III. Positions of the Parties

SDG&E and SoCal Gas ask that there be clarification regarding allegations of affiliate wrongdoing, that their existing annual audit of affiliate activities be used for fact-finding in I.03-02-033, that the procedural schedule be suspended pending the audit, and that I.03-02-033 be separated from I.02-11-040.

SDG&E and SoCal Gas assert that the OII is vague and general, and does not identify any actions by either them or their affiliates that might constitute a violation of any of the Commission's rules. On that basis, SDG&E and SoCal Gas recommend that the OII be modified to direct the Chief Administrative Law Judge (ALJ) to identify any allegations of affiliate wrongdoing involving them that had been raised and deferred from a past proceeding.

SDG&E and SoCal Gas also recommend that the OII be modified to provide for an independent audit to assess their compliance with the Commission's various affiliate-related rules. The two utilities submit that an independent review of their compliance with the Commission's affiliate rules will provide a factual context and enable the Commission to identify any specific areas of concern. SDG&E and SoCal Gas recommend that the Commission direct the auditors to engage in fact-finding on the Commission's behalf with respect to any issues identified by the Chief ALJ.

SDG&E and SoCal Gas point to the annual audit of affiliate compliance ordered by the Commission in Decision (D.) 97-12-088,¹ with the audit for calendar year 2002 activities being conducted by the NorthStar consulting firm. The utilities submit that NorthStar would be ideally suited to assist the Commission and that the scope of the audit could be expanded for purposes of this investigation. They ask that the Commission relieve them of the requirement that the annual audit report be provided by May 1, 2003, to permit

NorthStar the time necessary to conduct additional fact-finding. They also request that the schedule of the investigation be suspended, including the scoping memo, procedural schedule, and discovery, pending completion of the recommended audit.

While SCE does not object to a fact-finding audit, it asserts that such an audit should not be separate from the annual year-specific audit required by D.97-12-088. SCE submits that an audit for purposes of I.03-02-033 should be designed to gather and analyze information on affiliate issues spanning several years.

UCAN suggests that SDG&E's and SoCal Gas' proposed reliance on the annual audit may not be feasible given the scope of the issues involved in this proceeding. UCAN contends that, rather than modifying the OII as SDG&E and SoCal Gas request, the Commission should hold a PHC, at which time parties could identify the issues that they believe warrant investigation. It submits that a PHC would assist in gauging how this proceeding should unfold.

SDG&E and SoCal Gas recommend that I.03-02-033 be separated from I.02-11-040 on the basis that consolidation potentially would be confusing and could delay the gas price spike investigation, for which testimony and hearing dates have been established. They state that, while I.02-11-040 will address the reasons for high gas prices in the California gas market during a 15-month period in 2000 and 2001, I.03-02-033 is intended to address potential areas of concern outside of California gas market price issues and outside this time period. In their view, separation would avoid confusion between the issues to be addressed in each investigation. UCAN concurs with SDG&E and SoCal Gas that the two investigations should be separated.

While not objecting to separation of the two proceedings, SCE cautions that such a step should not restrict either investigation. SCE submits that a complete evaluation of border price spikes requires an examination of the possible exercise of market power by SDG&E, SoCal Gas, and their affiliates. SCE requests that SDG&E and SoCal Gas be prohibited from objecting in

I.02-11-040 to the admission into evidence of information regarding Sempra affiliate activity. SCE also raises concerns about possible claims of confidentiality with respect to information on affiliate and utility gas transactions.