Application No.: Exhibit No.: SCE-02, Vol. 06, Pt. 1 Witnesses: T. Ware

(U 338-E)



## 2015 General Rate Case

Generation Volume 6, Part 1 - Coal Operation & Maintenance Expenses

Before the

Public Utilities Commission of the State of California

Rosemead, California November 2013SUMMARY

x This volume describes the cost forecasts for the Four Corners and Mohave coal-fueled generating stations, and is organized into two parts

x This Part 1 provides background information and the O&M expense forecast

x Part 2 provides the capital expenditure forecast

x SCE shares ownership of Four Corners and Mohave with several other parties

x SCE is working to close the sale of SCE’s share of Four Corners to Arizona Public Service Company

x SCE is including Four Corners O&M expense and capital expenditure forecasts at this time because it is not yet certain that the sale will successfully close

x These forecasts assume: (1) Four Corners will cease operations in July 2016 consistent with the existing co-ownership agreements and coal fuel supply contract and in compliance with the Commission’s Greenhouse Gas Emissions Performance Standard; and (2) plant Decommissioning will be initiated once operations cease

x Should the sale not close, SCE proposes to discontinue the Four Corners Memorandum Account approved in our 2012 GRC, and to collect in 2015 GRC base rates the required revenue to operate Four Corners until July 2016 and to then proceed with plant decommissioning

x Mohave ceased operations on December 31, 2005 and is undergoing decommissioning

x SCE proposes to discontinue the Mohave Balancing Account approved in our 2006 GRC and collect ongoing site management costs, which result from many years of plant operations, in GRC

base rates

x Four Corners Test Year O&M expense forecast is $44.433 million (SCE Share) in 2012 dollars

x Four Corners O&M FERC accounts are 506.015 and 514.015

x Mohave Test Year O&M expense forecast is $0.308 million (SCE Share) for site management

x Mohave O&M FERC accounts are 506.015 and 514.015

## SCE-02: Generation Volume 6, Part 1 - Coal Operation & Maintenance Expenses

Table Of Contents

Section Page Witness

-iI. INTRODUCTION ............................................................................................. 1 T. Ware

II. FOUR CORNERS OVERVIEW ...................................................................... 4

A. Location and Major Assets .................................................................... 4

B. Ownership and Management ................................................................. 5

C. Units 4 and 5 History ............................................................................ 7

D. Cost Forecasts Are Consistent With Plant Performance Objectives and With Our Decommissioning Plan ................................ 9

1. Plant Safety ............................................................................... 9

2. Regulatory Compliance and Environmental Responsibility Including Compliance With Current US EPA Air Emissions Requirements .................................... 11

3. Reliability ................................................................................ 12

4. Fuel Efficient Operation .......................................................... 13

5. Total Cost Management .......................................................... 13

III. FOUR CORNERS PERFORMANCE ............................................................ 15

A. Safety ................................................................................................... 15

B. Environmental Responsibility ............................................................. 15

C. Reliability ............................................................................................ 15

D. Fuel Efficient Operation ...................................................................... 17

E. Total Cost Management ...................................................................... 19

IV. OUR FOUR CORNERS O&M EXPENSE FORECAST CONFORMS TO THE GREENHOUSE GAS EMISSIONS PERFORMANCE STANDARD, AND IS IN SERVICE OF DECOMMISSIONING ................................................................................... 22

## SCE-02: Generation Volume 6, Part 1 - Coal Operation & Maintenance Expenses

Table Of Contents (Continued)

Section Page Witness

-iiV. WE ESTIMATE JULY 2016 THROUGH DECEMBER 2017 O&M DECOMMISSIONING EXPENSE WILL BE EQUAL TO OUR FORECAST JANUARY 2015 THROUGH JUNE 2016 O&M EXPENSE, AND WE WILL UPDATE OUR FORECAST WHEN APPROPRIATE .............................................................................................. 26

VI. IF THE SCE-APS SALE CLOSES IN 2013 AS EXPECTED, SCE WILL REMOVE FOUR CORNERS COSTS FROM OUR 2015 GRC FORECASTS ......................................................................................... 28

VII. FOUR CORNERS O&M EXPENSE FORECAST OVERVIEW .................. 29

A. Test Year Forecast Summary .............................................................. 29

B. Collection, Grouping, Adjustments, and Analysis of Recorded Data ..................................................................................... 30

VIII. FOUR CORNERS GENERATING STATION O&M FERC ACCOUNTS ................................................................................................... 32

A. FERC Operations Accounts 506.015 .................................................. 32

B. FERC Maintenance Accounts 514.015 ............................................... 34

IX. MOHAVE GENERATING O&M EXPENSE FORECAST OVERVIEW .................................................................................................... 37

A. Ownership and Management of Mohave ............................................ 37

B. Status of Plant Decommissioning and Site Disposition ...................... 39

X. MOHAVE STEAM POWER GENERATION O&M FERC ACCOUNTS ................................................................................................... 40

A. Mohave Site Management O&M Plan and 2015 Expense Forecast ............................................................................................... 40

B. Accounts for Mohave Have Been Reduced To Two Accounts .............................................................................................. 41

C. Account 506.013 - Operations Miscellaneous Steam Expenses – Mohave ............................................................................. 41

D. Account 514.013 - Maintenance of Miscellaneous Steam Plant – Mohave .................................................................................... 43

## SCE-02: Generation Volume 6, Part 1 - Operation & Maintenance Expenses

List Of Figures Figure Page

-iiiFigure III-1 Four Corners Equivalent Availability Factor ...................................................................... .. 16 Figure III-2 Four Corners Capacity Factors .................................................................................... .......... 17 Figure III-3 Four Corners Heat Rate 2008-2012 ................................................................................. ...... 18 Figure III-4 Four Corners Recorded O&M 2008-2012/Forecast 2013-2015 ............................................ 19 Figure III-5 Four Corners Staffing Units 4 and 5 .............................................................................. ........ 20 Figure VII-6 Recorded and Adjusted 2008-2012/Forecast 2013-2015 ($000 Constant 2012$) ........................................................................................................................ .......................... 30 Figure VIII-7 FERC Operations Accounts 506.015 Recorded and Adjusted 2008- 2012/Forecast 2013-2015 ($000 Constant 2012$) .............................................................................. 33 Figure VIII-8 FERC Maintenance Accounts 514.015 Recorded and Adjusted 2008- 2012/Forecast 2013-2015 ($000 Constant 2012$) .............................................................................. 35 Figure X-9 Recorded and Adjusted 2008-2012/Forecast 2013-2015 SCE Share Expense ($000 Constant 2012$) ......................................................................................................... ............... 40 Figure X-10 Mohave (Miscellaneous Steam Power Expenses) 100% Share Expense FERC Account 506.013 Mohave Generating Station .................................................................................... 42 Figure X-11 Mohave (Maintenance of Miscellaneous Steam Plant) 100% Share Expense FERC Account 514.013 Mohave Generating Station ......................................................................... 431 I. 1
INTRODUCTION 2 This volume of testimony contains our O&M expense and capital expenditure forecasts for the 3 coal-fired Four Corners Generating Station (Four Corners) and Mohave Generating Station (Mohave). 4 These plants are located in New Mexico and Nevada, respectively. Each of these plants is co-owned with 5 other utilities. SCE is the operating agent of Mohave, and plant co-owner Arizona Public Service (APS) 6 is the operating agent of Four Corners. In this testimony, we present the methodology we used to develop 7 our Test Year 2015 O&M expense forecasts for the two plants and our 2013-2017 Capital expenditure 8 forecast and decommissioning cost forecast for Four Corners, and we explain the reasonableness of our 9 estimates. For convenience, this volume of testimony is divided into two parts. Part 1 provides 10 background information on both plants and provides details on each plant’s O&M expense forecasts. Part 11 2 provides details on our Four Corners capital expenditure and decommissioning forecasts. 12 SCE is working to conclude the sale of our Four Corners plant share to APS, as approved by the 13
Commission in D.12-03-034. 1 Meanwhile, SCE customers continue to receive SCE’s share of the plant’s 14 generation, and the costs incurred by SCE for the plant’s ongoing operations are being recorded to the 15 Four Corners Memorandum Account approved in SCE’s 2012 GRC (D.12-11-051). 2 16 SCE and APS originally targeted to conclude the sale in October 2012; however, as of October 17 2013, certain sale closing requirements have not yet been completed. A primary remaining buyer 18 contingency is for APS and the co-owners (other than SCE) to successfully conclude negotiations for a 19 new Coal Supply Agreement (CSA) that is needed so that the plant can continue to operate beyond July 20 2016. However, these CSA negotiations were delayed because on August 31, 2012 the existing coal 21 mining company, BHP, announced their intent to divest their interests in the mine when the plant’s 22 current coal supply agreement ends in July 2016. BHP and the Navajo Nation (the plant and the mine are 23 located on Navajo land) then entered into negotiations for the Navajo to purchase the mine operation from 24 BHP. Those negotiations are continuing and are expected to close during 2013. Once the mine sale is 25 completed, we expect that APS, the co-owners (other than SCE) and the Navajo will conclude 26 negotiations on the CSA, which will allow SCE and APS to then close the plant sale. 3 27

1 See workpapers for a copy of D.12-03-034, p.2.

2 See workpapers for a copy of D.12-11-051, pp. 46-55, 823.

3 On June 17, 2013 APS issued a Form 8-K Current Report with the US Securities & Exchange Commission indicating that APS currently expects that it will not be in a position to close the Four Corners purchase transaction with SCE until the ( Continued )2 While SCE therefore expects our Four Corners sale to successfully close during 2013, this cannot 1 yet be assured. Because of this ongoing uncertainty, in this GRC SCE is including O&M expense and 2 capital expenditure forecasts for SCE to continue to participate in the plant. Our Four Corners forecasts 3 assume: (1) Four Corners will cease operations in July 2016, the termination date of the existing co4 ownership agreements and coal fuel supply contract, and (2) plant Decommissioning will be initiated once 5 operations cease. 6 As further explained in Chapter VII of this testimony, SCE’s Four Corners Test Year O&M 7 expense Forecast is $44.433 million. As further explained in Part 2 of this volume, our 2013-2017 capital 8 expenditure forecast is $33.740 million. 4 As discussed in more detail in Part 2, Chapter VI, the forecast 9 cost for Four Corners decommissioning is $49.541 million, of which $30.837 million is forecast to be 10 incurred during 2015-2017 and the remainder thereafter. SCE will remove these forecast Four Corners 11 O&M expenses and capital expenditures from our 2015 GRC proceeding at the soonest opportunity 12 should the sale close as expected. 13 In D.12-11-051 the Commission approved recovery of Four Corners forecast expenses up until the 14 (then) expected sale close on October 1, 2012, and created the Four Corners Memorandum Account (the 15 FCMA) to capture additional expenses and expenditures that would be incurred should SCE experience 16 delays in closing the sale. 5 SCE subsequently created the FCMA and has been recording expenses and 17 expenditures there since October 1, 2012. Consistent with D.12-11-051, should the sale not close, SCE 18 proposes to discontinue the FCMA and return Four Corners cost recovery to GRC base rates effective 19 January 1, 2015 ( i.e. , the start of our 2015 GRC rate cycle). As noted above, these costs consist of our 20 continued participation in Four Corners operations until July 2016 and the costs to initiate plant 21

Continued from the previous page Arizona Corporations Commission’s (ACC) intentions with regard to pursuing retail access deregulation in Arizona become clearer. This was in response to the ACC’s announcement in May 2013 of their inten t to re-examin e possible deregulation of the retail electric market in Arizona. However, in September 2013, the ACC closed this docket, effectively foreclosing the possibility of retail access deregulation impeding sale closure. SCE and APS continue to work on the remaining issues that could dela y or prevent final sale closure.

4 The Four Corners capital expe nditure testimony contained in part 2 of this volume also provides information concerning SCE's Four Corners 2012 recorded capital expenditures, as dir ected in D.12-11-051 should the sale not occur. See Chapter IV of part 2 for further details.

5 D.12-11-051, Ordering Paragraph 14 , p. 882: Southern Calif ornia Edison Company ma y establish a Four Corners Memorandum Account to track expenses incurred between October 1, 2012 and the delayed sale date and file an application for reasonableness review after the sale of Four Co rners is completed.3 decommissioning at that time, including related expenses such as employee severance costs that result 1 from the plant shutdown. 2 Mohave ceased operations December 31, 2005 and decommissioning work is nearing completion. 3 After decommissioning is complete, SCE will continue to incur O&M expense to manage the Mohave 4 plant site. These plant site O&M activities are expected to continue for the foreseeable future. As 5 explained in more detail in Chapter IX and X, these O&M activities include management of the plant’s 6 ash disposal landfill and related ongoing groundwater monitoring, and are forecast to cost $0.309 million 7 per year (SCE Share). 6 8 SCE also proposes to close the Mohave Balancing Account (MBA) approved in SCE’s 2006 GRC 9 (D.06-05-016) 7 and continued in SCE’s 2009 GRC (D.09-03-025), 8 as Mohave dispositioning and 10 decommissioning activities are now concluding. SCE proposes to recover forecast 2015-2017 Mohave 11 site management O&M expenses in GRC Base Rates, including maintenance of the ash landfill, until the 12 Mohave plant site is closed or divested. Further details concerning the proposed rate treatment of Four 13 Corners and Mohave are provided in SCE-10, Volume 1, Part 2. 14

6 All Mohave and Four Corners O&M expense and capital expe nditure forecast and recorded cost information presented in this volume of testimony are given on an SCE Share basis, unless otherwise noted.

7 D.06-05-016, Ordering Paragraph 8, p. 382: SCE shall esta blish a two way balancing to record the ongoing expenses and capital related costs asso ciated with the Mohave Generating Station (Mohav e). See workpapers fo r a copy of D.06-05- 016, pp. 14-20, 382.

8 See workpapers for a copy of D.09-03-025, pp. 18-19.4 II. 1
FOUR CORNERS OVERVIEW 2
A. Location and Major Assets 3 Four Corners Generating Station is located in northwestern New Mexico, in San Juan County, on 4 the Navajo Nation Indian Reservation. The Plant is situated six miles southwest of Fruitland, New 5 Mexico and 20 miles west of Farmington, New Mexico. The plant is operated by the Arizona Public 6 Service Company (APS) for the benefit of its several owners. SCE owns 48 percent of Units 4 and 5 of 7 the Four Corners Generating Station. Power from the plant is delivered to the SCE El Dorado substation 8 via the El Dorado-Moenkopi 500kv Transmission line. 9 The plant has five coal-fired units rated from 170 MW to 770 MW. Construction on Units 1 and 2 10 began in 1959 and operation commenced in 1962. Unit 3 was constructed during 1962 and 1963 and 11 began operation in 1963. Units 1, 2, and 3 are owned entirely by APS. In the late 1960s, SCE joined with 12 five other electric utilities (including APS) to build Units 4 and 5. Units 4 and 5 were placed into 13 commercial operation in 1969 and 1970, respectively. 14 Units 4 and 5 each had an initial generating capacity of 785 MW net. However, beginning in the 15 mid-1980s, the plant installed baghouses to reduce smoke stack particulate emissions, sulfur dioxide 16 (SO 2 ) scrubbers to reduce sulfur emissions, and other new auxiliary equipment. 9 This new auxiliary 17 equipment increased the Unit 4 and 5 auxiliary loads, and thereby reduced these units' net output. 18 Because of these changes, Unit 4 and 5 currently each have a maximum dependable net rating of 19
770 MW. 10 20 Coal for each unit is supplied from the adjacent Navajo Mine, currently operated by BHP Navajo 21 Coal Company (BHP). The plant is a major employer on the Navajo Nation Reservation and about 22 two-thirds of the employees of Four Corners Generating Station are Navajo Indians. Units 4 and 5 are 23 conventional dry coal-fired once-through supercritical units 11 designed to take advantage of the low-cost 24 strip-mined coal on the Navajo Indian Reservation. 25

9 The scrubber and bagh ouse project was initiated as the result of a court decree after a lawsuit was filed by the New Mexico Citizens for Clear Air and Water. The decree was signed by the New Mexico Environmenta l Improvement Department, The New Mexico Citizens for Clean Air and Water and APS as operating agent for the project. The baghouses went in service in 1983 and the scrubbers followed a year later in 1984.

10 During their history, in addition to the 785 MW and 770 MW ratings, Units 4 and 5 have had other dependable ratings reflective of equipment conditions that existed at those times.

11 The Four Corners steam generators operate at pressures above 3,500 PSIG (pounds per square inch, gauge) and do not utilize a steam drum during normal operation (a bypass system that incorporates a drum type separator is provided for ( Continued )5 Each unit includes a steam generator (boiler), turbines, generators, control systems, and associated 1 auxiliary equipment necessary to generate electric power. A baghouse particulate collection system and 2 wet SO2 scrubber for each unit reduces particulate and sulfur dioxide emissions. 3 A railroad line from the adjacent Navajo Mine carries coal to the station. The coal is delivered to 4 blending facilities adjacent to the plant where it is crushed and moved to on-site storage or to conveyor 5 belts for transport to the units. Once at the generati ng units, the coal is crushed into finer particles in 6 pulverizing mills, mixed with preheated air, and injected into the plant’s boilers for combustion. Natural 7 gas is used for ignition and flame stabilization of the coal fuel. 8 In addition to its 48 percent share of Units 4 and 5, SCE owns 34.76 percent of the common 9
facilities at the site. 12 Systems and equipment that are common to both units or that provide service to the 10 entire plant include air compressors, bottom ash and fly ash storage and disposal systems, water 11 purification and storage systems, equipment and bearing cooling water systems, and shop and office 12
facilities. 13 The plant’s cooling water system uses an on-site reservoir that also provides water for various 14 plant requirements. Water for this reservoir is pumped from the San Juan River located approximately 15 five miles from the plant site. 16
B. Ownership and Management 17 As stated above, APS owns 100 percent of Units 1, 2, and 3. Units 4 and 5 are jointly owned, as 18 tenants in common, by SCE, APS, Public Service Company of New Mexico (PNM), Salt River Project 19 Agricultural Improvement and Power District (SRP), El Paso Electric Company (EPE), and Tucson 20 Electric Company (TEP). The participants’ undivided interests in Units 4 and 5 are as follows: 21

x SCE 48 percent (739 MW) 22

x APS 15 percent (231 MW) 23

x PNM 13 percent (200 MW) 24

x SRP 10 percent (154 MW) 25

Continued from the previous page startup and low load operation). Units incorporating steam gene rators of this design are referred to as ‘supercritical’ (operating above the critical point for water) ‘once t hrough’ (operating without a steam drum) units.

12 SCE also owns a 32 percent interest in the plant’s 500 kV switchyard and 12 percent intere st in its 345 kV switchyard. SCE owns 48 percent of the 345-500 kV transformer and the connection to the reserve auxiliary power source, 3.46 percent of the reserve auxiliary power source, and 43.20 percent of the conn ection to the 345 kV switchyard facilities, respectively.6 x EPE 7 percent (108 MW) 1

x TEP 7 percent (108 MW) 2 The participants’ ownership interests and rights are governed by the Four Corners Project 3 Co-Tenancy Agreement, and all amendments thereto. 13 The Co-Tenancy Agreement sets forth the 4 relationship among the participants and the governance of the Four Corners Plant. This agreement 5 terminates on July 19, 2016. Plant operational issues are further managed in accordance with the Four 6 Corners Project Operating Agreement. Other agreements between the co-owners include Four Corners 7 Engineering and Operating Agreement and Four Corners Units 4 and 5 Capital Improvements Design and 8 Construction Agreement. 9 As mentioned above, the plant is located on the Navajo Nation Indian Reservation. The property 10 is leased from the Navajo Nation. The current land lease to which SCE is party expires in July 2016. 14 11 The participants exercise oversight management of the plant principally through the Engineering 12 and Operating Committee (E&O Committee). The E&O Committee is composed of representatives from 13 each participant and meets approximately once every three months to examine plant operations, review 14 budget performance, and make decisions affecting Four Corners that must be approved by the committee. 15 Particular emphasis is given to controlling costs. Every year in August, the E&O Committee meets to 16 closely scrutinize APS's plans for the next year and examine the merits of those plans. The committee has 17 the power to accept or reject both capital and operating expense budgets. During the year, as 18 circumstances change to warrant significant adjustments to the expenditure requirements, the E&O 19 Committee meets to evaluate those adjustments. The principal responsibilities of the E&O Committee are 20
as follows: 21

x Final review and approval of the annual O&M budget. 22

x Review and approval of capital expenditures. 23

13 A copy of this agreement, as well as copies of all ot her agreements among the plant owners governing the plant, are available upon request.

14 In anticipation of successful close of the SCE-APS sale, and successful close of CSA negotiations that would allow the other plant owners to continue plant operations beyond July 2016, the other plant owners entered into a land lease extension in 2011 that terminates in 2041, according to SCE’s understanding. SC E is not a party to this extension because SCE does not intend to participate in plan t operations beyond July 20 16. The existing lease to which SCE is a party allows the owners 120 days to decommission the plant after the termination date of the lease. Decommissioning is currently expected to take much long er than 120 days. Therefore, s hould the sale not close and in ord er for the plant to remain in operation to July 2016 with SC E as a participant, SCE may need to reach an arrangement with the other plant owners regarding termination of SCE plant owners hip in 2016 with SCE continued fi nancial responsibility related to the decommissioning thereafter.7 x Review and approval of staffing levels. 1

x Review and approval of maintenance schedules. 2 An SCE Project Manager in SCE’s Power Production’s Operations Support and Performance 3 Improvement Division (OS&PI) and the Manager of OS&PI represent SCE on the Four Corners E&O 4 Committee. The Manager of OS&PI reports to the Vice President of Power Production, and also serves 5 as SCE’s alternate representative on the Four Corners Coordinating Committee. The Project Manager and 6 the OS&PI manager have an extensive management and technical background in fossil-fired generation. 7 As SCE’s E&O Committee representatives, the two managers receive policy direction from SCE’s Vice 8 President of Power Production and provide regular communications on issues affecting Four Corners cost 9 and performance. 10 The Vice President of Power Production represents SCE on the Four Corners Coordinating 11 Committee, which is composed of a responsible officer from each of the six participants. This committee 12 meets as needed to discuss major issues that require substantial long-term monetary allocation or 13 redirection of major plant objectives. This committee also provides a framework to further address issues 14 that the E&O Committee is unable to resolve. The Vice President of Power Production has oversight of 15 SCE activities related to Four Corners and Mohave, along with SCE’s gas-fired and hydroelectric 16 generating assets, SCE’s Solar Photovoltaic power plants, and SCE’s demonstration Fuel Cell power plant 17
O&M activities. 18 The Vice President of Power Production reports to the SCE Senior Vice President of Power 19 Supply, who in turn reports to the President of SCE. The Senior Vice President of SCE has oversight of 20 the SCE Power Production assets described above, as well as oversight of SCE's fuel and power purchase 21 activities and the dispatch of the generating assets owned by and contracted by SCE. 22 Each owner has a representative on the Four Corners Financial Audits Committee. This 23 committee oversees an annual audit of Four Corners production costs. The audit team is led by a 24 representative of one of the participants, normally assigned on a rotating basis. Typically, the audit 25 includes examination of contractor billings, application of Administrative and General (A&G) charges to 26 the participants, and similar financial concerns. Wh en the audit is complete, the committee meets to work 27 out any significant problems discovered. 28
C. Units 4 and 5 History 29 As described above, Four Corners Units 4 and 5 were designed in the late 1960s and have been in 30 operation since 1970. The Four Corners facility has delivered substantial value to our customers. Units 4 31 and 5 generate on average approximately ten to eleven million MWh of energy each year, of which SCE 328 receives 48 percent. Producing this much energy involves processing extremely large amounts of raw 1 materials and places heavy demands on plant assets. Each day, over seventeen thousand tons of coal are 2 consumed by the plant’s giant furnaces, which supply steam at a temperature of 1,000 degrees Fahrenheit 3 to the turbine generators. Four Corners processes more coal and ash per MWh of electricity than most 4 other coal power plants because of the higher ash content of the coal used there. The age and service 5 experience of these generating stations must be considered when planning for the future. 6 Since construction, the owners have made numerous additional capital expenditures at Four 7 Corners to maintain safety and reliability, and to sustain or improve environmental performance. Often 8 this involves replacing individual equipment components with like equipment as they reach the end of 9 their specific service lives. In some cases the installation of entirely new systems has been needed to 10 perform, in a significantly different manner, the functions performed by a prior obsolete system. In other 11 cases, the installation of entirely new systems has been needed to meet operational needs that did not exist 12 when the plants were constructed ( e.g. , many of the pollution control systems now in operation). 13 Performance at this generating station has benefited from these major expenditures. For example, 14 in the 1980s APS added flue gas SO 2 removal systems, low NO X burners and baghouse particulate 15 collection systems 15 to Four Corners Units 4 and 5, which have greatly reduced the environmental impact 16 of plant operations. At approximately the same time, APS replaced all the coal pulverizers at the plant 17 because of poor reliability. As a result of these and similar expenditures, and the continued diligence of 18 plant leadership and personnel, Four Corners plant reliability and fuel efficiency has been relatively 19 consistent for many years. To sustain plant safety, reliability, fuel efficiency, and regulatory compliance 20 until Units 4 and 5 are shut down for decommissioning in July 2016 (if the sale does not close), we must 21 continue to make expenditures to comply with regulatory changes, to effectively deal with the adverse 22 impacts of obsolescence and age, and to address the normal equipment degradation associated with the 23 severe service conditions under which the plant operates. 24

15 “SO 2 removal systems” refers to environmental control system s designed to remove sulfur dioxide from the flue gas exiting a boiler. “Low NO X burners” refers to specially designed equipment that replaces the standard burners (equipment used to mix fuel and air in a boiler) with equipment that produces lower levels of oxides of nitrogen during the combustion of fuel. “Baghouse particulate collection systems” are sp ecially designed environmental management systems that use filter material to very efficiently capture extremely fine particles of ash that become entrained w ith the flue gas during coal combustion.9 D. Cost Forecasts Are Consistent With Plant Performance Objectives and With Our 1 Decommissioning Plan 2 Even as we approach a planned shut-down and decommissioning in July 2016, we must continue 3 to maintain plant safety. Likewise, the plant must sustain its environmental performance at acceptable 4 levels and within the stringent limits and requirements of operating permits and all other applicable 5 regulations. We must continue to meet other regulatory requirements, including NERC Reliability 6 Standards governing our national power grid. We must continue to sustain production reliability to avoid 7 incurring excessive costs to replace Four Corners generation, which is particularly important as Four 8 Corners continues to be one of the lowest cost generating resources available to our customers. We must 9 sustain our fuel economy as the cost of coal is one of the largest components incurred in operating Four 10
Corners. 11 In summary, in order for the plant to provide the maximum benefit to our customers, we must 12 operate Four Corners in a fashion that minimizes total costs ( i.e. , capital expenditures, fuel, plant O&M, 13 and replacement power during plant outages) until we cease operations in July 2016. All expenditures 14 described in this volume address one or more of these objectives. These performance objectives are 15 described in more detail below. Our historic performance levels are reviewed in Chapter III, and in 16 Chapter IV we further discuss our conformance with the Commission's requirement that all of our post17 2011 expenditures are in service of Decommissioning. 18
1. Plant Safety 19 Safety of personnel is our paramount objective. Employees, contractors, and the general 20 public all come into close proximity to potentially dangerous operating plant equipment. Inadequate 21 maintenance or improper operations of Four Corners could expose employees, visitors, and contractors to 22 unacceptable safety consequences. Equipment that could pose a safety concern includes the following: 23

x Large rotating equipment is in everyday service at these plants and represents risk of 24 catastrophic failure, with associated damage and risk of personnel injury. This 25 equipment includes large rotating steam turbines operating at temperatures up to 1000 26 degrees, generator components weighing up to 100 tons, motors operating at thousands 27 of horsepower, and large, heavy centrifugal air compressors rotating at thousands of 28 revolutions per minute. 29

x Four Corners utilizes very large coal-fueled furnaces, well over 100 feet tall, that 30 operate at over 2,000 degrees. The risks of operating this equipment include explosion, 31 fire, and casing rupture. These unacceptable events pose substantial risk to employees, 3210 visitors, and the public and require that SCE assure the equipment is adequately 1 maintained and unreliable components are replaced. 2

x The large steam generators (commonly referred to as boilers) at Four Corners operate 3 at pressures over 3,500 pounds per square inch (PSI) and produce steam that is 4 distributed throughout the plants at temperatures up to 1000 degrees. The boilers, 5 valves, and piping systems that produce, convey, and control this superheated steam 6 represent risk of death and injury to employees and visitors if not adequately 7
maintained. 8

x The electrical generation and distribution systems at these plants operate at voltages 9 ranging from 60 volts DC to 500,000 volts AC. Numerous electrical switches, circuit 10 breakers, power cables, motors, and oil-filled power transformers are in regular service 11 and represent significant risk of fire and explosion if not adequately inspected, 12 maintained, and replaced when required. These forms of failure represent a serious 13 risk to employees and other personnel. SCE considers proper maintenance of electrical 14 equipment to be a very important aspect of our management programs at Four Corners. 15

x The boiler and piping insulation systems for Four Corners contain asbestos that must 16 be adequately maintained and replaced when necessary to avoid exposure to employees 17 and other personnel. 18

x Much of the equipment at our coal-fired plants is physically large, requiring employees 19 and contractors to work at elevated conditions. The structures that contain large 20 equipment must therefore be properly maintained to avoid risk of collapse and 21 associated employee injury. 22

x Other equipment that, when not effectively maintained, represents safety risks to 23 personnel include sulfuric acid, caustic and ammonia storage and handling facilities, 24 paved surfaces, plant lighting, and maintenance tooling. 25 Our O&M forecast includes funding for sustaining the plant’s current safety management 26 and training processes, which include assuring the proper operation and maintenance of power generation 27 equipment and maintenance of safety and fire protection systems and equipment. As described in more 28 detail in Part 2 of this volume, our Capital forecast includes several projects needed to assure this level of 29 safety into the future. 3011 2. Regulatory Compliance and Environmental Responsibility Including Compliance 1 With Current US EPA Air Emissions Requirements 2 Operating in conformance with all applicable laws and permit requirements, including 3 environmental responsibilities, are important performance objectives. Four Corners is a large industrial 4 facility that processes millions of tons of coal fuel every year and assumes substantial risk of unacceptable 5 environmental impact if not adequately maintained. Coal-fired generating stations are subject to 6 substantial environmental regulation, which serves to protect native groundwater and air quality. 7 Examples of this regulation include: (1) the Federal Clean Water Act (33 U.S.C. § 1251 et seq.), which 8 requires that permit conditions that limit water discharge contamination be met; (2) the hazardous waste 9 regulations of 40 C.F.R. Parts 266-299, which require safe handling and disposal of hazardous materials; 10 and (3) the Federal Clean Air Act (42 U.S.C. § 7401-7671), which regulates air emissions of generating 11 stations and requires monitoring of emissions. In 2009 the EPA initiated a review of the plant’s 12 compliance with the Clean Air Act (CAA). The plant has provided the EPA extensive records on the 13 plant’s operations, maintenance, and capital expenditures from January 1, 1990 to the present, which the 14 EPA is reviewing. 15 Plant air emissions are also governed by a Federal Air Implementation Plan (FIP) 16 promulgated by the US Environmental Protection Agency (EPA) effective in June 2007. This FIP 17 includes limits on SOX (sulfur oxides) air pollution and smokestack opacity along with other monitoring 18 and reporting requirements. 19 A separate regional haze FIP was promulgated for Four Corners in August 2012 and 20 requires expenditures of several hundred million dollars for NOX emissions abatement systems, including 21 the addition of Selective Catalytic Reduction (SCR) should the other owners desire to continue operations 22 beyond 2016 after the SCE-APS sale closes. Specifically, among other mandates, the FIP requires that 23 SCR be installed either: (Option A) on the first unit of Units 4 and 5 ( i.e. , on at least 750 MW) by 24 October 23, 2016 and on all five of the plant’s generating units by October 23, 2017, or alternatively, 25 (Option B) on both Unit 4 and Unit 5 by July 31, 2018 if Units 1, 2, and 3 are permanently shut down by 26 January 1, 2014. Since we do not plan to participate in plant operations beyond July 2016, SCE would 27 not be funding this work. However, because the other owners are pursuing Option B ( i.e. , Units 1, 2, and 28 3 shut down by 2014 and then SCR installation on Units 4 and 5) in anticipation of a successful SCE-APS 29 sale closure, there may be a possibility of Units 1, 2, and 3 shutting down prior to permanent shut down of 3012 Units 4 and 5 in July 2016. Such a shutdown of Units 1, 2, and 3 would impact the start-up ability of 1 Units 4 and 5 during 2014 through 2016. 16 There is the possibility, therefore, of this impacting SCE's 2 costs of continued participation in the plant, through requiring SCE’s participation in capital expenditures 3 for a new auxiliary source of start-up steam. This is also discussed in Part 2 of this volume. 4 In addition to environmental compliance, regulatory conformance is a factor in many other 5 areas of plant operations. This includes maintaining the plant as required by NERC Reliability Standards. 6 As these standards are relatively new, compliance has required the plant to increase expenditures over the 7 past few years. These standards require a variety of actions such as routinely testing and calibrating 8 electrical fault protection devices that are part of the plant’s electrical system. 9 Another area of regulatory compliance specific to SCE is that our Four Corners 10 participation complies with the Commission’s Greenhouse Gas Emissions Performance Standards (EPS), 11 as contained in SB 1368 and in Commission decisions applying the statute to Four Corners, and including 12 the related requirements contained in the Commission’s decision in our 2012 GRC. This area of 13 compliance is discussed in more detail in Chapter IV of Part 2. 14 In summary, our O&M and capital expenditure forecasts appropriately include funding for 15 sustaining current environmental and regulatory compliance processes, and for meeting various other 16 regulatory requirements, to assure compliant operations of the plant up until July 2016. This funding is 17 needed to assure full regulatory compliance, including the continued proper operation and maintenance of 18 coal fuel combustions systems, stack gas pollution scrubbers, emissions monitoring systems, ash removal 19 and land-filling systems, and waste treatment systems, as needed to conform with our environmental 20 regulatory requirements and permits, and consistent with our past operation. 21
3. Reliability 22 Our O&M expense and Capital expenditure forecasts assume that some small degradation 23 of reliability and fuel efficiency performance is an acceptable trade-off in order to reduce O&M expense 24 and capital expenditures during the plant’s last few years of operation. However, given the potentially 25

16 At the conclusion of outages aff ecting only either Unit 4 or Unit 5 ( i.e. , where one of the two units is operating and the other is experi encing an outage), the operating unit can provide the steam that is ne eded to restart the other unit. At the conclusion of outages affecting both Unit 4 and Unit 5, the start-up steam has histori cally been provided by Unit 1, 2 or 3. If necessary, Unit 1, 2, or 3 can be starte d without a supply of start-up steam. Howe ver, this is not the case for Unit 4 or Unit 5, as they both require substantial amounts of startup steam to drive the auxiliary steam turbines, which in turn, drive the Units 4 and 5 boiler fe ed pumps. Units 1, 2, and 3 have electric motors that drive the boiler f eed pumps rather than auxiliary steam turbines. Retirement of Units 1, 2, and 3 requires that an auxiliary boiler be installed and operated to supply this Units 4 and 5 startup steam.13 high economic consequences of extended outages of the low-cost Four Corners Units 4 and 5 generating 1 resources, and the fact that fuel expense is a very significant percentage of total Four Corners costs, our 2 forecasts provide sufficient funding to assure that Units 4 and 5 reliability and fuel efficiency do not 3 significantly degrade. 4 Four Corners is a large producer of low-cost coal-fired electrical energy. SCE’s share of 5 the Units 4 and 5 represents approximately 739 MW of capacity. In 2012 Units 4 and 5 produced 6 10,183,288 MWh of low-cost energy of which SCE customers received approximately 5,160,407 MWh. 7 SCE recognizes the importance of reliable power to its customers and to the State of California, and plant 8 reliability is a key performance objective. When th e Four Corners units are operating at full load, the 9 output available to SCE’s customers meets the load requirements of approximately one million homes. 10 When the California energy load is at 40,000 MW, Four Corners Units 4 and 5 serve approximately one11 and-a-half percent of the total California power demand, and it is one of the lowest cost sources of 12 electricity. 13 The majority of forecast O&M and capital expenditures for Four Corners are driven by 14 plant reliability needs. Our forecast includes funding needed to sustain appropriate and cost effective 15 levels of reliability performance through July 2016. This includes sustaining our personnel training 16 programs and assuring that we continue to take corrective action each time we have an event that hinders 17 plant output. This further includes sustaining our preventative and corrective maintenance programs and 18 promptly undertaking equipment repairs when failures occur. 19
4. Fuel Efficient Operation 20 As discussed above, our total cost management goal includes taking into account the fuel 21 ( i.e. , coal) cost of our Four Corners operations. Fuel cost is by far the largest component of total 22 production cost. Thus, although direct fuel costs are the subject of another CPUC filing, maintaining the 23 plant’s efficiency in converting fuel energy to electrical energy is a key management objective. 24 Monitoring equipment performance, controlling operating parameters, and using effective maintenance 25 practices are all part of achieving this objective. 26
5. Total Cost Management 27 Management of the total cost of our Four Corners operations is a primary SCE objective. 28 Total cost management involves taking into account the inter-relationship between O&M, capital, and 29 coal fuel expenditures and the cost of purchasing market energy when Four Corners electrical production 30 is constrained during forced and scheduled outages. Actions undertaken by SCE and the other owners 31 include assuring that appropriate levels of qualified and trained staffing are maintained at the station. We 3214 also evaluate equipment performance and attempt to schedule equipment replacements before production 1 restrictions and forced outages become costly to our customers. Additionally, we utilize employee 2 incentives that help maintain the focus of Four Corners plant employees on objectives that support the 3 cost management needs of our customers. 415 III. 1
FOUR CORNERS PERFORMANCE 2
A. Safety 3 Worker safety remains the top priority at Four Corners. Safety management at Four Corners 4 includes monthly safety inspections and safety observations by station managers, front-line leaders, and 5 safety analysts, as well as a minimum of quarterly site visits from APS headquarters safety professionals. 6 Employee safety teams focus on Human Performance Improvement and specific project development. 17 7 Tailboards are conducted at the beginning of every shift and anytime the task significantly changes. 8
B. Environmental Responsibility 9 The Four Corners major environmental permits are: 10
1. Title V Air Permit, Acid Rain Permit. 11
2. National Pollutant Discharge Elimination System (NPDES) Water Permit. 18 12
3. Stormwater Permit. 13
4. US EPA Federal Implementation Plan (Air Emissions). 14
5. US EPA Federal Implementation Plan FIP (BART). 15 One measure of environmental performance is the amount and severity of violation citations a 16 power plant receives from regulatory agencies. Four Corners has not received any major Notices of 17 Violations (NOVs) for the past several years. Four Corners also tracks un-permitted wastewater 18 discharges relative to their NPDES wastewater permit. There have been no un-permitted discharges for 19 several years. 20
C. Reliability 21 “Equivalent Availability Factor” (EAF) is a measureme nt of reliability performance that is widely 22 used in the electric industry. 19 During 2008 through 2012, Four Corners Units 4 and 5 exhibited excellent 23

17 The Four Corners Human Performance Improvement program re duces human errors and unsafe behaviors by identifying the cause for performance gaps, providing appropriate interventio ns to improve and sustain performance, and evaluating the results against the requirements.

18 The EPA (Environmental Protection Ag ency) initiative known as The National Po llutant Discharge Elimination System (NPDES) permit program co ntrols water pollution by regula ting point sources that discharg e pollutants into waters of the United States.

19 “Equivalent Availability Factor” is defined as the number of hours the plant is available to serve load, including the prorating of those hours where the pl ant is only partially available ( i.e. , when the plant is on-line, but cannot produce full output because of equipment problems), divi ded by the total hours in the period ( i.e. , 8,760 hours, when measured on an annual basis).16 reliability performance as shown in Figure III-1. The low EAF recorded in 2008 on Unit 5 and 2010 on 1 Unit 4 was due to the extended outages needed to perform major unit overhauls in those years. 2



### Figure III-1 Four Corners Equivalent Availability Factor

2008 2009 2010 2011 2012 Average Unit 4 92.09 88.45 60.23 82.81 80.15 80.75 Unit 5 65.58 86.64 89.85 78.89 80.85 80.36 0 10 20 30 40 50 60 70 80 90 100

Year

Major overhauls have historically been conducted approximately every six years on each unit. 3 This periodic major maintenance is needed to assure that the units operate safely, efficiently, and reliably 4 during the remainder of each six-year cycle. As the last major overhaul on Unit 4 was conducted in 2010, 5 the next regularly scheduled Unit 4 major overhaul would be 2016. However, either the sale will close 6 well before 2016, or the sale will not close and the plant will cease operations in July 2016. Therefore, in 7 either case, SCE will not be funding any more Unit 4 major overhauls. 8 As the last major overhaul on Unit 5 was conducted in 2008, the next regularly scheduled Unit 5 9 major overhaul would be in 2014. However, since we are working to close our sale during 2013, SCE is 10 not funding a 2014 major overhaul, or any further overhauls, on Unit 5. If the sale does not close, our 11 forecast assumes that no further overhauls will be needed between now and the plant shut down in July 12 2016. We assume Unit 5 reliability can be sustained at acceptable levels for this final, unusually long 13 eight-year operating cycle since its last overhaul in 2008. While we may incur an increased level of break 1417 down repairs because of this unusally long operating cycle since its last major overhaul, we believe we 1 can maintain the overall reliability of Unit 5 at a cost effective level until plant shut down in July 2016. 2 Figure III-2 below depicts the capacity factor from Units 4 and 5 combined ( i.e. , MWh, 100 3 percent Owner Share) for years 2008 through 2012. 20 As shown, actual generation varies year to year, as 4 planned and unplanned outage durations vary year to year, and as a result of power market conditions. 5



### Figure III-2 Four Corners Capacity Factors

2008 2009 2010 2011 2012 Average Unit 4 90.27 85.18 57.58 76.97 74.57 76.91 Unit 5 66.47 86.63 86.58 74.14 75.99 77.96 0 10 20 30 40 50 60 70 80 90 100

Year

D. Fuel Efficient Operation 6 Heat rate is a measurement of operating efficiency used in the fossil generation industry. Heat 7 Rate is defined as the heat energy used to generate a unit of power output, most commonly expressed as 8 Btu per kWh ( i.e. , a lower number represents better fuel economy than a higher number). From 2008 9

20 Capacity factor is the percentage figure which reflects a plant's actual MWH output divided by the plant’s maximum theoretical MWH generation that would result from operating at ra ted output every hour of the year. As such, a plant with a higher MW rating will generate more MWH than a plant with a lower MW rating operating at the same capacity factor. In June 2011, Units 4 and 5 were each re-rated from 750 MW to 770 MW (net) commensurate with turbine repairs made during their respective 2010 and 2008 ov erhauls, which increased generator MW output for the same amount of steam flow.18 through 2012 Four Corners Units 4 and 5 exhibited consistently good heat rate performance, as shown in 1 Figure III-3 below. 2



### Figure III-3 Four Corners Heat Rate 2008-2012

2008 2009 2010 2011 2012 Average Unit 4 9791 9828 9825 10043 10046 9907 Unit 5 9749 9776 9744 9859 9963 9818 9,550 9,600 9,650 9,700 9,750 9,800 9,850 9,900 9,950 10,000 10,050 10,100

Year

The lower heat rates observed during 2008 through 2010 reflect two principal factors. The first 3 factor is that it is normal for efficiency to degrade in between major overhauls due to the normal wear and 4 tear of equipment components over many hours of operation ( e.g. , turbine blades erode, air preheater 5 baskets and seals wear out, etc.). As noted above, the last major overhauls were in 2008 and 2010 on Unit 6 5 and Unit 4, respectively. The second factor is that fuel economy is best when the units are operated near 7 or at their normal rated load ( i.e. , 770 MW on each unit). Due to power market conditions over the past 8 few years the units experienced more hours of operation well below 770 MW in 2011 and 2012 than in 9 2008, 2009, and 2010. 10 Notwithstanding the consistently good heat performance over the past several years, it should be 11 noted that larger fluctuations in heat rate can sometimes occur and, as such, future heat rate cannot be 12 predicted with certainty. Market conditions are subject to change. Also, as the units get closer to a July 13 2016 retirement and continue to operate further beyond their last major overhauls in 2008 and 2010, it is 14 expected that the heat rate will increase. For example, we could experience earlier-than-forecast problems 1519 with a major equipment item ( e.g. , turbine blades), and then have to continue to operate with that 1 efficiency-degraded equipment. 2
E. Total Cost Management 3 Figure III-4 below depicts Four Corners recorded non-fuel O&M costs from 2008 through 2012, 4 along with our forecast O&M expenses for 2013 through 2015. The higher costs shown in years 2008 and 5 2010 reflect the costs for the major overhauls in those years. In addition to the clear impacts of the major 6 overhauls, Figure III-4 also shows that even in non-overhaul years Four Corner's annual costs fluctuate as 7 activities such as repair maintenance can vary from one year to the next. While these year to year 8 fluctuations exists, total non-fuel O&M costs do not show a clear trend either up or down during this time 9 period, which indicates that costs are being managed to relatively consistent levels. When combined with 10 the fact that fuel efficiency ( i.e. , fuel costs) and plant reliability are also being appropriately maintained 11 (as discussed above), this indicates that plant total costs are also being managed to relatively consistent 12
levels. 13



### Figure III-4 Four Corners Recorded O&M 2008-2012/Forecast 2013-2015

A significant cost of operating Four Corners is the labor costs associated with plant staffing. 14 Figure III-5 below depicts station staffing levels from 1993 through 2012 and forecast for 2013. These 15 station personnel are all employees of the plant operator, APS. Note that these staffing figures include 1620 100 percent of the plant’s staff, including APS personnel who spend all or a portion of their time on Units 1 1, 2, and 3. 21 However, all cost data discussed herein is only for SCE’s share of plant costs, unless 2
otherwise noted. 3



### Figure III-5 Four Corners Staffing Units 4 and 5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
STAFFING 703 638 616 604 570 575 572 581 601 601 581 590 590 597 607 605 523 503 473 480 0 100 200 300 400 500 600 700 800Number of People

Year

The large staffing reduction achieved during the 1990s (well over 100 employees) reflects 4 investments made in control system automation at the power plant, which allowed reductions in operating 5 personnel levels. The station also undertook the wide-scale deployment of desktop computers during this 6 time period and, related to this deployment, made significant improvements in data systems management 7 and communication. These initiatives greatly improved worker productivity and allowed for more 8 detailed analysis of the plant's maintenance program, thereby improving its effectiveness. 9 Staffing essentially remained relatively constant during the late 1990s through 2002. Staffing then 10 increased over the next seven years, peaking in 2008 at 607 employees, to support the slow-but-steady 11 increasing maintenance needs of an aging generating station. This increase also reflects added work, 12 including new training requirements, the operation and maintenance of new equipment, and management 13 of data collection and reporting systems needed to comply with increasingly stringent regulations 14

21 Certain APS employees work solely on Units 1, 2 and 3, and others work solely on Units 4 and 5. Many employees work on both Units 1, 2 and 3, and on Units 4 and 5, as well as on plant Common equipment. The work hours of all of these employees are appropriately recorded and tracked to assure that the Units 4 and 5 co-owners pay their appropriate ownership share for this work.21 promulgated over the years. Most recently this includes compliance with the SOX Federal Air 1 Implementation Plan that became effective on June 6, 2007, as well as with NERC Reliability Standards 2
that also became effective in June 2007 and have increased since that time. 3 Since 2010, the station has steadily decreased manning through attrition, and the total employee 4 count at the start of 2013 was 480. The decrease is consistent with APS’s plans to cease operations on 5 Units 1, 2, and 3 in 2014 should the SCE-APS Units 4 and 5 sale close as expected. APS has stated they 6 will replace their Units 1, 2, and 3 generation (as no ted earlier, APS is the sole owner of Units 1, 2, and 3) 7 with SCE’s share of Units 4 and 5 generation once they obtain that share. Aternatively, should the sale 8 not close, we expect to operate at approximately this reduced level of staffing until the entire plant ceases 9 operations in July 2016. In this case, as the entire plant will continue to operate, the cost savings of 10 reduced staff ( i.e. , compared to prior levels) will continue to be offset by the costs of higher levels of 11 contractor support and higher overtime costs for APS staff. 1222 IV. 1
OUR FOUR CORNERS O&M EXPENSE FORECAST CONFORMS TO THE GREENHOUSE 2 GAS EMISSIONS PERFORMANCE STANDARD, AND IS IN SERVICE OF 3
DECOMMISSIONING 4 SCE’s current participation in the plant is compliant with the Commission’s Greenhouse Gas 5 (GHG) Emissions Performance Standard. If the sale does not close, SCE's continued participation in the 6 plant must remain compliant with the Commission's Greenhouse Gas (GHG) Emissions Performance 7 Standard (EPS) (D.07-01-039). This requires that base-loaded power plants maintain greenhouse gas 8 emissions levels at or below those of a of a gas-fired combined cycle gas turbine (CCGT) base-load 9 power plant. The EPS prohibits capital expenditures that extend the life of existing base loaded power 10 plants that do not meet the emissions limit. Since Four Corners emissions exceed this level and cannot be 11 cost effectively reduced below this level, SCE entered into the agreement to sell our plant share to APS. 12 This sale was approved by the Commission in D.12-03-034, which exempted planned 2012 capital 13 expenditures from EPS review. Prior to that approval, in response to SCE’s Four Corners GHG EPS 14 Petition, in D.10-10-016 the Commission granted SCE approval of past and planned capital expenditures 15 at Four Corners through 2011 that were not previously approved by the Commission in SCE’s 2009 GRC 16 (D.09-03-025) because of potential conflict with the EPS. However, the Commission’s approval in D.10- 17 10-016 was subject to certain conditions where SCE was required to demonstrate compliance in our 2012 18 GRC proceeding. 22 In the Commission’s decision in our 2012 GRC, the Commission found we met these 19 requirements, stating: 20

“We find that SCE established the nature, purpose, and necessity of the expenditures as 21 required for its pre-2012 Four Corners capital projects. The fact that SCE’s ownership until 22 2016 was an integral part of the Commission’s decision to grant the partial exemption from 23 EPS for expenditures, otherwise shown to be reasonable and necessary, indicates acceptance of 24 2016 as the measure of Four Corners plant life for SCE. To the extent that replacement 25 equipment might last beyond 2016, it does not equate with plant life extension because the 26 ownership agreements, fuel supply contract, and land lease expire that year. Without new 27 agreements, the plant cannot continue to operate.” (D.12-11-051 pp. 53, 54.). 28
The Commission therefore recognized that SCE’s continued participation and funding of Four 29 Corners plant operations through the remaining term of the existing plant agreements is compliant with 30 the EPS. Recognizing that the closure of the SCE-APS sale might not occur and the potential impact of 31 the sale not closing relative to the Commission’s EPS policy objectives, the Commission further directed: 32

22 See workpapers for a copy of D.10-10-016, pp. 2-3.23 “If SCE does not complete the sale of Four Corners as authorized, SCE shall include in its 1 2015 GRC a showing that each post-2011 expenditure is reasonable, necessary, and in service 2 of Decommissioning. The showing of necessity shall include an analysis of expected failure 3 and available less costly alternatives. Although we agree that the sale might not close in 2012, 4 we find that the policy objectives of EPS require that, going forward, SCE only be eligible for 5 rate recovery for O&M and capital expenditures identified in the Decommissioning Case that 6 it reached in consultation with its co-owners.” 7 (D.12-11-051, p. 55). 8

“If the Four Corners sale does not occur, SCE should limit post-2011 funding to O&M and 9 capital expenditures identified in the Decommissioning Case and include in the 2015 GRC a 10 showing that each post-2011 expenditure is reasonable, necessary, and in service of 11 Decommissioning.” (D.12-11-051, Conclusion of Law 30, p. 823). 12
Immediately below, we explain why our O&M expense forecast is consistent with the 13 Commission’s findings and directives contained in D.12-11-051 and is consistent with the 14 Decommissioning Case presented in our 2012 GRC. In Part 2 of this volume, we explain why our capital 15 expenditure forecast is consistent with the Commission’s findings and directives contained in D.12-11- 16 051 and is consistent with the Decommissioning Case presented in our 2012 GRC. 17 In our 2012 GRC proceeding, SCE provided two O&M expense and capital expenditure forecasts: 18 one for a Plant Sale Case and one for a Plant Decommission Case. As explained in SCE’s testimony in 19 our 2012 GRC, our 2012 Test Year O&M expense Forecast for the Decommissioning Case was identical 20 to that for our Plant Sale Case except for removal of the forecast costs for the (then) planned Unit 5 2014 21 major overhaul. As previously explained in Chapter III, major overhauls have historically been 22 performed on Unit 4 and Unit 5 approximately every six years and were last performed in 2008 (Unit 5) 23 and 2010 (Unit 4). The costs for these overhauls causes O&M expense to be significantly higher in years 24 where a major overhaul is performed, as compared to years in which no major overhaul is performed. 25 In SCE’s past GRCs, SCE included (and the Commission approved) the annual average of these 26 incremental costs for major unit overhauls in our Test Year forecast. For example, in SCE’s 2009 GRC 27 (D.09-03-025) for the three-year rate cycle of 2009 through 2011, the Commission approved inclusion of 28 one-third of the forecast incremental cost for the 2010 Unit 5 major overhaul ( i.e. , the annual average of 29 this incremental overhaul cost that would be incurred during 2009 through 2011). Consistent with this 30 practice, in our 2012 GRC Sale Case Forecast, SCE included the forecast annual average (during 2012 31 through 2014) incremental costs for the (then) planned 2014 Unit 5 major overhaul. These costs were 32 included in our Sale Case forecast because, among other reasons, the SCE-APS sale had not yet been 33 approved and the remaining duration of SCE’s participation had not been decided. 3424 Conversely, our 2012 GRC Decommission Case forecast assumed that the 2014 major overhaul 1 would be canceled, but that an abbreviated overhaul would be conducted in its place to help assure 2 reliable operation until the plant ceased operations for Decommissioning. We then forecast that this 3 abbreviated overhaul preventative maintenance work would be equal to one-third of the 2014 incremental 4 annual major overhaul costs that we had included in our Sale Case. 5 In our 2012 GRC, the Commission subsequently approved SCE to recover Four Corners O&M 6 expense that equaled our Sale Case forecast, with two reductions: (1) the incremental cost for the planned 7 Unit 5 2014 major overhaul; and (2) all forecast O&M expense for operation beyond September 2012. 23 8 The second of these reductions was based on the assumption the sale would close by October 1, 2012, but 9 also allowed SCE to track any costs incurred after October 2012 in the Four Corners Memorandum 10
Account. 24 11 Consistent with the 2012 GRC Decision, our 2015 GRC forecast includes no funding for major 12 overhauls. Furthermore, our forecast includes no funding for additional repairs (or for additional 13 preventative maintenance to avoid such repairs) that might result from cancelation of the 2014 overhaul. 14 Managing costs within this forecast will therefore be challenging, because we expect that we will need to 15 perform additional repairs or additional preventative ma intenance as a result of canceling the overhaul. 16 We expect that as added work arises, it may require us to incur multiple shorter outages in lieu of a single, 17 large extended major overhaul outage. Such additional work and the associated outages could reduce 18 plant reliability slightly below recent historic levels, and could drive O&M expenses above our forecast. 19 While we have endeavored to produce an accurate forecast for operation until July 2016, it is possible that 20 costs will be incurred that are in excess of our O&M expense and capital expenditure forecasts. 21 Whether or not certain major overhaul work items are conducted during shorter outage(s) during 22 January 2015 through June 2016, it is assumed that the plant will not perform much of the preventative 23 maintenance that is normally performed during major overhauls. This means that Unit 5, in particular, 24 will be at increased risk of incurring higher-than-hist oric repair costs after 2014. In spite of this risk, 25 SCE’s 2015 Test Year forecast assumes that O&M Operation expenses can be maintained at 2012 levels 26 and O&M Maintenance expenses can be maintained at the 2011 and 2012 average recorded levels during 27 the last 18 months of plant operation ( i.e. , from January 2015 through June 2016). As no major overhauls 28

23 D.12-11-051, Conclusi ons of Law 29, p. 823.

24 D.12-11-051, Conclusi ons of Law 31, p. 823.25 were conducted during 2011 and 2012, the Test Year forecast therefore does not include funding for any 1 of the work items that would normally be accomplished only during major overhauls. 2 A comparison of our 2015 Test Year O&M expense forecast with our 2012 GRC Decommission 3 Case forecast, and with the O&M expense forecast adopted by the Commission in our 2012 GRC, further 4 demonstrates that our 2015 Test Year O&M expense forecast conforms to the Commission’s mandate that 5 “going forward, SCE only be eligible for rate recovery for O&M and capital expenditures identified in the 6 Decommissioning Case that it reached in consultation with its co-owners.” 25 Our 2012 GRC 7 Decommission Case forecast was $41.505 million in 2009 dollars, which equates to $46.371 million in 8 2012 dollars. Our 2015 Test Year forecast is $44.387 million in 2012 dollars, which is $1.984 million 9
lower than our 2012 GRC Decommission Case forecast. 10 In our 2012 GRC the Commission adopted a Four Corners O&M expense of $30.605 million in 11 2009 dollars for nine months of operation, which equates to $40.087 in 2009 dollars for twelve months of 12 operation. This equates to $45.590 million in 2012 dollars. Our 2015 Test Year forecast is $44.387 13 million in 2012 dollars, or $1.203 million lower than the equivalent 12-month authorized amount in our 14 2012 GRC. This comparison demonstrates that our forecast herein is consistent with past forecasts for the 15 plant Decommission Case. This forecast is aggressively cost-conscious, particularly in light of actual 16 recorded expenditures during 2011 and 2012, and the continuing risk that the plant will incur additional 17 break down repair costs (or added preventative maintenance to avoid those breakdowns) in lieu of 18 conducting a Unit 5 2014 major overhaul. 19

25 D.12-11-051, p. 55.26 V. 1
WE ESTIMATE JULY 2016 THROUGH DECEMBER 2017 O&M DECOMMISSIONING 2 EXPENSE WILL BE EQUAL TO OUR FORECAST JANUARY 2015 THROUGH JUNE 2016 3 O&M EXPENSE, AND WE WILL UPDATE OUR FORECAST WHEN APPROPRIATE 4 We forecast that plant decommissioning work will begin shortly after the plant shutdown in July 5 2016. Further details regarding the decommissioning scope of work and cost estimate are provided in 6 Part 2 of this volume, where we discuss forecast capital expenditures. The decommissioning cost 7 estimate discussed therein consists of those expenditures that will be incurred to physically dismantle the 8 plant and return the site to an acceptable condition. However, the decommissioning cost estimate does 9 not include numerous O&M expenses that will be incurred by the plant owners after the plant ceases 10 operation in July 2016. These costs include employee severance costs and potential related expenses, 11 such as job placement assistance for severed employees. 12 These post-July 2016 O&M expenses, which are in in addition to the cost to decommission the 13 plant, are difficult to accurately forecast at this time. This is because detailed planning for a July 2016 14 plant shutdown has not yet been performed. For the past several years, SCE and the other plant owners 15 have focused their limited budgetary and staffing resources on successfully concluding the SCE plant 16 share sale to APS, rather than on detailed plant shutdown and decommissioning planning. For plant 17 operating agent APS and the other plant owners, this work has included: (1) initiating and proceeding 18 with the various federal and state reviews that the other plant owners must complete in order to continue 19 to operate the plant after SCE departs; and (2) initiating and then concluding negotiations on a new coal 20 contract for those continued operations. 21 Should the SCE-APS sale not successfully close, SCE and the other plant owners will then fully 22 undertake the detailed planning process to prepare for a plant shutdown in July 2016, and to prepare for 23 follow-on plant decommissioning. This planning process will include formulating a more detailed 24 estimate of the various costs that will be incurred by the owners after plant operations cease in July 2016, 25 that are in addition to plant decommissioning expenses. As these detailed plans to exit the plant site 26 proceed, we will update the Commission at appropriate points during this GRC proceeding and will revise 27 our post-shutdown O&M expense forecast as appropriate. Meanwhile, based on experience gained from 28 the Mohave plant shutdown and decommissioning, SCE expects that costs incurred during July 2016 2927 through December 2017, which are in addition to decommissioning costs, will be approximately equal to 1 the plant’s monthly O&M expense incurred during the time period of January 2015 through June 2016. 26 2

26 See Workpapers for more information on Mohave recorded O&M expense leading up to and following its shut down on December 31, 2005.28 VI. 1 IF THE SCE-APS SALE CLOSES IN 2013 AS EXPECTED, SCE WILL REMOVE FOUR 2
CORNERS COSTS FROM OUR 2015 GRC FORECASTS 3 Should the SCE-APS sale successfully close during 2013 as expected, SCE will remove all 4 forecast Four Corners costs from our 2015 GRC forecasts, including the O&M expense and capital 5 expenditure forecasts presented in this volume. SCE will instead recover our remaining unrecovered Four 6 Corners costs through mechanisms already established by the Commission. 7 In the Commission’s approval of the SCE-APS plant share sale, the Commission found reasonable 8 the SCE-APS Asset Sale and Purchase Agreement. 27 The Agreement provides that APS will reimburse 9 to SCE capital expenditures incurred by SCE for Four Corners since January 1, 2011, except for 10 accumulated depreciation associated with those expenditures recorded between January 1, 2011 and the 11 sale close date, and except for capital expenditures incurred for unbudgeted plant emergencies ( e.g. , 12 unforeseen breakdowns of significant pieces of equipment requiring capital repairs such as replacement of 13 the failed equipment item). 14 In the 2012 GRC, the Commission ordered SCE to remove all forecast Four Corners costs from 15 GRC base rates, effective October 1, 2012. 28 Four Corners costs we have incurred since October 2012 are 16 currently being tracked in the Four Corners Memorandum Account, as follows: 17

“Southern California Edison Company may establish a Four Corners Memorandum Account to 18 track expenses incurred between October 1, 2012 and the delayed sale date and file an 19 application for reasonableness review after the sale of Four Corners is completed.” 20 (D.12-11-051, Ordering Paragraph 14, p. 882) 21
Upon the close of the Sale, and commensurate with the removal our forecast O&M expense and 22 capital expenditure forecasts presented herein, we w ill file an Application for reasonableness review and 23 to the extent applicable, recovery of the incurred costs, that have accumulated between October 1, 2012 24 and the date the sale closes, in our Four Corners Memorandum Account. 25

27 D.12-03-034 Conclusion of Law 1, p. 33.

28 D.12-11-051, page 55.29 VII. 1
FOUR CORNERS O&M EXPENSE FORECAST OVERVIEW 2
A. Test Year Forecast Summary 3 Our Four Corners 2015 Test Year O&M forecast is $44.433 millon. It is based on the analysis of 4 the most recent five years of recorded O&M expense data ( i.e. , 2008 through 2012). Four Corners has 5 three categories of costs: labor, other and non-labor. Labor is the cost of SCE personnel who provide 6 oversight of SCE’s ownership share of the plant. “Other” costs consists of only one item, which is SCE’s 7 share of the lease payment to the Navajo Nation for the plant site lease. It is an “other” cost because it is 8 analyzed in nominal years dollars, rather than in 2012 dollars, given that the lease has specific provisions 9 that govern annual escalation of the lease cost. 29 Non-labor comprises the large majority of Four Corners 10 costs, which includes the costs for APS staff who operate and maintain the plant, as well as all of the costs 11 of contractors, repair parts, consumables, and all other items needed to run the plant. 12 In turn, these three cost components (labor, other and non-labor) fall into two sets of FERC 13 accounts; one set for plant operations functions and another set for plant maintenance functions. The 14 operations functions include a portion of the non-labor costs, as well as all of SCE’s oversight labor and 15 plant lease costs. The maintenance functions are comprised entirely of non-labor costs. As explained in 16 more detail in Chapter VIII, we forecast that 2015 maintenance expenses will match the annual average 17 of maintenance expenses ( i.e. , “maintenance accounts”) recorded during the last two years ( i.e. , 2011 and 18 2012). We forcast that the labor and non-labor components of 2015 operating expenses will match last 19 recorded year (2012) operations expenses ( i.e. , “operations accounts”). We forecast the site lease expense 20 component ( i.e. , the “other” cost category) of the operations accounts based on the terms of the Lease. 21 As shown in Figure VII-6, our 2015 Test Year forecast is consistent with recorded expenses in 22 2008 through 2012, and is significantly less than recorded expenese in 2008 and 2010. This is because of 23 costs associated with the major overhauls conducted in 2008 and 2010. As discussed above, our Test 24 Year forecast does not include any funding for major overhauls. 25

29 Labor and non-labor costs are forecast and analyzed using constant 2012 dollars.30 

### Figure VII-6 Recorded and Adjusted 2008-2012/Forecast 2013-2015 ($000 Constant 2012$ )

B. Collection, Grouping, Adjustments, and Analysis of Recorded Data 1 We used the following general process to analyze the recorded data and generate candidates for 2
estimate: 3

x First, we collected five years of recorded data from 2008 through 2012, grouped by FERC 4

accounts. 5

x Then, we escalated the recorded/adjusted expense to year 2012 constant dollars using rates 6 supplied by SCE’s Treasurers Department. 30 7

x We then grouped the Operations (FERC 500-507) and Maintenance (FERC 510-514) 8

accounts. 9

x We analyzed the Operations and Maintenance FERC accounts recorded data and determined 10 the causes of significant year-to-year changes. 11

30 See Exhibit SCE-10, Vol. 1, Chapter VII. Cost Escalation.31 x Using the adjusted recorded base, we forecast our Test Year expense levels for the Operations 1 (FERC 500-507) and Maintenance (FERC 510-514) accounts combinations of the recorded 2 data were representative of all or part of future requirements. 3 In the following chapter we provide additional details concerning our analysis and forecasting for 4 the operations accounts and maintenance accounts that comprise the total Test Year forecast for Four 5
Corners. 632 VIII. 1
FOUR CORNERS GENERATING STATION O&M FERC ACCOUNTS 2
A. FERC Operations Accounts 506.015 3 Operations Accounts capture costs related to starting, stopping, and running the numerous 4 equipment items required to produced power from the Four Corners generating units. This includes labor 5 for operations personnel, water, chemicals, and other consumables, waste disposal, and a wide variety of 6 other functions. Specifically, these accounts consist of: 7

x FERC 500.015 - Expenses incurred in the general supervision, direction, and support of station 8 operation at Four Corners Generating Station. Since Four Corners is operated by APS and not 9 SCE, this account is the only Four Corners account that records labor charges incurred by 10 SCE. This includes oversight of its ownership share of the plant, including regular review of 11 APS budget performance and operating and maintenance practices and similar activities. 12

x FERC 501.015 - Fuel-Related Expenses, including non-labor expense for the receiving, 13 storage, and handling of fuel and removal/disposal of combustion residual (ash). 14

x FERC 502.015 - Steam Expenses, including expenses incurred to operate the furnace and 15 boiler systems used for the production of steam for electric generation. 16

x FERC 505.015 - Electric Expense, including expenses incurred in operating prime movers, 17 generators, and auxiliary electrical systems to the points where electricity leaves for 18
conversion to transmission. 19

x FERC 506.015 - Miscellaneous Steam Expenses, including operations expenses that are not 20 applicable to other specific Operation accounts. The significant activities with costs recorded 21 to this account include salaries and expenses for the management, administrative, and support 22 staffs and the payout for the Employee Incentive Plan. 23

x FERC 507.015 – Rents, including the expense of real property rentals used, occupied, or 24 operated in connection with the plants. For Four Corners, this consists solely of the annual 25 payment made to the Navajo Nation for lease of the plant site. 26 As noted above, to facilitate our review of past recorded operating costs, and for purposes of 27 forecasting future operating costs, we first grouped all of the above operations accounts into a single 28 account; specifically, we grouped them into account 506.015. Figure VIII-7 below summarizes the total 29 2008 through 2012 recorded costs captured by the operations accounts, and our Test Year forecast for 30
these accounts. 3133 

### Figure VIII-7 FERC Operations Accounts 506.015 Recorded and Adjusted 2008-2012/Forecast 2013-2015 ($000 Constant 2012$)

As shown, operations account recorded expense has been largely stable during 2008 through 2012. 1 Lime purchases are a significant operating cost that can vary year to year depending on how much 2 generation is produced. Four Corners uses “wet scrubbers” to sequester SOX emissions from the exhaust 3 gases exiting the furnace. The wet scrubbers inject lime slurry into the exhaust gases to remove the SOX. 4 In 2008 and 2010 we had lower lime costs compared to years 2009, 2011, and 2012. This is because less 5 lime was required due to less generation because of the long overhaul outages in 2008 and 2010. 6 However, offsetting these reduced lime costs were higher costs recorded to FERC 506.015 during those 7 two major overhaul years. During major overhauls, this account records the extra cost for site security, 8 consumable material and supplies, tool repair and replacement, safety equipment, and all other operating 9 expenses not specifically identified in the other operations accounts. 10 In summary, O&M operations expenses shift to different activities between overhaul years (2008 11 and 2010) and non-overhaul years (2009, 2011, and 2012). In D.04-07-022 and D.89-12-057, the CPUC 12 stated that if recorded expenses in an account have been relatively stable for three or more years, the last 13 recorded year is an appropriate base estimate. Non-labor has been relatively stable, therefore last recorded 14 year is an appropriate estimate. Additionally, in D.04-07-022 and D.89-12-057, the CPUC stated that if 1534 costs have shown a trend in a certain direction over three or more years, the last recorded year is an 1 appropriate base estimate. Labor expense demonstrate a slight decreasing trend from 2010 through 2012, 2 therefore use of the last recorded year is an appropriate estimate. The 2015 Test Year estimate for labor is 3 $0.710 million and for non-labor is $19.700 million. 4 The Rents “other” recorded category expense experienced an increase in 2011 and 2012, and will 5 continue to increase during 2013 through 2016 pursuant to the plant site lease’s specific escalation rates. 6 Because past recorded expense is not consistent with the current cost of the lease, none of the recorded 7 cost forecasting analysis methods were appropriate. Instead, an itemized forecast was utilized that is 8 based on the terms of the lease resulting in a forecast of $0.605 million for the 2015 Test Year. 9
B. FERC Maintenance Accounts 514.015 10 Maintenance Accounts capture costs related to preventative maintenance and break down repairs 11 on the numerous equipment systems required to produced power from the Four Corners generating units. 12 This includes labor for maintenance personnel, repair parts, repair contractors (including repair shop 13 services), and similar costs. Specifically, these accounts consist of: 14

x FERC 510.015 - Maintenance Supervision and Engineering, including APS salaries and 15 related expenses for Managers overseeing the plant maintenance programs carried out by over 16 320 full time employees. 17

x FERC 511.015 - Maintenance of Structure, including labor and non-labor expenses incurred 18 for routine maintenance and unforeseen storm damage on Administrative buildings, garage, 19 and shop facilities. 20

x FERC 512.015 - Maintenance of Boiler Plant, including non-labor expenses for the 21 maintenance of the Four Corners station boiler and boiler-related systems. Account 512 is the 22 plant’s largest account, and typically records nearly one-third of total annual O&M expense. 23 The plant’s maintenance work force spend much of their time working on the boiler systems. 24

x FERC 513.015 - Maintenance of Electric Plant, including expenses for the maintenance of the 25 turbine, generator, cooling systems, and auxiliary electrical systems such as transformers and 26 battery systems. 27

x FERC 514.015 - Maintenance of Miscellaneous Steam Plant, including expenses for 28 maintenance of various systems such as compressed air, refrigeration, fire control, and also 29 expenses for the wheeled vehicles used in and around the plants. Additionally, APS charges 30
indirect maintenance activities to this account. These indirect activities cover such items as 3135 rental of cranes, lifts and miscellaneous equipment, erection and rental of scaffolding, and 1 other support facilities or services required to facilitate the maintenance of the plant. 2 As noted above, to facilitate our review of past recorded maintenance costs, and for purposes of 3 forecasting future maintenance costs, we first grouped all of the above maintenance accounts into a single 4 account; specifically, we grouped them into account 514.015. Figure VIII-8 below summarizes the total 5 2008 through 2012 recorded costs captured by the operations accounts, and our Test Year forecast for 6
these accounts. 7



### Figure VIII-8 FERC Maintenance Accounts 514.015 Recorded and Adjusted 2008-2012/Forecast 2013-2015 ($000 Constant 2012$)

As shown in Figure VIII-8, maintenance costs vary significantly vary from year to year. In 8 particular, as noted earlier, costs for major overhauls resulted in total maintenance costs being higher in 9 2008 and 2010, compared to 2009, 2011 and 2012. The higher maintenance cost is 2011, compared to 10 2009 and 2012, is primarily due to extensive routine boiler repairs that were needed in 2011. 11 In our forecasting analysis, we concluded that using a two-year average of 2011-2012 recorded 12 expense to forecast the 2015 Test Year maintenance expense is reasonable. We excluded in this average 13 the recorded costs in 2010 and prior years because of the major overhauls performed during that time 14 period, including the relatively low costs recorded in 2009. The 2009 costs reflects the extensive 1536 maintenance work just completed on Unit 5 in 2008, and the deferral of certain Unit 4 work during 2009 1 in anticipation that such work could be more efficiently accomplished during the (then) upcoming 2010 2 overhaul. Since no further overhauls are planned between now and the plant shut down in July 2016, we 3 conclude that the maintenance work performed during 2011 and 2012 best represent maintenance costs 4
forecast for 2015. 5 In D.04-07-022 and D.89-12-057, the CPUC stated that for those accounts which have significant 6 fluctuations in recorded expenses from year to year, an average of recorded expenses is appropriate. From 7 2008 through 2012, the recorded costs in this account have fluctuated significantly from year to year, so 8 an average is an appropriate forecast. The five-year average from 2008 through 2012 is $25.728 million. 9 However, due to the reasons above for excluding years prior to 2011 because of overhaul expenses, we 10 selected a two-year average of 2011 and 2012. This provides a 2015 Test Year forecast of $23.418 11 million for maintenance functions. While this forecast is reasonable based on recorded cost history, we 12 also conclude that maintaining future maintenance costs within 2011 and 2012 recorded levels will be 13 challenging, because as discussed above in Chapter IV, we could experience an increasing level of 14 breakdown repairs (or preventative maintenance to avoid such equipment breakdowns) as we continue to 15 operate further beyond the last major overhauls in 2008 and 2010. 1637 IX. 1
MOHAVE GENERATING O&M EXPENSE FORECAST OVERVIEW 2 This chapter outlines the basis of our O&M forecast to manage the Mohave Generating Station 3 power plant site for the 2015 Test Year, which we forecast at $0.3 million per year (SCE Share). SCE 4 and the other owners ceased commercial operation of the Mohave Generating Station on December 31, 5 2005. The owners subsequently undertook a series of efforts to disposition the plant and provided the 6 Commission regular updates on these efforts as required by D.04-12-016. 31 Ultimately, a variety of 7 issues prevented SCE and the other owners from re-starting the plant or, alternatively, selling the plant. 8 Therefore, in June 2009 the decision was made by the co-owners to decommission the facility. 9 As of April 2013, SCE and the other Mohave co-owners have completed all major components 10 associated with decommissioning the site with the exception of closure of all non-landfill associated 11 monitoring wells. The closure of these wells is awaiting regulatory approval by the Nevada Department 12 of Environmental Protection. It is expected that the regulatory approval and the actual closure of the 13 wells will be completed by the end of 2013. 14 After completion of the decommissioning process, SCE will continue to incur O&M expenses. 15 These expenses will primarily relate to site security, minor maintenance activities, and landfill regulatory 16 obligations (such as monitoring well testing & anal ysis and landfill inspections). These charges will 17
continue into the foreseeable future until final site closure can be achieved. 18 We describe these forecast Mohave O&M expenditures in more detail below and then by FERC 19 Account in the following Chapter X. We present our capital expenditure forecast to complete the 20 decommissioning of Mohave in Volume 6, Part 2, Chapter VII. 21
A. Ownership and Management of Mohave 22 Mohave Generating Station is jointly owned as tenants in common by SCE, Salt River Project 23 Agricultural Improvement and Power District (SRP), Los Angeles Department of Water and Power 24 (LADWP), and NV Energy, Inc. (NVE), collectively referred to as the co-owners or Participants. SCE is 25 the Operating Agent on behalf of the co-owners. The co-owners’ interests in Mohave are as follows: 26

x SCE: 56 percent 27

x SRP: 20 percent 28

x LADWP: 10 percent 29

31 See workpapers for a copy of D.10-10-016, pp. 2-3.38 x NVE: 14 percent 1 Mohave Generating Station formally included two 790 MW coal-fired generating units along with 2 supporting systems associated with coal handling, water and wastewater treatment, and various 3 administrative buildings and maintenance shops. Through decommissioning all plant systems and support 4 buildings have been removed and the disturbed land has been modified to restore normal stormwater flow 5 across the entire property. 6 The decommissoned site contains a closed landfill, two switchyards, and two switchyard support 7 buildings. The site should be considered as being in a brownfield condition. The plant is physically 8 located at the southern tip of Nevada in the Township of Laughlin, on a 2,490-acre site adjacent to the 9
Colorado River and the State of Arizona. 10 The co-owners’ ownership interests and rights are governed by the Mohave Project Co-Tenancy 11 Agreement, and all amendments. 32 The Co-Tenancy Agreement and the Mohave Project Operating 12 Agreement set forth the relationship among the co-owners and the governance of the Mohave Plant. 13 The co-owners exercise oversight management of the plant principally through the Engineering 14 and Operating Committee (E&O Committee). The E&O Committee includes representatives from each 15 co-owner and meets approximately once every three months to discuss the status of the site, review 16 budget performance, and make decisions affecting Mohave. During the year, as circumstances change to 17 warrant significant adjustments to the expenditure requirements, the E&O Committee meets to evaluate 18 those adjustments. The principal responsibilities of the E&O Committee are as follows: 19

x Review and approval of the annual O&M budget every August. 20

x Review and approval of capital expenditures. 21

x Review and approval of staffing levels. 22 The Vice President of SCE Power Production Division (PPD) represents SCE on the Mohave 23 E&O Committee. The Vice President of PPD also represents SCE on the Mohave Coordinating 24 Committee, which includes senior managers and officers from each of the co-owners. This committee 25 meets as needed to discuss major issues that require substantial long-term monetary allocation or 26 redirection of major plant objectives. Each owner has a representative on the Mohave Audit Committee 27 that performs an annual audit of Mohave costs. The audit team is led by a representative of one of the co- 28

32 The term of the Mohave Co-Tenancy Agreement and Operating Agreement ceased in 2007. Plant owners continue to manage the plant in accordance with these governance documents pending fi nal disposition of the facility, or the replacement of these agreements with a new site governance agreement.39 owners, normally assigned on a rotating basis. Typically, the audit includes examination of contractor 1 billings, application of Administrative and General (A&G) charges to the co-owners, and similar financial 2 matters. The Committee is additionally responsible for addressing any issues revealed during the audit. 3
B. Status of Plant Decommissioning and Site Disposition 4 Consistent with the decision to decommission Mohave, SCE selected a demolition contractor on 5 July 1, 2009, mobilized a team at the site on July 27, 2009, and began the work. SCE planned the work in 6 two phases. The initial phase focused on: (1) achieving full separation of the facility from the 500KV 7 switchyard; (2) dismantling equipment and facilities that were not associated with the 500KV switchyard; 8 and (3) securing the environmental Emission Reduction Credits consistent with the permanent shutdown 9 of the facility and formally releasing the station’s Title V air permit. 33 This phase was completed on May 10 10, 2011. The second phase involved: (1) removal of the balance of the plant equipment and facilities; 11 (2) removal of wastewater pond material and formal closure of the evaporation ponds; and (3) restoring 12 the natural stormwater flow through the site and complete final closure activities associated with the site 13
landfill. 14 As of April 2013, all physical site demolition activities have been completed with the exception of 15 final closure of the remaining monitoring wells. Nine wells will remain through a five-year landfill 16 monitoring program initiated at the start of 2013. It is expected that the plant's other 53 groundwater 17 monitoring and treatment wells will be closed by the end of 2013 pending approval by Nevada 18 Department of Environmental Protection. See Part 2, Chapter VII of this volume for further discussion of 19 Mohave decommissioning. 20 In addition to decommissioning, SCE and the other owners are currently assessing how to utilize 21 the site following plant decommissioning. This utilization could include maintaining ownership of part or 22 all of the property for some future utility use, including the construction of a new power plant. 23 Alternatively, or in combination with other development efforts by the owners, this utilization could entail 24 sale of the decommissioned Mohave power plant property. 25

33 The total amount of ERCs are 7,216 tons of NOx ERCs an d 137 tons of VOC ERCs (SCE’s share is 56 percent of these totals). These ERCs are usable only in the Clark Co, NV, ai r district and are required on ly by facilities there (new or existing) increasing emissions by certain threshold amounts; t hus the market for the ERCs is very illiquid and changeable over time, and prices are very difficult or impossible to predict . Also, some or all of the RCs might be required for any new generation that might ultimately be built at the Mohave s ite, and it might be optimal to retain the ERCs for that purpose. Besides the need to secure the Mohave ERCs, th ere was an additional reason that the plant’s Title V permit was kept in effect for a time beyond the final shutdown d ecision. Certain ancillary equipment such as the emergency generators is needed through duration of the decommissioni ng process and was permitted under the plant’s overall Title V permit, and thus had to be re-permitted under new separ ate permits before the plant permit could be terminated.40 X. 1
MOHAVE STEAM POWER GENERATION O&M FERC ACCOUNTS 2
A. Mohave Site Management O&M Plan and 2015 Expense Forecast 3 At the Mohave site there will be $0.308 million 2015 Test Year O&M espense associated with site 4 security and maintenance, including landfill monitoring well sampling and analysis. The following 5 Figure X-9 illustrates the recorded expense from 2008 to 2012 and the forecasted expense from 2013 to 6 2015, on an SCE share basis. SCE’s share of Mohave costs is 56 percent communsurate with our 7 ownership percentage. 8



### Figure X-9 Recorded and Adjusted 2008-2012/Forecast 2013-2015 SCE Share Expense ($000 Constant 2012$)

Our forecast assumes the current site ownership governance processes will not extensively change 9 prior to the 2015 Test Year. We assume SCE will continue to provide, on behalf of all the remaining site 10 owners, the lead in assuring all needed site management activities are properly funded, performed, 11 reported, and documented. We assume these activities will continue to be co-funded by the other owners, 12 in relation to their ownership share ( i.e. , we assume SCE will continue to own 56 percent of the site and 13 will continue to fund 56 percent of site management O&M activities). 1441 Future maintenance and any needed replacements of remaining equipment and structures ( e.g. , 1 wells, well pumps, and fencing) will no longer be performed by SCE plant personnel as the facilities, 2 staffing, tooling, and equipment needed to do so were removed as part of decommissioning. Therefore, 3 our 2015 Test Year O&M forecast is primarily non-labor for contract workers. However, the PPD Home 4 Office support groups will continue to record labor costs to Mohave commensurate with the site 5 management activities described above. In summary, our forecast work scope for site O&M during and 6 after decommissioning includes: 7

x Regular patrols of the plant perimeter. 8

x Performing biannual monitoring well testing and analysis associated with the landfill post 9 closure plan. 10

x Required maintenance of plant landfill, perimeter fence, dams, and structures. 11

x Required maintenance of soil conditions at the site, including prevention of ambient dust and 12
maintenance of soil erosion. 13

x Coordinate and interface with Nevada State and Clark County regulatory agencies, which will 14 include site inspections and various reports Securing contractor services, and oversee and 15 document the work these contractors will perform. 16

x Adminstrative functions associated with managing the site as it relates to the other co-owners, 17 including financial audits as defined in the ownership agreements and the general tracking and 18 documenting of the ongoing O&M costs. 19
B. Accounts for Mohave Have Been Reduced To Two Accounts 20 In SCE's 2009 GRC, we reduced the number of FERC Accounts shown for Mohave’s forecast due 21 to limited activity since the station shut down at the end of 2005. We continued that process for the 2012 22 GRC forecast, and again for this 2015 GRC. Specifically, we have consolidated Mohave recorded and 23 forecasted expenditures that usually record to the operations series of FERC Account 500.013 through 24 507.013 into the Miscellaneous Operation account 506.013. For maintenance activities, we consolidated 25 expenditures that usually record to the maintenance series of FERC Accounts 510.013 through 514.013 26
into the Maintenance of Miscellaneous Steam Plant account 514.013. 27
C. Account 506.013 - Operations Miscellaneous Steam Expenses – Mohave 28 The following operation activities are included in this one FERC Account: 29

x Operation Supervision and Engineering. 30

x Fuel Related Expense. 31

x Operation of Boiler Plant. 3242 x Operation of Turbine/Generator Plant. 1

x Miscellaneous Steam Power Expenses. 2

x Rents. 3 For site management, these operations tasks specifically include site patrols, landfill and other 4 ongoing environmental monitoring, ground water testing, and coordination of co-ownership processess. 5 Our 2015 Test Year estimate of Mohave Operations activities is $0.322 million consisting of $0.201 labor 6 (100 percent share) and $0.121 million non-labor (100 percent share). Figure X-10 below shows the 7 recorded expense for the years 2008 through 2012, and our 2013 through 2015 forecast expense (100 8 percent share). SCE’s share of Mohave costs is 56 percent commensurate with our ownership percentage. 9



### Figure X-10 Mohave (Miscellaneous Steam Power Expenses) 100% Share Expense FERC Account 506.013 Mohave Generating Station

The high cost recorded in 2008 reflects an accounting entry to capture the costs of repair parts and 10 materials remaining in the plant’s storeroom inventory. This inventory was salvaged as part of plant 11 decommissioning, and revenues generated from salvage partially offset the cost of the decommissioning. 12 The Test Year forecast of $0.322 million for this account is not based on 2008-2012 recorded cost history. 13 Rather it is based on a budgetary estimate to perform the activities discussed above. 1443 D. Account 514.013 - Maintenance of Miscellaneous Steam Plant – Mohave 1 The following maintenance activities are included in this one FERC Account: 2

x Maintenance Supervision and Engineering 3

x Maintenance of Structures 4

x Maintenance of Boiler Plant 5

x Maintenance of Turbine/Generator Plant 6

x Maintenance of Miscellaneous Steam Plant 7 For site management, these maintenance tasks specifically include maintainig water treatment and 8 sampling systems, making repairs to site perimeter fencing, and similar incidental maintenance as it 9 arises. Figure X-11 below shows the recorded expense for the years 2008 through 2012, and our 2013 10 through 2015 forecast expense (100 percent share). Our 2015 Test Year estimate of Mohave Maintenance 11 activities is $0.229 million, all in non-labor (100 percent Share). SCE's share of Mohave costs is 56 12 percent commensurate with our ownership percentage. 13



### Figure X-11 Mohave (Maintenance of Miscellaneous Steam Plant) 100% Share Expense FERC Account 514.013 Mohave Generating Station

The test-year forecast of $0.229 million for this account is not based on 2008-2012 recorded cost 14 history. Rather it is based on a budgetary estimate to perform the activities discussed above. 15