STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

November 2, 2004 Agenda ID #4014

Alternate Agenda ID #4016

TO: PARTIES OF RECORD IN APPLICATION 04-01-031

Enclosed are the proposed decision of Administrative Law Judge (ALJ) Walker and Alternate proposed decision of Commissioner Lynch. These items 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 before hand. When an RDM is held, there is a 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 communications.

When the Commission acts on the proposed decisions, 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 decisions 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:jva

183258

ALJ/GEW/avs DRAFT Agenda ID #4014

Ratesetting

Decision PROPOSED DECISION OF ALJ WALKER (Mailed 11/2/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southern California Edison Company (U 338-E) for Authority to, Among Other Things, Increase Its Authorized Revenues for Gas Service for Santa Catalina Island in 2005, and to Reflect That Increase in Rates.

Application 04-01-031

(Filed January 23, 2004)

David R. Garcia, Attorney at Law, for Southern
California Edison Company, applicant.
James E. Scarff, Attorney at Law, for the
Commission's Office of Ratepayer, protestant.

OPINION RESOLVING GENERAL RATE CASE

TABLE OF CONTENTS

TITLE PAGE

1. Summary 2 2

2. Background and Procedural History 2 2

3. Jurisdictional Question 5 5

4. SCE's Application 5 5

5. Capital Expenses 8 8

5.1 PG Vaporization Plant Upgrade 8 8

5.2 Basement Upgrade 9 9

5.3 Bird Park Line Extension 10 10

5.4 Pebbly Beach Village Line Replacement 10 10

6. Operations and Maintenance 11 11

6.1 Additional Employee 12 12

6.2 Additional Training 13 13

6.3 Preventative Maintenance 14 14

6.4 Work Management System 14 14

6.5 Uncontested SCE Proposals 16 16

7. Forecast of Gas Sales 16 16

7.1 Gas Sales Adjustment Mechanism 17 17

8. Depreciation Expense and Reserve 18 18

9. Rate Base 18 18

10 Attrition 19 19

11. Rate Phase - In 21 21

12. Rate Design 24 24

12.1 Baseline Quantities of Gas 24 24

12.2 Allocation of Rates 25 25

12.3 Domestic CARE Rates 25 25

13. Comments on Proposed Decision 25 25

14. Assignment of Proceeding 26 26

Findings of Fact 26 26

Conclusions of Law 26 26

ORDER 28 28

APPENDIX A

APPENDIX B

OPINION RESOLVING GENERAL RATE CASE

1. Summary

Southern California Edison Company (SCE) is authorized to increase its gas distribution base rate revenue requirement in Santa Catalina Island (Catalina) to $964,000 to be phased in over a three-year period beginning in 2005. This equates to a 33.7% increase in 2005, a 29.1% increase in 2006, and a 20.0% increase in 2007 in authorized gas distribution expenses. SCE had sought an increase in base rate revenue to $1,157,482 in 2005 (an increase of 169% over the current rate), or $1,648,000 if phased in over four years (an increase that would total 283% over current base rates by the year 2008). The proposed increases are large because this is the first gas distribution rate increase that SCE has sought in Catalina in 17 years and because SCE is in the process of replacing its 30-year-old gas plant in Catalina.

The new rates authorized today will mean an increase in single-family gas bills, on average, of about 12.6% in 2005, 13.2% in 2006, and 11.5% in 2007. For commercial customers, the increase, on average, will be 17.8% in 2005, 15.6% in 2006, and 10% in 2007.