4. Comments on Draft Decision

The draft decision of ALJ Econome in this matter was mailed to the parties in accordance with Pub. Util. Code § 311(g) and Rule 77.7. CSD and SoCalGas (jointly) and ORA filed comments and replies on the settlement. As a result of the comments, we make the following changes to the draft decision. Additionally, we make other changes to improve the discussion and to make technical or typographical corrections to the decision.

Findings of Fact

1. SoCalGas and CSD were the only parties to offer testimony on the disputed factual allegations.

2. The settlement has occurred late enough so that the parties have been able to assess the strengths and weaknesses of their case, but early enough (before the start of hearings) that the settlement will avoid significant additional expense and the use of Commission resources.

3. Although most of the discovery has been completed, the proceeding is still at an early procedural stage because hearings have not yet commenced, and thorny discovery issues, as well as challenges to the Commission's jurisdiction to order remedies to affected landowners, remain in dispute.

4. Further proceedings in this investigation promise to be complex, contentious, and lengthy.

5. The portion of the settlement calling for an ethics course, if modified as discussed in this decision, should help ensure that in the future SoCalGas' employees will not misrepresent matters or mislead the Commission, whether or not SoCalGas employees have done so in the past.

6. The settlement also offers certain affected landowners the opportunity to obtain rescission of SoCalGas' acquisition of the landowner's mineral interests.

7. If landowners pay back SoCalGas the same dollar amount that SoCalGas paid for the mineral interests, ratepayers would be financing the present value difference between the acquisition costs and sale price for those leaseholders that repurchase their leasehold interest.

8. In this case, SoCalGas' proposed contribution to certain energy-related low income and research and development programs is not specifically designed to remedy harms alleged in the OII, nor do the settling parties suggest that other remedies are inadequate.

9. In other cases, the Commission has approved monetary settlements of alleged Rule 1 ethical violations, but in those cases, the money was paid to the General Fund.

10. This settlement and decision approving it does not preclude individual landowners from litigating against SoCalGas, should they believe that rescission is not an adequate remedy for any of SoCalGas' alleged wrongs at Montebello. Furthermore, nothing in this settlement or decision can be used against these owners by SoCalGas in any such litigation, in order to preclude litigation of these issues or otherwise.

11. This settlement does not address or decide the issue of whether shareholders or ratepayers would be responsible for the costs of defending any litigation described in the immediately preceding finding of fact, or in paying any such judgments, should they occur. This potential issue is left open for an appropriate proceeding.

12. The settlement resolves (a) issues at the Commission concerning SoCalGas' alleged wrongful conduct in acquisition of the leaseholds at Montebello and all issues concerning SoCalGas' representations to Commission staff about Montebello; and (b) the issue of SoCalGas' reasonable costs in defending itself against the OII.

13. This settlement does not address or resolve the reasonableness of SoCalGas' conduct at Montebello for ratemaking purposes, although it resolves all issues concerning SoCalGas' representations to the Commission regarding Montebello. Parties are therefore not precluded from examining in another proceeding whether SoCalGas' conduct at Montebello may lead to a finding of unreasonableness that supports a particular ratemaking conclusion. Similarly, parties may question in another proceeding the reasonableness of SoCalGas' property acquisition costs at Montebello. Parties may also address the reasonableness of SoCalGas' other expenses at Montebello, including the reasonableness of its expenses to defend itself in this OII. However, the settlement precludes parties from raising in another proceeding the argument that ratepayers were injured by any delay that this OII caused in the sale of Montebello or the processing of A.98-01-015, because this OII largely dealt with SoCalGas' representations to this Commission regarding Montebello.

Conclusions of Law

1. Because this proceeding can be resolved by adopting the settlement as more fully set forth below, hearings should no longer be necessary, and this order should change the determination originally made in the OII and Scoping Memo.

2. The settlement is reasonable, consistent with the law and in the public interest, and should be approved, pursuant to Rule 51.1(e) of the Commission's Rules of Practice and Procedure, if it is modified as directed by this order.

3. According to the GTEC decision, a monetary payment to a consumer education fund is justified when other remedies are inadequate and the additional equitable remedy is specifically designed to remedy the alleged harm.

4. SoCalGas should pay to the General Fund of the State of California the funds designated in the settlement in the manner penalties are usually paid.

5. Because SoCalGas is funding the ethics course up to $200,000, we clarify that priority of admission to the ethics course should be given to SoCalGas employees and consultants.

6. The ethics course referenced in the settlement should include a utility's ethical obligations in exercising the power of eminent domain. This portion of the course should be open to all SoCalGas employees and consultants who assist SoCalGas in exercising such powers.

7. Within 210 days of final Commission approval of the settlement (30 days after the close of the period during which former rights holders can request rescission), SoCalGas should file an advice letter to reduce its rates prospectively by the amount of the authorized margin in then-current rates associated with the mineral rights that are returned to the prior owners. SoCalGas should also file by advice letter a plan to refund, with interest at a rate of 10% a year, all revenue requirements associated with mineral rights returned to prior owners pursuant to the settlement that were collected in rates prior to the prospective reduction in rates.

8. No later than December 31, 2000, and every 60 days thereafter until the acquisitions pursuant to the settlement have been completed, SoCalGas should: (a) provide the Commission with a full accounting of all mineral interests the acquisition of which is rescinded pursuant to the settlement agreement; and (b) document that shareholders have financed the entire acquisition, including the present value difference between the acquisition cost and the sale price. SoCalGas should file this report with the Commission's Energy Division, serve it on all parties to this OII, and should also make it part of its initial showing in its next cost of service performance based ratemaking application before this Commission.

9. In SoCalGas' rescission offer to affected landowners, SoCalGas should make a full disclosure of the condition of the property, including but not limited to (a) advising landowners of the nature and status of SoCalGas' A.00-04-031 (requesting Commission authority to sell Montebello); and (b) providing a copy of an informative environmental document that has been recently developed at the time the notice is sent, such as the Executive Summary of the Proponent's Environmental Assessment filed with A.00-04-031, as well as the Commission's Environmental Branch's deficiency letters thereto, or the Notice of Preparation (N.O.P.) filed with the State Clearinghouse, if such a N.O.P. has been prepared.

10. This order should be made effective immediately in order to resolve as soon as possible the large number of disputed transactions at issue.

ORDER

IT IS ORDERED that:

1. Because this proceeding can be resolved by adopting the settlement as more fully set forth below, hearings are no longer necessary, and this order shall change the determination originally made in the Order Instituting Investigation (OII) and Scoping Memo.

2. The November 15, 1999 joint motion of Southern California Gas Company (SoCalGas) and the Consumer Services Division to adopt the proposed settlement is granted, provided the settlement is modified and clarified as directed by this order.

3. SoCalGas shall pay the funds designated in the settlement for certain low-income and energy-related groups instead to the General Fund of the State of California in the manner penalties are usually paid.

4. The ethics course referenced in the settlement shall include a utility's ethical obligations in exercising the power of eminent domain and this portion of the course shall be open to all SoCalGas employees and consultants who assist SoCalGas in exercising such power. We clarify that recruiting for and priority of admission to the entire ethics course shall be given to SoCalGas' employees and consultants.

5. Within 210 days of final Commission approval of the settlement (30 days after the close of the period during which former rights holders can request rescission), SoCalGas shall file an advice letter to reduce its rates prospectively by the amount of the authorized margin in then-current rates associated with the mineral rights that are returned to the prior owners. SoCalGas shall also file by advice letter a plan to refund, with interest at a rate of 10% a year, all revenue requirements associated with mineral rights returned to prior owners pursuant to the settlement that were collected in rates prior to the prospective reduction in rates.

6. No later than December 31, 2000, and every 60 days thereafter until the acquisitions pursuant to the settlement have been completed, SoCalGas shall: (a) provide the Commission with a full accounting of all mineral interests the acquisition of which is rescinded to the former owner pursuant to the settlement agreement; and (b) shall document that shareholders have financed the entire

acquisition, including the present value difference between the acquisition cost and the sale price. SoCalGas shall file this report with the Commission's Energy Division, serve it on all parties to this OII, and shall also make it part of its initial showing in its next cost of service performance based ratemaking application before this Commission.

7. In SoCalGas' rescission offer to affected landowners, SoCalGas shall make a full disclosure of the condition of the property, including but not limited to (a) advising landowners of the nature and status of SoCalGas' A.00-04-031 (requesting Commission authority to sell Montebello); and (b) providing a copy of an informative environmental document that has been recently developed at the time the notice is sent, such as the Executive Summary of the Proponent's Environmental Assessment filed with A.00-04-031, as well as the Commission's Environmental Branch's deficiency letters thereto, or the Notice of Preparation (N.O.P.) filed with the State Clearinghouse, if such a N.O.P. has been prepared.

8. This proceeding is closed.

This order is effective today.

Dated September 7, 2000, at San Francisco, California.

See Formal Files for Appendix A.

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