Employee Benefits, Training & Support...3 This Section presents the Test Year 2021 forecast of SCE’s Employee Support. For Test Year 4 2021, SCE forecasts $43.951 million of expenses.1

Application No.: A.19-08- Exhibit No.: SCE-06, Vol. 03, Part 1 Witnesses: M. Bennett

G. Henry J. Morehead J. Smolk S. Tran J. Trapp

(U 338-E)

2021 General Rate Case

Employee Benefits, Training & Support

Before the

Public Utilities Commission of the State of California

Rosemead, California

August 30, 2019

SCE-06, Vol. 3, Part 1: Employee Benefits, Training & Support Table Of Contents

Section Page Witness

-i-

I. INTRODUCTION .............................................................................................1 J. Trapp

A. Employee Benefits, Training and Support .............................................1

B. Summary of O&M Request ...................................................................2

II. EMPLOYEE SUPPORT ....................................................................................3

A. Overview ................................................................................................3

1. Risk Factors, Safety, Reliability and Connection with RAMP ................................................................................4

2. Compliance Requirements .........................................................4

a) 2012 GRC Decision – Workforce and Leadership Diversity Update .........................................4

3. Comparison of Authorized 2018 to Recorded ...........................8

B. O&M Forecast .......................................................................................9

1. Operating Unit (OU) Support Services ......................................9

a) Work Description .........................................................10

(1) Business Partner ...............................................10

(2) Organizational Effectiveness and Change Management .......................................10

(3) Employee Relations .........................................11

(4) Labor Relations ................................................11

(5) Strategy & Workforce Insights ........................11

(6) Administrative Support ....................................12

(7) Internal Communications .................................12

b) Need for Activity .........................................................12

c) Alternatives Considered ...............................................14

SCE-06, Vol. 3, Part 1: Employee Benefits, Training & Support Table Of Contents (Continued)


-ii-

d) Comparison of Authorized 2018 to Recorded ......................................................................14

e) Scope and Forecast Analysis .......................................14

(1) Historical Variance Analysis ...........................14

(2) Forecast ............................................................15

2. Talent Solutions .......................................................................16

a) Work Description .........................................................17

(1) Talent Acquisition ............................................17

(2) Talent Management .........................................17

(3) Diversity and Inclusion (D&I) .........................18

b) Need for Activity .........................................................18

c) Alternatives Considered ...............................................21

d) RAMP Integration ........................................................21

(1) Reconciliation Between RAMP and GRC .................................................................22

e) Comparison of Authorized 2018 to Recorded ......................................................................22

f) Scope and Forecast Analysis .......................................22

(1) Historical Variance Analysis ...........................22

(2) Forecast ............................................................23

III. EMPLOYEE BENEFITS & PROGRAMS .....................................................24

A. Overview ..............................................................................................24 M. Bennett

1. Risk Factors, Safety, Reliability and Connection with RAMP ..............................................................................25

2. Compliance Requirements .......................................................25

a) Senate Bill (SB) 901 ....................................................25



-iii-

b) Previous GRC Decisions..............................................26

3. Comparison of Authorized 2018 to Recorded .........................26

B. O&M Forecast .....................................................................................27

1. Summary of the Total Compensation Study ............................27

Background on Total Compensation Study .................27

(1) 2021 GRC Total Compensation Study (TCS) ....................................................28

b) Reasonableness of Compensation Paid by SCE ..............................................................................30

2. Cost-of-Service Ratemaking, Incentive, Compensation, and Benefits ....................................................31

a) The California Public Utilities Commission Regulates Businesses According to Cost-of-Service Ratemaking Principles ....................................31

b) Cost-of-Service Ratemaking Principles Assign Responsibility to Both Regulators and the Businesses Subject to Their Authority ......................................................................32

c) The Commission Should Provide SCE a Reasonable Opportunity to Earn Its Authorized Rate of Return ...........................................35

d) Incentive Compensation is a Routine Method of Compensating Employees in Today’s Workforce ......................................................36

e) SCE Cannot Dictate to the Market What Form or the Amount of Compensation Employees Will Be Paid ..............................................39

f) Conclusion ...................................................................40

3. Compensation ..........................................................................40

a) Short-Term Incentive Program (STIP) ........................40



-iv-

(1) Work Description .............................................41

(2) Need for Activity .............................................44

(3) Comparison of Authorized 2018 to Recorded ..........................................................46

(4) Scope and Forecast Analysis ...........................46 J. Trapp

b) Executive Incentive Compensation Plan (EIC) ............................................................................47

(1) Introduction ......................................................47

(2) Executive Performance Goals Determination ..................................................47

(3) Executive Performance Goals Benefit Customers ............................................47

(4) Executive Incentive Compensation Determination ..................................................49

(5) Executive Incentive Compensation Benefits Customers ..........................................49

c) Executive Compensation .............................................50



(3) Alternatives Considered ...................................57


(5) Scope and Forecast Analysis ...........................58

d) Long-Term Incentive Program ....................................61 M. Bennett





-v-



e) Recognition ..................................................................68



(3) RAMP Integration ............................................71



4. Benefits ....................................................................................73

a) Need for Activity .........................................................73

b) Alternatives Considered ...............................................73

c) Pension .........................................................................74

(1) Plan Description ...............................................75

(2) Longer-Term Perspective on Financial Market Returns and SCE Pension Fund Returns ......................................77 G. Henry

(3) Pension Cost Ratemaking Background and Recent History ......................79

(4) Current Funding Policy ....................................79

(5) Funding Policy Normal Cost ...........................80

(6) Statutory Pension Funding Requirements ...................................................80

(7) Changes in Circumstances ...............................82

(8) Funding Policy Alternatives ............................84



-vi-



d) 401(k) Savings Plan .....................................................90 M. Bennett




e) Retiree Health Care and Life Insurance (Post-Retirement Benefits Other Than Pensions (PBOP)) ........................................................94


(2) Ratemaking Background ..................................99 G. Henry

(3) PBOP Cost Balancing Account ....................101

(4) Comparison of Authorized 2018 to Recorded ........................................................101

(5) Historical Variance Analysis .........................102

(6) Recovered PBOP Cost Beginning in 2018................................................................103

(7) Redeployment of Represented VEBA Trust Assets ........................................104

(8) Test Year 2021 Forecast for PBOP Costs ...............................................................105

(9) Test Year 2021 Forecast for PBOP Actuarial Fees ................................................106

(10) PBOP Balancing Account ..............................107

f) Healthcare Programs ..................................................108 M. Bennett

(1) Medical Programs ..........................................108



-vii-

(2) Dental Plans ...................................................115

(3) Vision Service Plan (VSP) .............................117

g) Disability Management ..............................................120 J. Smolk

(1) Work Description ...........................................120

(2) Need for Activity ...........................................120

(3) Comparison of Authorized 2018 to Recorded ........................................................121 S. Tran

(4) Scope and Forecast Analysis .........................121

h) Group Life Insurance .................................................124 M. Bennett




i) EIX Severance Plan ...................................................127




j) Miscellaneous Benefit Programs ...............................130




k) Executive Benefits .....................................................133




-viii-



IV. EMPLOYEE TRAINING ..............................................................................138 J. Morehead

A. Overview ............................................................................................138

1. Risk Factors, Safety, Reliability and Connection with RAMP ............................................................................141

2. Comparison of Authorized 2018 to Recorded .......................141

3. O&M Forecast .......................................................................142

a) Employee Training and Development .......................142


(2) Need for Activity ...........................................145

(3) Alternatives Considered .................................146

(4) RAMP Integration ..........................................148



b) Training and Development – Transmission & Distribution ............................................................151

(1) Work Description and Need for Activity ..........................................................152


(3) Scope and Forecast Analysis – Training and Development – Transmission and Distribution .......................157

(4) RAMP Integration ..........................................162

1

I. 1

INTRODUCTION 2

A. Employee Benefits, Training and Support 3

This exhibit presents SCE’s Test Year 2021 forecast of O&M expenses for the following 4

Business Plan Elements (BPEs): Employee Support, Employee Benefits and Programs, and Employee 5

Training. 6

The exhibit outlines the activities and efforts that are primarily managed in SCE’s Human 7

Resources (HR) Operating Unit (OU). However, some sections of this volume encompass other 8

Operational Units (OUs). As explained in Exhibit SCE-01, SCE’s General Rate Case is organized based 9

on work activities. Activities and efforts related to employee training across the company, including HR, 10

T&D, Customer Service, and Safety, are included in the Employee Training BPE. Likewise, the 11

Employee Support BPE contains enterprise-wide support activities performed in OUs such as HR, 12

Finance, and Corporate Communications. 13

This volume of testimony will address SCE’s forecast costs needed to attract, develop, motivate, 14

and retain a high-performing and diverse workforce. Such a workforce is foundational to achieving: 15

(1) SCE’s goals regarding Safety and Diversity, People, and Culture, (2) SCE’s mission to safely deliver 16

reliable, affordable, and clean energy to its customers, and (3) SCE’s long-term objective to help 17

transform the electric power industry by providing clean energy, efficient electrification, grid 18

modernization, and customer choice. 19

In order to be able to attract, develop, motivate, and retain such a high-performing and diverse 20

workforce, SCE needs to prepare for technological, demographic, and socio-economic changes affecting 21

the industry and reshaping the global labor market. SCE also needs to have employees with the right 22

skills and competencies to address immediate operational challenges like wildfire risk mitigation, and 23

leaders with the long-term vision to help move the electric power industry toward a clean energy future. 24

In order to achieve these short- and long-term priorities, SCE’s employees must consistently perform at 25

a very capable level and perform their duties in a manner that demonstrates core values and reinforces 26

strategic priorities. Accordingly, SCE’s “people priorities” focus on strengthening SCE’s capabilities 27

and culture in light of the external changes and internal strategic priorities. 28

Among other things, this volume analyzes (1) O&M funding authorized in the 2018 General 29

Rate Case (GRC) compared to recorded amounts in 2018, and (2) the 2021 Test Year O&M labor and 30

non-labor forecast relative to historical spending. 31

2

B. Summary of O&M Request 1

This volume presents SCE’s request for $680.119 million (2018 constant and nominal dollars) in 2

O&M expense for the 2021 Test Year for administrative and general expenses to carry out essential 3

functions across the enterprise. This includes comprehensive aspects of carrying out hiring, 4

compensation, benefits, and training for SCE’s workforce. 5

Figure I-1 Employee Support, Employee Benefits and Programs, and Employee Training

O&M Expense (Constant $ Millions)

3

II. 1

EMPLOYEE SUPPORT 2

This Section presents the Test Year 2021 forecast of SCE’s Employee Support. For Test Year 3

2021, SCE forecasts $43.951 million of expenses.1 Figure II-2 below shows recorded costs for 4

Employee Support for the years 2014 through 2018, and SCE’s forecast for Test Year 2021. This 5

Business Plan Element (BPE) is composed of the employment-related activities listed below, which 6

support the entire enterprise. These activities help the Company’s employees maintain a healthy and 7

productive environment, and affirm its goals regarding Diversity, People, and Culture. This section 8

contains Operating Unit (OU) Support Services and Talent Solutions work activities. 9

Figure II-2 Employee Support

Recorded 2104-2018/Forecast 2019-2021 (2018 Constant $000)

A. Overview 10

As touched on above, Employee Support provides solutions for attracting, developing, 11

motivating, and retaining a high-performing and diverse workforce that supports SCE’s mission of 12

1 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 1-14; Employee Support.

2014 2015 2016 2017 2018 2019 2020 2021Labor $32,969 $30,397 $25,895 $23,698 $26,889 $27,554 $27,210 $27,315

Non-Labor $14,801 $12,982 $14,802 $14,599 $15,145 $18,339 $18,724 $16,636Other $240 ($1) ($5)

Total Expenses $48,009 $43,378 $40,693 $38,297 $42,035 $45,893 $45,934 $43,951

Ratio of Labor to Total 69% 70% 64% 62% 64% 60% 59% 62%

Recorded Forecast

($10,000)

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2014 2015 2016 2017 2018 2019 2020 2021

Labor Non-Labor Other

4

providing “reliable, clean and affordable energy to our customers.”2 It improves the Company’s overall 1

performance by enhancing the effectiveness of day-to-day operations and work practices, the 2

capabilities and skills of SCE’s employees, and the quality of their output. Employee Support develops 3

policies and programs that promote a work environment that reflects SCE and the Commission’s vision 4

and values,3 enhances SCE’s corporate culture, and supports the Company’s goals by placing the right 5

people in the right jobs at the right time and developing and supporting effective organizational 6

strategies and structures. 7

1. Risk Factors, Safety, Reliability and Connection with RAMP 8

The following GRC activity addresses one risk associated with Physical Security 9

represented in SCE’s RAMP filing as shown below in Table II-1. More detailed descriptions of the 10

activity can be found in the respective O&M sections. 11

Table II-1 GRC Activities Included in SCE’s 2018 RAMP Filing

2. Compliance Requirements 12

Employee Support must adhere to one compliance requirement as prescribed by former 13

Commission decisions. 14

a) 2012 GRC Decision – Workforce and Leadership Diversity Update 15

In the 2012 GRC decision, the Commission ordered SCE to “continue reporting 16

on workforce composition in its GRCs. In the next GRC, SCE shall add a ten-year comparison by job 17

classification, and an explanation of steps it has taken to ensure top management leadership 18

development for underrepresented groups, as part of overall availability to SCE employees.”4 Table II-2 19

below reflects the progress SCE has made in increasing the representation of females and minorities in 20

its workforce over the past 10 years (2009-2018). Minorities make up 58.4 percent of SCE’s workforce 21

in 2018, up from 52.2 percent in 2009. 22

2 See https://edisonintl.sharepoint.com/ourcompany/Pages/default.aspx (August 1, 2019). 3 See California Public Utility Commission’s Mission Statement at https://www.cpuc.ca.gov/aboutus/ (August

1, 2019). 4 See D.12-11-051, OP 28, p. 445.

5

Table II-2 Diversity within Job Categories

2009 and 2018

Regarding women in leadership roles, SCE has made progress over the past ten 1

years (2009-2018) to increase leadership and workforce diversity. The number of top female leaders has 2

increased to 33.9 percent in 2018 compared to 28.8 percent in 2009. Minorities in leadership roles make 3

up 33.9 percent of SCE’s leadership in 2018, up from 25.2 percent in 2009. 4

SCE places a high value on diversity and believes managing and nurturing a high-5

performance workforce that features diverse talents and perspectives is fundamental to achieving the 6

Company’s business objectives. Before a diverse team can work together to be creative and share their 7

unique experiences, they must feel included, respected, and welcomed. Otherwise, only those who are 8

Job Category Total Male FemaleMinority Total

Black or African American Asian

Native Hawaiian or Pacific Islander

American Indian / Alaskan Native

Hispanic or Latino

Two or More Races White

163 116 47 41 11 12 1 13 4 122 71.2% 28.8% 25.2% 6.7% 7.4% 0.6% 8.0% 2.5% 74.8%

118 78 40 40 8 18 11 3 78 66.1% 33.9% 33.9% 6.8% 15.3% 9.3% 2.5% 66.1%

1,137 827 310 422 64 137 2 8 195 16 715 72.7% 27.3% 37.1% 5.6% 12.0% 0.2% 0.7% 17.2% 1.4% 62.9%

963 673 290 450 49 180 5 5 194 17 513 69.9% 30.1% 46.7% 5.1% 18.7% 0.5% 0.5% 20.1% 1.8% 53.3%

890 748 142 353 72 31 6 8 220 16 537 84.0% 16.0% 39.7% 8.1% 3.5% 0.7% 0.9% 24.7% 1.8% 60.3%

627 524 103 317 51 27 1 4 220 14 310 83.6% 16.4% 50.6% 8.1% 4.3% 0.2% 0.6% 35.1% 2.2% 49.4%

5,530 3,558 1,972 2,855 396 1,173 16 41 1,092 137 2,675 64.3% 35.7% 51.6% 7.2% 21.2% 0.3% 0.7% 19.7% 2.5% 48.4%

4,492 2,821 1,671 2,700 257 1,062 27 20 1,199 135 1,792 62.8% 37.2% 60.1% 5.7% 23.6% 0.6% 0.4% 26.7% 3.0% 39.9%

3,380 1,286 2,094 2,248 479 293 16 18 1,346 96 1,132 38.0% 62.0% 66.5% 14.2% 8.7% 0.5% 0.5% 39.8% 2.8% 33.5%

2,259 817 1,442 1,638 248 220 16 8 1,079 67 621 36.2% 63.8% 72.5% 11.0% 9.7% 0.7% 0.4% 47.8% 3.0% 27.5%

5,781 5,170 611 2,897 427 300 8 64 2,016 82 2,884 89.4% 10.6% 50.1% 7.4% 5.2% 0.1% 1.1% 34.9% 1.4% 49.9%

3,954 3,706 248 2,110 234 169 10 45 1,575 77 1,844 93.7% 6.3% 53.4% 5.9% 4.3% 0.3% 1.1% 39.8% 1.9% 46.6%

16,881 11,705 5,176 8,816 1,449 1,946 48 140 4,882 351 8,065 69.3% 30.7% 52.2% 8.6% 11.5% 0.3% 0.8% 28.9% 2.1% 47.8%

12,413 8,619 3,794 7,255 847 1,676 59 82 4,278 313 5,158 69.4% 30.6% 58.4% 6.8% 13.5% 0.5% 0.7% 34.5% 2.5% 41.6%

Executives: Directors and OfficersManagers: Managers, Senior Managers and Principal ManagersSupervisors: Supervisors and Senior SupervisorsProfessional - Salaried: Exempt/ Salaried (Non Supervisors, Managers or Officers)Professional - Hourly: Non-Exempt/ Hourly (Non Supervisors, Managers or Officers)Represented: Union/ Represented

2009 Managers

2009 Executives N/A

2018 Executives N/A N/A

Minority Total: Includes Black or African American, Asian, Native Hawaiian or Pacific Islander, American Indian / Alaskan Native, Hispanic or Latino, and Two or More Races (Non White)

2018 Managers

2009 Supervisors

2018 Supervisors

2009 Professionals - Salaried2018 Professionals - Salaried2009 Professionals - Hourly2018 Professionals - Hourly

2009 Represented

2018 Represented

2009 Total Workforce

2018 Total Workforce

6

comfortable will speak up and share their opinion. The SCE/EIX Senior Vice President of HR is the 1

leader of the Company’s equal opportunity and workforce Diversity and Inclusion (D&I) efforts. Action 2

plans advancing the Company’s D&I objectives focus on continually improving the workforce 3

representation, developing and leveraging the talents of diverse individuals, and fostering an inclusive 4

work environment. 5

SCE has been recognized by a variety of groups for its commitment to diversity. 6

In 2019, SCE appeared in Forbes Magazine as America’s Best Employers for Women.5 Among its gas 7

and electric utility peers, Edison was ranked second among the seven selected, and it was the only one 8

from California to make the list. Additionally, SCE was listed as one of the Best Companies for Women 9

by Fairygodboss,6 a company that strives to elevate women at work. For the first time, SCE won the 10

National Business Inclusion Consortium’s “Best of the Best” Corporations for Inclusion.7 11

In 2018, SCE received the Top 20 Employee Resource Group of the Year by 12

Latina Style Magazine.8 Since 2008, SCE has achieved the top rating of 100 percent on the Corporate 13

Equality Index, as rated by the Human Rights Campaign Foundation.9 SCE has also earned the 14

designation of Military Friendly Employer, listed as “Top 10” by G.I. Jobs.10 15

Also, since 2017, SCE has earned the designation of Best Places to Work for 16

Disability Inclusion from Disability:IN.11 In 2018, SCE earned the Leading Disability Employer 17

designation from the National Organization on Disability (NOD).12 18

Properly developing employees and creating comprehensive leadership 19

development programs are imperative in retaining high-performing talent. The Company provides 20

5 See https://www.forbes.com/best-employers-women/#1aa3a1167de9 (as of August 1, 2019). 6 See https://fairygodboss.com/best-companies-for-women (as of August 1, 2019). 7 See https://www.nglcc.org/BOTB19Release (as of August 1, 2019). 8 See http://latinastyle.com/latina-style-announces-the-top-20-hispanic-employee-resource-groups-of-the-year-

2018/ (as of August 1, 2019). 9 See https://www.hrc.org/campaigns/corporate-equality-index (as of August 1, 2019) Information regarding

SCE’s 100 percent score can be found at pages 77 and 98 of the 2019 Corporate Equality Index report. 10 See https://www.militaryfriendly.com/is-southern-california-edison-military-friendly/ (as of August 1, 2019). 11 See https://disabilityin.org/wp-content/uploads/2017/08/2017_DEI_Best_Places_to_Work_List-1.pdf and

https://www.globenewswire.com/news-release/2017/08/23/1091384/0/en/The-2017-Disability-Equality-Index-names-the-Best-Places-to-Work-for-Disability-Inclusion.html (as of August 1, 2019).

12 See http://www.nod.org/leading-disability-employer-seal/ (as of August 1, 2019).

7

various leadership programs to build and develop a talent pipeline that mirrors the demographic 1

representation of its entire workforce and the qualified labor market. New leaders participate in SCE’s 2

Empower - New Leader Training program. SCE’s Safety Leadership training programs started in 2018, 3

and the Engage and Connect workshops were developed specifically for leaders to influence and 4

reinforce a safety culture throughout the Company.13 For SCE’s highest-potential employees, several 5

programs are offered for individual contributors through officers which build the capabilities to assume 6

larger, more complex roles in the organization. These programs occur for extended periods of time and 7

include real-world experiences, classroom and online instruction, simulations, assessments, coaching, 8

mentoring, and project opportunities designed to build strategic, operational, financial, and customer 9

relations skills and perspectives. The high-potential programs are reviewed to confirm that a diverse 10

group of employees are included in the training program. 11

SCE also looks for external opportunities, such as the Asian American 12

Professional Association and American Association of Blacks in Energy, which are focused on 13

developing those in underrepresented groups. For the past several years, SCE has sponsored the Clean 14

Energy Education & Empowerment (C3E) Initiative’s annual Women in Clean Energy Symposium. In 15

2019, SCE also participated in nominating and recognizing outstanding mid-career women who are 16

advancing solutions that can transform the energy infrastructure. The U.S. C3E Initiative aims to close 17

the gender gap and increase the participation, leadership, and success of women in clean energy fields. 18

In addition, SCE is sponsoring several participants in the Advancing Technical Women Program (co-19

sponsored by University of California, Irvine, and the Center for Creative Leadership) as well as 20

supporting speaking/recognition programs for high-performing females at the Leadership Conference for 21

Women in Energy sponsored by EUCI.14 In 2019, SCE became a corporate member of the Stanford 22

University VMWare Women’s Leadership Innovation Lab, joining a coalition of companies committed 23

to advancing women in leadership. 24

For the past six years, SCE has partnered with Great Minds in STEM (GMiS) to 25

sponsor scholarships from a traditionally underserved or underrepresented group in science, technology, 26

13 See Section IV, Employee Training of this Volume. 14 Formerly known as Electric Utility Consultants, Inc., but now only known as EUCI.

8

engineering, math or health.15 Most recently, SCE was a national sponsor at their conference and hosted 1

a panel of executives to speak on key areas, such as cybersecurity, regulations affecting the utility 2

industry, and trends/changes affecting its customers. This provided visibility and opportunities for 3

executives to grow their diverse networks with the intent to attract more diversity to the Company. SCE 4

also hosted a professional/experienced candidate invitational session to provide exposure to its current 5

openings. 6

3. Comparison of Authorized 2018 to Recorded 7

Figure II-3 compares the amounts authorized by the Commission in the 2018 GRC to 8

2018 recorded O&M spend for Employee Support. Because financial reporting changes occurred 9

between the filing of the 2018 GRC Application and the CPUC’s issuance of Decision No. 19-05-020 10

(the 2018 GRC decision), SCE’s recorded costs within this BPE are not directly comparable to SCE’s 11

2018 GRC request nor the Commission’s authorization. The 2018 GRC Decision authorized the funds 12

requested in different areas such as, HR, Internal Communication, and Payroll Support departments 13

which include the activities within Employee Support. The total variance of $2.4 million is mainly 14

attributed to the centralization of relocation costs from Operating Units work activities into Human 15

Resources, Talent Solution work activity. 16

15 GMiS is a 501(c)3 non-profit organization dedicated to keeping America technologically strong by promoting

Science, Technology, Engineering and Math (STEM) careers, especially in underserved communities. Information on GMiS scholarships is available at http://www.greatmindsinstem.org/scholarships/ (as of August 1, 2019).

9

Figure II-316 Employee Support

O&M Expenses for 2018 – Authorized versus Recorded (2018 Constant $ Millions)

B. O&M Forecast 1

1. Operating Unit (OU) Support Services 2

OU Support Services spans across the Company, but are not specific to an OU. The 3

responsibilities of this activity include supporting the Operating Units as a whole, such as Business 4

Partner Support and Organizational Development/Organizational Effectiveness Support, while other 5

actions include employee specific activities, like Employee Relations, Labor Relations, Internal 6

Communications, and Administrative Support. 7

For the Test Year 2021, SCE forecasts $32.816 million of expenses.17 Figure II-4 below 8

shows recorded costs for OU Support Services for the years 2014 through 2018, and SCE’s forecast for 9

Test Year 2021. 10

16 Refer to WP SCE-07, Vol. 01, Results of Operations, Authorized to Recorded. 17 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 1-6, OU Support Services.

10

Figure II-4 OU Support Services


a) Work Description 1

(1) Business Partner 2

The Business Partner department consists of HR business partners, who 3

are responsible for aligning business objectives with employees and managers of individual OUs by 4

acting as an HR liaison to the OUs to assist in acquiring, building, engaging, and retaining a high-5

performance workforce. The department works with OUs to implement programs and activities, and 6

advises employees, supervisors, managers, and officers on HR initiatives, issues, compliance, and 7

governing regulation matters. They lead people strategy development to support business goals and 8

organization transformation. They consult and lead efforts for performance management, compensation 9

planning, talent and succession planning, and workforce planning. Coaching is provided to managers 10

and employees on performance and the overall work environment. The Business Partner department also 11

leads and manages organizational change efforts that have people impacts. 12

(2) Organizational Effectiveness and Change Management 13

The Business Partners’ Organizational Effectiveness group uses tools, 14

assessments and workshops that focus on team and leader effectiveness and organizational health. In this 15

way, it seeks to identify and remove barriers that operational groups may encounter based on how the 16

2014 2015 2016 2017 2018 2019 2020 2021Labor $26,671 $24,536 $21,474 $19,059 $21,898 $23,052 $22,777 $22,880

Non-Labor $9,482 $9,219 $10,888 $8,569 $7,732 $11,839 $12,024 $9,936Other $240 ($1) ($5)

Total Expenses $36,392 $33,753 $32,357 $27,628 $29,630 $34,891 $34,801 $32,816


Recorded Forecast

($5,000)

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2014 2015 2016 2017 2018 2019 2020 2021


11

people in the group come together and perform the work. Performing this specific function creates better 1

working environments, better morale, and increases team synergy and effectiveness. 2

Change Management supports project deployment which impacts people, 3

their roles at work, how they do the work, and overall ways of working. If done correctly, Change 4

Management fosters the adoption of the process or product being changed. They manage the change 5

impacts to employees; this allows employees to continue to perform and deliver in an environment in 6

which change may significantly distract, slow down, or stop productivity. Incorrectly managed change 7

could lead to additional mitigation needs, possible re-work, and additional management efforts based 8

upon unanticipated impacts. 9

(3) Employee Relations 10

The Business Partners’ Employee Relations department advises all 11

managers and supervisors on workplace environment issues and corrective actions under established 12

policies and procedures, to provide consistency across the Company. For example, this department 13

conducts investigations on conduct and behavior, performance, and work environment. They plan and 14

conduct work environment assessments and consult and advise HR Business Partners and business 15

leaders on findings and recommended courses of action. They also lead and support the Fitness for Duty 16

program, including drug and alcohol testing, to help ensure employees are fit to come to work and to 17

foster the safety of employees. 18

(4) Labor Relations 19

The Business Partners’ Labor Relations department represents the 20

company on all wages, working conditions, and benefits. The department also negotiates and 21

implements the collective bargaining agreements for the Company’s bargaining-unit workforce. They 22

advise and provide counsel on union and employee-represented matters; this encompasses discipline, 23

grievances, arbitration, and training. They also oversee compliance with federal and state labor 24

regulations as well as safety matters and the work environment. 25

(5) Strategy & Workforce Insights 26

Strategy & Workforce Insights develops and implements SCE’s people 27

strategy and plan, manages the portfolio of HR strategic initiatives, and provides insights on key 28

workforce-related trends, issues, and opportunities, such as calculating the turnover in critical positions, 29

population of employees approaching retirement and headcount vacancy rates. Strategy & Workforce 30

Insights also oversees HR’s budget process, monitors and reports progress on the Company People and 31

12

Culture goals, and conducts corporate-wide surveys (Employee Engagement Surveys and Exit 1

Interviews). Strategy & Workforce Insights provides workforce planning expertise, manages the 2

preparation of HR’s submissions for GRC proceedings and HR compliance program activities, and 3

coordinates HR’s support to respond and recover from disasters as part of the enterprise business 4

resiliency efforts. 5

(6) Administrative Support 6

Administrative Support activities include responsibilities that impact the 7

entire population of the company including employees and retirees. It includes labor and non-labor costs 8

for administering the benefit plans, tracking and updating employee and retiree data, and processing 9

biweekly paychecks relating to salaries and wages, bonuses, payroll taxes, and voluntary and 10

involuntary deductions. The employees in Administrative Support help ensure compliance with 11

company policies as well as federal, state, and local agency laws. 12

(7) Internal Communications 13

This work activity is composed almost entirely of labor budget to support 14

Internal Communications activities that SCE undertakes to facilitate employee awareness of key 15

business updates or corporate initiatives. Three primary areas of focus in this work activity are: 16

• Cascading Communications (examples include supporting 17

company-wide livestreams and the annual business briefing), 18

• Enterprise Communications (examples include safety, HR/benefits 19

and cyber communications), and 20

• OU Communications (examples include targeted communications 21

to major Operating Units such as T&D and Customer Service). 22

b) Need for Activity 23

At a foundational level, OU Support Services help ensure compliance with 24

federal, state, and local agencies such as the Internal Revenue Service, Department of Labor, and Health 25

and Human Services. At a more refined level, OU Support Services nurtures the company culture and 26

work environment which are key to a company’s success. SCE must build and sustain an employee 27

environment where people feel engaged and are enabled to do their best work. SCE needs to have good 28

“people programs” in place, fair and consistent policies and practices, and appropriate standards of 29

conduct. 30

13

The Employee Relations team makes sure that SCE’s policies and practices are 1

adhered to; the team also oversees and recommends necessary corrective actions to take when deviations 2

occur from what is expected. In the course of conducting investigations and providing recommendations 3

on policy or corrective actions, the team gains insights to the work environment conditions, working 4

relationships, and management effectiveness. The information and insights gained are passed along to 5

OU Leaders and the HR Business Partners for fostering and improving a work environment that reflects 6

all Company values. The team also provides advice on initiatives or programs being created to help 7

ensure that programs and services are applied consistently. Such programs include new leader training 8

(teaching leaders about Company policies, Edison HelpLine, corrective action process, etc.), and 9

compliance training that includes computer-based trainings (CBT). 10

The Labor Relations team provides similar support to SCE’s represented 11

workforce. In addition, the team plays a key role in managing the workforce by understanding labor 12

laws and providing advice on pay, benefits, seniority, work conditions, and practices both in the normal 13

course of business and also during contract negotiations. This helps keep operations running smoothly 14

and assists in avoiding costly strikes or delays. 15

Continuous change remains a key characteristic of SCE’s internal and external 16

environment. To achieve the Company goals which include service excellence, innovation, and helping 17

customers make cleaner energy choices, SCE needs to have foundational expertise in change 18

management across the company at the individual and organizational level. This requires that SCE 19

continue enhancing its organizational change management efforts to implement a standardized approach 20

that provides a consistent way of dealing with different aspects of organizational change management 21

(e.g., communication planning, change management application, training planning, risk, stakeholder and 22

sponsor assessment and management); this results in more effective execution of change management 23

efforts and higher change adoption rates, which ultimately lead to better and more efficient results on 24

behalf of its customers.18 The Organizational Effectiveness team provides a prudent level of expertise to 25

lead the organization through change. 26

OU Support Services benefits the customer because work is accomplished more 27

quickly. SCE’s efforts help employees collaborate on and complete work more effectively. Turnover, 28

18 See https://blog.prosci.com/three-factors-of-change-which-define-or-constrain-project-roi (as of August 1,

2019).

14

which slows productivity and efficiency and generates costs to replace needed positions, is also reduced. 1

Additionally, teams that function in a completely healthy, supportive, and compliant manner do not 2

require interventions from Employee Relations, Labor Relations, Legal, and Health and Wellbeing 3

resources. Such interventions can be an additional drain on SCE resources. Also, workers that 4

collaborate, get along, and are content in their work environment are less likely to be sick or claim 5

workplace stress, requiring additional resources and triggering loss of productivity.19 An example of this 6

is the Customer Crew Connect (C3) project in which a mobile application was developed to help 7

streamline communications of critical outages. This program was a change in the way both customers 8

and employees would interact during outages. Through an Organizational Change Management plan, 9

employees and customers are aware of what is changing and how it would affect them.20 10

c) Alternatives Considered 11

SCE considers these areas, (Business Partners, Organizational Effectiveness and 12

Change Management, Employee Relations, Labor Relations, Strategy and Workforce Insights, 13

Administrative Support and Internal Communications) fundamental and essential to a company’s 14

operations. There are periodic reviews of the services to ascertain the continuing need for the activity, 15

and the effectiveness and efficiency of the associated work. 16

d) Comparison of Authorized 2018 to Recorded 17

This section compares the amounts authorized by the Commission in the 2018 18

GRC to the 2018 recorded O&M in this activity, along with an explanation for the variance. SCE’s 2018 19

authorized for OU Support Services was $30.9 million. SCE recorded $29.6 million. The variance is 20

minimal. 21

e) Scope and Forecast Analysis 22

(1) Historical Variance Analysis 23

(a) Labor 24

Labor costs show a downward trend from 2014 to 2016 primarily 25

driven by Operational Excellence Initiative21 reductions in OU Support Services. In 2017, labor costs for 26

19 See https://www.forbes.com/sites/forbescoachescouncil/2017/12/13/promoting-employee-happiness-benefits-

everyone/#5549c8a6581a (as of August 1, 2019). 20 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 7, Customer Crew Connect (C3). 21 Operational Excellence was a Companywide initiative focused on increasing how the Company could most

effectively and efficiently serve its customers by prioritizing work and improving productivity.

15

Strategy & Workforce Insights recorded to activities within the Business Planning group, resulting in an 1

overall decrease from 2016. By 2018, these labor costs were transferred to OU Support Services, which 2

accounted for what appears to be a slight increase in labor from 2017 to 2018, but is actually flat when 3

taking both areas into account. The labor cost for 2016 to 2018 was relatively flat. Overall, labor costs 4

between 2014 and 2018 decreased by 18 percent. 5

(b) Non-Labor 6

Non-labor costs were relatively flat from 2014-2018 except for 7

2016 when outside services were utilized to provide change management and organizational redesign 8

support for the Operational Excellence Initiative. In addition, consulting services were utilized to 9

conduct the Total Compensation Study for the 2018 GRC as well as the 2016 Compensation Design 10

Project (CDP).22 11

(2) Forecast 12

(a) Labor 13

Labor costs show a downward trend from 2014 through 2017 due 14

to the Operational Excellence Initiative which reduced the workforce. Labor costs increased slightly in 15

2018 as the organization stabilized after the reductions. Because costs have shown a downward trend 16

until 2018, where they increased slightly to align with the new organization structure, SCE believes the 17

Last Recorded Year is the most appropriate methodology to estimate test year expenses. The averaging 18

of costs over the recorded years would be inappropriate as SCE has purposely reduced costs and does 19

not expect costs to fluctuate in future years. Likewise, a linear trend would not be appropriate as costs 20

will not continue in a downward trend, and as shown in 2018 have increased slightly due to the right-21

sizing of the organization. Beginning with the Last Recorded Year, SCE further reduced specific costs 22

for Total Rewards Services of $153 thousand and $134 thousand for Business Partners due to additional 23

Company reductions before applying a labor escalation rate of 2.9 percent resulting in a base forecast of 24

$22.880 million. 25

(b) Non-Labor 26

SCE utilized the Last Recorded Year to forecast Non-Labor costs 27

as recorded costs were relatively flat after the cost of special projects performed in 2016 were removed. 28 22 In 2016, the Company began the Compensation Design Project to redefine its compensation structure as part

of a larger review of SCE’s compensation and benefits plans. This effort supports the Company’s objective of balancing the mix of benefits and compensation to align with the market.

16

In D.89-12-057, and subsequently in D.04-07-022, the CPUC stated that if recorded expenses have been 1

relatively stable for three or more years, the last recorded year is an appropriate base estimate. 2

Beginning with the Last Recorded Year, an itemized increase was added to the forecast period (2019-3

2021) to account for special consulting fees and vendor costs to incorporate changes to the benefit 4

programs and participant web sites caused by union negotiations for 2019 through 2021. This resulted in 5

a Test Year forecast of $9.936 million. 6

2. Talent Solutions 7

The Talent Solutions department provides governance, consultation, guidance, and 8

assistance with attracting, assessing, and managing organizational talent. These activities support SCE’s 9

constant demand for a skilled and diverse workforce at all levels of the organization. Talent Solutions 10

provides expertise in the below listed areas. 11

For the Test Year 2021, SCE forecasts $11.135 million of expenses.23 Figure II-5 below 12

shows recorded costs for Talent Solutions for the years 2014 through 2018, and SCE’s forecast for 2019 13

through Test Year 2021. 14

23 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 8-13, Talent Solutions.

17

Figure II-5 Talent Solutions


a) Work Description 1

(1) Talent Acquisition 2

Talent Acquisition partners and consults with hiring managers on 3

recruitment marketing strategies, attracting diverse candidates, administering pre-employment 4

assessments, interviewing and selecting the finalists, working to remove implicit bias from the process 5

through various measures including dedicated diversity and inclusion training, creating and extending 6

competitive offers, finalizing the start date after background screening (e.g., employment and education 7

verification, drug screen, verification of authorization to work, driver safety check), onboarding, and 8

assisting with the relocation process for eligible candidates. 9

(2) Talent Management 10

Talent Management (TM) leads several areas that are critical to aligning 11

SCE’s workforce with the business, safety, work environment, and customer support objectives of the 12

company. These areas include employee goal setting and performance management, talent and 13

development planning, succession planning, design, and validation of selection tests and leadership 14

2014 2015 2016 2017 2018 2019 2020 2021Labor $6,298 $5,861 $4,422 $4,639 $4,991 $4,503 $4,433 $4,435

Non-Labor $5,319 $3,764 $3,914 $6,030 $7,414 $6,499 $6,700 $6,700Other

Total Expenses $11,617 $9,624 $8,336 $10,669 $12,405 $11,002 $11,134 $11,135


Recorded Forecast

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2014 2015 2016 2017 2018 2019 2020 2021Labor Non-Labor Other

18

assessments as well as several leadership programs targeting the development of its highest potential 1

employees from individual contributors through officers of the Company. 2

Through the goal setting and performance management process, TM helps 3

ensure that all non-represented employees are aligned with the goals that the Company is trying to 4

achieve. Its assessment division designs and validates selection tools that ensure the efficient and 5

effective identification of the right people to fill its open positions as well as ensures that leaders are 6

equipped to create a productive and supportive work environment for all employees. SCE’s talent and 7

succession planning and high potential development programs help ensure that it is identifying and 8

growing its most promising leaders and individual contributors and developing a pipeline of future 9

leaders for the company. 10

(3) Diversity and Inclusion (D&I) 11

Diversity and Inclusion designs and implements the Company’s D&I 12

strategy aligned with equal opportunity regulations, providing a job environment that embraces the 13

diversity of the Company’s workforce to enable productive and efficient operations that best serve 14

SCE’s customers. Customers feel a sense of trust that their perspectives are represented in the work that 15

these employees do. Diversity and Inclusion also provides a platform to showcase better ideas, such as 16

innovation. 17

b) Need for Activity 18

SCE must acquire and retain talent that increases its overall organizational 19

competency, especially in complex problem solving, technological and operational agility, risk 20

management, and digital acumen. This accelerates its ability to continue to give customers adequate and 21

affordable service while applying new technologies, implementing process improvements and fostering 22

innovative ways to communicate with and receive feedback from customers. Modernizing the grid to 23

provide the most reliable protections to customer data and critical infrastructure requires highly 24

technically-skilled employees, such as control systems engineers and cybersecurity experts; monitoring 25

and preventing wildfires for the safest and most rapid response in customers’ communities requires fire 26

scientists and incident managers; achieving operational and customer service excellence to save 27

customers time and money requires data scientists and continuous improvement specialists. 28

Because individuals with the needed skills are in high demand, they are not as 29

responsive to traditional methods of recruiting. In 2010, less than 10 percent of industry applicants used 30

their mobile phone to search and apply for jobs. By 2014, over 50 percent of candidates were utilizing 31

19

their mobile devices.24 With the increased use of technology, candidates are expecting faster 1

turnaround.25 Thus, SCE requires a more strategic and up-to-date approach to attracting and retaining 2

talent. Since SCE launched its new online site in September 2018, it has seen approximately 50 percent 3

of its job applications originating from mobile devices.26 Another important goal is to increase diversity 4

(women and people of color) across the organization and in senior leader roles so that customers see a 5

reflection of their own communities in the employees that serve them, and feel a sense of trust that their 6

perspectives are represented in the work that these employees do. At the same time, talent demand is 7

converging on the same roles across industries.27 For example, banks, manufacturers, retailers, 8

healthcare companies, and utilities are all recruiting and hiring data scientists, cybersecurity experts, and 9

diverse leaders. SCE is just one voice among many vying for the same in-demand talent. 10

As California has reached a historical slowdown in population growth,28 and the 11

United States has reached its lowest birthrate level ever,29 SCE anticipates worker shortages for years. 12

Convergent with the future labor shortages due to low birthrate, according to a recent article in the Los 13

Angeles Times, “The huge demand for workers comes as the unemployment rate is at a 17-year low of 14

4.1 percent. The report shows that overall hiring increased by a much smaller amount than job openings, 15

suggesting that employers are having difficulty finding the workers they need.”30 Additionally, U.S. 16

unemployment has reached its lowest level since 1969.31 17

24 See The Impact of Mobile Recruiting on Click-to-apply Rates at https://www.ere.net/the-impact-of-mobile-

recruiting-on-click-to-apply-rates/ (as of August 1, 2019). 25 See Forbes at https://www.forbes.com/sites/forbeshumanresourcescouncil/2019/02/22/nine-big-changes-that-

have-shaped-the-modern-recruiting-process/#20af31c96bae (as of August 1, 2019). 26 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 14, Mobile Usage. 27 See Gartner Talent Neuron Report Most Competitive Roles for 2019 Whitepaper at

https://www.gartner.com/en/human-resources/research-tools/talentneuron/most-competitive-roles-19?utm_medium=press-release&utm_campaign=RM_GB_2019_CTN_WT_LP1_MOST-COMPETITIVE&utm_term=whitepaper (as of August 1, 2019).

28 See Sacramento Bee at https://www.sacbee.com/news/politics-government/capitol-alert/article229910029.html (as of August 1, 2019).

29 See CDC report, May 2019: Births: Provisional Data for 2018 at https://www.cdc.gov/nchs/data/vsrr/vsrr-007-508.pdf (as of August 1, 2019).

30 See Los Angeles Times at https://www.latimes.com/business/la-fi-job-openings-20180316-story.html (as of August 1, 2019).

31 See Bureau of Labor Statistics April 2019 report at https://www.bls.gov/news.release/pdf/empsit.pdf (as of August 1, 2019).

20

Furthermore, candidates’ expectations of their relationship with potential 1

employers are dramatically changing due to their on-demand consumer experiences with companies 2

such as Uber, Amazon and Google. They are using the same perspective when searching for 3

employment opportunities. They want streamlined and rapid job opportunity communications and 4

offers.32 Therefore, SCE has to be an attractive employer for these limited resources. Candidates are 5

influenced many different times, from many different sources, along the path to considering SCE as an 6

employer. Being exposed to one or more digital marketing campaigns on one or more platforms 7

positively impacts a person’s decision on whether to respond to recruiter outreach, the decision to apply, 8

interview and accept an offer, and ultimately to whether an employee chooses to consider an offer 9

outside of their current employer. LinkedIn, along with other social media sites like Glassdoor, 10

FairyGodBoss, Facebook, and Instagram are becoming the top influencers of current employees and 11

prospective talent. 12

In addition to attracting and retaining talent via increased investment in targeted 13

marketing campaigns, SCE is also investing in automated and validated assessments to help remove 14

human bias from the decision-making process and help ensure it is as objectively as possible selecting 15

the highest performing talent. Investing in recruitment platforms such as Hirevue and Textio also drives 16

better hiring outcomes by creating inclusive job postings, reducing bias, and automating parts of the 17

candidate selection process. Likewise, SCE recognizes and embraces the power of diversity and the 18

importance of inclusion to create a psychologically safe environment where all persons are comfortable 19

bringing their authentic selves to work and can openly speak up to express new ideas and respectfully 20

challenge each other to get better. Companies that are diverse in age, gender identity, race, sexual 21

orientation, religion, physical or mental ability, ethnicity, and, in general, have employees with different 22

life experiences like veterans and immigrants have a proven advantage to assess complex problems from 23

different perspectives and find innovative solutions.33 D&I is not only the right thing to do, but this is 24

the only way SCE can create an open culture to harness the power of diverse ideas. 25

Additional elements of SCE’s D&I roadmap include increasing executive 26

leadership accountability, strengthening conscious inclusion, and identifying and investing in women 27

32 See Forbes at https://www.forbes.com/sites/forbeshumanresourcescouncil/2019/02/22/nine-big-changes-that-

have-shaped-the-modern-recruiting-process/#20af31c96bae (as of August 1, 2019). 33 See Boston Consulting Group at https://www.bcg.com/en-us/publications/2018/how-diverse-leadership-

teams-boost-innovation.aspx (as of August 1, 2019).

21

and people of color. SCE also utilizes its Employee Resource Groups to support, promote, and drive a 1

diverse and inclusive work environment while offering unique perspectives and insights. 2

Talent Solutions work activities benefit the customer by attracting high- 3

performing talent to fill critical positions. Building higher skills and competencies will enable 4

employees to work with intelligent technologies to make them more productive. Along with diversity 5

and inclusion, employees can be creative and collaborative to develop unique choices for customers. 6

c) Alternatives Considered 7

SCE periodically reviews its options for Talent Acquisition and Talent 8

Management opportunities. Different services or programs are reviewed for the best return on 9

investment. As the talent pool shrinks, SCE must adapt to the changing marketplace caused by 10

technology and the Gig economy or fail to entice critical candidates needed to fill positions. 11

SCE and the Commission recognize the importance of Diversity and Inclusion 12

in the workplace. The Commission ordered SCE to “continue reporting on workforce composition in its 13

general rate case . . . to ensure top management leadership development for underrepresented groups.”34 14

SCE has been working towards this and has even made this a Corporate Goal. 15

d) RAMP Integration 16

Asset Protection control, a function of Talent Solutions, is included in the RAMP 17

filing. Asset Protection mitigates physical security risks. This activity helps SCE protect its employees 18

by properly vetting and checking the backgrounds of workers before it hires them, training employees 19

on preventing and avoiding workplace violence, responding safely to active shooter incidents, and 20

deploying the Threat Management Team (TMT) to assess threats to SCE workers. This control mitigates 21

the Security System Bypass/Breach and Human/Process Failure drivers by employing security officers 22

at its facilities who deter violence and property damage. This control enables SCE to investigate security 23

incidents and concerns and implement security training to its workers. The implementation of this 24

program allows SCE to respond to risks and incidents more rapidly and effectively, while identifying 25

insider threats before they materialize. 26

34 See D.12-11-051, OP 28, p. 445.

22

(1) Reconciliation Between RAMP and GRC 1

As shown in Table II-3, there are no significant changes in costs or scope 2

for the Talent Solutions Asset Protection Risk as estimated in SCE’s 2018 RAMP report and the forecast 3

requested in this GRC. 4

Table II-3 Talent Solutions Controls

O&M Forecast Nominal 2018 $000

e) Comparison of Authorized 2018 to Recorded 5

Figure II-3 also compares the amounts authorized by the Commission in the 2018 6

GRC to 2018 recorded O&M in this activity, along with an explanation for the variance. Costs requested 7

by Talent Solutions in 2018 were authorized by the 2018 GRC Decision. SCE’s 2018 authorized amount 8

for Talent Solutions was $8.8 million, but it recorded $12.4 million. This over-run is associated with the 9

centralization of employee relocation costs into Human Resources whereby previously, these costs were 10

charged to individual Operating Units. 11

f) Scope and Forecast Analysis 12


(a) Labor 14

Labor costs were relatively flat from 2014 to 2015. Decreases in 15

labor cost for 2016 were primarily driven by the Operational Excellence initiative which caused 16

reductions in Diversity & Inclusion and Talent Acquisition. The recorded costs from 2016-2018 17

remained relatively flat. 18

(b) Non-Labor 19

In 2015, the primary drivers in the reduction of non-labor costs 20

were associated with a lower use of a supplemental workforce. Non-labor costs remained flat from 2015 21

through 2016. The increases in 2017 and 2018 non-labor costs were primarily as a result of the 22

centralization of Relocation Expenses. Previously, if an OU was hiring a candidate that had to be 23

23

relocated, the cost to reimburse the employee for moving expenses would be paid out of the OUs 1

budget. These expenses were centralized from across the OUs into Talent Acquisition. Cost increases in 2

2017 and 2018 can also be attributed to the increase in Recruitment related activities, such as the use of 3

LinkedIn. 4

(2) Forecast 5

(a) Labor 6

Labor costs showed an overall downward trend from 2014 through 7

2018 due to the Operation Excellence initiative; however, they are not anticipated to continue to decline 8

as the company has right-sized. Therefore, the Last Recorded Year is the most appropriate methodology 9

to estimate Test Year expenses. SCE uses the Last Recorded Year as a base forecast but includes 10

additional Company reductions in costs resulting in a Test Year forecast of $4.435 million. 11

(b) Non-Labor 12

Due to the centralization of relocation costs into Talent Solutions 13

from the other OUs in 2017 and 2018, the Last Recorded Year is the most appropriate methodology to 14

forecast Test Year expenses as it correctly weights all of the costs in this GRC work activity. Costs 15

fluctuation over the five-year recorded history make the Linear Trending Method not appropriate. A 16

five-year average would also not allow proper weighting to costs that were transferred into the GRC 17

work activity in 2017 and 2018. The Last Recorded Year is used for the base forecast, but also includes 18

additional company required budget reductions in 2019. For Test Year 2021, SCE forecast non-labor 19

expenses of $6.700 million.20

24

III. 1

EMPLOYEE BENEFITS & PROGRAMS 2

This Section presents the Test Year 2021 forecast of SCE’s Employee Benefits and Programs. 3

For Test Year 2021, SCE is forecasting $572.372 million for Employee Benefits and Programs. 4

Exhibit SCE-06, Vol. 3, Part 2 summarizes the 2021 GRC Total Compensation Study (sometimes 5

referred to in this testimony as TCS). SCE’s total compensation programs encompass base pay, short-6

term incentives, long-term incentives, recognition awards, and benefits. SCE’s compensation programs 7

target the market median and reward employees for individual and Company performance as it serves its 8

customers. To attract and retain the workforce essential to the Company’s operations, SCE offers a 9

market-competitive compensation package. 10

Figure III-6 Employee Benefits & Programs

Recorded 2104-2018/Forecast 2019-2021 (2018 Constant $000 -- Nominal $000)

A. Overview 11

In support of the corporate goal of Diversity, People, and Culture, SCE must provide a 12

competitive total compensation package that, in addition to base pay, includes variable pay such as 13

incentive plans and recognition programs, as well as a competitive benefits package including 14

healthcare, retirement, and other benefits. SCE must provide a flexible compensation approach that 15

2014 2015 2016 2017 2018 2019 2020 2021Labor $229,628 $189,443 $144,528 $154,378 $155,059 $166,525 $170,262 $204,359

Non-Labor $5,524 $7,163 $9,454 $8,450 $8,586 $4,724 $4,856 $10,250Other $375,941 $324,698 $304,087 $253,585 $268,290 $328,824 $349,701 $357,763

Total Expenses $611,093 $521,304 $458,069 $416,414 $431,936 $500,073 $524,818 $572,372


Recorded Forecast

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000


25

rewards excellent performance, provides powerful motivation to improve performance, and helps keep 1

benefit costs down. 2


The following GRC activity addresses one risk associated with Employee, Contractor & 4

Public Safety represented in SCE’s RAMP filing, as shown below in Table III-4. A more detailed 5

description of the activity can be found in the associated O&M forecast section. 6

Table III-4 GRC Activities Included in SCE’s 2018 RAMP Filing

2. Compliance Requirements 7

a) Senate Bill (SB) 901 8

Senate Bill (SB) 901 repeals the language in Public Utilities Code (PUC) Section 9

706 and adds new language prohibiting IOUs from recovering from customers “any annual salary, 10

bonus, benefits, or other considerations for any value, paid to an officer of an electrical corporation.”35 11

SB 901 requires that compensation instead be funded solely by utility shareholders. Pursuant to 12

Resolution E-4963, SCE established the Officer Compensation Memorandum Account36 effective 13

January 1, 2019. This memorandum account tracks officer compensation and benefits on a going-14

forward basis. In compliance with SB 901, SCE has removed annual salaries, bonuses, and benefits of 15

its identified officers from all recorded years of the 2021 GRC application (2014 – 2018) to make sure 16

the costs are not included in the forecast from 2019 – 2023.37 17

35 Resolution E-4963 defines “officer” as those employees of SCE in positions with titles of Vice President or

above who are Rule 3b-7 officers of SCE under the Securities Exchange Act. 36 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals. 37 Refer to WP SCE-07, Vol. 01, Results of Operations, Ratemaking Adjustments; and WP SCE-06, Vol. 03,

Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments.

26

b) Previous GRC Decisions 1

In its 2012 GRC decision, the Commission stated that, with regard to the outside 2

vendor who is chosen to carry out the Total Compensation Study for SCE’s GRC,38 “SCE shall ensure 3

that applicants are required to disclose if they receive more than 10 percent of their annual revenues 4

from other SCE contracts.”39 SCE continues to comply with this Commission directive. The vendor 5

selected for the Total Compensation Study in the current GRC does not receive over 10 percent of the 6

vendor’s annual revenues from other SCE contracts. 7


Medical Benefits, Retiree Health Care and Life Insurance (PBOP), and certain 9

disallowances by the Commission are the primary drivers of the variance in authorized versus recorded 10

spending in 2018. Please refer to Table III-5. Medical, dental and vision costs are subject to a two-way 11

Medical Programs Balancing Account (MPBA).40 Although an authorized amount is established in a 12

GRC decision, through the operation of the MPBA, SCE recovers its recorded medical, dental and 13

vision costs, and returns any overcollection to its customers. 14

The PBOP variance in 2018 is due to the reflection of separate PBOP cost calculations 15

for the Represented and Management and Administrative (“M&A”) member groups, as described below 16

in the PBOP historical variance section. The separation of the two groups made recovery possible for the 17

M&A group. This more than offset the favorable effects of greater-than-expected 2017 trust fund 18

investment performance, favorable PBOP claims experience, demographic assumption changes, and 19

updated mortality assumptions recommended by the Society of Actuaries in 2017. PBOP costs are 20

subject to the two-way Post-Employment Benefit Other than Pensions Balancing Account (PBOP BA).41 21

An authorized amount is established in a GRC decision. However, through the operation of the PBOP 22

BA, SCE recovers its recorded PBOP costs and returns any over-collection to its customers. 23

The authorized versus recorded for 2018 was also affected by the Commission’s 24

disallowances in the Test Year 2018 SCE GRC decision. The Commission disallowed approximately 57 25

percent of SCE’s Short-Term Incentive Plan (STIP) and 52 percent of Executive Benefits. SCE did not 26 38 The Total Compensation Study is discussed later in this volume. 39 See D.12-11-051, Conclusion of Law (COL) 382. 40 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals. 41 Ibid.

27

receive this regulatory guidance on authorized 2018 spending until after 2018 had ended; the 1

Commission’s decision on SCE’s 2018 GRC was issued in May of 2019. Also, with respect to Executive 2

Benefits, SCE forecast $20.9 million for Executive Benefits in its 2018 GRC Application, but the actual 3

2018 recorded expense, as determined by its actuary, was $14.5 million. The difference is attributable to, 4

among other items, actual interest rates, expected pay, and demographic experience being different 5

compared to the original assumptions. 6

Table III-5 Employee Benefits and Programs

O&M Expenses for 2018 – Authorized versus Recorded42 (2018 Nominal $000)

B. O&M Forecast 7

1. Summary of the Total Compensation Study 8

a) Background on Total Compensation Study 9

Total compensation studies have been an element of energy utilities’ General Rate 10

Case (GRC) proceedings for over 20 years. Historically, SCE and Cal Advocates have jointly sponsored 11

a total compensation study. However, Cal Advocates notified SCE that it did not intend to participate in 12

42 Refer to WP SCE-07, Vol. 01, Results of Operations, Authorized to Recorded.

GRC Activity Request Authorized Recorded Variance 401K Savings Plan $78.7 $76.1 $71.6 ($4.6)Dental Plans $14.9 $14.5 $11.3 ($3.2)Disability Management - Administration $0.9 $0.9 $0.5 ($0.4)Disability Management - Programs $19.6 $17.1 $14.7 ($2.4)Executive Benefits $20.9 $10.1 $14.5 $4.4Executive Compensation $22.9 $20.0 $16.3 ($3.6)Group Life Insurance $1.4 $1.4 $1.2 ($0.1)Long-Term Incentives $15.0 $0.0 $8.1 $8.1Medical Programs $101.4 $98.6 $81.8 ($16.8)Miscellaneous Benefit Programs $8.3 $8.0 $5.7 ($2.4)PBOP Costs $3.9 $3.9 $17.4 $13.5Pension Costs $57.7 $57.7 $47.0 ($10.8)Severance $0.0 $0.0 $1.6 $1.6Short-Term Incentive Program $143.6 $76.5 $137.0 $60.5Vision Service Plan $3.4 $3.3 $2.3 ($1.0)Grand Total $492.5 $388.1 $431.1 $43.0

28

the development of a total compensation study for the 2021 GRC. Cal Advocates similarly chose not to 1

participate in developing or managing a total compensation study in SCE’s 2018 GRC. 2

SCE selected an independent expert (Aon) to perform the 2021 GRC Total 3

Compensation Study. Consistent with the Commission’s direction, the selected independent expert 4

performed the study and conducted detailed analyses regarding benchmarking, job matching, and 5

selection of comparator companies. 6

(1) 2021 GRC Total Compensation Study (TCS) 43 7

Aon has been selected to perform SCE’s TCS for the past several rate case 8

cycles. Aon is an independent compensation consulting firm and is the independent entity that is most 9

familiar with SCE’s compensation programs through the work it has performed on SCE’s compensation 10

programs over the past several years. Due to Aon’s specific expertise, and in light of Cal Advocates’ 11

decision not to participate in developing, structuring, or managing the TCS, SCE believed a directed 12

award was in the best interests of the company and customers for this rate case cycle. Taking this path 13

would save SCE and its customers time and resource costs compared to again engaging in a vendor 14

selection process from scratch. 15

The methodology utilized for this case mirrored the joint agreements 16

between SCE and Cal Advocates in the 2015 GRC TCS. The principles of those joint agreements were 17

carried through to the 2018 GRC TCS (even though Cal Advocates declined to participate in the 2018 18

GRC TCS). 19

The following methodology was employed for analyzing the 20

competitiveness of SCE’s total compensation levels in the 2021 GRC TCS: 21

• The Study uses a comparator database of the same utility and 22

general industry companies included in prior Studies (this had 23

previously been reviewed with the Joint Minority Parties and other 24

intervenors); 25

• When a comparator company used in prior studies had been 26

merged or acquired, or in certain cases where data was determined 27

by Aon to be outdated, Aon made the recommendation to replace 28 43 The Total Compensation Study is referred to as TCS or the Study. The documented results of the Total

Compensation Study are referred to as the Total Compensation Study Report and can be found in Exhibit SCE-06, Vol. 03, Part 2, Total Compensation Study Report.

29

the original comparator company with similar-sized, similar 1

industry firms; 2

• The Study included a municipal utility, Sacramento Municipal 3

Utility District,44 as a comparator company for valuing executive 4

compensation and benefits; and 5

• The Study utilized SCE’s historical executive demographic data 6

for valuing executive benefits. 7

The TCS Report describes the data-gathering process and analysis 8

underlying the Study. At a high level, the Study encompassed the following steps: 9

1. As in past Studies, Aon and SCE selected a sample of SCE jobs from 10

five categories – Physical/Technical, Clerical, Professional/Technical, Manager/Supervisor, and 11

Executive. Collectively, the 2021 Study benchmark jobs represent approximately 75 percent of SCE’s 12

workforce; this is well above Aon’s typical thresholds for compensation studies at approximately 60 13

percent of a population. 14

2. Aon and SCE identified a marketplace of employers (comparator 15

companies) with which SCE competes for applicants. The comparator companies from the 2018 GRC 16

TCS served as the starting point for this listing. 17

3. Aon matched the SCE benchmark jobs to comparable positions at the 18

comparator companies, utilizing well-established, industry compensation surveys. Executive-level SCE 19

benchmark jobs were compared to the selected comparator companies from those same compensation 20

surveys. 21

4. Aon calculated the benefit value for each benchmark job and for each 22

comparator company for which they could find a match, to present that data on a cash-equivalent basis 23

for comparison purposes. This calculation was determined by applying SCE’s employee demographic 24

profile (and not the profiles of each comparator company) to provide an “apples-to-apples” value 25

comparison. 26

5. Aon compared SCE’s total compensation to that of the comparator 27

companies for each benchmark job in each of the five job categories. SCE’s labor market definition for 28

44 Los Angeles Department of Water & Power (LADWP) submitted benefits data, but missed the deadline for

submitting executive compensation. The Commission was asked to participate, but did not submit data.

30

many jobs includes the Southern California market. Data for Southern California is not necessarily 1

reported across all of the surveys, or is inconsistently reported if at all. To address this, national sets of 2

data were collected and a geographic differential of 11 percent was applied. This factor was determined 3

by extracting geographic differential data from the Economic Research Institute’s Geographic Assessor. 4

The geographic factor was used based on a recommendation from ORA in the 2015 GRC TCS. It is 5

consistent with the way that the geographic factor was applied in the 2015 and 2018 GRC TCS. The 6

geographic factor in the 2018 GRC TCS was 11.6 percent rounded to 12 percent. For the 2021 GRC 7

TCS, it was 11.4 percent rounded down to 11 percent. 8

6. Finally, Aon “weighted” the results for each of the five job categories 9

and, based on the relative percentage of that category to SCE’s total 2018 payroll, calculated the 10

comparison of SCE’s total compensation to the market. 11

All of the foregoing items, including the methodology, data gathering, 12

analyses, and results of the 2021 GRC TCS, are detailed in the TCS Report.45 13

b) Reasonableness of Compensation Paid by SCE 14

Table III-6 summarizes the results of the 2021 GRC TCS performed by Aon. The 15

percentages in the table represent the amounts by which SCE’s base pay, incentive compensation, and 16

benefits deviate from the market, both in the aggregate and for each of the five job categories that SCE’s 17

workforce was divided into for purposes of the Study. 18

In this context, total compensation consists of base pay, short-term incentives, and 19

benefits received by SCE’s workforce. For Executives and certain jobs in the Manager/Supervisor 20

category, total compensation also includes long-term incentives. The Study shows SCE’s aggregate 21

compensation to be three percent below market levels. Given the sampling error inherent in such studies, 22

this result shows that SCE’s total compensation is statistically equivalent to the market average. 23

45 See SCE-06, Vol. 03, Part 2, Total Compensation Study Report.

31

Table III-6 Summary Results of the 2021 GRC Total Compensation Study46

Based on the results of the Study, the Commission should find that the total 1

compensation paid by SCE to its workforce is at market and reasonable. 2

2. Cost-of-Service Ratemaking, Incentive, Compensation, and Benefits 3

a) The California Public Utilities Commission Regulates Businesses According 4

to Cost-of-Service Ratemaking Principles 5

The testimony below addresses the Commission’s recent pattern of excluding 6

various forms of employee incentive compensation from authorized revenue requirements. 7

When the Hope decision established that rates for regulated service would be set 8

based on the “original cost” of utility assets and that regulators establish a rate of return sufficient to 9

attract capital investment, the major elements of cost-of-service ratemaking were determined.47 By 10

knowing the original cost of assets dedicated to utility service, along with the operating expenses for 11

each year and a rate of return on the assets sufficient to attract capital investment, the regulator could 12

determine rates to charge for utility service. 13

The Commission’s challenge is to arrive at a balance of authorizing sufficient 14

revenues to provide reliable utility service and attract investment, at a cost to serve that is just and 15

46 Ibid. 47 See Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944).

32

reasonable for customers. The Commission regulates businesses according to cost-of-service principles, 1

and this policy is manifested primarily in the general rate case and cost-of-capital dockets. 2

b) Cost-of-Service Ratemaking Principles Assign Responsibility to Both 3

Regulators and the Businesses Subject to Their Authority 4

Through the exhaustive and litigious process of establishing an authorized general 5

rate case revenue requirement, the Commission arrives at a forecast of SCE’s cost to provide electric 6

service to its customers. The fact-finding exercise of discovery, audit, testimony, and cross-examination 7

ultimately leads to an evidentiary record that enables the Commission to set an authorized revenue 8

requirement. That authorized revenue requirement serves as the basis for adjusting customer rates. 9

Parties will often have differing views about such issues as the right number of 10

inspections of utility hardware that should be assumed in a forecast, or the right number of apprentices 11

to be hired to have an adequate workforce available to provide utility service. In the end, the lengthy 12

process of a general rate case arrives at enough facts to enable the Commission to determine a 13

reasonable level of expense permitted for each facet of company operations. The utility’s forecasts are 14

sometimes adopted, other times modified, and in many instances the forecasts proposed by other parties 15

are adopted in lieu of SCE’s forecasts. No entity involved in this process can forecast precisely the cost 16

to operate the company over the course of a GRC’s three-year cycle. 17

However, once the forecasts are established by the Commission, it permits the 18

utility to change rates to recover revenues sufficient to meet forecast expenses and a reasonable 19

opportunity to earn its authorized return on rate base. The Commission implements this reasonable 20

opportunity to earn by multiplying the authorized rate of return on the rate base. Multiplying rate base 21

by the authorized rate of return, and including this forecast of “net operating revenue” in the authorized 22

revenue requirement, the Commission creates a revenue stream available to pay bond holders and those 23

who hold common equity their expected payments in return for the use of their funds advanced to SCE. 24

The evidentiary record in SCE’s GRC has historically included the TCS, which is 25

evidence that compares SCE’s aggregate compensation level against the “market.” In other words, it 26

measures SCE’s employee compensation against the various labor markets where SCE competes for 27

employees. The earliest reference to the study for SCE is found in the Test Year 1988 general rate case, 28

A.86-12-047. In this instance, the Public Staff Division (PSD) had acquired certain compensation 29

studies through data requests and compiled its own assessment of SCE’s compensation relative to the 30

labor market. In the final decision, D.87-12-066, the Commission noted that the survey data relied upon 31

33

by the PSD was “…a significant improvement over its PG&E proposal.” The Commission nevertheless 1

directed SCE and the Commission staff to jointly develop a data base for use in evaluating employee 2

compensation in SCE’s next general rate case.”48 The Commission’s intent, at this early date, is stated 3

clearly: 4

Our objective is to ensure that customers are not burdened with paying for 5 employee compensation levels beyond that which is necessary for Edison to 6 provide safe reliable service at reasonable rates.49 7

At a subsequent workshop, the consensus of the participants was that the 8

Commission would not take issue with the “mix” or formula used to determine what percentage of 9

compensation is base pay, and what percentage is incentive-based, either long or short-term 10

instruments.50 The Commission has had before its evidence that the level of compensation is reasonable 11

and is a legitimate cost of service. In other words, the Commission has not concluded that SCE 12

employees should be paid less. If the Commission has evidence that SCE’s compensation level is “at 13

market” and has no evidence that the level of compensation is unreasonable, then fidelity to cost-of-14

service principles requires that this expense be included in the authorized revenue requirement. 15

If the Commission expressly denies cost recovery through rates for an expense 16

that the evidence demonstrates is reasonable and “at market,” then such a GRC decision is an 17

impediment to SCE earning its Commission-authorized return. In past rate cases, the Commission has 18

been very clear that its intent is to not authorize cost recovery for certain types of incentive-based pay 19

for qualitative reasons and that SCE is to fund this expense with revenues that the CPUC has designated 20

for investors. For example, the decision in SCE’s Test year 2012 GRC stated: 21

In our decision today, we are not recommending reduced compensation for 22 executive officers. We are merely assigning certain costs to shareholders 23 based on what is just and reasonable to assign to ratepayers. The TCS did not 24 specify or differentiate between ratepayer and shareholder funding for either 25 comparator company compensation or SCE compensation.51 26

The Commission chose to assign an expense, which it does not dispute SCE was 27

going to incur, to revenues the Commission earmarked for earnings. Stated another way, the 28

48 D.87-12-066, OP 26 (mimeo). 49 Id. at 103. 50 D.92-12-057, p. 85 (mimeo). 51 D.12-11-051, p. 450.

34

Commission’s decision added another expense SCE would bear without matching revenues. On one 1

hand, in the Cost-of-Capital docket, the Commission established a return for SCE that it expects would 2

be sufficient to attract capital investment to finance SCE’s operations for electric service. Then on the 3

other hand, it made a decision to consciously impede SCE’s ability to realize such a return. This clear 4

departure from cost-of-service principles should not be taking place. 5

In the 2012 GRC decision, quoted above, the Commission makes a further error 6

by assuming that comparator companies likewise have two sources of funds to pay incentive 7

compensation: (1) an investor fund and (2) a customer or ratepayer fund. The decision faults the TCS for 8

not delineating these two fictional categories of revenues for the comparator companies. 9

However, an unregulated business would record its expenses on its books and 10

these expenses would be reflected in the income statement to display profit or loss. To the extent a 11

comparator company is a regulated utility, the expense would be treated the same way as SCE accounts 12

for it -- either matched by authorized revenues or not. For those expenses not defrayed by authorized 13

revenues, a reduced return on equity is the result. 14

The Commission repeated the practice of consciously excluding these expenses 15

from the authorized revenue requirement in SCE’s Test Year 2015 GRC. The decision states: 16

In recent decisions, we have held that LTI52 is not recoverable from customers 17 because LTI does not align executives’ interests with customer interests. 18 SCE’s arguments to the contrary are vague, limited, and unpersuasive. SCE 19 has not demonstrated that LTI furthers the provision of safe and reliable 20 service at just and reasonable rates. We continue our consistent practice and 21 reject rate recovery of SCE’s LTI program.53 22

This decision does not conclude that SCE’s overall compensation is too generous 23

or that SCE might not incur the expense. In the 2015 GRC decision, the Commission concludes that the 24

form of compensation is against its policy. What this Commission policy does not address is the effect 25

such an exclusion has on the authorized revenue requirement. When the Commission excludes known 26

expenses from the authorized revenue requirement, SCE is faced with either not spending authorized 27

revenues in some other area of its operations, or not paying investors their expected return, which is 28

detrimental to customers over time. The Commission should not establish an authorized return on equity 29

in one docket, then impede its realization in the GRC docket. 30 52 Long-Term Incentive compensation. 53 D.15-11-021, p. 266.

35

c) The Commission Should Provide SCE a Reasonable Opportunity to Earn Its 1

Authorized Rate of Return 2

The Commission has recognized that SCE’s compensation paid to employees is 3

validated by total compensation studies. These studies are a fixture in California general rate cases, and, 4

up through the 2015 Study, were jointly managed by Cal Advocates and SCE to mitigate bias in the 5

outcome. Although Cal Advocates has chosen not to participate in the 2018 or 2021 Studies, SCE has 6

used the same assumptions that were approved by Cal Advocates in the 2015 Study. The TCS represents 7

the best indicator of what the market is paying employees who perform work similar to SCE employees. 8

This market validation of SCE’s overall compensation is the optimal measure of how much SCE must 9

pay employees, and the confirmation that that the forms of compensation in aggregate are “at market.” 10

Parties, and ultimately the Commission, have taken issue with goals used by SCE 11

management to set as objectives to measure employee performance in awarding incentive-based 12

compensation. As recently as SCE’s Test Year 2015 GRC decision, the Commission recognized that not 13

every goal has a mutually-exclusive outcome – only benefitting either SCE’s customers or its investors. 14

Specifically, the decision stated, “We agree with SCE that there are many examples of issues where 15

shareholder and ratepayer benefits are aligned, including, for example, attracting, retaining, and 16

motivating high quality employees.”54 Nevertheless, the Commission has apparently concluded that 17

some of the goals, if achieved, benefit investors disproportionally and disadvantage customers or 18

somehow inhibits reliable service to SCE customers. Such a conclusion is at odds with the actual goals, 19

which indeed provide tangible benefits to SCE customers. 20

For example, only by managing authorized revenues as intended by this 21

Commission when it approves a general rate case, will SCE be able to pay investors the return they 22

expect. And only by meeting their expectations for a return equal to investments in similarly situated 23

companies, can SCE keep borrowing costs at a reasonable level. Only by keeping borrowing costs at a 24

reasonable level – consistent with Commission expectations when it authorized “net operating revenue” 25

in a GRC – will SCE be able to continue investing in the electric grid at a pace that will maintain 26

existing levels of reliable service. 27

In addition, there will be year-to-year variances in the degree to which a utility 28

like SCE will either over-earn or under-earn its recorded rate of return. Such a departure from authorized 29

54 D.15-11-021, p. 256.

36

returns on equity are short-lived because authorized revenue requirement levels are reviewed and 1

adjusted every general rate case. These outcomes are also often determined by uncontrollable factors 2

such as the number of new customers. The issue being discussed in this testimony should be addressed 3

and corrected, because it is the result of deliberate policy by the Commission, and not an issue that is 4

unpredictable. 5

d) Incentive Compensation is a Routine Method of Compensating Employees in 6

Today’s Workforce 7

A full 88 percent of the comparator companies in the TCS compensate employees 8

through a form of variable pay.55 Based on the comparator group56 within the TCS, 100 percent of the 9

companies pay executives to some degree through short-term incentives. Jobs with salaries over 10

$125,000 receive short-term incentives 85 percent of the time.57 As recently as July 12, 2019, the State 11

of California passed AB 1054 which mandates that electrical corporations establish executive incentive 12

plans to “promote safety as a priority and to ensure public safety and utility financial stability with 13

performance metrics”58 in order to qualify for a safety certification. Not only does the State of California 14

recognize the importance of incentive plans, but also the significance of a financially healthy company. 15

Despite the fact that the vast majority of companies recognize incentive 16

compensation as a routine form of reward for employees, the Commission has expressly prohibited a 17

significant portion of its cost recovery through customer rates. In the 2018 SCE GRC Decision, the 18

Commission refers back to its 2015 GRC decision and its adoption of reduction of short-term incentives 19

for all utilities to account for payout criteria that benefits the shareholder rather than the ratepayer. 20

The Commission stated in the 2015 decision that it does value the results of the TCS, and so declined to 21

adopt the deep cuts proposed by TURN and ORA. But then the Commission in the 2018 case cut $75 22

55 2017 Variable Compensation Measurement Report, p. 6. 56 The comparator group is the companies against which compensation and benefits are compared. Typically,

this includes companies of similar size, in the same industry, that operate in the same geographic locations, and with whom the Company competes for talent. See Exhibit SCE-6, Vol. 03, Part 2, Total Compensation Study, Appendix B: Comparator List.

57 See Exhibit SCE-06, Vol. 03, Part 2, 2021 Total Compensation Study Report. 58 See Assembly Bill No. 1054 at

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1054 (as of August 1, 2019).

37

million from STIP authorization, more than half (57 percent) of the requested forecast, to be consistent 1

with the reductions applied to the Executive Incentive Compensation in the 2015 decision.59 2

As the Total Compensation Study indicates, SCE’s compensation and benefits 3

package is at market. SCE could choose to pay all of its variable pay as base pay instead, in order to 4

obtain full recovery of its labor costs. But this would not benefit the customer. By transferring variable 5

pay into base pay, SCE would lose the benefit of rewarding its higher performers and discouraging its 6

poorer performers. All performance would be treated the same. 7

Another detriment of moving compensation to base pay is it is more expensive as 8

pension and benefits are calculated utilizing base salaries. By transferring variable costs to base pay, 9

pension and benefit costs increase. In reviewing recorded cost and performance for STIP, EIC,60 and 10

LTI for 2018, the additional incremental cost to customers for SCE to receive full recovery of labor cost 11

would be $38.670 million.61 12

Both the 2015 and 2018 decisions addressing incentive compensation have a 13

discussion regarding who benefits – customers or shareholders – from the presence of certain goals as 14

targets for employee incentive compensation. A review of goals used for awarding incentive 15

compensation revealed they are in conformance with the Commission’s intent. There are no goals 16

which, if met, would be detrimental to customers’ interests or would diminish SCE’s ability to provide 17

safe and reliable service. In fact, the situation is quite the opposite. The goals align customer and 18

investor interests in having a healthy company that provides reliable service to customers and manages 19

its business well enough to pay the returns investors expect when they advanced their funds to SCE. 20

The presence of a (relatively discrete) company goal to meet an earnings target directly aligns with 21

Commission policy and is essential in managing the allocation of “net operating revenues” authorized by 22

this Commission in general rate cases. 23

Managing the company as the Commission intended (i.e., having sufficient net 24

operating income available to pay investor returns) is necessary for sustaining safe and reliable service 25

to customers. It helps assure consistent ability to make system infrastructure investments. The presence 26

59 See D.19-05-020, pp. 185-186. 60 Executive Incentive Compensation Plan. 61 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 51, 117, and footnote 70, Cost of EIC as Base Pay and LTI

to Base Pay Equivalent Calculation.

38

of such goals, or their attainment, has not created a misalignment between the needs of customers or 1

investors. 2

In the 2015 GRC decision, the Commission described how it views incentive 3

compensation, stating: 4

To the extent an incentive program (or any other cost) is designed to further 5 objectives other than providing safe and reliable service at just and reasonable 6 rates, the costs of that incentive program are not a reasonable cost-of-service, 7 even if total compensation (including incentives) is at market. This is not 8 unique to incentive compensation; if SCE pays an employee a salary to further 9 objectives other than providing safe and reliable service at just and reasonable 10 rates, that salary is not a reasonable cost-of-service, regardless of the level of 11 total compensation. SCE bears the burden of proving that the costs of an 12 incentive program are a reasonable cost-of-service. To the extent that SCE 13 fails to meet this burden, customers should not pay the costs. Such a finding in 14 no way bars SCE’s shareholders from funding such an incentive program.62 15

This statement in the Commission’s decision is a significant oversimplification of 16

the broad responsibilities of SCE’s employees. SCE is a company of about 12,000 employees, many of 17

whom have a direct impact on the quality of electric service to its customers every day. On the other 18

hand, some employees whose work is essential to the efficient functioning of the company, such as the 19

employees who manage memorandum and balancing accounts, or the employees who manage its 20

corporate compliance filings, are not likely to ever be in the position of having a direct and immediate 21

impact on safe and reliable electric service to its customers. Nevertheless, their work is essential to the 22

efficient and effective functioning of the utility. 23

In other words, SCE cannot provide safe and reliable service if the Company is 24

only made up of the employees who directly impact the quality of electric service to its customers and 25

communities. To take a simple example, those “direct impact” employees must have colleagues at SCE 26

that handle payroll, tax withholding, and employee benefits. They must have colleagues that handle 27

computer and technology issues with respect to computer devices that are used in the “direct impact” 28

work. They must have colleagues who supervise the safe maintenance of the Company’s fleet of 29

vehicles that are used in the “direct impact” work. Without these other “indirect” employees, the 30

Company could not function as an entity that fulfills its franchise obligation to continuously serve its 31

customers. 32 62 D.15-11-021, p. 257.

39

SCE’s prudent request for cost recovery of incentive compensation should not fall 1

prey to an artificial and binary conclusion that company goals must have a sole and direct impact on 2

providing reliable electric service. The work of its employees represents a legitimate cost-of-service. 3

Their total compensation, which has been shown to be at market, should be recovered through customer 4

rates. 5

The Commission’s 2015 decision then went on to state, “We reject SCE’s 6

analysis, and highlight one alternative option for SCE management: target incentive compensation to 7

achieve ratepayer benefits. This does not mean that shareholders cannot benefit from the incentives 8

created, but simply that the metrics used to award incentive compensation should be designed explicitly 9

to advance ratepayer interests.”63 10

Based upon a review of current employee goals, SCE has met the Commission’s 11

intent. Company goals, especially those upon which awards of incentive compensation will be based, 12

provide benefits for both customers and investors – SCE’s investors do not benefit to the detriment of 13

SCE customers. Operating the company within the revenues authorized by this Commission, which 14

includes having the authorized net operating revenue available to pay investors (i.e., realizing an 15

earnings target), is in SCE customers’ best interests. Having a predictable and stable earnings pattern is 16

essential to keeping at acceptable levels the cost of borrowing funds to finance the business. 17

e) SCE Cannot Dictate to the Market What Form or the Amount of 18

Compensation Employees Will Be Paid 19

SCE recruits employees from the available labor markets as it finds them. SCE 20

could offer salaries and benefits that exclude the compensation disallowed by the Commission in recent 21

general rate case decisions. Inevitably, such a decision would cause SCE to lose candidates for skilled 22

jobs or have an unacceptable attrition level as employees recognize better compensation could be found 23

elsewhere. Some parties decry compensation levels of certain job classifications, such as executives. 24

However, SCE cannot change the market, or employees’ expectations. SCE is in a circumstance in 25

which it must pay a market-based level of compensation to obtain qualified employees to carry out the 26

Company’s obligations to its customers and its regulators. This is, simply and straightforwardly, a cost-27

of-service. 28

63 Ibid.

40

SCE must operate in the labor market it finds, not the market it (or its regulator) 1

wishes existed. Often, when reading media accounts in sports and entertainment, one may be a bit 2

startled at the high compensation paid to professional sports figures and well-known actors, in 3

comparison to the relatively sparse salaries paid to those in other professions. These examples, while 4

extreme, are nonetheless examples of markets. Both at the extreme end and at the more everyday end, 5

compensation is determined by what the market will bear. If one ignores the market and instead offers a 6

potential or existing employee (whether a famous sports figure or a corporate executive or a rank-and-7

file employee) a compensation package based on what the employer wishes the market were, then the 8

employee will simply take his/her services elsewhere. This is true in all walks of life and all fields of 9

employment. 10

SCE must pay a market-based level of compensation. Utility regulation cannot 11

change this circumstance, nor should SCE’s compensation request be disallowed because of a perceived 12

unfairness in certain labor markets. SCE cannot control those markets; it can only participate in them 13

when seeking to attract and retain qualified employees. 14

f) Conclusion 15

In this general rate case, the Commission should revisit its recent policy of 16

assigning some portion of employees’ incentive compensation to be paid from earnings. As shown 17

above, this policy departs from cost-of-service principles. Further, the Commission should not fall prey 18

to the false claim that a goal used for employee compensation will either benefit customers or investors, 19

and a benefit to one must be a detriment to the other. SCE’s corporate goals align the investors’ 20

understandable interests in stable, predictable returns and the customers’ understandable interests in safe 21

and reliable service, stable financial patterns and sound financial health on the part of the electricity 22

provider, and lower-cost financing for SCE to continue making the operational commitments needed to 23

continuously provide adequate service. 24

3. Compensation 25

a) Short-Term Incentive Program (STIP) 26

This section combines certain employees and costs under three short-term 27

incentive programs: (1) the Short-Term Incentive Plan for non-executives, (2) the Key Contributor 28

41

Incentive Plan (KCIP) for limited non-executives and (3) the Executive Incentive Compensation Plan 1

(EIC) for those executives who are not officers (less than one percent of the employee population).64 2

For the Test Year 2021, SCE forecasts $180.907 million of expenses.65 Figure III-3

7 below shows recorded costs for the Short-term Incentive Program for the years 2014 through 2018, 4

and SCE’s forecast for 2019 through Test Year 2021. 5

Figure III-7 Short-Term Incentive Program


(1) Work Description 6

STIP is the annual variable pay program that gives employees an 7

opportunity to earn a cash award based on achieving Company goals. Exempt employees participating in 8

STIP have their award amounts further adjusted based on individual performance. In 2018, the Company 9

launched an incentive program known as the Key Contributor Incentive Plan (KCIP), which was added 10

after additional bonus targets for some non-executive principal-level employees were discontinued. 11

KCIP is offered in addition to STIP, but the payout is different and not all 12

non-executive principal employees who received STIP awards are expected to be granted KCIP. 13

64 EIC for executive officers is discussed in the next part of this Section. 65 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 16-39, STIP.

2014 2015 2016 2017 2018 2019 2020 2021Labor $181,924 $132,571 $104,350 $133,063 $137,027 $168,113 $168,018 $180,907

Non-LaborOther

Total Expenses $181,924 $132,571 $104,350 $133,063 $137,027 $168,113 $168,018 $180,907

Recorded Forecast

$20,000$40,000$60,000$80,000

$100,000$120,000$140,000$160,000$180,000$200,000


42

The payout is made in two annual installments once it is approved by executive management. An 1

employee receives a KCIP award which recognizes his or her achievements in the prior year as well as 2

expected future contributions. Any or all of the award could be forfeited if he or she separates before the 3

payout date in March of each year, and the award is not eligible for retirement benefits. 4

Employees eligible for KCIP have a strong impact on the Company’s 5

long-term results, based on performance, potential and the criticality of their skills. The design of STIP 6

and KCIP is established each calendar year by SCE’s senior executive management team. STIP fosters 7

employee focus on activities that have an impact – both direct and indirect – on the Company’s success 8

in delivering services to its customers, while KCIP serves as a valuable recognition and retentive tool. 9

STIP provides a variable pay opportunity subject to the achievement of goals related to public and 10

workplace safety, customer service, system reliability, cost control, and productivity. These programs 11

highlight what employees can do to contribute to the Company’s successful operations and provide a 12

financial stake for them to achieve Company goals aligned with customer interests. 13

The process for establishing Company goals and determining results under 14

STIP is as follows: Around August of each calendar year, the Company identifies the business priorities 15

for the following calendar year and develops its corporate goals accordingly. Progress towards these 16

goals is reviewed throughout the year.66 In January and February of the following calendar year, final 17

performance is determined based on the goal achievements for the previous year. The Executive 18

Personnel and Compensation Committee of the SCE Board of Directors67 reviews management's 19

recommendations and makes a determination on goal achievement and payout. 20

STIP funding focuses on achieving company goals and adhering to the 21

Company’s Operations and Maintenance (O&M) budgets, with an individual performance modifier for 22

exempt employees. STIP and the EIC are aligned with the same set of measurable and challenging 23

Company performance goals approved by the Compensation Committee. The Company goals for 2019 24

are set forth in Table III-7 below. 25

66 Typically, the individual performance standard or metric is developed for each goal to monitor progress and

to determine final results at the end of the calendar year. 67 For the sake of brevity, this testimony sometimes refers to this committee as the “Compensation Committee.”

43

Table III-7 Company Goals Included in STIP and EIC

2019 Plan Year

This section of testimony also addresses short-term incentive program 1

costs for executives who are not officers. These non-officer executives are eligible for short-term 2

incentives under EIC, which is discussed in greater detail below. 3

Goal Category GoalsThreshold(Unmet)

Target(Met)

Stretch(Exceeded)

Foundational

• No worker fatalities.• No serious injuries to the public from system failures.• No significant non-compliance events.• Maintain effective controls and cybersecurity measures to prevent and mitigate significant disruption, data breach or system failure

TBD 0 0

Financial Performance • Achieve Core Earnings 0-29 30 31-60

Wildfire Resiliency

• Improve the resiliency of the electric infrastructure and our communities and ensure financially healthy utilities to support California's environmental objectives.

0-19 20 21-40

Operational & Service Excellence

• Reduce employee injuries by creating a culture of ownership and developing safety-focused leadership, skills, and mindset.• Improve customer satisfaction with core service interactions including outage, billing & payment, and ease.• Improve reliability performance for repair outages.• Customer cost efficiency metric.• Safely and effectively manage SONGS decommissioning.

0-24 25 26-50

Policy, Growth and Innovation

• Complete critical milestones and scope while staying on schedule and budget.• Advance progress towards adoption through execution of approved pilots and programs.• Execute grid, technology, and other improvements to deliver safe, reliable, clean and affordable energy for customers.• Shape California legislative and regulatory policies to align with SCE’s strategy.

0-14 15 16-30

Diversity, People and Culture

• Positively impact culture change through advancing diversity and inclusion (D&I) efforts.• Build process and digital capabilities critical for SCE’s business transformation.• Diverse Business Enterprise (DBE) Spend.

0-9 10 11-20`

0-9 100 101-200

Score

Total Multiplier Range

44

(2) Need for Activity 1

(a) Ratemaking Policy 2

The Test Year forecast for the (1) STIP (for all non-executive 3

employees), (2) KCIP (for some non-executive principal-level employees), and (3) EIC (for non-officer 4

executives) – requests recovery from customers of the full costs of the programs. These programs are 5

included in the 2021 Total Compensation Study, which shows that SCE’s total compensation for STIP, 6

KCIP and EIC participants is at market. These programs remain a critical component of total 7

compensation for current and prospective employees and attract, engage, and retain quality talent to 8

meet operational needs. 9

In SCE’s 2009 GRC, the Commission approved full funding for 10

SCE’s short-term incentive plan, then called “Results Sharing,” based upon the results of the 2009 Total 11

Compensation Study. In its decision, the Commission stated that, while the Total Compensation Study 12

does not address the reasonableness of compensation or who should bear its costs, it establishes the level 13

of compensation required by SCE to attract and retain employees: 14

The Study addresses the narrow issue of whether SCE’s total compensation 15 package is consistent with other similar companies. . . . Although the Study 16 does not address the issue of whether SCE’s compensation is “reasonable” or 17 who should bear the costs of this total compensation, e.g., shareholders or 18 customers, the study does provide a basis for assessing the reasonableness of 19 the compensation offered by SCE in terms of what is necessary to attract and 20 retain qualified employees.68 21

A total compensation study determines how a utility’s 22

compensation compares to the market. If the total compensation is found to be at market levels, it is 23

reasonable and recoverable from customers based on cost-of-service ratemaking principles as the level 24

of compensation needed to attract and retain qualified employees. Where the overall level of total 25

compensation is deemed reasonable, customers should be indifferent regarding the mix of pay and 26

benefits comprising total compensation. 27

(b) STIP Goals Benefit Customers 28

There are several reasons customers should continue supporting 29

SCE’s variable pay programs. Variable pay represents an important element of an overall total 30

68 D.09-03-025, p. 127.

45

compensation package, provided to employees for services rendered, similar to all companies in the 1

Total Compensation Study. The study determined that 100 percent of the companies provide STIP to all 2

or some parts of the employee population. It is a legitimate business expense that should be recovered in 3

cost-of-service-based rates. Since variable pay is offered by the overwhelming majority of companies 4

that SCE competes with for talent, it is a crucial element for attracting and retaining the talent needed to 5

run the utility. 6

Variable pay is also an “at-risk” component of total compensation 7

that orients employees’ efforts toward the customer-focused operational priorities of the Company, such 8

as performing work with a focus on public and employee safety, and providing quality customer service. 9

If these customer-facing operational priorities are not met or exceeded, an employee’s incentive 10

opportunities will be reduced or eliminated, and those dollars allocated for that purpose may flow back 11

to customers or be used to reward high-performing employees who meet or exceed those goals which 12

benefit customers. 13

STIP gives employees a financial stake in achieving SCE’s 14

objectives by focusing employee efforts on achieving operational goals which provide value to the 15

customers. As reflected by Table III-7 above, the Company goals are tied to matters benefiting 16

customers, heavily focusing on customer satisfaction, public and workplace safety, system reliability, 17

infrastructure improvements, rate equity and mitigation efforts, workforce and supplier diversity, and 18

programs to rapidly respond to business disruptions or catastrophic events. The goals related to financial 19

performance, cost control, and productivity directly benefit customers since achieving these goals 20

enhances the value obtained by customers through rates, and allows for greater investment in system 21

reliability and safety. 22

(c) Alternatives Considered 23

Based on the results of the Total Compensation Study, SCE is 24

paying its employees at market. As the Commission has not authorized full funding of SCE’s 25

compensation package over the last several years, SCE does not believe there is a viable alternative. 26

These components of compensation are vital in attracting and retaining high-performing employees. 27

SCE has reviewed other options for providing its employees with 28

additional compensation and benefits that are still in line with the Total Compensation Study, including 29

eliminating the STIP and making it all part of base pay in order to receive full rate recovery. However, 30

as STIP is a variable pay component of total compensation, an employee’s STIP award is not taken into 31

46

account in determining certain pension and benefits costs that are a function of an employee’s base pay. 1

Base pay accrues regardless of employee job performance, and any increase in base pay results in a 2

corresponding increase in associated pension and benefit costs. Accordingly, variable pay components, 3

like STIP, benefit customers by adding to reasonable employee compensation in a fashion that avoids 4

those increased costs associated with base pay. In other words, a dollar in base pay costs customers 5

more than a dollar in STIP. If the variable costs attributed to STIP were instead included in base pay, 6

assuming a 22.78 percent cost of benefits,69 the additional cost to customers would be $30.608 million 7

per year for the increase in pension and benefits.70 8

(3) Comparison of Authorized 2018 to Recorded 9

As shown in Table III-5, SCE’s recorded STIP expense of $137.0 million 10

in 2018 exceeded the 2018 authorized amount of $76.5 million by $60.5 million. This variance is driven 11

by the Commission’s disallowance of more than 55 percent of SCE’s forecast of 2018 STIP expenses. 12

(4) Scope and Forecast Analysis 13

(a) Historical Variance Analysis 14

STIP costs are recorded in the Short Term Incentive Plan 15

Memorandum Account (STIPMA).71 16

(i) Labor 17

STIP costs progressively decreased from 2014 through 18

2016, as the company went through the Operational Excellence Initiative and less employees received 19

short-term incentive compensation. The recorded amount in 2017 further decreased as the company paid 20

less-than-targeted awards. In 2018, costs increased as the company paid out awards slightly over target. 21

(b) Forecast 72 22

SCE utilized the Itemized Forecast methodology, which 23

incorporates the Company’s labor forecast. Its Test Year forecast was determined by obtaining the 24

historical STIP program costs for 2018 of $137.027 million. Then, a program expense ratio was 25

calculated (stated as a percentage) by dividing the 2018 plan costs by the 2018 recorded non-capital 26 69 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 118, Benefit Loader. 70 This is calculated using the 2018 target incentive award for STIP of $134,364,280 x 22.78% = $30,608,183. 71 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals. 72 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 40-42 and Book B, pp. 142-144, Forecast Method.

47

labor expense. Finally, since STIP costs are directly affected by total labor costs, the expense ratio was 1

applied to the projected non-capital labor forecast for 2019-2021. A further adjustment was made to 2

reflect anticipated incremental costs (averaged over the period from 2019 to 2020) arising from job 3

classification changes tied the Compensation Design Project.73 4

As noted in Figure III-7 above, applying the methodology 5

described above results in a Test Year 2021 forecast for STIP expenses of $180.908 million. Unlike the 6

Linear Trending, Averaging, and Last Recorded Year methodologies, the Itemized Forecast 7

methodology is appropriate because it considers changes in the labor forecast and additional changes 8

due to the Compensation Design Project. 9

b) Executive Incentive Compensation Plan (EIC) 10

(1) Introduction 11

The executive short-term incentive pay program – the Executive Incentive 12

Compensation Plan (EIC) – is part of the market-competitive total compensation package for SCE’s 13

executive workforce. Executive Officer EIC payments are included in the labor costs in the Executive 14

Compensation Section below. Non-officer EIC costs are included in SCE’s STIP, discussed above. 15

(2) Executive Performance Goals Determination 16

At the beginning of each calendar year, the Board of Directors approves 17

the performance goals for the Company, and the Compensation and Executive Personnel Committee of 18

the Board incorporates these goals as measures for determining executive incentives under EIC. These 19

goals identify critical areas of utility performance and set measurable, challenging standards to assess 20

successful attainment by executives. Goals are emphasized at all levels of the Company during the year 21

and focus on performance in areas critical to SCE's customer service and operational needs. 22

(3) Executive Performance Goals Benefit Customers 23

As discussed in greater detail below, the 2019 goals for EIC are tied to 24

customer benefits, including performance metrics for operating in a safe and reliable manner, mitigating 25

wildfire risk, improving customer satisfaction, modernizing SCE’s grid to support customer choices, and 26

operating in a fiscally prudent manner. Below is a more detailed list of the 2019 EIC performance goals, 27

and explanation of how these goals benefit SCE’s customers: 28 73 In 2016, the Company began the Compensation Design Project to redefine its compensation structure as part

of a larger review of SCE’s compensation and benefits plans. This effort supports the Company’s objective of balancing the mix of benefits and compensation to align with the market.

48

Foundational Goals – A critical component of SCE’s Foundational Goals 1

is ensuring no worker fatalities and no serious injuries to the public from a system failure. Safety is its 2

top priority and benefits everyone. SCE’s Foundational Goals also include not incurring any significant 3

non-compliance events and maintaining effective controls and cybersecurity measures to prevent and 4

mitigate significant disruption, data breach or system failure. If one or more foundational goals are not 5

met, annual incentive awards may be reduced for all or some plan participants, depending upon severity. 6

Financial Performance (Core Earnings Target) – Core earnings are 7

essential to maintain SCE’s financial health and to provide lower cost of capital to finance the capital 8

projects and other essential programs that benefit its customers and support delivery of safe and reliable 9

service. Core earnings are the after-tax earnings from SCE’s principal business, and exclude non-core 10

income and losses not considered representative of the Company’s ongoing earnings, such as a one-time 11

regulatory asset write-off and income from discontinued business operations. 12

Wildfire Resiliency – Mitigating wildfire risk is at the core of SCE's 13

public safety initiatives. SCE continues to identify new ways to improve the resiliency of the electric 14

infrastructure and its communities. The objective is to mitigate wildfire risk through enhanced 15

operational practices, expanded awareness, hardened infrastructure, and other programs consistent with 16

SCE’s Wildfire Mitigation Plan. In addition, SCE pursues wildfire policy reform in regulatory, 17

legislative, and legal forums, which provides a sustainable wildfire liability and cost recovery 18

framework for utilities. 19

Operational and Service Excellence – SCE’s Operational and Service 20

Excellence goals include Safety, Customer Satisfaction, Reliability, and Customer Cost 21

Efficiency. Working safely enables SCE to be more effective in all areas of its business, which 22

customers expect. Controlling costs translates into tangible savings for SCE’s customers. Maintaining 23

customer satisfaction and grid reliability fosters quality service delivery to customers. Operational and 24

Service Excellence also includes safely and effectively managing SONGS decommissioning. 25

Policy, Growth and Innovation – Policy, Growth and Innovation goals 26

represent longer-term investments in customer experience and alignment with California environmental 27

policy. The Customer Service Re-Platform Program helps ensure a transition to a modern customer 28

billing and interaction platform that meets future customer channel needs. Transportation Electrification 29

programs enable customer adoption of electric vehicles and support the state’s decarbonization goals. 30

Additionally, SCE seeks to influence policy decisions to secure approval for additional charging 31

49

infrastructure and vehicle incentive funding. Lastly, SCE seeks to obtain the essential funding needed to 1

efficiently operate and safely and reliably serve its customers. 2

Diversity, People and Culture – The Diversity, People and Culture goals 3

focus on making a positive impact to culture change, building process and digital capabilities, and 4

ensuring SCE contributes to the success of diverse businesses. This includes measurement of diversity 5

within its leadership team, such as the representation of historically under-represented groups. The 6

communities in SCE’s service territory are rich in diversity, and SCE strives to mirror that diversity in 7

its leadership team. SCE believes that building process and digital capabilities through the engagement 8

of employee improvement recommendations and development of a continuous improvement skillset will 9

support a workforce that can improve its operations and deliver value for its customers. Additionally, 10

these goals establish accountability around Diverse Business Enterprise spend; this helps SCE contribute 11

to the success of diverse businesses within its service territory. 12

(4) Executive Incentive Compensation Determination 13

Following the end of the plan year, an individual modifier is applied to the 14

performance rating of each executive, and a bonus recommendation is made by the officer to whom each 15

executive reports. Concurrently, the Edison International CEO (in consultation with his management 16

committee) and the Compensation Committee review the results for the year, and the Compensation 17

Committee determines Company performance (referred to as the corporate modifier). The executive’s 18

recommended bonus can go up or down based on company and individual performance. Awards for 19

certain executive officers are also reviewed and approved by the Compensation Committee. 20

(5) Executive Incentive Compensation Benefits Customers 21

EIC benefits customers by placing a portion of executives’ compensation 22

at risk unless customer-focused goals – including safety, grid reliability, effective customer service, cost 23

control, and efficiency – are met or exceeded. By tying the goals of variable pay for executives to 24

customer benefits, the EIC Plan reflects the importance SCE places on customers and the role they have 25

in its sustained success. 26

Variable pay allows the Company to provide greater rewards to high-27

performing executives and creates a direct line-of-sight between (a) employee performance aligned with 28

customer-focused goals and (b) tangible rewards for a high level of that performance. Incentive/variable 29

pay programs are an essential component of the executive compensation package at SCE, as at nearly all 30

other comparable companies. By looking at market data, SCE identifies the median compensation for 31

50

executive positions and the breakdown of rewards. Specifically, there is visibility to what the market 1

pays for the position in base pay, bonuses, and long-term incentives. This allows SCE to offer 2

competitive pay packages. 3

Like STIP, EIC is a variable pay component of total compensation, and 4

EIC awards are not factored into determining qualified pension and benefits costs for the subject 5

employee. Unlike variable pay components, base pay serves as the basis for determining qualified 6

pension and certain benefit costs; any increase in base pay results in a corresponding increase in those 7

costs. As such, SCE’s use of variable pay components, like EIC, provides defined, tangible benefits to 8

customers by adding to reasonable executive compensation without increasing qualified pension and 9

benefits costs associated with base pay. 10

c) Executive Compensation 11

For Test Year 2021, SCE forecasts $18.133 million of expenses for Executive 12

Compensation (salaries and short-term incentives), non-labor expenses, and outside services.74 Figure 13

III-8 below shows recorded costs for the years 2014 through 2018, plus SCE’s forecast for 2019 through 14

Test Year 2021. For recorded and forecast years 2014 through 2021, Executive Compensation that is 15

subject to SB 901 has been removed.75 See Section III, Compliance Requirements above for more 16

information on SB 901. 17

74 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 43-48, Executive Compensation. 75 Refer to WP SCE-07, Vol. 01, Results of Operations, Ratemaking Adjustments; and WP SCE-06, Vol. 03,


51

Figure III-8 Executive Compensation



Executive Compensation includes base salary, annual short-term 2

incentives, associated expenses and outside service expenses for executive officers.76 3

(a) SCE Executive Officers 4

The following section discusses costs for SCE’s executive officers 5

including base salary, annual short-term incentives, and associated expenses. 6

Annually, SCE benchmarks executive officer compensation on a 7

position-by-position basis against comparable employers using data from surveys and disclosure filings, 8

such as proxy statements and annual reports. SCE then conducts a review and recommendation process 9

addressing salary adjustments and incentive targets for the following year. The recommendations for 10

executive officers’ compensation are presented in February to the Compensation Committee for review 11

and approval, and any salary adjustments are made effective in March. The Compensation Committee 12

consists solely of independent directors. As part of its assessment, the Compensation Committee retains 13

an independent compensation consultant to evaluate executive compensation by identifying industry 14 76 Refer to WP, SCE-06, Vol. 03, Part 1, Book A, pp. 49-50, Directors and Officers.

2014 2015 2016 2017 2018 2019 2020 2021Labor $17,820 $9,012 $6,192 $6,031 $7,988 $8,564 $8,521 $8,493

Non-Labor $7,886 $9,880 $9,257 $7,541 $8,354 $4,147 $4,266 $9,639Other $3 $2 $4 $4 $4

Total Expenses $25,710 $18,894 $15,453 $13,576 $16,346 $12,711 $12,787 $18,133


Recorded Forecast

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000


52

trends and norms for executive compensation, reviewing and identifying the peer group companies and 1

pay surveys, and evaluating executive compensation data for such companies. 2

(b) “Shared Officers” 3

Besides SCE executive officers, certain executive officers are dual 4

officers of both SCE and its parent company, Edison International (EIX). The salaries, expenses, and 5

incentive costs of these “Shared Officers” are allocated between SCE and EIX. 6

In Test Year 2021, SCE forecasts costs for five Shared Officers: 7

(1) EIX Chief Ethics and Compliance Officer (CECO) and SCE Chief Compliance Officer; (2) Vice 8

President, Associate General Counsel, Chief Governance Officer, and Corporate Secretary; (3) Vice 9

President, Tax; (4) Senior Vice President, Human Resources; and (5) Vice President and Corporate 10

Controller. 11

(i) Description of Shared Officers included in SCE’s 12

Request 13

EIX Chief Ethics & Compliance Officer and SCE Chief 14

Compliance Officer: This role leads and implements the overall ethics and compliance program for 15

both SCE and EIX, managing and mitigating the risk of legal, policy, regulatory and ethical issues and 16

responding to those issues as they arise. The position provides high-level guidance regarding program 17

development, implementation and improvement, focusing on external best practices and requirements. 18

The role provides leadership and guidance regarding complex investigations, investigatory standards, 19

and corrective action on significant matters, and identifies policy changes or other remedial actions to 20

deal with trends. The position also seeks to resolve potential compliance and ethical issues, and provides 21

proactive guidance to members of the SCE and EIX leadership teams and other high-level managers. 22

Vice President, Associate General Counsel, Chief 23

Governance Officer, and Corporate Secretary: The Vice President, Associate General Counsel, Chief 24

Governance Officer, and Corporate Secretary (Associate General Counsel) has responsibility for the 25

corporate governance, corporate finance, securities law, executive compensation, contracts, and 26

intellectual property legal practice areas. The Associate General Counsel is responsible for outside 27

counsel budgeting, and retaining and managing outside counsel for these practice areas. Two law 28

department section directors report to the Associate General Counsel. The Associate General Counsel 29

serves as a member of the SCE Law Department’s senior management team. The Associate General 30

Counsel advises the Board of Directors and Board Committees on corporate governance matters and is 31

53

responsible for Board and Board Committee agendas, materials and minutes, the annual meeting of 1

shareholders, and compliance with statutory requirements regarding the maintenance of corporate 2

governance records. The Corporate Governance Manager and staff report to the Associate General 3

Counsel. 4

Vice President, Tax: The Vice President, Tax, has overall 5

leadership responsibilities for EIX’s consolidated tax function, which includes SCE tax planning, OU 6

tax support, IRS and state tax audits and appeals, federal and state tax filings, and federal and state tax 7

planning. In addition, this position has responsibility for tax disclosures, ratemaking, and tax legislation. 8

The Vice President, Tax, manages tax filing requirements for EIX and its subsidiaries (including SCE). 9

Senior Vice President, Human Resources: The Senior 10

Vice President, Human Resources, has overall leadership responsibilities for Human Resources for EIX 11

and its subsidiaries, including SCE. These responsibilities include the organization’s collective 12

workforce strategy and all human resources functions including staffing, learning and development, 13

succession and talent management, labor and employee relations, compensation and benefits, diversity 14

and inclusion, and business partners. 15

Vice President, Corporate Controller: The Vice 16

President, Corporate Controller, has overall leadership responsibilities for Human Resources for all 17

accounting, internal control, financial reporting, technical accounting and SEC compliance activities for 18

EIX and SCE. 19

(c) EIX Executives 20

Besides the costs associated with SCE’s executive officers and 21

SCE/EIX Shared Officers, the Executive Compensation work activity reflects a portion of costs 22

associated with certain EIX executives and their support staff whose roles directly benefit SCE.77 These 23

EIX executives are uniquely positioned to efficiently provide services benefiting SCE while avoiding 24

duplication of functions or tasks performed by existing SCE executives. As SCE is the primary 25

operating subsidiary of EIX, each of these EIX executive positions is largely focused on SCE’s 26

operations and service. 27

77 In D.04-05-055, the Commission observed: “it is appropriate for the utility to pay for those services provided

by the Holding Company that are both needed, and that are provided efficiently, without duplication of effort.”

54

The Commission implicitly confirmed this view by approving 1

Resolution E-4963, which defines the executive officer compensation and benefits that cannot be 2

recovered from ratepayers. Resolution E-4963 defines an officer, as stated in SB 901,78 to mean “those 3

employees of the investor-owned utilities;”79 thereby indicating that appropriate holding company 4

executive officers’ compensation can be recovered in rates. 5

(i) Description of EIX Executives included in SCE’s 6

Request 7

President and Chief Executive Officer (CEO), EIX: 8

EIX’s CEO provides overall vision and strategic leadership through his active involvement in the 9

operations of EIX’s primary operating subsidiary, SCE. EIX’s CEO represents and advocates for the 10

interests of SCE to federal and state government officials, the investment community (including credit 11

rating agencies, institutional investors, and equity analysts), the business community, the media, and the 12

public. EIX's CEO is also a vital contributor to SCE/EIX’s joint investor relations program as the head 13

representative of both companies before the investment community, including equity analysts, credit-14

rating agencies (such as Moody's and Standard & Poors), institutional investors, and shareholders. 15

Executive Vice President, Chief Financial Officer 16

(CFO), EIX: SCE’s rate base is financed through common equity, long-term debt, and preferred equity, 17

all of which require access to the capital markets. SCE’s overall cash flows fluctuate based on: 18

(a) SCE’s ability to timely recover costs from customers through regulated rates, (b) changes in 19

commodity prices and volumes, and (c) the outcome of tax and regulatory matters. Accordingly, capital 20

market financing through offerings of SCE’s debt (in bonds and notes) and preferred equity is essential 21

to SCE’s operations. Such financing funds ongoing cash flow needs, including financing fuel inventory 22

and balancing account under-collections, and capital expenditures, including construction projects and 23

ongoing investment in grid infrastructure. SCE’s ability to arrange financing and to refinance debt 24

depends on numerous factors. These factors include maintenance of acceptable credit ratings, financial 25

performance, liquidity and cash flow, and other market conditions. 26

78 SB 901 amended Public Utilities Code (PUC) Section 706 which prohibits IOUs from recovering from

customers “any annual salary, bonus, benefits, or other consideration of any value, paid to an officer of an electrical corporation,” and requires that compensation be funded solely by shareholders of the utility.

79 Resolution E-4963, December 14, 2018, specifically excluded the Holding Company from the definition when SCE suggested in comments that they be included.

55

EIX’s CFO oversees the development and advancement of 1

long-term financial and accounting strategies and plans for SCE and EIX. By providing financial 2

leadership, EIX’s CFO allows SCE’s CFO to focus on implementing strategies and policies for SCE and 3

the direct management and oversight of the finance-related departments at SCE, including Treasurers, 4

Controllers, Tax, Operational Finance, Risk Management, and Organizational Performance. EIX’s CFO 5

is the principal spokesperson with existing and potential investors, both debt and equity, sell-side equity 6

analysts and the credit rating agencies. EIX’s CFO’s financial leadership role enhances SCE’s capital 7

strength and lowers SCE’s overall costs to secure essential financing. 8

Executive Vice President & General Counsel, EIX: 9

EIX’s General Counsel has primary responsibility for overseeing the legal affairs of SCE and EIX. 10

SCE’s General Counsel and Associate General Counsel report to and collaborate with EIX’s General 11

Counsel on critical litigation, regulatory, tax, corporate governance, and finance matters affecting SCE. 12

While direct oversight of SCE’s Law Department is the responsibility of SCE’s General Counsel and 13

Associate General Counsel, EIX’s General Counsel is the chief legal officer of EIX and SCE before the 14

investment community and many federal and state government agencies (including the SEC and IRS). 15

EIX’s General Counsel oversees public disclosure and reporting of all material legal matters and 16

contingencies for SCE and EIX. EIX’s General Counsel also provides legal counsel and advice to the 17

EIX and SCE Boards of Directors on key strategic initiatives. 18

Vice President, Enterprise Risk Management & 19

Insurance and General Auditor: This role oversees, monitors and supports SCE’s Enterprise Risk 20

Management (ERM) programs in developing and executing risk mitigation plans to help management 21

address key and emerging risks for SCE. The role also oversees and monitors enterprise-wide (including 22

SCE) insurance programs. Moreover, this position also serves as an independent and objective party to: 23

(a) consult with inside and outside counsel, (b) engage in internal audits (e.g., operations, safety, finance 24

and IT/cybersecurity), (c) report on such internal audits to senior management and the Audit Committee 25

(comprising independent members of the Board of Directors), and (d) support the Ethics and 26

Compliance department on investigations concerning reported violations of laws, corporate policies and 27

standards of ethical business conduct. 28

Vice President, Investor Relations, EIX: SCE regularly 29

accesses the capital markets to finance its activities per authorization granted by the Commission. SCE’s 30

capital market financing of debt (in bonds and notes). Preferred equity for liquidity is essential to fund 31

56

SCE’s operations and capital investments, including substantial infrastructure investment needed to 1

provide safe and reliable service to utility customers. As SCE has no investor relations department, 2

EIX’s investor relations program provides investor relations services for SCE and communicates with its 3

investors through SCE/EIX’s public filings and statements. EIX’s Investor Relations VP is the executive 4

charged with developing and executing this joint investor relationship program to optimize SCE’s 5

investor base and capital structure. EIX’s Investor Relations VP maintains and fosters relationships with 6

shareholders, institutional investors in equity, long-term debt and preferred stock, equity and fixed-7

income analysts, and other key members of the investment community. This role also oversees 8

preparation of earnings press releases and investor presentations, and is the key representative charged 9

with receiving and addressing equity and fixed income investor inquiries. 10

Vice President and Treasurer, EIX: This role is 11

responsible for the broad treasury operations strategy, oversight, and control; this includes managing a 12

staff of investment and financial management professionals dedicated to overseeing SCE’s financial 13

activities. EIX’s Treasurer VP must interface with key financial service providers, including capital and 14

bank market capital providers. The position also manages rating agency relationships and equity 15

infusions into SCE, including raising the necessary capital. EIX’s Treasurer VP supports regulatory and 16

legislative analysis, provides expert analysis and opinions on financial impacts of regulatory matters and 17

proposed legislation, and interfaces with key internal and external regulatory and other oversight 18

authorities on finance-related issues. 19

Director, Corporate Risk Management, EIX:80 The bulk 20

of SCE’s insurance coverage is procured by EIX on behalf of itself and its subsidiaries. EIX’s Corporate 21

Risk Management Director is charged with placing all lines of insurance (excluding those covering 22

pensions and benefits) for SCE and EIX. The duties of this role encompass monitoring insurance risks 23

for SCE, monitoring changes in the insurance market and offerings of new insurance products, and 24

negotiating coverage terms with brokers and carriers. This role reports to EIX’s Vice President, 25

Enterprise Risk Management (described earlier in this section, above), and also supports oversight of 26

SCE’s ERM programs. 27

80 The allocated labor dollars of Directors are charged directly to the OU labor O&M which they support.

57

Director, Helpline and Investigations, EIX:81 This role is 1

responsible for overseeing the EIX/SCE HelpLine and Investigations functions, including initiating and 2

managing investigations of reported Employee Code of Conduct violations, compliance policy and 3

misconduct issues, and alleged violations of law or non-compliance of regulatory requirements. In 4

conjunction with SCE’s Law Department, the Director provides guidance for self-reporting and interface 5

with governmental or regulatory agencies on investigative matters. This role reports to the EIX Chief 6

Ethics & Compliance Officer and SCE Chief Compliance Officer (described in section III.B.3, above), 7

and is also responsible for implementing the Retaliation Monitoring Program to assess potential 8

indicators of retaliation. 9

(d) Allocation of EIX Executive Costs to SCE 10

The compensation and expenses of the Shared Officers and EIX 11

Executives are allocated between EIX and SCE according to methods delineated in D.88-01-063, 12

Appendix C.I.C.2, and related affiliate policies and rules. The costs for 2014 through 2018 for Shared 13

Officers were adjusted out of their applicable Operating Units and into the Executive Compensation 14

activity.82 EIX Officer costs are split based on an allocation rate and are directly charged to the 15

Executive Compensation activity. 16


The cash compensation for SCE’s executive officers is part of the 18

competitive total compensation package (which also includes long-term incentives and benefits) 19

designed to attract and retain well-qualified executives. SCE competes for executive talent with both 20

utilities and companies in other industries, so SCE’s salary and incentive programs must be market-21

competitive. 22

(3) Alternatives Considered 23

The Total Compensation Study shows that SCE is controlling the costs 24

paid for its executives by providing a compensation package that is appropriately dictated by the market. 25

Although the Commission has not authorized full funding of SCE’s compensation package over the last 26

several years, SCE does not believe there is a reasonable alternative, since these components of 27

compensation are vital in attracting and retaining high-performing executives. The Governor of 28

81 Ibid. 82 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 53, Executive Compensation Adjustments.

58

California recently approved Assembly Bill No. 1054, which outlines steps an electrical corporation 1

must follow in order to obtain a safety certification. SCE must have in place executive incentive plans 2

with metrics that prioritize safety and the financial health of the company.83 These two topics exactly 3

mirror SCE’s corporate goals for the EIC (and STIP). 4

SCE has reviewed other options for providing its employees with 5

additional compensation and benefits that are still in line with the Total Compensation Study, including 6

eliminating the EIC and making it all part of base pay to receive full recovery. If SCE were to provide 7

the equivalent amount of incentive compensation as base pay, the transition would cost customers 8

$1.507 million in additional compensation not originally payable due to performance measures and in 9

benefit costs not included under incentive compensation.84 However, SCE does not believe this is in the 10

customers’ or shareholders’ best interests, and respectfully continues to request full recovery of the 11

short-term incentives. 12


As shown in Table III-5, Executive Compensation recorded $16.3 million, 14

which was $3.7 million less than the authorized $20.0 million. This variance is largely due to the 15

exclusion of SB 901 executive officers whose compensation and benefits costs have been removed from 16

all historical recorded costs in order to provide a more accurate forecast. 17



SCE records costs associated with salaries and expenses for 20

executive officers and their administrative assistants and outside services in the Executive Compensation 21

work activity. Labor costs include: annual salaries for executive officers, certain executive support staff, 22

and related administrative expenses. Non-labor costs for executive officers include employee expenses 23

such as meals and travel, and office expenses such as supplies, printing, and equipment, cell phones, and 24

computer access costs. Non-labor costs also encompass outside services for actuarial valuation of 25

executive benefit plans, calculations of executive retirement plan benefits, and other services that are 26

needed to administer compensation and benefit plans. In addition, non-labor costs include Shared 27

83 See Assembly Bill No. 1054 at


84 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 51, Cost of EIC as Base Pay.

59

Officers and EIX executives who allocate a percentage of their salaries and expenses to operate the 1

utility. 2

Executive Compensation costs related to SB 901 officers have 3

been removed from recorded and forecast costs for 2014 through 2021.85 Please refer in this testimony 4

to Section III, Compliance Requirements, for more information. 5

(i) Labor 6

Labor costs fluctuated across the recorded period as the 7

officer mix changed due to new hires and separations, including retirements. In 2016, costs decreased 8

due to executive officer separations and lower incentive bonus expenses. Decreases in labor costs can be 9

seen in 2017 as bonus payouts fell below the EIC plan target. 10

Below, Figure III-9 depicts the allocation of labor costs in 11

this Executive Officer exhibit. 12

85 Refer to WP SCE-07, Vol. 01, Results of Operations, Ratemaking Adjustments; and WP SCE-06, Vol. 03,


60

Figure III-9 Executive Officers Labor

Recorded 2014-2018/Forecast 2019-2021 (Constant 2018 $000)

(ii) Non-Labor 1

Non-Labor costs increased in 2015 due to the outcome of 2

the findings from market evaluation of executive positions, but otherwise remain relatively flat. Non-3

labor costs are expected to increase in the forecast year, so an Itemized Forecast is the best forecast 4

methodology for this activity. The Linear Trending and Averaging forecast methodology would not 5

account for these increases. 6

(b) Forecast 7

This activity includes costs for a relatively discrete population of 8

employees, namely Executive Officers. As such, minor attrition or turnover in this population will have 9

a disproportionately significant impact on total costs. Also, variability in Executive Incentive 10

Compensation from year to year in accordance with achieving (or not achieving) Company goals causes 11

further fluctuations in recorded costs. 12

(i) Labor 13

Over the historical period 2014 through 2018, SCE has 14

encountered fluctuations in recorded costs. Because of the fluctuation, a Linear Trending methodology 15

Executive Compensation 2014 2015 2016 2017 2018 2019 2020 2021Executive Officer Labor $8,225 $7,610 $1,299 $2,855 $4,366 $5,974 $5,967 $5,959EIC Awards $8,506 $582 $4,039 $2,410 $3,004 $2,320 $2,285 $2,265Executive Support Labor $1,089 $820 $854 $766 $617 $269 $269 $269Grand Total $17,820 $9,012 $6,192 $6,031 $7,988 $8,564 $8,521 $8,493

$0.0

$5,000.0

$10,000.0

$15,000.0

$20,000.0

2014 2015 2016 2017 2018 2019 2020 2021

Executive Officer Labor EIC Awards Executive Support Labor

61

would not be appropriate. As the population of Executives is relatively small, SCE believes that costs 1

can be more closely estimated using an Itemized forecast methodology rather than Last Recorded Year 2

or Averaging methodologies. For this forecast, salaries and EIC bonuses are expected to stay relatively 3

stable and only increase slightly due to labor escalation. This results in a 2021 Test Year forecast of 4

$8.493 million. 5

(ii) Non-Labor 6

SCE adjusted Shared Officer costs incurred within the 7

Shared Officers Operating Unit, into the Executive Compensation activity for 2014 through 2018. This 8

adjustment was only applied to the Test Year 2021 and not to the forecast years, 2019 and 2020. 9

Because of this, there is a large variance in 2019 and 2020. The costs for 2019 and 2020 continue to 10

reside in the Shared Officers Operating Units. Non-labor costs in this activity remained relatively stable 11

over the recorded years, excluding the increase in 2015 for the outsourcing of market pricing for 12

executive positions. SCE anticipates that costs will continue to be stable. 13

In D.89-12-057, the Commission stated that if recorded 14

expenses in an account have been relatively stable for three or more years, the last recorded year is an 15

appropriate base estimate.86 Therefore, we selected the last recorded year as the basis for the non-labor 16

forecast. The last recorded year methodology results in a 2021 Test Year forecast of $9.639 million. 17

d) Long-Term Incentive Program 18

Long-Term Incentive (LTI) compensation is offered to executives in the form of 19

stock options, restricted stock units, and performance shares. 20

SCE forecasts expenses of $11.602 million for costs related to long-term 21

incentives in Test Year 2021. Figure III-10 below shows recorded costs for LTI for the 2014-2018 plan 22

years, plus the forecast for years 2019 through 2021.87 23

86 D.89-12-057, p. 15, and Finding of Fact (FOF) 18 at p. 404. 87 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 54-59, Long Term Incentive.

62

Figure III-10 Long Term Incentive Program



(a) Historical Rejection of Rate Recovery for LTI Program 2

SCE acknowledges that the Commission has not viewed with favor 3

past requests for rate recovery of its LTI program and has admonished SCE for continuing to do so. It 4

has never been disputed by the Commission or any intervenor that nearly every investor-owned utility 5

and comparable business enterprise includes LTI in the total compensation package for executives. For 6

example, 88 percent of similarly-sized companies as SCE utilize this incentive.88 As stipulated in AB 7

1054, electrical corporations are to establish executive incentive plans with a compensation structure 8

based on “a long-term structure that provides a significant portion of compensation, which may take the 9

form of grants of the electrical corporation’s stock.”89 Even the State of California recognizes the 10

importance of long-term incentives. 11

88 2018 Aon TCM Policies and Programs Report. 89 See Assembly Bill No. 1054 at


2014 2015 2016 2017 2018 2019 2020 2021Labor $20,090 $15,302 $12,487 $11,050 $8,130 $11,509 $11,554 $11,602

Non-Labor $0Other

Total Expenses $20,090 $15,302 $12,487 $11,050 $8,130 $11,509 $11,554 $11,602


Recorded Forecast

$5,000

$10,000

$15,000

$20,000

$25,000


63

Maintaining the power grid infrastructure and meeting customer 1

service expectations comes with its own set of challenges. It is not a short-term effort to obtain value for 2

SCE’s customers by critically evaluating areas of improvement, implementing changes, and 3

transforming SCE to meet the goals and policies set forth by the legislature and the Commission. It 4

requires sustained, dedicated, knowledgeable executives to lead and steer the organization. SCE must 5

offer competitive compensation to attract the right talent from across the country and retain them to help 6

serve California’s energy future. 7

The Commission’s refusal to allow rate recovery notwithstanding, 8

SCE has continued to fund the LTI program for a wide range of reasons which benefit customers 9

directly, including better retention of high-performing leaders and lower costs as compared to base pay. 10

SCE has buttressed its showing to reinforce the benefits to customers of funding this essential 11

component of the total market-based compensation package for SCE’s leadership team. 12

(b) Program Description and Scope 13

SCE’s LTI is an integral part of the total compensation package for 14

executives and is provided in the form of non-qualified stock options, restricted stock units, and 15

performance shares. Each year, SCE performs a detailed market assessment, position-by-position, of its 16

executive workforce to assess each executive’s compensation package, namely, base pay, and short-term 17

and long-term incentives. The LTI target for each executive is determined based upon the market data 18

applicable for his or her position. While LTI is targeted at the market median, the actual grant may vary 19

based on an annual assessment of that individual’s performance. The actual value of the award is 20

determined after the vesting period based upon company performance. The variable feature of LTI is 21

intended to reinforce a performance culture rather than an entitlement culture. 22

LTI has a vesting feature that requires continuous employment 23

with SCE for a multi-year period ranging from three to four years. Performance shares and restricted 24

stock units have a “cliff” vest, which requires three years of continuous employment with SCE prior to 25

being paid in shares. Stock option grants vest at 25 percent per year over a 4-year period. In cases of 26

retirement, some acceleration of LTI vesting occurs. In addition, if an executive is severed without cause 27

(e.g., position elimination), that executive will get one year of additional vesting. 28

As shown in the 2021 Total Compensation Study, while the 29

Company’s total cash compensation is within the market rate, SCE executives’ total cash compensation 30

is 17.4 percent below market rate, and long-term incentives are 5.1 percent below market. Base pay, 31

64

short-term incentive compensation,90 and LTI in 2018 were 27 percent, 17 percent and 50 percent, 1

respectively, of SCE executives’ total compensation on average. 2

(c) SCE as a Publicly Traded Company 3

As a publicly traded company, SCE’s access to the equity capital 4

markets helps reduce the cost of debt financing for operations and capital projects. This benefits 5

customers. SCE’s inclusion of LTI as part of the total compensation for its executives is aligned with 6

best practices of publicly traded companies. According to a recent WorldAtWork survey of incentive 7

pay practices of publicly traded companies, 91 percent of respondents indicated they pay LTI to their 8

executives.91 The top two objectives of the respondents’ LTI programs is to align employee rewards 9

with long-term organization goals, and to create a more competitive compensation package. 10

(d) SCE’s LTI Program Benefits Customers 11

SCE’s executive team provides the essential leadership needed to 12

fulfill strategic goals for safety (including wildfire resiliency), reliability, customer satisfaction, future 13

improvements in the grid, and stable financial performance. Those goals, which are part of the EIC 14

program, and discussed above, provide direct benefits to SCE’s customers. Similarly, SCE’s LTI 15

program benefits its customers in the following ways: 16

• SCE’s use of LTI helps conserve cash resources, which are 17

needed for its operations, maintenance and capital 18

improvements. Unlike the fixed cost of base pay, there is 19

no immediate cash payment to employees for an LTI award 20

due to the multi-year vesting schedule applicable to each 21

form of LTI. Employees who voluntarily leave prior to the 22

full vesting of the LTI award will forfeit all or a substantial 23

portion of the unvested award. Additionally, as a variable 24

pay component of total compensation, LTI awards do not 25

cause increases in an executive’s annual/fixed pension and 26

benefits costs that are a function of base pay. In this 27

90 Please refer to Table III-6 above. More information is available in Exhibit SCE-06, Vol. 03, Part 2, Total

Compensation Study Report. 91 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 60-116, “2018 Incentive Pay Practices for Publicly-Traded

Companies,” July 2018, p. 40.

65

fashion, SCE’s use of LTI benefits customers helping avoid 1

increases in benefits costs for its executive workforce, 2

while still allowing SCE to provide a market-competitive 3

compensation package. If SCE were to convert LTI 4

benefits into an equivalent base pay amount, customers 5

would pay an additional $3.830 million in base pay, plus an 6

additional $2.725 million in pension and benefit costs for a 7

total increased cost to customers of $6.555 million.92 8

Moreover, conserving cash via the LTI component also 9

helps avoid interest on short-term borrowing (which 10

represents a cost of service). 11

• LTI promotes stability of a strong leadership team at SCE 12

as LTI awards and payouts depend on multiple years of 13

continuous employment, strong executive performance, and 14

thriving SCE financial health. LTI supports a performance 15

culture, as LTI awards may be adjusted based on SCE’s 16

review of the executive’s performance. Executives who 17

have performance issues risk having future LTI awards 18

reduced. Once awarded, executives must remain with SCE 19

for three to four years after each LTI grant date before the 20

grant becomes fully vested.93 This feature of LTI incents 21

executives to make a long-term commitment to SCE to 22

more fully realize the LTI payout. If SCE were to give such 23

employees an equivalent cash award, they would receive 24

the cash in the present and there would be no retention 25

benefit. Customers benefit from SCE’s retention of high-26

performing executives with a strong and long-term 27

92 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 117, LTI as Base Pay Equivalent. 93 SCE stock ownership guidelines for officers require them to hold stock while employed. For eligible

employees, it is 1 x base salary, but can be more for higher-level executives.

66

knowledge of its operations and a vested interest in SCE’s 1

delivery of safe and reliable service to sustain long-term 2

operational and financial viability. 3

• Since LTI awards take the form of equity in EIX (whose 4

primary operating subsidiary is SCE),94 those high-5

performing executives are further incentivized to run SCE 6

in a way that will support its long-term success. While the 7

ultimate value of a fully-vested LTI award for the recipient 8

is a function of the stock price, this price is largely based 9

on the Company’s financial health and successful 10

operation. Those metrics translate directly into SCE’s 11

ability to lower borrowing costs and reasonably obtain 12

funds for capital projects and other programs to maintain, 13

revitalize, and update SCE’s power grid and support 14

reliability of service to customers. In that fashion, LTI 15

awards high-performing executives and advances customer 16

interests by aligning them with the strategic goals and 17

initiatives of the Company. 18


These incentives are essential to SCE’s efforts to attract and retain highly 20

valued leaders. Nearly all other employers against whom SCE competes for executive talent also offer 21

long-term incentive compensation. Long-term incentives align the interests of executives with the long-22

term interests of customers. Besides being offered by comparable companies, the vesting schedules for 23

stock awards require recipients to remain employed for multiple years to receive full value of their 24

grants. In addition, these long-term incentives do not add to other employee costs such as pensions and 25

benefits. 26


This section compares the amounts authorized by the Commission in the 28

2018 GRC to 2018 recorded O&M in this activity, along with an explanation for the variance. As shown 29

94 Cash equivalents were removed in 2019.

67

in Table III-5, the LTI recorded amount of $8.1 million for 2018 is higher than authorized because the 1

Commission denied any cost recovery for the LTI program. 2

Regardless of the Commission’s continued refusal to allow rate recovery 3

of SCE’s LTI program, SCE has continued to fund LTI to assist in the retention of high-performing 4

leaders at a lower cost as compared to base pay. 5


The recorded and forecast amounts pertain to long-term incentives granted 7

to executives. LTI costs for SB 901 officers have been removed from recorded and forecast costs for 8

2014 through 2021.95 See Section III, Compliance Requirements regarding Senate Bill (SB) 901 for 9

more information. 10


(i) Labor 12

From 2014 to 2015, labor costs decreased as the stock price 13

dropped and expected performance share awards decreased, resulting in lower recorded expenses for the 14

awards subject to liability accounting. Additionally, 2015 was the first year where performance shares 15

were granted with payouts to be made in cash only, resulting in a lower recorded expense of equity 16

performance shares. In 2018, recorded costs decreased further based on a reversal of performance share 17

expenses due to performance not being met. 18

(b) Forecast 19

SCE forecasts expenses of $11.602 million for LTI compensation 20

costs in Test Year 2021. Figure III-10 above shows forecast costs for LTI for the years 2019 through 21

Test Year 2021. 22

(i) Labor 23

The forecast for Long-Term Incentive compensation was 24

derived using the Itemized Forecast methodology. This methodology was chosen because: (1) 2014 25

through 2015 LTI expense is higher than anticipated in the Test Year, due to a smaller population of 26

employees being eligible for LTI; (2) higher rates of turnover in the executive population occurred over 27

the recorded period compared to previous periods, resulting in a lower number of anticipated executives 28



68

eligible for LTI in Test Year 2021; (3) the large drop in SCE’s stock price after the 2017 wildfires; and 1

(4) effective 2019, performance shares were offered in equity only. Linear Trending or Averaging 2

forecast methodologies do not account for the many variables that have changed in the past five years 3

relative to EIX’s stock.96 4

Notably, the projected 2021 expense under this Itemized 5

Forecast methodology is significantly lower than the expense otherwise derived by applying the Linear 6

Trending or Averaging. The Last Recorded Year would be too low as SCE does not anticipate any 7

drastic drops in stock prices, or reversals of performance shares which reduce costs. 8

e) Recognition 9

SCE’s recognition programs are low-cost tools that reward individual and team 10

achievements. They comprise cash awards, called Spot Awards, and non-cash awards in the form of 11

points through the Encore program (formerly known as the Awards to Celebrate Excellence, or ACE, 12

program). 13

For the Test Year 2021, SCE forecasts an approximate total recognition cost, 14

including Spot and Encore Awards, of $1.463 million.97 Table III-8 below shows recorded Recognition 15

costs for the years 2014 through 2018, plus an applied labor escalation rate based on the last recorded 16

year for 2019 through Test Year 2021. Effective January 1, 2019, each OU has a limited budget of 0.15 17

percent of the labor budget that can be spent on Spot and Encore Awards. (Prior to January, the budget 18

was 0.2 percent). Because of higher than expected usage of the Encore Award, SCE used the limited 19

budget of 0.15 percent of its total labor budget (excluding capital labor) to forecast its 2021 Test Year 20

expense. 21

96 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 119, LTI Forecast. 97 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 126, Spot and Encore.

69

Table III-8 SCE Recognition Programs

2014-2018 Recorded and 2019-2021 Forecast


(a) Spot Awards 2

Cash awards (known as Spot Awards) represent an important tool 3

for recognizing and rewarding employees for exceptional performance and outstanding achievement. 4

Spot Awards are an integral part of a market-competitive, comprehensive compensation package. This 5

low-cost recognition program recognizes an individual or a team for delivering exceptional, measurable 6

results such as: (1) making significant contributions to public or employee safety; (2) developing a new 7

or innovative program or process that significantly improves efficiency across one or more OUs; and 8

(3) leading a Company-wide team or major project that notably exceeds expectations, and does so within 9

scheduled time frames and under budget. 10

Spot Awards are also used to provide real-time rewards for those 11

employees who accept and perform additional responsibilities in an exceptional manner or accept 12

responsibilities or assignments that require extraordinary time commitments. 13

(b) Encore 14

Encore (formerly known as Awards to Celebrate Excellence or 15

ACE) is a non-cash safety recognition program that uses points to award employees for their 16

commitment to ongoing, regular efforts to work safely and for their safety achievements. Every 17

employee is eligible to give Encore awards to recognize their co-workers for helping transform the 18

company’s safety culture, after first being approved by their next-level managers. All employees below 19

director level are eligible to receive the awards. 20

Awards2014(A)

2015(B)

2016(C)

2017(D)

2018(E)

5 Yr Spot Avg(F)

2019(G)

2020(H)

2021(I)

(Column Calculation) (A+B+C+D+E)/5 E x 1.0304* G x 1.0353* H x 1.0329*Spot 909,322 928,731 1,674,266 1,095,048 1,054,763 1,132,426 1,086,828 1,125,193 1,162,212 Encore 252,828 237,538 625,284 1,473,225 5,395,503 1,596,876 5,559,527 5,755,778 5,945,143 Spot and Encore 1,162,150 1,166,269 2,299,550 2,568,273 6,450,266 2,729,302 6,646,354 6,880,971 7,107,355

Budget** 873,930,000 975,343,000 Percent of Total Labor for Recognition Budget 0.20% 0.15%Total Recognition Budget Limit 1,747,860 1,463,015

* indicates labor escalation rate for the given year ** Total Labor Budget does not include Capital Labor Budget

Recorded Spot & Encore Award Costs Forecast of Spot & Encore Award Costs

70


Spot and Encore Awards comprise SCE’s low-cost recognition programs 2

that reward individual and team achievements. In WorldAtWork’s 2017 Trends in Employee 3

Recognition Survey, 89 percent of respondent organizations indicated having various types of 4

recognition programs in place. Seventy-two percent of those companies use a portion of their payroll 5

budget for their recognition programs. Within that seventy-two percent of companies, more than half of 6

them budget between 0.1 percent and 0.3 percent of the payroll budget for recognition programs.98 7

In SCE’s 2003 GRC, the Commission recognized SCE’s Spot Award 8

program as having customer value: 9

With regard to the latter point, the record shows that the program is consistent 10 with customer interests, even if the program increases shareholder value. If 11 anything, the evidence suggests that benefits of quickly restoring service 12 during storm conditions, successfully managing T&D automation projects, 13 and providing effective leadership can accrue to customers and shareholders 14 alike. Moreover, since awarding of a spot bonus for outstanding performance 15 gives SCE’s managers an alternative to raising an employee’s base salary, the 16 integrity of SCE’s base salary system is kept intact, and the Company’s long-17 term salary and wage-based benefit costs are not increased. We note that spot 18 bonuses are widely used by U.S. corporations.99 19

The Commission further observed: 20

If it were shown that the Spot Bonus program does not result in employees 21 receiving above-market total compensation, and that the program does not 22 produce outcomes that are contrary to customer interests, we would be 23 inclined to include the program costs in the authorized revenue 24 requirements.100 25

The Spot Award program is effective and tightly managed. Managers or 26

executives submit Spot Award requests, utilizing standards that guide award determination and approval 27

requirements, and Spot Awards of $500 or greater value require a Vice President or higher level of 28

98 See https://www.worldatwork.org/dA/d0815e4c41/trends-in-employee-recognition-2017.pdf, pp. 10, 19 (as of

August 1, 2019). 99 D.04-07-022, p. 212. 100 Ibid.

71

approval. The Spot and Encore Award costs are forecast across the Company within each OU’s labor 1

costs.101 The vendor costs for administering the Encore awards are included in the workpapers.102 2

SCE’s recognition programs remain effective tools to motivate employees, 3

in real-time, with rewards for making individual achievements and for promoting a safe work 4

environment. They represent a relatively modest expense in light of the benefits they facilitate. The 5

Commission has acknowledged these programs provide benefits to SCE customers by furthering the 6

provision of safe and reliable service. 7

(3) RAMP Integration 8

SCE’s recognition programs are consistent with the letter and spirit of 9

federal and state guidance. The programs include Encore, which recognizes safe behaviors. The Safety 10

Recognition program provides a forum to recognize employees for their commitment to working safely, 11

and the recognition can either be informal (such as thank-you cards) or formal (such as giving awards). 12

These programs help reduce the frequency of injuries, and concretely reinforce positive behaviors and 13

safe work practices. 14

(a) Reconciliation Between RAMP and GRC 15

As shown in Table III-9, there are no changes in cost or scope for 16

the Recognition Safety Risk as estimated in SCE’s 2018 RAMP report and the forecast requested in this 17

GRC. These costs reflect the administrative costs associated with the Spot and Encore programs. 18

Table III-9 Recognition Controls


101 As in the 2012, 2015 and 2018 Total Compensation Studies, Spot Awards are not being factored into the 2021

Total Compensation Study. Data regarding Spot Awards is generally not available in surveys on a position-by-position basis, and wide variances appear to exist in the marketplace.

102 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 120-125, Recognition.

72



2018 GRC to 2018 recorded O&M in this activity, along with an explanation for the variance. The entire 3

requested amount of $1.5 million for Recognition was approved. The recorded amount of $6.5 million 4

was higher than the authorized by $5 million. This was due to higher than expected usage of the ACE 5

program in recognizing safety performance and greater visibility and awareness as the Company moved 6

to a new vendor to provide the awards. 7

Going forward, the vendor has controls in place which will assist SCE in 8

limiting the recognition budget. Previously, the Spot and Ace Awards were managed separately. The 9

new vendor will manage both programs and provides tools, such as the Wizard, which will assist 10

managers in making decisions regarding the appropriate amount for a Spot Award. Additionally, past 11

practices of allowing specific individuals to give relatively large Encore Awards on behalf of safety 12

have been discontinued. 13



SCE records costs for Spot and Encore Awards in the labor and 16

non-labor dollars (respectively) for the Operating Unit in which they were awarded. In an effort to 17

provide transparency to these costs, they are listed here in aggregate. See Table III-8 for the 2014-2018 18

recorded costs for both programs. 19

Recognition costs have been increasing since 2016 as SCE 20

introduced the new ACE program for all non-executive employees. In 2018, recorded expenses were 21

higher because more employees were recognized for their efforts in positively impacting the Company’s 22

safety culture. There was also greater visibility and awareness with respect to the program due to 23

increased employee communications as the Company switched to a new vendor and website. 24

(b) Forecast 25

SCE forecasts costs for Spot and Encore Awards based on the 26

recorded 2018 labor and non-labor cost (respectively). The forecast costs are located within the 27

Operating Unit in which the 2018 awards were recorded. In an effort to provide transparency to the 28

forecast costs, they are listed in this GRC activity. SCE derived the Recognition Program forecast by 29

73

applying SCE’s labor escalation rate for 2019-2021 to the 2018-2020 recorded and forecast expense.103 1

Through 2018, each OU had a limited budget of 0.2 percent of the labor budget that could be spent on 2

Spot and Encore Awards; this was reduced to 0.15 percent starting in 2019. This budget is on the lower 3

end of those in use by the majority of organizations that have recognition programs in place, as 4

mentioned above.104 5

SCE recognized that it may not have had sufficiently strong 6

controls in place to manage the Recognition budget. In 2019, SCE switched to a new vendor who will 7

manage both the Spot and Encore Award expenses. For Test Year 2021, SCE is using the limited 8

Recognition budget of 0.15 percent of total labor dollars (not including capital labor) to forecast the Test 9

Year Expense of $1.463 million. See Table III-8 for the forecast cost for both programs. 10

4. Benefits 11

This section describes SCE’s employee pension and benefits plans and programs and 12

includes expenses related to pension, 401(k), health care, group life insurance, and executive benefit 13

plans. Other employee benefits and programs discussed in this section include the electric service 14

discount, commuter programs, educational reimbursement, and other ancillary support activities. 15

For Test Year 2021, SCE forecasts $361.656 million of expenses for the employee pension and benefits 16

plans and programs in this Section. 17

a) Need for Activity 18

The pension and benefits plans and programs are one component of the total 19

compensation provided to employees. These programs support the Company’s goal of attracting and 20

retaining a qualified workforce. Benefit activities focus on providing the Company, the employees, and 21

the customers with the highest return on dollars expended for benefits, while being mindful of the 22

changing requirements of the workforce, collective bargaining obligations, compliance with regulatory 23

and legislative requirements, and the need to manage escalating costs, particularly in the medical 24

program. 25

b) Alternatives Considered 26

In designing the overall benefits package, the Company evaluates: 27

103 Refer to SCE-07, Vol. 01, Results of Operations, Cost Escalation. 104 See https://www.worldatwork.org/dA/d0815e4c41/trends-in-employee-recognition-2017.pdf, pp. 10, 19 (as of

August 1, 2019).

74

• Benefits delivered by each plan, 1

• Costs to provide the benefits, 2

• Administrative efficiency, 3

• Value to employees and the Company, and 4

• How the benefits package compares with those offered by companies with 5

whom SCE competes for employees (Total Compensation Study). 6

SCE is continuously looking for better alternatives to provide an affordable 7

benefit package to its employees. SCE regularly reviews its vendors that provide these benefits and 8

looks for the lowest-cost options without losing the quality of service. For example, in 2019, SCE 9

changed its provider for Group Life Insurance from Prudential to Cigna, which led to an overall 10

decrease in premiums in that year. 11

c) Pension 12

For Test Year 2021, SCE forecasts $84.3 million for the Pension Plan costs.105 13

The forecasts for 2021, 2022 and 2023 are $48.8 million, $62.6 million and $141.6 million, respectively. 14

The average contribution for the three-year period 2021, 2022, and 2023 is $84.3 million.106 Figure III-15

11 below, shows recorded Pension Plan costs for the years 2014 through 2018, plus SCE’s forecast costs 16

for 2019, 2020 and Test Year 2021.107 In accordance with SB 901, recorded and forecast amounts for 17

selected executives were removed for all years 2014-2023. An average of $0.1 million has been 18

removed from 2021-2023 Pension costs for seven named executives.108 19

105 Refer to WP, SCE-06, Vol. 03, Part 1, Book A, pp. 141-182, SCE Retirement Plan: Projected Actuarial

Valuation Results for Plan Years 2019 through 2023, prepared by Aon, July 2019. 106 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 127-132. 107 Post-June 7, 2013 service-related San Onofre Nuclear Generating Station (SONGS) costs have been removed

from all recorded (2016–2018) and forecast costs. 108 Refer to WP SCE-07, Vol. 01, Results of Operations, Ratemaking Adjustments; and WP SCE-06, Vol. 03,

Part 1, Book A, pp. 15 and 140, SB 901 Compensation and Benefits Adjustments and Individual Costs.

75

Figure III-11 Pension Costs

Recorded 2014-2018/Forecast 2019-2021 (Nominal $000)

(1) Plan Description 1

The SCE Retirement Plan contributes to employees’ orderly transition 2

from the workforce by providing them with income after employment has ended. Since the Retirement 3

Plan is qualified by the IRS, participants avoid current taxable income as funds accumulate during their 4

employment. In 1999, significant changes were made to the Retirement Plan. Cash balance plan features 5

were added to reduce the long-term cost structure, increase participants’ understanding of their plan 6

benefits, and increase portability of the benefit. These changes eventually applied to all SCE employees, 7

after lengthy benefit negotiations with IBEW Local 47, UWUA Local 246 and SOFA. 8

Starting December 31, 2017, again after lengthy benefit negotiations with 9

its unions, SCE changed the Retirement Plan to reduce its long-term cost structure further by eliminating 10

the pension/cash balance plan for employees hired on or after that date. For those employees, SCE 11

makes non-elective contributions into their 401(k) accounts. This change applied to all eligible 12

employees, both represented and non-represented. 13

The Cash Balance Account (which was added to the Retirement Plan in 14

1999) established a more even and consistent accrual pattern over employees’ working years and 15

simplified communications regarding the current value of their accrued benefits. The Company 16

recognized that employees later in their working careers may be negatively affected by the pension 17

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-Labor ($0) ($0) $0 ($0) ($0)Other $126,543 $88,778 $73,890 $56,628 $46,952 $46,447 $48,086 $84,349

Total Expenses $126,543 $88,778 $73,890 $56,628 $46,952 $46,447 $48,086 $84,349

Ratio of Labor to Total - - - - - - - -

Recorded Forecast

($20,000)

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

2014 2015 2016 2017 2018 2019 2020 2021


76

formula change. Therefore, employees who were at least age 50, and employees who had at least 60 1

“points” (“points” is equal to age plus service) as of the effective date of the change, were 2

“grandfathered” when the cash balance feature was introduced. Grandfathered employees have their 3

retirement benefits calculated under both the historical final average pay formula and the Cash Balance 4

Account formula. The final benefit is the larger of the two benefit formulas. This approach helps ensure 5

that employees are provided with the benefit most advantageous to them, as SCE did not want to 6

negatively impact long-term employees by the transition to an account-based plan. 7

The number of employees who are grandfathered is a relatively small and 8

continually decreasing group, representing only about three percent of eligible employees as of 9

December 31, 2017. All other employees, provided they were hired prior to December 31, 2017, are 10

eligible only for the Cash Balance Account. 11

Cash balance accounts grow through three types of credits: 12

1. Pay Credits: From three to nine percent of the employee’s base pay, 13

depending on age and service. SCE provides pay credits for each month that the employee is credited 14

with service. 15

2. Interest Credits: Monthly interest credits equivalent to the third 16

segment of the IRS published corporate bond yield curve for the month of August in the prior calendar 17

year (as specified under Internal Revenue Code Section 417(e)). The interest rate for 2019 is 4.46 18

percent. These procedures conform to the 2006 Pension Protection Act requirements. 19

3. Retiree Health Care Credits: Monthly credits of $150 for all pension-20

eligible participants. This nominal monthly credit, which was negotiated with IBEW Local 47, UWUA 21

Local 246 and SOFA, was established in conjunction with the 2009 retiree health care program changes; 22

this resulted in a significant overall reduction in the Company’s retiree health care financial obligations. 23

Regardless of age, pension-eligible employees may elect to receive a 24

distribution of their pension benefit as either a lump sum or as an annuity when they terminate 25

employment. Eligible employees vest (i.e., earn non-forfeitable rights) in their Retirement Plan benefit 26

at a rate of 20 percent per year for the first two years, and are fully vested (i.e., 100 percent) after three 27

years. Additionally, for beneficiary protection, employee accounts are automatically 100 percent vested 28

at death. The resulting benefit is then available to their survivors. 29

As described above, effective December 31, 2017, the Plan was closed to 30

new entrants. In lieu of the Cash Balance pension feature (i.e., the pay credits, interest credits and retiree 31

77

healthcare credits discussed above), employees hired on or after December 31, 2017 receive a non-1

elective Company contribution to their 401(k) accounts. The non-elective contribution is provided 2

regardless of whether the participant makes an election to participate in the 401(k). Contribution 3

amounts vary depending on whether an employee is represented or non-represented, as discussed later in 4

this exhibit, under the Edison 401(k) Savings Plan section. 5

(2) Longer-Term Perspective on Financial Market Returns and SCE 6

Pension Fund Returns 7

Financial market performance and SCE pension fund returns over the last 8

15 years are summarized in Table III-10 below:109 9

109 Sources for Table III-10: Russell Investments and BNY Mellon. SCE pension fund returns are shown net of

investment management fees.

78

Table III-10 US Stocks, US Bonds, and SCE Pension Fund Rates of Return

2004-2018

Table III-10 above shows that financial market performance, particularly 1

the U.S. stock market, was volatile over the 2004-2018 period. Performance was favorable from 2004 2

through 2007. Performance in 2008 was the worst single year since the 1930s, but this was followed by 3

strong returns over most of the next nine years. Investment performance was negative in 2018. The 15-4

year return for U.S. stocks from 2004-2018 was 7.8 percent, and the 10-year return for U.S. stocks from 5

2009-2018 was 13.1 percent. 6

Investment returns and ongoing SCE contributions are the Retirement 7

Plan’s only funding sources. When investment returns are lower than expected, additional contributions 8

must be made to maintain a financially sound plan. SCE’s pension fund performance over the last 15 9

79

years compared favorably to market benchmarks. Despite this, weak capital markets, such as those in 1

2008, 2015, and 2018, and the resulting investment returns, negatively affected funded status. Lower 2

than expected stock market returns, and falling discount interest rates, under statutory requirements 3

outside of SCE’s control, contribute to the forecast increase in pension costs for the 2021 to 2023 rate 4

cycle. 5

(3) Pension Cost Ratemaking Background and Recent History 6

SCE’s pension costs are based on the results of actuarial valuations, 7

performed by Aon, the Plan actuary. Aon determines the present value of expected future pension 8

benefit payments and, for statutory minimum funding purposes, the value of pension benefits accrued to 9

date and expected to be accrued during the upcoming year. Plan liabilities grow with interest and 10

ongoing benefit accruals, but also fluctuate over time with changes in prevailing interest rates and the 11

impact of statutory requirements. All actuarial assumptions not mandated by law represent the actuary’s 12

best estimate of future plan experience. 13

The actuary compares the value of plan liabilities to the value of plan 14

assets. Assets are initially measured at market value and are then subject to asset smoothing techniques. 15

These techniques help mitigate the impact of short-term capital market fluctuations. Despite these 16

smoothing techniques, stock market downturns, such as those in 2008 and 2018, can significantly 17

increase reported, unfunded liabilities. Poor or negative investment returns will inevitably increase plan 18

cost and associated rate recovery. Extended bull market performance, such as was seen in 2017, can 19

significantly decrease reported unfunded liabilities as well. 20

Pension funding policy has been contested in SCE’s last six GRCs. In 21

each one, SCE has advocated for continuation of its historical funding policy while Cal Advocates has 22

pressed for lower funding. Cal Advocates has done so despite the fact that lower contributions in the 23

short-term would provide larger PBGC premiums, thereby increasing costs for customers in the long-24

term. In previous GRCs, SCE and Cal Advocates agreed to a two-way balancing account treatment of 25

pension costs. SCE believes a two-way balancing account continues to be appropriate. 26

(4) Current Funding Policy 27

SCE’s historical funding policy, which has been in effect since at least 28

1982, seeks to limit short-term fluctuations in contribution amounts and rate recovery. The funding 29

policy has been to contribute the annual Funding Policy Normal Cost, plus amounts required to amortize 30

certain book reserves, which are maintained for funding policy contribution purposes, and other 31

80

liabilities due to ad hoc cost of living adjustments. The contribution determined on this basis is 1

increased, if necessary, to meet PPA minimum funding requirements or limited so as not to exceed the 2

Maximum Tax-Deductible Amount. 3

(5) Funding Policy Normal Cost 4

The Funding Policy Normal Cost is determined under the Frozen Initial 5

Liability actuarial cost method. Under this method, the present value of future normal costs is the 6

difference between: 7

1. The present value of all benefits, as of the valuation date, for current 8

plan participants, both earned and to be earned under the Plan, based on the plan’s long-term expected 9

rate of return on assets, and 10

2. The sum of total funding policy assets on hand (including Company 11

book reserves) and any remaining Unfunded Frozen Initial Liability (for ad hoc cost of living 12

adjustments). As of January 1, 2018, the Unfunded Frozen Initial Liability was zero. 13

The present value of future funding policy normal costs is then divided by 14

the present value of anticipated future covered payrolls for current plan participants. The result is a 15

Funding Policy Normal Cost percentage, which is then applied to the current covered payroll. The 16

Funding Policy Normal Cost also includes the expected administrative expenses, such as PBGC 17

premiums, that the Plan is anticipated to incur during the year following the valuation date. 18

By amortizing the unfunded liability over future remaining payrolls, the 19

contribution amounts are determined as a level percentage of payroll, which for an open pension plan, 20

would remain relatively consistent from year-to-year. This policy has always been bounded by the 21

legally required minimum contribution and the maximum tax-deductible amount. 22

(6) Statutory Pension Funding Requirements 23

Minimum pension plan funding requirements have been governed by the 24

Pension Protection Act of 2006 (PPA) since 2008. Unlike prior ERISA funding rules, which stressed 25

stable long-term funding and benefit security, PPA rules focus on short-term funding adequacy with 26

required discount rates tied to two-year average of corporate bond yields. Asset smoothing is permitted 27

under the PPA, but only over a two-year period. Under PPA, the Minimum Required Contribution is 28

determined as of the beginning of the plan year and is equal to the sum of Target Normal Cost for the 29

Plan Year and the Shortfall Amortization Charge for the Plan Year, less any credit for excess assets. 30

81

The Target Normal Cost represents the value of additional benefits 1

expected to be accrued and the value of expenses expected to be paid from trust assets during the Plan 2

Year. The shortfall amortization charge generally represents an amount that would be sufficient to 3

amortize the Plan’s funding shortfall over a period no longer than seven years. 4

Congress has legislated several rounds of pension funding relief since 5

2006. The Moving Ahead for Progress in the 21st Century Act (MAP-21) was signed into law on July 6, 6

2012. MAP-21 provided pension funding relief in the form of an interest rate corridor tied to a 25-year 7

rolling average of corporate bond interest rates. In 2014, Congress extended this relief with the Highway 8

and Transportation Funding Act (HATFA). In 2015, Congress extended the relief yet again with the 9

Bipartisan Budget Act of 2015 (BBA), which was signed into law on November 2, 2015. 10

The following chart, Figure III-12, shows the cumulative effect of MAP-11

21, HATFA, and BBA on the effective interest rates (EIR) used to determine Minimum Required 12

Contributions. The BBA discount rate interest rate floor is equal to 90 percent of the 25-year rolling 13

average of corporate bond interest rates until 2021, at which point the corridor will widen from 90 14

percent to 85 percent. The corridor will continue to increase by 5 percent per year until 2024. 15

Figure III-12 Effective Interest Rates (EIR)

2017-2024

Since bond rates are much lower now than they were 25 years ago, these 16

moving average discount rates are expected to decline for 4 years through 2023, as more current years of 17

relatively low interest rates are added to the average, and more past years of high interest rates drop off. 18

5.7% 5.5% 5.4%5.0%

4.6%4.4% 4.4% 4.4% 4.4% 4.4% 4.4% 4.3% 4.3%

3%

4%

5%

6%

7%

8%

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Plan Year Beginning in

Post-Stabilization Corridor Chart

25-Year Corridor 25-year Ave of Corp Bond RatesPost-Stabilization EIR Pre Stabilization EIR

82

The result will likely increase minimum required contributions, even if prevailing interest rates rise. No 1

increases or decreases are assumed for spot segment rates following December 2018. 2

None of the funding legislation since PPA has addressed the maximum 3

two-year asset smoothing period, and this remains a source of significant contribution volatility. 4

SCE has been authorized to continue making pension contributions under 5

its historical funding policy even in years when ERISA and, later, PPA minimum funding rules required 6

no contributions. Under PPA rules, these contributions over minimum required amounts build up a 7

cushion (a “credit” or “funding” balance) that can generally offset minimum required contributions in 8

future years. The existing “credit balance,” attributable to contributions that exceed minimum 9

requirements, is projected to help cushion future minimum funding requirements through 2022. 10

In the 2003, 2006, 2009, 2012, 2015, and 2018 GRCs, the Commission 11

held that contributions should be sufficiently conservative to avoid jeopardizing Retirement Plan 12

beneficiaries or future generations of customers. In the 2003, 2009, 2012, 2015 and 2018 GRCs, the 13

Commission approved rate recovery under SCE’s historical funding policy. In 2006, the minimum 14

contribution amount was approved, but only because the Commission concluded that the difference 15

between the two amounts was “not substantial” and the “minimum calculation could therefore be 16

considered sufficiently conservative.”110 In 2009, the Commission found: “In the past, we have adopted 17

SCE’s forecast if a substantial difference exists between the minimum contribution and its forecast. 18

We see no compelling reason to depart from that policy here.”111 19

The continued use of SCE’s longstanding pension funding method for 20

ratemaking purposes produced a much more stable funding pattern than what would have occurred 21

under PPA minimum funding alone. However, recent changes in circumstances have prompted the 22

Company to reconsider whether the historical funding policy continues to be appropriate. 23

(7) Changes in Circumstances 24

The plan was closed to new entrants effective December 31, 2017. This 25

prompted a review of the historical funding policy. The review identified several concerns: 26 110 See D.06-05-016, pp. 172-173, citing D.04-07-022, pp. 219-220 (“If sound actuarial practice indicates a

funding level above ERISA minimum funding requirements, we favor a conservative policy of authorizing expenses for that larger funding level to avoid potential under-funding that could jeopardize the interests of either retirement system beneficiaries or future generations of customers. In light of this policy, the issue in this GRC turns on whether ORA’s approach is sufficiently conservative and in line with actuarial practice.”).

111 See D.09-03-025, p. 142.

83

• As remaining payroll begins to decline, the unfunded liability will 1

be amortized over a shorter period, which causes unnecessary 2

volatility and potentially nonsensical results. Eventually, when there 3

are no more working employees participating in the plan and 4

pension-eligible payroll reaches zero, it will become 5

mathematically impossible to continue with the historical funding 6

policy. 7

• The unfunded liability has decreased substantially during an 8

extended bull market, which means that small changes in funded 9

status have a large impact on contribution amounts. The funding 10

policy appears to have become unstable already, as the percentage 11

of pension-eligible payroll has been cut in half from 6.74 percent in 12

2013 to 3.35 percent in 2018. 13

Table III-11 Pension-Eligible Payroll Percentage

2013-2018

• When the plan was providing back-loaded final average pay 14

benefits, the funding policy was appropriately determining 15

contributions based on projected benefits. SCE expects challenges 16

with this approach as the primary benefit structure migrates to 17

career-average cash balance benefits. 18

• Recent legislative changes have increased the significance of PBGC 19

premiums. The current funding policy tolerates significant 20

84

unfunded PBGC liability at times, which will ultimately increase 1

costs to customers. 2

For these reasons, the Company believes it is in the best interest of all 3

parties to modify the funding policy in the future. Customers and the Company have benefited from the 4

current funding policy since at least 1982. For several decades, the funding policy has helped stabilize 5

the potentially volatile funding requirements associated with sponsoring a pension plan, especially since 6

the introduction of PPA. However, with the plan near full funding and recently closed to new entrants, 7

the funding policy is falling short of its stabilization goal. As the Company continues to believe a 8

funding policy that stabilizes cash funding requirements from PPA is necessary and beneficial for all 9

parties, it proposes flexibility here. Specifically, the Company asks that the current funding policy be 10

reviewed on an annual basis rather than waiting until the end of the three-year General Rate Case cycle, 11

and be updated if proven to be beneficial to ratepayers and plan participants. 12

(8) Funding Policy Alternatives 13

One alternate funding policy SCE is considering is “Service Cost plus 14

Amortization.” Under this funding policy, contributions would be determined by the present value of 15

benefits earned during the year (service cost) plus an amortization of any remaining shortfall. Benefits of 16

this policy include alignment of contribution timing with accruals, and stability of contribution levels. 17



2018 GRC to 2018 recorded O&M activity, along with an explanation for the variance. SCE’s 20

authorized rate recovery for the 2018 to 2020 rate case cycle was an annual amount of $57.7 million. In 21

2018, the recorded amount of $47.0 million was lower than the authorized amount. Positive market 22

performance, a reduction in liability due to changes in actuarial assumptions, and workforce reductions 23

have helped constrain pension costs. 24



Figure III-13 below shows pension costs under SCE’s historical 27

funding policy and PPA minimum funding requirements, for the years 2012 through 2018. Recorded 28

costs for all these years were the greater of these two amounts. In the years before and including 2008, 29

minimum required contributions were zero, and the continuing contributions made in those years under 30

the historical funding policy built up a credit balance of roughly $203 million, which kept the minimum 31

85

contributions in the years 2009, 2010, and 2011 below funding policy contributions. By 2012, the credit 1

balance was exhausted and contributions rose dramatically. 2

Statutorily-required discount rates have been declining since 2012 3

(and are projected to continue to do so through 2023, even if prevailing rates rise somewhat in the 4

interim). This decline has put upward pressure on Plan liabilities. Initially, excellent investment returns 5

in 2012 and 2013 more than compensated for this effect, leading to a gradual improvement in funded 6

status, until the minimum required contribution fell to zero in 2015. During 2015, 2016, and 2017, the 7

minimum required contribution stayed at $0, which allowed the plan to build up a credit balance that 8

may be used to offset and smooth out future minimum required contributions. In 2018, the minimum 9

required contribution was $48.2 million, all of which is expected to be satisfied by credit balance. 10

(b) Forecast 11

The actuarial forecast of pension costs for years 2021-2023 of 12

$84.3 million112 is larger than forecast cost for the current cycle. SCE’s requested rate recovery is based 13

on a forecast of pension costs provided by its actuaries, Aon. The forecast pension costs are $48.8 14

million in 2021, $62.6 million in 2022, and $141.6 million in 2023 for an average of $84.3 million. This 15

includes cost adjustments for SONGS and for alignment with SB 901. The forecast pension cost remains 16

relatively level through 2021, increases by 28 percent in 2022, and then increases by an additional 126 17

percent in 2023. This highlights the unpredictability and potential volatility of pension costs and the 18

continuing criticality of the existing two-way balancing account treatment. 19

In forecast years 2019-2023, legislated interest rates are projected 20

to decline as the impact of funding relief phases out. This decline in interest rates will put upward 21

pressure on PPA plan liabilities which increases the accompanying minimum required contribution. SCE 22

expects the credit balance will be completely exhausted in 2022. In 2023, with no credit balance 23

remaining, the contribution requirements will increase by 126 percent from $62.6 million to $141.6 24

million. Between 2021 and 2023, the forecast contribution amounts will increase by a total of 190 25

percent. 26

112 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 127-138, Pension.

86

Figure III-13 Pension Costs Funding Policy versus ERISA/PPA Minimum

2012-2018

The contribution amounts in forecast years 2022 and 2023 are 1

especially sensitive to asset returns. Under the current set of assumptions, those forecast contributions 2

anticipate the minimum required contribution will exceed the funding policy, prior to any adjustment for 3

the Plan’s credit balance. However, if asset returns exceed expectations, there will be lower minimum 4

required contributions, potentially as low as zero. Smaller required contributions would reduce the rate 5

at which the credit balance is exhausted. Smaller required contributions may also free up additional 6

funding policy contribution amounts above the minimum required contribution to be added to the Plan’s 7

credit balance. A larger credit balance could delay the potential spike in required cash contributions 8

from forecast year 2023 to some later date. Additional funding relief from Congress, which is outside of 9

the Company’s control, may also postpone the expected increase in cash contribution amounts. Congress 10

has already provided unexpected PPA funding relief in 2012, 2014, and 2015. Of course, changes in the 11

legislative landscape are difficult to predict. 12

Figure III-14 below shows forecast pension costs for the years 13

2019 through 2023. Investment returns in 2017 exceeded expectations. However, this was offset by 14

lower than expected investment returns in 2018. Excess contributions made in 2015, 2016, 2017, and 15

2018 under the historical funding policy have once again built up a credit balance, which is projected to 16

keep minimum required contributions at zero, or at least relatively low, through 2022. By 2023, the 17

87

credit balance will likely be exhausted, and minimum required contributions are then projected to 1

increase dramatically. 2

Figure III-14 Pension Costs

Forecast Funding Policy and Minimum Required Amounts 2019-2023

The forecast amounts in Figure III-14 above are based on Aon’s 3

2018 actuarial valuation results and plan asset information reflected in December 31, 2018 financial 4

statement disclosure information. The underlying data and actuarial assumptions include: 5

Active and retiree census data measured as of January 1, 6

2018, projected forward using the assumptions in the 7

following two bullets; 8

Demographic and other actuarial assumptions from the 9

January 1, 2018 actuarial valuation; 10

Expected updates to statutory mortality assumptions, as 11

provided by the IRS through 2020; 12

Projected future rates of assumed investment return of 6.50 13

percent per year after 2018; and 14

Projected future spot segment rates include no increases or 15

decreases after December 2018. 16

88

As previously discussed, no employees hired after 2017 are 1

eligible for the Plan. Instead, they will receive additional non-elective company contributions into their 2

401(k) accounts ranging from 4 to 6 percent of base pay, if represented, and 6 percent of pay, if non-3

represented. 4

While statutory interest rates under current law are expected to 5

decline only gradually through 2022, the above analysis shows the extreme volatility of year-to-year 6

investment returns. Investment return volatility translates into pension funding volatility. To illustrate 7

the sensitivity of projected funding amounts, stochastic forecasts were prepared by the plan’s actuary, 8

Aon. These forecasts are summarized in the following graph. 9

Table III-12 Stochastic Forecast and Analysis of Funding Policy

The historical volatility of pension costs and the wide range of 10

projected pension costs demonstrate the critical need for ongoing two-way (symmetrical) balancing 11

account treatment. In this GRC, SCE proposes that the Commission continue using the Pensions Cost 12

Balancing Account adopted in the 2006, 2009, 2012, 2015, and 2018 GRC decisions.113 Under this 13

procedure, the difference between authorized pension amounts and actual pension costs under the 14

existing funding policy (which reflects the PPA minimum required contribution, when necessary) in 15

2021, 2022 and 2023 will be amortized. The excess of authorized over actual contributions are returned 16

to ratepayers and contributions greater than authorized are recovered in rates. Any accumulated balances 17

113 See D.06-05-016, OP 22; D.09-03-025, OP 17; D.12-11-051, OP 775; and D.15-11-021, p. 269 & COL 99.

89

have interest applied at the commercial paper rate, consistent with treatment of interest accruals for other 1

SCE balancing accounts.114 2

Table III-13 below shows actual pension costs and authorized 3

amounts for the years 2009-2018. This history, like the cost projections in Table III-13, illustrates the 4

need for ongoing two-way balancing account treatment. 5

Table III-13 Pension Costs ($000)

Actual versus Authorized 2012-2018

Actual pension costs for 2009, 2010, and 2011 were much higher 6

than authorized, as the impact of the 2008 global financial crisis increased the required funding. The 7

result was an undercollection in the Pensions Cost Balancing Account. Actual costs for 2012 through 8

2018 were less than authorized due to a combination of statutory funding relief and excellent 2012 and 9

2013 investment performance. As a result, $114.4 million was returned to customers over this seven-10

year period. 11

SCE continues to strongly believe that the two-way (symmetrical) 12

Pensions Cost Balancing Account benefits both customers and shareholders. SCE’s pension trust has an 13

investment policy with a meaningful allocation to equities.115 As an investment, equities are expected to 14

114 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals. 115 The current overall investment policy targets are approximately 50 percent equities, 50 percent fixed income.

90

provide higher returns over the long term, but are also subject to significant annual volatility (see Table 1

III-10 above of actual returns for the past 15 years). Because of the higher expected returns, meaningful 2

equity exposure will lower the long-term costs of funding the Retirement Plan. However, the volatility 3

inherent in equity investments will also result in significant volatility in pension asset returns, as 4

experienced in the last several years. The actuary’s use of asset smoothing methods mitigates some of 5

this volatility. 6

Without the two-way Pensions Cost Balancing Account, there 7

would inevitably be windfalls and/or shortfalls to customers and shareholders. If the Pensions Cost 8

Balancing Account functioned only to reduce, but never to increase customer costs (i.e., as a “one-way” 9

(asymmetrical) balancing account), the result would penalize shareholders for undercollections and 10

make this important retirement benefit difficult to sustain. This benefit remains a key component of 11

overall compensation. SCE therefore urges, in the strongest possible terms, continuation of the existing 12

two-way balancing account. 13

d) 401(k) Savings Plan 14

For Test Year 2021, SCE forecasts $95.229 million for the Edison 401(k) Savings 15

Plan (“401(k)” or “401(k) Savings Plan”) costs. Figure III-15 below, shows recorded 401(k) Savings 16

Plan costs for the years 2014 through 2018, plus SCE’s forecast costs for 2019 through Test Year 17

2021.116 18

116 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 183-188, 401(k) Savings Plan.

91

Figure III-15 401(k) Savings Plan



The Edison 401(k) Savings Plan is a defined contribution plan. As an 2

integral part of SCE’s total compensation package, it provides employees an opportunity to defer current 3

income, potentially reducing their current taxable income, and save for their future financial needs. 4

Employees choose how to invest the deferred income, plus Company matching contributions. If 5

employees defer on a pre-tax basis, all the monies avoid current income taxes until distributed. 6

Employees may elect to defer from 1 to 84 percent of their base pay to the 7

401(k) Savings Plan, subject to annual maximum dollar limits determined by the Internal Revenue 8

Service. The Company matches $1.00 for each $1.00 deferred, up to 6 percent of the employee’s base 9

pay. To provide greater flexibility, the 401(k) Savings Plan also allows participants to defer income on a 10

post-tax basis into a separate Roth account. These deferrals have the advantage of avoiding income tax 11

on investment returns of the participant’s deferrals when ultimately distributed, if specific legal 12

requirements are met. 13

The Edison 401(k) Savings Plan offers participants a wide range of 14

investments including ten time-based, target-date funds, seven core funds ranging from conservative to 15

higher-risk investment choices, the EIX stock fund, and a brokerage account intended for more 16

2014 2015 2016 2017 2018 2019 2020 2021Labor ($0)

Non-Labor $0 $0 $0 $0 $0 $0 ($0) $0Other $71,043 $67,689 $66,939 $68,602 $71,567 $84,101 $87,333 $95,229

Total Expenses $71,043 $67,689 $66,939 $68,602 $71,567 $84,101 $87,333 $95,229


Recorded Forecast

($20,000)

$20,000

$40,000

$60,000

$80,000

$100,000

2014 2015 2016 2017 2018 2019 2020 2021


92

advanced investors. These funds can help facilitate prudent investment diversification. Employees select 1

the investment options for their own deferrals, both pre-tax and Roth, and for the Company’s matching 2

contributions. 3

Other 401(k) Savings Plan features include: immediate eligibility upon 4

hire, daily valuation of participant accounts, unlimited access to those accounts through website or 5

phone representatives, and daily processing of loans, withdrawals, and distributions. Plan participants 6

also have access to financial planning tools, such as Financial Engines, to model future investment and 7

savings strategies, or to have that firm directly manage their accounts, with the costs of such 8

management borne entirely by the participant and not charged to customers. They can also take 9

advantage of the company’s new financial education program offered through Ernst and Young. 10

For employees hired on or after December 31, 2017, the SCE Retirement 11

Plan is no longer offered. Instead, SCE and IBEW Local 47 jointly agreed through negotiations that 12

eligible employees of that union who do not receive a Cash Balance Account will instead receive 13

additional company contributions to the Edison 401(k) Savings Plan. The contributions will be four to 14

six percent of the employee’s base pay, depending on age and service, and without regard to any 15

matching requirement. Similarly, SCE agreed that all other eligible employees hired on or after 16

December 31, 2017 who do not receive a Cash Balance Account will receive additional company 17

contributions to the Edison 401(k) Savings Plan. These additional contributions will be six percent of the 18

employee’s base pay, without regard to any matching requirement. Employees hired prior to December 19

31, 2017 continue to participate in the SCE Retirement Plan and are not eligible for this additional 20

company non-elective contribution to the 401(k) Savings Plan. 21



2018 GRC to the 2018 recorded O&M in this activity. Table III-5 shows the de minimis variance of $4.6 24

million between the 2018 authorized amount of $76.1 million and the 2018 recorded cost of $71.6 25

million for the 401(k) Savings Plan. 26


In Test Year 2021, SCE will record 401(k) cost in this work activity. In 28

accordance with SB 901 and the associated Executive Officers covered therein, all costs recorded in 29

93

historical years 2014-2018 were adjusted out so that these costs would not be included in the Results of 1

Operation Model forecast for this work activity.117 2


As shown in Figure III-15 from 2014 to 2018, plan costs remained 4

relatively flat. 5

(b) Forecast 118 6

SCE forecasts $95.229 million for Edison 401(k) Savings Plan 7

costs. The costs for the Plan have a direct relationship to the pay that employees receive, since SCE’s 8

costs are for matching each employee’s contribution for each dollar the employee defers, up to six 9

percent of base pay. A “projection factor” was developed that reflects the relationship in 2018 between 10

the Company’s cost for the plan and the total dollars spent for employees’ pay (i.e., labor dollars). Since 11

all projections for labor dollars in the General Rate Case are provided in constant 2018 dollars while the 12

Test Year 2021 benefit plan costs are stated in nominal dollars, the projection factor was adjusted for 13

labor escalation in 2019, 2020 and 2021, using the standard escalation rates developed in SCE’s Cost 14

Escalation GRC exhibit.119 The resulting adjusted projection factor was applied to the 2018 expected 15

total labor dollars to develop an estimate of Plan costs for 2018. The steps are further detailed below: 16

• The projection factor was developed by dividing the 17

recorded 2018 401(k) total plan costs by the 2018 total 18

labor dollars excluding STIP. 19

• The resulting projection factor was then escalated by the 20

standard labor escalation rates for the 2019, 2020 and 2021 21

years. The cumulative result is the adjusted projection 22

factor. 23

• The 2021 forecast labor dollars (stated in 2021 constant 24

dollars) were obtained from all SCE OUs and totaled. 25


Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments. 118 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 189-190 and Book B, pp. 142-144, Forecast Method. 119 See SCE-07, Vol. 01, Results of Operations, Cost Escalation.

94

• The adjusted projection factor was applied to the total 2021 1

forecast labor dollars to calculate the expected 2021 401(k) 2

plan costs. 3

Unlike the Linear Trending, Averaging, and Last Recorded Year 4

methodologies, the Itemized Forecast methodology described above is appropriate because it considers 5

the labor forecast and increased six percent plan contribution to employees hired on or after December 6

31, 2017. 7

e) Retiree Health Care and Life Insurance (Post-Retirement Benefits Other 8

Than Pensions (PBOP)) 9

For Test Year 2021, SCE forecasts $21.2 million for the PBOP costs. Figure III-10

16 below shows recorded PBOP costs for the years 2014 through 2018, plus SCE’s forecast costs for 11

2019 through Test Year 2021.120 In accordance with SB 901, recorded and forecast amounts for selected 12

executives were removed for years 2014 – 2023. An average of $0.02 million has been removed from 13

2021 – 2023 PBOP costs for seven named executives.121 The $21.2 million Test Year forecast includes 14

estimated actuarial fees of $590k. 15

120 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 192-203, PBOP. 121 Refer to WP SCE-07, Vol. 01, Results of Operations, Ratemaking Adjustments; and WP SCE-06, Vol. 03,

Part 1, Book A, pp. 15 and 204, SB 901 Compensation and Benefits Adjustments and Executive Recorded and Projected Adjustments.

95

Figure III-16 PBOP Costs

Recorded and Adjusted 2014-2018/Forecast 2019-2021 (Non-Labor – Constant 2018 $000; Other – Nominal $000)


SCE offers other post-retirement benefits besides pension benefits. These 2

benefits include post-retirement medical, dental, vision, Medicare Part B premium reimbursement, and 3

term life insurance. According to ASC 715-60 (formerly FAS 106), SCE must accrue a liability for the 4

costs of these retiree benefits. 5

SCE has offered these benefits as an important part of its employee 6

benefits package to attract and retain a qualified workforce, and to facilitate an orderly transition from 7

that workforce. Retirees and their dependents who are not Medicare-eligible participate in the same 8

medical, dental, vision, and EAP programs as active employees, although some plan features differ. The 9

differences in the benefits provided to retirees are highlighted below. SCE offers two classes of retiree 10

coverage: “Flex” coverage for employees who retired after December 31, 1990, and “PrimeCare” 11

coverage for those retired before then. 12

96

For employees hired on or after December 31, 2017, retiree health care 1

(RHC) is no longer available. In lieu of RHC, eligible employees receive a Retiree Health 2

Reimbursement Account (RHRA) credited with an amount equal to $200 multiplied by the number of 3

months they have been employed by the company. The RHRA can only be accessed once an employee 4

retires and is at least age 55 with 10 or more years of service. 5

(a) Flex Retirees 6

“Flex” retirees are employees who retired after December 31, 7

1990. If they are not Medicare-eligible, they and their dependents choose from the same general health 8

plans and features as active employees. Employees must retire at age 55 or older with at least ten years 9

of service to be eligible. 10

To address the continuing cost escalation in the health care arena, 11

significant changes to the SCE retiree medical program for Flex Retirees have been made. In 2006, 12

patients’ out-of-pocket medical cost sharing during service were increased, including a doubling of 13

patient copayment amounts and new higher deductibles and out-of-pocket stop loss amounts. Patient 14

cost sharing thresholds were no longer fixed year-after-year but automatically adjusted to higher dollar 15

amounts with each new calendar year. To provide greater awareness of cost, retiree prescription drug 16

cost sharing was moved from flat dollar copayments to a co-insurance design, where the plan pays 80 17

percent and the patient pays 20 percent of a prescription’s cost. 18

In 2008, consistent with the major changes made in the medical 19

program for active employees that year, SCE’s contribution toward retiree medical coverage was 20

reduced to reflect the lowest cost medical plan option offered in each retiree’s geographic area. Retirees 21

selecting a higher cost option pay 15 percent of the lowest cost option’s price tag for their coverage (20 22

percent of that cost for their dependent(s) coverage) plus the entire difference in cost between the lowest 23

cost option and the option they select, if different. 24

A further change occurred at the end of 2008 that continues to have 25

a far-reaching impact on SCE’s retiree healthcare costs: the implementation of indexed dollar limits on 26

the amount the Company contributes toward retiree medical coverage for most employees who retired 27

after December 31, 2008. (These limits do not apply to employees who either had 25 years of service or 28

were retirement-eligible by that date (i.e., “grandfathered”) -- the prior premium structure applies to 29

these employees and retirees.) For those retirees who were not grandfathered, Company costs are limited 30

to what the Company would have paid for retiree coverage under the lowest cost option available in 31

97

each retiree’s geographic area in 2008, indexed based on the greater of the annual increase in the 1

Consumer Price Index (CPI), or 50 percent of the annual increase in the cost of that lowest cost medical 2

option, subject to a maximum annual percentage increase above the CPI of 2 percent. 3

Eligible non-grandfathered Flex retirees pay more for their retiree 4

medical coverage if they retire before they attain age 60 with 15 years of service. In these cases, the 5

retiree (and his or her eligible dependents) would receive a company contribution of 50 percent of that 6

coverage’s indexed company cost, instead of 85 percent (80 percent for dependent coverage) of that 7

coverage’s indexed cost for those who retire with at least 15 years of service and who are at least age 60. 8

In 2010, to further encourage patient involvement in the choice of 9

prescription medications, the plan benefit for generic prescriptions was increased to 90 percent, with the 10

patient’s share 10 percent. Because generic medications have consistently lower costs, with each 11

1 percent increase in the use of those medications, the program has experienced a 2.5 percent reduction 12

in medication costs, on average. 13

In 2010, the company also implemented new medical options for 14

the active employee population, and these new options also applied to retirees prior to Medicare 15

eligibility. (These changes are noted in this Section, within the Medical Programs.) For Flex retirees 16

and/or their spouses covered by Medicare, medical options designed specifically to work with Medicare 17

coverage were introduced. (Once retirees, or their spouses, become Medicare-eligible, they must enroll 18

in Medicare Parts A and B which then becomes their primary source of medical benefits while the 19

benefits from the SCE-sponsored medical plans become secondary to Medicare.) 20

To provide a range of medical benefit options with a variety of 21

both plan designs and contribution levels, since 2010, Medicare-eligible retirees and spouses have been 22

offered the following medical options: Medicare-Coordinated Preferred Provider Organizations, a 23

Medicare-Coordinated Exclusive Provider Organization, Medicare Advantage Health Maintenance 24

Organizations, and two Medicare Supplement Plans. The latter two plans require comparatively smaller 25

contributions from retirees. They provide benefits when the patient utilizes medical providers who 26

“accept” Medicare, a design which results in much smaller amounts due from the plan after Medicare’s 27

payments. 28

Most recently, on December 31, 2017, SCE took another step in 29

reducing its retiree medical program cost structure when the Company discontinued offering the current 30

employer-paid retiree healthcare benefits to employees hired on or after that date. Instead, these 31

98

employees will be expected to assume the full cost of any SCE-provided healthcare benefits that they 1

receive, if eligible after retirement. SCE will offer them an RHRA that can be used to help pay for these 2

benefits or be used to reimburse other incurred healthcare expenses. The Company cost of these RHRA 3

benefits will be reimbursed out of the existing PBOP trusts, and they will be reflected in ASC 715-60 4

expenses and in costs for rate recovery (the same as all other PBOP benefits). 5

(b) PrimeCare Retirees 6

PrimeCare is the retiree healthcare coverage available only to 7

employees who retired before January 1, 1991, and their eligible dependents. The number of subscribers 8

(retirees or surviving spouses) as of December 2018 was 1,887, with 56 percent between the ages of 80 9

and 90 and 34 percent over age 90. Medicare coverage is the primary source of benefits for this retiree 10

group. As the secondary coverage, the PrimeCare plan design requires no deductible and pays 100 11

percent of covered expenses when care is received through contracted network providers. When the 12

patient accesses out-of-network providers, the benefit is 90 percent of the fee, subject to the reasonable 13

and customary limitation. The changes for Flex retirees described above have not applied to PrimeCare 14

retirees. 15

(c) Medicare Part B Premiums 16

Employees who retired before January 1, 1989, receive full 17

Medicare Part B premium reimbursement. Employees who retired between January 1, 1989 and 18

December 31, 1992, receive premium reimbursement frozen at the December 31, 1992, level. 19

Employees who retired on or after January 1, 1993, receive no Medicare Part B premium 20

reimbursement. 21

(d) Dental and Vision Coverage 22

The Company provides dental and vision coverage for retirees 23

using the same plans as for employees. SCE’s contribution towards these plans for retirees who retired 24

in 1991 or later was reduced to 50 percent in 2008. Also, to reduce adverse selection, retirees must be 25

continuously enrolled in these programs. Retirees who drop coverage cannot re-enroll in any subsequent 26

year. 27

In 2019, after a regular review of services and vendors, SCE 28

replaced its former dental HMO providers, Safeguard and Blue Cross, with Cigna. In addition to 29

providing a larger network of dentists to employees who work in more rural areas, Cigna offered lower 30

costs in the first year for employees, retirees and the Company. 31

99

(e) Retiree Life Insurance 1

SCE first provided retiree life insurance in 1978, offering a modest 2

benefit ($2,500 or $5,000) to employees who retired under the SCE Retirement Plan. These benefits 3

have been discontinued for represented employees who retired after 2015, and management and 4

administrative employees who retired after 2016. 5

(2) Ratemaking Background 6

The existing requirements for PBOP rate recovery date back to the 1990 7

Order Instituting Investigation (I.90-07-037) into the ratemaking treatment of PBOPs and to the 8

subsequent Phase II Decision of the OII, (D.92-12-015). The existing two-way balancing account 9

treatment was authorized in the 2006 GRC Decision (D.06-05-016). Balancing account treatment 10

continued in the 2009, 2012, 2015, and 2018 GRC Decisions (D.09-03-025, D.12-11-051, D.15-11-021, 11

and D.19-05-020). Applying the Phase II Decision criteria and the 2006, 2009, 2012, 2015, and 2018 12

GRC balancing account treatment, PBOP rate recovery for Test Year 2021 is based on the following: 13

• SCE continues to fund all recovered costs through paid health 14

claims or in independent trusts dedicated solely to PBOP; 15

• PBOP costs are reasonable and necessary to meet funding 16

requirements and are based on fair actuarial assumptions, 17

contributions, and investments; 18

• Rate recovery that exceeds the lesser of tax deductible paid 19

claims/contributions or PBOP cost under ASC 715-60 20

methodology is subject to refund to customers; and 21

• PBOP costs are subject to a two-way (symmetrical) balancing 22

account. 23

Each of these conditions is discussed below. 24

(a) Tax Deductible Current Funding of PBOP Costs 25

SCE has established the following funding vehicles for its PBOP 26

obligations: 27

100

• A Voluntary Employee Beneficiary Association (VEBA)122 1

Trust to fund PBOP benefits except life insurance for all 2

represented employees, retired represented employees, and 3

their spouses and dependents (Represented Employee 4

VEBA Trust). 5

• A VEBA trust to fund post-retirement life insurance 6

benefits for all active employees and retirees (Life 7

Insurance VEBA Trust). 8

• Two VEBA trusts to fund a portion of non-life insurance 9

PBOP for Management and Administrative (M&A) 10

employees retiring after December 31, 1992, and their 11

spouses and dependents (1992 and 1999 M&A VEBA 12

Trusts). 13

• A 401(h)123 sub-account of the Retirement Plan Trust that 14

covers non-life insurance PBOP benefits for post- 15

December 31, 1992 M&A group retirees, spouses, and 16

dependents over the amounts covered by the 1992 and 1999 17

M&A VEBA Trusts (401(h) Account). 18

SCE contributes on a tax-deductible basis to these trusts, and 19

invests the trust assets to fund the PBOP obligation. The trusts periodically reimburse SCE for retiree 20

PBOP benefits payable from the trusts, but initially paid by the Company. At the end of 2018, PBOP 21

trust fund assets were $2.13 billion. 22

SCE’s PBOP cost amounts also include tax-deductible costs 23

associated with M&A employees who retired before January 1, 1993 (the adoption date of ASC 715-60 24

(formerly FAS 106)) and their spouses and dependents. This latter group is also called the “pay-as-you-25

go” group. PBOP costs for this group are tax-deductible, but are not funded through PBOP trusts. In its 26

122 Established pursuant to Section 501(c) (9) of the Internal Revenue Code of 1986; contributions to VEBA

trusts are tax-deductible. Investment returns are exempt from tax for the Represented Employee and Life Insurance VEBA trusts. The M&A VEBA investment returns are taxable.

123 Established pursuant to Section 401(h) of the Internal Revenue Code of 1986. Contributions to the 401(h) account are tax-deductible, and investment returns are exempt from taxes.

101

2003 GRC Decision, the Commission stated that “Even though these costs are not paid out of a trust, 1

they are nevertheless valid tax-deductible PBOP costs for which customer funding is appropriate and 2

reasonable.”124 3

(b) PBOP Costs Are Reasonable and Necessary to Meet Funding 4

Requirements Based on Fair Actuarial Assumptions, 5

Contributions, and Investments 6

Since SCE adopted ASC 715-60 (formerly FAS 106), SCE’s 7

PBOP actuary, Aon, has prepared annual valuations of the projected costs of PBOP benefits. SCE’s Test 8

Year 2021 request for PBOP costs is based on estimates for the years 2021 through 2023 prepared by the 9

actuary, which are attached as workpapers.125 The actuary must make a number of assumptions in 10

calculating PBOP costs. As discussed in the annual, actuarial valuation reports, these assumptions are 11

reasonable, both individually and collectively. 12

(3) PBOP Cost Balancing Account 126 13

In the 2006 GRC, SCE proposed a PBOP balancing account to record the 14

difference between authorized and recorded PBOP costs. SCE’s proposal was uncontested. Because the 15

2006 GRC decision was silent on this uncontested proposal, SCE established a two-way (symmetrical) 16

PBOP Cost Balancing Account in 2006. In the 2009 GRC, SCE proposed continuation of the PBOP 17

Balancing Account. Again, this proposal was uncontested, and balancing account treatment was 18

explicitly authorized in the 2009 GRC decision. Two-way (symmetrical) PBOP Cost Balancing Account 19

treatment was contested in 2012 but was again explicitly authorized in the GRC decision. Two-way 20

balancing account treatment was uncontested in 2015 and 2018. Below, SCE again requests continuation 21

of the existing two-way PBOP Cost Balancing Account in this GRC. 22



2018 GRC to the 2018 recorded O&M activity, along with an explanation for the variance. The 25

Commission authorized $3.9 million in 2018, and SCE recorded $17.4 million. The PBOP variance in 26

124 D.04-07-022, p. 227. 125 Refer to WP, SCE-06, Vol. 03, Part 1, Book A, pp. 205-255, Projected Actuarial Valuation Results. 126 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals.

102

2018 is due to the reflection of separate PBOP cost calculations for the Represented and M&A member 1

groups, as described below in section 10a(i). The separation of the two groups allowed recovery for the 2

M&A group which had previously been offset by negative costs for the Represented group. This more 3

than offset the favorable effects of greater-than-expected 2017 trust fund investment performance, 4

favorable PBOP claims experience, demographic assumption changes, and updated mortality 5

assumptions recommended by the Society of Actuaries in 2017. 6

PBOP costs are subject to the two-way Post-Employment Benefit Other 7

than Pensions Balancing Account (PBOP BA).127 Although an authorized amount is established in a 8

GRC decision, through the operation of the PBOP BA, SCE recovers its recorded PBOP costs and 9

returns any overcollection to its customers. 10


Figure III-17 below shows actual PBOP costs and authorized amounts for 12

the years 2012 through 2018. PBOP costs have declined significantly since 2012. Costs had been 13

relatively high in 2012 due primarily to much lower than expected trust fund investment returns in 2011. 14

The decline in costs from 2012 to 2017 was driven primarily by ongoing favorable claims experience 15

and trust fund investment performance, as well as continuing cost savings from the 2013 introduction of 16

a new prescription drug benefit delivery arrangement for Medicare-eligible retirees, spouses, and 17

dependents known as an Employer Group Waiver Plan, or “EGWP.” Government expansion of 18

Medicare prescription drug benefits and a declining active employee population also contributed to the 19

cost decline here. 20

The significant savings from the new EGWP benefit and favorable recent 21

claims experience highlight the effectiveness of the Company’s efforts to contain health benefit cost 22

increases in recent years. 23

For the three-year period 2012-2014, recorded costs were significantly 24

below authorized, and $38.3 million (revenue requirement basis) was returned to customers in 2015 25

under the two-way PBOP Balancing Account. Recorded costs for 2015 through 2017 were also 26

significantly below authorized, and $40.4 million was returned to customers for the period. The recorded 27

127 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals.

103

cost for 2018 was below the 2017 authorized amount (which, in the absence of a timely final 2018 1

decision by the Commission, was carried over to 2018); $26.4 million will be returned to customers. 2

Figure III-17 PBOP Costs

Authorized versus Actual 2012-2018

(6) Recovered PBOP Cost Beginning in 2018 3

In the years prior to 2018, the annual amount recovered for PBOP cost 4

was determined by the plan actuary by applying ASC 715-60 on an aggregate, plan-wide basis for all 5

eligible Represented and M&A employees and retirees combined. If this aggregate approach continued, 6

there would be no current rate recoverable PBOP funding in 2018. 7

The aggregate approach to PBOP cost measurement used by the plan 8

actuary in prior years did not take into account the relative funded status of the two (Represented and 9

M&A) member groups. The PBOP liability for the Represented member group has, for many years, 10

been substantially overfunded, and remained overfunded at 12/31/2018 by approximately $557 million. 11

The liability for the M&A member group is substantially underfunded (by approximately $401 million 12

at 12/31/2018). 13

Without additional contributions to the PBOP trusts set aside for M&A 14

employees and retirees, the group’s funded status is projected to continue to deteriorate in the coming 15

years. SCE is already seeking ways to address this funding imbalance and improve the funded status of 16

104

the M&A plan member group (please see the next section), but these long-term funding solutions will 1

take time to implement. 2

To begin addressing the existing funding imbalance immediately, the plan 3

actuary was asked in 2018 to reallocate PBOP cost determined under ASC 715-60 for the entire plan 4

between the Represented and M&A member groups. SCE’s 2018 PBOP recovery reflected these 5

separate cost allocations, which generated no 2018 recovery for the Represented group, but a positive 6

2018 recovery of $18.2 million for the M&A group reduced to $17.4 million by SONGS-related costs of 7

$0.8 million. 8

(7) Redeployment of Represented VEBA Trust Assets 9

The separate PBOP cost determinations for the Represented and M&A 10

member groups which began in 2018 for rate recovery purposes will help to stabilize M&A group 11

underfunding, but will not, by themselves, reduce it. Without additional action, the Represented group 12

will almost certainly remain permanently overfunded, and the M&A group permanently underfunded. 13

SCE has done a careful study of this funding imbalance and developed a 14

proposed long-term corrective strategy, which the Company is requesting approval to implement. The 15

strategy involves two separate, but inter-related steps. 16

First, some of the existing Represented VEBA trust surplus assets would 17

be transferred to a separate sub-account within the Represented VEBA. The funds in this separate sub-18

account would be gradually redeployed to help pay for active healthcare benefits for current Represented 19

employees. These periodic asset redeployments would reduce the separate account balance and help 20

reduce the current surplus in the Represented VEBA trust. 21

As a second, concurrent step, the Company will use the cash saved from 22

VEBA trust financing of some healthcare benefits for active employees to make tax-deductible 23

contributions of equivalent amounts to the M&A PBOP trusts. These contributions will help reduce 24

current M&A PBOP underfunding and provide enhanced PBOP benefit security for M&A employees 25

and retirees. 26

This two-step approach would have several advantages. First, it would 27

ensure that all accumulated Represented VEBA trust assets continue to be used to benefit only 28

Represented employees and retirees. Second, it would not change the annual rate recovery amount for 29

active employee healthcare benefits, which would continue to reflect their total cost for all employees. 30

Third, the annual rate recovery amount for PBOP can be expected to decline as unneeded surplus assets 31

105

in the Represented VEBA are drawn down, and PBOP liabilities for the M&A group become better 1

funded. Recovery for PBOP would continue to reflect the methodology used in 2018, as described 2

above. The plan actuary, Aon, would be instructed to continue to reflect all PBOP trust assets, including 3

the separate sub-account for active Represented employee healthcare benefits, in the PBOP rate recovery 4

cost calculations. 5

Finally, no adverse tax consequences are anticipated. In the opinion of 6

legal counsel, the transfer of assets to a sub-account within the Represented VEBA trust to finance some 7

healthcare benefits for active Represented employees should have no adverse tax consequences, for the 8

trust, for employees, for the Company, and, therefore, for customers. If the Commission and FERC 9

approve the proposed asset redeployment, then the Company will apply for, and expects to receive, a 10

favorable Private Letter Ruling from the Internal Revenue Service regarding the tax effects of the 11

proposal. Because of this lengthy process, the asset redeployment is not expected to impact rate recovery 12

during the 2021-2023 rate cycle. 13

The redeployment amounts would be carefully monitored, and, if 14

necessary, limited to help ensure that all PBOP trust contributions, including the concomitant additional 15

PBOP M&A trust contributions related to the asset redeployment, will be tax-deductible. In combination 16

with the separate PBOP cost calculations for the Represented and M&A member groups begun in 2018, 17

this proposed asset redeployment would help ensure that the Company will be able to continue to meet 18

its financial obligations to provide all future retirees with the PBOP benefits for which they will be 19

eligible. SCE strongly urges approval of this important asset redeployment strategy. 20

(8) Test Year 2021 Forecast for PBOP Costs 21

SCE’s Test Year 2021 request of $20.6 million for PBOP costs is based on 22

estimates prepared by SCE’s PBOP actuary, Aon. As shown in workpapers,128 Aon projects no rate-23

recoverable PBOP costs under ASC 715-60 methodology allocated to the Represented group, costs for 24

the M&A group in 2021, 2022, and 2023 of $22.1 million, $21.0 million, and $20.8 million, 25

respectively, and current Service Costs for all SONGS employees of $0.670 million, $0.667 million, and 26

$0.665 million in those years. 27

128 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 192-203, PBOP.

106

Net projected recoverable 2021, 2022, and 2023 PBOP costs for the entire 1

population are, therefore, $21.4, $20.3, and $20.2 million, respectively, for a three-year average for the 2

forecast period of $20.6 million. This figure does not include $590k in Aon actuarial fees. 3

Projected PBOP liabilities are based on actuarial assumptions which 4

reflect the actuary’s best judgment of future events affecting the post-retirement benefits being valued. 5

Each individual assumption should be reasonable on its own merits and consistent with the other 6

assumptions used. Projected 2021-2023 PBOP costs were based on Aon’s 2018 actuarial valuation 7

results reflected, with adjustments, in December 31, 2018, financial statement disclosure information. 8

The underlying data and actuarial assumptions Aon used include: active and retiree census data 9

measured as of January 1, 2018, post-retirement health claims information for 2017 and prior years, a 10

4.35 percent discount rate, a 5.30 percent expected average long-term rate of return on assets,129 PBOP 11

trend rates, updated mortality assumptions based on October 2018 Society of Actuaries’ 12

recommendations, and other actuarial assumptions. Adjustments were made for 2018 Federal legislation 13

that became effective January 1, 2019, and for HRA benefits for employees hired after 2017. 14

(a) Forecast 15

For the Test Year 2021, SCE forecasts $21.2 million in three-year 16

average cost for Post-Retirement Benefits Other Than Pensions (PBOP), which covers all forecast PBOP 17

trust contributions, tax deductible net PBOP claims payments for certain retirees, and actuarial fees. The 18

figure shown earlier displays recorded PBOP costs for the years 2014 through 2018, forecast costs for 19

the years 2019 and 2020, and forecast three-year average cost for Test Year 2021. 20

(9) Test Year 2021 Forecast for PBOP Actuarial Fees 21

SCE also requests $0.59 million in Test Year 2021 for PBOP-related 22

actuarial fees that are not chargeable to the PBOP trusts. These fees cover the costs associated with GRC 23

support, ongoing actuarial valuations, and other projects. The forecast is based upon a contract estimate 24

from SCE’s PBOP actuary. 25

129 The 5.3 percent average return reflects 6.5 percent assumed returns for the 401(h) Account and Life Insurance

VEBA, and 4.75 percent assumed returns for all other VEBAs. After-tax returns are assumed for assets in the 1992 and 1999 M&A VEBA trusts, which are subject to unrelated business income tax. All other PBOP trusts are exempt from taxation.

107

(10) PBOP Balancing Account 1

As discussed in this Section above, per the 2006, 2009, 2012, 2015, and 2

2018 GRCs, SCE established a two-way (symmetrical) balancing account for PBOP costs. The PBOP 3

Balancing Account records the difference between authorized rate recovery for tax-deductible PBOP 4

trust funding (including the pre 1993 “pay-as-you-go” group costs) and actual PBOP costs (both 5

determined on a rate requirement basis). PBOP actuarial fees are excluded from the Balancing Account. 6

The revenue requirement associated with any overcollection or undercollection is consolidated into rate 7

levels annually through the Base Revenue Requirement Balancing Account (BRRBA), and any 8

accumulated balances receive interest at the commercial paper rate, consistent with treatment of interest 9

accruals for other SCE balancing accounts. 10

As discussed above, for the 2012 through 2014 and 2015 through 2017 11

periods, $38.3 million and $40.4 million, respectively, were returned to customers through the two-way 12

PBOP Balancing Account. This history illustrates the volatility of annual PBOP costs, which stems 13

almost entirely from factors outside of SCE’s control, including investment performance, rates of 14

increase in health costs, and discount interest rates changes. Two-way balancing account treatment 15

continues to protect customers and shareholders alike from this PBOP cost volatility. The balancing 16

account treatment remains as critical as ever for making sure that appropriate recovery of future PBOP 17

costs occurs. 18

The existing two-way PBOP Balancing Account benefits both customers 19

and shareholders. Like pension costs, PBOP costs can vary significantly with changes in prevailing 20

interest (i.e., discount) rates and with favorable or unfavorable investment performance. Similar to 21

SCE’s pension fund, the PBOP trusts include a significant equity allocation,130 primarily in the non-22

represented VEBAs and 401h. This equity exposure will lower the long-term costs of funding PBOP 23

benefits, but, as with pensions, will also result in significant volatility in PBOP asset returns, as 24

experienced in 2008 and afterward. 25

130 The current PBOP investment policy is 72 percent equities, 28 percent fixed income for all PBOP Trusts

except the Represented Trust.

108

f) Healthcare Programs 1

Figure III-18 Healthcare Programs

(includes Medical Programs, Dental Plans, and Vision Service Plan) Recorded 2014-2018/Forecast 2019-2021

(Nominal $000)

(1) Medical Programs 2

For Test Year 2021, SCE forecasts $100.217 million for medical programs 3

costs.131 Figure III-19 below, shows recorded Medical Programs costs for the years 2014-2018, plus 4

SCE’s forecast costs for 2019 through Test Year 2021. 5

131 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 257-262, Medical Programs.

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-LaborOther $123,495 $108,186 $108,927 $87,795 $95,384 $110,182 $115,344 $116,288

Total Expenses $123,495 $108,186 $108,927 $87,795 $95,384 $110,182 $115,344 $116,288

Recorded Forecast

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000


109

Figure III-19 Medical Programs


(a) Program Description 1

Under SCE’s Medical Programs, three types of medical coverage 2

may be available based on an employee’s geographic location: Preferred Provider Organization (PPO), 3

Health Maintenance Organization (HMO), and an Exclusive Provider Organization (EPO). SCE’s PPO, 4

HMO and EPO plans offer comprehensive medical coverage for employees and their dependents, 5

including preventive care, outpatient and inpatient hospital services, physician services, diagnostic 6

laboratory, x-ray and imaging services, mental health and substance abuse services, and therapeutic 7

treatments such as chemotherapy and physical therapy. 8

Each of the medical plan options offers complete coverage for all 9

preventive care services within guidelines for the patient’s age and gender. Each medical plan meets the 10

coverage requirements specified under the Patient Protection and Affordable Care Act and the Health 11

Care and Education Reconciliation Act of 2010 (ACA). Besides covering medical services, SCE also 12

includes prescription drug coverage in each medical plan. Depending on the plan elected, pharmacy 13

coverage is provided through a centralized pharmacy benefits manager or the medical plan’s own 14

pharmacy plan. Employees and their families may use a Preventive Health Account and the Employee 15

Assistance Program to address specific needs and concerns. Eligible employees may enroll in medical 16

plan coverage effective on the date of hire. 17

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-LaborOther $109,698 $93,228 $95,307 $75,320 $81,798 $94,442 $99,136 $100,217

Total Expenses $109,698 $93,228 $95,307 $75,320 $81,798 $94,442 $99,136 $100,217

Recorded Forecast

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000


110

The PPO plan features three options that allow employees to select 1

the cost-sharing they will have through differences in payroll contributions, the annual deductible and 2

the level of co-insurance. The PPO plan offers members the ability to go to any health care provider, 3

including specialists, without a referral. If in-network contracted providers are used, a higher percentage 4

of benefits is paid. Higher patient cost-sharing is required if out-of-network providers are selected. The 5

three PPO options each have different annual deductible limits, out-of-pocket limits, and coinsurance 6

requirements, which lower the patient’s share of these components requiring higher payroll 7

contributions. Conversely, the higher the patient’s share for these components the lower the payroll 8

contribution required. 9

HMOs provide the participant with access to a full spectrum of 10

care within a specific, coordinated delivery system. Care is typically accessed through the selected 11

primary care physician. Cost-sharing during service is in fixed dollar copays. All care, except that which 12

is received in emergency situations, must be coordinated through the HMO if it is to be covered. 13

Residence in the selected HMO service area is required, as plan availability depends upon the 14

employee’s home location. 15

An EPO is similar to an HMO in that all care must be received 16

through a closed network of health care providers, except for emergency services. The patient’s cost 17

sharing is based on fixed co-payments that vary by the service. This option is only available for 18

employees who reside in states other than California. 19

SCE has regularly changed its medical programs to address the 20

continuing escalations in medical costs. In 2006, SCE increased participant cost-sharing for medical 21

services. Continued adjustments in copays, deductibles and out-of-pocket limits, and the amounts 22

patients pay as care is received, have occurred in each subsequent year (the exception was 2015 during 23

union negotiations). In 2009, a shift was made in patient cost-sharing for prescription benefits from a flat 24

dollar co-payment per prescription to a percentage of the drug cost. This enhanced patient awareness of 25

prescription expenses and encouraged the selection of alternative, lower-cost prescriptions, such as 26

generic medications. 27

In 2008, SCE’s medical contribution approach changed 28

dramatically. Beginning that year, SCE’s contribution toward the cost of medical coverage for all 29

employees, except those represented by UWUA Local 246 and SOFA, was calculated based on the 30

medical plan SCE offers in an employee’s home geographic area that carries the lowest-total-cost for 31

111

that year (UWUA, Local 246 adopted this change in 2014). If an employee selects the lowest-cost 1

option, they pay a 15 percent contribution for themselves and 20 percent for their dependents of the 2

price of the lowest-cost plan. If an employee selects a higher-cost plan, they pay that cost, plus 100 3

percent of the additional cost differential between the lowest-cost plan and the plan they select. The 4

lowest-cost plan available to each employee is typically an HMO plan. 5

Tools and support services help employees estimate their medical 6

costs and make more informed healthcare decisions. Besides significant communications comparing the 7

features of one type of plan to another, each carrier has customized special websites which provides in-8

depth information on what their plans offer. Another example is SCE’s partnership with Health 9

Advocate, a company that helps employees identify the plan features that are most important to them 10

and their families’ health conditions, to allow for more informed plan elections by employees. 11

(b) Comparison of Authorized 2018 to Recorded 12

This section compares the amounts authorized by the Commission 13

in the 2018 GRC to the 2018 recorded O&M in this activity, along with an explanation for the variance. 14

As shown in Table III-5, the Medical Programs recorded amount of $81.8 million was less than the 15

authorized amount of $98.6 million, due to lower than expected trend rates. The Company originally 16

forecast a seven percent increase in medical plan costs, when the actual increase was approximately 17

five percent due to lower costs for Kaiser and Blue Shield of California. 18

(c) Scope and Forecast Analysis 19

In Test Year 2021, SCE will record Medical Programs cost in this 20

work activity. In accordance with SB 901 and the associated Executive Officers covered therein, all 21

costs recorded in historical years 2014-2018 were adjusted out so that these costs would not be included 22

in the Results of Operation Model forecast for this work activity.132 23

(i) Historical Variance Analysis 24

Costs decreased in 2015, attributable to the decrease in the 25

employee population and the exhaustion of extended health benefits provided to former employees as 26

part of the EIX severance plan. In 2017, costs decreased further due to additional workforce reductions 27

that occurred in 2016 and 2017. 28



112

(ii) Forecast 133 1

For Test Year 2021, SCE forecasts $100.217 million for 2

Medical Programs costs. Unlike the Linear Trending, Averaging, and Last Recorded Year 3

methodologies, the Itemized Forecast methodology described below is appropriate because it considers 4

the labor forecast. 5

Costs were forecast by multiplying the projected number of 6

eligible employees by the projected per-eligible-employee cost. The projected number of eligible 7

employees was derived by dividing the forecast labor cost for 2021 (expressed in 2018 dollars) by the 8

2018 average per-employee labor cost. Projected 2021 per-eligible-employee costs were determined by 9

calculating the cost per employee for 2018 then applying a forecast trend rate for each year. 10

There are multiple factors affecting the cost of medical care 11

and the trend rates into the future. Some of the bigger drivers cited in literature include: 12

• Higher costs for medical services 13

• Higher costs for pharmacy services 14

• Legislation 15

• New technologies 16

• Lifestyle choices 17

• Aging of the population 18

• Increases in specialty drug utilization134 19

SCE has illustrated each of these factors, in detail, in the 20

prior three rate case submissions.135 SCE believes each factor will continue to impact medical costs. In 21

SCE’s case, a further consideration is the population it covers and the fact that prescription drug costs 22

are built into the cost of each medical plan. The trend rates SCE considers must include these impacts 23

not only on its active population, but to pre-Medicare retirees who are also covered under the same plans 24

as active employees and who bear the same cost structure. In general, this would tend to increase 25

projections on medical trends, due to this older population who utilize medical services more frequently 26

133 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 263-264 and Book B, pp. 142-144, Forecast Method. 134 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 278-301, 2019 Segal Health Plan Cost Trend Survey. 135 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 274-277, Factors Affecting Medical Costs and Trends.

113

and the increases in pharmacy costs (especially in the specialty drug area, which continues to be an ever-1

increasing portion of total drug spend). 2

(iii) Summary Conclusion Regarding Medical Program 3

Forecast for 2021 4

There are a number of surveys produced by various 5

consulting and management firm which attempt to predict future medical cost trends. For example, Price 6

Waterhouse Cooper’s (PwC’s) Health Research Institute captured interviews of industry executives, 7

health policy experts and health plan actuaries whose companies cover more than 75 million employer-8

sponsored members. PwC also examined the results of its 2018 Health and Well-being Touchstone 9

Survey of more than 900 employers from 37 industries, as well as a Health Research Institute (HRI) 10

national consumer survey of 1,500 US adults and an HRI national clinician survey of 1,000 physicians, 11

physician assistants and nurse practitioners. After analyzing all of this data, PwC projected medical cost 12

trends of six percent upward for 2019.136 13

The National Business Group on Health 2019 Large 14

Employers Health Care Strategy and Plan Design Survey collected information from 170 large 15

employers who collectively employ 13 million people and cover more than 19 million lives. That survey 16

indicates that, for the sixth year in a row, employers expect costs will increase. For 2019, average costs 17

are expected to increase by five percent. 18

The 2019 Segal Health Plan Cost Trend Survey, conducted 19

by the Segal Company, is based on 100 responses from insurers or administrators. That survey indicates 20

a health trend of 7.1 percent for PPO plans and 6.6 percent for HMO plans with supplementary trends 21

for prescription drug costs of 6.9 percent for outpatient drug coverage to 14.3 percent for specialty drug 22

costs. 23

Other studies suggest different projections based on widely 24

differing assumptions, such as the inclusion/exclusion of pharmacy drug costs, the age of the population 25

studied, and other impacts. Therefore, to assist in determining what cost escalation rate to use to project 26

the costs of the medical plans, SCE contacted the administrators of the medical plans and asked them to 27

provide their current underwriting projections. The letters we received indicated that, depending on the 28

plan, the carrier’s underwriters expected future medical plan escalation rates to range from 5 to 10 29

136 See https://www.pwc.com/us/touchstone2019 (as of August 1, 2019).

114

percent for 2019 through 2024.137 Those estimates are more representative of SCE’s population and 1

coverages than broad surveys of employers that represent average health care increases nationwide, 2

since the health care administrators are most familiar with SCE’s cost profile and are considering age 3

and health factors that are specific to SCE in preparing their cost increase projections. 4

After reviewing SCE’s actual medical plan trends, the trend 5

rates provided by the administrators of SCE’s medical plans, outside consulting firm projections of 6

trends, and after considering the significant pressures on medical plan costs outlined above, SCE has 7

projected a trend rate of zero percent for 2019 and a five percent trend increase for 2020 and 2021. 8

Although this is at the lowest end of the underwriters’ projections, SCE believes that this rate can be 9

achievable through its continued active management of health care claims, its wellness plan efforts, and 10

adjustments to plan design (after union negotiation and approval, as necessary). 11

In the 2015 SCE GRC Decision, the Commission stated: 12

“we give significant weight to SCE’s reference to escalation rates provided by its plan administrators, 13

and find this preferable to relying on a broader public study as proposed by ORA.”138 In the SCE 2018 14

GRC Decision, the Commission reinforced its point: “ORA has not demonstrated that a different 15

approach is warranted in this proceeding...”139 The Commission should once again approve SCE’s use of 16

healthcare trend rates in forecasting its healthcare expenses. 17

Medical Programs Balancing Account - The medical cost 18

trends and additional factors discussed above affecting future health care costs demonstrate the critical 19

need for ongoing two-way (symmetrical) balancing account treatment. In this GRC, SCE proposes that 20

the Commission continue using the Balancing Account for medical programs adopted in the 2009, 2012, 21

2015, and 2018 GRC decisions.140 22

(iv) Discussion of Post-Test Year Medical Cost Escalation 23

The factors increasing the expected costs of medical care 24

for 2018 will continue to impact 2019 and 2020. None of the significant cost drivers contributing to 25

137 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 266-273, Medical Trend Letters and Medical Trend

Forecast. 138 D.15-11-021, p. 275. 139 D.19-05-020, p. 192. 140 See Exhibit SCE-07, Vol. 01, Results of Operations, GRC-Related Balancing and Memorandum Account

Proposals.

115

health care cost escalation show any tendency to diminish or lose their upward pressure on the overall 1

cost picture. 2

The challenges with cost escalation are further 3

compounded by the lack of readily available solutions. Historically, increased enrollment in HMOs, 4

where care was more tightly managed, was an effective means of reducing cost increases. The trend in 5

California is going away from HMOs (where physician groups get reimbursed primarily based on 6

capitation, which creates incentives for providers to deliver more efficient services), to physicians 7

modifying their practice patterns to take advantage of the return to reimbursing on a fee-for-service 8

basis, where doing more is financially rewarded. Although employers have seen reductions in the health 9

care trend in the last few years, this typically has resulted from increasing the share of the premiums 10

employees must pay, by adopting plan provisions that require greater cost-sharing as services are used 11

through higher deductibles and copayments, or by changing the method of cost-sharing to a percentage 12

of the charge (which increases the participants’ awareness of the cost of services). 13

In the recent past, SCE has adopted each of these plan 14

design changes, and employees and their families are paying a much greater share of the medical 15

program expenses now compared to past years. However, this has not addressed the systemic issues 16

within a health care system that continues to react and adapt to find new ways to generate revenue. 17

Based on these major factors and the volatility being 18

experienced in the health care system, the medical cost escalation is projected to be five percent for the 19

post-test years 2022 and 2023. SCE considered the numerous factors influencing medical costs, and the 20

estimated impact of these factors for its covered population based on underwriting projections for its 21

own medical plans. 22

(2) Dental Plans 23

For Test Year 2021, SCE forecasts $13.270 million for Dental Plans 24

costs.141 Figure III-20 below, shows recorded dental plans costs for the years 2014-2018, plus SCE’s 25

forecast costs for 2019 through Test Year 2021. 26

141 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 302-307, Dental Plans.

116

Figure III-20 Dental Plans


(a) Program Description 1

Eligible enrolled employees and their covered dependents can 2

choose from two dental plans: Delta Dental and Cigna. Delta Dental is a self-funded plan administered 3

by Delta Dental of California. Under this plan, SCE pays Delta an administrative fee plus the actual 4

services rendered. Cigna is a dental maintenance organization for which SCE pays a fixed monthly fee 5

to cover dental services for each enrolled member. All dental plans provide 100 percent coverage for 6

preventive services, while requiring various levels of cost sharing for other dental services. For each 7

dental option, the Company’s contribution is 85 percent of the cost for the employee’s coverage and 80 8

percent of the cost for the dependent’s coverage. Employees may elect to waive dental coverage. 9

(b) Comparison of Authorized 2018 to Recorded 10



As shown in Table III-5, the Dental Plans 2018 recorded amount of $11.3 million was less than the 2018 13

authorized amount of $14.5 million by $3.2 million due to lower than expected trend rates. 14

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-LaborOther $11,201 $12,151 $11,190 $10,389 $11,256 $12,996 $13,382 $13,270

Total Expenses $11,201 $12,151 $11,190 $10,389 $11,256 $12,996 $13,382 $13,270

Recorded Forecast

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000


117

(c) Scope and Forecast Analysis 1

In Test Year 2021, SCE will record Dental Plans costs in this work 2

activity. In accordance with SB 901 and the associated Executive Officers covered therein, all costs 3

recorded in historical years 2014-2018 were adjusted out so that these costs would not be included in the 4

Results of Operation Model forecast for this work activity.142 5


As shown in Figure III-20 from 2014 to 2018, plan costs 7

remained relatively flat. 8

(ii) Forecast 143 9


dental plan costs. Costs were forecast by multiplying the projected number of eligible employees by the 11

projected per-eligible-employee cost. The projected number of eligible employees was derived by 12

dividing the forecast labor cost for 2021 (expressed in 2018 dollars) by the 2018 average per-employee 13

labor cost. Projected per-eligible-employee costs were determined by decreasing the 2018 per-eligible-14

employee cost by zero percent for 2019 and increasing the costs by three percent for 2020 and 2021. The 15

dental forecast trend rate was calculated using trend rate data provided by the two dental plan carriers.144 16

Unlike the Linear Trending, Averaging, and Last Recorded Year methodologies, the Itemized Forecast 17

methodology described above is appropriate because it considers the labor forecast and plans cost de-18

escalation and escalation. 19

(3) Vision Service Plan (VSP) 20

For Test Year 2021, SCE forecasts $2.802 million for VSP costs.145 Figure 21

III-21 below shows recorded VSP costs for the years 2014 through 2018, plus SCE’s forecast costs for 22

2019 through Test Year 2021. 23


Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments. 143 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 308 and Book B, pp. 142-144, Forecast Method. 144 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 273, and 310-311, Dental Trend Letters and Medical Trend

Forecast. 145 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 312-317, Vision Service Plan.

118

Figure III-21 Vision Service Plan (VSP)


Vision care benefits are available for eligible enrolled employees and their 1

covered dependents. At SCE, vision care is provided through a self-funded plan administered by VSP. 2

SCE pays an administrative fee to use VSP’s network of vision care providers and claims processing 3

services, plus the cost of the actual services rendered. 4

Vision benefits include annual eye exams with a $20 co-payment, 5

corrective lenses and frames or contact lenses, each with limits on how frequently they may be 6

dispensed, and a corrective eye surgery benefit. The surgery benefit is available for only one covered 7

family member and has a lifetime maximum of $2,000. To receive this benefit, pre-approval is required 8

and usually a VSP network provider must be used. 9

(a) Comparison of Authorized 2018 to Recorded 10



As shown in Table III-5, the Vision Service Plan 2018 recorded amount of $2.3 million was less than the 13

2018 authorized amount of $3.3 million by $1.0 million due to a lower than forecast headcount. 14

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-Labor ($0) ($0) ($0) ($0)Other $2,596 $2,807 $2,430 $2,085 $2,330 $2,744 $2,825 $2,802

Total Expenses $2,596 $2,807 $2,430 $2,085 $2,330 $2,744 $2,825 $2,802

Ratio of Labor to Total - - - - - - - -

Recorded Forecast

($500)

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2014 2015 2016 2017 2018 2019 2020 2021


119

(b) Scope and Forecast Analysis 1

In Test Year 2021, SCE will record VSP Program costs in this 2

work activity. In accordance with SB 901 and the associated Executive Officers covered therein, all 3

costs recorded in historical years 2014-2018 were adjusted out so that these costs would not be included 4

in the Results of Operation Model forecast for this work activity.146 5


The decrease in recorded costs from 2016 and 2017 are 7

related to the reductions in workforce that occurred in 2016 due to the Operational Excellence Initiative. 8

Costs increased slightly due to the right-sizing of the Company. 9

(ii) Forecast 147 10

For Test Year 2021, SCE forecasts $2.802 million for VSP 11

costs. Unlike the Linear Trending, Averaging, and Last Recorded Year methodologies, the Itemized 12

Forecast methodology described below is appropriate because it considers the labor forecast and plan 13

cost escalation. 14




2018 average per-employee labor cost. Projected per-eligible-employee costs were determined by 18

applying the forecast vision trend rate of 1.9 percent for 2019 (which reflects actual experience) and 3.0 19

percent for 2020 and 2021 to the 2018 per-eligible-employee cost. The vision trend rates were based on 20

projections provided by VSP, the vision plan administrator.148 21


Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments. 147 Refer to WP SCE-06, Vol. 03, Part 1, Book A, p. 318 and Book B, pp. 142-144, Forecast Method. 148 Refer to WP SCE-06, Vol. 03, Part 1, Book A, pp. 273 and 320, Medical Trend Forecast and Vision Service

Plan Trend Letter.

120

g) Disability Management 1

Figure III-22 Disability Management

Recorded/Adjusted 2014-2018/Forecast 2019-2021


Disability Management designs and manages the non-occupational 3

disability program, which includes the Comprehensive Disability Plan (CDP), Long Term Disability 4

(LTD) plan, Return to Work Program (RTWP), Paid Family Leave (PFL), job protected leaves and job 5

accommodations. CDP, LTD and PFL provide income replacement to eligible employees who are 6

unable to work due to injury or illness. 7

Disability Management oversees an external vendor. Employees file 8

claims for benefits with this vendor under CDP, LTD and PFL, as well as requests for job-protected 9

leaves and job accommodations. Disability Management manages the RTWP directly. 10


Collective bargaining agreements, federal, state and local laws and 12

regulations, and Company policies drive the work performed by Disability Management. All of these 13

sources specify how the CDP, LTD, PFL, RTWP, job-protected leaves and job accommodations will be 14

administered and how claims will be handled for both represented and non-represented employees. 15

2014 2015 2016 2017 2018 2019 2020 2021Labor $1,259 $874 $647 $560 $518 $621 $622 $512

Non-Labor $26 $30 $28 $30 $21 $30 $30 $21Other $17,488 $16,648 $15,439 $15,840 $14,681 $17,465 $18,078 $17,978

Total Expenses $18,773 $17,552 $16,114 $16,430 $15,220 $18,117 $18,729 $18,511

Recorded Forecast

$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000$18,000$20,000


121


Disability Management recorded $15.2 million in expenses in 2018, which 2

was lower than the $18.0 million authorized in SCE’s 2018 GRC. This was due to lower recorded 3

expense in Disability Programs as shown in Table III-5. 4


For Test Year 2021, SCE forecasts a total of $18.5 million for disability 6

management costs. Recorded disability management costs for the years 2014 through 2018, plus forecast 7

costs for Test Year 2021 are shown in Table III-14. 8

Table III-14 Disability Management Costs

Recorded and Adjusted 2014-2018/Forecast 2021 (Constant 2018 $000)

(a) Disability Administration Staff 149 9

SCE records salaries and related expenses of Disability 10

Management employees associated with employee pensions and benefits in this activity. 11


Labor and non-labor costs decreased significantly from 13

2014 to 2016 due to organizational restructuring as part of the Operational Excellence initiative and 14

attrition in 2016. Costs remain relatively stable from 2017 to 2018. 15

(ii) Forecast 16

The Disability Administration Department’s Test Year 17

2021 forecast for operating expenses is $533,000. The labor forecast of $512,000 and non-labor forecast 18

of $21,000 are based on 2018 recorded expenses with a slight adjustment. 19

149 Refer to WP SCE-06, Vol. 03, Book B, pp. 1-6, Disability Management - Administration.

GRC Activity 2014 2015 2016 2017 2018 2021Forecast

Labor 1,259$ 874$ 647$ 560$ 518$ 512$ Non-labor 26$ 30$ 28$ 30$ 21$ 21$ Disability Administration 1,285$ 904$ 675$ 590$ 539$ 533$ Disability Program 17,488$ 16,648$ 15,439$ 15,840$ 14,681$ 17,978$ Total 18,773$ 17,552$ 16,114$ 16,430$ 15,220$ 18,511$

122

SCE’s forecast is consistent with D.89-12-057, where the 1

Commission stated that when an account has shown a cost trend in a certain direction over three or more 2

years, or when costs are relatively stable, then the last recorded year is an appropriate base estimate. 3

(b) Disability Programs 150 4

The disability program provides income protection if an employee 5

becomes ill or injured and unable to work, and complies with all federal, State of California, and local 6

mandates for other paid and/or job-protected time off. If employees are not totally disabled but are 7

unable to return to their prior positions, the disability program assists employees in finding other jobs 8

that can be performed within their medical restrictions. The components of the disability program are 9

explained below. 10

(i) Comprehensive Disability Plan 11

The Comprehensive Disability Plan (CDP) is SCE’s 12

voluntary short-term disability plan, which satisfies the State of California’s requirement for short-term 13

disability coverage. Benefits from CDP replace a portion of the wages of an employee who is ill or 14

injured and unable to perform his or her regular job. 15

(ii) Long-Term Disability 16

The Long-Term Disability Plan (LTD) provides partial 17

income replacement to full-time eligible employees who are ill or injured and unable to perform any 18

reasonable job for SCE for six months or longer. The definition of a qualifying disability for the first 19

two years of disability is the inability to perform one’s regular job. After the initial two-year disability 20

period, LTD benefits are available only if the employee is unable to perform any reasonable job for 21

SCE. 22

(iii) Return to Work Program 23

The Return to Work Program was designed to help SCE 24

retain the critical skills of employees who have permanent work restrictions that prevent them from 25

performing their regular jobs by assisting them in returning to alternative, productive work, and 26

providing workplace accommodations. Participation is voluntary for employees receiving either CDP or 27

LTD benefits, but mandatory once CDP and/or LTD benefits have ended, unless employees are able to 28

150 Refer to WP SCE-06, Vol. 03, Book B, pp. 7-12, Disability Management - Programs.

123

return to their regular and customary job. While in this program, employees receive 70 percent of base 1

pay, for up to 30 months (extensions are possible under very limited circumstances). 2

(iv) Paid Family Leave 3

Paid Family Leave is designed to help employees care for 4

an ill parent, child, or spouse/domestic partner or bonding with a new child. This program provides for 5

partial income replacement, as required under California’s Paid Family Leave Law. 6

(v) Disability Program Administration 7

To help achieve conformity with the California 8

Employment Development Department’s (EDD) guidelines, comply with new federal, state and local 9

laws as they are enacted, consistently apply plan provisions, maintain the confidentiality of employee 10

medical information, and effectively manage disability absences, processing of claims for absences 11

longer than three days are administered by an external vendor with technical expertise in administering 12

disability programs. 13

In addition to the above, the third-party administrator uses 14

processes that help facilitate returning employees back to work earlier (even if in modified positions) or 15

improving their chances of getting approved for federal Social Security Disability Insurance (SSDI) if 16

they are considered viable candidates. 17

(vi) Historical Variance Analysis 18

Factors that influence the recorded costs of disability 19

programs include the plan design, changes in legally-mandated plan components, and administrative 20

changes, as well as the changes in numbers and salary increases of SCE’s workforce. As shown in Table 21

III-14, costs remained relatively stable from 2014 to 2017. Costs were slightly lower in 2018 compared 22

to 2017 as a result of Actuarial projection of LTD future liability. 23

(vii) Forecast 24

For Test Year 2021, SCE forecasts a total of $17.978 25

million for the disability program costs. Unlike the Linear Trending, Averaging, and Last Recorded 26

Year methodologies, the Itemized Forecast methodology is appropriate because it takes into account the 27

workforce forecast, as described below. In accordance with SB 901 and the associated Executive 28

Officers covered therein, all costs recorded in historical years 2014-2018 for LTD were adjusted out so 29

124

that these costs would not be included in the Results of Operation Model forecast for this work 1

activity.151 2

Test-year costs were forecast by multiplying the projected 3

number of eligible employees by the projected per-eligible-employee cost. The projected number of 4

eligible employees was derived by dividing the forecast labor cost for 2021 (expressed in 2018 dollars) 5

by the 2018 average per-employee labor cost. As pay rates coupled with utilization rates determine 6

disability expenses, projected per-eligible-employee costs were derived by applying the labor escalation 7

rate152 for 2019, 2020, and 2021 to the 2018 per-eligible employee disability cost. 8

h) Group Life Insurance 9

For Test Year 2021, SCE forecasts $1.366 million for Group Life Insurance plan 10

costs. Figure III-23 below shows recorded Group Life Insurance plan costs for the years 2014 through 11

2018, plus forecast costs for 2019 through Test Year 2021.153 12


Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments. 152 Refer to Exhibit SCE-07, Vol. 01, Results of Operations, Cost Escalation; WP SCE-06, Vol. 03, Part 1, Book

B, pp. 142-144, Employee Count; and WP SCE-06, Vol. 03, Part 1, Book B, p. 15-16, Itemized Forecast Calculation.

153 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 18-23, Group Life Insurance.

125

Figure III-23 Group Life Insurance Costs



(a) Group Life Insurance 2

Group Life Insurance includes expenses for four separate types of 3

coverage. Each is discussed below. 4

(i) Employee Life Insurance 5

There are two components of the Employee Life Insurance 6

program: Company-provided life insurance, and supplemental insurance. The cost of each option is 7

based on the employee’s eligible salary as of September 1 and age as of December 31 of the prior year. 8

Company-paid coverage is one times the employee’s base 9

pay up to $50,000. Besides the Company-paid coverage, during the annual enrollment process, 10

employees may elect supplemental insurance coverage, paid for by the employee, from one-to-eight 11

times base pay. 12

(ii) Dependent Life Insurance 13

Multiple dependent life insurance coverage options are 14

available to employees. There is no Company contribution towards this coverage. The employee’s cost 15

depends upon whom the employee covers and the option selected. 16

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-Labor ($0) $0 $0 ($0) ($0)Other $1,178 $1,307 $1,095 $1,034 $1,229 $1,420 $1,419 $1,366

Total Expenses $1,178 $1,307 $1,095 $1,034 $1,229 $1,420 $1,419 $1,366


Recorded Forecast

($200)

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2014 2015 2016 2017 2018 2019 2020 2021


126

Employees may purchase coverage for spouses in flat 1

amounts of $5,000, $15,000, $25,000, or $50,000. Employees may also purchase spousal life coverage 2

from one-to-four times the employee’s base pay (up to 100 percent of the employee’s total life insurance 3

coverage, company-provided and any supplemental coverage, as negotiated with the unions effective 4

January 1, 2016) to a maximum of $300,000. The options available for children are flat amounts of 5

$2,000, $5,000, $10,000, $15,000 or $25,000. 6

(iii) Accidental Death & Dismemberment (AD&D) 7

Insurance 8

The Company provides eligible employees with $50,000 of 9

AD&D coverage. In addition, employees may elect, at their own expense, additional coverage of two, 10

four, six, eight, or ten times base pay (to a maximum of $2 million). Employees may elect to pay for 11

coverage for their spouse and/or children. If spousal coverage is selected by the employee, it is limited 12

to 50 percent of the employee’s coverage (up to 100 percent of the employee’s total AD&D insurance 13

coverage, company-provided and any supplemental coverage, effective January 1, 2016). If child 14

coverage is selected by the employee, the coverage is limited to 10 percent of the employee’s coverage 15

(to a maximum of $50,000). The cost is based on the employee’s eligible base pay as of September 1 of 16

the prior year and the option chosen. 17

(iv) Business Travel Accident Insurance 18

Business Travel Accident Insurance provides employees 19

with coverage equal to two times the employee’s base pay up to a maximum of $300,000. SCE 20

executives are provided $350,000 in coverage, or $450,000 if they are elected officers. This coverage is 21

paid for by the Company and no employee contributions are required. 22



2018 GRC to the 2018 recorded O&M in this activity. Table III-5 shows the de minimis variance of $0.1 25

million between the 2018 authorized amount of $1.4 million and the 2018 recorded cost of $1.2 million 26

for Group Life Insurance. 27


In Test Year 2021, SCE will record these Group Life Insurance plan costs 29

in this work activity. In accordance with SB 901 and the associated Executive Officers covered therein, 30

127

all costs recorded in historical years 2014-2018 for Group Life Insurance were adjusted out so that these 1

costs would not be included in the Results of Operation Model forecast for this GRC activity.154 2


Cost decreases in 2016 are attributable to the decrease in the 4

employee population due to SCE’s Operational Excellence Initiative. The recorded costs for Group Life 5

Insurance increased in 2018 because the insurance provider increased the group life rates. 6

(b) Forecast 155 7

For Test Year 2021, SCE forecasts $1.366 million for Group Life 8

Insurance plan costs. Unlike the Linear Trending, Averaging, and Last Recorded Year methodologies, 9

the Itemized Forecast methodology described below is appropriate because it considers the labor 10

forecast. 11




2018 average per employee labor cost. Projected per-eligible-employee costs were determined by 15

applying a forecast life insurance trend rate of zero percent for 2019 through 2021.156 16

i) EIX Severance Plan 17

For Test Year 2021, SCE forecasts $2.844 million for the EIX Severance Plan 18

(Severance Plan) costs. Figure III-24 below shows recorded Severance Plan costs for the years 2014 19

through 2018, plus forecast costs for 2019 through Test Year 2021.157 20


Part 1, Book A, p. 15, SB 901 Compensation and Benefits Adjustments. 155 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 24 and 142-144, Forecast Method. 156 Refer to WP SCE-06, Vol. 03, Book A, p. 273, Medical Trend Forecast; and Book B, p. 26, Group Life

Insurance Trend Letter. 157 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 27-32, Severance Plan.

128

Figure III-24 Severance Plan



The Severance Plan provides cash severance, outplacement services, and 2

educational reimbursement benefits to full-time, non-executive, non-represented employees.158 3

Participation in the Severance Plan is contingent upon executing a Separation Agreement & Release 4

(SAR). Impacted employees are given 45 days to review the SAR prior to execution, and have a seven-5

day post-execution window to revoke their signature. The cash severance is primarily calculated based 6

upon the years of completed service with SCE (or another EIX company), with a minimum of four 7

weeks of base salary and a maximum of 52 weeks of base salary. Participants may also receive extended 8

health care coverage or retiree health care coverage (if eligible) at subsidized rates. This coverage 9

includes medical, dental, vision, and employee assistance program benefits. Participants are responsible 10

for making timely payments for their portion of the coverage. 11

158 Employees represented by a union receive severance under the terms of the applicable collective bargaining

agreement. Executive employees receive severance under the terms of the applicable executive severance plan.

2014 2015 2016 2017 2018 2019 2020 2021Labor $8,534 $31,684 $20,852 $3,674 $1,397 $2,844 $2,844 $2,844

Non-Labor ($4,045) ($3,146) ($561) $405 $210Other

Total Expenses $4,489 $28,538 $20,291 $4,079 $1,608 $2,844 $2,844 $2,844


Recorded Forecast

($10,000)

($5,000)

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2014 2015 2016 2017 2018 2019 2020 2021


129

The Severance Plan was designed so that similarly-situated employees are 1

treated equitably. Individually negotiated severance packages would have been substantially less 2

efficient, made the process more costly for the Company and adverse for departing employees, and 3

increased the risk of potential legal claims arising from perceived differences between packages offered 4

to similarly situated employees. The Severance Plan is designed to comply with applicable legal 5

requirements (e.g., Internal Revenue Code 409a, ERISA, and federal and state WARN acts). 6

Ninety-seven percent of employers surveyed in the Lee Hecht Harrison 7

Severance and Separation Benefits survey provide some sort of severance benefit to their workforce.159 8

SCE’s Severance Plan design is consistent with other benefits offered by the majority of companies, 9

including: (1) calculating the cash severance amount based upon years of service, (2) paying the cash 10

severance amount as a lump sum, (3) incorporating minimum and maximum cash severance amounts, 11

and (4) requiring participants to execute a release agreement. The Severance Plan is essential. Through 12

the Plan, severed employees receive a bridge in pay and benefits as they seek other employment. In 13

addition, the Severance Plan protects SCE’s standing in the local communities and labor market during 14

reductions in force.160 15



2018 GRC to the 2018 recorded O&M in this activity as well as an explanation of the variance. As 18

shown in Table III-5, the EIX Severance Plan 2018 recorded amount of $1.6 million exceeded in full the 19

2018 authorized amount of $0.0. This is because SCE did not request recovery for this benefit in the 20

2018 GRC. 21



Severance Plan costs peaked in 2015, 2016 and 2017 as the 24

Company experienced large reductions in its workforce due to its Operational Excellence Initiative. SCE 25

will continue to evaluate departments and their alignment within the organization, but currently does not 26

anticipate the large reductions experienced in 2015 and 2016. 27

159 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 40 and 50, Severance Survey. 160 Id., pp. 40 and 52-56, Severance Survey.

130

(b) Forecast 1

For Test Year 2021, SCE forecasts $2.8 million for Severance Plan 2

costs. To forecast future costs, SCE used a two-year average, removing 2014, 2015 and 2016 costs as 3

anomalies due to the unusually high level of employee severances as a result of its Operational 4

Excellence initiative. The last recorded year is not an appropriate methodology, because the costs have 5

not been relatively constant, nor has there been a trend in one direction or another. A two-year average is 6

a better forecast methodology as it smooths out the variability. 7

j) Miscellaneous Benefit Programs 8

The Miscellaneous Benefit Programs consist primarily of Electric Service 9

Discount Reimbursement, Commuter Programs, and Educational Reimbursement.161 For Test Year 10

2021, SCE forecasts $6.302 million for Miscellaneous Benefit Programs costs. Figure III-25 below, 11

shows recorded Miscellaneous Benefit Programs costs for the years 2014 through 2018, plus SCE’s 12

forecast costs for 2019 through Test Year 2021. 13

161 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 89-94, Miscellaneous Benefit Programs.

131

Figure III-25 Miscellaneous Benefit Programs



(a) Electric Service Discount 2

The Electric Service Discount (SCE’s Rate Schedule DE) provides 3

a 25 percent discount on domestic electric service for full-time employees who live in SCE's service 4

territory and have completed six months of service with the Company. Retirees are also eligible for this 5

rate. Employees whose work assignment precludes them from living in SCE’s service territory are 6

eligible to receive a comparable 25 percent reimbursement for their electric service. 7

The expenses associated with the 25 percent reimbursement for 8

those eligible employees whose work assignments preclude them from living in SCE’s service territory 9

are included in this Test Year request. The expenses associated with the 25 percent discount for 10

employees (and retirees) within SCE’s service territory are addressed in rate design. 11

(b) Education Reimbursement 12

SCE sponsors an Educational Reimbursement Program that 13

encourages and assists employees in developing their work-related skills. Employees may be reimbursed 14

up to $5,250 per calendar year for tuition and books when enrolled in a pre-approved degree, certificate, 15

or correspondence program at an approved institution. This is the amount specified in Section 127 of the 16

2014 2015 2016 2017 2018 2019 2020 2021Labor ($0) $0 $0

Non-Labor $0 ($0) $0 $0 ($0)Other $7,251 $7,128 $6,511 $5,875 $5,671 $6,548 $6,546 $6,302

Total Expenses $7,251 $7,128 $6,511 $5,875 $5,671 $6,548 $6,546 $6,302


Recorded Forecast

($1,000)

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

2014 2015 2016 2017 2018 2019 2020 2021


132

Internal Revenue Code. The educational program must benefit SCE and relate to the employee’s present 1

job, development plan, career path, or rehabilitation plan. All approved institutions must meet U.S. 2

Department of Education eligibility requirements. 3

(c) Commuter Programs 4

SCE has historically offered several commuter programs to 5

encourage employees to use public transit or high-occupancy commuting vans. Participation in the 6

commuter programs is voluntary. To support use of those programs, the Company allows eligible 7

employees to pay eligible commuter expenses (as defined in the IRS Code) through pretax payroll 8

deductions, up to limits established by Section 132(f) of the Internal Revenue Code, which for 2019 is 9

$265 per month. In addition, SCE provides a 25 percent subsidy toward an employee’s transit costs up 10

to a maximum subsidy of $62 per month for 2019. The pre-tax deduction and subsidy are available to 11

employees who travel to and from work by public transit (rail, train, or bus) or are members of a 12

qualified vanpool. These reimbursement amounts are consistent with those offered by other 13

employers.162 14



2018 GRC to the 2018 recorded O&M in this activity, along with an explanation for the variance. 17

Miscellaneous Benefits recorded $5.7 million in expenses in 2018, which was lower than the $8.0 18

million authorized in SCE’s 2018 GRC by $2.4 million. This was due to the lower costs charged for Six 19

Sigma and Project Management classes which can now be taken through the Skillsoft offerings. 20



In Test Year 2021, SCE will record these Miscellaneous Benefit Programs 23

costs in this work activity. Employee population and program usage changes are the primary drivers of 24

the miscellaneous benefit costs. In 2015, the costs decreased primarily due to the elimination of certain 25

commuter programs associated with travel by employees between public transportation train stations and 26

offices, and between different office locations. 27

162 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 95-107, Commuter Programs.

133

Decreased costs between 2016 and 2017 are driven by the 1

Educational Reimbursement program. Classes for Project Management and Six Sigma that were 2

previously reimbursed through the program are now included in the Skillsoft offerings.163 3

(b) Forecast 4


Miscellaneous Benefit Programs costs. Unlike the Linear Trending, Averaging, and Last Recorded Year 6

methodologies, the Itemized Forecast methodology described below is appropriate because it considers 7

the labor forecast. 8


eligible employees by the projected per-eligible-employee composite cost. The projected number of 10

eligible employees is derived by dividing the forecast labor cost for 2021 (expressed in 2018 dollars) by 11

the 2018 average per employee labor cost. Projected per-eligible-employee costs for these programs 12

were assumed to increase at the non-labor escalation rate (as developed in Exhibit SCE-07, Volume 1, 13

Results of Operations, Cost Escalation) through 2021. 14

k) Executive Benefits 15

For Test Year 2021, SCE forecasts $15.542 million for Executive Benefits 16

costs.164 Figure III-26 below, shows recorded Executive Benefits costs for the years 2014 through 2018, 17

plus SCE’s forecast costs for 2019-2021. 18

163 See Section IV, Employee Training Overview. 164 Refer to WP, SCE-06, Vol. 03, Part 1, Book B, pp. 108-119, Executive Benefits.

134

Figure III-26 Executive Benefits



The Executive Benefits package is a key part of SCE’s total compensation 2

offered to attract and retain qualified executives who lead operations and work activities, and chart the 3

strategy and direction of the utility. Since SCE competes for executive talent from both utilities and 4

companies in other industries, that package must be market-competitive across industries. The benefits 5

provided include the Executive Retirement Plan and other benefits not included in the rate request due to 6

their negligible cost to SCE. The Executive Retirement Plan is a non-qualified pension plan that 7

provides benefits that executives cannot receive in the qualified SCE Retirement Plan due to 8

compensation and payout limits imposed by the Internal Revenue Code (IRC) on that plan. The 9

compensation recognized for plan purposes is base pay, except for elected officers, where compensation 10

is base pay plus bonus. 11

The Executive Retirement Plan calculates benefits based on one of SCE’s 12

final average pay pension formulas in existence when the Company adopted the Cash Balance Account 13

formula in 1999. This formula provides no vesting until five years of service is completed, significant 14

reductions in value if a covered executive terminates employment prior to early retirement eligibility 15

(age 55 with at least five years of service), and graded reductions in value for early retirement at ages 16

2014 2015 2016 2017 2018 2019 2020 2021Labor

Non-LaborOther $11,861 $19,344 $13,769 $14,354 $14,545 $16,794 $16,789 $15,542

Total Expenses $11,861 $19,344 $13,769 $14,354 $14,545 $16,794 $16,789 $15,542

Recorded Forecast

$5,000

$10,000

$15,000

$20,000

$25,000


135

from 55 but prior to 61. These features were preserved in the Executive Retirement Plan because of their 1

value in retaining needed executives to older ages. 2

Once the Executive Retirement Plan benefit is determined for an 3

executive, the benefit that executive earned under the qualified SCE Retirement Plan is subtracted, in 4

addition to up to 40 percent of the executive’s Social Security benefit. Only the residual is paid from the 5

Executive Retirement Plan. In addition to the lump-sum and annuity-payment options of the SCE 6

Retirement Plan, the Executive Retirement Plan offers annual payments over periods of up to 15 years. 7

Enhanced retirement benefits are available under the Executive Retirement 8

Plan if an executive is involuntarily severed not for cause. If this occurs, one additional year of age and 9

service is added to the Executive Retirement Plan calculation. The retirement severance benefit for 10

senior officers who lose their positions due to a change in control of the holding company would be two 11

additional years of age and service, or, for SCE’s President, three additional years of age and service. 12

The severance benefit also immediately vests the retirement benefit for executives not otherwise vested 13

(i.e., if they have less than five years of service at termination). For these executives, severance gives 14

them more than the one-year age and service enhancement (i.e., their entire Executive Retirement Plan 15

benefit will be attributable to the severance benefit). 16

In 2018, SCE made significant changes to the Executive Retirement Plan. 17

For executives hired prior to 2017, accruals prior to Jan 1, 2018 are based on 1.75 percent of final 18

average pay up to 30 years of service, plus 1 percent of final average pay for service over 30 years. This 19

changed for accruals on or after 2018 to 1 percent of final average pay up to 30 years of service plus 0.5 20

percent of final average pay over 30 years of service. The final average pay formula was eliminated for 21

executives hired in 2018 and thereafter. 22

Instead, a new plan under the Executive Retirement Plan, called the 23

Executive Retirement Account, was created. This plan is designed to provide company contributions of 24

12 percent of an executive’s base pay and bonus. To determine the 12 percent base pay credit, SCE takes 25

into account contributions made to the Edison 401(k) Savings Plan (including an assumed 6 percent 26

company matching contribution) and, for executives hired prior to 2018, amounts contributed to the final 27

average pay retirement formula, up to the IRS Compensation Limit. 28



2018 GRC to the 2018 recorded O&M in this activity as well as an explanation of the variance. 31

136

Executive Benefits recorded $14.5 million; this was $4.4 million higher than the authorized amount of 1

$10.1 million. This variance is largely due to the Commission disallowing 50 percent of the Executive 2

Benefits costs that SCE continued to record in an effort to remain competitive in the executive labor 3

market. The 2018 recorded cost also excluded costs of executive officers associated with SB 901, 4

whereas the authorized dollars do not. 5


In Test Year 2021, SCE will record Executive Benefits costs in this work 7

activity. In accordance with SB 901 and the associated Executive Officers covered therein, all costs 8

recorded in historical years 2014-2018 for Executive Benefits were adjusted out so that these costs 9

would not be included in the Results of Operation Model forecast for this work activity.165 10


The annual costs are determined by actuaries based on salary and 12

bonuses, length of service, expected retirement age, expected mortality, and interest rate assumptions. 13

Executive Benefits expense fluctuates over time based on variations in bonus levels and turnover among 14

executives. In addition, the discount rate used to measure pension benefit obligations has fluctuated over 15

the last few years, contributing to fluctuation in annual costs over the recorded history. Costs fluctuated 16

in 2014, due to changes in the discount rate for the year. In 2015, costs increased due to a drop in the 17

discount rate, and differences in pay and demographic experience (including new executives who 18

entered the plan). 19

(b) Forecast 20

For Test Year 2021, SCE forecasts $15.542 million for Executive 21

Benefits costs. Unlike the Linear Trending, Averaging, and Last Recorded Year methodologies, the 22

Itemized Forecast methodology described below is appropriate because it considers the labor forecast. 23

Expenses were forecast by multiplying the average executive 24

benefit cost per employee in 2018 by the projected number of employees in 2021 with no escalation 25

factor applied. The projected number of employees in 2021 is derived by dividing the forecast labor cost 26

for 2021 (stated in 2018 constant dollars) by the 2018 average per-employee labor cost. Changes in 27

executive benefit expenses that would otherwise result from expected increases in the salaries and age of 28



137

current participants as well as possible changes in the number of executives, are expected to be offset as 1

new and younger senior officers (with reduced executive retirement and survivor benefits) replace 2

retiring officers who are grandfathered under prior provisions. 3

138

IV. 1

EMPLOYEE TRAINING 2

This Section presents the Test Year 2021 forecast of SCE’s Employee Training. For Test Year 3

2021, SCE is forecasting $63.796 million for this BPE. Figure IV-27 below shows recorded costs for the 4

years 2014 through 2018, and SCE’s forecast for Test Year 2021. Employee Training is composed of the 5

company’s enterprise-wide training and development programs. Employee Training supports the 6

Corporate Goals of (1) Safety and (2) Diversity, People and Culture. This section discusses 7

(1) Employee Training and Development (2) Training Delivery and Development for Transmission and 8

Distribution and (3) Training Seat-Time for Transmission and Distribution work activities. 9

Figure IV-27 Employee Training


A. Overview 10

The Employee Training strategy will help SCE meet its talent needs for the future by providing 11

employees with learning opportunities for job enhancement, or to grow their career. A key tenant of the 12

strategy is redefining how employees think about learning. SCE will shift certain of the formal, planned, 13

programmatic education activities to a learning experience where internal and external experts, content, 14

and materials are sourced and made available to all employees, anytime, anywhere, and on any device. 15

SCE will leverage strategic learning technologies that put employees in control of their learning and 16

provide opportunities to customize their learning experience based on a unique set of needs. Through 17

2014 2015 2016 2017 2018 2019 2020 2021Labor $41,794 $39,999 $37,183 $35,937 $37,638 $38,646 $38,230 $38,568

Non-Labor $28,209 $20,409 $18,762 $20,206 $23,751 $37,209 $22,368 $25,227Other -

Total Expenses $70,003 $60,408 $55,946 $56,143 $61,389 $75,854 $60,598 $63,796


Recorded Forecast

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000


139

Skillsoft, employees have access 24 hours a day, 7 days a week to flexible learning opportunities. 1

Skillsoft contains certification courses, books, audio books and videos that are self-paced and accessible 2

from their mobile devices or company or home computers. Course materials include an array of 3

individual or leader competencies, professional development, and computer skills. 4

Workers understand that access to training will help them refine existing skills and develop new 5

ones, ultimately making them more successful in their roles. Flexibility in where and how they learn is 6

important. They want to learn from their peers and managers as well as experts. And, they are taking 7

more control over their own development. 8

Table IV-15 Learning Trends

To attract and retain high performing talent, SCE needs to evolve the offering of learning and 9

development activities to ensure that it is available when employees need it. Continuous technological 10

developments have made lifelong learning a necessity. In this environment, employees expect a learner-11

centric experience, with access to training anytime and anywhere. Learning must be decision-driven so 12

that new information can be internalized and quickly translated into action. It also must be offered at 13

exactly the moment when and where employees need it. 14

140

Table IV-16 Continuous Learning

Likewise, learning is also essential to serving SCE’s customers effectively while also keeping 1

employees and the public safe. Training within Customer Service is focused on delivering skills training 2

to support employees within SCE’s Customer Contact Centers and Revenue Services Organization. 3

Front-line employees are SCE’s primary contact point for 5.1 million service accounts and provide 4

support for service requests, 24-hour outage information, and billing inquiries. 5

Systems Training is a necessary aspect of technology solutions and planning. Human Resources’ 6

Systems Training group partners closely with Information Technology to develop training that enables 7

employees to utilize the solutions that the Company invests in to support customer interactions. The 8

Technical Training department within Human Resources provides learning and performance 9

improvement solutions that prepare and strengthen its frontline workforce to safely provide electricity 10

and deliver operational and service excellence to its communities through every customer experience. 11

Corporate Safety partners with Human Resources to develop and deliver Safety Culture 12

Transformation Training to employees throughout SCE. To aid in developing a culture of safety, 13

training is focused on the competencies and skills needed to strengthen SCE’s safety culture, and to 14

recognize and mitigate hazards. This training is key to cultivating and sustaining safe beliefs, attitudes, 15

and behaviors across SCE’s employees and contractors, and to fostering the mindset needed to make the 16

right safety choices. 17

141


The following GRC activities address two risks associated with Employee, Contractor & 2

Public Safety, and Physical Security that are discussed in SCE’s RAMP filing as shown below in Table 3

IV-17. More detailed descriptions of the activities can be found in the respective O&M areas. 4

Table IV-17 GRC Activities Included in SCE’s 2018 RAMP Filing


This section compares the amounts authorized by the Commission in the 2018 GRC to 6

the 2018 recorded O&M for Employee Training. 7

GRC Activity RAMP Control / Mitigation Name RAMP ID Risk Addressed

Safety Compliance (Technical Training) CM2Safety Culture Transformation (Core

Program) M1aAsset Protection C4

Insider Threat Program Enhancement & Information Analysis - Base M1a

T&D Training Delivery & Development

T&D Training Seat-TimeSafety Compliance (Technical Training) CM2 Employee, Contractor

& Public Safety

Training and Development

Physical Security

Employee, Contractor & Public Safety

142

Figure IV-28 Employee Training

O&M Expenses for 2018 – Authorized versus Recorded166 (2018 Constant $000)

3. O&M Forecast 1

a) Employee Training and Development 2

For Test Year 2021, SCE forecasts $19.425 million for Employee Training and 3

Development costs.167 Figure IV-29 below, shows recorded costs for the years 2014 through 2018, plus 4

SCE’s forecast costs for Test Year 2021. 5

166 Refer to WP SCE-07, Vol. 01, Results of Operations, Authorized to Recorded. 167 Refer to WP SCE-06, Vol. 03, and Part 1, Book B, pp. 120-125, Employee Training and Development.

143

Figure IV-29 Employee Training and Development



(a) Employee Training Programs 2

By supporting and identifying the learning needs of the company, 3

SCE can help develop and retain its organizational talent to meet key business capabilities. SCE 4

develops its talent by implementing training programs for contingent workers, individual contributors, 5

and leaders. The Company must train incoming employees and supplemental workers to ensure 6

compliance with workplace, state and federal policies and practices as well as technical job skills related 7

training. SCE’s Safety Culture Training known as Switch, Engage and Connect workshops, is an 8

example of a massive effort to foster the mindset needed to make the right safety choices. The training 9

develops and hones competencies and skills needed to mitigate hazards and strengthen safety culture. 10

See Switch, Engage, and Connect Section below. 11

(b) Employee Development Programs 12

The Company’s employee development programs aid in building 13

high-performing employees that consistently meet strategic and operational goals. By focusing on the 14

2014 2015 2016 2017 2018 2019 2020 2021Labor $12,596 $12,694 $9,775 $7,935 $11,026 $10,220 $9,493 $9,455

Non-Labor $15,325 $9,075 $6,410 $6,325 $12,481 $22,263 $7,290 $9,969Other

Total Expenses $27,921 $21,769 $16,185 $14,259 $23,507 $32,483 $16,783 $19,425


Recorded Forecast

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000


144

skills needed immediately and in the future, these programs establish employees as owners of their 1

careers, and provides an environment that supports the personalization of their development. 2

SCE’s new employee onboarding program, through immersive and 3

experiential learning, helps to accelerate an employee’s time to competence and strengthens their 4

connections to the company, people, and culture. 5

(c) Leadership Development Programs 6

SCE’s leadership programs focus on developing leaders who drive 7

for business and employee engagement. These results will occur by educating a leader to communicate a 8

clear and specific vision, take a genuine interest in people, and hold themselves and others accountable 9

to follow the Company’s values and safety culture. The Engage and Connect workshops are developed 10

specifically for leaders and build on the individual foundation of Switch168 to reinforce influencing and 11

team dynamics competencies. Leaders leave these workshops equipped with tools to better influence 12

their employees’ mindsets and sustain positive culture change. 13

(d) Learning Operations 14

The Learning Operations function provides support for SCE’s 15

instructor-led, on-line, and web-based training. This support includes tasks associated with enrollments, 16

completions, and tracking of all training programs through the learning management system. In addition, 17

this function handles all logistical requirements needed for scheduling and deploying Employee, 18

Leadership, Skills Path, and Safety Culture Training. 19

(e) Switch, Engage and Connect 20

In 2018, Edison Safety implemented a new Safety Culture 21

Transformation Program. This program is responsible for developing, implementing, and sustaining 22

discrete initiatives to strengthen its safety culture. 23

One of the core tenets of SCE’s overarching cultural approach is 24

that leadership drives culture, and a strong safety culture is integral to cultivating and sustaining safe 25

attitudes, values and behaviors. The second core tenet rests on the fact that recognizing hazards and 26

mitigating risks are skillsets that can be trained and honed over time. While a strong culture will foster 27

the desire needed to make the right safety choices, there are also cognitive tools that can equip 28

employees with the specific knowledge and skills to recognize and effectively mitigate hazards. The 29

168 See Section (e) on this page for more information regarding the Switch, Engage and Connect training.

145

Safety Culture Training facilitates the paradigm shift and cognitive tools needed to strengthen SCE’s 1

culture. 2

The safety culture training approach includes three workshops: 3

(1) Switch – trains employees and leaders in cognitive behavioral principles that equip them with the 4

tools needed to create a psychologically and physically safe work environment; (2) Engage – develops 5

leaders’ influencing skills, equipping them to foster the desired safety culture; and (3) Connect – which 6

reinforces Switch and Engage training concepts to foster effective communication and engagement. 7

Safety Culture Training through Switch and Engage is a 8

programmatic and consistent vehicle for catalyzing the transition of safety ownership from external to 9

internal sources. In 2017 through 2018, SCE developed, piloted, and implemented the Switch and 10

Engage workshops within the prioritized population of high hazard craft employees and their leadership 11

chain. This approach supported impactful training delivered where most needed, and fosters the critical 12

mass needed for change adoption through intact group sessions. In 2018, SCE also committed to and 13

surpassed an ambitious goal of training 35 percent of this high hazard Transmission and Distribution 14

population. SCE committed to a 2019 corporate goal to establish a consistent safety culture via 15

enterprise-wide roll-out of Switch and Engage training.169 16

This strategy of developing effective leaders and shifting employee 17

safety mindsets through Safety Culture Training while providing consistent sustainment programs, 18

directly addresses the factors integral to creating and sustaining a strong safety culture. Considerable 19

progress has been made in safety outcomes and in raising the workforce’s safety consciousness. 20

However, SCE recognizes that its past strategy of focusing on awareness campaigns has probably run its 21

course. To transition to a more mature safety culture, SCE must advance its collective mindset about 22

safety from being something that it has to do, to something that it wants to do. Safety Culture Training 23

sets the foundation for this transformation. 24


Training and development programs (leadership, skills, compliance and 26

safety training) help SCE retain the right people and grow organizational capabilities. As the battle for 27

high-performing talent becomes more competitive, employee training and development programs are 28

more important than ever. How employees are engaged and developed from the time they are on-29

169 Refer to WP SCE-06, Vol. 03, Part 1, Book B, p. 126, Safety Culture Transformation O&M Costs.

146

boarded and throughout their career impacts retention and business growth. According to John Seely 1

Brown of the Deloitte Center for the Edge, the half-life of a learned skill is 5 years. This means that by 2

2021, more than one-third of the functional and professional skills employees need will have changed. 3

In the June 2017 Edison Pulse Survey Results, SCE learned that only 64 percent of respondents believed 4

the training they received has contributed to success in their role. This leaves one-third of its workforce 5

seeking functional and professional training that assists them in keeping up with the continuously 6

evolving landscape of required skillsets. 7

To facilitate learning, employees are provided supportive and engaging 8

environments in which to develop. Partnerships are established across organizations to identify, capture, 9

and share institutional knowledge making historical learnings and key information readily assessable to 10

all. Technology will be leveraged to enhance employees’ learning experience. 11

The Training and Development work activity benefits the customer by 12

developing higher skills and competencies within SCE’s employees which allows them to utilize tools 13

and technologies to enhance productivity, improve performance, ensure consistency in providing 14

excellent service and adherence to quality standards. It also assists in retaining employees as they choose 15

to stay at the Company to develop or grow new skills thereby lowering turnover rates and reducing 16

costs. According to research from the Society For Human Resource Management (SHRM), employee 17

replacement can cost a company six months of the departed employee’s pay. By investing in employees’ 18

career development, the organization can make employees feel valued. This leads to longer employee 19

tenures and less turnover. A focus on training and upskilling also enhances creativity. Increased 20

innovation in new customer strategies and solutions is also a result of training and development. Safety 21

training also benefits the customer by building awareness and reducing risks to employees, customers 22

and the public. 23

(3) Alternatives Considered 24

Training and Development activities and programs are key components to 25

the success of SCE’s business strategy. Ensuring that employees are equipped with the knowledge and 26

skills to do their jobs effectively and conduct them safely are requirements that the Company must 27

provide. The continued health and welfare of all employees is a shared focus across the Company, 28

regardless of job level or position. To keep up with emerging technology and to attract and retain the 29

most skilled employees, SCE must change the way it trains employees. The reliance on classroom and 30

instructor-led training as the primary means of deploying learning instead of the continued adoption of 31

147

methods such as blended170 and on-line training may hinder the upskilling that is required to lead the 1

workforce and keep employees safe from serious injuries or fatalities. 2

Research and standards published by safety governing bodies such as the 3

Institute of Nuclear Power Operations (INPO) and the Occupational Health and Safety Administration 4

(OSHA) establish that a strong safety culture is a prerequisite to positive safety performance. Safety 5

culture training has been consistently identified as an integral factor in strengthening safety culture and 6

ultimately improving safety performance. Pausing the current safety culture training activities will have 7

a significant detrimental impact on the safety culture gains made thus far, ultimately resulting in 8

decreased safety performance. SCE intends to continue evolving its safety culture to one where safety is 9

perceived as something all employees want to do, instead of something they have to do. This will foster 10

safer mindsets, attitudes, and ultimately behaviors. This is a long-term and continuous process; SCE is 11

committed to making sure that its employees, contractors, and all members of the public in its service 12

territory are safe. 13

SCE’s investment in influencing positive changes to the safety culture 14

through the deployment of a blended approach to employee and leader safety training is an example of a 15

change in the approach to how the Company conducts training. Instead of having all employees take a 16

multi-day training class facilitated by a single consultant with subject matter expertise but limited 17

knowledge of the Company and culture, a consultative approach was used with the organizations to 18

determine the best delivery and timing of training to ensure minimal operational impacts. In many cases, 19

a blended approach to training was adopted – instead of multi-day, an on-line course and one-day of 20

classroom training was used – ensuring that the organizations’ and customers’ needs would not be 21

impacted. To maximize an employee’s time spent in class, sessions were co-facilitated by an SCE leader 22

to provide organizational knowledge, and an external facilitator with deep knowledge of the importance 23

of a safety mindset. This approach not only minimized seat-time and business concerns, it helped to 24

expedite the pace of the deployment so that the messages and tools provided in the training could make a 25

positive impact more quickly. 26

170 Meaning the mixing of traditional classroom lead facilitation with computer-based training.

148

Table IV-18 Employee Development Strategy


Safety Compliance (Technical Training), Safety Culture Transformation 2

Program, Asset Protection, and Insider Threat Program Enhancement & Information Analysis-Base are 3

controls and mitigations implemented to reduce safety, reliability and financial consequences. 4

Safety Compliance activities focus on SCE’s efforts to address workers’ 5

protection from falls, working in confined spaces, and safely working around electric hazards. Company 6

standards and programs are established, work practices are developed and implemented, and training is 7

developed and delivered. 8

Insider Threat Program Enhancement & Information Analysis implements 9

new processes for SCE to collect and analyze data which in turn improves SCE’s ability to identify and 10

respond to insider threats. SCE will mitigate insider threats against SCE workers, the Company, and/or 11

assets by expanding the background investigation process to evaluate SCE’s applicants’ and contractors’ 12

online presences, including social media, and creating a new internal intelligence, data, and analytics 13

program. SCE will also be utilizing external experts to analyze unusual behaviors and patterns which 14

may present risks. This will allow risks and vulnerabilities to be reduced faster and more 15

comprehensively than what is currently capable. 16

The mitigation also includes the development of a new training program 17

for all employees which strengthens employee awareness of security protocols such as being alert to 18

detect suspicious behavior, adopting best practices of maintaining security, and having on-going 19

awareness as employees take the training on an annual basis. 20

149

As described within the Talent Solutions Asset Protection control in 1

Section II of this volume, the implementation of this new program allows SCE to respond to risks and 2

incidents more rapidly and effectively, while identifying insider threats before they materialize.171 3

(a) SED Comments 4

The Commission’s Safety and Enforcement Division (SED) found 5

the proposed mitigation plan to continuously improve SCE's safety culture to be favorable. The 6

accelerated implementation schedule and Insider Threat Mitigation Measure “intrigued” SED.172 7

(b) Reconciliation Between RAMP and GRC 8

As shown in Table IV-19, there are no significant changes in costs 9

or scope for the Asset Protection Risk and the Insider Threat Program Enhancement & Information 10

Analysis as estimated in SCE’S 2018 RAMP report and the forecast requested in this GRC. However, 11

there are material differences for the Safety Culture Transformation Risks. The primary cause for the 12

decrease in spending in 2019 and the increase spending in 2021 in Safety Culture Transformation (Core 13

Program) is due to the delayed 2018 Switch and Engage training, scheduled to take place during the next 14

three consecutive years (2019-2021). In 2020 and 2021, the cost of additional refresher courses within 15

the program by a vendor contributes to the increased variance. 16

171 RAMP did not include forecasts or risk scoring for compliance items. 172 Refer to I.18-11-006. Regulatory Review of SCE’s Risk Assessment Mitigation Phase Report for the Test

Case 2021 General Rate Case, p. 111.

150

Table IV-19 Training and Development Controls & Mitigations




2018 GRC to the 2018 recorded O&M in this activity, along with an explanation for the variance. SCE’s 3

2018 authorized for Employee Training and Development was $17.4 million. SCE recorded $23.5 4

million. The variance of $6.1 million greater than authorized was due to the Switch, Engage, and 5

Connect training which was not anticipated in the 2018 GRC forecast. 6



Higher than normal training costs were incurred in 2014 and 2015 9

than the rest of the recorded period due to a corporate goal requiring all leaders to attend leadership 10

training and assessments. Leaders had 360 reviews performed and individual development plans created. 11

RAMP Risk RAMP

IDRAMP Control /

Mitigation NameFiling Name 2019 2020 2021

C4 Asset Protection 20$ 20$ 20$

M1a

Insider Threat Program Enhancement & Information

Analysis - Base 183$ 193$ 203$ Employee,

Contractor & Public Safety

M1aSafety Culture

Transformation (Core Program) 17,729$ 945$ 275$

Total 17,931$ 1,158$ 498$ C4 Asset Protection 20$ 20$ 20$

M1aInsider Threat Program

Enhancement & Information Analysis - Base 183$ 193$ 203$

Employee, Contractor & Public

SafetyM1a

Safety Culture Transformation (Core

Program) 15,528$ 1,266$ 3,956$ Total 15,731$ 1,478$ 4,179$

C4 Asset Protection -$ -$ -$

M1aInsider Threat Program

Enhancement & Information Analysis - Base -$ -$ -$

Employee, Contractor & Public

SafetyM1a

Safety Culture Transformation (Core

Program) (2,201)$ 321$ 3,681$ Total (2,201)$ 321$ 3,681$

GRC

Physical Security

Variance

Physical Security

RAMP

Physical Security

151

In 2015, training costs were slightly decreased as most leaders had been trained. Going forward the 1

leadership training is only given to an employee new to the leader role. The decreased cost from 2016 to 2

2017 was as a result of the realized savings from the Operational Excellence initiative. The increase in 3

2018 was due to the Switch, Engage and Connect workshops which were initiated with high risk 4

positions in Transmission and Distribution. 5

(b) Forecast 6

SCE anticipates completion of the Switch, Engage and Connect 7

training for all of employees by the end of 2020. The significant cost variation from 2019 to 2020 is due 8

to completion of the safety culture workshops for the majority of employees in 2019. These costs 9

include the design, development, delivery, evaluation and continuous improvement of training content. 10

Safety Culture Training will remain at the core of SCE’s approach in creating a common cultural 11

understanding, thus SCE projects cost will increase from 2020 to 2021 due to refresher Safety Culture 12

Training sessions needed to sustain the momentum of the company’s safety culture transformation. All 13

other training labor and non-labor costs for 2019 through Test Year 2021 remain flat. 14

b) Training and Development – Transmission & Distribution 15

In addition to using more agile and informal training to shift employee 16

development learning, SCE uses formal training programs. This is particularly the case in parts of 17

Transmission and Distribution (T&D) that have a variety of required technical skillsets, numerous 18

hazards related to working with and around electricity, ongoing changes to tools and equipment, and 19

advancements to keep pace with as the grid incorporates new technologies and operating practices. 20

Having well-trained employees helps keep its workers and the public safe and increases the reliability of 21

the system. Table IV-20 summarizes the costs for Training and Development O&M expenses for T&D, 22

which comprise work activities Training Delivery and Development – Transmission and Distribution 23

and Training Seat-Time – Transmission and Distribution. 24

152

Table IV-20 Training and Development – Transmission & Distribution

Recorded 2014-2018/Forecast 2019-2021 (Constant 2018 $000)

(1) Work Description and Need for Activity 1

(a) Base Training 2

T&D employees plan, engineer, construct, operate, repair, and 3

maintain the T&D facilities and equipment used to deliver electricity to SCE’s customers throughout its 4

50,000 square mile service territory. In order to facilitate the work, T&D Training develops, 5

implements, and evaluates training programs for the T&D employees. The technical training programs 6

prepare employees to perform their jobs safely, comply with regulatory requirements and laws, maintain 7

system reliability, and meet the demands of new technology. 8

O&M expenses associated with T&D’s training program include 9

work activities Training Delivery and Development – Transmission and Distribution and Training Seat-10

Time – Transmission and Distribution. The first activity comprises costs dedicated to developing and 11

delivering training. T&D Training has a staff of full-time instructors; however, adjunct instructors from 12

SCE’s field organizations supplement this staff. This allows the training organization to control fixed 13

costs by absorbing additional students while minimizing permanent staff. The use of field employees to 14

deliver training has the added benefit of immersing the employee in the proper work practices, which 15

they can then share with their co-workers when they return to their field location. 16

The second activity, T&D Training Seat-Time, includes the labor 17

and non-labor costs for employees to attend company training programs. Seat-time labor expenses 18

account for the time employees spend in training classes and to travel to and from training classes. Non-19

labor expenses include travel expenses associated with attending training, such as lodging, mileage, and 20

meals. 21

T&D training programs utilize four main practices: (1) using a 22

formal structured approach to provide training; (2) leveraging multiple training methods, such as 23

Computer Based Training (CBT); (3) incorporating assessments of employee performance; and 24

(4) implementing programs to promote continuous learning over a worker’s career. Training for many 25

153

work activities in T&D is uniquely technical with a focus on the skills needed to understand and use 1

complex, industry-specific tools and equipment and in many cases, in a dangerous environment. As a 2

result, SCE continues to utilize a structured and formal approach to train T&D employees. 3

To deliver effective and comprehensive training to T&D 4

employees, T&D training programs follow a Systematic Approach to Training (SAT) that is used to 5

identify training needs, design and develop corresponding training programs, and implement and 6

evaluate programs to confirm training effectiveness. The SAT follows a five step process called ADDIE 7

(Analyze, Design, Develop, Implement and Evaluate), which is a standard methodology used throughout 8

the training profession.173 For example, the programs incorporate effective components such as 9

assessing the employee’s knowledge and skills at each progressive step in the training process, 10

developing skillsets and experience through on-the-job training, and tailoring program structure and 11

duration to maximize employee understanding and information retention. 12

In order to recruit a strong and capable workforce, T&D Training 13

conducts pre-hire physical assessments of candidates for select craft positions to evaluate their 14

knowledge, skills, and abilities. These assessments were initiated in 2012 for Groundman and 15

Journeyman Lineman positions, and in 2015 for Apprentice Lineman positions. In 2017 and 2018, the 16

program was expanded to include Apprentice Substation Electricians and Test Technicians. SCE plans 17

to extend these assessments to Battery Electricians in 2019 and Substation Operators in 2020. 18

The assessments give instructors the opportunity to evaluate representative work tasks in a field 19

environment and validate that the potential employee has the knowledge, skills, and ability to perform 20

those work tasks safely and effectively. The assessments reduce injuries by preventing ill-suited 21

candidates from joining the workforce, with approximately 30 percent of candidates not passing this 22

initial skills assessment. Skills assessments, and associated training courses, are being developed for 23

employees to identify and correct skill and knowledge gaps present in T&D’s existing workforce. 24

(b) Need for Additional Training & Development 25

In addition to continuing existing training for the current 26

organization, SCE anticipates the need to expand and develop new training programs to meet the needs 27

of the organization going forward. These programs will train workers on the new work methods, 28

173 See https://www.td.org/newsletters/atd-links/all-about-addie for more information on ADDIE (as of August 1,

2019).

154

technologies and safety practices that accompany several of the emergent initiatives that SCE is focusing 1

on throughout this GRC period, including wildfire mitigation, Grid Modernization, and others. T&D 2

Training endeavors to maintain an agile training program that can facilitate a quick solution for new 3

programs and initiatives. Additionally, the training is designed to provide a broad and inclusive view of 4

the work by covering the risks, regulations, best practice standards, and compliance requirements 5

associated with the work, in addition to providing technical know-how. Ultimately, the additional costs 6

requested for these emergent activities will support efforts to provide T&D employees with the skills 7

and knowledge necessary to perform their job in accordance with new procedures, work methods, and 8

associated technology. 9

The additional resources requested in this testimony will primarily 10

be used to develop and deploy training that supports wildfire mitigation174 and Grid Modernization 11

activities,175 as described below. 12

(i) Wildfire Activities 13

The volume and scope of work to combat wildfire risks will 14

increase significantly through the GRC period. This necessitates training for existing and new 15

employees on safe work practices and new technologies. In support of these activities, SCE is 16

developing programs to train SCE employees on new work methods and technologies related to 17

performing wildfire mitigation activities. 18

New Work Technologies: SCE will continue to deploy 19

new work methods and technologies in support of wildfire activities. As an example of new work 20

methods, SCE implemented the Enhanced Overhead Inspections (EOI) program, whereby inspections 21

focus on potential ignition risk conditions. This program includes components incremental to the 22

standard overhead detailed inspection, such as aerial inspections. New work methods require the 23

creation of new training material and deployment of the training to SCE employees. In addition to 24

technical competency, this training will provide education and clarification on new procedures and 25

standards. 26

Wildfire activities also require the use of new technology, 27

such as situational awareness tools. The use of new technology is usually accompanied by end-user 28

174 See SCE-04, Vol. 05, Wildfire Management. 175 See SCE-02, Vol. 04, Part 1, Grid Modernization.

155

training in order to ensure the appropriate click-through of the application and accurate capture of data. 1

In response to SB 901, SCE provided a Wildfire Mitigation Plan (WMP) which included several wildfire 2

mitigation programs such as EOI, Wildfire Covered Conductor Program (WCCP), and others. EOI 3

comprises expanded inspection criteria relative to SCE’s traditional overhead detailed inspections. In 4

order for this work activity to be effectively executed, incremental training has to be provided to existing 5

and newly hired qualified electrical workers. Additionally, new grid hardening activities will require 6

incremental training specific to this new technology throughout the workforce. 7

Growth in Field Workforce: In addition to developing 8

training for emergent programs, T&D Training will have to expand training programs for existing work 9

activities to accommodate incremental new resources. For instance, wildfire activities not only add new 10

work activities, but also increase the volume of existing work activity. SCE anticipates a higher volume 11

of repair and replacement remediation activities in high fire risk areas, for example. The higher work 12

volume will require additional field worker positions such as linemen, journeymen, and groundmen. 13

These positions necessarily require training to teach new recruits and refresh experienced workers on 14

proper work methods and techniques for working with high voltage electrical equipment on SCE’s 15

system. Safety is SCE’s number one priority, and these training programs are absolutely critical to help 16

ensure SCE’s workforce is armed with the knowledge and skillsets to safely and confidently perform 17

work on the electric system. 18

To perform the amount of work laid out in this GRC, SCE 19

must grow its field workforce. This anticipated growth is exemplified through the proposed headcount 20

target as included as part of SCE’s Safety and Reliability Investment Incentive Mechanism (SRIIM).176 21

SCE proposes to increase the headcount target for field worker positions, including but not limited to 22

Groundman, Lineman, Patrolman, etc., to deliver on the work proposed in this GRC. This workforce 23

will require substantial training as indicated above. Further information on the SRIIM headcount target 24

can be found in Exhibit SCE-02, Volume 1, Part 2, Safety and Reliability Investment Incentive 25

Mechanism. 26

176 SRIIM is a mechanism adopted by the Commission to maintain and improve the safety and reliability of the

grid. As part of this, SCE must meet a Commission-adopted headcount target for specified field worker job classifications. SCE is proposing to increase the SRIIM headcount target from the current level of 2,175 to 2,465 workers.

156

(ii) Grid Modernization 1

Advancing the modernization of the electric grid to enable 2

greater deployment of distributed energy resources and other clean technologies will help achieve 3

California’s environmental goals, provide greater customer choice to sustainably manage energy costs, 4

and provide increased flexibility to improve system reliability of the grid. T&D employees will require 5

new forms of training to acquire the skills needed to deploy and maintain distribution automation 6

equipment. Employees in multiple T&D job classifications are required to install, maintain, operate, and 7

monitor the equipment. Additionally, employees must be trained to analyze and respond to the data the 8

new technology provides. 9


Figure IV-30 Comparison of Authorized 2018 to Recorded177

(Nominal $000)


2018 GRC to 2018 recorded O&M expenses for Training and Development – Transmission and 12

Distribution. The spending above the authorized levels for Training Delivery and Development 13

principally resulted from higher than anticipated contract facilitation and material development costs, 14

and the purchase of new tools and technologies to support training classes. SCE incurred O&M expenses 15

less than the authorized amounts for Training Seat-Time as a result of deferring, eliminating, or 16 177 Refer to WP SCE-07, Vol. 01, Results of Operations, Authorized to Recorded.

157

rationalizing employee attendance to various classes, utilizing more electronic learning tools, occupying 1

SCE locations rather than off-site locations, and optimizing schedules to reduce travel expenses. 2

(3) Scope and Forecast Analysis – Training and Development – 3

Transmission and Distribution 4

The historical O&M variance and forecast analyses for work activities 5

Training Delivery and Development – Transmission and Distribution and Training Seat-Time - 6

Transmission and Distribution are described in detail below.178 7

(a) Training Delivery and Development – T&D 8

Figure IV-31 shows the recorded and forecast O&M costs for 9

T&D’s Training Delivery and Development (Delivery) work activity. 10

178 Separate and apart from the O&M training request presented in this testimony, there may be cases in which

training activities are required to be capitalized. In these select cases, the costs for those training-related activities follow the capital work activity they support.

158

Figure IV-31 Training Delivery and Development – Transmission & Distribution179

(Constant 2018 $000)


From 2014 to 2015 T&D Training implemented various 2

O&M reductions in support of a companywide cost savings effort. The group partnered with business 3

line leadership to evaluate the current catalog of technical skills programs and assess the short-term risk 4

of stopping or deferring specific programs, leading to reductions in Delivery O&M expenses of $1.0 5

million. The decrease was achieved by eliminating the contract facilitation and material development 6

costs associated with the corresponding deferred/eliminated classes. In addition, contract and material 7

funding that would typically be used to purchase new tools and technologies to support training classes 8

were reduced, as were the contract development costs for performance support materials (e.g., self-9

directed, job-aids, videos) utilized in pilot trainings and as reference materials for craft personnel. 10

In 2016, SCE returned to the 2014 level of spending for 11

contract facilitation and material development, as the prior year’s reductions were not sustainable, 12

resulting in an increase in Delivery expenses of $2.7 million. As an offset to the increase, SCE had in 13

179 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 127-132, Training Delivery and Development -

Transmission and Distribution.

159

place from 2015 a continuous improvement plan to apply efficiencies to balance annual new hire 1

training needs with the various requests for emergent training. 2

From 2016 to 2017, there was an increase of $2.9 million to 3

Delivery expenses due to the formation of the T&D Training group tasked with providing project 4

management to overarching T&D Training projects and being responsible for Technical Compliance, 5

training integration of news tools and equipment, the management of corrective actions, and all 6

emergent/ad-hoc training requests. In addition, outside contractors were engaged to identify 7

opportunities to implement efficiencies in the current curriculum (e.g., web-based training vs. 8

classroom, eliminate repetition, convert classroom instructor-led training to on-the-job training, as 9

appropriate). 10

In 2017-2018, as a result of the second phase of a 11

continuous improvement plan implementation, T&D Training was able to reduce Delivery expenses by 12

$2.2 million. Upon completion of the curriculum analysis, the group reduced hours of classroom 13

instruction and all accompanying costs (e.g., contract and adjunct instruction and development). The 14

cadence of refresher courses was also reduced from annual to every other year, and T&D Training 15

transferred some curricula and funding to Human Resources. 16

(ii) Forecast Analysis 17

As the O&M expenses for training delivery and 18

development fluctuated between 2014 and 2018, SCE uses the five-year recorded average to serve as the 19

base for its 2021 test year forecast. This is consistent with the Commission’s guidance that if recorded 20

expenses have significant fluctuations from year-to-year, or expenses are influenced by external forces 21

beyond the utility’s control, an average of recorded expenses is appropriate.180 Additionally, costs can 22

fluctuate due to a higher than anticipated headcount or an increase in the use of in-house training 23

material developers. 24

In addition to the forecast for base training, SCE requests 25

incremental costs to support the new initiatives and programs identified in the Need for Additional 26

Training Section. SCE forecasts these costs based on the product of the number of required hours 27

according to training objective and the hourly rate. SCE estimates the number of sessions based on the 28 180 In D.89-12-057, and subsequently in D.04.07-022, the CPUC stated that if recorded expenses have significant

fluctuations from year to year, or expenses are influenced by external forces beyond the utility’s control, an average of recorded expenses is appropriate.

160

optimal number of trainees according to the training objectives. The buildup of the 2021 test year 1

forecast is summarized in Table IV-21 below. 2

Table IV-21 Composition of Training Delivery and Development O&M Expenses181


(b) Training Seat-Time – Transmission and Distribution 3

Figure IV-32 shows the recorded and forecast costs for T&D’s 4

Training Seat-Time work activity. 5

181 Refer to WP SCE-06, Vol. 03, Part 1, Book B, p. 133, New Programs – Incremental Hiring Training O&M

Expenses, WP SCE-06, Vol. 03, Part 1, Book B, p. 134, New Programs – Grid Modernization Training O&M Expenses, and WP SCE-06, Vol. 03, Part 1, Book B, p. 135, New Programs – Wildfire Activities Training O&M Expenses.

161

Figure IV-32 Training Seat-Time – Transmission and Distribution182



For the period 2014 through 2018, O&M expenses declined 2

steadily year-over-year as T&D evaluated and re-designed the training program using the SAT method 3

discussed in Section IV.A.3.b)(1)(a). Drivers for the variances include, but are not limited to, deferring, 4

eliminating, or rationalizing employee attendance to various classes, utilizing more electronic learning 5

tools, occupying SCE locations rather than off-site locations, and optimizing schedules to reduce travel 6

expenses. 7

(ii) Forecast Analysis 8

The need to train and develop SCE’s T&D employees as 9

described above will continue through this GRC cycle. SCE forecasts 2021 Test Year O&M expenses by 10

using the last year recorded forecast methodology. This is consistent with Commission guidance which 11

states if recorded expenses have shown a trend in a certain direction over three or more years, the last 12

182 Refer to WP SCE-06, Vol. 03, Part 1, Book B, pp. 136-141, Training Seat-Time - Transmission and

Distribution.

162

recorded year is an appropriate base estimate.183 To this base, SCE adds incremental expenses to cover 1

the costs of necessary activities required to be performed in the test year. The incremental labor forecast 2

is based on the forecast number of employee hours, multiplied by a standard average hourly rate. The 3

incremental non-labor costs are based on the average historical ratio of recorded non-labor to labor for 4

2014 through 2018.184 Table IV-22 displays the composition of training seat-time O&M expenses 5

between base expense and additional training activities required by the programs described in the Need 6

for Additional Training Section. 7

Table IV-22 Composition of Training Seat-Time O&M Expenses



In support of compliance activity Safety Compliance (Technical Training) 9

in SCE’s RAMP filing for the Employee, Contractor, and Public Safety risk, SCE identified the Training 10

Delivery and Development and Training Seat-Time for Transmission and Distribution personnel 11

activities, both of which help to maintain and improve the safe performance of field workers through the 12

provision of training specific to field work. SCE is required to perform these activities according to Title 13

8 of the California Code of Regulations and Title 29 of the Code of Federal Regulations, as well as 14

function-specific regulations according to Department of Transportation and Federal Aviation 15

Administration. 16

183 In D.89-12-057, and subsequently in D.04-07-022, the CPUC stated that if recorded expenses have shown a

trend in a certain direction over three or more years, the last recorded year is an appropriate base estimate. 184 Refer to WP SCE-06, Vol. 03, Part 1, Book B, p. 133, New Programs – Incremental Hiring Training O&M

Expenses, WP SCE-06, Vol. 03, Part 1, Book B, p. 134, New Programs – Grid Modernization Training O&M Expenses, and WP SCE-06, Vol. 03, Part 1, Book B, p. 135, New Programs – Wildfire Activities Training O&M Expenses.

Documents

Employee Benefits, Training & Support...3 This Section presents the Test Year 2021 forecast of SCE’s Employee Support. For Test Year 4 2021, SCE forecasts $43.951 million of expenses.1