III. Utility and Holding Company Actions

SDG&E and SoCal Gas provide energy services to bundled customers in Southern California, subject to the Commission's regulation. SDG&E provides both electric and gas services to customers in the San Diego area, while SoCal Gas provides gas services to much of Southern California. Unregulated affiliates of these two utilities, under the management of Sempra Energy, have undertaken significant energy-related business activities within and adjacent to the service territories of these two utilities.

These activities include, but are not limited to, wholesale electric and gas trading, development of generation facilities, gas pipeline facilities, and the provision of direct access services. Sempra companies have also been involved in distributed generation equipment and contracting for the sale of billions of dollars of electricity to the California Department of Water Resources. Sempra has also requested Commission approval to participate in future sales of electricity to its affiliated regulated utility, SDG&E, through our procurement proceeding.

These unregulated activities create a direct conflict between the interests of Sempra and the interests of the regulated utilities and their ratepayers. This is particularly problematic given the large magnitude of the unregulated activities, amounting to billions of dollars, and the breadth of these activities, covering nearly every area of energy services. And, as we have noted in D.02-10-062, the primary area wherein the Commission has found problems in the past regarding power procurement has been in deals involving utilities and unregulated affiliates:

"The exhibits prepared by the utilities show that there were only a limited number of disallowance decisions made by the Commission during the seventeen year period from 1980 to 1996 for the three utilities and that the majority of these decisions and dollar adjustments involved affiliate transactions." (D.02-10-062, page 47 mimeo)