STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

March 15, 2004 Agenda ID #3340

Ratesetting

TO: PARTIES OF RECORD IN APPLICATION 03-03-029

This is the proposed decision of Administrative Law Judge (ALJ) McVicar, previously designated as the principal hearing officer in this proceeding. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Pursuant to Resolution ALJ-180, a Ratesetting Deliberative Meeting to consider this matter may be held upon the request of any Commissioner. If that occurs, the Commission will prepare and mail an agenda for the Ratesetting Deliberative Meeting 10 days beforehand, and will advise the parties of this fact, and of the related ex parte communications prohibition period.

The Commission may act at the regular meeting, or it may postpone action until later. If action is postponed, the Commission will announce whether and when there will be a further prohibition on ex parte communications.

When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the proposed decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:sid

ALJ/JCM/sid Agenda ID #3340

Ratesetting

Decision PROPOSED DECISION OF ALJ MCVICAR (Mailed 3/15/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Diego Gas & Electric Company for Authority to Make Various Electric Rate Design Changes, Close Certain Rates, and Revise Cost Allocation Among Customer Classes Effective, January 1, 2004. (U 902-E)

Application 03-03-029 (Filed March 17, 2003)

Vicki L. Thompson, Attorney at Law, for San Diego Gas & Electric Company, applicant.

Gregory Heiden, Attorney at Law, for the Commission's Office of Ratepayer Advocates, protestant.

Douglas K. Kerner, Attorney at Law, for Duke Energy North America; Brian Cragg, Attorney at Law, for West Coast Power; Norman J. Furuta, Attorney at Law, for Federal Executive Agencies; Beth C. Tenney, Attorney at Law, for California City-County Streetlight Association; Peter Hanschen, Attorney at Law, for Agricultural Energy Consumers Association; and Ron Liebert, Attorney at Law, for California Farm Bureau Federation, interested parties.

OPINION APPROVING RATE DESIGN SETTLEMENT

Summary

This decision approves a contested settlement agreement resolving most of the disputed issues among San Diego Gas & Electric Company (SDG&E) and all but one of the other active parties in SDG&E's 2003 Rate Design Window proceeding. When a decision is issued in its Test Year 2004 Cost of Service proceeding, SDG&E is directed to allocate its 2004 electric distribution revenue requirement based on an equal percentage of marginal cost methodology, using caps and floors designed to moderate increases that would otherwise disproportionately impact residential and street lighting customers. SDG&E must accommodate the provisions of Assembly Bill 1X by applying the residential class revenue requirement allocation in a manner consistent with the Commission's determination in Decision 04-02-057, its Final Opinion on Phase 2 Issues in Order Instituting Rulemaking 01-05-047.