STATE OF CALIFORNIA Arnold Schwarzenegger, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

November 4, 2004 Agenda ID# 4029

Alternate to Agenda ID# 3936

Ratesetting

11/19/04 Item # _____

TO: PARTIES OF RECORD IN APPLICATION 02-12-027 ET AL.

RE: NOTICE OF AVAILABILTIY OF ALTERNATE PROPOSED DECISION OF COMMISSIONER BROWN ON PHASE ONE DECISION COST OF SERVICE TEST YEAR 2004 FOR SOUTHERN CALIFORNIA GAS COMPANY AND SAN DIEGO GAS & ELECTRIC COMPANY.

Consistent with Rule 2.3(b) of the Commission's Rules of Practice and Procedure, I am issuing this Notice of Availability of the above-referenced alternate proposed decision by Commissioner Geoffrey F. Brown that was issued on November 4, 2004. An Internet link to this document was sent via e-mail to all the parties on the service list who provided an e-mail address to the Commission. An electronic copy of this decision can be viewed and downloaded at the Commission's Website ( www.cpuc.ca.gov).

Any recipient of this Notice of Availability who is not receiving service by electronic mail in this proceeding may request a paper copy of this document from the Commission's Central Files Office, at (415) 703-2045; e-mail cen@cpuc.ca.gov.

This is an alternate proposed decision of Commissioner Brown, to the proposed decision of ALJ Long, previously mailed to you. It will be on the Commission's agenda on November 19, 2004. The Commission may act then, or it may postpone action until later.

When the Commission acts on the draft or alternate decision, it may adopt all or part of it as written, amend or modify it, or set aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

As set forth in Rule 77.6, parties to the proceeding may file comments on the enclosed alternate order no later than November 12, 2004, and reply comments no later than November 16, 2004. An original and four copies of the comments with a certificate of service shall be filed with the Commission's Docket Office and copies shall be served on all parties on the same day of filing. Anyone filing comments shall electronically serve their comments on Commissioner Brown's Gas advisor, Belinda Gatti, at beg@cpuc.ca.gov and assigned ALJ Long, at dug@cpuc.ca.gov. For those who have not provided electronic addresses, printed copies of the comments shall be served by first class mail or another expeditious mode of delivery.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

AKM:ccv

Attachment

COM/GFB/ccv ALTERNATE DRAFT Agenda ID # 4029

Alternate to Agenda ID # 3936

Ratesetting

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER BROWN Mailed 11/4/2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of SOUTHERN CALIFORNIA GAS COMPANY for authority to update its gas revenue requirement and base rates. (U 904 G)	Application 02-12-027 (Filed December 20, 2002)
Application of SAN DIEGO GAS & ELECTRIC COMPANY for authority to update its gas and electric revenue requirement and base rates. (U 902-M)	Application 02-12-028 (Filed December 20, 2002)
Investigation on the Commission's Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Gas Company and San Diego Gas & Electric Company.	Investigation 03-03-016 (Filed March 13, 2003)

(See Appendix A for a list of appearances.)

PHASE ONE DECISION

COST OF SERVICE TEST YEAR 2004 FOR

SOUTHERN CALIFORNIA GAS COMPANY AND SAN DIEGO GAS &

ELECTRIC COMPANY

TABLE OF CONTENTS

Title Page

PHASE ONE DECISION COST OF SERVICE TEST YEAR 2004 FOR SOUTHERN CALIFORNIA GAS COMPANY AND SAN DIEGO GAS & ELECTRIC COMPANY 2

I. Summary 2

II. Overview of the Applications 3

III. Procedural History 5

IV. Test Year Forecast Methodology 6

V. Return to the Rate Case Processing Plan 8

VI. Commission Review of the Settlements 10

A. The SoCalGas Settlement 11

1. Distribution Expense 12

2. Gas Storage and Transmission Expense 12

3. Customer Services 12

a) Customer Installation Expense 12

b) Customer Records and Collection Expenses 13

4. Administrative and General Expenses 13

5. Corporate and Shared Services 14

6. Gas Industry Restructuring Implementation 15

7. Rate Base 15

8. Fumigation Related Costs 15

B. The SDG&E Settlement 18

1. San Onofre Nuclear Generating Station (SONGS) - Electric 21

2. SONGS Costs Not In Edison's Rate Case 24

a) New Security Requirements 24

b) Other Costs Not Billed by Edison 29

3. Administrative and General (A&G) Expense 31

4. Fumigation Related Costs 32

5. Electric Distribution 32

a) Vegetation Management 33

b) Sustainable Community Energy Systems 34

6. Otay Mesa Pressure Betterment Project 35

7. Gain on Sale of Blythe Property 38

C. The Greenlining Institute and SoCalGas and SDG&E Side-Settlement Agreement 39

i. Workforce Diversity 40

ii. Supplier Diversity 40

iii. Philanthropy 41

iv. Annual Meetings 41

v. Discussion 41

VIII. Conclusion 43

A. Reasonable in Light of the Whole Record 43

C. Consistent with the Law 46

D. In the Public Interest 46

IX. Additional Issues Identified in the Scoping Memo 49

1. Investment Planning 50

2. Safety and Reliability 51

3. Customer Service 51

4. Utility Operations 52

5. Diversity, Outreach, Contributions, and Minority Contracting 53

6. Gas Resource Plans 54

X. Comments on Alternate Proposed Decision 55

XI. Assignment of Proceeding 55

Findings of Fact 55

Conclusions of Law 60

ORDER 62

APPENDIX A - List of Appearances

APPENDIX B - List of Acronyms and Abbreviations

APPENDIX C - SDG&E Combined Summary of Earnings Test Year 2004

APPENDIX D - SDG&E Gas Summary of Earnings Test Year 2004

APPENDIX E - SDG&E Electric Summary of Earnings Test Year 2004

APPENDIX F - SoCalGas Summary of Earnings Test Year 2004

APPENDIX G - SoCalGas Settlement Agreement

APPENDIX H - SDG&E Settlement Agreement

APPENDIX I - Settlement Agreement between the Greenlining Institute and SoCalGas & SDG&E

PHASE ONE DECISION
COST OF SERVICE TEST YEAR 2004 FOR
SOUTHERN CALIFORNIA GAS COMPANY AND SAN DIEGO GAS &
ELECTRIC COMPANY

I. Summary

This decision resolves issues litigated in the revenue requirement phase (Phase 1) for Southern California Gas Company (SoCalGas) and San Diego Gas & Electric Company (SDG&E) in the consolidated applications for Test Year 2004 Cost of Service. Pursuant to Rule 51 et seq. of the Commission's Rules of Practice and Procedure, we consider two settlement agreements: (1) an all party settlement supported by SoCalGas, the Office of Ratepayer Advocates (ORA), The Utility Reform Network (TURN), Utility Workers Union of America (UWUA), Local 483 UWA, Southern California Generation Coalition (SCGC) and Greenlining Institute (Greenlining) addressing Phase 1 of SoCalGas Cost of Service Proceeding; and (2) a settlement supported by SDG&E, ORA, Greenlining, Coral Energy Resources, LP (Coral), and the Coalition of California Utility Employees (CUE) addressing Phase 1 of SDG&E Cost of Service Proceeding.

We find that the Settlements are generally reasonable in light of the whole record, consistent with the law, and in the public interest. While settlements by nature are to a certain extent a "black box", we are satisfied that the Settling Parties presented thorough detailed Settlement Agreements and therefore determine that these settlements are in the public interest. The Settlements resolve all issues with two exceptions: (1) the method of recovery of fumigation-related costs and (2) the gas resource plan. The fumigation-related costs are determined in this decision. We find that the supplemental testimony submitted by SoCalGas and SDG&E is insufficient to make a determination and defer the gas resource plans to the next BCAP.

The SoCalGas Settlement was unopposed and we adopt the SoCalGas settlement without change. The SDG&E Settlement was opposed by the Utility Consumers' Action Network (UCAN) and the City of Chula Vista. We have made two modifications to the SDG&E Settlement: (1) we decline to adopt the Otay Mesa Pressure Betterment Project as part of the capital additions for SDG&E; (2) we adjust SDG&E's portion of the San Onofre Nuclear Generating Station (SONGS) revenue to reflect the amount adopted in Decision 04-07-022 in Southern California Edison's General Rate Case, the proceeding in which the SONGS issue was litigated. Both of these modifications are discussed in detail.

We authorize for SoCalGas $1,457,008 million in natural gas distribution revenues for Test Year 2004. We authorize SDG&E $754,439 million in electric distribution revenues and $203,448 million in natural gas distribution revenues for Test Year 2004.