9. Comments on Alternate Proposed Decision

The proposed decision of the ALJ and the proposed alternate decision of the Assigned Commissioner in this matter were mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3. Comments timely were filed on December 6, 2010 by the applicant and the three protestants (UCAN, DRA and Henricks). These same parties timely filed reply comments on December 13, 1010. Comments relating to the Assigned Commissioner's alternate proposed decision are discussed below.

SDG&E supports the proposed alternate decision and suggested only minor non-substantive modifications for clarity and conciseness. These modifications are included herein, as well as other minor non-substantive clarifying modifications.

The three protestants all commented that the general economic downturn should not be considered as proper evidence in support of Z-factor treatment in light of the perceived conflict with the exogenous, control and disproportionate impact criteria. These issues are addressed herein and generally we find that the combination of the economic downturn in combination with the unique factors that impact SDG&E's insurance liability and deductible expenses specifically resulted in its liability insurance cost increases.

UCAN also commented that the proposed alternate decision did not consider the proper burden of proof. The proposed alternate decision stated a "preponderance of the evidence" was the proper burden of proof. UCAN argues the proper burden should be "clear and convincing evidence," and further that this would require all of the evidence presented against SDG&E's proposal to be reviewed and explained why it was not credible. UCAN cites D.02-08-064 and D.05-03-023. The latter decision, D.05-03-023, addresses a previous Z-factor request by SDG&E, and states that with respect to the reasonableness of the costs, the "full burden of proof on SoCalGas and SDG&E [is]to show that they competently responded to the event in a reasonable and efficient manner before they can recover any costs in a Z-factor Memorandum Account..." In the subject case, we find that SDG&E did respond in a "reasonable and efficient manner."

UCAN further argues that in n D.02-08-064, the Commission addressed the standard of a reasonableness review of managerial action with respect to the gas purchasing actions of Southwest Gas. In that decision, the Commission found that "the utility always will be required to demonstrate that its actions are reasonable through clear and convincing evidence," and further that "the reasonableness of a particular management action depends on what the utility knew or should have known at the time that the managerial decision was made, not how the decision holds up in light of future developments." However, D.02-08-064 does not specifically apply to a Z-factor showing of proof, as does the standard set forth in D.05-03-023, discussed above. We therefore find that the burden in this case, preponderance of evidence, is proper, and further that the standards set forth in D.02-08-064 specifically do not apply to Z-factor showings.

DRA also commented that SDG&E did not meet the exogenous and management control criteria, and further that these factors are not co-extensive. These issues are discussed herein throughout, and include a parallel analysis applicable to both criterion.

In addition to the economic downturn issue, Henricks also argued that SDG&E did not meet the burden of showing that any of eight criteria for Z-factor treatment had been met. Henricks also argued against the validity of SDG&E's witness statements. These issues also are addressed herein, including a discussion of each of the eight criteria .