IV. Discussion

As UCAN suggested, discussions during the PHC along with the submitted PHC statements were helpful in our assessment of whether the requests in SDG&E and SoCal Gas' petition for modification are warranted. We find merit in the proposal that an audit be performed as a first step in the Sempra affiliate investigation, in order to provide an independent assessment of the companies' activities relevant to the investigation.

The scope of the independent audit should be broader than SDG&E and SoCal Gas have suggested, consistent with the scope of the investigation delineated in the OII. In addition to an evaluation of compliance with our current rules and requirements, we wish to assess the potential for conflicts between the interests of Sempra and the interests of the regulated utilities and their ratepayers,² and to examine whether business activities undertaken by the utilities and/or their holding company and affiliates pose potential problems or unjust or unreasonable impacts on utility customers.³ The audit should examine each of these areas. Because consumer interests go hand in hand with promoting competition, and consistent with the objectives of the existing affiliate transaction rules,⁴ the audit should encompass potential conflicts of interest or activities that may be detrimental to competition.

There is value in the utilities' suggestion that the audit undertaken for this investigation be combined with the annual audit performed pursuant to D.97-12-088 and D.98-08-035. Such a combined effort could be more efficient and less costly than two separate audits. Since the calendar year 2002 audit has been completed, we provide that the audit for this investigation and the calendar year 2003 audit will be performed on a combined basis.

The utilities have commissioned and filed the annual audits pursuant to D.97-12-088 and D.98-08-035. For purposes of this investigation, the combined audit should be undertaken under the supervision of Energy Division and performed pursuant to Public Utilities Code § 797.⁵ Energy Division should ensure that the auditor and its affiliates have no financial interest in or other conflict of interest with the Sempra utilities or their affiliates, and should select an auditor for this proceeding that neither has performed work within the past 5 years for the Sempra utilities or their affiliates nor has any contracts to provide any current or future work for the Sempra utilities or their affiliates. This 5-year conflict of interest restriction is appropriate because of the time period under review. Audits performed under contract to the Commission or another regulatory agency do not constitute a conflict of interest that would prohibit a company from being chosen to undertake the combined audit. We direct Energy Division to contract directly with the auditor with payment from Commission accounts. SDG&E and SoCal Gas shall reimburse the Commission for all amounts expended for the audit.

With the adoption of an independent audit, we see no need to grant SDG&E and SoCal Gas' request that the Chief ALJ be required to itemize instances in which affiliate-related concerns have been raised in past proceedings.

Further action in the investigation should not be scheduled at this time pending completion of the audit. Upon completion, Energy Division will file the audit report and shall serve the audit report, or a notice of availability of the audit report, on the service list for this proceeding. A second PHC will then be held to discuss the scope and procedural schedule of the investigation based on audit results.

We agree that this investigation should be separated from the gas spike investigation because of the divergence of their schedules and the limited scope of potential overlap in the two investigations. Neither investigation is restricted by our decision to separate them. We recognize that information regarding actions by SDG&E, SoCal Gas, their holding company, or their unregulated affiliates that may have affected gas prices during the period addressed by the gas spike investigation may be relevant to both investigations. However, it is premature to address at this time the admissibility of such information in either investigation.

Upon separation, the service list for each investigation will be the combined service list created at the May 29, 2003 PHC. However, the service list for each investigation will be maintained separately thereafter.

SCE's concerns regarding possible claims of confidentiality are raised prematurely in its response to the petition for modification. SCE may pursue such claims through established procedures for resolution of discovery disputes.