15. Rate Design

ORA stated it reviewed and accepted Southwest's cost of service study. ORA does not oppose Southwest's proposed increases in the primary, and secondary service charges for residential customers from $4.25 to $5.00, and from $5.00 to $6.00, respectively, and increases in the noncore monthly charge from $75 to $100, all of which we adopt. We also adopt ORA's proposed increase in the monthly charge for the Core Industrial rate schedule from $75 to $100, and a small increase of $1 for the basic monthly charge for Core General. As ORA points out, these changes will assist in moving customers to appropriate rate schedules with minimum effects.

We will also increase the baseline allowance to the maximum allowable, and increase the difference between Tier I and Tier II rates to reflect the increase in the basic service charge on the baseline portion of the rate, as proposed by ORA.

Southwest and ORA disagree over the appropriate rate designs for the GS-40 and GS-55 Schedules in Southern California, and Schedule GN-40 in Northern California. ORA argues that its proposal to retain schedule GS-55, rather than combining it with the GS-40 schedule achieves rate stability and customer certainty, and that consolidation of customer classes and full cost of service pricing be addressed in the next GRC.

Southwest contends that the GS-55 schedule and GS-40 schedule should be combined into a single schedule to reflect actual cost-of-service considerations, and to minimize customer impacts. Southwest modified its initial proposal during the proceeding, and now recommends that the GS-55 and GS-40 schedules be continued, but that the rate structure for both schedules would be gradually converged. Under this proposal, at the end of the rate case cycle, in the last attrition year, rates for the GS-40 schedule, and rates for the GS-55 schedule would be essentially the same.

We are concerned over sudden rate changes, and believe that an adopted rate design should minimize adverse customer impacts. However, the rate design should also reflect cost-of-service considerations and treat customers using equal amounts of gas under similar schedules the same. We note that ORA recommends addressing this issue in the next GRC, however, we will begin consolidation of these schedules now. Therefore, we will adopt Southwest's proposal for the GS-40 and GS-55 schedules that will gradually change rates beginning in the test year, and annually for each attrition year. Our adoption of Southwest's proposal means we will apply the same methodology to the GN-40 schedule for Northern California.

15.1. Implementing the Rate Increase and
Amortizing the RRSMA

Southwest's application proposes a phase-in of the revenue requirement over a five-year period. However, Southwest's phase-in proposal is dependent on the Commission's approval of the level of revenues recommended in Southwest's Application.

Our adopted revenue requirement is less than that requested by Southwest; however we are reducing the amount of time until Southwest files its next GRC, from the five years proposed by Southwest to four years (test year 2003, and attrition years 2004, 2005, and 2006). We are also adopting a revenue balancing account, and attrition year increases that provide additional revenues in the years after the test year. These are ratemaking mechanisms that reduce risks to Southwest, and provide a dependable revenue stream.

We are also very aware of the effects of large rate increases on Southwest's customers. In the PPHs many customers voiced their concerns and limited ability to pay increasing gas bills, a concern also shared by Southwest, ORA and San Bernardino. Certainly, we must mitigate rate shock for customers, many of whom are on fixed incomes, and must make decisions and planning choices regarding their gas bills. We will phase-in 80% of the revenue requirement increase in 2003;⁸² 10% of the increase in 2004; 5% of the increase in 2005; and 5% of the increase in 2006.

In addition, we must address the RRSMA, established in May 2003. In Southwest's motion to establish this account, Southwest offered that the RRSMA could be amortized at the time of a final decision in its Application. In determining the amortization period for the RRSMA, we acknowledge that the purpose of this account was to track margin revenue shortfalls due to any delay in the requested rate relief in this proceeding. Therefore, we will authorize Southwest to amortize the amounts in the RRSMA during the remainder of 2004, as these are revenues that would have been available to Southwest during test year 2003. Southwest will be directed to file an advice letter with the Commission detailing the amounts that should be amortized in the RRSMA within 30 days of the effective date of this decision and included in rates for the remainder of 2004.