ALJ/JSW/jt2 Mailed 7/3/2006

Decision 06-06-065 June 29, 2006

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of SOUTHERN CALIFORNIA GAS COMPANY For Authorization to Establish a Revenue Sharing Mechanism for the Production of Native Gas.
(U 904 G)

Application 04-01-034
(Filed January 26, 2004)

(See Appendix A for list of Appearances.)

OPINION REGARDING A SHARING MECHANISM
FOR THE PRODUCTION OF NATIVE GAS

Table of Contents

Title Page

OPINION REGARDING A SHARING MECHANISM
FOR THE PRODUCTION OF NATIVE GAS 2 2

I. Summary 2 2

II. Procedural 2 2

III. Cost and Revenue Sharing Mechanism 5 5

A. Background of Proposal 5 5

B. Background of Settlement Agreement 7 7

C. Revised Joint Stipulation 9 9

D. Position of the Parties 11 11

1. SoCalGas 11 11

2. California Producers 18 18

3. Exxon Mobil 20 20

4. DRA, SCGC and TURN 25 25

E. Discussion 31 31

1. Introduction 31 31

2. Motion To Re-open the Evidentiary Record 32 32

3. Analysis of Sharing Mechanism Options 34 34

a) Comparison of the Proposal, Settlement
Agreement, and Revised Joint Stipulation 34 34

b) Appropriateness of the Sharing Mechanism 36 36

c) Evaluation of the Sharing Mechanisms 37 37

(1) Introduction 37 37

(2) Paragraph 7.d.v. 39 39

(3) Paragraph 12 41 41

(4) Scoping Memo Issues 43 43

(a) Equitable Compensation 43 43

(b) Allocation To Core and Non-Core 44 44

(d) Gas Quality 46 46

(e) Monitoring of Storage Operations 47 47

(f) New Gas Storage 47 47

(g) Third-Party Exploration and Production 49 49

(h) Effect On Incentive Mechanism 50 50

(5) Adopted Sharing Mechanism 50 50

IV. Comments on Proposed Decision 53 53

V. Assignment of Proceeding. 53 53

Findings of Fact 53 53

Conclusions of Law 56 56

ORDER 57 57

Appendix A

Appendix B

Appendix C

Appendix D

OPINION REGARDING A SHARING MECHANISM
FOR THE PRODUCTION OF NATIVE GAS

I. Summary

Today's decision addresses the application of Southern California Gas Company (SoCalGas) for permission to establish a cost and revenue sharing mechanism to allow it to explore for and to produce native natural gas that may be located adjacent to SoCalGas' existing natural gas storage fields.

We adopt as the cost and revenue sharing mechanism for SoCalGas' native gas program, the terms, conditions and rules that are set forth in the appendices to this decision. These appendices consist of the Settlement Agreement, the Revised Joint Stipulation, and the rules which were attached to the supplement to the original stipulation. The adoption of this sharing mechanism will provide an incentive for SoCalGas to explore for, and produce native gas that is located at its gas storage fields, while providing an opportunity for SoCalGas' ratepayers and shareholders to equally share in the benefits of such a program.