III. Preliminary Scoping Memo

A. Principal Issues to Resolve

This rulemaking will be conducted in accordance with Article 2.5 of the Commission's Rules of Practice and Procedure. As required by Rule 6(c)(2), this order includes a preliminary scoping memo as set forth below.

The issues to be considered in this proceeding are:

· Do the ratemaking and accounting mechanisms that the Commission proposes to adopt, enable Edison, SDG&E, PG&E, SoCalGas and Southwest to account equitably for the consideration they receive under the Settlement?

· Are there better alternatives for the Commission to adopt governing how the California natural gas and electric public utilities should account for the consideration they receive under the Settlement?

· Specifically excluded from this proceeding are issues concerning the substantive merits of the Settlement, which are issues for the San Diego Superior Court to resolve. This OIR will only consider the proposed ratemaking and accounting mechanisms.

B. Overview of the Objectives of the Rulemaking

We believe that while the Superior Court would have to approve the allocation of the more than $1.5 billion to the various entities, discussed above, the Superior Court would not have jurisdiction over how the California natural gas and electric utilities (under the Commission's jurisdiction) should allocate or distribute the amounts they receive to their various accounts underlying their rates to their customers. Moreover, a substantial amount of the consideration may be provided by El Paso over a 15 to 20 year period, and, therefore, there need to be specific mechanisms for the accounting of the settlement amounts.

In light of the fact that the proceeds are not a single payment, that there may be numerous transactions over a protracted period, we propose to adopt a minimalist approach and initially use, for the most part, the utilities' existing accounting mechanisms to the fullest extent possible. The rationale is that the refund may be so protracted that it is not feasible to consider prior customers or prior consumption during the period that led to the Settlement as a basis for refunds. Moreover, the non-core gas customers and the municipalities, which were directly harmed during the time in question, will have the opportunity in the court's claims process under the Settlement to establish their harm and receive a fair share of the consideration. Thus, we believe that California Public Utilities Code § 453.5 is satisfied in view of the claims process in the court, the impracticability of tracking the customers harmed during the energy crisis over the next 15 to 20 years that the consideration may be received, and the explicit authorization for the Commission under § 453.5³ to authorize refunds on a current usage basis, and we will therefore focus on the equitable aspect of the mechanism that we adopt.

C. Affected Parties

The mechanisms proposed herein must provide for a fair recovery by ratepayers of the Settlement proceeds. We believe that there are generally three customer groups to be adequately addressed: 1) electric full-service customers, those customers who purchase all of their electric service needs including the energy commodity from the utilities; 2) direct access customers who purchase a portion of their electric service needs, excluding the energy commodity, from the utilities; and 3) core gas customers who purchase all of their gas service needs including the natural gas commodity from the utilities. Non-core gas customers are those customers who self-procure gas and who do not purchase the commodity from the utility. They are excluded from receiving the benefits of the Settlement that are the subject of this Rulemaking, because non-core customers are able under the Settlement to pursue a claims process before the Superior Court. The one exception is for core subscription and core elect customers, who will be addressed in the ratemaking and accounting treatment proposed below.

We believe that the Rulemaking must also provide for the allocation of the reduced revenue requirements of CDWR, as a result of the consideration it receives under the Settlement. Although CDWR determines its own revenue requirement for electric energy procured for retail customers, and follows its own administrative procedures to ensure due process, it is this Commission that decides the allocation of CDWR's revenue requirements in the California public utilities' retail rates.