records the salaries and related expenses of the Law Department’s attorneys 5

and staff (including Corporate Governance support staff) to FERC Account 920 (Administrative and 6

General Salaries) and FERC Account 921 (Office Supplies and Expenses), as shown in Figure II-3 7

above. 8

Labor expenses remained relatively stable during 2008-2012, increasing annually 9

at a compound average rate of 1.03 percent. Non-labor expenses increased annually at a compound 10

average rate of 2.59 percent, which was mainly the result of higher expenses in the areas of graphic 11

productions, office equipment, law library subscriptions, and software licensing fees. 12

13

b) Staffing Forecast 1

For Test Year 2015, SCE anticipates the staffing level of attorneys to remain at 2

the 2012 levels, while remaining staff will be reduced by 13 positions as a result of the OpX initiative. 3

c) Expense Forecast 4

The Law Department’s Test Year 2015 forecast for in-house legal services is 5

$30.539 million, of which $25.245 million is labor, and $5.294 million is non-labor. The basis of the 6

2015 labor and non-labor forecasts were 2012 recorded expenses, adjusted for projected future-year 7

reductions in personnel resulting from the OpX initiative. Overall, our 2015 forecast is $1.531 million 8

below 2012 recorded levels. 9

E. Outside Counsel (FERC Accounts 923, 925, 928) 10


The Law Department’s outside counsel costs are recorded in FERC Accounts 923, 925, 12

and 928. SCE retains outside counsel on an as-needed basis to handle certain matters requiring specific 13

expertise, or when cases require additional resources. For example, SCE uses outside counsel to handle 14

out-of-state bankruptcy proceedings and specialized employee benefits and labor issues. 15

2. Oversight and Monitoring of Outside Counsel Expenses 16

The Law Department has established practices and protocols to ensure that outside 17

counsel costs remain reasonable. 18

First, retaining outside counsel on new matters requires the approval of an 19

Assistant/Associate General Counsel or the General Counsel. Importantly, retaining a firm that SCE has 20

not previously used requires the express approval of the General Counsel. 21

Second, once a law firm has been retained, the Law Department follows a careful, 22

detailed process to control outside counsel billings, which is specified in the Outside Counsel Guide (the 23

“Guide”) and provided to each retained firm. The Guide identifies SCE’s prescribed billing procedures 24

and related principles that outside counsel are expected to follow in performing legal services for the 25

Company, and: 26

Emphasizes the importance of the budgeting process as a tool for managing outside 27

counsel costs from the point of engagement through the conclusion of the specific 28

matter; 29

Sets forth SCE’s expectations that outside counsel work closely and communicate 30

with the Law Department’s attorneys; 31

14

Describes SCE’s policy for payment of expenses when an outside attorney’s rate 1

increases, or a new attorney is added to a matter; 2

Outlines SCE’s policy and billing requirements pertaining to the use of consultants 3

and experts by outside counsel on SCE matters; 4

Identifies the types of costs that SCE will reimburse; 5

Places restrictions on reimbursements for travel costs, copying costs, and other 6

disbursements; 7

Encourages outside counsel to be cost-sensitive with respect to travel and to take 8

advantage of opportunities to reduce travel-related expenses whenever possible; and 9

States SCE’s requirements for submission and payment of invoices. 10

Third, the Law Department has an Outside Counsel Committee comprised of several 11

in-house attorneys who review the department’s policies as they relate to outside counsel, periodically 12

update the Guide, annually review the performance of outside counsel through written evaluations, and 13

serve as an interface between outside counsel and Law Department management. 14

Finally, SCE strongly encourages and solicits the use of alternative billing methods by 15

outside counsel so that the time and fees incurred on a matter are consistent with the Law Department’s 16

determination of the matter’s size, significance, and desired result. These methods include discounted 17

hourly/volume rates, blended hourly rates for associates and partners, phased budgeting, fixed fees, 18

incentive billing, and modified contingency arrangements. 19

3. Efforts to Contain Outside Counsel Costs 20

As of 2013, the Law Department has continued certain outside cost containment 21

measures and implemented some additional measures pertaining to the engagement of outside counsel. 22

First, to the extent feasible, SCE continues to endeavor to retain Diverse Business Enterprise firms 23

(DBE firms) to perform legal work, or provide legal support resources. Such firms generally have lower 24

billing rates than larger firms. Recently, the Law Department has expanded the types of matters 25

assigned to DBE firms. For example, in 2013 the Law Department retained a DBE firm to defend SCE 26

in a wage and hour class action potentially involving over 700 class members. 27

15

Next, the Law Department has designated seven outside firms10 as strategic partner firms 1

to assist with specialized or core areas of the Company’s legal needs. SCE’s fee arrangements with 2

these seven strategic partner firms specify discounts from the firms’ normal base rates. By leveraging 3

these firms, the Law Department ensures that it is paying reasonable, below-market rates while still 4

receiving quality legal services. 5

Finally, beginning with services provided in 2012, the Law Department modified its 6

arrangement with its strategic partner firms to include the potential for a completely discretionary bonus 7

that, unlike in prior years, will not be viewed as representing the disposition of a holdback from 8

discounted rates. Under the new arrangement, a firm is only eligible for a bonus if it provides an 9

extraordinary work product that exceeds SCE’s already high expectation of excellence from its strategic 10

partner firms.11 Since the Law Department’s fee arrangements with the seven strategic partner firms 11

only provide a discretionary bonus that will generally not compensate for the amount of the discount 12

from standard rates, SCE believes it is paying below market rates for the bulk of its legal services 13

provided by outside counsel. Importantly, matters with outside counsel fees in excess of $100,000 14

annually, are evaluated individually by the Outside Counsel Committee, and all completed evaluations 15

and recommended bonuses, if any, are presented to the Company’s General Counsel for final approval. 16

4. The Average Outside Counsel Rates Paid by the Law Department Are Below the 17

Market Rate. 18

Even prior to initiating new practices regarding bonuses for strategic partner firms, SCE’s 19

Law Department consistently paid rates at an average level lower than the legal market in Los Angeles. 20

Figure II-4 below compares the average outside counsel rates paid by SCE’s Law Department to the 21

market rates for the Los Angeles area.12 The data includes the rates for partners and associates at all 22

firms (not only strategic partner firms) that provided legal services to the Law Department each year 23

with the exception of outside counsel handling workers’ compensation matters. The rates stated in the 24

chart incorporate the hourly blended rate, representing both partner and associate rates, and any bonus 25

10 An eighth strategic partner firm was added in 2013.

11 Other factors reviewed in considering whether and to what extent to award a discretionary bonus include adherence to budgets and commitment to diversity.

12 The Real Rate Report is published by Corporate Executive Board and TyMetrix.

16

payments for the given year. The analysis demonstrates that the average of all rates paid by SCE (with 1

bonuses included) is lower than the market rate for each year sampled. 2

Figure II-4 Rates Compared To Real Rate Report

$509

$523 $522 $529

$470 $477

$464

$479

420

440

460

480

500

520

540

2010 2011 2012 2013 (1st Qtr)

Rate ($)

Real Rate Report Edison

7.7% Below Market

8.8% Below Market 11.1% Below

Market

9.3% Below Market

1. Real Rate Report rate is weighted average of partner and associate rates for Los Angeles

2. 2010-2012 rates adjusted to add back actual year-end bonuses paid to firms and to remove workers’ compensation3. 2013 1Q real rate report rate is estimated; Edison rate adjusted to add estimate of year-end bonuses and remove workers’ comp.


for Outside Counsel (FERC Accounts 923, 925, 928) 4

The Law Department records expenses associated with its outside counsel to FERC 5

Account 923 (Outside Services Employed), FERC Account 925 (Injuries and Damages), and FERC 6

Account 928 (Regulatory Commission Expenses). Costs recorded to FERC Account 925 include legal 7

services paid to outside counsel and other litigation expenses associated with both Claims Injuries & 8

Damages and Workers’ Compensation Claims. FERC Account 928 is used to record outside counsel 9

expenses related to regulatory matters (for both the CPUC and FERC). All other outside counsel 10

expenses are recorded in FERC Account 923. 11

Figure II-5 below shows SCE’s recorded costs for outside counsel from 2008 to 2012 and 12

our forecast for 2013 to 2015. 13

17

Figure II-5 Law Department (Outside Counsel)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Accts. 923/925/928


As shown in Figure II-5 above, outside counsel expenses increased from $12.8 million in 1

2008 to $23.0 million in 2012. As indicated in the 2012 GRC Testimony, the increase from 2008 to 2

2009 was due to additional activity in the following areas: (1) various wildfire matters; (2) 3

administrative proceedings before the Nuclear Regulatory Commission (“NRC”) regarding SONGS 4

licensing and investigations; (3) a comprehensive review of SCE’s compliance related to Transmission 5

and Wholesale Marketing activities; and (4) litigation involving a Nevada tax refund. The most 6

prominent increase from 2009 to 2010 was due to an increase in expenses related to a dispute over 7

termination of secondary land use agreements. The decrease in 2011 resulted primarily from reduced 8

activities involving the secondary land use dispute and the SONGS Performance Improvement matters. 9

Outside counsel expenses showed a slight decrease in 2012 compared to 2011, due to a reduction in 10

active matters from prior years because the matters had been resolved or were close to resolution. 11

For Test Year 2015, SCE forecasts $23.047 million for outside counsel expenses. This 12

forecast, which is based on 2012 recorded expenses, is consistent with D.89-12-057 and D.04-07-022, 13

where the CPUC stated that if costs have shown a trend in a certain direction over three or more years or 14

18

have been relatively stable over a period of time, the last year recorded is an appropriate estimate. The 1

recorded outside counsel expenses do show a downward linear trend from 2010 through 2012. 2

Therefore, the 2012 recorded expenses provide an appropriate estimate of outside counsel costs. 3

Although the 2015 forecast is based on 2012 recorded expenses, outside counsel billing 4

rates are expected to increase between 2013 and 2015. Historically, the compound annual increase in 5

outside counsel rates from 2008 through 2012, a period heavily impacted by the 2008 economic crisis, 6

was relatively stable at a rate of 1.07 percent per year. SCE anticipates that the recent emergence of an 7

economic recovery will encourage outside counsel to seek annual increases in their rates at levels 8

exceeding those observed in recent periods, a trend observed by SCE in 2013. Thus, the use of the Law 9

Department’s 2012 recorded costs to forecast 2015 expenses is conservative insofar as it does not 10

adequately account for the anticipated increase of outside counsel rates in the coming years. 11

F. Corporate Governance - Miscellaneous Expenses (FERC Accounts 930) 12


Companies that are incorporated in California, such as SCE and EIX, SCE’s parent 14

company, are governed by the California Corporations Code, which requires that the business and affairs 15

of the corporation be managed by or under the direction of a board of directors.13 The EIX and SCE 16

Boards review proposals and reports concerning the following: (1) major capital projects, such as those 17

necessary to maintain the safety and reliability of SCE’s transmission and distribution system; (2) 18

attaining operational efficiencies; and (3) regulatory and legislative policies and activities on both the 19

state and federal levels.14 20

In 2012, the Boards met ten times. The Board Committees met as follows: audit (five 21

times), compensation and executive personnel (four times), finance, operations, and safety (four times), 22

and nominating/corporate governance (four times). The Boards also held six executive sessions of the 23

non-employee directors and two executive sessions of the independent directors. 24


for Corporate Governance (FERC Account 930) 26

Corporate Governance expenses recorded in FERC Account 930 (Miscellaneous General 27

Expenses) include the following: (1) compensation paid to non-employee members of SCE’s board of 28

13 Cal. Corp. Code § 300.

14 Notice of 2013 Joint EIX and SCE Annual Report.

19

directors; (2) expenses associated with the director and annual shareholder meetings; (3) expenses for 1

contract services; (4) Stock Exchange Fees; (5) Financial Industry Regulatory Authority (FINRA) fees; 2

(6) other proxy-solicitation fees; and (7) costs related to SEC filings, the production of director meeting 3

material, and proxy statement printing and mailing. Annual expenses recorded in FERC Account 930 4

are represented in Figure II-6 below. The labor component of this account refers to the charges made by 5

SCE employees for their time spent providing assistance with the various activities described above. All 6

other expenses, including directors’ fees, are classified as non-labor. 7

Figure II-6 Corporate Governance - Miscellaneous

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct. 930


Both labor and non-labor expenses decreased from 2008-2012. The decrease in non-8

labor expenses reflected reductions in Director Retirement Plan costs, Deferred Compensation, and 9

Stock-Based Compensation. These decreases were partially offset by increases in director fees, Stock 10

Exchange Fees, and proxy statement related expenses. 11

The Corporate Governance Division’s Test Year 2015 forecast for Account 930 12

(Corporate Governance and Miscellaneous) is $3.210 million. The division’s forecast was calculated 13

based on 2012 recorded expenses, and is consistent with D.89-12-057 and D.04-07-022, in which the 14

20

CPUC stated that if costs have shown a trend in a certain direction over three or more years or have been 1

relatively stable over a period of time, the last year recorded is an appropriate estimate. 2

3. Director Compensation 3

Table II-3 below is copied from page 17 of the April 2013 Notice of Annual Meeting and 4

Joint Proxy Statement issued jointly by EIX and SCE, and states the compensation paid to non-5

employee members of the Boards in 2012, including stock-based compensation.15 6

Table II-3 Director Compensation: 2012

SCE acknowledges that its requests for recovery of supplemental benefits and stock- 7

based compensation for non-employee directors have been denied in previous rate cases. 8

Notwithstanding the Commission’s prior conclusions on this issue, SCE maintains that supplemental 9

benefits and stock-based compensation for non-employee directors are typical and recurring costs of 10

business operations in California and, for that reason, again seeks recovery for such portion of payment 11

of director compensation. 12

15 See Edison International and Southern California Edison Company Notice of 2013 Annual Meeting and Joint Proxy

Statement (Apr. 25, 2013) (the “Joint Proxy Statement”) at page 17 for additional information concerning this table. The Joint Proxy Statement is available at http://www.edison.com/investors/proxy_statements.asp

21

The California Corporations Code requires SCE’s business affairs to be overseen by a 1

board of directors.16 Compensation provided to members of the Boards therefore is required for SCE to 2

function as a corporation, and is a normal cost of business. Moreover, the Board’s oversight of SCE’s 3

operations benefits the ratepayers. As noted above, the Board reviews, among other things, proposals 4

and reports on major capital projects, including those necessary to maintain the safety and reliability of 5

SCE’s transmission and distribution system. In completing these duties, the Boards aim to increase 6

operational efficiencies at SCE to reduce costs, while ensuring the reliable and safe production of energy 7

to SCE’s ratepayers. Accordingly, SCE’s payment of director compensation serves the Company’s 8

overall mission of providing electrical services to its ratepayers, and recovery for such expenses is 9

appropriate. 10

In 2012, the directors, other than Dr. Rosser, were granted the following annual equity 11

awards upon re-election to the board: (1) 2,406 shares of EIX common stock or deferred stock units; and 12

(2) zero EIX non-qualified stock options.17 The Commission previously approved the recovery of stock 13

options in rates, provided that the total compensation levels for directors are reasonable. For example, 14

in its Southern California Gas Company (SoCal) 1998 GRC decision, the Commission stated: 15

SoCal offers high level employees stock options as part of their compensation plans. 16 ORA recommends that the Commission disallow expenses associated with stock 17 options for executives, which ORA believes raises SoCal’s long-term incentive levels 18 to 21% above market levels. ORA observes that SCE’s and PG&E’s stock options 19 programs are funded entirely by shareholders and that the incentives are rewards for 20 financial accomplishments which do not benefit ratepayers. 21

SoCal responds that ORA has improperly isolated a single element of SoCal’s total 22 compensation package. SoCal observes that ORA does not dispute that total 23 compensation at SoCal is not above market levels. Isolating stock options expenses 24 would therefore reduce the package of total compensation further. 25

We concur with SoCal that as long as its total compensation levels are appropriate we 26 will not dictate how SoCal distributes compensation among various types of 27 employment benefits.18 28

16 Cal. Corp. Code § 300.

17 In 2013, the compensation changed to: (1) upon initial election to the Board, an award of EIX deferred stock units with an aggregate grant date value of $110,000 on the date of their election; and (2) upon re-election to the Board, an award of EIX Common Stock or deferred stock units, to be specified in advance by the Director, with an aggregate grant-date value of $110,000. See Joint Proxy Statement at p. 18.

18 In re. So. Cal. Gas Co., D.97-07-054 (mimeo), p. 68, 1997 Cal. PUC LEXIS 751, 179 P.U.R. 4th 237. See also D.07-11-037, pp. 157-158, where the Commission allowed dividend equivalent rights (DER) as part of Golden State Water Company’s (GSWC) total direct compensation for its executives and ruled that “the value of DERs within GSWC’s total

(Continued)

22

Similar to the use of stock options as part of the total compensation package provided by 1

Southern California Gas Company, the total compensation paid to SCE’s Board, including the equity 2

awards, is reasonable. Accordingly, SCE’s share of the equity awards paid to non-employee directors is 3

warranted pursuant to D.97-07-054. Moreover, as demonstrated in analyses conducted by Frederic W. 4

Cook & Co. (Cook), the total compensation level of SCE’s Board is reasonable.19 Cook prepared annual 5

comparisons of the directors’ total compensation with the following groups: (1) the 20 other utilities 6

listed in the Philadelphia Utility Sector Index (20-utility index); and (2) companies listed in the Standard 7

& Poor’s (S&P) 500 index. To facilitate an “apples-to-apples” comparison, Cook created a hypothetical 8

director who is a board and committee member, and calculated per-meeting cash compensation as if all 9

companies held the same number of board and committee meetings. Cook calculated equity 10

compensation by annualizing the value to include initial and ongoing grants of options and full-value 11

shares. (Thus, the amounts in the table below are not the actual amounts paid.) Table II-4 below 12

contains the total and median compensation and rank for the utility and S&P 500 groups for 2011 and 13

2012.20 14

Table II-4 Comparison of Annualized Director Compensation

2011 2012SCE/EIX Total Annualized Director Compensation $192,000 $202,000SCE/EIX Rank Among Philadelphia Utility Index Tied For 9th Tied For 10thPhiladelphia Utility Index Median Total Annualized Director Compensation $190,000 $202,000S&P Median Total Annualized Director Compensation $216,094 $228,667

Using either of the two measures, the 20-utility index measure or the S&P 500 15

companies’ measure, SCE’s total director compensation is reasonable. SCE’s director compensation 16

ranked roughly in the middle of the 20-utility index in 2011 and 2012. For the 20-utility index, SCE’s 17

Continued from the previous page direct compensation for executives is not unreasonable, does not constitute an ‘extra burden on ratepayers,’ and should be allowed in rates.”

19 Frederic W. Cook & Co. is the independent compensation consultant for SCE’s compensation and executive personnel committee. See presentations by Frederic W. Cook & Co. entitled Non-Employee Directors’ Compensation: Discussion Outline, presented to the EIX board in 2012 and 2013. These materials are available for inspection at SCE’s headquarters.

20 Id.

23

2011 director compensation was slightly above the median and the 2012 director compensation was 1

right at the median. Notably, for the S&P 500 companies’ measure, SCE was below the median pay for 2

both 2011 and 2012. For 2011, SCE’s director compensation was $192,000 while the S&P 500 3

companies’ measure was $216,094. For 2012, SCE’s director compensation was $202,000 while the 4

S&P 500 companies’ measure was $228,667. Thus, when comparing SCE’s director compensation with 5

either measure, SCE’s total director compensation is appropriate and reasonable. 6

24

III. 1

CLAIMS 2


For Test Year 2015, SCE’s Claims Department forecasts a total of $23.3 million in 4

Administrative & General expenses (including Injuries and Damages – Claims Reserves). Figure III-7 5

below shows recorded costs for the years 2008-2012 and forecast costs for the years 2013-2015. 6

Figure III-7 Claims (Including Claims Reserves)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Accts. 920/921/924/925


B. Overview of Claims Department Structure and Services Provided 7

Each year, claims are filed against SCE and by SCE, arising out of the Company’s provision of 8

electric service. Approximately 11,900 files were opened per year during the last five years (2008-9

2012). Claims against SCE administered by the Claims Department during this time period included, 10

among other things, bodily injury, damage to electrical appliances, accidents involving SCE vehicles, 11

and property damage. Claims filed by SCE against others ordinarily involve damage to SCE facilities or 12

equipment caused by others, accidents involving SCE vehicles, and energy theft. These activities have a 13

direct bearing on the cost of providing electric service. For example, SCE filed numerous claims against 14

25

contractors or subcontractors for construction “dig-in” cases where the contractor or subcontractor 1

caused damage to our underground facilities. On average, SCE recovers monetary damages in 2

approximately 70 percent of these claims. Had SCE not filed these claims, SCE’s cost of providing 3

service would have increased. 4

Claims personnel perform the following tasks: (1) investigations and litigation assistance in 5

connection with claims against SCE for bodily injury and property damage; (2) collections of payments 6

due to SCE for damage to Company facilities; and (3) representation of SCE in small claims and other 7

legal matters in connection with claims filed by SCE against other parties for damage to Company 8

facilities and equipment. 9

Claims personnel respond to claims against SCE (referred to as liability claims) and pursue 10

recovery for damages caused to SCE facilities by other parties (referred to as collections claims). 11

During 2012, this work was performed by 37 employees (managers, liability and collections claims 12

representatives, investigators, analysts, and administrative staff). 13

The areas of responsibility for Claims Department personnel are as follows: (1) the managers 14

are responsible for providing oversight of the Claims Department’s operations; (2) the collections claims 15

representatives are responsible for pursuing recovery for damage to SCE facilities or equipment caused 16

by third-parties; (3) the liability claims representatives handle the claims made against SCE involving 17

property damage or appliance damage; (4) investigators perform field investigations and provide support 18

for complex matters involving personal injuries and property damage in litigated cases; and (5) analysts 19

and administrative staff provide clerical support for the claims operations, and handle subpoenas. 20

C. Evidence Storage Facility 21

Included in the Claim Department’s forecast (refer to Section D, below) is $400,000 in O&M 22

expenses in 2014 and 2015 to cover lease/rental costs for a storage facility to house potential evidence 23

related to incidents under investigation by Commission staff. In accordance with the directives of Public 24

Utilities Code 316 and General Order 95, Section I, Rule 19– Cooperation with Commission Staff, 25

Preservation of Evidence Related to Incidents Applicability of Rules, SCE must provide Commission 26

staff upon request, immediate access to “physical evidence under the utility or utility agent’s physical 27

control, custody, or possession related to the incident.”21 28

21 General Order 95, Section I, Rule 19.

26

Following a reportable event in 2011, the Commission Consumer Protection and Safety Division 1

(“CPSD”), now known as the Safety Enforcement Division (SED), criticized SCE for not retaining all 2

materials from the incident on the ground that they consisted “evidence.”22 More recently, SED has 3

indicated to SCE that it should continue to retain the more than one acre’s worth of materials related to 4

the 2011 reportable event that was ultimately retained even though SCE has completed its own 5

investigation and CPSD has issued a report related to the 2011 reportable event. Moreover, SED has 6

indicated to SCE that it should also continue to retain all materials related to other reportable events, 7

regardless of cause or scope, which SCE views as a change in direction from how similar matters had 8

been handled in the past. 9

SCE’s current evidence storage facilities which hold the materials related to the 2011 reportable 10

event and materials retained from others events, are outdoor facilities in which the materials are exposed 11

to the elements and may be subject to vandalism or theft. Moreover, SCE’s current evidence storage 12

facilities are inadequate to accommodate the increased amount of materials SED has requested SCE to 13

retain. Thus, the new direction provided by SED has impacted SCE’s ability to rely on its existing 14

storage facilities as they do not contain adequate space. 15

SCE has conducted a search of available facilities that would assist in accommodating the 16

increased amount of materials to be retained. The Claims Department estimates that it will need an 17

indoor storage facility with a minimum space requirement of 40,000 square feet in order to retain the 18

increased amount of materials. Based on the research conducted of potential storage sites, SCE believes 19

that the annual cost for such facility would be $400,000.00.23 20

22 http://www.cpuc.ca.gov/NR/rdonlyres/C85B9B30-E5BC-4D9D-BB5F-

DC91EEEE6D7/0/SCEWindstormReportCPSD_Final1_11_13.pdf.

23 See workpaper entitled “Claims-Storage Facility Bids” for additional information.

27

D. Analysis of Recorded Data, Estimating Methodology, and Test Year 2015 Forecast for 1

Claims 2

1. FERC Accounts 920, 921, and 924 (Administrative, Salaries, Non-Labor Costs, 3

Property Insurance) 4

Figure III-8 Administrative and General – Claims

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Accts. 920/921/924


a) Recorded Expenses 5

SCE Labor and non-labor expenses incurred by the Company to process both 6

liability claims against SCE and collection claims by SCE against others are recorded in FERC 7

Accounts 920 (labor) and 921 (non-labor). Payments made to outside entities such as third party 8

investigators, expert witnesses, stenographers, as well as their associated travel and related reimbursable 9

expenses incurred to process and collect claims against others, are recorded in FERC Account 924. 10

Such costs vary due to a number of factors, such as the need for travel, the location of the incidents, and 11

the number and severity of the claims. 12

28

As indicated in Figure III-8 above, labor expenses remained relatively flat 1

between 2008 and 2012. Non-labor expenses were relatively flat between 2008 and 2012, with the 2

exception of 2011, which decreased due to reduced contract personnel retained for asbestos litigation. 3

b) Expense Forecast 4

The Claims Department’s Test Year 2015 forecast for A&G expenses is $3.858 5

million. The labor and non-labor forecasts were based on 2012 recorded expenses (which are 6

representative of 2015 expenses), adjusted by $400,000 in 2014 and 2015 to cover lease/rental costs for 7

a storage facility to house potential evidence related to incidents under investigation by the Commission 8

(as discussed above). The use of 2012 as the base year for forecasting labor and non-labor is consistent 9

with D.89-12-057, which stated that if recorded expenses have been relatively stable for three or more 10

years, or if recorded expenses have shown a trend in a certain direction over three or more years, the last 11

year’s recorded expense is an appropriate base estimate. 12

2. FERC Account 925 (Injuries and Damages – Claims Reserves) 13

a) Recorded Expenses 14

Figure III-9 Injuries And Damages – Claims Reserves

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925


29

Claims expenses (other than those arising from Workers’ Compensation), such as 1

commercial, labor, and other general liability are recorded in FERC Account 925, including actual cash 2

outlays and reserve expenses, which represent the Company’s estimate of potential exposure on known 3

events. The Department conducts a quarterly assessment of the Company’s claims reserve balance, and 4

records adjustments as needed. 5

As shown in Figure III-9 above, recorded expenses between 2008 and 2012 6

fluctuated from year-to-year due to the unpredictable nature of injuries and damages claims (e.g., fires, 7

falling wires, abnormal voltage, and other causes). The increased level of expenses noted in 2009 and 8

2010 were the result of commercial, labor, and fire related claims. Expenses were lower in 2011 due to 9

a credit for the participants’ share of a settlement related to Mohave Generating Station. 10


The Claims Department’s Test Year 2015 forecast for Account 925 Claims 12

Reserves is $19.424 million, which was calculated based on a five-year average of recorded costs from 13

2008-2012. This approach is consistent with D.89-12-057, which stated that for those account which 14

have significant fluctuations and which are influenced by external factors, an average of recorded 15

expenses over a period of time is a reasonable base estimate. 16

30

IV. 1

WORKERS' COMPENSATION 2


For Test Year 2015, SCE’s Workers’ Compensation Department forecasts expenses of $21.2 4

million. Figure IV-10 below shows 2008-2012 recorded costs and 2013-2015 forecast expenses. 5

Figure IV-10 Workers’ Compensation (Including Workers’ Compensation Reserves)

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925


Administrative expenses and related reserves for injuries and damages in the Workers’ 6

Compensation Department are recorded in FERC Account 925. Items in this account include: 7

(1) compensation of employees in the Workers’ Compensation Department and related expenses 8

associated with the employees’ job responsibilities; (2) costs for industrial accident investigations, 9

contract fees, witness fees, agency personnel, supplies, system support, taxes, and licenses; and 10

(3) employee-related benefits associated with workers’ compensation claims. 11

B. Overview SCE’s Workers’ Compensation Program 12

SCE’s Workers’ Compensation Department has the primary responsibility for administering 13

workers’ compensation benefits, providing information to SCE employees regarding such benefits, and 14

31

determining workers’ compensation benefit eligibility. The California Legislature has established the 1

level of workers’ compensation benefits SCE provides to employees. 2

The California Constitution requires that all employers provide a workers’ compensation 3

program to compensate employees, or their dependents, in the event employees suffer work-related 4

injuries, illnesses, or death.24 Employers’ workers’ compensation programs may be insured or self-5

insured. SCE has self-insured and self-administered its workers’ compensation obligations since the 6

early 1900’s. California’s Department of Industrial Relations’ Self-Insurance Plans unit regulates SCE’s 7

workers’ compensation benefits program. 8

Employees’ claims are administered by SCE’s Workers’ Compensation Department. Workers’ 9

Compensation Claims Representatives are responsible for determining whether SCE has an obligation to 10

provide workers’ compensation benefits, and if it does, for administering benefits to eligible employees 11

pursuant to statutory and regulatory requirements. Listed below are the statutory benefits that 12

employees receive through the Workers’ Compensation Department: 13

Medical Care: Employees receive all medical care that is reasonably required to cure or 14

relieve the effects of a work-related injury or illness. There are no required co-pays or 15

deductibles for employees, and there are no limitations on either the duration or cost of 16

medical services, medicine, or supplies. During the time an employee’s claim is being 17

investigated to determine eligibility, the employee may receive up to $10,000 in medical 18

care, even if the injury or illness is found, after investigation, not to be work-related. 19

Income Replacement: Compensation for lost wages is set by the California Legislature. 20

Compensation paid as a temporary disability benefit is limited by two factors: 21

o Payments are limited to 104 or 240 weeks, depending on the date and severity of the 22

injury; and 23

o Maximum and minimum weekly rates and annual cost-of-living adjustments that are 24

tied to increases in state average weekly wages. 25

Return to Work: Reasonable workplace accommodations, alternative jobs, modified job 26

duties, and/or light duty on a temporary or permanent basis for employees who are limited as 27

a result of work-related injuries or illnesses. 28

24 California Constitution, Art. XIV, § 4. See also Cal. Labor Code § 3702.2 and Cal. Code Regs. tit. 8, §§ 15300, 15301

for the regulations pertaining to self-insured reserves.

32

Supplemental Job Displacement: Employees may be eligible to receive a nontransferable 1

voucher to use at a state-accredited school for job-related retraining or skill enhancement. 2

The amount of the vouchers range from $4,000 to $10,000 for injuries occurring from 3

January 1, 2004 through December 31, 2012, depending upon the level of permanent 4

impairment, whether the employer offers a modified or alternative job, and, if so, whether the 5

employee accepts that offer. For injuries occurring on or after January 1, 2013, the voucher 6

is for $6,000 regardless of the level of permanent impairment, whether the employer offers a 7

modified or alternative job, or whether the employee accepts that offer. 8

Compensation for Permanent Impairment: Employees receive payments in accordance 9

with the State Permanent Disability Rating Schedule, or in accordance with the American 10

Medical Association’s Guides to the Evaluation of Permanent Impairment (Fifth Edition), 11

depending on the employee’s date of injury, or the date upon which the employee’s 12

impairment became known. Permanent impairment benefits are subject to the annual cost-13

of-living adjustments that are tied to increases in state average weekly wages. 14

Death Benefits: In the event of an employee’s death due to a work-related injury or illness, 15

the employee’s dependents receive payments in addition to burial expense benefits. 16

However, when an employee sustains a fatal injury and leaves no surviving dependent, the 17

death benefit payment is paid to the Department of Industrial Relations, pursuant to 18

California Labor Code Section 4706.5. Death benefits to surviving dependents are subject to 19

the annual cost-of-living adjustments that are tied to increases in state average weekly wages. 20

C. Legislative and SCE Program Developments Affecting Workers’ Compensation Costs 21

The California Legislature made several changes to California’s workers’ compensation system 22

from 2002 through 2012. The reforms took effect in stages, commencing in 2003. These reforms 23

require more compliance-related work, and the implementation of cost containment programs intended 24

to speed up the delivery of benefits to injured employees, provide for benefit increases, and reduce 25

employer costs. Outlined below are key California workers’ compensation legislation that affects 26

workers’ compensation costs: 27

1. Benefit Increases 28

AB 749 and SB 899 increase benefits for temporary and permanent partial and total 29

disability payments based on increases in state average weekly wages. The rate increase ties to the Cost 30

of Living Adjustment (COLA) provisions, which became effective in 2006. SB 899 capped temporary 31

33

disability payments at 104 weeks within two years of the date of the first payment, except for certain 1

serious injuries that were capped at 240 weeks. Beginning 2013, SB 863 raises permanent disability 2

benefits by 30 percent, through increased minimum and maximum weekly rates, phased-in over a two-3

year period. 4

2. Cost Containment Programs 5

SCE implemented reform measures in its workers’ compensation program to reduce costs 6

and expedite the delivery of benefits to injured employees, including all of the following: 7

Medical Provider Network (MPN) (pursuant to SB 899): SCE implemented a 8

state-approved employer-contracted MPN. As of December 31, 2012, SCE has 9

contracted with approximately 463 primary and specialty care providers, and 10

conducted rigorous provider credentialing before including them in the network. 11

Included in the network are programs for burn care (Grossman Burn Center) and 12

serious orthopedic injuries (Cedars-Sinai Hospital). All SCE employees living in 13

California must receive treatment for work-related injuries and illness by an MPN 14

provider, unless the employee has pre-designated a personal physician prior to an 15

injury. 16

Pharmacy Network (pursuant to AB 749): SCE contracted with Express Scripts to 17

provide a pharmacy network for use by employees who require prescription 18

medication because of work-related injuries and illnesses. The Pharmacy Network 19

was implemented on October 1, 2007. In-network pharmacies are not required to 20

submit authorization requests directly to the claims staff or through the utilization 21

review process. The Pharmacy Network processes all authorization requests and 22

audits all related invoices from in-network pharmacies reducing bill auditing and 23

utilization review time. In 2012, the Pharmacy Network processed over 5,973 24

requests for medical prescriptions. Absent the Pharmacy Network, these requests 25

would have been submitted to the claims staff or the Utilization Review Plan for 26

approval. 27

Utilization Review (pursuant to SB 228): SCE implemented a state-approved 28

medical Utilization Review Plan. SCE’s utilization review services provider, GSG 29

Associates, is accredited by the National Utilization Review Accreditation 30

Commission. GSG Associates uses California laws and regulations, as well as the 31

34

American College of Occupational and Environmental Medicine guidelines, to 1

determine whether to approve a request for medical treatment. In 2012, SCE’s 2

Utilization Review Plan processed over 4,427 requests for medical treatment. 3

Medical Bill Auditing (pursuant to SB 228): SCE contracted with Definiti, a 4

medical bill review and auditing service. All non-pharmacy medical bills are audited 5

by Definiti for accuracy and compared to the medical authorizations documented by 6

SCE’s Utilization Review Plan. Additionally, SCE contracted with Blue Cross to 7

access discounted fee-for-service provider contracts. Definiti is responsible for 8

identifying contracted providers and applying the appropriate discounts to charges 9

pursuant to the Blue Cross contract. Table IV-5 below shows the amount of charges 10

audited from 2008-2012, and the amount of charges that were disallowed (reflecting 11

an annual average net savings to SCE of over $10 million). 12

Table IV-5 Workers’ Compensation

Medical Bill Audit Savings

Year Gross Charges Approved Savings Service Fees Net Savings 2008 18,531,236 8,372,643 10,158,593 690,232 9,468,361 2009 19,665,594 8,492,362 11,173,232 593,793 10,579,439 2010 17,762,693 7,918,394 9,844,299 663,212 9,181,087 2011 19,858,853 8,743,950 11,114,903 610,541 10,504,362 2012 22,589,619 10,890,199 11,699,420 668,665 11,030,755

Physical Medicine (pursuant to SB 228): The amount of chiropractic, physical 13

therapy, and occupational therapy visits is limited by statute to 24 per claim. SCE’s 14

Workers’ Compensation Department developed methods to identify when an 15

employee is close to reaching the limit through our medical bill auditing and 16

utilization review programs. In 2012, SCE received approximately 6,956 invoices for 17

chiropractic, physical therapy, and occupational therapy visits. Approximately 3% of 18

these invoices had at least one date of service that exceeded the limit and were 19

disallowed. 20

35

Rating for Permanent Impairment (pursuant to SB 899 and SB 863): All SCE 1

Workers’ Compensation claims management and staff have been provided training on 2

the American Medical Association’s Guides to the Evaluation of Permanent 3

Impairment (Fifth Edition). This training has provided these employees with the 4

knowledge necessary to evaluate ratings submitted by medical examiners, and 5

accurately pay benefits to eligible employees. 6

D. Workers’ Compensation Staff (FERC Account 925) 7

In partnership with the Corporate Operational and Service Excellence Initiative (OpX), the 8

Workers’ Compensation Department redesigned the investigation process, which resulted in greater 9

operational efficiencies within the workers’ compensation program, and a decrease in time dedicated to 10

specific tasks. This allowed for the reduction in staffing in certain areas. At year-end 2012, the 11

Workers’ Compensation Department had 54 employees: 26 claims representatives, 8 operations support 12

personnel, 11 administrative support personnel, and 9 employees in management and special projects. 13

In 2013, the Workers’ Compensation Department reduced its staff to 49 employees through attrition:25 14

23 claims representatives, 8 operations support personnel, 10 administrative support personnel, and 8 15

employees in management and special projects.26 16


The Workers’ Compensation Department administers SCE’s workers’ compensation 18

program by performing the following activities: 19

Investigation of cases: Workers’ compensation claims reported to SCE are thoroughly 20

investigated to determine whether the employee filing the claim is entitled to benefits. Three Workers’ 21

Compensation claims representatives assigned to the Department’s investigation unit conduct this initial 22

investigation. Following a determination of industrial causation, the claim is then forwarded to a claims 23

representative in the Department’s claims unit, to administer statutory benefits and manage the claim 24

until it is concluded. 25

Delivery of benefits: Eighteen claims representatives determine which benefits are 26

payable, when benefits are due, coordinate benefits with the Company’s return-to-work and non-27

25 See Section D(2)(b) infra.

26 See workpaper entitled “Operational Excellence Savings” for additional information concerning OpX adjustments affecting Workers’ Compensation.

36

occupational disability plans, develop and implement short- and long-term claims strategies, coordinate 1

litigation, and close open claims when all statutory regulations are met. Support staff is responsible for 2

processing payments, benefit notices, and all other non-technical tasks. 3

Medical case management: Pursuant to SCE’s Utilization Review Plan, personnel from 4

GSG Associates (a medical case management firm) handle the clinical and administrative tasks involved 5

with planning and authorizing medical care for work-related injuries and illnesses. The medical case 6

management staff reviews all incoming requests for medical treatment. These requests are generated by 7

medical providers, and channeled by SCE’s claims representatives to GSG Associates to make decisions 8

to approve, hold, or deny requests for medical treatment, based on statutory requirements and deadlines. 9

Return to work: Two claims representatives are responsible for early intervention on 10

restricted duties and lost-time cases, to facilitate and plan SCE employees’ return to work. These claims 11

representatives work with line management for placement in jobs appropriate for the returning 12

employee, and coordinating the delivery of supplies and services to assist employees in returning to 13

work. 14

Hearing representation: Most claims representatives make periodic appearances before 15

the California’s Workers’ Compensation Appeals Board to represent SCE in contested medical liens and 16

to litigate matters in which the SCE employee represents himself or herself. Sending seasoned claims 17

representatives to handle these types of matters is more cost effective than referring the case to an 18

outside attorney for legal representation. 19

Medical Provider Network (MPN): One contract manager is allocated to the 20

management of the MPN, which includes contracting with new physicians, performing provider site 21

visits, conducting employee satisfaction surveys, and annual plan re-filing with the California 22

Department of Workers’ Compensation. The contract manager acts as a liaison between contracted 23

physicians, claim staff, and injured employees. SCE also contracts with outside firms to credential MPN 24

providers and to manage the online tool to access the network. 25

Occupational Safety and Health Administration recordkeeping: A project/business 26

analyst classifies incidents involving employees’ injuries and illnesses. This responsibility includes 27

recordkeeping, internal reporting, and external governmental agency reporting. 28

Implementation of new regulations and staff training: One project manager conducts 29

performance audits on Workers’ Compensation staff, provides or facilitates training for staff, keeps 30

37

records of continuing education units earned by staff, and manages special projects, such as the 1

Pharmacy Network. 2


for Workers’ Compensation Staff (FERC Account 925) 4

Figure IV-11 Workers’ Compensation

Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925(Staff) (Constant 2012 $000)

SCE records expenses associated with the operations of the Workers’ Compensation 5

Department to FERC Account 925 (Injuries and Damages) as shown above in Figure IV-11. This 6

account includes labor expenses that reflect the compensation of the Department staff and related non-7

labor employee expenses associated with their job responsibilities. Included in the recorded non-labor 8

expenses are costs for consultants and supplemental personnel, utilization review, medical bill audits, 9

employee development, office supplies and equipment, conference fees, taxes, fees, and licenses. 10

a) Analysis of Recorded Costs 11

Labor expenses were relatively flat from 2008 to 2010 and increased in 2011 due 12

to the additional personnel hired to manage the volume of workers’ compensation claims. Expenses 13

from 2011 to 2012 remained flat. 14

38

Non-labor expenses increased from 2008 to 2010. These increases were due to a 1

combination of higher payments made to the Self-Insurer’s Security Fund, the Department of Industrial 2

Relations, and an increase in industrial accident investigations. SCE participates in the statewide 3

Alternative Security Program in California. In this program, SCE is not required to post a security 4

deposit with the Self-Insurance Plan via a surety bond, cash, or securities.27 Rather, SCE pays an 5

assessment based on its deposit requirement and an index that is related to SCE’s credit rating. The 6

compound average growth rate for non-labor over the entire five year period was 3.41%. 7


The Workers’ Compensation Department’s Test Year 2015 forecast for operating 9

expenses is $7.029 million. The labor forecast of $3.833 million and non-labor forecast of $3.196 10

million are based on 2012 recorded expenses, adjusted for projected reductions in personnel resulting 11

from the OpX initiative. 12

As a result of the OpX initiative, the Workers’ Compensation Department 13

enhanced its operational efficiencies, such as redesigning the investigation of incidents. For example, 14

all incidents reported to SCE were thoroughly investigated to determine whether the employee filing the 15

claim was entitled to benefits. Six claims representatives were therefore dedicated to the Department’s 16

investigation unit for this purpose. The Department recognized that not all incidents require an 17

investigation, specifically, the incidents that were reported as “Miscellaneous Incidents.”28 In 2013, the 18

Department shifted its investigation efforts to incidents where employees required medical treatment 19

beyond First Aid29 or incidents depicted as “Medical Only”30 and “Indemnity.”31 With this approach, 20

27 Cal. Labor Code Section 3701.8 establishes the Self-Insurance Plan (SIP), a program within the office of Director of the

Department of Industrial Relations that authorizes qualified employers to provide their own coverage for workers’ compensation liabilities. The Director certifies public and private self-insured employers, third-party administrative agencies that oversee self-insurance programs, and individual claims adjusters. Self-insurers must post a security deposit (adjusted annually to cover liabilities incurred) and submit to SIP audits.

28 The term “Miscellaneous Incidents” refers to incidents that are classified as “First Aids” and “Incident Only.” The term “Incident Only” refers to incidents that did not rise to the level of “First Aids,” “Medical Only,” or “Indemnity.

29 The term “First Aid” refers to incidents where employees received one-time treatment and a follow-up visit for the purpose of observation of minor scratches, cuts, burns, splinters, etc., which do not ordinarily require medical care.

30 The term “Medical Only” refers to incidents that are minor occupational injuries/illnesses wherein employees received medical treatment, but missed no more than three days of work.

31 The term “Indemnity” refers to incidents wherein employees not only received medical treatment, but also missed more than three days of work, and/or may have sustained a permanent disability as a result of their occupational injuries or illnesses.

39

the Workers’ Compensation Department reduced its staff by three claims representatives, one 1

administrative staff, and one manager. 2

SCE’s forecast methodology is consistent with D.89-12-057, in which the CPUC 3

stated that for those accounts which have shown a trend in a certain direction over three or more years or 4

are relatively stable, the last recorded year is an appropriate base estimate. 5

E. Injuries and Damages Reserve Expenses (FERC Account 925) 6

1. Summary 7

The instructions for FERC Account 925 state that “This account shall include the cost of 8

reserve accruals to protect the utility against injuries and damages claims of employees or others, losses 9

of such character not covered by insurance, and expenses incurred in settlement of injuries and damages 10

claims.”32 In addition, since SCE is self-insured for workers’ compensation claims, California requires 11

that SCE reserve for all anticipated workers’ compensation-related claims and contingent liabilities.33 12

Thus, the Reserves component of FERC Account 925 includes reserves for general liability claims 13

handled by SCE’s Claims Department (Claims Reserves) and for workers’ compensation claims handled 14

by SCE’s Workers’ Compensation Department (Workers’ Compensation Reserves). Discussion in this 15

testimony is limited to reserves handled by the Workers’ Compensation Department only. 16

The workers’ compensation reserves are established based on various factors related to 17

existing workers’ compensation claims. Factors considered in determining workers’ compensation 18

reserves include, but are not limited to: date of injury, age of the injured employees, severity of injuries, 19

medical reports, and applicable rules and regulations that set the rate and limitations of workers’ 20

compensation benefits. Workers’ compensation reserves are also adjusted to incorporate the current 21

“Incurred but not Reported” (IBNR) rate provided by actuaries from Milliman Inc., one of the largest 22

property-casualty consulting actuarial firms in California.34 The term “IBNR loss liability” refers to 23

SCE’s liability for losses that occurred on or before the end of a given period, but for which SCE had no 24

knowledge until after that period. The IBNR rate is calculated based on SCE’s historical loss trend, 25

32 18 C.F.R. § 101 (1999).

33 See Cal. Code Regs. tit. 8, § 15300.

34 Milliman has extensive experience with California workers’ compensation and serves some of the state’s largest insurance companies and self-insured employers of all sizes. Since 1969, a Milliman actuary has served on the Actuarial Committee of the WCIRB’s (the Insurance Commissioner’s official statistical agent for workers’ compensation insurance).

40

incorporating information from similar companies and any regulatory provisions that would have an 1

impact in the ultimate loss calculation (typically provided by an actuarial company). 2

Currently, SCE adjusts its workers’ compensation reserves on a monthly basis to account 3

for payments and additional reserves for new and existing claims.35 Payments and reserve adjustments 4

are mapped to FERC Account 925 (Injuries and Damages Reserves). 5


for Reserves (FERC Account 925) 7

Figure IV-12 Injuries And Damages

(Workers’ Compensation Reserves) Recorded And Adjusted 2008-2012/Forecast 2013-2015

FERC Acct 925 (Constant 2012 $000)

a) Recorded Data 8

In addition to the staff expenses discussed above, SCE also records reserves 9

expenses associated with claim payments and contingent liabilities for the Workers’ Compensation 10

35 The reserves represent an aggregate value of individual claim liabilities. The values of individual claims are

confidential.

41

Department to FERC Account 925 (Injuries and Damages), as shown above in Figure IV-12. Recorded 1

expenses between 2008 and 2012 fluctuated from year to year due to the unpredictable nature of 2

workers’ compensation claims. 3

The downward trend in workers’ compensation reserve expenses from 2008 4

through 2010 was due to the decline in costs related to fatality claims, decrease in the IBNR factor, 5

change in the excess insurance retention, and increase in workers’ compensation settlement activities. 6

The subsequent increases in 2011 and 2012 were attributed to a decrease in workers’ compensation 7

settlement activities. 8


For workers’ compensation reserves, SCE’s Test Year 2015 forecast is $14.178 10

million. This forecast is based on a five-year average of 2008-2012 recorded costs, which best 11

represents the level of expenses anticipated in future years and reflects the variable nature of workers’ 12

compensation claims. In D.89-12-057, the CPUC stated that for expenses that fluctuate from year-to-13

year, an average is a reasonable base estimate. The nature of workers’ compensation claims can be 14

influenced by changes in legislation and case law,36 and the five-year average produces the best forecast 15

for future years. 16

36 The term “case law” refers to law based on administrative law, judicial decisions and precedent rather than on statutes.

Appendix A

Witness Qualifications

A-1

SOUTHERN CALIFORNIA EDISON COMPANY 1

QUALIFICATIONS AND PREPARED TESTIMONY 2

OF ELIZABETH JENNERSON 3

Q. Please state your name and business address for the record. 4

A. My name is Elizabeth Jennerson, and my business address is 2244 Walnut Grove Avenue, 5

Rosemead, California 91770. 6

Q. Briefly describe your present responsibilities at the Southern California Edison Company. 7

A. I am the Manager of Law Support and Legal Administrative Assistants. I provide management 8

oversight of legal secretaries and personnel responsible for processing litigation payments, 9

generating ad-hoc queries and reports, supporting data integrity of our matter management 10

system, and responding to various data requests involving legal spend. 11

Q. Briefly describe your educational and professional background. 12

A. I received my Bachelor in Accountancy degree from Polytechnic University of the Philippines in 13

1983. I passed the Certified Public Accountant Board Examination from the Philippines in 1983 14

and from the State of California in 1990. I was in public accounting for two years and pursued 15

private accounting thereafter. I joined SCE’s Workers’ Compensation Division in 1997 where I 16

left as a Manager of Operations. I was with SCE’s Power Procurement Finance from 2004 thru 17

2006. I joined the Law Department in July 1, 2006. 18

Q. What is the purpose of your testimony in this proceeding? 19

A. The purpose of my testimony in this proceeding is to sponsor the portions of Exhibit SCE-08, 20

Volume 02, entitled Financial, Legal, and Operational Services(FL&OS) – Legal (Law, Claims, 21

and Workers’ Compensation), as identified in the Table of Contents thereto. 22

Q. Was this material prepared by you or under your supervision? 23

A. Yes, it was. 24

Q. Insofar as this material is factual in nature, do you believe it to be correct? 25

A. Yes, I do. 26

A-2

Q. Insofar as this material is in the nature of opinion or judgment, does it represent your best 1

judgment? 2

A. Yes, it does. 3

Q. Does this conclude your qualifications and prepared testimony? 4

A. Yes, it does. 5

A-3



OF ROBERT E. RAMOS 3


A. My name is Robert E. Ramos, and my business address is 2244 Walnut Grove Avenue, 5

Rosemead, California 91770. 6


A. I am the Director of Risk & Claims Management and oversee the investigation and litigation of 8

third party claims as well as the collections of property damage claims. 9


A. I earned a Bachelor’s degree in Business Administration from USC in 1989. I joined SCE in 11

1997 as a Claims Representative in the Law Department. I have worked in this department since 12

then. I became Investigations Manager in 2002 and Manager of Claims in 2010. I was promoted 13

to my current position in 2011. 14






A. Yes, it was. 20


A. Yes, I do. 22


judgment? 24

A. Yes, it does. 25


A. Yes, it does.27

A-4



OF JOHN SMOLK 3


A. My name is John Smolk, and my business address is 8631 Rush St., Rosemead, CA 91770. 5


A. I am a Principal Manager in the Workers’ Compensation Division, where I manage the workers’ 7

compensation claims administration and self-insurance program for Southern California Edison. 8

These responsibilities include completion of an annual actuarial study to determine liabilities and 9

trends related to workers’ compensation liabilities and expenses. 10


A. I received a B.S. in Health Sciences from Western Illinois University. I have professional 12

designations including the Chartered Property Casualty Underwriter (CPCU) and Associate in 13

Risk Management (ARM) and over 30 years of experience in risk management and workers’ 14

compensation working for insurers, service providers and self-insured employers. I am past 15

President of the Illinois Self Insurers Association and a past member of the Illinois Workers’ 16

Compensation Commission Medical Fee Advisory Board. 17






A. Yes. 23


A. Yes. 25

A-5


judgment? 2

A. Yes. 3


A. Yes.5

A-6



OF RUSSELL C. SWARTZ 3


A. My name is Russell C. Swartz, and my business address is 8631 Rush Street, Rosemead, 5

California 91770. 6


A. I am Senior Vice President and General Counsel of Southern California Edison Company. I 8

oversee the Law Department, Claims, and the Workers’ Compensation Division. 9


A. I received a Bachelor of Arts degree in political science from the University of Southern 11

California, Los Angeles, in 1974, and a Juris Doctor degree from the University of California, 12

Los Angeles, in 1977. I have been an employee of Southern California Edison since 1993. 13






A. Yes, it was. 19


A. Yes, I do. 21


judgment? 23

A. Yes, it does. 24


A. Yes, it does. 26

Documents

2015 General Rate Case - sce.com...Figure IV-11 Workers’ Compensation Recorded And Adjusted 2008-2012/Forecast 2013-2015 FERC Acct 925(Staff) (Constant 2012 $000) .....37 Figure