debit card or bank statements as two distinct line items, one with SoCalGas' charges and one with BillMatrix's name and the agreed upon transaction fee for making a card payment. BillMatrix is only able to charge an agreed upon transaction fee.

_ The gas customer pays only the utility bill amount plus the transaction fee per transaction. The utility bill amount is clearly shown on the bank or credit card statement.

_ The transaction fee is fixed and is quoted to the customer twice prior to any customer card payment. Since the transaction charge, currently $3.50, is quoted to the customer, any variation from that charge would be readily identified. The consumer can also verify the amount of any quoted processing charge with SoCalGas.

_ The ease of identifying variations from the $3.50 level would provide little incentive to commit fraud. If erroneous charges are not corrected, SoCalGas can discontinue the service.

_ If the customer believes a charge is erroneous, BillMatrix will be required to research the transaction with the Credit Card Company or bank and provide details to the customer. If the details do not seem familiar and the customer still disputes the bill, the dispute becomes a chargeback and the customer's card will be credited for that amount. By agreement SoCalGas guarantees any payments made by BillMatrix and any excessive chargeback fees¹ imposed by BillMatrix based on SoCalGas' percentage of transactions and number of chargeback claims.

_ The current transaction fees can be changed on 30 days notice to SoCalGas. However, if SoCalGas objects to a proposed increase, either the fee remains the same, or BillMatrix can terminate the agreement. SoCalGas would notify participants in the program of any approved increases in transaction fees.

_ SoCalGas would investigate any allegation of excessive charges.

_ SoCalGas can initiate an audit of BillMatrix at any time. SoCalGas reserves the right to designate its own representative who shall have the right to audit and examine any cost, payment, settlement, or other supporting documentation resulting from any services performed under the agreement.

Cramming

SoCalGas will inform customers of the credit/debit card options through bill inserts, newsletters, website, and Customer Service Representatives.

To prevent cramming² SoCalGas will not permit the service provider to place extraneous charges on SoCalGas bills. The provider will only be able to charge customers its stated transaction fee, which will appear on the customer's bank or credit card statement - not the gas bill - as a separate line item next to the vendor's name.

To prevent unauthorized card use, BillMatrix offers several protections. If BillMatrix's system determines that the card being used was reported lost or stolen, BillMatrix will terminate the transaction immediately. Credit card transactions will not be completed unless the customer inputs at least one of the following: the correct ZIP code associated with the card billing address, the expiration date of the card, and the 3-digit number found only on the back of the card. Similarly, debit card transactions will not be completed unless the customer inputs the correct PIN or 3-digit number found on the back of some debit cards.

Customers using BillMatrix would direct service inquiries relating to card payments, to BillMatrix. SoCalGas will require the provider to maintain adequate customer service resources to handle service inquiries.

If a third party error were brought to SoCalGas' attention, they would investigate and discuss the matter with BillMatrix. If the matter is not resolved, SoCalGas is not obligated to continue to use BillMatrix's services and could, if necessary, take action to recoup any excess charges.

While SoCalGas will undertake commercially reasonable efforts to screen potential service providers, and require stringent contractual obligations from the selected service provider, SoCalGas will not act as guarantor of, or bonding company for, the service provider. The service provider will remain ultimately liable to its customers.

SoCalGas will require that BillMatrix maintain strict confidentiality of customer information and establish and maintain procedures to safeguard that information. SoCalGas said it would not execute an agreement with a provider that does not include these requirements.

BillMatrix has been successfully serving PG&E for over five years. BillMatrix provided electronic payment services since 1994 and serves over 50 of the largest firms in the country. SoCalGas believes that BillMatrix would not risk their reputation by engaging in fraudulent activity. SoCalGas' inquiry into BillMatrix's history showed no litigation or problems with excessive charges.

SoCalGas selected BillMatrix because it has the expertise to handle all aspects of card payments. Credit card companies require individual cardholders to initiate payments either through a merchant or payment processor, such as BillMatrix. Individual cardholders cannot initiate payments by calling a credit card issuing company directly. BillMatrix will accept Visa, American Express, and Discover Credit cards for payment of SoCalGas' bills.

Liability for Excess Charges

SoCalGas pointed to the protection offered by credit card companies, who could reverse fraudulent charges on customer's bills and pursue service providers through law enforcement channels. SoCalGas states that fraud losses for all VISA card products have fallen from 0.15 percent in the early nineties to 0.07 percent today.

In the event of excessive charges to the customer, the customer could contact the credit card issuer.

SoCalGas explains: "Both Visa and Discover will reverse an unauthorized charge. Visa's Zero Liability policy provides that the customer pays nothing for any fraudulent activity or unauthorized card use. Discover has a similar liability policy. While American Express first conducts an investigation of any unauthorized charge, the customer does not have to pay the amount in question during the investigation. Should American Express determine fraudulent card use, the customer would receive a full credit for the disputed amount."

SoCalGas further states: "...any evidence of misconduct would constitute a breach of the Agreement, and if not resolved would likely lead to the termination of the Agreement." SoCalGas notes that it has no obligation to use BillMatrix's services; and, therefore, in the remote possibility that excessive charges could be established, BillMatrix would resolve the matter appropriately to keep the business arrangement, and its reputation, intact.

SoCalGas points to PG&E's five years of experience in taking credit card payments from its customers, without an experience of overcharging, and requests that SoCalGas likewise not be required to assume unwarranted liability for offering a credit card option."

Impact on Rates

SoCalGas' base rates are set under the Performance Based Ratemaking mechanism and would not be affected directly by current expenses of implementing the card payment offering. To the extent that implementation costs are more than offset by savings in collection costs, rates in 2002 would be lower. A net cost reduction in 2001 would result in higher sharable earnings and the ratepayer portion would be reflected as a rate reduction in 2002. To the extent that collections cost savings are permanent, they would be reflected in lower rates following the next General Rate Case or PBR proceeding.

SoCalGas does not pay a fee to BillMatrix. The customer is responsible for paying BillMatrix's transaction fee.

¹ There is no fee to the customer for a charge-back. When a customer makes a charge-back, the gas bill amount and transaction fee are credited to the customer's account. Should charge-backs exceed one percent of all transactions, SoCalGas would, by agreement, have to pay any fees that the credit card issuers may levy against BillMatrix.

² Cramming is "the submission or inclusion of unauthorized, misleading, or deceptive charges for products or services in End-user Customer's local telephone bills." (D.00-03-020 Attachment A p 2.)