COM/LYN/ivs/epg ALTERNATE PROPOSED DRAFT H-9a

1/18/2001

Decision ALTERNATE PROPOSED DRAFT DECISION OF COMMISSIONER LYNCH (Mailed 1/4/01)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of SOUTHERN CALIFORNIA GAS COMPANY (U 904 G) Under the Catastrophic Event Memorandum Account (CEMA) for Recovery of Costs Related to the El Niño Storms.

Application 99-03-049 (Filed March 19, 1999)

(See Appendix A for List of Appearances.)

TABLE OF CONTENTS

TITLE Page

OPINION 2

I. Summary 2

II. Procedural Background and The Stipulation 3

A. Procedural Background 3

B. The Declared Disaster 6

C. SoCalGas' and ORA's Stipulation 8

D. Standard of Review 9

E. Positions of the Parties 11

F. Review In Light of the Whole Record 12

III. CEMA Applicability and Reasonableness of Costs 14

A. Background 14

B. Applicability of CEMA to Recover Costs For Damage
Attributed to the El Niño-Caused Storms 16

C. Scope of the Disaster 18

D. Damage Attributable to the 1998 El Niño Storms 19

1. SoCalGas' Prior Knowledge of the Hazards 20

2. Landslide Movement and Effect of the 1995 Rainstorms 23

3. Timing of the Damage 26

4. Should SoCalGas have relocated these pipelines earlier? 29

5. Future Consideration of SoCalGas' 1998 El Nino Related Costs 31

E. Future Consideration of the CEMA 34

IV. Comments on Proposed Decision 36

Findings of Fact 36

Conclusions of Law 41

ORDER 43

Appendix A

OPINION

I. Summary

Southern California Gas Company (SoCalGas) and the Office of Ratepayer Advocates (ORA) present for Commission approval a stipulation regarding SoCalGas' recovery of certain costs attributed to the 1998 El Niño-driven storms, through the Catastrophic Event Memorandum Account (CEMA). The stipulation purports to resolve all issues presented except for The Utility Reform Network's (TURN) issue regarding the appropriate manner in which to allocate the revenue requirement among customer classes. A Proposed Decision was mailed on August 22, 2000 modifying the stipulation to disallow recovery, in future base margin proceedings, of expenses and capital costs that arguably could be traced to the 1998 El Niño-driven storms and allowing SoCalGas to recover a revenue requirement of $4,713,616, reduced by $110,000 in disallowed costs, through 2002, as well as future carrying costs for the capital investments. SoCalGas and ORA filed comments objecting to the Proposed Decision's interpretation of the stipulation to preclude future recovery of capital costs arguably attributable to the 1998 El Niño-driven storms.

Upon review of the comments to the Proposed Decision, the Administrative Law Judge (ALJ) revised the Proposed Decision, and clarified the stipulation, based upon the evidentiary record, to preclude SoCalGas from raising, in future base margin proceedings, only disallowed investments and investments SoCalGas testified that it was foregoing as a part of the stipulation and not all future investments. The ALJ also revised the proposed modification of the stipulation with respect to additional disallowed costs. The parties were given the opportunity to comment further on the revised Proposed Decision. ORA did not comment further. SoCalGas accepted the modification of the disallowed costs but disputed the clarification of the stipulation.

Upon further review of the record and the comments, we find that we cannot determine that the proposed stipulation is reasonable and in the public interest. We therefore reject the stipulation and deny recovery of any costs attributed by SoCalGas to the 1998 El Niño-driven storms at this time. We will provide SoCalGas with the opportunity to seek recovery of these costs as well as other capital costs that it attributes to these storms in its next cost-of-service proceeding, consistent with the directions provided in this decision. At that time, SoCalGas should provide additional information to enable us to fully evaluate whether the costs are incremental to normal pipeline repair and are reasonable for separate recovery in rates post-2002. We defer a decision regarding cost allocation since we have not determined that any costs are reasonable at this time.