BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of SOUTHERN CALIFORNIA GAS COMPANY for authority to update its gas revenue requirement and base rates. (U 904 G)

Application 02-12-027

Application of SAN DIEGO GAS & ELECTRIC COMPANY for authority to update its gas and electric revenue requirement and base rates. (U 902-M)

Application 02-12-028

MOTION OF SOUTHERN CALIFORNIA GAS COMPANY (U 904 G) AND

SAN DIEGO GAS & ELECTRIC COMPANY (U 902-M) FOR RECONSIDERATION OF SCOPING MEMO

AND FOR DECISION GRANTING INTERIM RATE INCREASE OR ESTABLISHING REGULATORY ACCOUNTS FOR

2004 REVENUE REQUIREMENTS

Glen J. Sullivan Keith W. Melville Steven C. Nelson Attorney for San Diego Gas & Electric Company and Southern California Gas Company 101 Ash Street San Diego, CA 92101 Telephone: (619) 699-5162 Facsimile: (619) 699-5027 gsullivan@sempra.com

May 6, 2003

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BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of SOUTHERN CALIFORNIA GAS COMPANY for authority to update its gas revenue requirement and base rates. (U 904 G)

Application 02-12-027

Application of SAN DIEGO GAS & ELECTRIC COMPANY for authority to update its gas and electric revenue requirement and base rates. (U 902-M)

Application 02-12-028

MOTION OF SOUTHERN CALIFORNIA GAS COMPANY (U 904 G) AND

SAN DIEGO GAS & ELECTRIC COMPANY (U 902-M) FOR RECONSIDERATION OF SCOPING MEMO

AND FOR DECISION GRANTING INTERIM RATE INCREASE OR ESTABLISHING REGULATORY ACCOUNTS FOR

2004 REVENUE REQUIREMENTS

Pursuant to Rule 45 of the Commission’s Rules of Practice and Procedure,

Southern California Gas Company (“SoCalGas”) and San Diego Gas & Electric

Company (“SDG&E”) hereby move that Assigned Commissioner Wood reconsider his

Scoping Memo dated April 2, 2003, as described below. In light of the impossibility of

the Commission issuing a cost of service decision by year-end 2003, SoCalGas and

SDG&E also move that the Commission issue a decision authorizing an interim rate

increase, subject to refund, for each of them effective January 1, 2004, until the

effectiveness of rates adopted thereafter in a final decision on their cost of service. In the

alternative, SoCalGas and SDG&E move that the Commission issue a decision

authorizing regulatory accounts to track the shortfall in revenues that will be caused by a

delay in a decision on cost-of-service beyond the start of the test year on January 1, 2004,

and to balance those authorized revenues regardless of differences between Commission-

forecast and actual gas and electric sales/throughput.

First, SoCalGas and SDG&E move that the Scoping Memo be modified to

eliminate its requirements for them to serve on June 16 supplemental testimony in certain

1

areas. Almost all of the areas in which the Scoping Memo orders supplemental testimony

to be served by applicants are either already covered by testimony filed by applicants

with their applications on December 20, 2002, or are duplicative matters being

considered in other Commission proceedings. The only remaining area for supplemental

testimony is workforce diversity, and SoCalGas and SDG&E have served today, April

18, the supplemental testimony as required on this issue. Thus, the need for supplemental

testimony in no way requires a procedural schedule as extended as the one adopted in the

Scoping Memo.

Second, SoCalGas and SDG&E move that the schedule adopted in the Scoping

Memo be modified so as to make possible a decision on the cost-of-service elements in

this proceeding by the last Commission meeting in February, 2004, with a later phase

scheduled for “incentive” or “PBR” elements. The schedule for cost-of-service elements

proposed by SoCalGas and SDG&E is a compromise between the schedule the applicants

had proposed and the schedule that ORA had proposed, which was adopted in the

Scoping Memo. It provides for ORA’s cost-of-service testimony to be served on July 3,

for interested party testimony to be served on August 1, and for hearings to be conducted

between August 25 and September 22, 2003. The full proposed schedule is attached as

an appendix to this motion and is discussed in detail below.

In the event Assigned Commissioner Wood declines to reconsider his Scoping

Memo and make the changes requested herein, SoCalGas and SDG&E move that the full

Commission review the Scoping Memo and issue a decision modifying it as requested

herein.

Finally, SoCalGas and SDG&E move that the Commission issue a decision in

these consolidated applications authorizing them to put into effect, subject to refund, an

interim increase in their rates equal to 80% of the increase in rates they have requested in

the instant applications. This increase would be effective from January 1, 2004, until the

effective date of rates adopted in a decision on cost of service, which under any

circumstances is now certain to be issued after the start of the test year in 2004. If the

Commission eventually authorized an increase of less than the interim increase, the

difference collected from January 1, 2004, would be refunded to customers. Even under

the schedule proposed herein by SoCalGas and SDG&E, a decision on cost of service

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cannot be issued before the end of 2003. SoCalGas and SDG&E shareholders should not

be penalized by the inability of the Commission to process these applications in a timely

manner.

If the Commission is not willing to authorize such an interim increase, then in the

alternative SoCalGas and SDG&E request the Commission to issue a decision

authorizing regulatory accounts for each utility to track the revenue requirements each

have requested herein from January 1, 2004, to the effective date of rates implementing a

decision on cost-of-service to be adopted herein. This relief is the same as that granted to

Pacific Gas & Electric Company in D.98-12-078. It is also similar to relief that would be

granted in proposed decisions currently pending for Southern California Edison Company

and Southwest Gas Corporation, final decisions in which cases have also been delayed

for reasons beyond the applicants’ control.

In addition, whether the Commission authorizes interim increases or regulatory

accounts, SDG&E also requests that the Commission provide that effective January 1,

2004, a regulatory account be authorized for SDG&E to balance revenues for differences

between forecast and actual electric sales and gas throughput.1. This action is necessary

so that the Commission’s regulation of SDG&E conforms to the requirements of Section

739.10 of the Public Utilities Code.

I. REQUIREMENTS FOR SUPPLEMENTAL TESTIMONY

The Scoping Memo requires SoCalGas and/or SDG&E to serve by June 16

supplemental testimony in a number of areas. With one exception involving work force

diversity, the supplemental testimony required by the Scoping Memo is either already

covered in applicants’ prepared testimony served with the applications on December 20,

2002, or is within the scope of other proceedings where the issues are more appropriately

considered.

The Scoping Memo appears to largely repeat requirements for supplemental

testimony included in the Scoping Memo issued last year in SCE’s general rate case,

A.02-05-004. However, the Scoping Memo in this proceeding overlooks the fact that

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SoCalGas and SDG&E prepared their testimony here in light of the Scoping Memo in the

SCE proceeding. Furthermore, the Scoping Memo here fails to take into account

developments in other proceedings since the Scoping Memo in the SCE case was issued.

As described in more detail below, the Scoping Memo in this proceeding should be

modified to eliminate the requirement that SoCalGas and SDG&E serve supplemental

testimony, with the exception of supplemental testimony on workforce diversity. The

specific areas for supplemental testimony ordered in the Scoping Memo are discussed

below.

1. Do the utilities have departments that coordinate planning and investment

decisions guided by medium-to-long-term plans? (Scoping Memo, p.3). This area is

already covered by testimony filed by SoCalGas and SDG&E, as follows. For SDG&E:

Debra Reed at p.13; Terry Fleskes at pp.2-3; David Geier at pp.131-132, 137-138, 141-

142, and 145-146; Richard Phillips at p.85, Christopher Baker at pp.6-12. For SoCalGas:

Debra Reed at p.14; Frank Ayala at p.59; Terry Fleskes at pp.2-3; and Christopher Baker

at pp.6-12.

2. Do SoCalGas and SDG&E have adequate and qualified staff to plan for a

meet gas and electric procurement and distribution needs? (Scoping Memo, p.3) This

area is already covered by testimony filed by SoCalGas and SDG&E, as follows. For

SDG&E: Debra Reed at pp.14-15; Latimer Lorenz at pp.1-7. For SoCalGas: Debra

Reed at p.15; Patrick Petersilia at pp.23-25.

3. What assumptions is SDG&E making about building new electric

generation? (Scoping Memo, p.3). This area is already covered in the SDG&E testimony

of Debra Reed at p.15. Furthermore, the matter of policies and cost recovery

mechanisms for utility-owned generation are within the scope of R.01-10-024 as defined

by the decision that instituted that rulemaking. Finally, this matter is the subject of

pending legislative proposals (e.g., SB 888) and there is little point in serving testimony

now that can only speculate about the outcome of pending legislation.

1 SoCalGas already is subject to such revenue balancing.

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4. SDG&E should file a long-term electric resource plan in this application

(Scoping Memo, p.4). Long-term electric resource plans are being comprehensively

addressed in R.01-10-024, and should not be duplicated here. As required by D.02-10-

062 in R.01-10-024, on April 15, 2003, SDG&E (as well as PG&E and SCE) filed long-

term electric resource plans in R.01-10-024. The Scoping Memo at p.4 acknowledges the

fact that resource plans are being considered in R.01-10-024, but claims that the

supplemental testimony it orders to be served in this application is not duplicative

because R.01-10-024 allegedly is considering only on short-term procurement through

contracts, and it is only in this proceeding that the Commission can consider integrated

resource planning, including demand-side issues. In fact, the resource planning review in

R.01-10-024 covers the issues the Scoping Memo says it does not cover. First, the

resource plans required in R.01-10-024 cover a 20-year period, and are not limited to

short-term procurement; see D.02-10-062 at p.48: “…we require that the utilities file….a

long-term procurement plan to cover anticipated needs between 2004 and 2023.”

Furthermore, the Commission specifically required the scope of the resources to be

considered in the 20-year plans in R.01-10-024 to be comprehensive, including all

demand-side aspects. As stated at p.48 of D.02-10-062: “In particular, the long-term

plan should explicitly include all of the resources covered in Section V of this decision.”

Section V of D.02-10-062 included: conventional generation, renewable resources,

distributed and self-generation, demand side resources (including energy efficiency and

demand response programs), transmission, and reserves. See also Ordering Paragraph 9

of D.02-10-062 at p.78. On April 15, SDG&E served extensive testimony in R.01-10-

024, including testimony from three different witnesses on demand-side aspects of its

resource plan, and testimony from a witness on transmission adequacy.

Eliminating long-term resource planning from the scope of this case would also

produce a more efficient use of ORA staffing resources, which ORA has stated from the

outset of this case is extremely limited. The Scoping Memo ought to be modified to

eliminate this complete overlap with R.01-10-024.

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5. A review of SoCalGas and SDG&E’s land-use and management practices,

including an inventory of all lands in rate base, and how these lands are used to maximize

public benefit (Scoping Memo, pp.5-6). With respect to SDG&E, this requirement in the

Scoping Memo substantially overlaps with R.03-03-015, just issued last month. The

Commission made SDG&E, PG&E and SCE (but not SoCalGas) respondents in R.03-03-

015. The Order Instituting Rulemaking states at p.1: “In this proceeding the

Commission will develop rules intended to expand upon the electric utilities’ traditional

role as guardians of the physical environment affected by utility service.” At p.2, the

OIR states: “Our objective, in this proceeding, is to develop rules providing the basis for

utilities to receive incentives for even more expansive efforts to protect and enhance the

physical environment surrounding its facilities.” At p.7, the OIR requires the filing of an

inventory of assets, as follows: “As an initial matter we hereby order the IOUs to submit

an inventory of all natural resource holdings that could potentially correspond to the three

categories defined above. The resources to be inventoried are the lands and waters

subject to Commission rate regulation, including lands and waters reflected in ratebase.”

The Scoping Memo fails to even mention the existence of R.03-03-015, much less

to explain how the supplemental testimony it orders is not duplicative of R.03-03-015 for

SDG&E. It may be that the scope of the property to be examined in R.03-03-015 is

narrower than that the Scoping Memo addresses, but clearly there is substantial overlap.

The Scoping Memo is not duplicative of R.03-03-015 in requiring supplemental

testimony on land-use and a land inventory for SoCalGas, because the Commission did

not make SoCalGas a respondent in R.03-03-015. However, the very fact that the

Commission did not make SoCalGas a respondent in R.03-03-015 indicates that it is not

efficient or prudent to spend very constrained Commission resources on investigating the

land use practices of gas utilities. The text of R.03-03-015 indicates that the Commission

is focused on uses of the generally much larger land holdings of electric utilities,

especially hydroelectric watershed, which neither SDG&E nor SoCalGas hold.

6. Gas resource plans for SoCalGas and SDG&E (Scoping Memo, pp.8-9).

The Scoping Memo requires SoCalGas and SDG&E to serve supplemental testimony to

demonstrate that their systems are adequate and they are positioned to comply with the

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reliability standards adopted in D.02-11-073. The Scoping Memo relies on D.02-11-073

for its authority to require SoCalGas and SDG&E to file gas resource plans in this

application. The Scoping Memo implies that these consolidated applications, rather than

the BCAPs for the two utilities, are the required forums for these resource plans.

In fact, it is perfectly clear that the Commission in D.02-11-073 did not require

that SoCalGas file a resource plan in this application rather than in its next BCAP.

Ordering Paragraph 7, at p.48 of D.02-11-073, applies only to SDG&E. There is no

ordering paragraph that says SoCalGas must file a resource plan in any proceeding.

However, in its text at p.39, D.02-11-073 states: “SoCalGas is directed to present a

detailed Resource Plan in the next GRC or BCAP.” SoCalGas submits that this language

clearly allows flexibility to have its resource plan filed in its BCAP rather than in this

application.

With respect to SDG&E, D.02-11-073 also allows discretion to address its

resource plan in its next BCAP rather than in this application. Ordering Paragraph 7 just

says that the SDG&E plan shall be filed “in the next appropriate proceeding”. The

Commission was fully able to specify this application if it wished to do so. Furthermore,

the text of D.02-11-073 at p.8: “Therefore, we direct SDG&E and other affected parties

to address the resource plan in the upcoming General Rate Case (GRC), or other

appropriate proceeding, with great care so that the demands on the system will be met

within SDG&E’s newly adopted reliability standard for firm noncore service of 1-in-10,

cold year conditions.” Clearly, the use of the words “other appropriate proceeding”

means that the SDG&E resource plan could be filed in a proceeding other than the

current application (which SDG&E agrees is effectively its “GRC”).2

Given that D.02-11-073 allows the gas resource plans to be filed in the BCAPs or

other proceedings rather than in these consolidated applications, which is the best forum?

The BCAPs are, for two reasons. First, the litigation of long-term (typically, 15-year) gas

resource plans in this case adds burden to the ability to decide this case as soon as

possible and avoid further delay in a decision past the start of the test year. Second, to

2 The TURN proposal for a “new BCAP” in which resource plans would be filed that was rejected at p.8 of that decision was a proposal for a biennial filing just for resource plans, separate from biennial cost allocation proceeding. This passage did not reject the concept of considering gas resource plans in biennial cost allocation proceedings.

7

the extent that the Commission intends to continue to consider cost allocation based on

LRMC principles, long-term resource plans will be a necessary part of the BCAPs

anyway, and there will be inefficient duplication of issues. Since the Commission

adopted in the early 1990s the policy of using long-run marginal cost (LRMC) in cost

allocation for gas utilities, long-run gas resource plans have been presented in every

BCAP.

SoCalGas and SDG&E note that it should be within the scope of these

consolidated applications whether their rate base and O&M proposed for test year 2004 is

consistent with the level of gas service reliability the Commission has adopted.

However, litigating in these consolidated proceedings the level of investment that they

should undertake for a decade or more beyond the test year is inappropriate and unwise.

7. An affirmative showing to justify applicants’ proposed margin-per-

customer indexing mechanism and any incentive/reward mechanism beyond historical

SAM and ERAM mechanisms (Scoping Memo, p.9). While what the Scoping Memo

wants to be addressed in this area is somewhat unclear, the testimony that SoCalGas and

SDG&E filed with their applications on December 20, 2002, addresses in detail whatever

this requirement may be intended to cover.

Applicants’ already-filed testimony addresses in detail the rationale for retaining

the current “margin per customer” annual revenue indexing mechanism for SoCalGas and

for moving SDG&E from rate indexing to “margin per customer” indexing. Like SAM

and ERAM, the approach proposed by applicants makes them indifferent to any variation

in gas or electric sales from Commission-adopted forecasts. The applicants’ approach

also provides them with increased nominal authorized revenues annually, as did the

historical “attrition” adjustment under GRC ratemaking, to compensate them for the

effects of inflation (less assumed productivity improvement) and for serving an increased

number of customers. If this is the subject matter that the Scoping Memo means when it

references an “incentive/reward mechanism”, then it is already comprehensively

addressed in the testimony submitted for SDG&E and for SoCalGas by Messrs. Van

Lierop, Barker, and Lowry; see also testimony of Ms. Debra Reed for SDG&E at pp.8-

13.

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If the Scoping Memo means to reference the current and proposed mechanisms

that reward or penalize shareholders depending on the quality of utility service relative to

certain “performance indicator” standards established by the Commission (e.g., electric

service reliability, customer satisfaction, call center response time, etc.), this material is

already comprehensively covered in the December 20 testimony on behalf of SoCalGas

by Mr. Petersilia (separate volume from his cost-of-service testimony) and on behalf of

SDG&E by Ms. Little and Mr. Geier (separate volume from his cost-of-service

testimony).

8. SDG&E should provide supplemental testimony on how it intends to

comply with Section 739.10 (errors in sales estimates shall not result in material

over/undercollections) (Scoping Memo, p.10). SDG&E’s testimony filed on December

20, 2002, already describes in detail how its proposed “margin per customer” indexing

mechanism will result in SDG&E collecting exactly its authorized base margin (no more,

no less) regardless of the actual level of electric and gas sales. See SDG&E testimony of

Debra Reed at pp.9-10 and of Mr. Van Lierop at pp.10-15. SDG&E does not understand

what more it could say on the subject to comply with the Scoping Memo. SDG&E notes

that in this motion below, it proposes the interim measure of adopting a revenue

balancing account for it effective January 1, 2004. This is only an interim solution until

the Commission can rule on a long-term mechanism, such as SDG&E’s proposed

“margin-per-customer” indexing proposal, that will comply with Section 739.10.

9. Employee diversity in past 10 years and present and future plans for

workforce diversity (Scoping Memo, p.8). SoCalGas and SDG&E did not address this

material in their testimony filed on December 20, 2002, and it is not being covered in any

current or scheduled other proceeding (although Greenlining/LIF has proposed that a

rulemaking proceeding be established that would address at least some aspects of

employee diversity). This is the one area for supplemental testimony required by the

Scoping Memo that does not need to be modified. However, SoCalGas and SDG&E

have served today, April 18, the supplemental testimony on this subject required by the

9

Scoping Memo, so the need for this testimony is no basis for not adopting the revised

procedural schedule proposed herein by SoCalGas and SDG&E.

II. PROCEDURAL SCHEDULE

The Scoping Memo adopts a procedural schedule that would not have the final

brief (on all issues, without bifurcation) in the case filed until January of 2004. Allowing

time for the PD and any Alternates to be drafted, for the minimum 30 day comment-and-

review period, and for Commission consideration of the PD/Alternates, it is clear that the

schedule in the Scoping Memo would not permit a decision to be issued any time before

well into the second quarter of 2004. The upshot of the Scoping Memo is that the utilities

will not have a reasonable opportunity in 2004 to earn the rate of return the Commission

has found necessary to attract capital needed to serve customers.

In its Advice Letters 1397-E/1306-G for 2001 PBR earnings sharing, filed April

1, 2002, SDG&E reported that for purposes of calculation PBR earnings sharing3 it had

earned a 7.44% rate of return on rate base, as compared to the authorized 8.75% for 2001.

In its Advice Letters 1482-E/1369-G for 2002 PBR earnings sharing, just filed on March

28, 2003, SDG&E reported that for purposes of PBR earnings sharing it had earned a

6.22% rate of return on rate base, or 253 basis points below what the Commission found

to be a reasonable rate of return. This is a shortfall of approximately $52 million in

earnings. Without rate relief on or shortly after the start of the 2004 test year, SDG&E

will have no reasonable opportunity in 2004 to earn the rate of return the Commission has

found to be reasonable for it.

It is true that SoCalGas has recently been earning somewhat above its authorized

rate of return, although the margin by which it has done so is declining. In a draft advice

letter provided to Commission staff on April 1, 2003 per the process set forth in D.97-07-

054, SoCalGas has informed the Commission that in 2002 it earned a ROR 50 basis

points above authorized on a “PBR basis”. This is approximately $11 million above

3 This calculation excludes any rewards or penalties for PBR performance indicators, and any other regulatory awards/penalties, such as AEAP and Gas Cost PBRs. It also excludes any earnings above authorized from the ICIP mechanism for SONGS which will terminate at the end of 2003. Finally, it excludes any reserves that are booked or reversed for financial reporting purposes.

10

authorized. However, pursuant to the PBR earnings sharing mechanism, SoCalGas will

credit to ratepayers approximately $4 million of this $11 million. Because there is no

sharing of SDG&E’s earnings shortfall, the Sempra Energy Utilities together for 2002

will have earned approximately $45 million less than authorized. Without timely rate

relief for 2004, the situation can be expected to deteriorate further.

It is unfair and irresponsible for the Commission to adopt a procedural schedule

that will not allow utilities a reasonable opportunity to earn the rate of return the

Commission has found necessary. Obviously, it is unfair to shareholders, but is also bad

for ratepayers to put utilities in a position where they cannot attract capital needed to

meet customer needs. Furthermore, such treatment undercuts the Commission’s efforts

to demonstrate to the financial community that it has the will to return California utilities

to financial health.

The Scoping Memo is oblivious to the impact of its schedule on utility earnings.

The Scoping Memo makes no provision for any relief from the financial impact on

SoCalGas and SDG&E of its delay in a decision well past the start of the test year.

The Scoping Memo can and should be modified in two ways to mitigate the

impact of a delay in a decision past the beginning of the test year. First, the procedural

schedule should be modified to allow for a decision on cost-of-service issues as early in

2004 as possible, although it appears that there is no longer any chance a decision can be

issued prior to the beginning of 2004. The modification that should be adopted is

discussed below in this section. Second, because some delay beyond the beginning of

2004 is now apparently inevitable, the Commission should adopt some form of relief

effective January 1, 2004, pending a full decision on cost of service to be issued later in

2004. SoCalGas and SDG&E propose an interim increase in rates subject to refund. In

the alternative, they propose a memorandum account to track the proposed increase.

Such relief is addressed in the next section of this motion.

The schedule that SoCalGas and SDG&E now propose is attached in full as an

appendix to this motion, with comparison to the schedule shown in the appendix to the

Scoping Memo. The proposed schedule would bifurcate the case so that only cost-of-

service issues would be heard, briefed, and decided before “incentive” or “PBR” issues.

Although the Scoping Memo provides for a delayed service of ORA and interested party

11

testimony on “incentive/PBR” issues, it provides that all issues would be heard

consecutively and briefed and decided at one time. By fully bifurcating these issues, the

Commission can reduce hearing and briefing time, the time to prepare a PD, and the time

needed to vote out a decision on cost-of-service issues. SoCalGas and SDG&E are not

proposing at this time a specific schedule for the “incentive” or “PBR” issues in the

applications, they do need to be processed on a schedule that allows for a decision before

the end of 2004, and as early in 2004 as is reasonably feasible without interfering with

issuing a decision on 2004 cost-of-service.

The revised procedural schedule proposed herein is reasonable. The Scoping

Memo failed to adopt any compromise between Applicants’ proposal that ORA’s

testimony be served May 16 and ORA’s position that its cost of service testimony should

not have to be served until August 8. The Scoping Memo simply gave ORA all the time

it asked for. SoCalGas and SDG&E propose herein that the Commission give ORA until

July 3 to serve its cost-of-service testimony. This is approximately six-and-a-half months

after SoCalGas and SDG&E filed their applications. This is more than the five-month

period that ORA received in the current PG&E case and more than the five-and-a-half

month period that ORA received in the pending SCE application. It would allow a

decision (on cost-of-service issues alone) 14 months after filing of the applications,

which is longer than it took the Commission to decide these issues in SDG&E’s last

application (11 months) and about the same amount of time to decide the same issues in

SoCalGas’ last application (including PBR issues). It is also more consistent than the

Scoping Memo with timelines provided under the “Rate Case Plan” adopted by the

Commission in the 1980’s for GRCs.

III. INTERIM RELIEF

As described above, due to delay in the issuance of a decision until months into

the test year, SDG&E and SoCalGas together will be denied a reasonable opportunity to

12

earn a fair rate of return in 2004 unless the Commission takes steps to grant interim relief

on January 1, 2004.

a. The Commission should grant interim rate increases, subject to refund, effective January 1, 2004.

SoCalGas and SDG&E request that the Commission issue a decision authorizing

them to increase rates, subject to refund, on January 1, 2004, by an amount equal to 80%

of their requested rate increases herein. This increase would be effective from January 1,

2004, until the effective date of rates adopted in a decision on cost of service, which

under any circumstances is now certain to be issued after the start of the test year in 2004.

If the Commission eventually authorized an increase of less than the interim increase, the

difference collected from January 1, 2004, would be refunded to customers.

For SDG&E, the ICIP mechanism covering the costs of its share of the SONGS

plant is scheduled to terminate effective December 31, 2003. Most of SDG&E’s

SONG’s related costs for TY 2004 are being litigated in SCE’s current general rate case,

which appears to be on course to be decided well before the end of 2003. SDG&E is

requesting recovery in its own application of an additional $6 million in SONGS-related

costs for activities not within the scope of the SCE proceeding. The net effect of

SDG&E’s proposals for SONGS revenue requirement in 2004 and of all other revenue

requirements requested by SDG&E herein is an increase of 2.5% in electric rates.

SDG&E is proposing that the interim level of its electric rates effective January 1, 2004,

be 80% of the 2.5% net rate increase requested herein, regardless of the exact revenue

requirement for SONGS that may be adopted in the SCE case this year.

There is precedent for the Commission granting interim rate increases, subject to

refund, because decisions have been delayed past the scheduled date of issuance. The

Commission granted interim relief to SDG&E in 1979 in D.89857 (1 CPUC2d 146). The

Commission also granted interim relief to General Telephone in D.83-12-067 (14

CPUC2d 1). In the General Telephone case, the Commission granted an interim increase

for the uncontested amount of a requested increase. In this case, there is no way to yet

know what portion of their proposed increases will be uncontested, but they are

proposing an interim increase of only 80% of their requests in the spirit of this concept.

13

In any case, the Commission’s authority to grant an interim increase, subject to

refund, is not limited to circumstances of financial emergency or only to undisputed

portions of a requested increase. In TURN v. PUC, 44 Cal.3d 870 (1988), the California

Supreme Court upheld the Commission’s grant of an interim rate increase to PG&E for

the Diablo Canyon plant even though the Commission had not completed its review of

the reasonableness of the cost of the plant. The Court held that the Commission had the

authority to grant interim increases of contested amounts in non-emergency

circumstances when “the situation was one in which fairness to both the utility and the

public required immediate action.” (44 Cal3d at 879).

SDG&E and SoCalGas submit this is exactly such a situation. January 1, 2004, is

the date that the Commission expected a decision in these applications to be effective

when it set December 20, 2002 as the deadline for SoCalGas and SDG&E to file their

applications; see D.01-10-030. SoCalGas and SDG&E filed the applications on a timely

basis. Furthermore, SoCalGas and SDG&E are in no way responsible for the fact that,

even under the best of circumstances, a decision on cost-of-service issues will not be

issued by the beginning of the test year. The reason for the delay in the timing the

Commission had intended is solely ORA’s expressed need for more time to prepare due

to a lack of resources. SoCalGas and SDG&E should not be penalized if the Commission

does not have sufficient resources to decide proceedings on a timely basis.

It should be emphasized that if the Commission in a final decision on cost-of-

service authorizes less than the amount of the interim increase, the excess collected from

January 1, 2004, will be refunded to customers and they will be made whole.

b. In the alternative, the Commission should authorize regulatory accounts effective January 1, 2004, to track the request increases subject to the eventual outcome of the applications.

In the event that the Commission is not willing to grant an interim increase

subject to refund, then SoCalGas and SDG&E request in the alternative that the

Commission authorize regulatory accounts to track as of January 1, 2004, the full

requests they have made.

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The Commission granted this kind of relief to PG&E in 1998 in D.98-12-078.

Furthermore, the Commission is considering similar relief in two other matters pending

before it. On April 4, the Commission mailed a Draft Decision of ALJ DeBerry in A.02-

02-012, Southwest Gas’ pending general rate case application. This Draft Decision was

on the Commission’s April 17 agenda as Item #CA-22, but it was held to the May 8

Commission meeting. On April 7, the Commission mailed a Draft Decision of ALJ

Wetzell in A.02-05-004, SCE’s pending general rate case. SoCalGas and SDG&E

understand that ALJ Wetzell’s Draft Decision will appear on the Commission’s May 8

agenda, which has not yet been published.

The Draft Decisions would grant similar relief. The Southwest Gas Draft

Decision would create a Revenue Recovery Shortfall Memorandum Account that would

track the difference between current rates and any new rates ultimately authorized by the

Commission, effective from the date of the decision authorizing the account until the date

of a final decision in the case. The date of the decision on the account will certainly be

after the start of the test year in the application. Southwest Gas would be allowed to

recover in prospective rates the shortfall recorded in this account upon bearing the burden

of demonstrating the reasonableness of any amounts in the account when it seeks to

amortize that amount in rates.

The SCE Draft Decision would track the revenue requirement requested in the

application from May 22, 2003, until the date a decision was issued in the application.

May 22, 2003 is the date that a decision for SCE would be issued if it were issued on the

timeline set forth in the Rate Case Plan. SCE proposed that upon a decision in the case,

the balance in the account would be determined by comparing the adopted revenue

requirement to the revenue requirement recorded in the account based on the full request

by SCE in the case. SCE proposed that the final balance be automatically reflected in

rates, although the exact manner of doing so would depend on whether or not the

RROACT rate repayment period were still in effect. The Draft Decision declines to

guarantee that the final balance will be flowed through in rates, deferring that decision to

the final decision in the case.

In the event the Commission does not authorize SoCalGas and SDG&E the

interim rate increase, subject to refund, requested herein, the Commission should

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authorize SoCalGas and SDG&E each to establish regulatory accounts effective January

1, 2004, to continue in effect until the effective date of rates adopted in a decision in

these applications on cost-of-service. In their accounts, SoCalGas and SDG&E would

record the full revenue requirements that they have requested in their applications. The

balance would be adjusted after a decision on cost-of-service to reflect the actual revenue

requirement adopted by the Commission as of January 1, 2004. The balance would

accrue interest at the three-month commercial paper rate typically used for regulatory

accounts. The final balance, reflecting the outcome of the cost-of-service decision,

would be automatically amortized in rates when the cost-of-service rates became

effective. The balance could be negative if the Commission authorized a reduction in

either of the two utilities’ currently-authorized cost-of-service.

SoCalGas and SDG&E propose that the balance in the account as determined

after the issuance of a cost-of-service decision be amortized in prospective rates as a

matter of right, not just if the Commission in a cost-of-service decision chooses to do so.

The pass through of the balance in rates would be subject only to confirmation by the

Commission as to the accuracy of the calculations. There is no reason why a properly-

calculated balance should not be recovered in rates. Furthermore, if the recovery of the

amount is only possible and not certain, the financial community will view this relief as

speculative and it will further cloud the financial community’s view of Commission

regulation.

A grant of either form of interim relief, would not obviate the need and

justification for modification of the Scoping Memo’s procedural schedule as described in

the section above to achieve a cost-of-service decision as soon as possible after January

1, 2004. With issuance of the cost-of-service decision postponed past January 1, 2004, as

of that date SoCalGas and SDG&E will be in limbo as to how the Commission expects

them to manage the cost of their operations pending issuance of the cost-of-service

decision. Effectively, the cost-of-service decision when issued later in 2004 would be

effective retroactively to the first of the year (whether through refund of subject-to-refund

rates or through the operation of a regulatory account), but SoCalGas and SDG&E cannot

retroactively manage their costs.

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c. In any case, the Commission should authorize on an interim basis effective January 1, 2004, regulatory accounts for SDG&E to “balance” its authorized revenues.

Whether the Commission authorizes interim increases subject to refund or

regulatory accounts to track requested increases effective January 1, 2004, SDG&E

proposes that the Commission authorize it to have regulatory accounts to provide for the

adjustment of the balance to reflect the actual revenue requirement adopted by the

Commission regardless of the actual level of electric and gas sales/throughput in the

period between January 1, 2004, and the date of rates are implemented as a result of the

decision adopting the revenue requirement. SoCalGas need not make this request

because it is already 100% “revenue balanced”. This treatment of SDG&E means that as

of January 1, 2004, it would be 100% “revenue balanced”, and no longer at risk/reward

for differences between Commission-forecast and actual gas and electric

sales/throughput. Adopting this feature would provide for the Commission’s regulation

of SDG&E to comply with Section 739.10 as of January 1, 2004, and not cause

compliance to be deferred until the later date of the Commission’s decision on cost-of-

service. SDG&E proposes this as an interim solution to compliance with Section 739.10;

in a later decision on “incentive” or “PBR” aspects of the applications, SDG&E

advocates the Commission adopt its proposal to index “margin per customer” for 2005-

2008, which complies with Section 739.10.

CONCLUSION

Assigned Commissioner Wood should grant reconsideration of his Scoping

Memo and modify it for the reasons stated above. The Scoping Memo should be

modified to eliminate the obligation for SoCalGas and SDG&E to serve any

supplemental testimony other than on workforce diversity. The procedural schedule

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should be modified to adopt the schedule attached hereto that among other things

bifurcates “incentive” or “PBR” issues, provides for ORA cost-of-service testimony to be

served on July 3, and allows the possibility of a cost-of-service decision by the end of

February 2004.

In the event that Assigned Commissioner Wood will not reconsider his Scoping

Memo and modify it as proposed herein, SoCalGas and SDG&E request that the full

Commission act to modify the Scoping Memo as proposed herein. While the

Commission issues reviews interlocutory rulings only infrequently, the interests of justice

would warrant such a review in this case if the Assigned Commissioner declines to

reconsider his Scoping Memo.

Also, the full Commission should issue a decision authorizing interim increases of

80% of the requested increases, subject to refund, on January 1, 2004. In the alternative,

the Commission should authorize the regulatory accounts proposed herein to track the

full requested increases as of January 1, 2004. In either case, the Commission should

also order revenue balancing for SDG&E as of January 1, 2004, to comply with Section

739.10. Only the full Commission has the authority to grant this sort of relief.

Respectfully submitted,

SOUTHERN CALIFORNIA GAS COMPANY

SAN DIEGO GAS & ELECTRIC COMPANY

By: _______________________

Glen J. Sullivan

Glen J. Sullivan Keith W. Melville Steven C. Nelson Attorneys for San Diego Gas & Electric Company and Southern California Gas Company 101 Ash Street San Diego, California 92101-3017 (619) 699-5162 gsullivan@sempra.com

April 18, 2003

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APPENDIX TO MOTION OF

SOUTHERN CALIFORNIA GAS COMPANY (U 904 G) AND SAN DIEGO GAS & ELECTRIC COMPANY (U 902-M)

PROPOSED REVISED PROCEDURAL SCHEDULE

Cost of Service 2004 Scoping Memo SoCalGas and SDG&EProposed

SoCalGas and SDG&E serve supplemental testimony

06/16/03 04/18/03

ORA serves Cost of Service testimony 08/08/03 07/03/03

Intervenor Testimony 09/12/03 08/01/03

Rebuttal and Up-Date 10/03/03 08/19/03

Third Prehearing Conference 10/07/03 08/22/03

Evidentiary Hearings Begin 10/14/03 08/25/03

Evidentiary Hearings End (4 weeks) 11/07/03 09/22/03

Comparison Exhibit 11/14/03 09/29/03

Incentive/PBR Mechanisms

ORA Serves Testimony 10/06/03 Subject to later phase

Intervenor Testimony 10/14/03 Subject to later phase

Rebuttal Testimony 10/27/03 Subject to later phase

Evidentiary Hearings Begin 11/12/03 Subject to later phase

Evidentiary Hearings End 11/14/03 Subject to later phase

Post Hearing Schedule for Briefs & Decision

Concurrent Opening Briefs filed and served; Request for Oral Argument before the Commission submitted to ALJ

12/05/03 10/20/03

Concurrent Reply Briefs filed and served 01/05/04 11/14/03

ALJ Proposed Decision – Cost of Service only

01/16/04

Expected Commission Decision – Cost of Service only

02/19/04

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