21. Comments on Proposed Decision

The proposed decision of the ALJ and concurrent alternate of Commissioner Bohn in this matter were mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Combined comments on both the proposed decision of the ALJ and the concurrent alternate of Commissioner Bohn were timely filed on June 26, 2008 by SDG&E and SoCalGas; on June 27, 2008 by CCUE, DRA, Farm Bureau, Greenlining, and UCAN; and on June 30, 2008 by Aglet, Disability Rights Advocates, FEA, Southern California Generation Coalition, and TURN; and Western Manufactured Housing Community Association, was allowed to late-file on July 1, 2008. Reply comments were timely filed on July 7, 2008 by Greenlining, PG&E, SCE, TURN, and SDG&E and SoCalGas.

Where appropriate and necessary various revisions and corrections were made to this decision. These changes result in no changes to final conclusions, however, the decision benefits by incorporating various corrections or clarifications in response to the thoughtful and thorough comments of parties.

We note in particular DRA's concern, echoed by TURN, that the decision would abridge the right of parties to petition the Commission. We neither make nor intend any such abridgement: DRA may, in future proceedings, make any argument or factual assertion it believes will benefit the record at that time. This decision provides guidance to all parties where, regardless of the settlements before us, we found herein various litigation positions to be unpersuasive. SCE and PG&E correctly point out the settlements were contested by UCAN and that resolving issues litigated by UCAN, and unresolved by the settlements, was a necessary party to analyzing the settlements themselves in light of the whole record. The adoption of settlements, which embodies numerous compromises necessarily confidential to those negotiations, should not preclude the Commission from providing guidance on specific issues which the settlements themselves identified as policy disputes unresolved between the settling parties. Settlements are not precedential: but they are confidential and parties cannot rely on a current settlement in future proceedings. By informing parties when we find the arguments put to us to be unpersuasive, in a contested proceeding, especially with a contested settlement between only a few parties, the parties are under notice that they must look for better or more persuasive evidence and analysis in order to prevail on the merits of the argument in future proceedings. Adopting a settlement cannot silence the Commission from offering guidance for the future, and we do not have to choose between adopting a settlement in silence and rejecting the settlement primarily to provide future guidance.

FEA and UCAN should be assured that the Commission was cognizant of the full record when weighing the settlements but we need not provide a full recital of the analysis of every position by every party as a necessary part of adopting a settlement. Additionally, this decision reviewed and resolved several of the contested issues raised by UCAN (and others) which were otherwise not settled as a part of the review the proposed settlements.

Findings of Fact

Record

1. There is a full and complete record composed of testimony, work papers, examination of witnesses, as well as full and complete opening and reply briefs.

Accounting

2. SDG&E and SoCalGas made numerous complex adjustments to recorded financial data to translate its cost center accounting system to the FERC Uniform System of Accounts.

3. The 2006 recorded data is not reliably adjusted to be comparable to 2005 and earlier data as presented in the applications.

4. The cost center accounting system changes as accounts are added or deleted over time which reflects the actual operations of SDG&E and SoCalGas.

5. The 2012 test year GRC will be less complex and not require significant adjustments of updated data if it is filed based on the existing accounting system used by SDG&E and SoCalGas for daily control of operations and planning, e.g., cost center control accounts.

6. SDG&E and SoCalGas can file the rate case using the cost center accounting system without affecting financial reporting formatted to comply with the FERC uniform system of accounts.

7. Both companies are subsidiaries of Sempra Energy and many functions are performed either by a "corporate center" for both utilities, or within the structure of either one of the two utilities on behalf of both companies.

8. A single application with separate revenue requirements for SDG&E and SoCalGas could reduce duplication and expedite the next GRC.

Settlements - Generally

9. The parties to the settlements adopted in this decision had a sound and thorough understanding of the application, and all of the underlying assumptions and data included in the record and could make informed decisions in the settlement process.

10. The adopted settlements are between competent and well-prepared parties who were able to make informed choices in the settlement process.

Test Year 2008 Settlements

11. The intervening parties that settled with SDG&E and SoCalGas represented a broad range of customers.

12. The 2008 test year revenue requirement settlement for SDG&E is a balance of the positions advocated by SDG&E and intervenors.

13. The end-of litigation position advocated by SDG&E included specific concessions to the positions advocated by UCAN. These concessions reduced SDG&E's proposed revenue requirement, before settling with DRA, by $17 million.

14. The settlement proposed by SDG&E and DRA includes $14 million in further adjustments attributed to adjustments advocated by UCAN.

15. The 2008 test year revenue requirement settlement for SoCalGas is a balance of the positions advocated by SoCalGas and intervenors.

16. The test year revenue requirement settlements for SDG&E and SoCalGas reflect the concerns of other parties that did not settle.

17. The 2008 test year settlement agreements reflect commitments by SDG&E and SoCalGas to certain expected levels of maintenance, repair, capital additions, and customer service and the related comparison exhibits provide the detailed descriptions of those commitments.

Unresolved Issues

18. The test year settlements' revenue requirements are unaffected by resolving open policy disputes between applicants and other intervenors.

19. The unresolved issues include issues litigated by parties opposed to the test year 2008 revenue requirement settlements.

20. There are unresolved problems with closing existing branch offices. Some customers are likely to be underserved.

21. There are unresolved problems with non-utility payment locations. Some customers are likely to be precluded from access to utility service representatives and unable to pay the utility directly.

22. A moratorium on closing branch offices and opening new non-utility payment locations at "payday lender" businesses will allow an opportunity to reexamine how to reasonably provide services to all customers.

23. The incentive compensation of certain employees is an integral part of employee total compensation. Total compensation studies show both SDG&E and SoCalGas are at-market. Incentive compensation is reasonably included in the test year forecast.

24. SDG&E and SoCalGas correctly applied depreciation standard practice U-4 to determine depreciation expense.

25. The alternative net-salvage methodology used by UCAN and TURN is not supported by fact and does not comport with standard practices for depreciation.

26. The settlements for SDG&E and SoCalGas include a reasonable study of depreciation-related practices for the next GRC. Parties should also analyze actual removal and net salvage for specific asset groups, and the accrual in rates over the assets' service lives, to determine whether there are over or under-accrual allowances.

27. DRA's proposed exclusion of cash deposits is not consistent with the intent of working cash standard practice U-16.

28. The tax deduction for dividends paid on employee-owned stock held in the employee stock option plan does not affect correctly calculating test year revenue requirement.

Post-Test Year Settlements

29. The intervening parties that settled with SDG&E and SoCalGas represented a broad range of customers.

30. The post-test year settlements for SDG&E and SoCalGas contain fixed attrition amounts to provide rate relief for changes in both operating expenses and capital expenditures. The settlements provide discretion to SDG&E and SoCalGas to use the fixed amount as needed for either operating expenses or capital expenditures.

31. Adopting a fixed amount for attrition provides more latitude or discretion to the companies on how to reasonably use the revenue to provide safe and reliable service.

32. The post-test year settlements do not resolve the duration of the rate cycle. Settling parties DRA and Aglet deferred to the Commission to select either a four or five-year cycle instead of the proposed six-year cycle requested by SDG&E and SoCalGas.

33. A four-year cycle is the earliest reasonable interval to schedule a general rate case with a Test Year 2012.

34. It may not be possible to schedule the next rate case without overlapping rate cases with either PG&E or SCE.

Sharing Mechanism-Earnings Cap

35. The settling parties in the two settlements each for both SDG&E and SoCalGas propose a balanced package for each company which includes a test year revenue requirement and a fixed amount for attrition. This package terminates the existing earnings sharing mechanisms for both companies as a part of the settlement process compromise.

Other Settlements

36. The proposed settlement with CCUE sets annual targets which are more stringent over the rate cycle than the flat rate proposed by DRA.

37. The settlement limits the maximum reward or penalty to $2.5 million, with an equal incremental allowance for exceeding or failing to meet the target.

38. The proposed settlement with Local 132 reduces the ratepayer exposure by $2 million for the maximum incentive, and sets the target almost mid-way between the litigation positions of DRA and SoCalGas.

39. The proposed settlement with Greenlining on corporate philanthropy is outside the scope of the proceeding and beyond the Commission's authority to impose a lawful order on SDG&E and SoCalGas.

40. The proposed settlement with Greenlining on diversity contains no measurable or enforceable goals.

41. GO 156 embodies the only applicable, measurable diversity goals for SDG&E and SoCalGas to achieve.

42. Diversity is good public policy, therefore SDG&E SoCalGas should competently staff at all times the full forecast of positions for WMDVBE activities and diversity.

43. There is no record to support the proposed settlement terms between SoCalGas and Local 483.

44. The proposed settlement with Local 483 would grant Local 483 preferential treatment by funding new positions requested in the application; would perform staffing studies to possibly up-grade some incumbent employees, and fill certain vacant positions.

45. The issues addressed in the proposed settlement with Local 483 embody specific employment terms and conditions, which belong in collective bargaining and not in the GRC.

Pest Control Operators of California

46. The proposed settlement with the PCOC resolves procedural issues to ensure safe and reliable gas service shut-off and restoration.

47. The issues resolved in the proposed settlement address rules for service which are includable in SDG&E and SoCalGas' tariffs, and, therefore, are within the scope of this proceeding to set rates for safe and reliable service.

Disability Rights Advocates

48. The proposed settlement with Disability Rights Advocates provides reasonable and useful improvements to SDG&E and SoCalGas' facilities, web sites and customer practices. These improvements are within the scope of the proceeding to set rates for safe and reliable service.

Incentive Mechanisms

49. Incentive mechanisms provide SDG&E and SoCalGas motivation to improve service beyond the reasonable level as otherwise funded in base rates.

50. Balanced mechanisms reward improvement and penalize lowered performance, unlike unbalanced mechanisms which do not provide an adequate incentive to improve performance.

51. Dead bands eliminate the effect of random chance affecting rewards or penalties.

52. The beginning points for incentives differ for SDG&E and SoCalGas because of the original difference in performance when the incentives were started. These differences reflect the unique natures of SDG&E and SoCalGas.

53. There have been problems with incentives for another utility. A prudent policy to avoid or deter problems with SDG&E and SoCalGas would add internal audits with reporting to the Commission to safeguard ratepayers.

54. An annual improvement factor to adjust the incentive target of all incentive mechanisms will ensure that SDG&E and SoCalGas must continually improve performance to earn a return or avoid a penalty.

Customer Service Incentives

55. SDG&E has received rewards for customer service incentives from 1999 to 2006. DRA's proposed three-year average performance standard indicates recent performance whereas the companies' five-year average dilutes the target.

56. SoCalGas has consistently earned incentives for improvements based on equal increments with SDG&E. DRA's three-year average performance standard is not diluted by earlier years' results.

57. SoCalGas has not justified the need for higher incremental incentive payments than SDG&E for filed service order appointment performance.

Definition of Major Events

58. The Commission's existing definition for excluding major event outages for performance incentive provides a consistent definition to compare performance over time.

59. The Commission's current definition measures only actual events.

60. The new IEEE 1366-2003 standard is subject to interpretation by utilities and regulators outside our jurisdiction and therefore provides no reliable comparison over time or between companies.

61. The continued use of the Commission's current exclusion standards does not preclude SDG&E from using the new definition for non-incentive mechanism purposes.

System Average Interruption Duration Index - SAIDI

62. DRA's target for SAIDI reflects the Commission's existing major event exclusion standard.

System Average Interruption Duration Exceeding Threshold SAIDET

63. SAIDET is a new measure that is a modification of SAIDI.

64. SAIDET is likely to be a useful measurement of customer satisfaction that focuses on reducing the longest outages.

65. The combined proposed maximum reward or penalty for SAIDI and SAIDET exceed the prior $3,750,000 maximum for SAIDI alone.

66. Adopting SDG&E's proposed $2,000,000 SAIDI maximum and $1,750,000 as the maximum for the new, related SAIDET, prevents ratepayer exposure to a higher maximum total incentive or reward for similar performance indicators.

System Average Interruption Frequency Index - SAIFI

67. DRA's target reflects the same formula for the prior SAIFI incentive and uses the current Commission definition for major event exclusions, not the IEEE Standard 1366-2003.

Momentary Average Interruption Index - MAIFI

68. SDG&E no longer requests a MAIFI incentive. SDG&E's shift in emphasis is to reduce the number of interruptions rather than focus on the duration of short interruptions.

Estimated Restoration Time - ERT

69. The ERT will measure the percentage of service restorations that occur within the scheduled timeframe.

70. SDG&E has the ability to influence the incentive by over-estimation of the time to restore service, thus increasing the chance of meeting or exceeding the schedule.

71. A dead band and a limit on the total incentive will allow the Commission an opportunity to judge the effectiveness of a new incentive.

Memorandum Account

72. SDG&E and SoCalGas did not disclose the existence of the Utility of the Future in A.06-12-009 and A.06-12-010 as filed.

73. Utility of the Future was disclosed when SDG&E and SoCalGas provided their response to discovery requests on May 7, 2007, five months after the filing of these applications.

74. While the failure to disclose The Utility of the Future may have contributed to some delay in this proceeding, it is not by any specific determinable time.

Conclusions of Law

Subsequent Rate Cases

1. The Commission has the discretion and authority to authorize related entities to file a single GRC to achieve potential savings in time and effort by all parties.

2. The Commission has the discretion and authority to authorize a regulated utility to file its GRC using the accounting format that is used to operate and control the entity to avoid duplication of effort and unnecessary conversions and allocations to the FERC Uniform System of Accounts.

Settlements

3. Applicants alone bear the burden of proof to show that its forecasts are reasonable.

4. The Test Year 2008 revenue requirements settlements are reasonable because they fairly balance intervenor interests and provide sufficient revenue to safely provide reliable service.

5. The Commission has the discretion and authority to resolve open policy disputes which were not addressed in the settlements and were part of the litigated positions of parties opposing the settlements.

6. The post-test year ratemaking settlements are reasonable because they fairly balance intervenor interests and provide sufficient revenue to safely provide reliable service.

7. The settlements, except for the two with Local 483 and Greenlining, are reasonable in light of the whole record.

8. The settlements with Local 483 and Greenlining are not reasonable when examined in the light of the whole record.

9. The settlements, excluding the two with Local 484 and Greenlining, are consistent with the law, and do not contravene or compromise any statutory provision or Commission decision.

10. The settlements, except for the two with Local 483 and Greenlining, are in the public interest.

11. The settlement with Local 483 is not supported by the evidentiary record.

12. The settlement with Local 483 is not in the public interest.

13. The settlement with Greenlining is beyond the authority of the Commission to regulate, direct, or require, shareholder philanthropy. The Commission cannot lawfully order SDG&E or SoCalGas to pursue philanthropic giving of shareholder monies.

14. Philanthropy was properly excluded from the scope of the proceeding.

15. There are no enforceable components to the proposed agreement on diversity that require an order by the Commission.

16. SDG&E and SoCalGas may implement the settlement with Greenlining without an order of the Commission.

17. The adopted settlements provide sufficient information for the Commission to discharge its future regulatory obligations.

18. The Commission has the discretion and authority to adopt fixed dollar amounts for attrition adjustments and is not required to adopt specific allowances or adjustment mechanisms for either expense and capital items.

19. The Commission can allow parties to file proposed settlements and waive Rule 12.1(b).

Unresolved Issues

20. The Commission has the discretion and authority to protect ratepayers with a moratorium on branch office closures and new authorized payment locations within "payday lenders."

21. The Commission has the discretion and authority to adopt reasonable compensation estimates that include an incentive component when the total compensation is reasonable.

22. The Commission has the discretion and authority to adopt the test year 2008 settlements' proposal and require a specific study of cost of removal to enhance the record of the next general rate case.

23. The tax benefits associated with dividends paid on stock held in the Employee Stock Ownership Plan are not the property of ratepayers.

24. The Commission has the discretion and authority to direct SDG&E and SoCalGas to fully fund all positions and programs that manage G.O. 156 and diversity-related activities at the levels included in the revenue requirement settlements.

Objections to the Settlements

25. The ratemaking Settlements for SDG&E and SoCalGas fully address the contested issues and are reasonable based on the whole record, as modified herein.

26. The Commission can resolve the disagreement between the settling parties and the other intervenors and find a four-year rate cycle is reasonable based on the record.

Sharing Mechanism-Earnings Cap

27. The Commission has the authority and discretion to eliminate the existing earnings sharing mechanisms as a part of adopting the test year revenue requirement settlements and the post-test year ratemaking settlements for SDG&E and SoCalGas.

Incentive Mechanisms

28. Incentive mechanisms are a discretionary choice, allowable by Pub. Util. Code § 701, where the Commission finds that by providing specific, measurable targets, the utility can intentionally improve performance and thereby increase customer satisfaction or employee safety.

29. The Commission has the discretion and authority to impose internal audits and reports to the Commission to safeguard ratepayers when authorizing incentive mechanisms.

30. The Commission may provide for the internal audit reports to be confidential pursuant to GO 66-C and Pub. Util. Code § 584.

31. The Commission has the discretion and authority to adopt new incentive mechanisms, when reasonable, and terminate incentives that are no longer necessary or reasonable.

Memorandum Account

32. SDG&E and SoCalGas have no automatic right to rate relief under the schedule of the rate case plan.

33. The Commission has discretionary authority to establish memorandum accounts to refund or collect the revenue requirement difference between existing rates and the rates to be adopted in these consolidated proceedings.

34. There is no causal link between Applicants' delay in disclosing the Utility of the Future program and any delay in these consolidated proceedings.

35. The Commission has the discretionary authority to determine the reasonable effective date of the change in revenue requirements is January 1, 2008.

36. This proceeding should be closed.

ORDER

IT IS ORDERED that:

1. The Test Year 2008 Settlement for San Diego Gas & Electric Company (SDG&E), in Appendix 1, is adopted without modification.

2. The Test Year 2008 Settlement for Southern California Gas Company (SoCalGas), in Appendix 2, is adopted without modification.

3. The SDG&E Post-Test Year Ratemaking Settlement, Appendix 3, is adopted without modification.

4. The SoCalGas Post-Test Year Ratemaking Settlement, Appendix 4, is adopted without modification.

5. The California Coalition of Utility Employees' Settlement with SDG&E, Appendix 5, is adopted without modification.

6. The Utility Workers Union of America, Local 132 settlement with SoCalGas, Appendix 6, is adopted without modification.

7. The Greenlining Institute settlement with SDG&E and SoCalGas, Appendix 7, is rejected.

8. The Utility Workers Union of America, Local 483 settlement with SoCalGas, Appendix 8, is rejected.

9. The Pest Control Operators of California (PCOC) settlement with SoCalGas, Appendix 9, is adopted without modification.

10. The Disability Rights Advocates Settlement with SDG&E and SoCalGas, Appendix 10, is adopted without modification.

11. There is a moratorium imposed on SDG&E and SoCalGas precluding any further branch office closures or new authorized payment locations within "payday lenders." SDG&E and SoCalGas may file a separate application on these issues after meeting and conferring with interested parties.

12. The change in revenue requirement for SDG&E, as recorded in the memorandum account authorized in D.07-12-053, is effective January 1, 2008.

13. The change in revenue requirement for SoCalGas, as recorded in the memorandum account authorized in D.07-12-053, is effective January 1, 2008.

14. Within 10 days from the effective date of this Order, SDG&E shall file a Tier 1 advice letter with revised tariff sheets to implement (i) the revenue requirement authorized by this Order, and (ii) all settlements authorized by this Order. The revised tariff sheets shall (a) become effective within 45 days of the date of this Order, subject to a finding of compliance by the Commission's Energy Division, (b) comply with General Order (GO) 96-B, and (c) apply to service rendered on or after their effective date. Balances recorded in the General Rate Case Revenue Requirements Memorandum Account from January 1, 2008 until the effective date of new tariffs required by this Order shall be amortized in rates over a one year period beginning January 1, 2009.

15. Within 10 days from the effective date of this Order, SoCalGas shall file a Tier 1 advice letter with revised tariff sheets to implement (i) the revenue requirement authorized by this Order, and (ii) all settlements authorized by this Order. The revised tariff sheets shall (a) become effective within 45 days of the date of this Order, subject to a finding of compliance by the Commission's Energy Division, (b) comply with General Order (GO) 96-B, and (c) apply to service rendered on or after their effective date. Balances recorded in the General Rate Case Revenue Requirements Memorandum Account from January 1, 2008 until the effective date of new tariffs required by this Order shall be amortized in rates over a one year period beginning January 1, 2009.

16. SDG&E and SoCalGas shall affirmatively accept or decline each adopted incentive mechanism, for the duration of this rate cycle, within 30 days of the effective date of this decision, by letter to the Executive Director, with a copy served on the parties.

17. SDG&E is authorized the following incentive mechanisms, as described in the decision:

Within 10 days from the effective date of this order, SDG&E shall file a Tier 1 advice letter with revised tariff sheets modifying its preliminary statement to add language describing the operation of each incentive mechanism listed above. The revised tariff sheets shall become effective on the effective date of this order subject to Energy Division determining that they are in compliance with this order.

18. SoCalGas is authorized the following incentive mechanisms, as described in the decision:

b. Safety Incentive.

Within 10 days from the effective date of this order, SoCalGas shall file a Tier 1 advice letter with revised tariff sheets modifying its preliminary statement to add language describing the operation of each incentive mechanism listed above. The revised tariff sheets shall become effective on the effective date of this order subject to Energy Division determining that they are in compliance with this order.

19. The Momentary Average Interruption Frequency Index incentive mechanism for SDG&E is terminated effective December 31, 2007.

20. SDG&E and SoCalGas shall perform annual internal audits on all incentive mechanisms and report annually no later than May 1st, of the subsequent year, as described in the decision. These reports will be confidential pursuant to GO 66-C and Pub. Util. Code § 584.

21. SDG&E and SoCalGas may file a single application for the next general rate case (GRC), with separate revenue requirements for both companies, in order to reduce duplication of testimony and expedite the proceeding. SDG&E and SoCalGas may also choose to file separate applications.

22. SDG&E and SoCalGas shall file the next GRC using the then-current "cost center" system of internal accounting and control rather than convert and allocate the data to approximate the Federal Energy Regulatory Commission's Uniform System of Accounts.

23. SDG&E and SoCalGas shall amend their preliminary statements to implement the terms of the settlement with Pest Control Operators.

24. SDG&E and SoCalGas shall perform the studies as identified in the settlement with Disability Rights Advocates. SDG&E and SoCalGas shall include this information on this study in testimony and work papers in the next general rate cases.

25. SDG&E and SoCalGas shall include five years of historical data for all cost center accounts in the work papers for the subsequent general rate cases.

26. SDG&E and SoCalGas shall perform the depreciation studies as identified in the settlements and this decision and shall present that information in testimony and work papers in the next general rate cases.

27. SDG&E shall thoroughly document all activities associated with the Estimated Restoration Time (ERT) reliability indicator adopted herein. SDG&E shall document all procedures and processes used to implement, manage, and improve the procedures and processes for the ERT. SDG&E shall include this information in testimony and work papers in the next general rate case.

28. SDG&E and SoCalGas shall maintain detailed records of all public affairs outreach efforts for educational and other purposes. SDG&E and SoCalGas shall include this information in testimony and work papers in the next general rate cases.

29. SDG&E and SoCalGas shall fully fund all G.O 156 and diversity-related activities as included in the revenue requirements of the adopted Test Year 2008 Settlement for each company. SDG&E and SoCalGas shall report on its compliance with G.O. 156 and the achieved levels of diversity in testimony and work papers in the next general rate cases.

30. We affirm all rulings by the assigned Administrative Law Judge on scope, admissibility, and acceptance of late-filed exhibits and late-filed settlements. All outstanding motions, not otherwise addressed, are denied.

31. Application (A.) 06-12-009, A.06-12-010 and Investigation 07-02-013 are closed.

This order is effective today.

Dated July 31, 2008, at San Francisco, California.

D0807046 Appendices 1-11

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