Testimony of Garrick F Jones in San Diego Gas and Electric ...Replatform proposal (Ex. SCE-4, V. 3...

Exhibit Number UCAN-1

Testimony of Garrick F Jones in San Diego Gas and Electric’s Customer Information System Replacement Application

Prepared testimony of Garrick F Jones

InfraSMART Energy, LLC 3104 O Street, Suite 191

Sacramento

California, USA 95816

On behalf of Utility Consumers’ Action Network (UCAN)

California Public Utilities Commission CPUC App. A.17-04-027

October 20, 2017


Prepared Testimony of Garrick Jones on behalf of UCAN i SDG&E Customer Information System Replacement Application (CPUC App. A.17-04-027)

Table of Contents

I. INTRODUCTION ............................................................................................................................... 2

II. BENEFIT-TO-COST ANALYSIS ..................................................................................................... 3

III. BENCHMARKING AND COST PER CUSTOMER .................................................................. 6

IV. SOLUTION-SELECTION PROCESS AND THE APPROPRIATENESS OF THE SDG&E SOLUTION ..................................................................................................................................................10

V. COMPARISON WITH SOUTHERN CALIFORNIA EDISON (SCE) .........................................12

VI. PROJECT PLANNING IN FLUX ................................................................................................22

VII. RECOMMENDATIONS ...............................................................................................................23

A. REVISED SHOWING ............................................................................................................................23 B. BALANCING ACCOUNT ......................................................................................................................24 C. O&M COSTS .....................................................................................................................................25

1. O&M-based Contingency Allowance ...........................................................................................26 2. Duplication of Pre-2019 GRC O&M Funding .............................................................................26

List of Tables

Table 1: Costs and Benefits on Nominal and Present-Value Bases ----------------------------------------- 5 Table 2: Comparison of SDG&E’s Cost Forecast to SCE’s --------------------------------------------------- 18 Table 3: Comparison between SDG&E and SCE’s PVRR ---------------------------------------------------- 21 Table 4: Comparison of SDG&E and SCE’s Respective PVRRs -------------------------------------------- 22 Table 5: O&M Forecast and Contingency (millions$) -------------------------------------------------------- 25

List of Attachments

Attachment 1: Qualifications

Attachment 2: UCAN Data Responses Relied Upon

Attachment 3: SAP (Scott Hirst): ““I’m a Utility…Get me Outta Here!” Finding your way through the Customer Engagement Jungle”

Attachment 4: SCE’s Testimony Supporting its Customer Information System (CIS) Replatform proposal (Ex. SCE-4, V. 3 in the 2018 GRC)

Attachment 5: Excerpts the Workpapers that Support SCE’s Testimony for the CIS Replatform proposal (Supports Ex. SCE-4, V. 3 in the 2018 GRC)

Attachment 6: SCE’s Response to TURN DR 37-12 from SCE’s 2018 GRC

Attachment 7: UCAN Comparison of SAP Modules between SDG&E and SCE


Prepared Testimony of Garrick Jones on behalf of UCAN 2 SDG&E Customer Information System Replacement Application (CPUC App. A.17-04-027)

I. Introduction 1

San Diego Gas & Electric (SDG&E) is requesting authorization to implement a Customer 2

Information System (CIS) Replacement Program in this application. It expects the 3

proposal to cost $253.6 million in the implementation phase1 ($262.7 million with 4

escalation). 5

This testimony illustrates that SDG&E has not justified the cost of its request on the basis 6

of its cost benefit analysis; its failure to benchmark its cost forecasts, either on an overall 7

or per-customer basis; and its solution-selection process, which identified function gaps 8

and their respective solutions with an apparent absence of cost-awareness. UCAN also 9

shows that SCE’s recent application has a less expensive solution than the one proposed 10

by SDG&E and that SDG&E’s proposal is premature because its understanding of its 11

costs is still in flux. UCAN shows that SDG&E has unreasonably proposed an 12

Operations and Maintenance (O&M) forecast in 2016 and 2017 that allows the company 13

to add revenue for employees who should already have a revenue requirement 14

associated with them in 2017 and 2018 as a result of 2016 GRC funds. UCAN also shows 15

that the company requests a contingency allowance for O&M accounts in this case 16

where such contingency allowances are against the Commission’s ratemaking policy. 17

UCAN recommends that the Commission either direct SDG&E to make a revised 18

showing of reasonableness of its project’s costs and benefits on a forecast basis, with rate 19

recovery limited to the forecast adopted after that revised showing is made, or permit 20

SDG&E to record costs in the memorandum account authorized earlier in this 21

proceeding, then demonstrate the reasonableness of its project and the associated 22

recorded costs in an after-the-fact reasonableness review context. If the Commission 23

permits SDG&E to record costs and do an after the fact review, the Commission’s 24

decision should inform SDG&E, that in its reasonableness review, the Commission will 25

consider the steps SDG&E had taken to minimize ratepayer costs and the reasonableness 26

of SDG&E’s total costs incurred. 27

1 This does not include overhead loaders.



The Commission should inform SDG&E that as part of the revised showing whether on 1

a forecast basis or as part of an after-the-fact reasonableness review, the company 2

should, at minimum, have considered the effect of post-implementation costs in the total 3

cost of ownership and include in its showing consideration of alternatives, and if a less 4

costly alternative is identified and not chosen, explain why that alternative was not 5

chosen. 6

UCAN opposes the double recovery for SDG&E staff who are reassigned to the CIS 7

Replacement Program. 8

UCAN opposes the contingency-allowance request for O&M given that it is against 9

sound ratemaking policy. 10

Finally, UCAN opposes the two-way balancing account proposal and instead 11

recommends a one-way balancing account. 12

Mr. Jones’s Statement of Qualifications is presented in Attachment 1. The UCAN DRs 13

relied upon are included in in Attachment 2. 14

II. Benefit-to-Cost Analysis 15

SDG&E points to a positive benefit-to-cost (B/C) ratio in Chapter 4 of its direct 16

testimony support for its application. However, the company’s method of arriving at its 17

benefit-cost ratio is insufficient because it fails to use the actual revenue requirement and 18

ignores the time-value of money, which cost-benefit analyses account for by applying a 19

discount rate to both costs and benefits in order to determine their present value. 20

Ignoring the discount rate is a way that can be used to make proposals that are front-21

loaded with costs and back-loaded with benefits look more appealing. In this case, 44% 22

of the costs occur before 20222 and all of the benefits occur in or after 2022.3 23

2 Calculated using CIS WORKPAPER 5.31.17.xlxs, which is a workpaper SDG&E included in the

Excel versions of its Chapter 4 workpapers. The loaded and escalated total cost from 2017-2021 according to that workpaper is $298.6 million; the loaded and escalated total cost from 2017-2036

is $676.0 million. $298.6 ÷ $676.0 ≈ 44%.

3 Id.



It is good practice to calculate the Present Value of Revenue Requirement (PVRR) before 1

calculating a benefit-cost ratio. Other utilities do this. For example, SCE in its 2018 GRC 2

states it as, “PVRR is a method used to compare the estimated nominal benefits and 3

costs of a project on a consistent basis. It is an estimate of the revenue that would be 4

needed in order to cover all expenses associated with a given stream of costs, on a 5

present value basis.”4 For its part, SDG&E does provide the revenue requirement as 6

part of its benefit-cost table, but does not bring the nominal value back to present value. 7

The following table includes the non-discounted benefits and costs that SDG&E Witness 8

Atkinson included in Table LDA-5 of her testimony (Chapter 5, page 12) and the 9

discounted benefits and costs. In addition to providing the Benefit-to-Cost Ratio for 10

direct costs on both a nominal and present-value basis, UCAN is also including the 11

revenue-requirement savings on a nominal and present-value basis. 12

4 File 10.e 12 Attachment 3_PVRR Calculation_TURN DR 037.xlsx (tab “Workbook Info”), which is

attached to SCE’s response to TURN DR 37-12 in the 2018 SCE GRC. The workbook also states the following: The model used by SCE to derive the PVRR works by first converting the proposed

nominal expenditures into annual nominal revenue requirements and then discounting those

amounts to a present value equivalent. In this spreadsheet, nominal revenue requirement “factors” were estimated based on hypothetical $1000 investments. Since the revenue

requirement calculation is linear (i.e., scalable), the project’s estimated cost (and benefit) streams can be multiplied by those factors to estimate the full nominal revenue requirement, which, in

turn, can be discounted to present values by multiplying by discount factors. Again, the same methodology applies to the benefits. The total sum of the estimated PVRR benefits are then

compared to the total sum of the estimated PVRR costs to arrive at the project’s estimated benefit-to-cost ratio.



Table 1: Costs and Benefits on Nominal and Present-Value Bases 1

2

There are a couple of points to take away from this table. 3

Whereas SDG&E’s benefit-cost ratio without discounting future costs and benefits 4

indicates that the proposal is just barely cost-beneficial, the proposal has a benefit-cost 5

ratio of 0.82 when one correctly discounts the future costs and benefits, which indicates 6

a proposal that is clearly not cost-beneficial from the direct-cost perspective. 7

From a present-value perspective the benefit-cost ratio still ends up at 1.05. The 8

revenue-requirement savings that SDG&E’s calculation produces, however—i.e., 9

$293.0MM—is overstated by SDG&E’s calculation. When accounting for net present 10

value the revenue requirement savings is $22.4 million, which of course would decline 11

if SDG&E experiences higher than expected costs or lower than expected benefits. 12

These observations show indicate that that from the perspective of pure quantitative 13

benefits, SDG&E the proposal fails to deliver the amount of cost benefits that the 14

company has claimed on a direct-cost basis or the revenue savings that the company 15

implies with its statement of revenue requirement. If the core issue of this case—the 16

replacement of the legacy system so as to achieve a simpler solution that will require less 17

on-going programming and customization—can be solved with a less costly solution, 18

SDG&E

(Nominal)1

UCAN (Present

Value)2

SDG&E

(Nominal)3

UCAN (Present

Value)4

Total Costs $535.4 $357.6 $996.6 $416.1

Total Benefits $560.3 $294.0 $1,289.6 $438.8

Benefit-to-Cost Ratio 1.05 0.82 1.29 1.05

Rev. Req. Savings $293.0 $22.7

2 UCAN discounted the annual direct cost forecasts on the "Annual Sumaries" tab in

LDA-CIS Program Cost SDG&E.xlsx by 7.9%, the current cost of capital for SDG&E.

1 SDG&E Testimony Chapter 7, p. 12 (Table LDA-4)

3 SDG&E Testimony Chapter 7, p. 12 (Table LDA-4)

4 UCAN discounted the annual direct benefit forecasts in the "Annual Sumaries" tab

in LDA-CIS Program Benefits SDG&E.xlsx by 7.9%, the current cost of capital for

Revenue Requirement

($millions)Direct Costs ($millions)

Category



then it should be considered as an alternative to SDG&E’s proposal, given the size of the 1

costs and the poor return on investment that ratepayers would be paying. 2

SDG&E has been unable to provide a way for parties to understand which parts of the 3

proposal provide the most quantitative benefit, which is discussed below. It is therefore 4

impossible to determine the incremental return on this investment—that is the 5

incremental return on, for example, the last $100 million spent and whether there might 6

other ways obtain the investment. UCAN understands that some of SDG&E’s 7

justification for the proposal are the soft benefits like customer outreach functionality, 8

but this should be treated the same way. It should be easier to determine how much a 9

certain portfolio of benefits costs. For example, what is the cost to configure the new CIS 10

system in order to implement each of the proposed Cloud software modules and what 11

are the quantifiable and soft benefits of doing so? 12

III. Benchmarking and Cost per Customer 13

SDG&E has not benchmarked either the per-customer or overall cost of its CIS proposal 14

with any other replacement program.5 Regarding a cost-per-customer comparison, 15

SDG&E claims the following: 16

The cost of a project such as the CIS Replacement Program is not 17 primarily driven by the number of customers, but instead is driven by the 18 static activities required for the actual implementation. The major static 19 costs are the internal labor, testing and system integration work. SDG&E 20 does recognize there are variable cost components based on customer or 21 meter quantities such as hardware and software licensing. However, the 22 variable component costs are minimal as compared to the static 23 component costs. At a certain point for large IOUs, such as SDG&E, the 24 effort to implement is essentially the same regardless of number of 25 customers. Performing an evaluation focusing on cost per customer 26 would provide an inaccurate depiction of the reasonableness of 27 implementation costs and would improperly ignore other cost factors 28 such as additional complexities due to dual commodities as well as the 29 actual proposed scope, which in SDG&E’s case goes beyond replacing 30 just the core billing system. 6 31

5 UCAN DR 2-3.

6 UCAN DR 2-19a.



UCAN sought to discover the amount of the impact that its “dual commodity” status 1

and going “beyond replacing just the core billing system” would have, as a preliminary 2

matter. However, the company is unable to say what the incremental cost of its dual-3

commodity status is or disaggregate costs between those that will owe to the core billing 4

system, itself, from those that will result from aspects of the program that are beyond 5

the core billing system.7 Furthermore, the core billing system, as defined by SDG&E, is 6

the on-premise IS-U system, which the software’s vendor, SAP, considers to be a 7

rudimentary system for customer service as a result of SAP’s focus in the last 15 years on 8

SAP CRM and SAP Hybris Cloud for Customer.8 It seems implausible that SDG&E’s 9

per-customer cost forecasts are so high because the company decided to go beyond a 10

core system that consists solely of an IS-U system that is “rudimentary”. 11

Despite SDG&E’s assertions regarding the relationship between customer-count and 12

cost, the material that the company references in response to UCAN’s request for 13

benchmarking is a study by TMG that provides a range of typical costs for CIS 14

deployment. TMG calls cost range, “general pricing guidelines.” 15

The following figure includes SDG&E’s performance against the pricing guidelines, 16

indicating that SDG&E’s per-meter cost of $120 is at the absolute upper end of the range: 17

7 UCAN DR 3-19

8 ““I’m a Utility…Get me Outta Here!” Finding your way through the Customer Engagement

Jungle.” Scott Hirst Blog. Available: blogs.sap.com/2016/03/23/i-m-a-utility-get-me-outta-here-finding-your-way-through-the-customer-engagement-jungle. Scott Hirst SAP has a position

at Hybris Center Of Excellence Asia Pacific & Japan, specializing in Utilities and Public Sector according to the website, people.sap.com/scott.hirst. This blog article is attached to this

testimony in Attachment 3, and there is more information on these terms and concepts, further along in this testimony.



Figure 1: SDG&E’s Direct Costs and Per-Meter Costs against TMG Pricing 1 Guidelines9 2

3

This range appears to include allowances for utilities that are smaller as well as larger. 4

For example, TMG’s study comprises 28 utilities that vary in size from 82,000 customer 5

to 8.1 million. Figure 2 presents subset of the utilities in the TMG survey, and does not 6

contain all 28 of the utilities that TMG presented in the survey. SDG&E has 2.32 million 7

meters, as indicated in the figure, above. 8

9 SDG&E provided the figure in its response to UCAN DR 3-25.



Figure 2: Excerpt from TMG_A CIS Survey April 201510 1

2

In other words, the information that SDG&E itself presents comprises an upper-end 3

price of $120, while including a survey of utilities that count as few as 81,000 among 4

them. The CIS cost for these 28 utilities averaged $62.11 5

Navigant, another industry analyst, indicates that the average, CIS-upgrade cost for 6

IOUs ranges from $65 to $75 per meter,12 but that it is only when one considers mid-7

sized utilities—those for example, that have about 500,000 meters—that they should 8

expect to find per-meter costs that approach or exceed $100 per meter for Oracle or SAP 9

10 Chapter 3, Attachment C (TMG_A CIS Survey April 2015, slide 19).

11 Chapter 3, Attachment C (TMG_A CIS Survey April 2015, slide 28).

12 See Electric Utility Billing and Customer Information Systems on pp. 140-141 of SCE’s workpaper supporting Ex. SCE-4, V. 3 in SCE’s 2018 GRC. UCAN is attaching SCE’s testimony from Ex.

SCE-4, V. 3 is in Attachment 4 as well as an excerpt of SCE’s workpapers from the 2018 GRC to this testimony as Attachment 5.



systems.13 Navigant Research concludes that such utilities will not enjoy the economies 1

of scale that “come into play in large installations, particularly when it comes to 2

integration.” SDG&E has 2.32 million meters, which is more than the 500,000 that 3

Navigant identifies as the type of count that should produce per-meter cost on the order 4

of that SDG&E predicts for its proposal. 5

IV. Solution-Selection Process and the Appropriateness of the 6

SDG&E Solution 7

The following is SDG&E’s approach to developing the project scope: 8

The team adopted a method referred to as the SAP Minimum Viable 9 Solution (“MVS”), which is the minimum SAP functional footprint (i.e., 10 SAP software components, standard configuration) required to support 11 the defined set of core processes and to enable the required business 12 benefits.14 13

The problem with this process is that it assumes the solution before considering the 14

costs. SDG&E derived a set of “core” processes and “required” business benefits and 15

then chose the so-called minimum viable solution that would resolve the core processes 16

and required business benefits. There is no way to assess whether quantitative or soft 17

benefits that can be obtained by limiting the proposal to a more limited “minimum 18

viable solution.” 19

UCAN asked SDG&E, in many different ways, to provide disaggregated values so that 20

the “minimum viable solution” could be tested for cost effectiveness. For example, 21

UCAN requested that SDG&E provide the costs and benefits associated with the gaps 22

that SDG&E has identified with its business processes; SDG&E replied that gaps had not 23

been identified with costs and benefits, but that instead they were developed so that 24

SDG&E could be sure to choose the correct solution15—it does not appear, however, that 25

there was consideration of costs and benefits in developing the solution, itself. In fact, 26

“SDG&E derived the costs and benefits based upon the SAP MVS, … which included the 27

13 Id.

14 SDG&E Testimony, Chapter 6, p. 15:11-14.

15 UCAN DR 2-18f



base SAP [Customer Relations and Billing (]CR&B[)] product and the 462 RICEFWs 1

[customizations] needed to enable the capabilities identified in SDG&E Business 2

Capability Inventory.”16 3

UCAN also requested that the company provide the costs and benefits of individual 4

customizations; SDG&E could not provide cost data because the RICEFWs were 5

categorized by complexity as opposed to cost,17 and could not provide benefit data 6

because benefits were not limited to specific RICEFW items as they often crossed 7

multiple sets of functions or capabilities in SDG&E.18 8

SDG&E indicates that it is impossible to provide the information requested because “the 9

cost methodology involved using As-Is and To-Be processes to define the overall costs 10

associated with implementing SAP CR&B.”19 This circles us back to the beginning, 11

however, which is SDG&E proposes a very expensive solution based on its laundry list 12

of wants without any way of determining the cost of the individual gaps or identifying a 13

portfolio of gaps and their associated costs and benefits that can be addressed with 14

particular solutions within the SAP or any particular SAP customization. 15

16 UCAN DR 3-47. The SAP CR&B product is generally is known as the core SAP system (in this

case the IS-U, which will be discussed below) and the Customer Relationship Management

(CRM) system. Regarding RICEFW, SDG&E states: “There are various reasons why standard out-of-the-box SAP CR&B functionality and configuration items will not fully meet SDG&E’s

needs. Some examples of unavoidable customizations include integrations with other non-SAP solutions within the IT landscape (i.e., interfaces), data migration from the legacy solution into

the new solution (i.e., conversions), and incorporation of certain regulatory or compliance requirements (i.e., extensions). The SAP solution allows these and other essential customizations

to be satisfied through the RICEFW items to distinguish between the type of development required – Reports (R), Interfaces (I), Conversion (C), Extensions (E), Forms (F) and Workflow

(W)… “ (SDG&E Testimony, Chapter 6, pp. 15:15-16:2)

17 UCAN DR 2-35.

18 UCAN DR 2-45f.

19 UCAN DR 5-4a. SDG&E states: “The process of analyzing the “As-Is” or legacy CIS and subsystems was focused on understanding the current CIS business processes, capturing system

and operational pain points, key measures and Key Performance Indicators (“KPIs”), policies, and procedures. … SDG&E modeled processes based on business value and overall complexity

in a “To-Be” (i.e., future) CIS environment in order to identify the target operating architecture as well as IT and operational benefits.” (SDG&E Testimony, Chapter 6, p. 6:4-11)



One of the issues in this case is SDG&E’s quantification of soft benefits that can only be 1

obtained with certain SAP modules. However, even soft benefits should be subject to 2

cost consideration and no avenue for such is provided in this application 3

It would have been reasonable for SDG&E to cost out a different solution—perhaps one 4

similar to the one that SCE proposed in its 2018 GRC. The comparison of SDG&E’s 5

proposal to SCE’s is below. 6

V. Comparison with Southern California Edison (SCE) 7

SDG&E’s cost without corporate loaders is $112 per meter, which is 100% higher than 8

SCE’s estimate of about $56 per meter.20 SDG&E does not know why its proposed CIS 9

replacement is so much more than SCE’s per customer, including whether its proposal 10

includes more optional capabilities or whether its legacy system is larger in scope 11

and/or more complex than SCE’s legacy system.21 12

While it is may be, as SDG&E contends, that there are fixed costs that a utility must 13

expend for a given solution, there must be some reasonable expectation that the solution 14

a utility picks fits its means and needs. The burden of proof is on the utility to show that 15

its costs are reasonable. 16

UCAN suggests that one way to test whether SDG&E’s proposal and forecast is 17

reasonable is to make a high-level comparison between SDG&E’s proposal and the 18

proposal of another large California utility. SCE’s recent proposal in their 2018 GRC 19

offers the opportunity of such a comparison. Because it is a fellow California utility, 20

SCE is addressing much the same strain of the regulatory regime—i.e., many and 21

complex rate programs—and faces the same regulatory expectations as SDG&E does.22 22

UCAN requested that SDG&E compare its proposal to SCE’s, asking that SDG&E 23

identify significant reasons for the differences and drivers in the companies’ per-24

20 SCE’s implementation forecast is $287 million (2018 GRC, SCE-4, V. 3, WP p. 153.

21 UCAN DR 2-15.

22 SCE’s testimony and excerpts from its workpapers are included in attachments 4 and 5 to this testimony.



customer costs variance, and any difference is in optional capabilities, complexity, or 1

scope that SDG&E’s legacy system might have as compared to SCE’s. SDG&E declined 2

to offer a comparison between the two proposals.23 Since SDG&E declined, we provide 3

a high-level comparison here. 4

Before continuing with the comparison, however, it is useful to review some terms and 5

concepts. 6

The following diagram is produced by SAP. 7

Figure 3: SAP Diagram of SAP Universe Components24 8

9

The following are definitions and brief discussions for the some of the items from the 10

figure above that are relevant to this discussion along with an indication of which items 11

SDG&E and SCE has or is proposing to implement the component of the SAP universe: 12

23 UCAN DR 2-15a-e.

24 ““I’m a Utility…Get me Outta Here!” Finding your way through the Customer Engagement Jungle.” Scott Hirst Blog. Available: blogs.sap.com/2016/03/23/i-m-a-utility-get-me-outta-

here-finding-your-way-through-the-customer-engagement-jungle. Scott Hirst SAP has a position at Hybris Center Of Excellence Asia Pacific & Japan, specializing in Utilities and Public Sector

according to the website, people.sap.com/scott.hirst. This blog article is attached to this testimony.



SAP ERP: SAP Enterprise Resource Management. Both of SDG&E and SCE 1

have an ERP.25 2

o ERP is a process by which a company manages and integrates the 3

important parts of its business. ERP management information system 4

integrates areas such as planning, purchasing, inventory, sales, 5

marketing, finance and human resources. 6

SAP IS-U: SAP Customer Information System for Utilities. Both of SDG&E and 7

SCE have proposed SAP IS-U and many of the same IS-U-based modules. For a 8

comparison of the SAP component items between the two utilities, please see 9

Attachment 3. 10

o SAP IS-U is deployed as an industry module of SAP’s ERP. It is the heart 11

of the utility’s operations or a distributors metering and network billing 12

business. The customer service capabilities in IS-U are rudimentary as 13

the development focus in this area the last 15 years has been on SAP CRM 14

and SAP Hybris Cloud for Customer. 15

SAP CRM on Premise Utilities: SAP Customer Relationship Management for 16

Utilities. Only SCE has proposed the SAP CRM.26 17

o SAP CRM is not just a call center front end to IS-U. It provides rich 18

process extensions that can only be done in SAP CRM.27 19

o The process extensions include, - Advanced Residential Quotation and 20

Contract Management; -Multi-site quotations and contracts for 21

Commercial and Industrial (C&I) Customers; - Complex pricing for C&I 22

via the Pricing and Costing for Utilities (PCU) add-on; - Configurable 23

products that allow [for] fewer more flexible products; -Product bundling 24

25 SDG&E Testimony, Chapter 6, p. 8 (Figure DL2; stated as ECC, or ERP Central Component); SCE 2018 GRC, SCE-4, V. 3, p. 135.

26 SCE 2018 GRC, SCE-4, V. 3, p. 135.

27 Scott Hirst of SAP.



and offer management (PMU/PFC); Demand Side Management 1

programs (DSM); Comprehensive loyalty management; Advanced Meter 2

Infrastructure support (AMI). 3

o SAP CRM for Utilities includes industry specific Sales & Service 4

functionality on top of the full cross industry SAP CRM suite. 5

o SAP Multi-channel Foundation offers standard self-service content for 6

SAP CRM for Utilities.28 7

SAP Cloud Solutions: Only SDG&E will implement this. 8

SDG&E states that its CRM function will be served by SAP Hybris Customer 9

Engagement & Commerce (CEC),29 which includes Hybris Commerce and 10

Hybris Billing from the diagram, above, in addition to Hybris Sales and Service, 11

which is not included in the diagram above. 12

o Hybris Sales and Service provides functionalities for the CCC as well as 13

for commercial and industrial or key account management. 14

o SAP Hybris Marketing provides the capability to quickly and effectively 15

offer goods and services online. 16

o SAP Hybris Commerce offers the ability to potentially market goods and 17

services to the customer in a relevant and meaningful way. SAP Hybris 18

Marketing is seamlessly integrated with Hybris Sales & Service to 19

simplify customer enrollment, along with traditional service calls such as 20

turn-on, turn-off, bill inquiry, etc.30 21

In addition to this high level comparison of the solutions that SDG&E and SCE propose, 22

it is useful to consider what SCE states regarding its solution: 23

28 Id.

29 UCAN DR 2-16d.

30 SDG&E Testimony, Chapter 6, pp. 10:15-11:2.



SCE proposed a project that, as SDG&E’s does, relies on the implementation of SAP’s 1

CR&B. SCE states: 2

In addition to assessing its legacy customer systems risk in 2015, SCE 3 undertook an effort to consolidate and optimize its overall technology 4 portfolio. To support this effort, SCE initiated discussions with SAP to 5 review its latest customer relationship and billing (“CR&B”) product 6 suite. A “fit/gap” assessment was performed to confirm that all of SCE’s 7 core customer service business needs could be met through SAP’s CR&B 8 product. 9

… 10

The CS Re-Platform project will replace the majority of the outdated 11 Customer Service technology portfolio with SAP CR&B modules on a 12 platform that is both flexible and scalable. Minimizing the number of 13 system interfaces will reduce the risk of system failures and technology 14 operating costs. Utilizing SAP-packaged software, SCE will receive 15 regular upgrades, which will also provide SCE with the opportunity to 16 co-innovate and stay connected with technology developments and to 17 meet future business needs.”31 18

One of the main difference between SDG&E and SCE’s proposals is that SDG&E has 19

elected to obtain its CRM services through a cloud suite that provides more functionality 20

than the on-premise SAP CRM. As a result, at least in part, SDG&E’s Total Cost of 21

Ownership—the cost sum of implementation and post-implementation—is higher than 22

SCE’s. We note that part of SDG&E’s cost that SCE does not bear is the cost related to 23

Web/MyAccount, in which SCE appears to already have customer facing functionality 24

on premise.32 SDG&E is unable to unbundle the cost of the Web/MyAccount solution,33 25

however, so we are not able to know what the incremental cost of the solution over 26

SCE’s solution, which presumably does not require a My/Account solution, would be. 27

31 SCE 2018 GRC. SCE-04, V. 3, p. 13:8-27.

32 SCE references the interaction between its CIS solution and “SCE.com” on p. 18. See p. 53 of

Exhibit SCE-4, V. 2 in SCE’s 2018 GRC, which describes SCE.com as source of information for rates, programs, and services…[with] self-service tools for customers to complete core

transactions online.

33 UCAN DR 2-30b and UCAN DR 3-35.f.i



UCAN includes a complete, side-by-side comparison of the modules that are and are 1

not included by each of SDG&E and SCE in Attachment 6. 2

The point with the forgoing discussion is to highlight the fact that utilities have choices 3

in what customer information system they implement. The pre-ordination of a solution 4

that meets a raft of business needs that were chosen before vetting them for the costs is 5

not reasonable. 6

The following table provides a comparison of direct costs (in nominal dollars)—i.e., 7

simple O&M and capital outlays by the company, as opposed to revenue requirement. 8



Table 2: Comparison of SDG&E’s Cost Forecast to SCE’s34 1 2

3

SDG&E SCE SDG&E SCE SDG&E SCE

1 3,901 - 806 11,764 4,707 11,764

2 23,795 58,265 8,257 7,499 32,053 65,765

3 54,194 71,088 8,344 7,859 62,538 78,947

4 88,029 76,088 24,711 19,858 112,740 95,946

52

37,933 3,285 22,197 45,523 60,130 48,808

Subtotal 207,852 208,726 64,315 92,504 272,167 301,230

6 5,662 - 9,007 2,830 14,669 2,830

7 20,708 1,201 8,324 6,238 29,032 7,439

8 8,847 1,797 8,006 6,384 16,852 8,181

9 13,815 1,839 7,820 6,534 21,635 8,373

10 20,696 1,882 8,250 6,687 28,946 8,570

11 5,270 1,926 8,414 6,844 13,684 8,771

12 5,468 1,972 8,583 7,005 14,051 8,976

133 25,241 9,943 8,632 13,773 33,874 23,716

14 14,780 2,065 8,655 7,337 23,435 9,402

15 6,097 2,114 9,119 7,510 15,216 9,623

16 21,938 2,163 9,308 7,686 31,246 9,849

17 6,547 2,214 9,502 7,866 16,049 10,080

18 10,732 2,266 9,577 8,051 20,309 10,316

19 31,541 2,319 9,626 8,239 41,167 10,558

20 7,271 N/A 10,117 N/A 17,388 N/A

Subtotal 204,613 33,700 132,940 102,985 337,553 136,684

412,465 242,425 197,255 195,488 609,720 437,914

Year of

Program1

Capital O&M Total

2 SCE's implementation period ends early in 2020, which means that much of the cost for 2020

is likely for implementation. Also, there is one fewer year than SDG&E's in its revenue

requirement calculation because SDG&E's implementation is actually four years (plus a month

in the first year of the post-implementation period), instead of five. For exposition, UCAN

elected to leave the costs from the first year of post-implementation in the costs labelled as

implementation in this table. This is why the last row of the SCE costs are labelled as N/A (Not

Applicable). This should not be taken to mean that this is not an apples-to-apples comparison

from the persecitve of useful life or the total costs that should be compared. 3 The year that UCAN asumes SCE plans to refresh its HW/SW system. It is not explicitely so stated in

SCE's 2018 GRC testimony or workpapers from the 2018 GRC, but SCE states on p. 153 of the SCE-4,

Vol. 3 workpapers that part of its post-implentation period forecast (i.e., $14.5 million) is for a

HW/SW refresh.

No

min

al C

ost

s ($

1,0

00

s)

Imp

lem

en

tati

on

Po

st-I

mp

lem

en

tati

on

Total Cost

1 SDG&E's program starts in 2017 and ends in 2036; SCE's starts in 2016 and ends in 2034.



It is clear that SDG&E’s total cost of ownership is higher than SCE’s on the basis of total 1

costs. SDG&E’s cost of $609.720 million is $171.806 million higher than SCE’s 2

$437.914 million. 3

Secondly, the companies forecast virtually identical spending on capital in the 4

implementation period: SDG&E forecasts $207.852 million and SCE $208.726 million. 5

This is despite SDG&E’s use of a cloud-based CRM solution, which by definition, does 6

not require an initial investment in on-premise infrastructure, such as hardware. 7

Furthermore, the companies’ capital expenditures are the same notwithstanding the fact 8

that SDG&E has fewer RICEFW customizations than SCE (462 for SDG&E versus 744 for 9

SCE). One would expect that all else equal the company with fewer customizations 10

would experience lower cost. This is not the case for SDG&E’s proposal as compared to 11

SCE’s. 12

Third, it is clear that SCE has higher capital and O&M costs in the implementation 13

period, after which they drop off dramatically in the post-implementation period. This 14

is at least in part because SCE does not have to continue with the cloud fees to SAP. The 15

only hardware and software costs that SCE incurs in the post-implementation period is 16

in year 13 with a one-time refresh. 17

Finally, it should be noted that SDG&E’s implementation costs are not the equal of SCE’s 18

in the case of the staff augmentation that each will need. While SCE’s proposal included 19

$30 million35 in O&M for staff augmentation such as Customer Contact Center staff, 20

whose ranks need to be supplemented during the implementation and stabilization 21

period to facilitate training and transitioning,36 SDG&E’s forecast at $17 million is 22

34 SDG&E’s cost values are from the Excel workbook, CIS WP 5.31.17.xlsx (“Total Costs >” tab),

which was provided in UCAN DR 2-46. UCAN added escalation to the direct costs to the yield nominal cost in the table. SDG&E’s PVRR values are also from CIS WP 5.31.17.xlsx (“Costs-

Capital”, “Cost –O&M”, and “Cost-O&M Rent” tabs). SCE’s cost and PVRR values are from SCE-2018 GRC, SCE-4, V. 3, WP p. 172.

35 SCE 2018 GRC, SCE-4, V. 3a2, p. 37a (Table VII-7).

36 Chapter 5, p. 23:4-19 and SCE 2018 GRC, SCE-4, V. 3, p. 38.



considerably lower. Therefore, not only is SCE’s total cost of ownership37 lower than 1

SDG&E’s, it is lower despite SCE having higher costs for certain things that are purely 2

related to size—SCE clearly needs to augment its CCC staff more than SDG&E because 3

SCE is a bigger enterprise, but this has nothing to do with how many RICEFWs SCE has 4

or how complex the RICEFWs are. 5

It is also instructive to compare the PVRR that the companies’ forecasted direct costs 6

produce. Table 3 below presents the comparison. 7

Please note that the SDG&E’s PVRR in this case is presented against two different SCE 8

PVRRs. This is because of SCE’s exclusion of the tax deduction for self-developed 9

software in its benefit cost analysis,38 which SDG&E claims is allowed by IRC Section 10

17439 and which SDG&E included in its PVRR calculations in this case. The table 11

therefore shows the comparison between SDG&E and SCE’s PVRR with SCE’s (1) as 12

filed PVRR and (2) its PVRR with an assumed tax deduction removed with the latter 13

included so that an apples-to-apples comparison may be made. 14

37 The Total Cost of Ownership (TCO) is the cost of implementing the program plus the cost to maintain and possibly refresh the program during the expected life span. In this case, the TCO is

driven by a five-year implementation period and a 15-year service life.

38 Please see Attachment 7 to this testimony, which includes SCE’s PVRR results for its CIS

proposal in the company’s 2018 GRC. The reader will see that SCE did not include negative values for any of the annual entries, which means that SCE did not account for the deduction in

its PVRR calculations. This is unlike SDG&E’s PVRR presentation in Table 3 in its Chapter 7 (p. 4) testimony, where the implementation years of 2017-2021 have negative values

39 SDG&E states regarding the tax deduction: Under IRC Section 174, self-developed software is

deducted in the year incurred. A large percentage of the CIS Replacement Program (i.e., the labor costs required to configure and implement the SAP solution within SDG&E’s environment)

is self-developed software. The deduction associated with self-developed software creates substantial tax benefits in the years the costs are incurred, which is the cause for the negative

revenue requirements in years 2017-2020. UCAN DR 2-47b. The deduction can also in certain instances be positive as it was for a small amount for FERC in 2022 (UCAN DR 2-47c). This

amount at $2MM in 2022 is negligible. Therefore, UCAN did not make an assumed adjustment to SCE’s PVRR to account for potential negative value on the benefits side.



Table 3: Comparison between SDG&E and SCE’s PVRR40 1

2

The table makes it clear that the difference in the forecasting treatment applied by 3

SDG&E and SCE makes a substantial difference in the PVRR. In the adjusted 4

comparison, SDG&E’s proposal is $138.3 million more expensive than SCE’s on a PVRR 5

basis. The unadjusted case indicates an SDG&E proposal that $81.6 million more 6

expensive. 7

We can now compare the costs and benefits of SDG&E and SCE on a more equal PVRR 8

footing. Table 4 presents the comparison and shows that SCE’s proposal, on the basis of 9

only the information presented in the utilities’ GRCs, would make ratepayers better off. 10

Not only is the PVRR revenue requirement savings—at $49.2 million against 11

$22.7 million—higher, but the higher PVRR is achieved with lower ratepayer funding. 12

40 The SDG&E values are from the “Costs-Capital” tab ($298.85MM) and the “Costs-O&M” ($112.436MM) and “Costs-O&M” ($4.781MM) tabs. The as-filed values for SCE are from SCE’s

2018 GRC (SCE-4, V 3, WP p. 172). The adjustment to the as-filed value was calculated by determining an adjustment factor. It is ratio between the as-filed PVRR figure for capital of

$298.850MM and the PVRR that SDG&E would have had if not for the tax deduction, which is $416.067MM. That ratio is 0.718 which UCAN rounded up to 0.75 to be conservative, although

we note that SCE proposed nearly twice the number of RICEFW customizations, which means SCE ought to have at least as much self-developed software as SDG&E.

Category SDG&E

SCE (As

Filed) Difference SDG&E

SCE (w/ assumed

tax deduction

removed) Difference

Capital-related

PVRR298,850 226,686 72,164 298,850 170,015 128,835

O&M-related

PVRR117,216 107,776 9,440 117,216 107,776 9,440

Total PVRR 416,066 334,462 81,604 416,066 277,791 138,275



Table 4: Comparison of SDG&E and SCE’s Respective PVRRs41 1

2

UCAN avoids drawing too broad a conclusion from this table. Each utility has a 3

different initial infrastructure and cost status, which means each utility has different 4

costs that are available to be “saved” in the benefits column. Furthermore, each utility is 5

going to have different costs of ownership even if they wanted to implement the exact 6

same solution. However, the comparison provides a good point of reference for the 7

commission to consider in this case. 8

VI. Project Planning in Flux 9

SDG&E appears to have made this proposal prematurely, given that many of the 10

decision points appear to still be in flux. 11

For example, SDG&E has identified solution “gaps” associate with its legacy CIS, CRM 12

and My Account systems that it intends to resolve with the CIS replacement, which are 13

still in flux. SDG&E plans to further refine the functional requirements and gaps in the 14

pre-planning phase, which is still ongoing.42 Gaps are functionality that was not being 15

provided by the legacy CIS and its related subsystem for which the company intends 16

find resolution with implementation of the CIS replacement program. Clearly expected 17

costs could change on the basis of this refinement with no recourse if such changes were 18

to be unreasonable. 19

A particularly large decision point involves the SAP Hybris for Customer Engagement 20

and Commerce Platform. UCAN has already illustrated, in the comparison of SDG&E’s 21

41 The values in this table were derived in the table above. The PVRR costs for SCE are adjusted

for the self-developed software tax deduction.

42 UCAN DR 2-18f.

SDG&E SCE

Total Costs $416.1 $277.8

Total Benefits $438.8 $327.0

Benefit-to-Cost Ratio 1.05 1.18

Rev. Req. Savings $22.7 $49.2

Category

PVRR ($millions)



proposal to SCE’s, above, that the cloud items appear to have a large impact on the total 1

cost of the program. Moreover, SDG&E states that its RICEFW list was created with the 2

expectation that the SAP Hybris for Customer Engagement and Commerce Platform 3

would be the platform SDG&E would use to serve the Customer Relationship 4

Management (CRM) function. However, SDG&E indicates that its position to 5

implement the cloud option for the CRM function could be “refined” by the System 6

Integrator, once hired.43 This situation helps illustrate a project that is still in flux and is 7

not ready for Commission consideration, yet. 8

VII. Recommendations 9

A. Revised Showing 10

UCAN recommends that the Commission either direct SDG&E to make a revised 11

showing of reasonableness of its project’s costs and benefits on a forecast basis, with rate 12

recovery limited to the forecast adopted after that revised showing is made, or permit 13

SDG&E to record costs in the memorandum account authorized earlier in this 14

proceeding, then demonstrate the reasonableness of its project and the associated 15

recorded costs in an after-the-fact reasonableness review context. If the Commission 16

permits SDG&E to record costs and do an after the fact review, the Commission’s 17

decision should inform SDG&E, that in its reasonableness review, the Commission will 18

consider the steps SDG&E had taken to minimize ratepayer costs and the reasonableness 19

of SDG&E’s total costs incurred. 20

The Commission should inform SDG&E that as part of the revised showing whether on 21

a forecast basis or as part of an after-the-fact reasonableness review, the company 22

should, at minimum, have considered the effect of post-implementation costs in the total 23

cost of ownership and include in its showing consideration of alternatives, and if a less 24

costly alternative is identified and not chosen, explain why that alternative was not 25

chosen. 26

43 UCAN DR 2-17.



B. Balancing Account 1

SDG&E is requesting two-way, balancing-account treatment.44 The company attempts 2

to justify the treatment by stating that “it allows the utility to compare the authorized 3

revenue for the project to actual costs, thereby ensuring that ratepayers are charged for 4

only actual costs and refunded any overcollections. In turn, the utility does not make or 5

lose money due to uncertainties in the scope of the work.” SDG&E does not 6

acknowledge that a two-way balancing account, in combination with SDG&E’s poor 7

project rationalization, provides the company with a blank check to spend whatever it 8

wants to spend on this project. The blank-check nature of the two-way balancing 9

account is compounded in this case by its openendedness. SDG&E states: 10

This new balancing account would continue recording revenue and costs 11 until the time the asset is rolled into the base margin revenue requirement 12 in a future GRC (currently projected to be Test Year 2022). Further, 13 SDG&E proposes to transfer the balance in the CIS balancing account to 14 the GRC-related gas and electric accounts in that GRC (at this time, 15 estimated to be Test Year 2022), at which time the CIS balancing account 16 will be eliminated.45 17

While it should be expected that SDG&E would finish the project and enter it into 18

ratebase, if the Commission adopts the proposal it would literally be providing SDG&E 19

leave to take however long and spend however much it wishes on this project with no 20

further oversight from the commission. SDG&E has compounded the issue as a result of 21

the slow pace with which it developed this proposal and the resulting lack of clarity and 22

detail that it is able to provide as a result. The company first began to study the issue of 23

a CIS in 2015, but still had not begun the Pre-Planning stage of the project—the part that 24

would refine the business capabilities and benefits, perform process prototypes and 25

further define the scope46—or issued a Request for Proposal (RFP) in solicitation of 26

prospective system integrators as of the filing of its testimony.47 27

44 SDG&E Chapter 9, p. 1 (12-14).

45 Id., p. 2 (7-11).





It is generally not reasonable for the Commission to provide an open-ended checks for 1

capital projects; it is especially not reasonable in this case because of the preliminary 2

status of SDG&E’s proposal. Rather than serve as a basis for the reasonableness of 3

SDG&E’s two-way balancing account proposal, the preliminary nature of SDG&E’s 4

program should cause the Commission to impose a one-way balancing account, instead. 5

C. O&M Costs 6

SDG&E is proposing the following O&M costs in this proceeding: 7

Table 5: O&M Forecast and Contingency (millions$)48 8

9

There are at least two issues regarding the O&M forecast in this case. First, the 10

contingency allowance for O&M should be completely removed. Second, the forecasts 11

for 2017 and 2018 should be reduced by $474,760 and $667,800, respectively, to avoid 12

double counting SDG&E internal labor that was already authorized in the 2016 GRC. 13

The reasons for these reductions are set forth below. 14

48 The values do not include loaders or escalation, so they are on the same basis as indicated for Table LDA-1 on p. 2 of Chapter 4.

Category 2017 2018 2019 2020 2021 Total Reference

Forecast 0.7 7.1 7.1 19.9 13.1 47.8

SDG&E Direct Testimony

(Chapter 4, p. 2:Table LDA-1)

O&M-Related

Contingency

Allowance 0.1 1 1 2.5 1.4 6.1 UCAN DR 2-25a

Total SDG&E

Forecast0.8 8.1 8.1 22.4 14.5 53.9

UCAN Reduction

(Contingency) 0.1 1 1 2.5 1.4 6.1

UCAN Reduction

(Double Counting) 0.475 0.668 1.143

Total UCAN

Forecast0.225 6.432 7.1 19.9 13.1 46.657

SDG&E > UCAN 0.575 1.668 1.000 2.500 1.400 7.243



1. O&M-based Contingency Allowance 1

SDG&E requests that the Commission approve $6.1 million for a contingency allowance 2

related to O&M.49 The company claims that O&M-based contingency is reasonable 3

because O&M is “subject to the same uncertainty factors that give rise to the need for 4

project contingency discussed by Witness Atkinson.” However, the Commission policy 5

does not provide for O&M-based contingency on the basis of uncertainty. For example, 6

the Commission found the following in PG&E’s 2009 Peak Day Pricing (PDP) 7

application: 8

For expenses, we assume that PG&E has forecasted its costs for 2009 and 9 2010 based on the best information available at the time the forecasts are 10 made. This is consistent with the way expenses are forecasted in GRCs 11 where it is anticipated that actual costs could be either higher or lower 12 than forecasted. Contingencies are not added to GRC forecasted 13 expenses to fund perceived risks and uncertainties. In light of this, we 14 see no overarching reason why contingencies related to annual PDP 15 expenses are … appropriate … in this proceeding. 50 16

The Commission should maintain this ratemaking policy and not authorize SDG&E’s 17

O&M-related contingency allowance request. 18

2. Duplication of Pre-2019 GRC O&M Funding 19

SDG&E states that internal labor will be obtained from existing SDG&E staff that will be 20

reassigned.51 The provision of incremental revenue for such staff would double count 21

the cost of the reassigned staff, assuming that they were assigned to an O&M role 22

leading up to the CIS project, given that SDG&E presumably was provided funds for 23

such staff in the previous rate case.52 As such, these cost forecasts should be removed 24

from any spending decision the Commission makes in this proceeding. 25

49 UCAN DR 2-25.

50 D.10-02-032, pp. 130-131.

51 UCAN DR 2-8.

52 UCAN asked SDG&E to identify the pre-CIS replacement role/assignment of each of

employees that will be reassigned to each of the internal positions identified in the files containing the proposed positions in 2017 and 2018. Further, UCAN requested annual cost (both

loaded and unloaded) for 2016 and 2017, year to date, of each of the employee that will be reassigned to each of the internal positions and disaggregate each such employee’s pre-CIS



replacement annual cost into the amount capitalized and expensed. SDG&E was not able to do this. UCAN DR 3-31.

Date post:	13-Jul-2020
Category:	Documents
Upload:	others
View:	4 times
Download:	0 times

Testimony of Garrick F Jones in San Diego Gas and Electric ...Replatform proposal (Ex. SCE-4, V. 3...

Documents