VI. Assignment of Proceeding

Commissioner Geoffrey F. Brown is the Assigned Commissioner and Charlotte F. TerKeurst is the assigned ALJ in this proceeding.

Findings of Fact

1. The petition for modification complies with the procedural requirements of Rule 47 of the Rules of Practice and Procedure.

2. It is reasonable to require an audit as the first step in this investigation, in order to obtain an independent assessment of the companies' activities relevant to the investigation.

3. SDG&E and SoCalGas' request that the calendar year 2002 audit be expanded to encompass the scope of this investigation is now moot.

4. It is reasonable to combine the audit for purposes of this investigation with the calendar year 2003 audit required by D.97-12-088 and D.98-08-035, in order to improve efficiency and reduce costs.

5. With the adoption of an independent audit, there is no need to require that the Chief ALJ itemize instances in which affiliate-related concerns have been raised in past proceedings.

6. It is reasonable to separate I.03-02-033 and I.02-11-040 because of the divergence of their schedules and the limited scope of potential overlap in the two investigators.

7. Information regarding actions by SDG&E, SoCal Gas, or their affiliates that may have affected gas prices during the period addressed by the gas spike investigation may be relevant in both I.02-11-040 and I.03-02-033. However, it is premature to address at this time the admissibility of such information in either proceeding.

8. SCE's concerns regarding possible claims of confidentiality are raised prematurely in its response to the petition for modification.

Conclusions of Law

1. The petition for modification should be granted to the extent discussed herein.

2. The OII initiating I.03-02-033 should be modified as described herein to provide for an independent audit as the first step in the investigation and to separate the investigation from I.02-11-040.

3. SCE's requests regarding the admissibility of information regarding Sempra affiliate activity and the classification of information on affiliate and utility gas transactions should be denied.

4. This order should be effective today, in order to provide certainty to the parties and to promote an efficient use of their resources and the resources of the Commission.

INTERIM ORDER

IT IS ORDERED that:

1. The Petition for Modification filed on March 12, 2003 by San Diego Gas & Electric Company and Southern California Gas Company is granted to the extent described herein and is denied in all other respects.

2. The Motion for Leave to Accept Late Filing of Comments by the Utility Consumers' Action Network is granted.

3. The following paragraphs are added after the partial paragraph at the top of Page 6, mimeo., of Investigation (I.) 03-02-033:

"An independent audit should be performed as the first step in this investigation, in order to assess the compliance of SDG&E, SoCal Gas, and Sempra with relevant statutes and the Commission's affiliate transaction rules and whether the companies' business activities have posed potential problems or unjust or unreasonable impacts on utility customers. Because consumer interests go hand in hand with promoting competition, and consistent with the objectives of our existing affiliate transaction rules, the audit should encompass potential conflicts of interest or activities that may be detrimental to competition. This audit should be combined with the calendar year 2003 annual audit to be performed pursuant to D.97-12-088 and D.98-08-035, in order to reduce costs and promote efficiency.

"This combined audit should be undertaken under the supervision of Energy Division and performed pursuant to § 797, with the selected auditor having full access to all information to the full extent provided by Law, including §§ 313 and 314 and Section IV.A of the merger conditions adopted in D.98-03-073. 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. Energy Division shall contract directly with the auditor and payment shall be made from Commission accounts. SDG&E and SoCal Gas shall reimburse the Commission for all amounts expended for the audit.

"The auditor should review Sempra's holding company and affiliate structure to identify any corporate relationships that may create potential conflicts between the interests of Sempra and the interests of the regulated utilities and their ratepayers. To assist in identification of possible areas of concern, the auditor should interview knowledgeable individuals and should review prior Commission orders, Federal Energy Regulatory Commission orders, past audits of affiliate transactions, and the affiliate-related concerns that parties have raised in this proceeding and in other proceedings.


"The auditor should gather and analyze information on activities since December 17, 1997, when the Commission adopted affiliate transaction rules in D.97-12-088. The auditors may review activities prior to the audit period if they believe it is necessary to fulfill the goals of the audit. The audit of compliance with the existing affiliate transaction rules should encompass 2003 activities (the calendar year 2003 audit), as well as activities in other years related to specific concerns that may be identified. In its audit report, the auditor should identify any areas and ways in which our affiliate transaction rules could be strengthened to prevent undesirable affiliate-related activities not addressed by the existing rules."

4. The first paragraph on Page 6, mimeo., of I.03-02-033 is modified as follows (text to be deleted is indicated in strikeover format):


"This proceeding will be consolidated with I.02-11-040, the gas price spike OII, due to the overlap with issues being addressed in Phase 1 of that proceeding. The scope of this proceeding will include all issues raised in this order. Any party may suggest related issues for the Commission's consideration. The present investigation is classified as a ratesetting proceeding and is expected to require a hearing."

5. The following paragraph is added on Page 7, mimeo., of I.03-02-033 following the second paragraph in Section V:


"Following completion of the combined audit, Energy Division shall file the audit report and shall serve the audit report, or a notice of availability of the audit report, on all parties to I.03-02-033. A second PHC will then be held to discuss the scope and procedural schedule of the investigation based on audit results. The assigned Commissioner will rule on the scoping memo for this proceeding, pursuant to Rule 6.3, after the second PHC."

6. Ordering Paragraph 9 of I.03-02-033 is stricken.

7. The following ordering paragraphs are added to I.03-02-033:

"11. Energy Division shall perform an audit that meets the purposes of this investigation and the calendar year 2003 audit required by Decision 97-12-088 and Decision 98-08-035, pursuant to Public Utilities Code § 797. Energy Division shall 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 shall 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. The selected auditor shall have full access to all information to the full extent provided by Law, including Public Utilities Code §§ 313 and 314 and Section IV.A of the merger conditions adopted in Decision 98-03-73. Payment shall be made from Commission accounts.

"12. San Diego Gas and Electric Company and Southern California Gas Company shall reimburse the Commission for all amounts expended for the combined audit including the fees and expenses of an outside auditor and Energy Division's incremental travel costs, if any.

"13. Because of the combined audit, the requirement in

    Decision 97-12-088 and Decision 98-08-035 that each utility have an annual audit performed is waived for calendar year 2003 for San Diego Gas & Electric Company and Southern California Gas Company.

"14. Following completion of the combined audit, Energy Division shall file the audit report and shall serve the audit report, or a notice of availability of the audit report, on all parties to Investigation 03-02-033. Energy Division shall provide a copy of the audit report to the assigned Commissioner, the assigned Administrative Law Judge, San Diego Gas & Electric Company, and Southern California Gas Company. Energy Division shall provide a copy of the audit report to any party who requests a copy.

"15. After the combined audit report is filed, a second prehearing conference shall be scheduled at a date and time to be determined by the assigned Administrative Law Judge for the purpose of addressing the scope and further schedule of the investigation and other procedural issues. Interested persons may file prehearing conference statements as directed by the Administrative Law Judge, addressing issues to be considered and the proposed schedule. Service shall be made on the service list established at the first prehearing conference."

8. The requests of Southern California Edison Company regarding the admissibility of information pertaining to Sempra Energy affiliate activity and the classification of information on affiliate and utility gas transactions are denied.

9. I.02-11-040 and I.03-02-033 are deconsolidated. Upon separation, the service list for each of the two investigations shall be the combined service list created at the May 29, 2003 prehearing conference. The service list for each investigation shall be maintained separately thereafter.

This order is effective today.

Dated September 18, 2003, at San Francisco, California.

MICHAEL R. PEEVEY

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