Fukutome Comment Decision Fiber Optic Cable in Gas Pipeline

4. Discussion

During the course of this proceeding, the two parties that provided substantive responses to the filing of the applications have essentially withdrawn any opposition to the utilities' requests. As indicated previously, on August 29, 2002, TURN withdrew its protest to the application after SoCalGas and SDG&E made certain modifications to its proposals, and on September 6, 2002, CCTA sent a letter to the assigned ALJ expressing some concern regarding the derivation of certain of the charges, but also indicating that it did not intend to participate further in the proceeding. Neither party responded to the Utilities' April 1, 2003 amendments. With this in mind, we have reviewed the Utilities' proposals and, with clarification of two matters as discussed below, conclude that the proposed tariff rates, terms and conditions, as amended on April 1, 2003, are reasonable and should be adopted.

A. Monthly Charge to Recover Incremental Operation and Maintenance Costs.

SoCalGas/SDG&E propose a monthly charge of $3,000 per Carrier to recover incremental operation and maintenance costs. The Utilities explain this charge includes costs for activities such as increased leak surveys of pipeline containing fiber optic cable, mapping and tracking requirements, emergency response procedures and call-out coordination, training of crews and supervision, route design and analysis, and risk and safety management. Administrative and general expenses, including contract execution and administration and legal review, and customer account expenses including billing and collection processes are also reflected in the monthly charge.

As indicated by CCTA in its September 6, 2002 letter, the $3,000 monthly customer charge does not appear to be derived from a detailed cost analysis. We will agree to the $3,000 monthly charge, noting that in their proposal the Utilities agree not to provide more than a specified number of miles of fiber optic cable in each of the first three 12 month periods after the service becomes available. The limited number of miles in the first three years² will mitigate the effects of potential under or over charging. We also note that the FIG proposal and the associated costs and revenues have been reflected in the Utilities' test year 2004 PBR/COS filings.³ Potentially, adjustments to the charges, if needed, can be made in that consolidated proceeding. While the Utilities have agreed that it might be appropriate to adjust the amount of the monthly customer charge after operating experience is gained to assure it is cost-based, we would rather address this issue more directly by conditioning expansion of the scope of the program on a cost based showing for the monthly customer charge. If either utility makes a further request to raise the mileage limit, we will require that they provide an accompanying detailed cost based showing for the derivation of the monthly customer charge. We will waive that requirement once a decision is issued in the test year 2004 PBR/COS proceeding provided the reasonableness of the monthly customer charge is addressed and the appropriate amount is determined in that decision. At the very least, the determination of a cost based monthly customer charge should be a condition for the Utilities to provide the FIG service beyond the initial 36-month time period.

B. Revenues

Once the test year 2004 GRC decision for SoCalGas and SDG&E is issued, an appropriate revenue amount for the FIG program will be reflected in rates. This revenue will be used to offset the cost of service to ratepayers. In the meantime, the utilities propose that any net revenues from FIG services flow through the earnings sharing mechanisms of SoCalGas' base rate PBR mechanism adopted in D.97-07-054, and SDG&E's distribution rate PBR mechanism as last adopted in D.99-05-030. The Utilities assert that ratepayers may benefit from such net revenues as the mechanism provides that earnings above a dead band are shared between shareholders and ratepayers.

Revenues for the FIG program are derived from charges that cover incremental costs that the Utilities will incur to provide the associated services. It would be appropriate to subject the net amount of the incremental expenses and the revenues associated with the incremental expenses to the PBR sharing mechanisms. However, FIG charges also cover the capital costs associated with the use of the Utilities' gas distribution system. Those costs are already embedded in rates and are currently being recovered from ratepayers. Any revenue associated with charges that cover the capital costs of the gas distribution system should therefore be directly flowed to the ratepayers through a credit to an appropriate balancing account. The net revenues subject to the PBR sharing mechanisms would therefore be determined by subtracting incremental expenses and the capital cost revenues from the total FIG revenues. This procedure will be superseded by ratemaking determined in the Utilities' current, consolidated PBR/COS proceeding.

² The indicated limit for SoCalGas is 100 miles for the first year, a total of 300 miles for the second year and a total of 500 miles for the third year. The corresponding limit totals for SDG&E are seven miles, 17 miles and 27 miles respectively. ³ The pending GRC applications for SoCalGas and SDG&E are A.02-12-027 and A.02-12-028, respectively.