XI. Employee Total Compensation

In compliance with prior decisions, SoCalGas and SDG&E prepared a total compensation study with the concurrent participation of ORA.31 The study determined that the employee salaries for both companies were within a 2.8% range for SoCalGas and a 0.5% range for SDG&E of the studies' "market prices" for the positions reviewed.32 The record in this proceeding does not indicate ORA's specific degree of participation, but no one including ORA objected to the process or the study's results. We will rely on the study for the purposes of adopting labor expenses for Test Year 2004 subject to the other adjustments elsewhere in this decision for the number of employees found to be reasonable for the test year.

SoCalGas and SDG&E compensate many of their employees with a combination of "base salary" and "incentive" components. Depending on the position, the incentives may be an annual or a long-term incentive. In addition, employees receive various other medical benefits and pension benefits discussed elsewhere in this decision. ORA and other parties, including TURN and UCAN through their common consultant, as well as FEA, UWUA and Local 483 raised other specific objections about the number of employees reflected in the SoCalGas and SDG&E test year requests. Those issues are resolved in the discussion of the appropriate accounts or capital.

ORA raised an objection to the incentive component of employee compensation. For all management/Supervisor full-time positions and senior executives, the employee's compensation has an incentive component that SoCalGas and SDG&E included in the test year forecast. For SoCalGas, there are 629 positions in the program out of a total 6,466 total employees and 363 out of 3,365 for SDG&E, which are about 10% of the workforce. Implicit in this forecast method is that over and under-performances would balance and actual total payments would reflect the total of all target incentives included in rates. There is a further assumption for estimating labor costs by account that all employees would earn their individual "target" incentive. By illustration, if $100,000 were found to be the market salary based on the study, a hypothetical eligible employee could receive $80,000 as a "base" and the $20,000 balance in the "target" incentive. SoCalGas and SDG&E include the full market salary in the test year estimates as combined base and incentive. Based on actual performance, actual individual employees could earn more or less than the target. ORA proposed a disallowance of 50% of all incentive allowances forecast for the test year. The very limited testimony33 in support of this disallowance relied on the application of a disallowance adopted in D.00-02-046 for PG&E, which in turn was previously adopted in D.86-12-095.34

ORA prevailed in the PG&E cases where "incentives" were included for senior executives. The unique circumstances in PG&E's instance beginning in the mid 1980s have not been shown by ORA to apply to SoCalGas and SDG&E in 2001, the study period. There was no other persuasive linkage offered by ORA of the PG&E case to the ones before us now. SDG&E has used an incentive component in employee compensation since 1988 and SoCalGas has had a program for all non-represented employees since 1997, which follows from the Sempra merger. We find the two instances, for SoCalGas and SDG&E, to be distinguishable from past PG&E applications. PG&E was proposing to recover expenses assigned to a few executives, whereas SoCalGas and SDG&E have a wider program affecting all manager/supervisor employees.

On cross-examination, the ORA witness testified35 that in the hypothetical as used above, she would not object to a $100,000 salary that was based on the study if it were all "base" pay. But she would recommend a 50% disallowance ($10,000 of $20,000) of any "incentive" component of the same otherwise fair market salary. The disallowance was characterized by ORA as a "policy" recommendation, consistent with ORA's position in the PG&E proceeding. We will not adopt this adjustment because ORA has not shown that conditions in the labor market or the behavior of SoCalGas and SDG&E adequately mimic the conditions that applied to PG&E.

The unrefuted testimony is that SoCalGas and SDG&E and ORA collaborated on a salary study to determine fair market salaries in the service territories. It is not reasonable to then disallow a portion of the fair market salary simply because SoCalGas and SDG&E use an incentive mechanism within that fair market salary range. No testimony was offered to suggest that SoCalGas and SDG&E unfairly evaluate and overpay employees or withhold earned incentives. We have no basis to disallow the usage of an incentive component to the total compensation as long as that total compensation is reasonable.

In D.97-07-054,36 a performance-based ratemaking decision for SoCalGas, the Commission made adjustments where it found the total executive compensation was significantly above market,37 while declining to interfere with the "mix" of compensation components: "We concur with (SoCalGas) that as long as its total compensation levels are appropriate we will not dictate how (SoCalGas) distributes compensation among various types of employment benefits." In that case, rejecting recovery of stock options as was proposed by TURN, would have put the compensation package unfairly below market.

Other testimony and cross-examination in this proceeding showed that parties were concerned that the test year estimates assumed all positions were fully paid at "target" and all positions were presumed to be filled, an unlikely dual occurrence leading to an excessive test year expense allowance in rates.

The partial settlements do not persuade us that the included labor estimates are right, only that they are compromises made by the parties in the face of assessing their respective litigation risks. The partial settlements do not promise to actually employ all the people represented by the dollars allowed for labor. TURN proposed a generic allowance for vacancies, realizing that it was highly unlikely that SoCalGas and SDG&E would have all positions filled all of the time and colorfully concluded that:


"Sempra's dog - in the form of its new fancy HR computer program - has eaten its homework. Despite our obvious interest, the Sempra utilities have lost the ability to tell us how many vacancies they have at any given time, past or present."38

Based on this asserted inability to report true vacancy counts, TURN proposed a 1.5% reduction factor to labor costs, payroll taxes, workers' compensation, and benefits (medical, dental, vision, etc.). However, TURN did not provide any basis for 1.5% compared to any other allowance.

The companies will be allowed to collect in rates for Test Year 2004, a maximum of $371,939,000 for SoCalGas and $175,246,000 for SDG&E, which is the labor component in the litigated proceedings as modified herein39 by account, as shown in the adopted Test Year 2004 results of operations. This is less than SoCalGas and SDG&E's litigation positions.40

SoCalGas and SDG&E offered testimony that they did not always recover all labor costs in the past. But it is also possible that by selectively choosing not to fill authorized Test Year 2004 positions, the companies can bolster future earnings by pocketing the savings. Labor costs are more than just numbers in arcane Commission decisions; labor costs included in retail rates should be real jobs that affect peoples' lives and the local economies in the service territories of SoCalGas and SDG&E. We need to ensure that all the dollars we take from ratepayers for labor costs that go to pay the employees who are necessary to provide safe and reliable service.

We do not want or intend to manage the thousands of individual hiring and compensation decisions necessary to operate SoCalGas and SDG&E, and we do not do that here. It is SoCalGas and SDG&E's responsibility to make those decisions and this decision gives them sufficient discretion and the funding to make the right decisions. Although the applicants may briefly benefit if the actual expenditures are lower than those presumed in rate base (because a return is included in rates based on those estimates), they also bear the risk of capital expenditures exceeding the forecast.41 This is a normal rate case forecast risk. Additionally, rate base is adjusted to actual costs every time we re-examine the companies in a general rate case. Therefore, it is reasonable to follow traditional ratemaking forecast practices for rate base related expenditures in these proceedings.

A. SoCalGas and SDG&E Incentive Compensation

Both companies offer incentive compensation as part of their employee compensation programs. The companies maintain significant discretion as to how these incentives are rewarded, each year. SDG&E offers an Incentive Compensation program for non-represented employees, and a Pay-for-Performance program for represented employees. SDG&E also offers Long-Term Incentives to non-represented employees. SoCalGas only offers incentive compensation to non-represented employees. For Test Year 2004, SDG&E seeks $33,259,000 for its short-term incentives, including $863,512 for Spot Cash awards to well-performing employees. SDG&E also seeks $2,914,281 to fund Long-Term Incentive Compensation plans. SoCalGas seeks $19,000,021 for short-term incentives, including $566,854 for Spot Cash awards, and $2,708,827 for Long-Term Incentive Compensation. Neither company provided justification for the specific estimates that they offered.

The companies assert that these bonuses are important not only to maintain their competitive positions in the labor markets from which they draw employees, but also to link employee's total compensation more strongly to the operational and financial performance of the companies. The companies revise their incentive plans, annually. The annual plans typically include operational and financial measures and an individual and/or team performance component. Financial measures focus employees on a common set of financial goals, such as net income. The long-term programs are designed to enable key management employees to share in the company's growth through equity grants.

Several parties (ORA, FEA, TURN, UCAN, and Local 483) advocate significant reductions in this area. ORA states that it does not oppose the payment of incentives, but argues that since many of the performance indicators incur to the benefit of shareholders as well as ratepayers, that shareholders should bear 50% of the cost. In addition, these parties point to the large number of unfilled positions and assert that the companies are likely to over-collect, if the Commission were to approve the full revenue requirement in this area. Local 483 would go much further, advocating that all of the incentive funds for SoCalGas should be disallowed.

Several of the contesting parties point to recent decisions in which the Commission has adopted a 50-50 split. These include Pacific Gas and Electric Company (PG&E) rate case decisions in 1995 (D.95-12-055) and 2000 (D.00-02-046). In the most recent PG&E rate case (D.04-05-055), the Commission adopted a non-precedential settlement, and the decision did not address this issue. The parties to this proceeding did not have the benefit of being able to cite our recent rate case decision concerning Southern California Edison Company (SCE). In D.04-07-022, we did not reject or seek to reverse this policy. However, we concluded that under circumstances of SCE's program as reflected in the record in the underlying proceeding, a shareholder-ratepayer split was not warranted.

The record in this proceeding does support adherence to the Commission's policy of requiring a 50-50 split. Most significantly, the record shows that employees are to be rewarded for efforts to receive results that benefit both ratepayers and shareholders. The companies can change the specific criteria (and arguably the weighting of important values) on an annual basis. We are not in a position to determine a precise weighting of the benefits, and a 50-50 split remains appropriate. In addition, as TURN points out, the record indicates that even if the companies only made payments at half the forecast level (a result that we neither encourage nor endorse), the companies' total compensation would still be "at market" range. Further, the fact that the record does not contain a clear explanation of how the companies produced the estimates provided for these programs militates in favor of splitting the cost.

The companies suggest that such a split is improper because over a four year period from 1998 to 2001, both companies exceeded their performance targets and exceeded their pay-out targets (by a four-year total of $18.716 million for SoCalGas and $24.426 million for SDG&E). However, the record does not tell us what the performance targets were during those years, what the pay-out criteria were at the time, or how those targets or criteria compare to the companies' plans during the Test Year. To the extent that the criteria were linked to performance of the companies, then the extra payments, during those earlier years, may reflect good news not only for the recipient employees, but for the shareholders, as well.

In the case of SDG&E, some of the revenues would be used to provide Incentive Compensation to non-represented employees, while some would be used to provide Pay-for-Performance incentives to represented employees. By imposing a 50-50 split, the Commission does not want to inadvertently interfere with the collective bargaining process by requiring a 50-50 split for revenues needed to support Pay-for-Performance. However, the record does not allow us to separate the estimate for Pay-for-Performance from the overall estimate for incentive compensation. In addition, the record does not inform us as to whether the concern about affecting collective bargaining applies, in this instance. Thus, we will impose the 50-50 split for all allowed incentive costs for SDG&E, as well as SoCalGas (which does not offer incentive compensation to represented employees.

B. Maturing Work Force

SoCalGas and SDG&E forecast, as a fairly consistent factor in expense accounts, an allowance for the phenomena of the "maturing work force," where the companies claimed that an increased and disproportionate percentage of the employees are now entering their retirement-eligible days. And, much like the "aging infrastructure" also discussed in many accounts, there is a need to train and replace experienced people. The intervenors did not address this factor systemically; instead, their reaction was spread through all accounts. ORA summarized its position in its opening litigation brief as disallowing $2.4 million for SoCalGas in Account 879. The record shows $1.022 million in SDG&E's estimates in Accounts 586 and 887.

ORA argued that as a part of its analysis it asked for support substantiating the requested increases for a maturing workforce, any analyses performed by SoCalGas and SDG&E for industry comparison purposes, and any historical data showing how this affected SoCalGas and SDG&E in the past. ORA concluded applicants only provided some internal studies and responses to ORA's questions that failed to persuade ORA that the concern was justified. ORA argued that it found the historical trend for SoCalGas for the years 1993, 1995, 1997, 1999, 2001, 2002, and year to date 2003 only demonstrated that the number of employees actually retiring does not show an upward trend,42 and in fact the trend has been decreasing from 316 FTE's in 1993 to 99 FTE's in 2002.

With respect to SDG&E, ORA pointed out that it had made the same claim in A.91-11-021, for its 1993 Test Year rate proceeding, and that in this instance, the witness for SDG&E testified the problem began 1998. Moreover the witness was unaware of the same SDG&E claim in 1991.43 In response to specific Accounts (SoCalGas 879 and 586) which we'll address below, Sempra provides information to show that for field service employees and electric meter testers, there is a growing number of employees eligible to retire. Unfortunately, in cross examination, Sempra witnesses acknowledged that the applicants had not analyzed the percentage of eligible-to-retire employees who actually retire.44 However, we cannot discount the fact that the work force in field service & distribution operations and electric meter testers, there is a need to ensure that there is an increase in apprentice classes in anticipation of retirements.

The majority of the increases requested because of the maturing workforce phenomena relate to training, supervisory and extra employees to offset lower productivity with newer employees. The benefits of ensuring proper staffing levels and necessary training for new employees far outweighs the potential risks associated with a reduced and less-trained workforce. We will reject disallowances based merely on maturing workforce and instead assess proper staffing levels based on expected need.

C. Pension and Benefits (Account 926)

Pension and benefit expenses can be addressed as a joint issue for SoCalGas and SDG&E and any unique circumstances identified in the test year estimates. In total, the litigation differences between applicants and ORA are $17.976 million, and $20.112 million, for SoCalGas and SDG&E, respectively.45 We will also address the issues as litigated by other parties: TURN, UCAN and FEA.

D. Pension (Account 926.206)

Pension expense in a ratesetting environment is the current cost necessarily recoverable in rates that the utility contributes to a fund to benefit eligible employees when they retire. The testimony in this proceeding focused on the expected costs based on the number of employees, the nature of the benefits, the earnings performance of the pension funds, and the legal requirements to make contributions to the pension funds. At the end of litigation, SoCalGas and SDG&E requested $4.3 million and $25.1 million subject to balancing account treatment based upon contributing the minimum required contributions as required by Internal Revenue Service (IRS) Code Section 412 (Minimum Funding Standards) as amended by the Employee Retirement Income Security Act of 1974 (ERISA-minimum contributions).46

Several recent changes were also of concern to parties. For example, the utilities changed from a "defined benefit" plan to a "cash benefit" plan. ORA was also concerned that the reorganizations that have occurred following the Sempra merger and the shuffling of functions back and forth between the parent and the utilities gave may have resulted in cost shifting between regulated and unregulated activities.

First, we will adopt a balancing account for both SoCalGas and SDG&E in order to ensure that ratepayers only pay the minimum necessary pension contributions. As we discuss below, with the benefit of balancing accounts we can adequately resolve the issues surrounding the correct test year estimate.

1. Conversion to a Cash Benefit Plan

SoCalGas and SDG&E argued that neither ORA or FEA demonstrate that the conversion to a Cash Benefit adversely affects pension contributions.47 The applicants argued there are two benefits from the conversion, employees "enhanced visibility of the status of their individual retirement accounts" and their benefits are portable, they go with an employee who leaves SoCalGas or SDG&E before retirement.48 SoCalGas and SDG&E argued the conversion had a lower cost compared to retaining the old plan. ORA argued that the conversion required Commission approval, and until we approve the conversion, the plan and the related test year forecast, should be rejected.49 ORA cited no precedent or other statutory requirement for this position. ORA argued that it objected in the last SDG&E proceeding, but as SoCalGas and SDG&E pointed out in their brief, that rate case was settled and so the positions of the parties were not evaluated by the Commission and can add no value to this proceeding's record. We reject the suggestion that we must approve a plan change before it can go into effect; certainly the plan may change for various reasons, as a result of legislation or collective bargaining, for example. We do have the obligation to determine that the expense included in the test year is reasonable and necessary. ORA raised no valid criticism of the plan conversion.

ORA proposed a lower contribution based upon its lower labor cost (lower total number of employees). The pension balancing accounts proposed by SoCalGas and SDG&E will correctly compensate for both the actual number of employees and the actual contributions made to the funds. We find that by limiting the recovery to the lowest legally required funding, the companies are made whole and the ratepayers are protected from the vagaries of forecasting.

2. Reorganization Impacts on Pension Expense

ORA expressed a fear, which it did not explore, that as a result of the reorganization of company operations after the merger and between regulated and non-regulated affiliates, the pension fund assets and obligations are not adequately segregated.50 ORA may pursue this issue in the next proceeding but we make no finding now that SoCalGas and SDG&E have done anything inappropriate.

3. Other Pension Issues

As a result of adopting the balancing account for actual pension contributions, except for the specific issues we discuss in this decision, we reject all other pension-related disallowance recommendations.

4. Recoverability of Pension Expenses in Rates

UCAN argued that SDG&E had not justified as reasonable why ratepayers should bear in rates the costs of pension contributions, and argued that no contributions had been made in recent years, therefore this was new expense and its benefits are unrelated to current customers. UCAN also argued that pension funds had a recent "financial boon" (the trust fund had performed well earning good returns) and will rebound again so no funding is needed now.51 SDG&E argued that it is entitled to all of its reasonable costs and expenses52 and that includes any pension expenses it may incur in 2004.

SoCalGas and SDG&E demonstrated that in recent years they did not need to make contributions but in 2004 they expect a minimum contribution to be required. No party argued that the funds were mismanaged of the pension funds, and except for the other issues already addressed, the test year estimate for both companies is reasonable, subject to the balancing account. Therefore it is reasonable to allow SoCalGas and SDG&E to recover the minimum contributions in retail rates as a part of the cost of providing service to customers.

5. Supplemental Pension Requests

SoCalGas and SDG&E both requested funding for a "supplemental" program described as necessary to "restore pension benefits to key management employees that would otherwise be lost due to statutory limits under the regular pension plans."53 TURN and UCAN opposed a benefit limited to a select group of employees, and argued it was discretionary and excessive. SoCalGas and SDG&E responded that 320 active and retired employees at both companies and Sempra corporate center participate. SoCalGas and SDG&E cited D.88-08-061 (29 CPUC 2d 63, 139) as an example of the Commission's longstanding practice of authorizing a reasonable request for supplemental (executive) retirement plan costs.

We find that TURN and UCAN have not shown the expense forecast to be in error nor is this forecast in excess of fair market compensation levels when examined in conjunction with other components of the compensation package, and so we will adopt the forecasts of $1.165 million and $0.554 million for SoCalGas and SDG&E, respectively. We will require SoCalGas and SDG&E to include these costs in the minimum contribution pension balancing accounts already adopted in this decision.

6. Corporate Center Pension Expenses

SoCalGas and SDG&E requested $1.092 million and $725,000 in pension costs, and $1.87 million and $1.24 million in supplemental pension costs, for Corporate Center employees. ORA opposed any recovery of Corporate Center pension expenses, asserting it could not reconcile the allocation of costs.54 We address recovery of Corporate Center costs in another section, but we will allow actual costs in the minimum contribution pension balancing accounts to the extent the cost is based on the allowance of other Corporate Center costs. By limiting recovery to the legally necessary minimum contribution for the entire company, we have a reasonable proxy for the allocation of costs between Corporate Center and other utility operations.

7. Conclusion

We adopt for ratemaking purposes $4.3 million and $25.1 million, respectively for SoCalGas and SDG&E, subject to balancing account treatment in the adopted minimum contribution pension balancing accounts and limited to actual costs based upon contributing the minimum required contributions as required by IRS Code § 412 Minimum Funding Standards as amended by the Employee Retirement Income Security Act of 1974, the ERISA-minimum contributions. This is not an upper limit; if the actual minimum contributions and other actual costs are greater, SoCalGas and SDG&E may seek recovery subject to the standard reasonableness review requirements for a balancing account.

E. Medical Benefits

After pension expenses, ORA's largest benefit adjustment was for medical expenses. The companies argued that they have kept costs low in recent years as a result of negotiating rate caps with their health care insurance providers. The last contracts expired in 2003. SoCalGas and SDG&E negotiated new contracts with Blue Cross, Kaiser and PacifiCare so that their revised Test Year 2004 estimates are $39.075 and $26.2 million, respectively.55

ORA argued that the new rates (as originally forecast at $44.534 million and $29.014 million) essentially reflect the deferral of costs from the prior capped years representing "an inter-generational cross-subsidy for Blue Cross 2000 - 2003 deficits and may constitute retroactive ratemaking."56 ORA argued the caps were artificially low in 2001 through 2003, citing actuarial reports which indicated the actual costs (for Blue Cross) were higher than premiums, thus leading directly to large increases for 2004. ORA concludes "if SoCalGas had not negotiated rate caps and had paid the true increase in actual costs during 2001 - 2003, then it would be proposing a dramatically less increase for 2004." ORA recommended that expenses should only reflect the increase over 2003 actual costs.57 The arguments are the same with respect to SDG&E.

SoCalGas and SDG&E responded that 2004 premiums only reflect market rates as paid by other subscribers, and that Blue Cross' plans for 2004 are the low-cost provider and no higher than others without prior year caps.58 SoCalGas argued its 2002 costs were $4,304 per employee while a national average was $5,508.59 We note that this comparison (made for the higher original estimates) is mid-cap for SoCalGas and does not address Southern California health care costs specifically nor does it provide comfort with respect to the current contract and 2004 market rates. It tends in fact to support ORA's position more than it does their own. ORA did not update its own position. Reluctantly, we look to the Proposed Settlement Agreement and we find that after allowing for other adjustments to employee numbers (to the extent they are or are not delineated and justified) ORA accepted the updated contract rates.

TURN proposed to link benefit costs to the payroll specifically as a proxy for full-time employee equivalents.60 As discussed already, TURN argued these costs are directly tied to how many people are really on the payroll at SoCalGas and SDG&E. Their error, according to applicants was to tie the estimate to the dollar costs rather than body count. SoCalGas and SDG&E point out an employee's medical costs to the companies are set amounts driven by the number of dependents (which are probably predictable in the large pool of employees for both companies) and do not vary by wages.61 We agree that TURN's linkage is too simple to be adequate.

Because of the limitations we find with respect to the likely true number of employees in the test year, we have adopted the minimum contribution pension balancing accounts. Because the costs in question here appear to be contract rates that are directly driven by the number of employees (and the related number of dependents included in their coverage) we find that the ratepayers will be better served by allowing actual costs subject to refund. We therefore adopt for revenue requirement purposes, subject to refund, the SoCalGas and SDG&E revised Test Year 2004 estimates of $39.075 and $26.2 million, respectively. We direct both utilities to establish a standard two-way balancing account to ensure recovery of actual medical expenses.

F. Dental and Vision Care Benefits

ORA proposed adjustments to the expense forecast to provide dental and vision care benefits that are a direct result of its proposed adjustments to the total labor force for both SoCalGas and SDG&E. The adjustments were based on escalation rate differences and later contract rates not in the original testimony of SoCalGas.62 We will adopt the later end-of-litigation estimates for SoCalGas and SDG&E, as reflective of the latest benefit provider contracts as shown in rebuttal Exhibits 102 and 103. We will forgo burdening the regulatory process with another balancing account even though the labor force (for whom dental and vision care are provided) might be smaller than forecast and adopted.

G. Other Benefits

There were several miscellaneous adjustments proposed by ORA for both SoCalGas and SDG&E in Ex. 301-E and Ex. 302-E, Tables 15.1 and 17.1, respectively:

SoCalGas TABLE 2

These totaled $2.254 million and $1.042 million, respectively. ORA offered no explanation why it recommended these disallowances beyond the barest declaratory statement without any tangible support. For example, the entire testimony on employee assistance, Account 926.241 for SoCalGas was: "There are no developments in the area of Employee Assistance requiring more training."63 And there was nothing in Ex. 302 for SDG&E.

We are left unable to understand the factual basis and supporting analysis to justify a disallowance.

H. Supererogatory Benefits

The title itself reflects ORA's position that SoCalGas' request for $1.774 million for employee social, cultural, and charitable activities is unnecessary, or supererogatory. ORA proposed a complete disallowance. ORA cited, among other cases, D.96-01-01164 and Edison rate case where, in a settlement, Edison conceded, "they might not provide a ratepayer benefit." The SoCalGas amounts are found in Ex. 301, Table 15-1 as follows:

SoCalGas argued that these programs are good for morale, and are not cash incentives. SoCalGas acknowledged that the commission has ejected such costs in the past, but suggested the Commission precedent "can and should change."65

For SDG&E, ORA proposed a parallel disallowance found in Ex. 302 at Table 17.1 as follows:

For SoCalGas, the ORA caption on Account 926.244 is incorrect, that amount relates to the it is the Employee Wellness program as described for SDG&E. The companies argue this latter program's cost in particular is insignificant compared to avoided medical costs.

We are persuaded that such programs may well engender a benefit to employee morale. We will allow these costs in Test Year 2004.

31 Hewitt Associates. See ORA references in Exhibit 302, p. 18-1. See also Appendix I to SoCalGas Exhibit 12 and SDG&E Exhibit 34 for the respective November 22, 2002 Final Report by Hewitt Associates.

32 Study, p. 3, in Exhibits 12 and 34.

33 Chapter 14 in ORA Ex. 301 and Ex. 302 for SoCalGas and SDG&E, respectively.

34 D.95-12-055, 63 CPUC 2d 570, 592 and D.86-12-095, 23 CPUC 2d 149, 187.

35 Transcript Volume 22, November 7, 2003, p. 2002, line 5 to p. 2003, line 9.

36 1997 Cal. PUC LEXIS 751; 179 P.U.R.4th 237.

37 Conclusion of Law 30.

38 Ex. 501, pp. 35 -36. TURN cites to UCAN DR 10-8, TURN DR 5-5 and 5-8 regarding SoCalGas.

39 By comparison, in the Proposed Settlements, after escalation, SoCalGas' 2004 labor costs would be $351,720,000 and SDG&E's would be $156,641,000. Source: Response 2 filed January 16, 2004 to the December 13, 2003 ALJ First Request for Information on the Proposed Settlements.

40 SoCalGas asked for $342,745,000 before escalation (i.e., in 2001 dollars) at the end-of-hearings compared to the settlement's $318,011,000 and SDG&E asked for $159,628,000 compared to $141,628,000. Source: Response 2 to ALJ First Request for Information.

41 To the extent that some labor is capitalized as a result of crediting (reducing) an expense account, SoCalGas and SDG&E are to capitalize the actual labor costs incurred for capital items and expense the appropriate amount of actual labor costs incurred.

42 Ex. 301, footnote 19, p. 8-14; reference to ORA Data request 157, Q. 5.

43 ORA opening litigation brief, pp. 192-193.

44 Transcript, p. 318, lines 12 - 19.

45 Joint Comparison Exhibits.

46 Sempra opening litigation brief, p. 275.

47 Sempra opening litigation brief, p. 277.

48 Ex. 105, p. JPT-5 and 106, p. JPT-4; an issue not explained in direct testimony, but included in rebuttal. In fact, the quote above is the only description of "enhanced visibility," and there is no use of the term in the transcripts.

49 Ex. 302, pp. 17-3 and 17-7 and Ex. 301, p. 15-8.

50 Ex. 302, p. 15-7.

51 Ex. 604, pp. 212 and 212.

52 Sempra Opening Litigation Brief, p. 281, quoting D.03-02-035, which in turn relied on Pacific Tel. & Tel Co. v. Public Util. Comm'n (1965) 62 Cal.2d 634, 644.

53 Sempra opening litigation brief, p. 281, and citing IRS Code § 401(a)(17)(A).

54 Ex. 301, p. 15-4 and Ex. 302, p. 17-4. Sempra opening litigation brief at p. 282 reverses the citations.

55 Ex. 103 and Ex. 102, pp. GJR-16 - GJR-20 in both exhibits. These estimates assume 5,711 current and 1,302 new employees for SoCalGas, and 4,094 current and 717 new employees for SDG&E.

56 Ex. 301, p. 15-9.

57 Ex. 301, p. 15-11.

58 Ex. 103 and Ex. 102, p. GJR-17.

59 Ex. 12, p. 21.

60 Ex. 501, p. 35.

61 Sempra opening litigation brief, p. 251.

62 Ex. 301, p. 15-14, and Ex. 303 provides no explanation for a 20.7% reduction to dental and 19.2% to vision care in Table 17.1.

63 Ex. 301, p. 15-15.

64 D.99-01-011, 62 CPUC 2d 421 at 333.

65 Ex. 103, pp. GJR-28 - GRJ-29.

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