2. Procedural Background
2.1. The General Rate Case Application
On December 27, 2001, Southwest tendered a Notice of Intent, and on February 13, 2002, filed its application requesting authority to increase general rates in its Northern and Southern California divisions (Application). Southwest requested increases in revenue requirements for test year 2003 of approximately $5.5 million for Northern California, and $8.4 million for Southern California. These amounts represent an increase of 62.4% over base rates, and 25.9% over total operating revenue for Northern California, and 17.6% over base rates and 10.2% over total operating revenue for Southern California.
Southwest proposes to phase-in the revenue requirement increases over a five-year period to minimize the impact of its rate increase on customers. According to Southwest's phase-in proposal, rates in 2003 would be increased by $2.73 million, and $6.75 million for Northern and Southern California, respectively. Southwest also requests expense and capital attrition rate increases for the years 2004 through 2007, and balancing account treatment for its core and non-core base revenue margin beginning in test year 2003.
The Office of Ratepayer Advocates (ORA) timely protested Southwest's Application questioning the estimated expenses, capital expenditures, and particularly Southwest's proposed pipe-replacement project. The County of San Bernardino (San Bernardino) also timely protested the Application, and at the prehearing conference held May 1, 2002, argued that Southwest's gas procurement practices should be included as an issue in this proceeding.2 On June 5, 2002, the assigned Commissioner issued a ruling (Scoping Memo) that, among other matters, established a schedule projecting issuance of a Commission Decision by December 19, 2002, and adoption of new rates by January 1, 2003. ORA and the County submitted direct testimony on July 19, 2002, and August 5, 2002, respectively, and Southwest submitted rebuttal testimony on August 14, 2002. Evidentiary hearings were held August 26 through August 30, 2002. Opening briefs were filed on October 4, 2002, and reply briefs were filed October 18, 2002. The matter was deemed submitted on October 18, 2002.
On January 31, 2003, Southwest filed a motion requesting that the assigned Administrative Law Judge (ALJ) authorize establishment of a Revenue Recovery Shortfall Memorandum Account (RRSMA). The RRSMA records the margin revenue shortfalls3 due to any delay in the requested rate relief ultimately adopted in this proceeding. In D.03-05-032, adopted May 8, 2003, the Commission authorized Southwest to establish the RRSMA.
2.2. Public Participation Hearings
The Commission held public participation hearings (PPH) in Hesperia on August 12, 2002, in Big Bear Lake on August 13, 2002, and in Tahoe City on August 19, 2002. Dozens of customers, as well as representatives of Southwest, the County, local organizations, and ORA attended the hearings to express their views on a variety of issues, including the following:
Many customers are retired, and cannot afford increases in rates;
Some customers would like to switch to an alternate gas company;
Southwest's problems in procuring gas should not be passed on to customers;
Individual customers have problems with their monthly gas bills.
We consider these issues in this decision. We express our appreciation to the individuals who took the time to attend public participation hearings in this proceeding.
2 In response to unprecedented gas price increases, the Commission opened Order Instituting Investigation (OII) 01-06-047 to investigate the gas procurement practices of Southwest during the period June 1, 1999 through May 31, 2001. In Decision (D.) 02-08-064, adopted August 22, 2002, the Commission found that Southwest's gas procurement practices were imprudent, and ordered Southwest to rebate approximately $2.7 million to customers. In the instant proceeding, San Bernardino addressed Southwest's gas procurement practices between June 2001 and May 2002. San Bernardino generally supports the position of ORA on many of the issues discussed in this decision. In those instances where San Bernardino has a different position than ORA, San Bernardino's position is discussed. 3 Marginal revenue shortfall is the difference between current rates and any new rates ultimately authorized by the Commission.
