ML19347D295

Rept on Results of Operation of San Diego Gas & Electric Co,Electric Dept,Test Yr 1981

ML19347D295
Person / Time
Site:	San Onofre
Issue date:	09/08/1980
From:	CALIFORNIA, STATE OF
To:
Shared Package
ML13302A498	List: ML13302A497 ML19347D254 ML19347D261 ML19347D264 ML19347D268 ML19347D271 ML19347D274 ML19347D275 ML19347D276 ML19347D279 ML19347D281 ML19347D282 ML19347D287 ML19347D289 ML19347D290 ML19347D293 ML19347D294 ML19347D295 ML19347D297 ML19347D299 ML19347D300
References
59788, NUDOCS 8103110762
Download: ML19347D295 (54)

Text

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CALIFOPSIA PUBLIC LTILITIIS CCMCSSICN Revenue Require ents Divisien i

t a

REPORT ON T!!I RESULTS OF OPERATION OF SAN DIEGO GAS & ELECTRIC CCNPANY GAS DEPAR3 TENT TEST HAR 1981 i

P Application No. 5976a 1

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i Califerr.ia San Francisco,8, 1980 i

September 810s22 o%A

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I TABLE OF CONTENIS Table Pege No.

Title No.

l CHAPTER 1 - INTRODUCTION

'~

~

CHAPTERS 2 and 3 - HISTORY AND PRESST OPERATINS CHAPTERS 4, 5, and 6 - BALANCE SHEET, STATEMENTS OF INCOME AND RETAINED EARNINGS AND i

i CLEARING ACCOUNTS CHAPTER 7 - GAS OPERATING REVDUES

^ ~

7-A Comparison of Revenues at Present Rates - - - - -

7-2 7-B Revenues at Proposed Rates - - - - - - - - - - - -

7-3 7h 7-C Customers - - - - - - - - - - - - -

CHAPTER 8 - GAS SUPPLY EXPDISES -

8-A Cas Supply Expenses '- - - - - - - - - - -

c-3 CHAPTER 9 - STORAGE EXPENSES _

9-A Gas Storage Expenses 9-2

~ ~ ~

CHAPTER 10 - IRANSMISSION EXPENSES 10-A Cas Transmission Expenses - - - - - - - - - - - -

ic-3 CHAPTER 11 - DISIRIBUTION EXPDISES 11-A Ues Distribution Expenses - - - - - - - - - - - - -

nL CHAPTER 12 - CUSTOMER ACCOUNTS EXPENSES ~

12-A Customer Accounts Expenses - Gas Department - - - -

12 k CHAPTER 13 - CUSTOMER SERVICE AND, _INF0_RMATIONAL EXPENSE 13-A Marketing Expenses - - - - - - - - - - - - - - - -

13 h CHAPTER 14 - ADMINISIRATIVE _AND_ GENERAL, EXP5SES 14-A Administrative and General Expenses - - - - - - - -

14-2 15-A Summary of Taxes - - - - - - - - - - - - - - - -

15-7 15-B.

Taxes Based on Income - - - - - - - - - - - - - - -

15-8 15-C Deductions for Tax Calculations - - - - - - - - - -

15-9 r

3 4

TABLE OF C0!."IENTS (Continued)

Table Page No.

Title No.

C*A.T 16 - GAS P1NC 16-A 3as Plant 196 3 - - - - - - - - - - - - - - - - - - -

16-2 16-3 Gas F1:nt 1951 - - - - - - - - - - - - - - - - - - -

16-3 CHAPTDt 17 - DDRECIATION EXPENSES 17-A Depreciation Expense - - - - - - -

17-2 CHAPTER 18 - RATE BASE 18-A Weighted Average Rate Base

-2

..-3

'4er. ting Cash A11:vance Study 1 -?

CHAPTER 19 -

SUMMARY

OF EARNINGS 19-A Sunnary of Earnings at Present Rates - 1981 - - - -

}-3 19-B Summary of Earnings at Proposed Rates - 1981 - - -

3 !.

CHAPTER 20 - RECONDATIONS e

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4 MDORN Mi This report was prepared by the Revenue Recuirements Division staff under the direction of Project Manager Francis S. Ferraro. Individual chapters were prepared by the following members of the staff:

Chapter Title Witness w 1

Introduction Francis S. Ferraro 2 and 3 History and Present Operations See Company Report 4, 5, and 6 Balance Sheet, Statements of Income and Retained Earnings and Clearing Accounts Gilbert Infante 7

Operating Revenues Sandy Miller 8

Supply Expenses Harold Rayburn 9

Storage Expenses Harold Rayburn 10 Transmission Expenses Harold Rayburn 11 Distribution Expenses Harold Rayburn 12 Customer Accounts Expenses Paul M. Chan 13 Customer Service and Informational Expenses David Barnhardt 14 A8G Expenses Donald McCrea Pensions Sandy Miller R&D Ramesh Joshi 15 Taxes - Ad Valores and Payroll James Bondeson Income Gree Mulligan 16 Gas Plant Willem Van Lier 17 Depreciation Expense Kevin Coughlan 13 Rate Base Will a Van Lier Working Cash Allowance Sung B. Han 19 Sumary of Earnings Francis S. Ferraro 20 Recomendations Francis S. Ferraro

4 CHAPTER 1 INTRODUCTION A - PURPOSE OF REPORT 1.

The purpose of this report is to provide infomation for the Coznission and interested parties on the operations and earnings of San Diego Gas & Electric Cornpany (SDG&E). This report is prepared in response to the utility's Application No. 59788, filed July 1,1980, for a general rate 1

l increase for the Gas Depart:nent of 18.2 million or 5.424. The application requests an 11.44% rate of return and a 14.5?. return on cormnon equity" in the test year.

2.

In Decision ~No. 90405, dated June 5,1979, in Application No. 58067 (applicant's last general rate proceeding), the utility was granted a rate of return of 10.5% and a return on equity of 14.507. for test year 1979.

B - SCOPE OF REPORT 3.

The report includes a su:nraary of the utility's syste:n gas operations for the test year 1981. Also included are chapters and analyses of operating l

revemes, expenses, taxes, utility plant and depreciation. Chapter 4, Chapter 5, and Chapter 6 on Balance Sheet, Income Statement, and Clearing Accounts will be covered separately in the Report on the Results of Examination of San Diego Gas & Electric Cogany. Chapter 18, Stanary of Earnings, contains a comparison of the staff's and utility's estimates at present rates and at utility proposed I

rates, of net revenues, rate base, and the rate of return for the test year 1981.

4 Differences between the staff and the utility's esti: nates for test year 1981 are indicate <' in succeeding chapters of this report. The report also explains the reasons for these differences.

5.

A covarison of the staff's and utility's estimated rates of return based on respective results of operation is as follows:

Rate of Return

Present ?stes : Proposed Rates :

Itea 1981 1991 Utility 3.44%

11.44',

Staff 6.964 12.69 1-1 l

1 - INIRODUCTION 6.

In connection with the staff's presentation in this proceeding, the Utilities Division will present reports covering gas rate desizn and conservation. The Financicl Analysis staff of the Reverue Requirements Division will also present reports on results of examination and rate of return.

7.

Both the utility and the staff have developed estimates assuming a 9.5". wage increase for the year 1980 and 13.5f. for test year 1981. For expenses other than labor, the staff and utility have used a 10?. inflation rate for 1980 and 1981. Explanation of the staff's wage adjustment is contained in the general report.

3.

Consistent with the Consnission's recent decisions in general rate proceedings, staff's revenues and expenses exclude all direct PGA costs.

The co:npany's exhibit shows results both with and without PGA revenues and expenses.

9.

All of the accounting adjust:nents contained in the Financial Analysis staff's " Report on the Results of Examination of San Diego Gas

& Electric Company" have been utilized in developing the estimates contained in this report.

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4 CHAPTER 2 HISTORY 1.

The last previous detailed study of the Gas Depart:nent of the San Diego Gas & Electric Company was prepared by the staff in connection with Application No. 58067. This study covered results of operations for the test year 1979.

CHAPTER 3 PRESENI OPERATIONS 1.

In the company's application is contained a description of corporate information. To the extent that the :naterial in the utility's application is adequate for the purpose, it has not beitn duplicated in this report.

2-1 3-1

CHAPTER h - 3ALANCE SHEU2 ACCOUNTS 3APIER 5 - INCOME STATr4rtr ACCot:rrS CHAPTE? 6 - CLEARI!U ACCOUITIS FIITANCIAL ANALYSIS AUDIT 1.

An independent audit by the professional staff accountants of the Revenue Requirements Divisien, Financial Analysis Group, was conducted in conjunction with this rate proceeding. Tne stcfr accountants prepared a separate report en the results of this independent analysis of San Diego Gas & Electric Company and its subsidisry operations.

2.

The staff accountants coordinated the audit ree:: endations discussed belov vita the staff engineers fer censideration in the preparati:n of their test year estinates.

3 The " Report en the Results cf Exs=ination of San Diego Gas & Elee:ri:

Company' contains the following recen=endations made by the staff seceuttants.

A.

Exclude 39,250,970 frc: Acecunt 105, Utility Plant Held f:r Future Use, relating to the two South Bay gas turbines f:

rate-making purposes.

3.

Exclude $151,179 Of excessive Allevance for Funds Used During COnstructi:n (AFUDC) charged to Work Order No. 5071000 during the period Octobe: 1976 through August 1973 en SD3LE's b cks of se::unt in Account 107, Censtructicn Werk in Progress.

C.

Gains or losses resulting free the future sale :f property in the sneunt of $5;36L,372 ncv ree rded in A::: ant 121, ren-Utility Property, which vas previously recorded in A:ccant 105, Utility Plant Hel?. for Future Use, shculd be re:Orded 'ateve tha line" in Account L11.6, Gains Free Dispesitien of Utility Plant, Or Account L11.7, Losce: Fr:n Dispositi:n of Utility Plant.

D.

SDGLE sh:uld n t be sileved te re::rer thrrugh base rates 0596,755 representing the base rate component et lifeline refunds required due to the overcharging Of lifeline custeners in prier years.

L_1 3-1 6-1

4 1

4, 5.'Kf 6 - FINANCIAL ANALYSIS AUDIT E.

Recognition should be given to the effects the Gas Meter Antitrust Litigation Refund of $193,688 will have on the 1981 test year accumulated provision for depreciation of Cas Utility Plant.

F.

Goodwill and Educational Tours' recorded enounts of $1,602 for 1978 and S715 for 1979 should be excluded from o},erating expense for rate-making purposes.

G.

Dues, Donations and Contributions of $5,691 (gas) and $63,083 (electric) for 1978 and $20,452'(gas) and $106,7i ' (electric) for 1979 should be excluded from operating expense for rate-making purposes.,

H.

Any effect on base rates resulting from the staff's investigation into the fuel oil exchange between SDG&E and United Petroleum Distributors should be deferrad until SDC&E's 1982 test year filing.

I.

Electric Credits given to Applied Energy, Inc. for fuel should be calculated at the average system cost per megawatt-hour for steam generation only.

J.

The Kaiparawits coal reserve of $4,009,920 on New Albion i

i Resources Comipany's (NARCO) books should be amortized through l

EEDA to ECAC. NARCO began amortizing the Kaiparawits coal userve project costs July 1,1980.

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7-A 50GE----G A S DEP A RTME N T COPPARISON CF PEVENUES REVENUES AT PoESENT RATES TEST YEAP 1931 LN ACCT.

UTIL. EECEEDS J

STAFF NC NO I TE M STAFF UTILITY AMOUNT PCT (A)

(a)

(C)

(0) 4 (TNGUSANOS OF DOLLARS) 1 RESIDENTIAL 8

8 36425.0 36426.0 8 0.0

0. 0 2

NON-RESIDENTIAL 12775.0 12775.0 0.0 0.0 3

SUS-TOTAL 49201.0 49201.0 0.0 0.0 o

I N T E RS EP A R T HE.NT A L 5676.0 5676.0 0.0 0.0 5

MISCELLANEOUS 1376.0 1376.0 0.0 0.0 6

TOTAL REVENUES 56253.0 56253.0 0.0 0.0 O

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TA BL E 7-B SOGE----GAS DEPART *ENT COPPARISON CF REVENUES REVENUE 5 AT P90POSEO R4 TES TEST TEAR 1981 Lh ACCT.

UTIL. E=CiEDS SToff NC NO ITEM STAFF UTILITY AMOUNT PCT (A)

(B)

(C)

(0)

(THOUS AN05 0F DOLLA RS) 1 RESIDENTIAL 3 39933.0 8 39933.0 3 0.0

0. 0 2

h3h-PE5!0ENTIAL 16261.0 16261.3 0.0 0.0 SUS-TCTAL '

56194.0 56196.0 0.0 0.0 3

6 INTER 0EPAPTMENTAL 16E63.0 1e963.0 0.0 0.0 5

MISCELLAhE003 1376.0 L376.3 0.0 0.0 6

TOTAL 8EVENUES 74433.0 74433.)

0.0 0.0 e

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TA3LI 7-0 San Dieg Gss & Electrie :=pany 3ss Depsrt ent A*NI OUETC!'. IRS Test Year 1931

Utility Ix:eeds 2:sif :

"less of ferrice

Etsff Utility

Ace tr.:

Percent Residentisi LSo,995 L33,L60 2,L65 05 3:nresidentisi 23,665 29,112 LL' l.6 Total 509,660 512,572 2,912 3.6 T72AL E't,IE (2cusands -f 2 ems }

Residen:131 355,675 355,675

nresidential 232,266 232,266 I: al Sales :: 5s:c=ers 557,9L1 557 9L1

erde;2rteental Eales 223,719 223,'L9

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TA BL E 0-A 50GE----G A S DE P A R T.wE N T GAi SUPPLY EXPENSES TEST TEA

• 1981 LN ACCT.

UTIL. EXCEEDS SToff 40 40 ITEw STAFF UT!LITY AMOUNT ACT (A)

(B)

(C )

(0)

(THOUSANOS OF OCLLARS) 1 607.00 PURCHASED GAS EteEh5ES S 46.6 3 86.6 30.0 0.0 2

510.00 gab USED-COMPRE550R FUEL

-851.7

-891.3

-39.6 4.6 3

812.00 GAS USED-0INER OPERATIONS

-68.6

-68.6 0.0 0.0 o

GAS SUPPLY ExPEh5ES

-813.7

-853.3

-39.6 4.9 5

WAGE ADJ.

-1.5 0.0 1.5 -100.0 t

TOTAL LESS hAGE A0 JUS,TMENT

-815.2

-553.3

-33.1 4.7 l

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.f r....

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Jitorsge expenses include tne ::s s of operating v...nintsi.ing : s u, s..,. e3 3 4 ~p,.,.e.

.urs.' g s ( C-- )

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c sni :he utili:/'s esticstes. A su=ar/ of tre totsi esti ste:1 s :rsge c::;enses, encluding the s stf's wage adjus.nent, for tes; year 19S1 ts esti.sted b

-he s:sff and utility is as follows:

res: Yesr 1-51 (Dollars in Thoustnis) 7.. e -.

a.,...

Storsge 'n:enses i 2,Sp.1 52,0 P. -

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y re: :e C;G deliveries to Alpine. See Chap;er 3 en Gas Supply f:r dis: ssi:n.

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TA BL E 9-A 50GE----GAS DEPARTMENT STORAGE EXPENSES TLST fEA9 1961 LN ACCT.

UTIL. EXCEEDS STAFF

, NO NC

' ITEM SitFF UTILITV AMOUNT PCT (A)

(B)

(C )

(0)

(THOUSAhn5 0F 00LLARS) 1 OPERATION 2

LOCAL STORAGE EXPENSES 3

e40.00 OPER., SUPV. & ENGR.

$ 235.8 3203.1

$ -32.7

-13.9 4

641.00 GPER. LABOR & E(P.

1341.5 1381.1 39.6 3.0 5

TCTAL GAS QPERAT!0h EXP.

1577.3 1584.2 6.9 0.4 6

MA!hTENaNCE 7

LOCAL ST09 AGE PLAhi 8

843.00 SUPV. 4 ENGR.

471.8 503.3 31.5 6.7 9

TOTAL GAS MAIhT. EXPEN$E 471.8 503.3 31.5 6.7 10 TOTAL GAS STCRAGE EtPENSES 2049.1 2087.5 36.4 1.9 11 WAGE ADJ.

-16.0 0.0 13.0 -100.0 12 TCTAL AFTER WAGE A0J 2031 1 2007.5 56.6 2.5 l

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'"he 19h ss-expe:ted figc.re vas than es:sisted by :ne 1:b:r tnd

.cn.lsb:: fact::s. An s:Ount representing the rerised add'.ti:n21 :snp:ver le'rel -he '.ittlity foresees for the 1931 year of cppr:xic:tely 1-2 /3.sn years was added to the escelsted 1931 figure, in ar-iring st the staff's es-i=ated 1931 test year figure.

5

.?:r A. 355, I'ains F.xpenses, the staff's 1931 esticate is based on the trend of the 5-year reccrded expenditures of 1975 thr :sh 19~9

?c.e sessenal facter cethed, applied to the first half 1930 re: rded, as used ss a che:a and ecce within 31,000 Of the rending :eth:d.

f.

n Ac. 363, I/sintenance of Mains, the staff's tes; ye r estinate

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n.s';si s',* 2stnent, in stri ring at the staff's 19h test year,estinate.

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st:r-. de ase dfring the last vir.ter rsins.

e

TA BL E 10-A SOGE----GAS DEPARTMENT TRANSMISSION EtPENSES TEST YEAR 1941 LN ACCT.

OTIL. EXCEEOS STAFF hG NO ITEP STAFF UTILITY AMCUNT PCT (A)

(B)

(C )

(0)

(THOUSAN05 0F 00LLARS) 1 OPERATICN 2

850.00 SUPV. 1 ENGP.

S 345.2 3402.0

$ 56.8 16.5 3

551.00 SYS. CONTR. & LOAD DISPATCH 89.7 89.7 0.0

0. 0 4

852.00 COMMUNICATICN SYSTEM EXP 6.9 6.9 0.0 0.0 5

553.00 COMP. STA. LABOR t ExP.

207.3 207.3 0.0 0.0 6

654.00 G45 FOR COMP. STA. FUEL 35S.5

.96.5 0.0

0. 0 7

855.00 GTHER FUEL PGwER COMP STA.

32.4 32.6 0.0 0.0 6

656.00 MAINS EtPENSC 260.8 251.6 10.3 4.5 9

657.00 MEAS.& REG. STA. EXP.

70.6 70.6 0.0 0.0 10 659.00 OTHER EXPENSES 66.8 66.8 0.0 0.0 11 660.00 RENTS 0.3 0.3 0.0 0.0 12 TOTAL OPER. EzPENSE 1448.5 1516 1 67.6 4.7 13 MAINTENANCE 10 861.00 SUPV. 1 ENGR 69.2 69.2 0.0 0.0 15 862.00 STRUCT. 1 IMPROVE.

14.3 14.3 C.0 0.0 16 663.00 MAINS 68.1 75 6 7.5 11.0 17 d66.00 CGMP. STA. EQUIP.

135.0 135.0 0.0 0.0 16 8 5.00 MEAS.4 REG. STA. EQUIP 10.5 10.5 0.0 0.0 19 667.00 GTHER EQUIP.

0.1 0.1 0.0 0.0 20 TOTAL MAINT. EXPENSE 297.2 304.7 T.5 2.5 21 TCTAL TRANMIS$!Oh ExPNSES 1745.7 1320 5 75.1 4.3 22

= AGE 40J.

-20.6 0.0

?0.6 -100.0 23 TOTAL AFTER hAGE A0J 1725.1 1520.9 95.7 5.5 O

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TA 8L E 11-A S0GE----GAS DEPARTMENT DISTRIBUTION E* PENSE!

TEST TEAG 1981 th ACCT.

UTIL. EXCEEDS STAFF NC NO ITEM STAFF UTILITY A.MO U N T PCT (A)

(8)

(C )

(0)

( TP005 Ah0S CF OGLLA RS )

1 OPER4TIOh 2

870.00 SUPV. & ENGR S 430.4 S 684.8 S 254.4 59.1 3

671.00 OISTR. LOAU DISPATCH.

91.6 91.4 0.0 0.0 6

874.00 MAINS & SERV. EXP.

728.2 747.9 19.7 2.7 5

8 75.00 ME AS.1 REG.STA.EXP.-GENERAL 102.7 148.6 65.9 44.7 6

878.00 METER AND HOUSE REG EXP 1907.6 1766.1

-41.5

,3 7

877.00 CUSTOMER INSTALL EXP 3812.3 4100.4 288.1 7.6 8

393.00 GTHE9 E(PENSE 794.4

$49.5 55.1 6.9 9

891.00 RENTS 7.6 7.4 0.0_

0.0 to TOTAL DIST.CPER Exa.

7774.4 6396.1 621.7 8.0 11 MAINTEN4hCk 12 885.00 SUPV.t ENGR.

178.6 178.6 0.0 0.0 13 8e6.00 STRUC. 1 IMPROVE.

0.6 0.6 0.0 0.0 16 887.00 M4!NS-LEAK CLAMPS 1413.4 1521.0 137 6 7.6 15 889.00 MEAS.tREG.STA. EQUIP. GEN.

15.6 38.8 23.2 148.7 10 892.00 SEFVICES 420.6 548.9 129.3 30.5 17 893.00 METERS 936.0 796.7

-139.3

-14.9 18 894.00 OTMEP. EQUIP.

u.1 4.1 0.0

0. 0 19 TOTAL DIST.HAINT. ExP.

2968.9 3088.7 119.8 4.0 20 TOTAL OISTRI. EXPENSES 10743.3 11484.8 741.5 6.9 21 wage 40J.

-173.6 0.0 171.6 -100.0 22 OISTRIBUTION EXP - A0J.

105e9.7 1148=.?

915.1 8.7 P. L

C?.AF~ER.

.u._ R,. ^C L...-

~..- e, A su.na.

of cc:: cer accounts e: r.ce is shcun belo.::

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- o..>.a.. - '.'r, c. a y... -

e.. '.u-a. w..e,.,

f.

v,: age, une:11ectic1:e c.nd supervision of he:e s.c ;ivities.

... v..is c,. a-d _

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1979 The trend c: id.'usted costs per cus : er of ct a.eceu.ts is eners'.17 downward, due ::stl, to the spreading of fi::ed cost: cver the greater nesber

.*,..as.c e.a.,, A a3./s _< s o.

In Ac. 901 (Zupertision Ixpenses) the staf.' estimate is based en the histcr/ of the c: cts per customer. The decline in ad. justed cost in the ittor portien shows i prorenent in produe itity. The staff expects the trend to continue and the 1931 tes; year estimate 1: e.d',usted for a vage increase.

Ac. 003 2 ( rsdi: */anagerent ~xpensss'; include: the ecs Of es:ttlish-

.'...e e cc:ar.) a. =.d._' '. **.~, e..4.e l_' e c. ' ~...

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.' unpaid bills and : llecti:n on past-due c::::nts. The staff obsert:d.

lecline in labor cost per custemer frem 197 to 10? and based its estisc:e

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a.nd

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16 23 03 63h,600 17 30.08

~23,*00 1c 38.L6

~~70,100

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. ". _o'~..'_%_'..*._-

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~..:..

._., o, _. c., s,..ge miscellaneous and o.s. ster scles revenues.'r:= total revenues in in

,.se e.,L,..

.n.,

,n..

a....,

....a, 3..,

.~.,

,e....

4:n.

..g.

..e

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k. o.

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a

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5

% ) -;.

TA 8L E 12-A 50GE----GAS DEPARTMENT CUSTCHER ACCCUNTS EXPENSES GAS DEPARTMENT TEST YEAR 1991 LN ACCT.

UTIL. EXCEEDS STAFF NO NO ITEM STAFF UTILITY AMOUNT PCT (A)

(B)

(C )

(0)

(THOUSANOS OF 00LL.tRS)

I 1

901.00 SUPEPVISION

$ 109.2 3 112.1 5 2.9 2.7 2

902.00 METER REA0!hG 1179.0 1179.0 0.0 0.0 3

CUSTOMEP RECORDS AND CGL.

4 903.10 CUSTOMER SERVICE 1757.5 1757.5 0.0 0.0 5

903.20 CREDIT MANAGEMENT 79.8 82.6 2.8 3.5 6

903.30 CCLLECTIONS 596.2 603.9 7.7

1. 3 7

903.40 CUSTOMER PAYMENTS 359.2 359.2 0.0 0.0 6

903.50 BILLING & BOOKKEEPING 477.6 502.3 24.7 5.2 9

903.60 DATA PRCCESSING 760.9 760.9 0.0 0.0 10 903.70 POSTAGE 556.2 752.4 196.2 35.3 11 10TAL CUSTOMER REC. AND COL 45e7.4 4816.3 231.4 5.0 12 904.00 UNCOLLECTIBLE ACCT.

73.8 82.3 8.5 11.5 13 905.00 MISC. CUST. ACCT. ExP.

17.0 17.0 0.0 0.0 14 SUBTOTAL CUSTOMER ACCT 5966.4 6209.2 242.8 4.1 15 WAGE ADJ.

-73.6 0.0 73.6 -100.0 16 TOTAL CUSTOMER ACCT. EXP.

5892.8 6209.2 316.4 5.4 ee**=

AT PRCPCSED RATE 5 17 904.00 UNCOLLECTIBLE ACCT.

94.3 110.1 25.3 30.6 18 SUBT3TAL CUSTOMER ACCT 5976.9 6237.0 260.1 4.4 l

2--

4 t

CHAPTER 13 MARKET SERVICE EXPENSES - GAS CEPARTyI:Fr (CONSERVATION) 1.

These expenses include activities which encourage consermtion and load reduction. They are the supervision, labor and administrative (ancillary) expenses of central staff and field personnel. They plag implement and monitor the various programs. Also included are the expenses for advertising and related collateral material, such as bill stuffers, printing of pa=phlets and publication and dissemination of various conservation related material.

2.

The staff's Conservation Branch evaluated the reasonableness of SDG&E's programs. A separate report published the staff's conclusions, recommendations and adjustments.

3 Table 13-A is a comparison of the utility's and staff's test year 1961' expense estimates, by the uniform system standard account nu=ber.

4.

A comparison of total expenses is:

Test Year 1981 Item Staff Utility (DollarsinThousands)

Total Expenses

$3,700 7

$4,k33 0 t

l l

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l 13-1

13 - MARKER SER'.CCE EXPENSES - GAS DEPARTMSiT (CONSERVATION) 5 In order that the Cornission and interested parties can have a better understanding of how SDC&E's conservation estimates relate to other California utilities, the staff.has prepared the following table.

COMPARISDN OF 1981 TEST YEAR CONSERVATION EXPENSES INCLUDINC LOAD MANAGE Gas Electric S/cust.

c/them c/them S/cust.

c/kWh c/kW over life-over So. Cal Gas 11"'

11'*1 "*

Staff 8.16

.34 43 Utility 10.08 42

.53 So. Cal Ed.

Staff & Utility 12.12

.60

.71 SDC&E Staff 7.26

.47

.72 11.69

.85 1.08 Utility 8.70

.57

.86 18.66 1.36 1.73 Y

PG&E 5.99

.23

.29 14.22

.78

.94 J/ All estimates are from the staff Results of Operation reports. To be on a coruparative basis, staff customers and sales estimates were used.

l/ Test Year 1980 per Decision No. 91107 13-2

13 - MARKET SERVICE EXPE*SES - GAS DEPARTMEITI (CONSERVATION) 6.

The following table lists the utility's estimated advertising expenses which are included in the 1981 test year. In order to allocate between departments, both the staff and utility have assigned approximately 757. of the conservation expenses to electric and the remainder to gas. All load management expenses are assigned to the Electric Department.

1981 ESTIMAUD ADVERTISING EXPENSE Load Conservation Manarecent Total (1) Radio 367,000 13,000 380,000 (2) Television 330,000 47,000 377,000 (3) Newspaper 504,000 130,000 634,000 (4) Pamphlets 1,780,500 15,000 1,795,500 (5) Miscellaneous (includes marketing, response envelopes.

trade journals, magazine, transit, outdoor billboards, agency fee, development, etc.)

517,000 26,000 543,000 (6) Total 3,498,500 231,000 3,729,500 I

13-3 1

i T..A B L E 13-A i

SDGE----GAS DEPARTMENT MARKETING EXPENSES TEST YEAR 1981 LN ACCT.

UTIL. EXCEEDS STAFF NO NO ITEM STAFF UTILITY AMOU '

PCT (A)

(8)

(C '

(0)

(THOUSANDS OF DOLLARS) 1 907.00 SUPERVISION 3 84.9 8 93.6 3 8.7 10.2 2

908.00 CUSTOMER ASSISTANCE 3082.9 3619.6 536.7 17.4 3

909.00 INFOR.-INSTRUC.ADV.EXP.

263.1 449.8 186.7 71.0 4

910.00 MISC.CUST. SERV. INFO.EXP.

269.8 270.0 0.2 0.1 5

MARKETING EXPENSES 3700.7 4433.0 732.3 19.8 6

WAGE ADJ.

0.0 0.0 0.0 0.0 7

TOTAL AFTER WAGE ADJ 3700.7 4433.0 732.3 19.e i

13 k l

CHAPfER lh ADFETISTRATIVE AND GETERAL EXPETSES - GAS 1.

The staff's estimate of the Gas Depe.rtment's admirlistrative and general expenses is the result of evaluation of many general office departments in the San Diego Gas & Electric Company. This evaluation included analysis of the trends of current departmental expenses and the engineering economics of customers and growth on administrative and general expenses.

2.

The comparable figures for total gas administrative and general expense for test year 1981 are as follows:

Item

Staff : Utility :

(Dollars in Thousands)

Total A&G Expense

$9,949.h

$10,516.3 3

Table 14-A represents the total direct and indirect, as estimated by both the staff and the utility, administrative and general expenses for the Gas Department. Both the staff and the utility have included wage increases in their estimates relative to the administrative and general expense labor items. The staff's treatment of the 1981 estimated wa6e increase is stated in Chapter 1 of this report.

h.

Differences between the staff and utility estimates of direct gas expenses are due to different estimating crethods and specific adjustments as explained in the General Report, Chapter 2.

5 Adjustments to research and developcient are covered in General Report, i

Chapter 2.

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TABLE 14-A 50GE----GAS DEPARTNENT ADMINISTRATIVE & GENERAL EXPENSES TEST YEAR 1981 LN ACCT.

UTIL. EXCEEDS STAFF

. NO NO ITEM STAFF UTILITY AMOUNT PCT (A)

(8)

(C )

(0)

(THOUSANOS OF DOLLARS) 1 AT PRESENT RATES 2

920.00 ADMINISTA.5 GENER. SALARIES

$ 3809.8

$ 3810.9 8 1.1 0.0 3

921.00 0FFICE SUPPLIES & EXPENSES 2123.9 2124.8 0.9 0.0 4

922.00 AOM. EXP. TRANSF.

-3015.4

-2787.6 227.8

-7.6 5

923.00 OUTSIDE SERV. EMPLOY.

312.4 312.4 0.0

0. 0 6

924.00 PROPERTY INSURANCE 80.0 83.4 3.4 4.3 7

925 00 INJURIES & DAMAGES 323.0 323.4 0.4 0.1 8

926.00 EMPLOY. PENSION & BENEFITS 4862.0 4961 0 99.0 2.0 9

927.00 FRANCHISE REQUIRENENTS 1311.0 1311.0 0.0 0.0 10 928.00 REGULATORY COMM EXPENSES 282.8 282.8 0.0

0. 0 11 930.00 MISCELLAhEOUS GENERAL EXP 619.4 659.2 39.8 6.4 12 931.00 RENTS 237.4 256.8 19.4 8.2 13 932.00 MAINT.0F GENERAL PLANT 391.4 489.2 97.8 25.0 1

14 TOTAL A&G EXPENSES 11337.7 11827.3 689.6 4.3 15 WAGE ADJ.

-139.0 0.0 139.0_-100.0 16 TOTAL AFTER WAGE ADJ 11198.7 11827.3 628.6 5.6 I

oce** AT PROPOSE 0 RATES *****

17 927.00 FRANCHISE REQUIREMENTS 1744.7 1744.7 0.0 0.0 18 TOTAL A&G EXPENSES 11771.4 12261.0 489.6 4.2 l

14-2 l

CHAPTE3 15 INCCMI TAXIS Introduction 1.

This section presents the staff's co=putation of inco=e tax expense for rate-making purposes based upon the test year results of operations for San Diego Gas & Electric company's Gas Department.

~

2.

In OIX-24, this Commission has under investigation the methods to be utilized in establishing the proper level of income tax expense for rate-making purposes; many of the tax issues inherent in this proceeding vill be addressed in OII-24. To the extent such issues have been deferred to OII-24 in prior rate cases, they have not been included in this staff presentation.

~

3 The following paragraphs describe the various line items which constitute the adjustments used for determining taxable income and explain the differences between the company's and staff's estimates.

Interest on Long-Term Debt 4

In Decision No. 77975, dated November 24, 1970, in response to southern California Gas Co=pany's General Rate Application No. 515o7, this Co= mission stated:

"The staff's use of a year-end composite interest rete for combined short-term and long-term debt to deter =ine test year interest deductions for the calculation of taxes based on income is consistent with rate of return studies whi:h involve in effect applying year-eni cepital cost r9tes with weighted average capital during the test year, in view of the relationship of such capitol to rate base nnd the fact that the revenue requirement on which rates are to be based is, in part, the product of a rate of return and a weighted average rate base. In concept, the staff approach tends to bring income taxes and rate of return, as elements of the total cost of service or revenue requirement, into synchronization."

5 In the current rate case, the staff's rate of return witness is i.

recommending the usage of an average of the beginning and end-of-year capital structure and embedded debt costs. In conformity with the rationale stated in Decision No. 77975 of bringing income taxes and rate of return into synchronizatien, the average e= bedded debt cost as recommended by the rate of return witness has been multiplied by the average debt outstanding to arrive at the interest deduction for income tax purposes.

15-1

I 15 - INCCME TAXES 6.

The co=puted amount of interest expense hss been apportioned by the staff between departments on the basis of each department 's net plant balance to the total. The apportioned interest expense has then been reduced by the a= cunt expected to te charged as AFUDC on construction work in pro 3ress in the test year.

Tax Basis Deereciation 7

The tax depreciation has been ec=puted using the shortest lives end fastes,t methods allowed by the Internal Revenue Code and C211fornia Corporation Frenchise Tax Law.

Removal Cost 8.

Removal cost represents the current deduction of the ecsts of discantling, demolishing or removing certain assets in the process of retirement. There is no difference between the staff and utility esti=ates.

Administrative and General Costs, Payroll Taxes, Pension and Benefits Capitalized 9.

For income tax purposes, certain pension and benefit and administra'tive and general costs, which are capitalized for rste-making purposes as a part of constructed plant, can be deducted currently. This adjust =ent recognizes the amount estimated to be capitalized in the test year. The staff figure is a sumention of the staff payroll tax and pension and benefit witness' esti=ates of I

the amount of these expenses which will be capitalized for rate-making purposes.

The staff estimate is computed thusly:

l Administrative and General

$ 965,000 pension and Benefits 2,050,400 Capitalized Payroll Taxes 143,000 Total (rounded) 3,158,000 l

l Ad Valorem Tsx Catitalized 10.

That portion of ad valore= tax which is capitalized for rate-taking purposes is claimed as a current year deduction for income tax purposes. This adjustment reflects the staff's ad valore= witness esti= rte of that a=ount.

Use Tax Capitalized 11.

This adjustment recognizes the estimated amount of use tax to te incurred which will be capitalized for rate-fixing purposes but expensed for j

income tax purposes. There is no difference between staff and co=psny esti=ates.

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l 15-2 1

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15 - IUCCMI TAXIS Contributions for Service Fees (Service Connection Fees) 12.

Internal Revenue Code Section 118, as revised by the Revenue Act of 1978, excludes fro = taxable income all contributions in aid of construction, except service connection fees; the staff and corpsny esti=ates of the a=ount taxable in the test year are the sa=e.

Repair Allowance 13 The repair allevance is an annual election available to the taxpayer under Internal Revenue Service regulations. Under this election, certain expenditures for the repair, =aintenance, rehabilitation or i= prove =ent of property that have been capitalized for bock purposes =ay te treated as currently deductible repairs to the extent they do not exceed the repair allowance prescribed by the regulations. There is no difference between the staff and utility estimates.

Preferred Dividend Deduction 14.

This is a special deduction for utilities and is deductible for federal tax purposes only. It is based on a certain percentage of preferred dividends paid on preferred stock issued prior to 1943 The co=pany vill be able to elat:

$59h,000 in 1981, which the staff apportioned on the same basis as it did interest expense.

Fiscal / Calendar Adjustment of Ad Valore= Taxes 15 A utility =ay, for income tax purposes, deduct in the current year the full a=ount of ad valore= taxes due on property held as of March 1, despite the fact that one-half of the a=ount is not psyable until the follevin yeer. For book and rate-taking purposes, utilities record ad valore: teres on calendar year basis.

l The staff figure was developed fro = infor=3 tion provided by the l

staff ad valore= tax witness.

Investment Tax Credit (ITC) i 16.

The Coc=ission, in D-90405, issued in response to A-56067, et al. on June 5,1979, adopted the sa=e treatment as it did in D-89657, wherein it said:

"By Decision No. 89oh8 dated June 27, 1976, the Co==ission grented limited rehearing as to the issue of proper treat =ent of inec=e taxes in

(

Decision No. 68697 in Applications Nos. 55627, 55626, and 55629 to be l

consolidated with the hearings in Application No. 58067 Both the staff' and SDG&E offered testi=ony and exhibits as to the appropriate =ethod for esiculating investment tax credits to te used for rste-=akins purposes.

SDG&E's tax witness Miller testified that flow-throu-h of Invest =ent Tax Credit (ITC) earned under the 1971 Revenue Act at a rste 3reater than 50 percent violates IRS Code Sections 46f(2) and (E) and Te=porary Regulation l

Section 9.1 thereby jeopardizing the additional investment tax credits available under the Tax Reduction Act of 1975 15-3 l

15 - Inc0ME TAES "The staff witness exs=ined the IRS code provisions upon which SDG&E relied to support its position and did not egree that the language therein clearly and convincingly de=onstr9ted the interpretation of law that SDG&E set forth.

Accordingl, for the purposes of this

/

decision, ITC will be limited to 50 percent of the tax lintility plus the rateable flow-through of the excess ITC genersted by the 1975 Tax Reduction Act. Income tax expense co=puted with this limitation vill be made subject to refund pending final resolution of this issue."

17.

On September 18, 1978, the co=pany requested a ruling from the IRS, wherein it asked (asong other things):

"Whether the additional credit allowed by reason of the Tax Reduction Act of 1975 includes any additional credit allowable because of the increase in the limitation based on tax under Section k6(a)(7)

(from 50% to, among other rates,100% for 1976 and 70% for 1979)'. To avoid possible misunderstanding, your ruling is also requested on the increase in the amount of the credit under Section 46(a)(2)."l/

18.

On January 17, 1980, the IRS responded thusly:

"The additional ITC allowed by reason of the 1975 Act (which under the company's 1975 election of ratable flow-through =ust be accounted for in the manner described in Section 46(f)(2) of the Code) includes an amount of additional ITC earned for limited property, allowed by reason of the increase in the amount of ITC under Section 46(a)(2) and the increase in the limitation based on tax under Section 46(e)(7), that results from the co=putation described in Section 91(a)(3)(1) of the temporary regulations."

ITC Currently Flowed Through 19 The staff recommends flowing through the lesser of:

A.

fifty percent of the esti=ated test year tax liability; or B.

the amount of ITC not covered by San Diego's option II election which is expected to be generated in the test year, plus that position of previous years' credit not covered by the ec= pan: 's Option II election, but not flowed throu;b, because of the previously dis ussed l

50% li=itation. (The staff'r anslysis of D-87639 end D-9:kOS indicates that all previous years' ITC not covered by the cocpar.y's option II election has been prevdously floved through in re:iuced rates.)

1/ Section so(a)(2) increased the a=ount of credit fro 75 to 105 (k% to 1CT for public utilities); Section 46(a)(7) increased the a:ount of federal income tez which could be offset by the ITC frec 50% to percentages l

vbich varied by year but which were.3reater than 50%.

l l

15 k l

1 15 - INccte TAX 3s l

I*C Batably Fleved Threugh 20.

IRS regulation 1.46-6(g)(2) explains hev to ec=pute the ascunt of ITC which is to be flowed through under the ec=pany's option II (ratable flev thrcugh) election. It says, in part:

"What is ' ratable' is detemined by censidering the priod of ti=e actually used in ec=puting the taxpayer's regulated depreciation expense for the property for which a credit is alleved.

' Regulated depreciation expense' is the :lepreciatien expense for the property used by a regulatory body for purpcses of establishird the taxpayer's cost of service for ratemaking purposes. Such period of ti=e shall be expressed in units of years (or shorter periods), units of production, or machine hours and shall be deter =ined in accordance with the individual useful life syste= cr ec=posite (or other group asset) acecunt syste= actually used in ec=puting the taxpayer's regulated depreciation expense."

21.

The stafft interpretation of the phrase, "...actually used in ec=puting the taxpayer's regulated depreciation expense", is that the ec=pany's optica II ITC is to be flove:i through over the rate-makir4 service lines of everf asset class which actually generates the credit. For exa:ple, if the ec=pany generates

$1 =1111cn of credit frc= the installation of new gas distribution =ains, which has a rate-making service life of k3 years, the eccpany should flev thr:x4h 1/k3 cf the credit in each of the 43 years.

22.

She c:x::pany contends that it does not generate the accounting infc=atic required to use this methodology. It propcses, instead, to flew thrcush the credit over the average rate-making sertice lines of all prcperties put in sertice in each year.

23 Ihe staff finds two faults vith the ec=pany =ethodelegy:

A.

Because of the lack of strict adherence to the IRS regulations, San Diege is, to a li=1ted degree, riskira its eligibility to clai= the ITC ccvered by its optien II election.

3.

Because different classes of preperty have different rate-=akir4 service lines, the staff's (and IRS's) =ethodology achieves a balance between l

the ratepayers payir4 fcr the property (through depreciatien expense) l and the company's fleving through the related ITC. The ec=pany's methodology, hcVever, flevs thrcugh a levelized ascunt of T20 cver the properties' average service lines.

t t

15-5 i

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15 - UCOME 1 Axes 24.

The staff recomends that the Cocmission order the ca::pany to i=plenent accounting proceedings which permit flovirc through the cocapny's option II ITC in accordance with the staff's and IRS's methodology for plant placed in service in 1961 and years thereafter, and that the ecc:pany's methodology be used for the option C ITC generated in years prior to 1981.

Graduated Rate Benefit The " Graduated Rate Benefit" recognizes the fact that the first $100,000 of corporate taxable income is taxed at various step rates which are less than the h6% rate which is applicable to taxable income in excess of $100,000. The staff apportioned the " benefit" on the same basis as interest expense.

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15-6 b

TA BLE 15-A SOGE----GAS DEPARTMENT

SUMMARY

OF TAXES TEST YE AR 1981 Lh ACCT.

UTIL. EXCEEDS STAFF NO NO ITEM STAFF UTILITY AMOUNT PCT (A)

(B)

(C )

CD)

(THOUS ANDS OF DOLLARS) i 1

A0 VALOREM TAXES S 1591.0

$ 2670.0

$ 1079.0 67.8 OTHER TAXES 2

FE0 INSURANCE ACT (FICA) 918.0 918.0 0.0

0. 0 3

FEDERAL UNEMPLOYMENT (FUI) 28.0 28.0 0.0 0.0 4

CALIF UNEMPLOYMENT (SUI) 110.0 110.0 0.0 0.0 5

MISCELLAhEQUS 2.0 2.0 0.0 0.0 6

WAGE A0J 0.0 0.0 0.0 0.0 7

TOTAL OTHER TAXES 1058.0 1058.0 0.0 0.0 8

TOTAL NON-INCOME' TAXES 2649.0 3728.0 1079.0 40.7 PRESENT RATES 9

CALIF. CORP FRANCHISE TA X 0.0 257.0 257.0

0. 0 10 FEDERAL CORP IliCOME TAX

-341.2 1282.0 1623.2 -475.7 11 TOTAL INCOME TAXES

-341.2 1539.0 1880.2 -551.1 12 TOTAL TAXES 2307.8 5267.0 2959.2 128.2 PROPOSED RATES 13 CALIF CORP FRANCHISE TAX 1693.6 1365.0

-328.6

-19.4 10 FEDERAL CORP INCOME TAX 6574.2 5237.0

-1337.2- -20.3 15 TOTAL INCOME TAXES 8267.8 6602.0

-1665.8

-20.1 16 TOTAL TAXES 10916.8 10330.0

-586.8

'-5.4 15-7 i

TA BLE 15-8 50GE----GAS DEPARTMENT TAXES BASED ON INCOME TEST YEAR 1981 UTILITY LN PRESENT RATES PROPOSED RATES NO.

ITEN CCFT FIT CCFT FIT (A)

(B)

(C)

(0)

(THOUS ANDS OF DOLLA RS) 1 OPERATING REVENUES 8 56253.0 5 56253.0 8 74433.0 74433.0 2

0+M EXPENSES 34302.9 34302.9 34747.1 34747.1 3

TAKES OTHER THAN INCCME 2649.0 2649.0 2649.0 2649.0 4

CCFT

0. 0 0.0

0. 0 1693.6 5

$UBTOTAL 36951.9 36951.9 37396.1 39089.7 6

OEDUCTIONS FROM TAXABLE INCOME 7

TAX OEPRECIATION 7625.0 7999.0 7625.0 7999.0 8

INTEREST CHARGES 7831.0 7831.0 7831.0 7831.0 9

BENEFITS CAPITALIZED 3158.0 3158.0 3158.0 3158.0 10 AD-VALOREM TAXES Os0 0.0 0.0 0.0 11 REMOVAL COST 322.0 322.0 322.0 322.0 12 REPAIR ALLOWANCE 508.0 508.0 508.0 508.0 13 PREFERRED DIV CREDIT 0.0 63.0 0.0 63.0 14 USE tax 281.0 281.0 281.0 281.0 15 TAXABLE CIAC

-327.0

-327.0

-327.0

-327.0 16 FISCAL / CALENDAR ADJ.

56.0 56.0 56.0 56.0 17 OTHER DEDUCTIONS

-59.0

-59.0

-59.0

~59.0

(

18 SUBTOTAL DEDUCTIONS 19395.0 19832.0 19395.0 19832.0 19 NET TA(A8LE INCOME FOR CCFT

-93.9 17641.9 20 CCFT 0.0 1693.6 21 TOTAL CCFT 0.0 1693.6 22 NET TAXABLE INCOME FOR FIT

-530.9 15511.3 l

23 FEDERAL INCOME tax

-244.2 7135.2 24 OEFERRED TAXES-DEPR.

-12.0

-12.0 l

25 COMP. ADJ. FACTOR 0.0

0. 0 26 GRADUATED RATE BENEFIT

-2.0

-2.0 l

27 ITC NORMALIZED

-M T 6

-Al o 28 FE0 INCOME T Ax BEFORE A0J.

-341.2 7038.2

[

29 ITC FL0kTHROUGH 0.0

-464.0 30 TOTAL FIT

-341.2 6574.2 l

1523 l

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.T,.,A B L E 15-C SOGE----GAS DEPARTMENT DEDUCTIONS FOR TAX CALCULATIONS TEST YEAR 1981 LN ACCT.

UTIL. EXCEEDS STAFF NO NO ITEM STAFF UTILITY AMOUNT PCT (A)

(B)

(C)

(D)

(THOUS ANDS OF DOLLARS)

TAX OEPRECIATION 1

STATE 3 7625.0 3 7674.0

$ 49.0 0.6 2

FEDERAL 7999.0 8002.0 3.0 0.0 3

INTEREST CHARGES 7831.0 8621.0 790.0 10.1 4

BENEFITS CAPITALIZED 3158.0 1857.0

-1301.0

-41.2 5

AD-VALOREM TAXES 0.0 140.0 140.0 0.0 6

RENOVAL COST 322.0 322.0 0.0 0.0 7

REPAIR ALLOWANCE 508.0 508.0 0.0 0.0 8

PREFERRED DIV CREDIT 63.0 64.0 1.0

1. 6 9

USE TAX 281.0 281.0 0.0 0.0 10 TAXABLE CIAC

-327.0

-327.0 0.0

0. 0 11 F ISC AL/CALE ND AR 56.0 0.0

-56.0 -100.0 12 OTHER DEDUCTIONS

-59.0

-59.0 0.0

0. 0 INVESTMENT TAX CREDIT 13 FLOWTHROUGH

-464.0

-464.0 0.0 0.0 14 NORMALIZED

-83.0

-14.0 69.0

-83.1 15 OEFERRED TAXES-0EPR.

-12.0

-12.0

0. 0

0. 0 16 COMP. A0J. FACTOR 0.0

-5 0

-5.0 0.0 17 GRAOUATED RATE BENEFIT

-2.0 0.0 2.0 -100.0 o

O i

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i

I CHAPTER 16 GAS PLANT 1.

This chapter contains the development of the staff estimates of total weighted average gas plant for San Diego Gas and Electric Company for test year 1981. Tables 16-A and 16-B compare the staff and utility gas plant estimates for test year 1981. A summarization of the total weighted average plant as estimated by the staff and utility is as follows:

Test Year 1981 (Table 16-B)

(Dollars in Thousands)

Staff Utility Gas Plant

$262,720

$262,938 2

The staff estimates are based on the results of field inspections of the utility's facilities, discussions, with utility personnel responsible for the construction budgets, analysis of utility's workpapers, and a detailed review of the utility's construction budgets for the years 1980 and 1981.

3.

The staff estimates of plant in service reflect the recorded plant in service at the beginning of year 1980, the staff's estimated plant additions for year 1980, and the staff's weighted average plant additions for test year 1981.

4 Utility's gas plant includes: gas production and storage facilities,

~ The additions to plant are due to 11 gas transmission and gas distribution.

blanket projects and other projects necessary to maintain compliance with codes and efficient operation. Staff reviewed these additions and gave consideration to past expenditure levels and concluded that the utility's estimates, except for the following difference, are rearonable.

5.

Staff is lower than the utility by $218,000 Crable 16-B), for estimated year 1981 and is the result of the weighted avera6e net plant additions in rate base.

6.

Retirement differences are the result of the adoption of different additions by the staff and the utility.

16-1 l

Table 16-A SAN DIEGO CAS & ELECTRIC CWPANY Cas Plant 1980 Test Year 1981 Utility

Line :

Exceeds Staff

No.

Ites Staff : Utility

Amount Percent (a)

(b)

-(c)

(d)

(Dollars in Thousands) 1 January 1, 1980

$227,097

. $227,097 2

Additions 14,075 14,075 3

Retirements 575 575 4

Adjustments (RFS Auto's P.O.E.)

(44)

(44) 5 December 31, 1980

$240,553

$240,553 6

Common Plant Allocation

$ 8,082

$ 8,082 3-7 Total 1980 Plant

$248,635

$248,635 l

O e

S 6

16-2

Table 16-B L

. SAN DIEGO GAS & ELECTRIC COMPANT Cas Plant 1981 Test Year 1981 Utility

Line :

Exceeds Staff No.

Ites Staff :

Utility

Amount Percent (a)

(b)

(c)

(d)

(Dollars in Thousands) 1 January 1, 1981

$240,557

$240,557 2

Additions 13,989 14,217 228 1.6%

3 Retirements 583 593 10 1.7 4

Adjustments (RFS Auto's P.O.E.') _ (54)

(54) 5 December 31, 1981

$253,909

$254,127

$218 0.1%

6 Common Plant Allocation 8,811.

S 8.811 S

7 Total 1981 Plant

$ 262,720

$262,938

$218 0.1%

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l 16-3 1

CHAPTER 17 DEPRECIATION EXPENSE AND RESERVE 1.

The staff offers no objection to the depreciation rates used by San Diego Gas & Electric Company for its Gas Department. The differences between staff and utility for the estimates of depreciation expense and reserve for gas plant are explained by the lower plant estimates made by the staff in Chapter 16.

i 2.

An additional $193,688 adjustment to the staff's reserve estimate for SDG&E is to the Gas Meter account. The justification for the gas meter adjustment is presented in the staff's " Report on the Re'sults of ha-inntion of San Diego Gas & Electric Capany."

l 9

17-1 e

TA BLE 17-A

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SOGE----GAS DEPARTMENT' DEPRECIATION AND AMORTIZATION EXPENSE TEST YEAR 1981 LN ACCT.

UTIL. EXCEEDS STAFF

-NO NO ITEM STAFF UTILITY AMOUNT PCT (A)

(B)

(C)

(D)

(THOUSANDS OF DOLLARS) 1 OEPRECIATION EXPENSE 3 8535.0 8 8541.0

$ 6. 0 0.1 2

TOTAL DEPRE. AND AMORT.

8535.0 8541.0 6.0 0.1 a

9 l

17-2

CHAPIER 18 RATE BASE 1.

This chapter contains the development of the staff's estimate of the total weighted average rate base of San Diego Gas and Electric Company for test year 1981. Table 18-A shows a comparison between the staff and utility's estimates. A eumsarization of the total weighted average rate base as estimated by the staff and the utility is as follows:

Test Year 1981 (Thousands of Dollars)

Staff Utility Gas Race Base

$159,611

$158,108 2.

The plant in service and reserves for depreciation, depletion, and amortization of gas plant are derived from Chapters 16 and 17, respectively, of this report. Plant in service reflected in rate base includes gas plant, common plant allocation and completed construction not classified.

3.

Differences between the staff and utility are as follows.

Net Plant Additions 4

The staff's weighted average net plant additions for the test year was arrived at by applying a weighting factor of 2.72% to the plant-in-service amount. This weighting factor is based on the five years' average of the annual recorded 13 months' weighted average additions. This is in accordance to procedures adopted in Decision No. 83746 (dated November 26, 1974). The utility also used 13 months' weighting method based on uncertain future dates t

(

of plant additions to go into operation in a particular month. Staf f's estimate is lower than the utility's by $110,000.

f Customer Advances for Construction I

The staff's estimate of customers advances for construction is lower l

5.

than the utility by $590,000 and is arrived by the same methodology as applied by the utility, except the staff had access to 1979 recorded data as opposed to the utility's 1979 estimated data.

Plant in Service i

j 6.

The staff's and utility's gas plant in service differs by $73,000 I-and reflects the difference between the utility's submitted workpapers and the application.

18-1 l

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TABL E 18-A SOGE----GAS DEPARTMENT WEIGHTED AVERAGE DEPRECIATED RATE BASE TEST YEAR 1961 LN ACCT.

UTIL. EXCEEDS STAFF NO NO ITEH STAFF UTILITY AMOUNT PCT (A)

(B)

(C)

(0)

(THOUS ANDS OF DOLLARS) 1 BEG. BAL.-FIXED CAPITAL 2

Pt. ANT IN SERVICE 8 248635 3 248708 5 73 0.0 3

PLANT HELD FOR FUT USE O

O 0

0. 0 4

RESEARCH ANO DEV.

0 0

0 0.0 5

SUBTOTAL 248635 248708 73 0.0 6

NET PLANT A00!TI0h5 6763 6873 110

1. 6 7

TOTAL FIXE 0 CAPITAL 25539C 255581 183 0.1 8

CUST ADVANCE FOR CONST

-7810

-8400

-590 7.6 9

WORKING CAPITAL 10 FUEL STORAGE 4054 4054 0

0. 0 11 MATERIALS & SUPPLIES 2552 2552 0

0.0 12 WORKING CASH 3368 2099

-1289

-38.0 13 TOTAL WORKING CAPITAL 9994 87C5

-1289

-12.9 14 TOTAL BEFORE RESERVES 257582 255886

-1696

-0.7 15 RESERVES l

16 DEFERRED INCOME TAXES 78 78 0

0.0

, 17 OEPRECIATION 97360 97167

-193

-0. 2 18 AMORIZATION & OTHER 533 533 0

0.0 19 TOTAL RESERVES 97971 97778

-193

-0.2 20' TOTAL RATE BASE 159611 158108

-1503

-0.9 i

18-2 l

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TABLE 28-B Sheet 1 of 2 San Diego Gas & Electric Coc:pany Gas Department

'ORKING CASH ALICWANCE STUDY Year 1981 Estimated 5

Line:

Gas

No.:

Item

Department :

(A)

(Dollars in Thousands)

Operational Cash Requirements 1

Compensating Minimum Bank Balances

$1,735 2

Special Deposits and Working Funds 2h 3

Miscellaneous Receivables 771 h

Prepayments kh8 5

Deferred Debits 781 6

Total Operational Cash Requirements 3,759 Deductions for the Amounts Not Supplied by Investors 7

Accrued Vacations, Sick I. eave and Withholdings 1,511 8

Accounts Payables 2,009 9

User Taxes 72 10 Custemer Deposits 1,375 11 Total Deductions h,967 12 Average Amount Needed as a Result of Paying Expenses, Taxes J Depreciation in Advance of Collecting Revenues h,651 13 Total Working Cash Allowance 3,hk3 9

18-3

is h s S 29e: U

]

Sheat 2 of 2 l

SOGE-~~-GAS DEPARTMENT i

OEVELOPMENT OF AVERAGE LAG IN PAYMENT OF EXPENSES I

i 8 1000 AVG DAY LAG S 1000 j

A B

C=A X 8 FEDCRAL INCOME TAX

$ 3737.10 103.65 3 347350.40 i

I

' STATE INCOME TAX 1038.T0 103.65 197661.20 FRANCHISE REQUIREMENT 3 1583.80 171.40 271443.30 PURCHASED GAS 199109.00 37.82 T530303.00 A0 VALOREM TAX 1591.00 43.01 64428.91 COMPANY LABOR 194T6.00 12.77 24470s.50 GOODS & SERVICES 10355.00 29.91 309807 80 4

EMPLOTEE SENEFITS 3014.00

-2.60

-7836.40 MISC. TAX 2.00 0.00 0.00 FEDERAL UNCMPLOYMENT TAX 28.00

'?.04 2017 12 FICA tax 918.00 T.59 6967.62 OEPRECIATION 8535.00 0.00 0.00 NATERIALS FROM $70RER00M 441.00 0.00 0.00 STATE UNEMPLOYMENT TAX 110.00 T2.04 T924.40 1

CISC. RES.

403.00

0. 00 0.00 1

TOTAL 250384.60 8932796.00 EXP LAG DAYS = C/A = 35.68 REVENUE LAG OAYS

42.38 A0JUSTMENT TO RATE 8ASE 4594.10 NEW RATE 8ASE

155015.0 +

4596 1=

159611.1 4

16 4 2

4 a

CHAPTER 19 SUMMRY OF EARNINGS 1.

The revenues, expenses, taxer and depreciation expenses developed l

in the preceding chapters of this report for San Diego Gas & Electric Company, Gas Department, are brought together here in order to develop the net revernaes and to determine the rate of return based on present rates and also at proposed rates.

2.

In Tables 19-A ed 19-B are shown comparisons of staff and utility sumary of earnings for the 1981 test year estimated at present rates and at j

utility proposed rates, respectively. The utility showing is from its original application filed July 1,1980.

3.

A sunnary of the principal assumptions and rate-fixing adjust:nents reflected in the staff estimates is as follows:

A.

As a result of slower growth than the utility anticipated in Accounts 870 and 879, distribution expenses, the staff has made an adjust:nont of $542,000.

1 B.

Acc. 903.7 (Postage Expenses) - Staff did not include postal rate rate increase for 1981. Staff's estimate is $556,200, which is S196,200 lower than the utility's.

C.

The staff has made a $732,300 adjustment in SDG&E's conservation estimates. Details of this adjustment are shown in the conservation MMM.

i l

D.

Staff's ad valores taxes are $1,079,000 lower than the utility's.

This difference is primarily due to the method ussd to allocate total coupany ad valorem taxes between operative plant and CWIP and between gas and electric plant.

E.

The staff-estimate of inecume taxes follows the Commission policy as expressed in previous decisions. The major difference is a result of the staff's higher deduction for capitalized benefits.

F.

A wage adjustment of $426,300 was made by the staff. This amount reflects the difference between a 13.5% and an 11.0% wage increase.

Not-to-Cross Multinlier 4

The net-to-gross unitiplier for the test year 1981, which is the ratio of the gross revenue required to produce a unit change in net revenue, is 2.102 for l

l

i 19 - SutRRY OF EAILVINGS sales to gas customers. his means that an increase of $2,102 in gross revenue is required to produce an increase of $1,000 in net revenue. he net-to-gross naaltiplier is developed as follows:

Gross Operating Revenue 100.0000 Lees: Unco 11ectibles at 0.157.

0.15 i

Subtotal 99.8500 Less: Franchise Requirements at 2.39%

2.3864 Subtotal 97.4636 State Income Tax at 9.6%

9.3565 Subtotal 88.1071 Federal Income Tax at 46%

40.5293 Remainder 47.5778 Not-to-Gross Multiplier 2.1018 (Gross Revenue Divided by Rasainder) l l

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TA BLE 19-A SDGE----GAS DEPARTMENT

SUMMARY

OF EARNINGS TEST YEAR 1981 Af PRESENT RATES LN UTIL. EXCEEDS STArr

,NO ITEN STAFF UTILITY AMOUNT PCT (A)

(8)

(C)

(D)

(THOUSAN05 0F DOLLARS) t 1

OPERATING REVENUES 2

T O T A L, REVENUES S 56253.0

$ 56253.0

$ 0.0 0.0 3

TOTAL OPERATING REVENUES 56253.0 56253.0 0.0

0. 0 4

OPERATING EXPENSES 5

GAS SUPPLY EXPENSES

-813.7

-853.3 "39.6 4.9 6

STORAGE EXPENSE 2049.1 2087.5 38.4

1. 9 7

TOTAL TRANMISSION EXPNSES 1745.7 1820.8 75.1 4.3 8

DISTRIBUTION EXPENSES 10743.3 11484.8 741.5 6.9 9

CUSTOMER ACCT.

5966.4 6209.2 242.8 4.1 to MARMETING EXPENSES 3700.T 4433.0 732.3 19.8 11 ADN.S GENERAL EXPENSES 11337.7 11827.3 489.6 4.3 12 SUBTOTAL 34729.2 37009.3 2280.1 6.6 13 WAGE ADJ.

-426.3 0.0 426.3 -100.0 in SUBTOTAL AFTER WAGE A0J.

34302.9 37009.3 2706.4 7.9 15 DEP AND AMORT 8535.0 8541.0 6.0 0.1 16 TAXES OTHER THAN INCOME 2649.0 3728.0 1079.0 40.7 l

17 CALIF FRANCHISE tax 0.0 257.0 257.0 0.0 18 FE0 CORP INCOME TAX

-341.2 1282.0 1623.2 -475.7 19 TOTAL OPERATING EXPENSES 45145 7 50817.3 5671.6 12.6 20 NET OPERATING REVENUE 1 ADJUST 0 11107.3 5435.7

-5671.6

-51.1 21 RATE BASE 159611.0 158108.0

-1503.0

-0.9

' 22 RATE OF RETURN 6.96 %

3. 44 %

-3.52 %

19-3

TA8LE 19-3 50GE----GAS DEPARTMENT

SUMMARY

Of EARNINGS PROPOSCO R ATES-TEST YE=R 1981 LN UTIL. EXCEED 5 STAFF

• NO ITEM STAFF UTILITY AMOUNT PCT (A)

(8)

(C)

(D)

(TMOUSAN05 GF 00LLAR5) 1 OPERATING REVENUES 2

TOTAL REVENUES

$ 74433.0 5 74433.0

$ 0.0 0.0 3

TOTAL OPERATING REVENUES 74433.0 74433.0 0.0 0.0 4

OPERATING EXPENSES i

5 GA5 $UPPLY EXPENSE 5

-813.7

-853.3

-39.6 4.9 6

STORAGE EXPEP.5E 2049.1 2087.5 38.4

1. 9 T

TOTAL TRANMI55!0N EXPNSES 1745.7 1820.8 75.1 4.3 8

OISTRIBUTION EXPENSES 10743.3 11484.8 741.5 6.9 9

CUSTOPER ACCT.

5976.9 6237.0 260 1 4.4 10 MARMETING EXPENSES 3700.7 4433.0 732.3 19.8 11 ADM.E GENERAL EXPENSES 11771.4 12261 0 489.6 4.2 12 SU8 TOTAL 35173.4 37470.8 2297.4 6.5 13 WAGE ADJ.

-426.3 0.0 426.3 -100.0 14

$UST0TAL AFTER WAGE ADJ.

34747.1 37470.8 2723.T 7.8 15 DEP AND AMCMT 8535.0 8541 0 6.0 0.1 16 TAXE5 OTMEE THAN INCOME 2649.0 3728 0 1079.0 40.7 17 CALIF FRANCHISE TAX 1693.6 1365.0

-328.6

-19.4 1337.2

-20.3 13 FE0 CCRP INCOME TAX 6574.2 5237.0 l

19 TOTAL OPERATING EXPENSES 54198.9 56341.8 2142.9 4.0 20 NET OPER ATING REVENUES A0 JUSTO 20234.1 18091.2

-2142.9

-10.6 i

21 RATE BASE 159611.0 158108.0

-1503.0

-0.9 l

22 RATE OF RETURN 12.68 %

11. 44 %

-1.2 4 %

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CHAPTER 20 RECOMENDATIONS The Commission staff reconnends that:

1.

The wage increase expenses be adjusted prior to the Connission's decision to reflect the latest consumer price index available.

2.

Until the poetal increase receives final approval, no postal increase should be included in the test year expenses.

l 20 - 1 4

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