3. Discussion

ORA conducted a monitoring and evaluation review of the GCIM Year Six results submitted by SoCalGas in its application. ORA's audit confirms that cost savings of $24.2 million below market benchmarks were generated and ratepayers received a benefit of $14.4 million. ORA also verified the proper calculation of the proposed shareholder award of approximately $9.8 million which SoCalGas should be authorized to recover through the Purchased Gas Account, as requested in the application.

ORA's evaluation of the application and Year Six results concludes that the GCIM continues to provide benefits to the natural gas procurement customers of SoCalGas. In Year Six, procurement customers have accrued gas cost savings of $14.4 million as measured against market-based benchmarks. In prior years of the GCIM, gas procurement customers of SoCalGas derived shared savings, as measured against market benchmarks, of: $10.4 million in Year Five; $4.8 million in Year Four; $12.1 million in Year Three; $4.3 million in Year Two; and $0.7 million in Year One. The ratepayer savings, measured against market-based GCIM benchmarks, have totaled $46.7 million over the first six years of the GCIM program.

In its report, ORA made observations concerning the natural gas market in Year Seven and its implications for ORA's next evaluation of the GCIM, stating:

"The last several months have seen profound changes in the natural gas market. From 1985 through early 2000, the range of natural gas prices averaged anywhere from $1.50 per decatherm (dth) to $3.00/dth. In 2000, the prices have skyrocketed to over $5.00/dth at the California border. There have also been significant basin differentials between the cost of gas at the San Juan basin compared to the Permian basin. Additionally, the value of interstate pipeline capacity on El Paso Natural Gas Company and Transwestern Pipeline Company has jumped dramatically compared to prior years.

"Given these conditions, ORA will closely evaluate the operation and results of the GCIM in year seven. One specific area of review will include pipeline sales of gas made by SoCalGas. The GCIM provides SoCalGas flexibility and opportunities to reduce core gas procurement costs through both mainline and border sales of gas. The recent market conditions, that have seen wide basin differentials and increased value for firm interstate capacity, could possibly result in some unintended consequences that result in shared savings of benefits that may be more appropriately allocated entirely to ratepayers."

SoCalGas filed its response to the ORA report on November 13, 2000. The utility states that it worked extensively with ORA over a period of four months in analyzing the results of the GCIM in Year Six, and that it supports the ORA's conclusions as to that year's cost savings.

As to ORA's preliminary observations on changes that may be considered for Year Seven and beyond, SoCalGas urges that consideration of modifications be reserved until after consideration of the Energy Division's report that was on January 4, 2001, as contemplated in the Scoping Memo. ORA does not disagree with that position.

We find, after reviewing the SoCalGas application and ORA's report, that SoCalGas reasonably managed its GCIM gas acquisitions in Year Six, achieving supply security and service reliability at low cost. SoCalGas has earned a shareholder award of $9,759,744.14 under the Year Six GCIM. We will permit SoCalGas to adjust the Purchased Gas Account accordingly.