III. CEMA Applicability and Reasonableness of Costs

A. Background

After reviewing voluminous documents produced via data request regarding several issues and various pipelines and facilities for which recovery is sought, we narrowed the inquiry to focus on damage to several pipelines in Ventura County that SoCalGas moved in 1998 and 1999 at a cost of $2,415,000. These pipelines are located for the most part on the windward slopes, ridges, and canyons of the Ventura mountains and either ruptured or were exposed by landslides in February or March of 1998.¹² The remaining discussion thus focuses on 8 different Work Orders for relocating portions of Pipelines 404, 406, 1004, 1005, and 1011 damaged by 11 separate landslides. The pipeline damage and repair at issue is summarized as follows:

General Work Order	Line No.	Damage	Remedy	Repairs Begun	Repairs Completed	Costs
94190	404	Rupture 2/14/98	1) Relocate	2/26/98	3/19/98	404K
94191	1004	1) Expose/ rupture 2/17/98 2) Landslide 3/26/98	1) Relocate 2) Install Caissons after relocated	2/18/98	3/19/98	376K
94192	1004	Exposed noted 2/9813	Relocate	3/2/98	3/19/98	250K
94194	404	Rupture 3/1/98	Relocate	3/3/98	3/23/98	228K
94195	406	Rupture 3/2/98	Relocate	3/3/98	3/20/98	257K
94197	1011	1) Expose 2/9 & 2/17/98 Shutdown 2/24/98 2) Expose right of way 2/98 or 3/98	1) Relocate Downward 2) Elevate pipe	5/1/98	6/30/98	350K
94198	1005	Expose 3/26/98	Relocate	4/7/98	5/19/98	440K
94377	1001 &404	Erosion Possibly 2/98 or 3/98	Elevate pipes	1/99 or 2/99	3/99 or 4/99	110K
TOTAL						2,415K

B. Applicability of CEMA to Recover Costs For Damage Attributed to the El Niño-Caused Storms

SoCalGas contends that damage caused by the El Niño-driven storms constitutes a "declared disaster" for purposes of § 454.9 because the California Governor and the President of the United States both declared the counties in which the damaged pipelines and facilities are situated to be disaster areas. SoCalGas also argues that the increased uncertainty created by subjecting different declared disasters to different treatment would contravene the purpose of the statute to encourage the utilities to take immediate action to restore service and repair facilities after such a disaster.

We agree that § 454.9 on its face permits the recording in the CEMA costs connected with "events declared disasters by competent state or federal authorities," and that the declarations by the Governor and President satisfy this standard. Thus, we hold that use of the CEMA for recording and recovering costs for restoring utility service to customers, repairing, replacing, or restoring damaged facilities, and complying with governmental agency orders associated with the 1998 El Niño storm-related declared disaster is appropriate.

However, we are concerned that the application of this standard, while easily applied in most cases, is facile and subject to abuse in cases such as this, where the disaster is not easily quantified like an earthquake or a tornado or even a flood, and where it occurs regularly and with prior warning. El Niño-caused storms basically consist of heavy rainfall occurring over a period of time. Rain and heavy rain are regularly occurring events during California winters. Similarly, El Niño-caused storms routinely occur in California and regularly produce heavy winter rains. Unlike other disasters, there also is substantial advance notice of El Niño-caused storms, including a predicted intensity. Indeed, SoCalGas admits to having received notice of the impending storms before they occurred and made some advance preparations as early as October of 1997 in anticipation of what it characterized as a "major storm." (Lamb, Exh. 2, pp. 3-4.)

The CEMA was established after the 1989 Loma Prieta earthquake, specifically for the purpose of promoting quick repairs for unexpected events. Heavy winter rains in general and El Niño-caused rains in particular cannot be reasonably viewed as unexpected events. At the most, El Niño-caused rains can be considered unusual or infrequent, damage from which is generally not appropriate for recovery under the CEMA. In D.93-11-071 some utilities asked to expand the scope of disasters covered by Resolution E-3238 to include "unusual" and "infrequent" events. We declined, reiterating our intent to include recovery only for costs associated with "truly unusual, catastrophic events such as Loma Prieta." We further explained that we did so "because a utility's authorized revenue requirement includes some provision for unanticipated costs which might include emergencies (e.g. storm damage allowance, etc.)." (52 CPUC 2d 223, 227.) For similar reasons, we also rejected Edison's proposal to extend Resolution E-3238 to costs incurred prior to and in anticipation of a catastrophic event.

Thus, strict application of the statutory language appears somewhat inconsistent with our intent in Resolution E-3832. Further, while the "declared disaster" standard has the benefit of being easily applied, we question its appropriateness given the increased tendency of state and federal officials to readily declare disasters for purposes of assisting property owners and tenants obtain increasingly necessary governmental assistance.

In a future proceeding generic to all utilities, we may revisit the purpose behind the CEMA and consider whether to clarify these issues. As we discuss further, infra, because El Niño storms are recurring and are known and predicted prior to their occurrence, we should also address the issue of prior planning for this known occurrence in a utility's cost-of-service proceeding.

The nature of a disaster caused by rainfall also raises other issues, such as the appropriate scope of the disaster, e.g., the starting and ending dates, and the cause of the damage, e.g., the contribution of prior rainfall, outside the declared disaster, on the incidents that occur during and are attributed to the declared disaster. The discussion of these issues follows.

C. Scope of the Disaster

SoCalGas defines the time span of the El Niño-caused storms as beginning in mid-January of 1998, and continuing through mid-May of 1998. The rainfall records compiled by the City of Ventura in the Ventura/Hall Canyon area at issue in this case show that 31.24 inches of rain fell from January through May of 1998, with the greatest concentration, 21.08 inches, falling in February of 1998. (Exh. 21.) The Governor's and the President's disaster declarations cover damage from storms and flooding starting on February 2, 1998. It is reasonable to use the February 2, 1998 date established by the disaster declarations as the beginning date for CEMA coverage. We thus hold that damages caused by these winter storms as of February 2, 1998 are appropriate for recovery through the CEMA.

With respect to the end date of the disaster, we note that the rainfall totals for March through May were somewhat above average but nowhere near the levels experienced in February. As we discuss more fully below, because rainfall, by its nature, has a cumulative effect on ground saturation, it is reasonable to include the rainfall through May of 1998 as within the scope of the declared disaster and damage that occurs during that time as properly recoverable under the CEMA if the other conditions for recovery are met. We also recognize that, in appropriate cases, damage that occurs after May of 1998 may be attributed to the cumulative rains from at least January through May of 1998.

D. Damage Attributable to the 1998 El Niño Storms

As SoCalGas concedes, we are charged with determining whether particular damage was caused by the event that was declared a disaster, in this case, by the 1998 El Niño-caused storms, and whether those costs are reasonable. We are also concerned with the reasonableness of SoCalGas' actions in maintaining these pipelines prior to the 1998 winter storms. Of the costs permitted for recovery in the stipulation, almost twice as much is sought for capital costs as for operating and maintenance (O&M) expenses. Further, while some of the capital costs sought for recovery are for the replacement of ruptured pipelines, a substantial amount reflects costs expended to relocate pipelines that were exposed as a result of landslides or to relocate ruptured pipelines. Expenditure of costs on an emergency basis, after a declared disaster, to relocate pipelines, instead of merely to repair or replace them, raises questions about the appropriateness of the initial siting of the pipelines as well as about the company's actions to monitor the situation and to reduce or avoid predictable damage prior to incurring substantial damage requiring relocation. As SoCalGas indicated in its application, its incremental costs include management and non-management overtime pay and associated payroll taxes, outside contractor costs, outside direct purchases of materials and non-labor costs not provided in current rates. (Yee, Exh. 3, pp. 11-12.) It seems obvious that the cost of relocating pipelines would be less if the relocation were done as a part of a resource plan, outside of emergency circumstances.

Further, these pipelines were relocated to more stable ground (which could be moving it to another place or burying it down deeper in the hillside) as a preventative measure. (Saline, Exh. 7, p. 8.) SoCalGas' witness, Saline, justified this action, stating that it would have been "contrary to prudent engineering practices to simply repair damage but leave the pipeline in a place now known to be susceptible to damage." (Id.) Nevertheless, relocating the pipelines raises questions regarding the appropriateness of assigning costs for preventative measures, on an emergency basis, to the CEMA account.¹⁴ This is particularly true given SoCalGas' knowledge before the pipelines were actually exposed, that these pipelines were susceptible to damage. (As discussed further, infra.)

In our review, we look at several factors, including SoCalGas' prior knowledge of the hazard presented and steps taken to avoid or reduce the damage, the potential contribution of prior rainfall to ground saturation that caused the ground to move, damaging the pipelines, whether the damage could have been avoided if the pipelines had been relocated prior to 1998, and whether the work done was incremental to normal pipeline repair activity.

1. SoCalGas' Prior Knowledge of the Hazards

The damage to these pipelines occurred from earth movement, e.g., landslides, that either ruptured the pipelines or exposed them. The Ventura mountain area where these pipelines are located is geologically described as having an underlying pico formation, which means that the mud or clay stone are very fine-grained sedimentary rocks that are weak and prone to earth movement, including landslides and soil creep. (Exh.17; Kenton, Tr. Vol. 1, pp. 73-75; 164-166.) Since at least 1969, contracting geologists have prepared maps of "unstable and potentially unstable areas" for SoCalGas. The maps are done to show landslide hazards along the pipeline routes and also to provide activity status based upon a review of historic aerial photos and site observations. (Id. at p. 69.) They show landslide activities in areas where SoCalGas' pipelines are located and delineate proposed alternate routes for pipelines that are adjacent to active landslides. The landslides are classified on a scale from active to inactive.

For the pipelines at issue in this case, SoCalGas has two maps, one of the area north of the Ventura River and the other of the area south of the Ventura River. (Exh. 10.) Both maps were created in 1969 and updated in 1981 or 1982, 1988, and 1992. The maps were updated again in 1999. The 1969, 1981, 1982, and 1988 maps were done by geologist Henry Neel and the 1992 and 1999 maps were done by geologist Frank Kenton after Mr. Neel retired. SoCalGas also maintains engineering maps showing specific pipeline locations and elevations.

Together with the mapping, the contract geologists also prepared reports containing their observations of the stability of the area traversed by SoCalGas pipelines and making recommendations for further action, including pipeline relocation. Reports were made in 1969, 1981, 1989, 1992, 1995 (limited) and 1998.

SoCalGas clearly had prior knowledge that these pipelines were situated in a geologically unstable area prone to earth movement and soil creep. Further, the record reflects that SoCalGas had prior knowledge of the risks to these specific pipelines damaged during the 1998 rains. The geologic maps and reports, at least back to 1969, show that all the damaged sections of the referenced pipelines, except for those portions of Lines 404 and 406 that cross through the Butler Property (Work Orders 94194 and 94195),¹⁵ were situated immediately adjacent to active landslides and were susceptible to future damage from such landslides. And, some of the pipelines had remedial work done because of damage from prior landslides.

The record reflects that SoCalGas also had prior knowledge of ways to mitigate the risks to these pipelines. In the mapping and reports prior to 1998, SoCalGas was advised of recommended alternate routes for relocating each of the damaged portions of the specified pipelines to prevent future damage, again with the exception of those portions of Lines 404 and 406 that cross through the Butler Property. And, despite its attempts to downplay the hazard presented by the adjacent landslides and to minimize the stated recommendations for pipeline relocation set forth on the maps and in the reports, after the 1998 damage occurred, SoCalGas, for the most part, relocated the portions of the damaged pipelines as originally recommended.¹⁶ In the one case where SoCalGas chose a different location (Line 1004-Work Order 94191), additional work had to be performed after the relocation was completed to stabilize the line and to protect the pipeline from further landslide activity.

2. Landslide Movement and Effect of the 1995 Rainstorms

SoCalGas contends that the damage to these pipelines was caused by landslides precipitated by the El Niño storm-related rainfall that occurred in 1998 and that these rains were so severe that land movement and pipeline damage from the storms could occur for a long time into the future. SoCalGas' argument is predicated upon its belief that the 1998 rainfall was "extraordinary." It points out that the 21.08 inches of rain that fell in February of 1998 was greater than the rainfall of any other month going back to 1957, and in fact was greater than the total annual rainfall occurring during 32 of the preceding 43 years. (Exhibit 21.) SoCalGas also argues that the total rainfall for January through May of 1998 (31.24 inches) was greater than that recorded during any other January through May time period and that the total annual 1998 rainfall (42.09 inches) was the largest annual rainfall recorded in this area by a margin of 8 inches.

SoCalGas points out that, while many factors contribute to landslides, they are particularly sensitive to rainfall. (Kenton, Tr. Vol. 1, pp. 75-79.) Landslides occur more frequently when there is a lot of rain, but once the earth becomes saturated, and the land begins to move, it will continue moving until its movement is blocked by a resisting force. (Id., at pp. 78-79.) If an area on a hillside has been subject to a landslide once, it is more prone to movement again. (Id., at pp. 164-166.)

Clearly, the February 1998 rainfall and, thus, the annual rainfall for water year 1998¹⁷ was excessive. However, the Ventura County Department of Public Works' Hall Canyon rainfall gauge #167, as reflected on Exhibit 21, also shows that this area experienced excessive rainfall in several other years. For example, the area experienced double the average annual rainfall total in 1995, 1983, and 1978, as well as substantial rains greatly exceeding the average annual totals (over 50%) in 1993, 1986, 1980, and 1958. Most importantly, we note that January of 1995 was almost as wet as February of 1998 (17.33 inches v. 21.08 inches) and the January through May time period shows almost identical rainfall totals in 1995 (30.27 inches) and 1978 (31.08 inches), as experienced in 1998 (31.24 inches).While SoCalGas downplays the 1995 storms, it is clear that the 1995 rains were virtually equivalent in amount to the 1998 storms. The record reflects that SoCalGas sustained pipeline damage in 1995 from landslide activity on some of the same pipelines damaged in 1998, albeit to possibly different sections of pipe. Pipelines in geologically difficult areas, adjacent to active landslides, were impacted by landslides due to the 1995 rains, one on Lines 404 and 1011 in the microwave/Hall Canyon area, to the west of the area where the pipeline ruptured in 1998, and another on Line 1005 north of the Ventura River, in Mabranio Canyon. (Kenton, Tr. Vol. 1, pp. 81-82; 86; 89.) Despite these substantial rains in 1995 and the damage to some of pipelines in this area, SoCalGas' maps were not updated until 1999, after this proceeding was instituted. Nor is there any evidence that any comprehensive review of the pipelines was done after the rains of 1995 and prior to the damage that occurred in 1998.

SoCalGas' argument regarding the long lasting effects of heavy rains on earth movement, which it asserts for the time period post-1998, is equally applicable to prior time periods. Thus, it is clear that this naturally weak and unstable ground was saturated and subject to continuous creep for a substantial time prior to the 1998 rains. Given the nature of the 1995 rains, it is likely that the instability was greatly exacerbated at that time and that the effects would be felt in slides and continuous creep for extended years to come. It certainly would be felt in future periods of heavy rain, as was the case in 1998. The conclusion can then be drawn that the while the ruptures and exposures occurred during the 1998 rains, they were the result of the cumulative stresses of the earth movement that started much earlier.

The continuous movement of the land masses prior to 1998 also is established in the geologic reports and in some of the company's own Pipeline Patrol reports, particularly with respect to Lines 1011 and 404. SoCalGas' testimony that all of the damage, either exposure or rupture, to these pipelines was caused solely by rainfall occurring during the winter of 1997-1998 is not credible.

In view of the above, we find that SoCalGas had prior knowledge of the instability of the soil upon which these pipelines were located, the risks to the pipelines from landslides, particularly during rainy weather, and recommended mitigation measures to reduce or eliminate the potential for pipeline exposure or eruption. Specifically, it had knowledge about the landslide risks to pipelines 1004, 1005, 1011, and portions of 404. We have an insufficient record at this time to determine whether SoCalGas knew or should have known of the landslide risk to the portion of 404 that runs parallel to Line 406 through the Butler Ranch and direct that this issue be revisited in the cost-of-service proceeding.¹⁸ And, for the most part, after sustaining the damage from the landslides triggered by the rains in 1998, SoCalGas relocated the pipelines as recommended in previous geological reports. SoCalGas also had knowledge that future rains would pose an additional risk of pipeline damage, and, indeed, the prior rains, including the heavy rains in 1995, played a role in weakening the land that gave way and caused the pipeline damage in February and March of 1998.

3. Timing of the Damage

The record reflects that the damage occurred on these lines in February and March of 1998 and were repaired, replaced, and relocated within a short time after the damage was discovered, with two exceptions: (1) Line 1011 (Work Order 94197); and (2) Lines 1011 and 404 (Work Order 94377). SoCalGas discovered damage to Line 1011 (Work Order 94197) in March of 1998 but did not begin repairs until May of 1998. SoCalGas did not give any explanation for the delay in making the repairs on this line. We have defined the disaster as continuing through May of 1998 and it could be inferred that the effects of the earlier rain were still being felt during the next few months. However, we have insufficient evidence upon which to base such a conclusion here. This is an issue that should be explored in SoCalGas' next cost-of-service proceeding.

We also have a substantial concern regarding the work performed on Lines 404 and 1011 as set forth on Work Order 94377. These two lines run parallel for some distance, descending from the ridge down the face of the slope to the city of Ventura. SoCalGas did not reference damage to these lines in its application and did not seek recovery for costs associated with such damage, even tÞ‡0hqù-RÉDÁŽËfo6ÖØÆó’Ì ¢9WÙÑ_Ý÷ˆ^¢ Ý?äU‘ßÇ�ˆCù¡¢¹›WˆðImâ\SŒlá{†”Ç©ñd‚"Ù–…?-¼&6n�¦@~òRºtR„­·èã1“|/ìÝ£eÛS3F6bã·J2[H:‹6呼tÂÊ,펧«>ÞÏßÅùê¼(¾ðɪtÈ3�zZÓö÷ŸÈ€Í^74F8×Öå�¶b,åmIÆZÈŠû�ff�p¨á@Nìö1¹B§ÿ$D_ÕÝrl¼±äFåQ=>úõ‘ŽYå`»|ÿôð©RT#²Áqh è_bV$·�½)ê\Ðu¹êÅp”4Z{…÷]Èé±;kMa½øqwé]
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ºòU¡�œÃ×Iéc)+95Zš0kÊtm„çFCUuˆ�Ô"V¸-‹=Nyyš_N’­!núzÖ½AðŒUóžF•/|<Õ’î•ñÜÑ‚”Ú�·€ºŽ/$¨‹àYDïå„QUìÇòÝ;þePm._·†KS|p2àÏ¿¿ŠÂ�~@› ¦C­—•ËøêptãÏ܉�>—S”#›½ý†” ~i,Ä@f9O¼L…•¹¦~F_I=f=çî矙W=�‰?K+ð†(€ÔÒ•WÂ3U8­—ŠÂ<@N%¡&>]Ú˹Æ#‘1ñÌIº” ~Ö‡äúbÔfqÂüê."’-)Y€ä6)u¿p»vlþ3uÎcYm»/…&ŠGïãÒûÖ3žÕ–$¦ÚÇÞEŸ+cÕN4o{¥˜S!1ˆ^�“¾Ûû¹i‚FºÌ&/*â–&ÖrùÈ{Š-ä±�Á¨¬Ý`Í T…ÝØEµ¢Ùò©qýÎ’á.ùÆe��ÊrÄ+éȦ,oâî…y– ­øÿ–�×@üj‰itæ/¡(¼`ÔI)s­4c¢•Ïlg‚ð�®sÂb®E€b½o‚•?¨W¼ª&a¥ ëì�÷Ö´IsjšÈ©æ}–€áŒ�g`=Ò.À”Œ˜ˆœàÔÊþ\b$ã_ÆKÝ��.1çZõöDÙ;�ü®Ñµ
þ¨ƒq¹—>Õ>ÞõwÚÌÒ.=gDU½©Fón$¼ñcf© ©Û‚~´?ÝòŸ~Ú�Ë¼¼ÍÑFŽº|3v„Ì{°I¡šÛÂϺ˜D¬ª°Ñ ˼´¦irûÀp"”2�¡Jÿ¤¶ë7‘â!Û’H”ïSïÂ+Ë‹q›|¼ËŸKéuú÷«„‹äY§cte`çÈâ'_�IÎŽ$hŸines that were exposed or ruptured should have been relocated or repaired prior to these storms. (Kenton, Tr. Vol. 2 at pp. 161-62.) SoCalGas notes that while previous practice had been to select possible future pipeline relocation routes in the event of future landslide activity, it now believes that it is more prudent to monitor landslide activity and only pick out a new route when necessary to do so.

While the landslide risks to these pipelines are well established on this record, it is not clear whether relocation of all or some of these pipelines, prior to 1998, would have been cost-effective. We recognize, as both SoCalGas and ORA point out, that relocating the pipelines in anticipation of declared disasters might be as expensive to ratepayers as the remedial measures they are intended to avoid because some relocated facilities ultimately may not be damaged and the reinforcement or relocation might not be sufficient to prevent future damage. However, we have no record in this proceeding upon which to make such a determination and are left with several key questions unanswered. As we observed earlier, ORA did not review the reasonableness of these expenditures from a cost causation, cost reduction or avoidance perspective, and no other party presented such data. As a result, we have an inadequate basis here upon which to determine if these costs could have been avoided or reduced, including whether some of the pipelines should have been relocated after the 1995 storms (or in any case before 1998). Further, because of the lack of evidence about cost causation, reduction and avoidance, we cannot determine whether these costs are reasonable and incremental to normal facility repair activity. We need to evaluate the costs recorded in SoCalGas' CEMA account in the context of overall costs already in rates in order to determine the extent to which the costs are or should be included in the risk built into existing rates. This further review is critical to our ability to fulfill our responsibility under P.U. Code § 454.9 to evaluate the reasonableness of these costs before authorizing their recovery.

Because of our concern with the lack of evidence on these key issues, and given the substantial evidence in the record regarding SoCalGas' knowledge of the risks to these pipelines, we cannot determine that the stipulation as presented is reasonable and in the public interest. Because we cannot decide these critical issues based on the current record, we reject the stipulation and direct the parties to more fully develop the record in SoCalGas' cost-of-service or PBR proceeding as described more fully below.²⁰

Finally, we note that SoCalGas and TURN submitted extensive proposals for allocating the CEMA costs to customers. We need not address allocation here as we are not deciding the reasonableness of these costs.

5. Future Consideration of SoCalGas' 1998 El Nino Related Costs

While we reject the stipulation and deny recovery of the costs SoCalGas seeks to recover pursuant to the stipulation and the application under the CEMA, in this proceeding, we will give SoCalGas the opportunity to seek recovery of these costs, other than those specifically denied herein, in a future cost-of-service proceeding, for consideration of incorporation into rates post-2002. We will also permit SoCalGas to seek recovery of other capital costs incurred or that may be incurred that it attributes to the El Niño-driven storms, if it decides to pursue them, at that time.²¹ This includes future damage caused by further earth movement resulting from the removal of "resisting forces" occurring during the 1998 landslides and in the areas weakened by the 1998 storms. We intend to carefully scrutinize these costs in accordance with the principles set forth in this decision and to incorporate the record from this proceeding into our review.

This inquiry will address the reasonableness of specific costs SoCalGas seeks to recover in rates, including whether such costs should be forecast in cost-of-service proceedings or recovered after-the-fact through a reasonableness review proceeding such as through CEMA. Future cost-of-service proceedings should conduct a similar review of costs that SoCalGas seeks to recover that were incurred because of earth movement, using the principles set forth in this decision and any decision that is issued in the next cost-of-service proceeding on these issues.

For the specific costs SoCalGas has requested in this proceeding, it should provide information on the following issues so that we can determine the appropriateness and desirability of providing separate cost recovery for repair of these pipelines:

The level of capital expenditure loss already built into existing rates, and the extent to which the El Niño loss costs are included in those rates;

The degree to which costs could have been avoided or reduced, including whether some or all of the facilities should have been relocated prior to the 1998 storms;

Whether the costs incurred are reasonable and incremental to regularly scheduled facility operation and repair that would occur as a result of prudent facility management, including whether the costs were or should have been included among the risks contemplated to be borne by the utility in current rates.

We will also permit SoCalGas and any other interested party to supplement the record developed in this proceeding with other evidence on the issues discussed in this decision insofar as we are undertaking a new review of the costs that SoCalGas seeks to recover in rates.

In the cost-of-service proceeding, however, we will not consider for recovery the following costs, which the record indicates should not be recovered in any proceeding:

Costs associated with the relocation of Lines 404 and 1011 under Work Order 94377;

Costs incurred in anticipation of the El Niño storms (see, D.93-11-071); and

Lost gas experienced in the facility (Gas is a component of SoCalGas' BCAP.)

Because many of SoCalGas' pipelines are still located on unstable ground and are adjacent to many landslides, at risk for further damage, we are concerned that we may find ourselves back in this same situation in future years, which, in our view, would be an abuse of the CEMA process. Thus, in our review, we will fully evaluate SoCalGas' pipeline locations in the coastal ranges, the geologic conditions of those locations, and the hazards presented by earth movement from any natural event.²² The record shows that heavy rain and landslides are predictable, recurring events at least in the Ventura mountains and that pipelines routinely need remedial work, including relocation. SoCalGas states that it would not be cost effective to relocate pipelines located adjacent to active faults, given the uncertainty involved in predicting where a landslide might impact a portion of pipeline. Contrary to SoCalGas' contention, the issue is not which pipelines may fail at any given moment. Costs in cost-of-service proceedings are routinely forecast; there is no reason why pipeline repairs cannot also be forecast. At the very least, the Commission should be presented with the appropriate data and have the opportunity to make a reasoned determination.

As eloquently stated by geologist Henry Neel in his final report in 1989 in commenting on the lack of pipeline damage in the report period: "this has undoubtedly been due to a shortage of rainfall rather than to any particular intelligent planning on the part of those operating the pipelines. A series of dry years such as we have just recently experienced is just the thing to foster complacency and lead to disaster." (Exh.10, DR 9, Attach. K, page 10.) Disaster did strike in 1998; we believe that SoCalGas should take all reasonable steps to ensure that it does not strike again.

Thus, we direct SoCalGas to provide appropriate evidence on this issue so that the Commission is able to conduct a full inquiry into the appropriateness and desirability of funding relocation for pipelines at risk for damage, particularly those in the coastal mountains on unstable ground and adjacent to active landslides.

We also are concerned about the potential future ratemaking impact of SoCalGas' facility maintenance decisions going forward. Thus, we specifically direct SoCalGas, if it seeks to include such costs in future base margin proceedings, to specifically itemize and identify such costs and to reference this decision and whatever decision is issued in the next cost-of-service proceeding so that the Commission can determine their reasonableness.

E. Future Consideration of the CEMA

We have some remaining concerns with the future use of the CEMA for recovery of costs for damage occurring to utility facilities as a result of recurrent natural events, such as rainfall, and the balance between including this type of cost in the utilities' forecasted cost of service during cost-of-service proceedings versus recovery for damage sustained after such recurrent natural events. We are particularly concerned about using the CEMA in the future for such capital projects as relocating pipelines situated on unstable ground that may be damaged by recurrent rainfall. We are also concerned, as argued by ORA in its testimony prior to entering into the stipulation, that CEMA was not meant as an additional fund for utilities to receive compensation for minor damages associated with a catastrophic event. We also agree with ORA's observation that a declared disaster may be a catastrophic event for a community, but not necessarily for the utility that provides service in the area declared a disaster. (Exh. No. 300, p. 2-3.)

TURN suggests that we open an investigation into the proper treatment of future El Niño-related storm repairs because of the competing considerations of reasonableness and safety and the complex geologic, engineering, and meteorological issues that affect a proper reasonableness review.

SoCalGas disagrees, maintaining that it would be virtually impossible to adopt a standard by which all future landslides could be deemed as either caused or not caused by El Niño-related rainfall. SoCalGas maintains that these issues are properly reviewed on a case-by-case basis in the context of specific requests for rate recovery. SoCalGas also points out that no one knows whether there will ever be another El Niño-caused declared disaster and that proximate cause issues also arise in the context of other types of natural disasters.

We agree with SoCalGas that an investigation would not likely lead to the establishment of a reasonable generic rule to govern recovery of costs attributed to storm damage and that such issues are more appropriately considered in a factual context. We also believe that the review is appropriate for consideration on a utility by utility basis in conjunction with its cost-of-service or PBR proceeding. This is the forum for review and discussion of the utilities' proposed costs, including planned maintenance and capital projects. Thus, we require a review of the reasonableness of SoCalGas' pipeline locations with respect to geologic conditions and hazards in its next cost-of-service or PBR proceeding, whichever comes first.

We also believe, however, that it may be appropriate to enact regulations to ensure that the CEMA is not used as an expensive substitute for good resource planning. We agree with SoCalGas that the definition of disaster should be clear, uniform, and easy to apply, such as the current requirement that there be a state or federally declared disaster. However, it also may be appropriate to have some guidelines with respect to, for example, the types of repairs authorized, the proximity of the damage to the declared disaster, and the timing of the repairs to the discovery of the damage. In a future proceeding generic to all utilities, we may consider seeking appropriate statutory amendments and/or the enactment of guidelines to accomplish our purposes.

¹⁹ Another issue was presented with respect to Pipeline 1011. In his prehearing declaration, Mr. Saline testified that this pipeline was built in 1937. (Exh. 7.) For several years prior to 1996, SoCalGas had a "Special Pipeline Replacement Program," which identified and assessed various pipelines that were prone to leakage and susceptible to damage from earthquakes, including, specifically, transmission lines constructed prior to World War II located in urban areas. Based on a 1991 Value Chain Analysis (VCA), from 1993 through 1996, SoCalGas replaced or reclassified all pre-WWII pipelines, using replacement criteria that targeted pipelines in seismic hazard zones, areas of potential high consequence, e.g., close to hospitals, schools, high-density housing, and shopping, and Class 3 (high density urban) areas having a high flame potential.

Since these pipelines descend the face of the hill directly above the city of Ventura and a junior high school, it would appear that the pipeline should have been identified for replacement under this program. However, at the evidentiary hearing, SoCalGas witness Gailing contradicted witness Saline's prior testimony and stated his belief that this portion of pipeline had been constructed after WWII. ( Gailing, Tr. Vol. 2, pp. 216; 231.) To clear up the conflicting testimony, at the ALJ's request, SoCalGas submitted a late-filed exhibit showing that while some portions of this pipeline was constructed in 1937, this segment of pipeline was constructed in 1947. (Exh. 22.) Thus, this pipeline does not appear to be subject to replacement under this program. We do not consider this issue further.