2. Proceeding Issues

The issues addressed in this proceeding were described in PG&E's application generally as addressing and resolving:

· Gas throughput forecasts for core and noncore customers;

· Marginal distribution and customers' costs;

· Revenue requirement for gas costs, including special programs; and

· Revenue allocation and rate design.

With a few exceptions, the scope of this proceeding is limited to the allocation of costs to PG&E's gas distribution customers and the rates resulting from those allocations. PG&E's costs of providing gas distribution service were generally addressed in PG&E's general rate case decision, D.04-05-055 in Application (A.) 02-11-017. The Commission addressed PG&E's gas transmission and storage rates in D.04-12-050 in A.04-03-021.

Many of the proposals included in PG&E's application would affect only a portion of PG&E's gas customers. Representatives of affected parties settled many of the issues as we describe below. No party has opposed any of the settlement agreements presented in this proceeding.

We review all agreements, settlements and stipulations in this proceeding pursuant to Rule 51.1(e) which provides that, prior to approval, the Commission must find a settlement "reasonable in light of the whole record, consistent with the law, and in the public interest."

The parties did not reach agreement on three significant issues:

1. Allocation of costs for the CARE surcharge to fund a rate discount for low-income customers. PG&E proposes to change the existing allocation method in a way that would increase rates to core customers by $21 million;

2. Allocation of costs assigned to gas ratepayers for the self-generation incentive program (SGIP) adopted in D.01-03-073 in Rulemaking (R.) 98-07-037. CCC/CMTA propose to change the existing allocation method in a way that would increase core customer allocations by $7.2 million; and

3. Long run marginal costs to be used to calculate rates for various customer classes. PG&E proposes changes to the existing method for allocating gas distribution costs to remove the "replacement cost adder," which would increase core customer rates.

This decision modifies PG&E's throughput, makes minor changes to cost allocation and rate design, and approves minor changes to accounting and ratemaking for PG&E's natural gas distribution rates. This decision generally follows past Commission decisions in these areas except where a party or parties have made very compelling showings in favor of changing existing policies or analytical methods. We see no reason to depart from past policy in this implementation proceeding unless circumstances have changed substantially, new information is available, or a party can demonstrate a past order misstates or misapplies facts, policy or analysis.