Background

SCE's protest to SoCalGas' application asserts that the GCIM that SoCalGas operates under "creates perverse incentives, harms noncore customers, and has a detrimental impact on the California energy markets." (SCE Protest, p. 2.) SCE also contends that the ongoing Commission investigation (I.02-11-040) into the cause of the natural gas border price spikes from March 2000 through May 2001 may result in the Commission "revisiting the results of Years 7 and 8 and in the modification of the GCIM structure." SCE Prehearing Conference Statement, p. 1.) If the GCIM is modified or eliminated, SCE asserts that this will have a direct bearing on whether SoCalGas' award for Year 9 is appropriate.

SCE takes the position that the Commission should defer issuing a final decision on SoCalGas' Year 9 GCIM until the investigation concludes. If the Commission decides to proceed with the issuance of a decision on the Year 9 GCIM, SCE asserts that "the Commission should treat SoCalGas' Year Nine GCIM similarly to Years Seven and Eight, namely, the Commission should make clear that (1) any finding of reasonable management shall not prejudge what the Commission may find or conclude in I.02-11-040, and (2) any award issued for Year Nine shall be made subject to refund or adjustment as may be determined by the Commission based on the investigation." (SCE Prehearing Conference Statement, p. 1.)

I.02-11-040, which was adopted on November 21, 2002, opened an investigation into the following issues, among others:

"2. Did any of the utilities' affiliates or parent companies play a role in causing the increase in border prices? Did concerns about affiliates or parents' financial position cause utilities to take actions that may have increased gas costs?

"...

"4. Did the utilities' gas cost incentive mechanisms create perverse incentives to increase or otherwise manipulate natural gas prices at the California border? We shall examine whether SoCalGas' Year 7 and Year 8 operations under the GCIM, enabled them to exercise market power and/or anticompetitive behavior. If so, should these incentive mechanisms be modified or eliminated to prevent such activity?" (I.02-11-040, p. 9.)

At the December 12, 2003 prehearing conference, the assigned Administrative Law Judge (ALJ) stated that if the Commission decides that the GCIM should be modified or eliminated in I.02-11-040, that could affect the Year 9 GCIM activities of SoCalGas if it is applied retroactively to the Year 9 activities of SoCalGas.

The ALJ described two ways in which the Commission could proceed with this proceeding. The first way is to hold off on processing SoCalGas' Year 9 GCIM application until the Commission issues a decision in the investigation. At that point, if the Commission finds in favor of SoCalGas, then no hearings would be needed and a draft decision could then be drafted on whether SoCalGas should be awarded the Year 9 GCIM amount. If the Commission finds against SoCalGas, then a prehearing conference should be held after such a decision is issued to decide how to proceed.

The second way is to draft a decision for the Commission on whether SoCalGas should be awarded the Year 9 GCIM amount. Such a decision could be made subject to the results of I.02-11-040, or not.