ALJ/JSW/avs Date of Issuance 11/24/2009

Decision 09-11-006 November 20, 2009

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Diego Gas & Electric Company (U 902 G) and Southern California Gas Company (U 904 G) for Authority to Revise Their Rates Effective January 1, 2009, in Their Biennial Cost Allocation Proceeding.

Application 08-02-001
(Filed February 4, 2008)

OPINION REGARDING THE SETTLEMENT
OF THE PHASE TWO ISSUES

TABLE OF CONTENTS

Title Page

OPINION REGARDING THE SETTLEMENT OF THE PHASE TWO ISSUES 2 2

1. Summary 2 2

2. Background 4 4

3. Discussion 6 6

3.1. Overview of the Phase Two Issues 6 6

3.2. The Settlement Agreement's Recommendation 7 7

3.3. Should the Proposed Settlement Agreement be Adopted? 18 18

3.3.1. Introduction 18 18

3.3.2. Gas Demand Forecasts 19 19

3.3.3. Cost Allocation Methodologies 20 20

3.3.4. Operational Issues 22 22

3.3.5. Cost Allocation and Rate Design Issues 31 31

3.3.5.1. In-Kind Storage Fuel 32 32

3.3.5.2. FAR Review 32 32

3.3.5.3. Residential Tier Differential 33 33

3.3.5.4. Core Commercial and Industrial Customer Charges 34 34

3.3.5.5. Authorized Margin of the CFCA 35 35

3.3.5.6. Bridge Housing Proposal 35 35

3.3.5.7. Core Rate Deaveraging 35 35

3.3.5.8. SDG&E Borrego Springs 36 36

3.3.5.9. SoCal Gas Engine Rate Cap 37 37

3.3.5.10. Allocation of Certain Memorandum Accounts 37 37

3.3.5.11. Allocation of CFCA and NFCA Balances 38 38

3.3.5.12. Natural Gas Vehicle Stations 39 39

3.3.5.13. Summary of Cost Allocation and Rate Design Issues 39 39

3.3.6. Peaking Service Rate and Transmission Level Service 40 40

3.3.7. Other Issues in the Settlement Agreement 43 43

3.3.7.1. Throughput Risk 43 43

3.3.7.2. Reporting of Customer Arrears 45 45

3.3.7.3. Landfill and Digester Gas 45 45

3.3.7.4. Backbone-Only Service 46 46

3.3.7.5. The G-SRF Surcharge 47 47

3.3.7.6. Compressor Fuel Costs 49 49

3.3.7.7. Sempra-wide Electric Generation Rate 49 49

3.3.7.8. Elimination of Outdated Accounts 50 50

3.3.7.9. Triennial Cost Allocation Proceeding 50 50

Title Page

3.3.7.10. Summary of Other Issues 51 51

3.3.8. Rates 51 51

3.3.9. Conclusion 52 52

4. Comments on Proposed Decision 52 52

5. Assignment of Proceeding 53 53

Findings of Fact 53 53

Conclusions of Law 54 54

ORDER 55 55

APPENDIX A - Settlement Agreement

APPENDIX B - SoCalGas 2009 Biennial Cost Allocation Proceeding

APPENDIX B - SDG&E 2009 Biennial Cost Allocation Proceeding

OPINION REGARDING THE SETTLEMENT
OF THE PHASE TWO ISSUES

1. Summary

This decision addresses the Phase Two issues in the cost allocation proceeding filed by San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas) regarding their natural gas transmission and storage services. Most of the active parties to this proceeding agreed to, or did not oppose, a settlement of all of the Phase Two issues.

A joint motion to adopt the Settlement Agreement was filed on June 2, 2009 by SDG&E, SoCalGas, and 12 other parties.¹ Shell Energy North America (US), L.P. (Shell Energy) opposes certain provisions of the settlement agreement and requests that the provisions be eliminated or clarified.

Today's decision grants the joint motion to adopt the Settlement Agreement of the Phase Two issues, and adopts all of the terms and conditions of the Settlement Agreement² except for the filing of additional briefs on the issue of whether the shareholders of SDG&E and SoCalGas should in the future be at risk for gas throughput.³ The Settlement Agreement resolved all of the Phase Two issues, which include the following:

· Allocating the revenue requirement associated with the gas transmission, distribution, and storage operations of SDG&E and SoCalGas, as previously authorized in Decision (D.) 08-07-046, to the various customer classes of SDG&E and SoCalGas.⁴

· Agrees to use the gas demand forecasts of SDG&E and SoCalGas.

· Agrees to allocate the gas transmission and storage costs using an embedded cost methodology, and to allocate the gas distribution costs using a long run marginal cost (LRMC) methodology.

· Agrees to the provisions concerning gas operations, cost allocation, rate design, and other issues, as set forth in the Settlement Agreement.

· Using and applying the agreed upon provisions, this results in the rates shown in Appendix B for SoCalGas' customers, and in Appendix C for SDG&E's customers.

· The new rates in Appendix B and Appendix C of this decision are to go into effect the later of January 1, 2010, or the first day of the month that is at least 60 days from the date of Commission approval of the Settlement Agreement.⁵

Under the Settlement Agreement, a typical residential gas customer in SDG&E's service territory, who uses 40 therms per month, will experience a 1.7% increase in their monthly bill, from about $42.21 per month to $42.94 per month.

For a typical residential gas customer in SoCalGas' service territory, who uses 46 therms per month, that customer will experience a 1% decrease in their monthly bill, from about $ 40.10 per month to $39.73 per month.

¹ We refer to these 14 parties as the "settlement parties."

² The Settlement Agreement, with all the pertinent attachments (Attachments 1-4), was attached to the joint motion as Appendix A. A copy of the Settlement Agreement without the attachments is attached to this decision as Appendix A.

³ As discussed later in this decision, we also adopt Shell Energy's proposal that SoCalGas clarify Rule 30(d)(4).

⁴ D.08-07-046 authorized a gas revenue requirement of $1.685 billion for SoCalGas, and a gas revenue requirement of $280.57 million for SDG&E.

⁵ The rates shown in Appendix B and Appendix C of this decision contain additional allocation tables with more detail than what was shown in Attachment 3 to Appendix A of the joint motion.