2. Background and Procedural History

The Commission in Decision (D.) 94-03-076 approved a GCIM for SoCalGas. The GCIM is a ratemaking mechanism designed to provide regulatory controls of greater benefit to ratepayers than annual reasonableness reviews. We modified certain aspects of the SoCalGas GCIM in D.96-01-003 and D.97-06-061. The GCIM is structured to provide an incentive for SoCalGas to invest in its Gas Acquisition Department and make sound gas purchasing decisions. This was done by granting SoCalGas 50% of savings it achieved by purchasing gas below market price benchmarks and by disallowing 50% of gas costs above the benchmarks.

D.94-03-076 further directed the Commission Advisory and Compliance Division (duties of which have since been assumed by the Energy Division) to issue an evaluation of the GCIM program by August 1, 1996. For a number of reasons, the report did not issue. On June 8, 2000, the Commission in D.00-06-039 ordered the Energy Division to conduct such a study to guide the Commission in whether to extend operation of the GCIM. The Energy Division report was issued on January 4, 2001.

The SoCalGas GCIM requires the utility to file an application by June 15 of each year to address the reasonableness of its operations and provide information regarding the GCIM results for the prior 12 months ending March 31. This is the sixth such application, and it covers the period from April 1, 1999 through March 31, 2000. In Phase 1 of this proceeding, we reviewed ORA's audit of Year Six GCIM results and concluded that SoCalGas had acquired gas for its customers at savings of $24.2 million during the relevant period. We authorized SoCalGas to recognize a shareholder award of $9.7 million under the GCIM formula.

In Phase 2 of this proceeding, Commissioner Bilas directed the parties to consider whether the GCIM should be extended and, if so, what modifications to the mechanism would be desirable in light of the Energy Division evaluation.

Following prehearing conferences and meetings among the parties, a proposed Settlement Agreement dealing with Phase 2 issues was filed on July 5, 2001 by SoCalGas, ORA and TURN. The settlement is opposed by Southern California Edison Company (Edison) and by the Southern California Generation Coalition (SCGC). Other parties that did not join the settlement but took a neutral stance during hearing include Pacific Gas and Electric Company (PG&E), El Paso Natural Gas Company (El Paso), and the California Industrial Group/California Manufacturers and Technology Association.

Parties were invited to submit written testimony on Phase 2 issues and on the proposed Settlement Agreement. Two days of hearing were conducted on November 27 and 28, 2001. Final briefs were filed on February 1, 2002, when Phase 2 of this application was deemed submitted for decision by the Commission.