Assignment of Proceeding

Michael R. Peevey is the Assigned Commissioner and Bruce DeBerry is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. The proposed GCIM sets a volume-weighted performance benchmark in order to determine savings or additional costs from differences between the benchmark and actual gas purchases.

2. The proposed GCIM uses actual gas trading points and published gas prices, thereby establishing objective standards of measurement and thus protecting ratepayers.

3. The lower and upper tolerance bands are set at 2 and 3 percent of the benchmark, respectively. These relatively narrow bands improve the purpose of the incentive mechanism in the GCIM.

4. The GCIM commodity benchmark includes a factor for VMP purchases which flows through VMP purchases, and thus has no effect on the GCIM rewards or penalties.

5. Transportation and storage costs are flowed through the GCIM and thus do not impact GCIM rewards or penalties.

6. Actual gas purchase costs exceeding the upper tolerance band are shared 50 percent to ratepayers and 50 percent to shareholders.

7. Actual gas purchase costs which are lower than the lower tolerance band provide 75 percent of savings to ratepayers, and 25 percent of savings to shareholders.

8. The allocation of costs and savings using the tolerance bands provide a net benefit in favor of ratepayers.

9. The GCIM includes a cap on shareholder savings equivalent to 1.5 percent of actual commodity costs, thus protecting ratepayers against unusual declines in gas prices.

10. The GCIM includes a storage reserve target of 80 percent of annual capacity, which provides an economic benefit to ratepayers.

11. Establishing a GCIM will reduce or eliminate the need for Southwest, the Commission and Commission staff to investigate, analyze and participate in proceedings on Southwest's annual gas purchases.

12. ORA worked with Southwest to develop the GCIM included in this Application.

Conclusions of Law

1. The proposed GCIM, as described in the tariffs accompanying Southwest's application, is a reasonable mechanism to establish gas purchase costs for ratepayers and provide an incentive to Southwest to reduce purchased gas costs.

2. This is ratesetting proceeding.

3. The proposed GCIM allocates additional gas purchase costs and savings to shareholders and ratepayers in a manner that benefits ratepayers.

4. There are no disputed issues of fact and therefore hearings are not necessary.

5. Since no one objected to Southwest's Application to establish a GCIM and this decision grants the relief requested, we waive public review and comment pursuant to Pub. Util. Code § 311(g)(2) on this decision.

6. In order that ratepayers may immediately benefit from establishing the GCIM in this Application, this decision should be effective today.

O R D E R

IT IS ORDERED that:

1. The November 12, 2004 application of Southwest Gas Corporation to establish a Gas Cost Incentive Mechanism is approved.

2. This order is a final determination that a hearing is not needed in this proceeding.

3. Application 04-11-009 is closed.

This order is effective today.

Dated May 26, 2005, at San Francisco, California.

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