III. Discussion

We grant the petition. In D.98-03-073, the merger decision, the Commission said, "SDG&E and SoCalGas will be organized in a manner that allows them to provide the highest quality utility service that focuses on safety and reliability, and is responsive to customers' needs. Each utility Affiliate will, to the extent that it makes business sense, share resources with the other utility Affiliate." (Decision, Attachment B, p. 18 (emphasis added).) We believe the proposed reorganization is within the merger decision's grant of authority.

In so concluding, we rely on Sempra's representation in comments¹⁸ that its proposed reorganization will not shift to the holding company level any operations or managerial responsibilities that currently reside at the utility level. Based on this representation, we find that Sempra's reorganization does not go beyond the scope of the proposal presented by Sempra's merger application or beyond the limits we set in the merger decision. We put Sempra on notice that nothing in this decision permits Sempra to allow additional operational and managerial responsibilities to be transferred from the utility level to the holding company level. Should Sempra contemplate a further reorganization that has the effect of transferring any additional responsibilities to the holding company level, Sempra must first gain Commission authorization for such a reorganization.

We note that, as Sempra contends, the reorganization plan has the potential to reduce rates. In the merger decision, we said "Our goal is low rates for ratepayers. Low costs, efficient operations, and competition are the means to achieve that goal." (D.98-03-073, mimeo. at 106.) The benefits predicted from the merger in March 1998 could not be expected to achieve fruition in 2001 exactly as planned. But experience has shown benefits occurred from the merger and Sempra has shown how additional benefits might be achieved. This opportunity should not be ignored.

In general rate cases, rates are set based upon a forecast of projected capital and operating costs. (See Pacific Tel. & Tel. Co. v. Public Util. Comm'n, 62 Cal.2d 634, 645 (1965).) But that has never meant that the utility must actually operate in precisely the manner forecast. Just as the utility may need to incur additional expenses to meet unanticipated requirements, so too may it satisfy foreseen obligations in a less costly manner than projected. Under traditional ratemaking, we have stated that an important virtue of a periodic general rate case is to create an incentive for the utility to:

...find ways to conduct operations for less than projected.... In the short term, between general rate case proceedings, the shareholders benefit when the company's management can "do it for less," and correspondingly, ratepayers ultimately benefit because the productivity improvements will be reflected periodically when there is a comprehensive review of the utility's revenue requirement.

There are two procedures in place through which ratepayers will share any savings realized from the proposed reorganization. First, each utility has a Performance-Based Ratemaking (PBR) sharing mechanism in place. These mechanisms begin to capture earnings above the first 25 basis points above each utility's authorized return on rate base. This means that ratepayers should capture a share of savings arising from the reorganization.

Second, both utilities are required to have a base rate review to be effective January 1, 2003. A timely grant of the relief requested will capture the economic benefits of the reorganization. (See D.98-12-038 (Attachment 1, p. 12.) for SDG&E; D.97-07-054, p. 52 for SoCalGas.) In each case, the utility's application and accompanying forecasts should reflect the reorganization, and ORA and other interested parties will have this information for the preparation of their responsive cases.

The Coalition of California Utility Employees (CUE) responded to Sempra's motion and requested a delay in ruling "until further factual investigations and analysis" takes place. (Response, p. 8.) Our reading of the Response shows a particular concern that Sempra's request for authorization to terminate the "no merger layoff" guarantee implemented under the original approval could result in unfairness to represented employees. CUE argues by requiring that all merger-related job reductions be achieved through natural attrition and offers of voluntary separation packages, that guarantee provided a clearly defined and meaningful limit on the Sempra's ability to eliminate jobs as a result of the merger. By contrast, the "Integration Guarantee" described in the current motion is only vaguely described, and does not contain sufficient detail or discussion to support a conclusion that the new merger, if approved, would remain fair and reasonable to represented employees.

In its comments to the Draft Decision, Sempra states that the termination of the merger guarantee and concomitant implementation of the Integration Guarantee do not apply to bargaining unit employees. As to those employees, any new arrangements with respect to the merger guarantee and/or the integration project will be the subject of collective bargaining. Accordingly, Sempra suggests modifying the Draft to make this distinction clear. We have done so. Nothing remains of CUE's Response that requires a hearing.