Discussion

The GCIM is the structure which replaced the Commission's reasonableness reviews of SoCalGas' gas purchases and gas storage decisions on behalf of its core sales customers.² The GCIM is designed to provide SoCalGas with a financial incentive for making efficient gas purchasing decisions. The incentive is created by establishing a benchmark against which SoCalGas' gas supply purchases for its core and core subscription customers are measured. The benchmark is based on a combination of monthly gas price indices.

SoCalGas' Year Eight application states that it was able to purchase gas at $189,794,664 below the GCIM benchmark. The actual cost of all the purchases subject to the GCIM was $1,290,296,698 and the benchmark cost was $1,480,091,362. Pursuant to the GCIM revisions adopted in D.02-06-023, SoCalGas requests a shareholder award of $17.4 million.³

ORA conducted a review, audit, and evaluation of the Year Eight GCIM results, which is contained in ORA's Monitoring and Evaluation Report for Year Eight. This analysis confirmed the gas volumes purchased, storage and gas sales, hedging activities, the benchmark price, volumetric interstate transportation costs, interstate reservation costs, and the capacity levels nominated and the actual volumes delivered by pipeline. In summary, ORA's analysis verified the following:

· The Year Eight GCIM resulted in total shared savings of $189,794,664 based on the difference between the actual cost of gas and transportation of $1,290,296,698 and the benchmark index of $1,480,091,362.

· The total savings before the mandatory cap was applied would have been $164,070,281 to ratepayers, and $25,724,383 to SoCalGas' shareholders.

· Under the GCIM as modified by D.02-06-023, the shareholder award is $17,388,157 and the remainder of the shared savings of $172,406,507 is retained by ratepayers.

We first address the concerns raised by SCE in its protest to SoCalGas' application. At the November 6, 2002 prehearing conference, the issues raised by SCE were recognized, and the ALJ discussed how these issues were being addressed in Phase II of A.00-06-023 and in the investigation the Commission was considering opening. Following the adoption of the settlement in D.02-06-023, and the opening of the investigation into the cause of gas border price spikes, the January 16, 2003 scoping memo and ruling was issued. The scoping memo and ruling recognized that D.02-06-023 had hearings, and resolved the issues of whether the GCIM structure should be extended for Year Seven and beyond, and whether the GCIM should be modified. The Commission also declined in D.02-06-023 to consider another investigation of the GCIM.

The scoping memo and ruling also noted that I.02-11-040 opened an investigation into the cause of gas border price spikes. Among the issues that the investigation will look at are whether the utilities' affiliates or parent companies' financial positions caused the utilities to take actions that may have increased gas costs, and whether the GCIM created perverse incentives to increase or manipulate gas prices at the California border, and whether the GCIM enables the utilities to exercise market power or anticompetitive behavior. The scoping memo and ruling also stated that based on D.02-06-023 and I.02-11-040, the issues raised by SCE were either resolved in D.02-06-023 or will be addressed in I.02-11-040.⁴

Thus, there are only two remaining issues that need to be addressed in this proceeding. The first issue is whether the calculation of the shareholder award for Year Eight under the GCIM structure, as modified by D.02-06-023 is correct or not. The second issue is whether SoCalGas' acquisition operations during Year Eight were reasonable within the context of the authorized GCIM.

With regard to the first issue, SCE does not dispute the calculation of SoCalGas' request for a shareholder award of $17.4 million for Year Eight. Although SCE has raised concerns about the GCIM structure, those concerns are being addressed by the Commission in I.02-11-040 or have been addressed in D.02-06-023. ORA's Monitoring and Evaluation Report has verified that the amount and calculation of the shareholder award amount for Year Eight is correct.

The second issue is whether SoCalGas' acquisition operations during Year Eight were reasonable within the context of the authorized GCIM. Although SCE has raised concerns about the GCIM structure and whether it creates perverse incentives, those concerns are to be examined in I.02-11-040. If the investigation reveals that the respondents' conduct contributed to the gas price spikes at the California border during the time period of the investigation, I.02-11-040 states that the Commission may modify or eliminate the GCIM, reduce the amount of the shareholder award for the period involved, or order the respondents to issue a refund to ratepayers to offset the higher rates that were paid.

ORA's Monitoring and Evaluation Report for Year Eight analyzed and evaluated the reasonableness of SoCalGas' gas operations for the period. ORA's report for Year Eight concludes "that the GCIM continues to provide favorable benefits to SoCalGas' natural gas procurement customers." (ORA Monitoring and Evaluation Report, p. 1-4.) The report also notes that the "GCIM encourages the utility to employ appropriate risk management tools and utilize thoughtful, pragmatic procurement practices," and that "SoCalGas' gas procurement customers realized the benefits of these incentives through lower gas procurement costs consistent with past historical prices." (Id.) ORA also states that it "is convinced that the GCIM is the single most important factor in assuring that SoCalGas effectively manages its gas procurement costs and ultimately achieves cost savings during both volatile and stable market conditions." (Id., p. 1-5.)

After reviewing SoCalGas' application and ORA's Monitoring and Evaluation Report for Year Eight, we find that SoCalGas reasonably managed its gas acquisitions and operations in Year Eight within the context of the GCIM that existed at the time. However, since the Commission is conducting an investigation into the causes of high gas border prices from March 2000 through May 2001, today's finding does not prejudge what the Commission may find or conclude in I.02-11-040.

We also find that the calculation and amount of SoCalGas' shareholder award for Year Eight is correct. In accordance with the GCIM modifications adopted in D.02-06-023, SoCalGas is entitled to a shareholder award of $17,388,157 for Year Eight of the GCIM. However, due to the ongoing activities in I.02-11-040, the Commission may adjust the shareholder award for Year Eight if that investigation reveals that the conduct of the respondents to the investigation contributed to the price spikes at the California border during the investigation's time period. Thus, we will award SoCalGas a shareholder award of $17,388,157 for Year Eight of its GCIM, subject however to refund or adjustment, as may be determined in I.02-11-040. SoCalGas is permitted to adjust the Purchased Gas Account to reflect the shareholder award that may be subject to refund or adjustment.