XXVI. Gas Distribution Operations

The test year forecast for gas distribution operating expenses was forecast in a manner consistent with the general method discussed previously where recorded 2001 costs were adjusted for changes either on a trend or for specific changes.²⁷³ For each account the company provided a description of the primary tasks and any specific changes and the reasons for those changes. We find that SoCalGas provided sufficient information to forecast a reasonable test year estimate, with a few exceptions. ORA did not take exception to many of Applicants' test year estimates for gas distribution O&M expenses; we will adopt the SoCalGas and SDG&E end-of-litigation estimates for the unopposed accounts and focus our attention on resolving any objections raised by ORA and other parties.

A. SoCalGas Account 870.0 - Operation Supervision and Engineering - Distribution

ORA proposed 10 separate adjustments for a total $703,000, ranging in size from $329,000 to $4,000.²⁷⁴ These are granular adjustments; we would urge ORA to not spend the time and effort in arguing for adjustments of $4,000 when the test year revenue requirement requested by SoCalGas is approximately $1,527,444,000.²⁷⁵ This amounts to 0.000003 of the total; and only 0.0001 of the proposed $59 million increase. Fractional adjustments of a few thousand dollars represent less than a single employee; these adjustments are `forced fits' taking a seemingly reasonable estimation change and applying it to numerous related accounts without consideration of whether such an adjustment is feasible.

SoCalGas proposed to add two positions related to Computer Aided Drafting (CAD). ORA's adjustment eliminated $32,000 associated with these positions and argued that they are excessive because of ORA's other recommendations to reduce capital expenditures. We will not make this adjustment; it lacks a credible stand-alone link to show that these positions are directly proportional to the capital construction. In light of the TLCBA, SoCalGas cannot "pocket" money not spent on real people filling authorized positions. SoCalGas may spend the money if it hires the people.

ORA proposed disallowance of $108,000 for a new maintenance and inspection system, part of a federally mandated Pipeline Integrity Program, again assuming a direct correlation to capital projects. This adjustment is composed of two fractional adjustments that do not eliminate entire positions; ORA suggests that we should eliminate 69% of five positions because of its proposed capital expense reduction and 23% of two support positions as a generic "Support Labor" adjustment. ORA fails to show these employees would not be useful and makes no showing that we can accept on credibly reducing fractions of employees. We decline to make this adjustment and again rely on the TLCBA to protect ratepayers.

B. SoCalGas Accounts 870.5 & 870.7 - Operation Supervision and Engineering

ORA argued that based on its proposed reductions to new capital expenditures, discussed previously, the forecast levels of O&M expenses were commensurately too high.²⁷⁶ We will not make this adjustment because we do not accept the ORA link between new capital expenditures and ongoing O&M for the entire system.

C. SoCalGas Account 878 - Meter and House Regulator Expense

ORA proposed a reduction equivalent to one Meter Records Clerk linked to its recommendation to reduce the planned meter changes.²⁷⁷ We have rejected the recommendation to reduce the rate of replacement of meters and we will therefore decline to make this adjustment too. Again, however, the TLCBA will capture any savings if SoCalGas' actual labor is below the Company's request.

D. SoCalGas Account 879 - Customer Installation Expense

1. Meter Replacements

While the cost of the replacement meters themselves is capitalized, the cost of installing them (which exceeds the cost of the replacement meters) is expensed and accounted for in Account 879. As discussed in the rate base section on Measurement Equipment, starting in 2004 SoCalGas will replace almost all tin meters²⁷⁸ and all meters manufactured by Rockwell Corporation purchased by SoCalGas between 1980 and 1993. ORA proposed a disallowance of $6.681 million.²⁷⁹ As already discussed, we cannot accept ORA's method of estimation because we only know that these meters are poor meters and we cannot predict which ones are the next to fail, so we must promptly replace them all.

If SoCalGas does not spend the money on labor to replace these meters then we expect to see an overcollection (at least with respect to this activity) accumulate in the TLCBA.

2. Supervision

ORA proposed a reduction to the number of supervisors, at a proposed savings of $0.862 million, based on its proposed reduction to the level of work to be performed, and a corresponding reduction in labor expenses. It accepted the estimate of "customer-generated" field service requests compared to "company-generated" requests.²⁸⁰ It argues these were discretionary levels of work. We disagree, we again note that if the level of work is not necessary, then any avoided direct expenses for labor and supervision should be reflected in the TLCBA.

3. Seismic Valve Inspections

SoCalGas sought to recover in Test Year 2004 (and onward) $0.504 million to inspect earthquake shut-off valves (also called seismic valves). There are 105,000 customers with these valves.²⁸¹ ORA opposed recovery and cited D.01-11-068, dated November 29, 2001, in A.00-07-040. In that proceeding, the Commission agreed with SoCalGas' assertion that it would be unfair to change the terms of the agreement²⁸² but it also found that it would be unfair to charge everyone else (core customers) to inspect these valves.²⁸³ SoCalGas mischaracterized the scope of A.00-07-040 in Ex. 97 at p. JPP-22 where it claimed "That decision involved the initial inspection of a valve after its initial installation. The activity in this case is different; it is the subsequent routine periodic inspections ... ." This is simply not the case; nothing in the language in D.01-11-068 limits the scope to initial inspections. Nor did SoCalGas offer any proof that the inspections are in some fashion a new inspection not within the scope of A.00-07-040. SoCalGas argued a position that it has already lost and it is rearguing in the wrong forum.

We will not include the $0.504 million in base rates for seismic/earthquake valve inspections.

4. Maturing Workforce

We note elsewhere that we reject SoCalGas' "maturing workforce" argument, and so we will reduce the forecast related to employee growth as shown in SoCalGas' testimony.

5. ORA's Spreadsheets and Testimony

The SoCalGas Joint Comparison exhibit ascribes a $0.797 million difference as "an inconsistency between ORA's RO (Results of Operations) model and testimony. We will rely on SoCalGas' spreadsheets.

E. Fumigation Costs (Within Account 879)

In October 2002, a new Department of Transportation (DOT) regulation terminated the fumigation contractor's authorization to turn-off/turn-on gas meter service before and after performing tented fumigation jobs.²⁸⁴ SoCalGas and SDG&E have held that only utility employees are qualified to perform gas meter turn-off/turn-on services in their service territories. They sought to recover the costs of the turn-off/turn-on of gas meter service during fumigation through general rates.²⁸⁵ The expense would be allocated among rate classes in the next BCAP. The Utilities argued that turning service off and on is something the utility should perform and it is safety related. They cited § 328, (b), which states "no customer should have to pay separate fees for utilizing services that protect public or customer safety."²⁸⁶

TURN's position was that the utilities could have "but chose not to" train fumigator employees to perform the work, and that the utilities apparently sensed a "growth opportunity."²⁸⁷ TURN argued that the turn-off/turn-on of gas service during fumigations is not a type of basic gas service defined by § 328 because the fumigation companies are not utility customers and tent fumigations are not utility services.²⁸⁸ TURN saw the roll-in of these costs as subsidizing the fumigation industry and recommended that the utilities charge the pest control company directly.²⁸⁹ TURN compared fumigation turn-off/turn-on with wrap and strap services on water heaters and restoring service on earthquake valves when the valve is triggered by an isolated event.²⁹⁰

ORA did not take issue with having the utilities perform the service and the roll-in of costs to rate base. ORA accepted SoCalGas and SDG&E's test year estimate of $3.173 million including both the number of orders and costs. It proposed a one-way balancing account for fumigation turn-offs/turn-on.²⁹¹ Ratepayers would be refunded any unused funds, and any cost incurred over the maximum allowable would not be recovered from ratepayers. ORA argued for this accounting mechanism because SoCalGas has no experience with this service.²⁹² There is not a sufficient reason to potentially punish SoCalGas and SDG&E with a one-way balancing account if the estimate is too low yet require a refund if the estimate is too high. Nor do we want the utilities to refuse or discourage safe fumigation services because the number of calls exhausts a one-way balancing account limit. SoCalGas and SDG&E were presumably prepared to respond to all fumigation calls for a fixed estimate in rates and we are prepared to authorize that estimate for Test Year 2004 with the expectation that they will respond to all requests regardless of the forecast.

We consider the turn-off/turn-on of gas service in conjunction with fumigation to be a safety issue and therefore, § 328 is applicable. If an explosion were to occur while the fumigation is being performed, it impacts the safety of all adjacent customers; therefore, public safety is involved. On May 8, 2003, the Commission approved Resolution G-3344, which allowed SoCalGas and SDG&E to temporarily apply Z-Factor treatment to recover the cost of providing this service in its next PBR filing. The issue was to be resolved finally in this proceeding. In Resolution G-3344, we found that charging a separate fee to fumigators or customers would provide an inappropriate incentive for them to perform the turn-off/turn-on service themselves.²⁹³

We disagree with TURN's recommendation to charge the fumigator for this service, as it might compel the fumigation companies to bypass the utilities and perform the function themselves, creating a safety issue. We reject TURN's argument that the utilities see the performance of this service as a "growth opportunity." We agree with SoCalGas and SDG&E, this is not a service ratepayers will abuse if there is no extra charge - it is not likely that customers will have their homes fumigated more often if there is no extra charge for the turnoff/turn-on service.

F. SoCalGas and SDG&E CO Testing - Costs in Account 879

SoCalGas and SDG&E have agreed with TURN and UCAN to record in a memorandum account the costs for 100% of CO testing weatherized homes.²⁹⁴ They disagreed on the number of homes to be tested for SoCalGas, TURN estimated 40,000 not 45,000. As a result, TURN proposed a 12% decrease ($0.150 million). We decline to make this adjustment; we will authorize the memorandum account, and do not impose a limit (beyond testing only the number of homes that need to be tested). The memorandum account will effectively refund any underspending if SoCalGas does not inspect 45,000 homes.

G. SoCalGas Account 880.3 - Other Expenses - Distribution Field

SoCalGas and ORA agreed to a $0.194 million reduction in Dispatch Operations as shown in the Joint Comparison Exhibit and we therefore adopt the Test Year 2004 estimate of $6.916 million.²⁹⁵ TURN recommended $6.829 million,²⁹⁶ a $0.280 million reduction, based on ORA's declining forecast of field service work orders. We will use the ORA adjustment of $0.194 million based on the SoCalGas and ORA agreement.

H. SoCalGas Account 880.4 - Other Expenses - Distribution Field

ORA proposed several reductions for a total of $0. 769 million,²⁹⁷ including $0.243 million for the maturing workforce phenomena, which we will adopt here, based on our blanket rejection of SoCalGas and SDG&E's maturing workforce arguments.

ORA also proposed to disallow $0.280 million (37%) of SoCalGas' "off production time" and linked its recommendation to its proposed reductions in Other Capital Replacement costs.²⁹⁸ SoCalGas' rebuttal denies the costs are related to capital costs and pointed out that its capital related costs are in Account 903. Even though we have adopted ORA's capital adjustment, we accept SoCalGas' explanation that the costs in this account are not associated with Other Capital Replacement costs and we therefore decline to make this adjustment.

Finally, ORA proposed to disallow $0.246 million for technical and field administrative support for pipeline records. This represents disallowing one third of the new district clerical support request ($81,000), one third of the new technical office supervisors request ($41,000) and one third of the distribution field work for posting facilities to mapping records ($124,000). These adjustments are dependent on the adoption of ORA's lower forecast for capital expenditures. Although we adopt two of ORA adjustments, we also adopt much of SoCalGas' request representing the vast majority of total capital expenditures. We will not adopt a fractional portion here, we do not have any evidence there is a strong linear relationship between the support costs and the capital cost. We further assume any unnecessary costs that are avoided are captured in the TLCBA. We only adopt the $0.243 million disallowance for maturing workforce consistent with rejecting the general maturing workforce arguments of SoCalGas and SDG&E .

I. SoCalGas Account 880.5 - Safety & Emergency Services

SoCalGas requests $4.187 million in Test Year 2004 for Safety and Emergency Services, which is described as training, safety procedure observations and field consultation. SoCalGas describes three "key operational drivers," (1) the maturing workforce changes and additional employees, (2) additional support on ergonomic and chemical hazards and anticipated new OSHA guidelines, and (3) upgrades to the mobile command unit.²⁹⁹ ORA's objection is that 2002 adjusted recorded costs are 14.4% lower than the estimate and recommends a $0.603 million reduction.³⁰⁰ First, the SoCalGas estimate is designed to reflect the expected scope of work and adjusting to recorded levels by ORA does not address scope. Second, 2002 is not the base year, and it is only a single point of data, so we reject ORA's method of adjustment. We note elsewhere that we reject SoCalGas' "maturing workforce" argument, and so we will reduce the forecast by $0.438 million, related to employee growth as shown in SoCalGas' testimony.³⁰¹ We adopt for Test Year 2004 in Account 880.5, $3.75 million ($4.187 minus $0.438 million).

J. SoCalGas Account 887 - Distribution Main Maintenance

ORA proposed a total of 11 adjustments for $0.848 million out of SoCalGas' Test Year 2004 request for $18.231 million. As discussed below, we adopt an estimate of $18.114 million for Test Year 2004.

For the Special Leak Survey ORA proposed to disallow 11%, $21,000 of $195,000, $31,000 of $285,000 for Leak repairs (in miles), and $191,000 of $1.7 million for the Leak Repair backlog. ORA relied on a seven-year average, which it also used for capital expenditures for Routine Main Replacement. SoCalGas points out that the maintenance is for existing systems and includes, for example, the pre-World War II steel pipe.³⁰² We rejected that approach for capital expenditures and we do so again here. But, again, we put SoCalGas on notice that we expect it to perform at this level and the level of actual performance will be considered in the next proceeding when assessing forecast credibility. Ratepayers may see some protection in that the TLCBA will capture any unspent labor funding.

ORA proposed to disallow 47%, $205,000 of the Franchise Main Maintenance expense, again linking expense to capital expenditures.³⁰³ SoCalGas argues this expense is driven by changes in the system as a result of local government and CalTrans. We adopted ORA's position on capital expenditures, but the maintenance expense applies to the entire existing system, not the current capital expenditures. We will adopt SoCalGas' estimate of $436,000.

There are four cathodic protection-related adjustments proposed by ORA for a total of $205,000 all of which are a 41% reduction described as "the direct relationship with Cathodic protection capital activities"³⁰⁴ and with which SoCalGas disagreed,³⁰⁵ and argued the expense related to the total existing system not the new construction forecasts for the test year. We agree with SoCalGas that this linkage is wrong, and, as with so many expenses, we are concerned whether SoCalGas will actually perform as much work as they forecast. Again, the labor component will be subject to refund in the TLCBA and we expect adequate proof in the next proceeding of the level of work actually performed in the test period. We adopt SoCalGas' Test Year estimates of $0.516 million for cathodic protection-related expense items.

ORA recommended a disallowance of maturing work force related increases, and as previously discussed, we agree. TURN supported this disallowance. We disallow $0.117 million for maturing work force related increases.

Finally, we reject ORA's proposal to reduce expenses for "rechecks" of leaks; ORA proposed an 11% reduction to expenses based on its position regarding capital expenditures which we find to be without merit. We adopt the SoCalGas estimate for Test Year 2004 of $0.055 million.

TURN recommended denial of $1.743 million, the increase requested by SoCalGas to reduce the backlog in gas main leaks, defining the adjustment as "deferred maintenance." The premise of its calculation is that SoCalGas was authorized $16 million in its last rate case, but has spent an average of $14.3 million. During this time, the backlog grew from 4,709 to 8,246. TURN pointed out that SoCalGas spent less than $15 million in every intervening year until now.

In rebuttal to this, SoCalGas argued "the leaks that were in the backlog in 1997 are not the same leaks that reside in the backlog today," which means there are more new leaks all the time. But SoCalGas did not refute the fact that it consistently under spent on repairs compared to the allowance in rates.³⁰⁶ We are glad they are not the same leaks, but still the leak backlog count grew while the spending was below previously authorized levels. This is a good example of why the TLCBA will ensure that if there is under spending on maintenance at least the ratepayers get the labor rate component back rather than letting it accrue to shareholders. SoCalGas has proposed reducing the backlog. Even though its argument is credible that leaks grew because the pipes are older and more prone to leaks, we expect the backlog to decline to the proposed level because the utility fully spends the authorized amounts; otherwise the ratepayers should see an appropriate refund in the TLCBA.

K. SoCalGas Account 892 - Distribution Service Maintenance

ORA proposed a total of seven adjustments for $1.162 million out of SoCalGas' Test Year 2004 request for $21.224 million. As discussed below, we adopt an estimate of $20.807 million for Test Year 2004.

First, we reject SoCalGas' request related to maturing work force cost increases. As discussed previously, SoCalGas' testimony on the likely numbers of retirements and the lengthy interval for new employees to become proficient is not credible. We therefore disallow $0.417 million related to maturing work force costs.

Consistent with Account 887 - Distribution Main Maintenance, we reject ORA's recommendations that link maintenance expense to capital expenditures. As SoCalGas pointed out,³⁰⁷ there is an inverse relationship if the funding is reduced for the maintenance of the curb meter boxes to inspect, rebuild, and repaint curb meter box sets along coastal areas that have been experiencing high levels of corrosion, then the need for future capital expenditures will rise.³⁰⁸ Thus, we reject also the proposal to reduce the budgets for pre-charged fillings (small, general use items), service alterations and unscheduled meter set assembly replacements and growth related expenses.

SoCalGas asked for $78,000 for incremental leak repairs and again we stress that in granting the forecast, placing these costs in rates, we expect SoCalGas to demonstrate a level of performance commensurate with the funding.

L. SoCalGas Account 893.2 - Tin Meter Testing

TURN proposed that if SoCalGas is authorized to replace tin meters because they are considered a leak hazard, that the company should not test the meter for accuracy, with the intention of possible rebilling of customers. TURN estimates that this would save $0.237 million.³⁰⁹ SoCalGas' witness acknowledged the primary concern was safety due to leaks not billing inaccuracy. In its Reply Brief, SoCalGas requested that if we adopted the proposal, we should clearly relieve "SoCalGas of any requirement or expectation within the Commission's jurisdiction that SoCalGas actually perform such tests."³¹⁰ We will adopt TURN's recommendation to reduce Account 893.2 by $0.237 million and SoCalGas need not retest tin meters that are removed as a part of the systematic replacement of tin meters to reduce the hazard of leaks.

M. SoCalGas - Information Technology Expense - Accounts 880, 903, & 923

ORA recommended an adjustment of $0.936 million that would result in Non-Labor adjustments of: (1) $165,600 to FERC Account 880; (2) $264,000 to FERC Account 903; and (3) $506,400 to FERC Account 923. These are the sum of 25 items that are characterized as one-time expenses; that is ORA agreed these costs may occur in 2004, but it believes they will not reoccur during a presumed five-year span before the next rate proceeding for SoCalGas.³¹¹ ORA otherwise accepted the expense forecasts for these accounts. SoCalGas requested $57.563 million for Test Year 2004. SoCalGas responded that while they may be non-recurring specific items, there are different non-recurring items every year in addition to the continuing standard items. Thus, if one year's one-time expenses are removed from the forecast there is no provision for the next year's one-time expenses.³¹²

ORA explained its methodology, including the fact that SoCalGas could not provide a five-year trend because of merger effects and subsequent reorganization of the Corporate Center, and because SoCalGas did not budget on an FERC account basis. ORA therefore reviewed project costs, justifications, workpapers, etc., and met with company personnel.³¹³ We find this process to be essentially correct, in terms of understanding the basis of the request, and, as discussed elsewhere, the narrow use of trends without this analysis is not sufficient. Expenses, like capital expenditures, can be classified as recurring or as unique, and therefore they need different treatment in adopting a test year forecast. Because the rates we adopt here will remain in effect for several years, (with or without some form of attrition adjustment) we must consider whether the estimate allows for each year's atypical expenses, i.e., each year's different unique expenses.

SoCalGas will undoubtedly have different one-time expenses until its next rate case. ORA identified $0.936 million, which is about 2% of the requested $57.563 million. We will not make ORA's adjustment for one-time 2004 expenses; a 2% factor annually is a small allowance for subsequent year's one-time events.

N. SDG&E - Information Technology Expense - Accounts 588, 880, 903, 920, 921 and 935

SDG&E requested $33.578 million ($26.366 million electric and $7.211 million gas) and ORA proposed a disallowance of $0.488 million, similar to the proposed SoCalGas Information Technology disallowance for one-time expenses. ORA proposed to disallow Non-Labor adjustments of: (1) $73,600 to FERC Account 588; (2) $3,200 to FERC Account 880; (3) $115,200 to FERC Account 903.D; (4) $57,600 to FERC Account 920; (5) $228,800 to FERC Account 921; and (6) $9,600 to FERC Account 935. We decline for the same reasons as discussed for SoCalGas to make this adjustment.

O. SoCalGas Account 901 - Supervision (Staff Support Services)

SoCalGas requested $3.882 million in Test Year 2004, which included an increase of $0.722 million. ORA objected to $0.442 million related to 5.4 new full-time equivalent positions and there is a further $0.007 million difference attributed to SoCalGas up-dates not included in ORA's calculations. SoCalGas cited in Ex. 7 a number of new customer service information systems that are needed to improve service and ORA`s conclusion was that these new systems mean more efficient operations and therefore the increased personnel are not needed.³¹⁴ Neither the justification by SoCalGas nor the analysis by ORA are in any depth, and on the whole new systems would appear to require personnel to operate them, if the goal of the systems is to allow field work to be better planned and coordinated, so we will not disallow all positions. Again, we will adopt the estimate with unexpended labor costs (savings) accruing in the TLCBA.

P. SoCalGas Account 902 - Meter Reading Expense

SoCalGas reads about 5.44 million gas meters monthly, about 125,000 electric meters in Orange County for SDG&E, in conformance with the affiliate transaction rules. SoCalGas has moved from a full-time meter-reading workforce to a partial part-time staff. SoCalGas seeks $20.589 million for Test Year 2004, which is a $2.069 million increase.³¹⁵

SoCalGas attributed $0.651 million of the increase to customer growth. Of the total $287,000 is the incremental cost to read the meters, and $364,000 is required to "maintain safe access to customers' meters," where the company is encountering more fences, locked gates, and more dogs. SoCalGas wants to use a global positioning system to assist with access to about 700 rural and remote area meters. From 1995 to mid-2002, there were 440 dog-bites, which account for 34% of all injuries. SoCalGas has on file 644,273 "Aggressive Dogs" and some specific procedures to deal with them. SoCalGas also attributed $0.753 million to the newest collective bargaining agreement, which requires 100 meter-readers to be full-time employees. It attributed another $0.556 million to a high turnover rate, because the position functions as an entry-level position into the company's other jobs. This leads to increased training and more field observations to monitor safety and performance.³¹⁶ ORA objected to three components, which total $0.404 million.

ORA wants to "normalize" for the five years of the presumed duration of the rate cycle The $0.050 million for the development of global positioning technology. This project has been identified as a "one-time" expense.³¹⁷ As already discussed, in test year forecast there are atypical "one-time" events that should be dealt with separately, and there are the examples which are minor but something similar will occur. We will not normalize a $50,000 item, first because we have not adopted a five-year rate cycle and second because we expect SoCalGas to undertake all reasonable minor items that are not forecast, while these rates are in effect.

SoCalGas argued that it has a very high turn-over rate for meter readers, attributed to two significant factors: the position is an entry-level gateway into the company so incumbents may move into better paying positions over time, and secondly, the position is part-time so that leads to turnover as people find other full-time positions outside SoCalGas. The turnover rates, not disputed by ORA, are over 70% annually. ORA objected to $0.168 million for more full-time positions that would train part-time meter readers. ORA did not quantify its objection (no assertion or analysis that there are enough trainers, for example) only that it "does not see a need,"³¹⁸ and so we will allow the funding, which is subject to refund if not spent, and regardless of it being spent, we have throughout this decision put SoCalGas on notice to demonstrate it has made efficient use of all labor funding in its next rate proceeding.

ORA proposed a third adjustment of $0.196 million that is for group and individual incentive safety programs. ORA argued these incentives are social activities programs and should be disallowed. Consistent with our position in Account 926, we will allow the expense as a reasonable expense to engender morale and a useful tool for encouraging worker safety.

TURN would have us recalibrate for 2002 recorded data. We decline, as otherwise we would have to recast the entire revenue requirement on 2002 data, which is not feasible and to do so selectively is the definition of "cherry-picking" based on outcome. We have a uniform safeguard for labor estimates in this decision, the TLCBA, and we expect the next rate proceeding to be well reviewed at the Notice phase.

We adopt the SoCalGas Test Year 2004 request for $20.589 million.

Q. SDG&E Account 902 - Meter Reading

ORA had no adjustments to this account; UCAN on the other hand opposed SDG&E's nine new full-time equivalent positions. UCAN compared the employee database from January 2001 through June of 2003 (2.5 years) and found a slight decrease - with part-time workers replacing some full-time employees.³¹⁹ SDG&E disputed the employee count, and argued that total hours is the more relevant measure; it disagreed too with what it called a "snapshot" measurement - 2.5 years.

We have said repeatedly that the reliability of labor forecasts, and the likelihood of filling the vacant and new positions, are significant concerns to us and so of necessity we developed the TLCBA for Test Year 2004, and beyond. We will not make UCAN's adjustment for labor.

We agree with SDG&E that other costs for safety training and equipment are likely recurring costs and we will not make UCAN's adjustment.³²⁰

UCAN makes a further recommendation for Account 902, to reject $2.736 million for costs necessary to support interval meters. UCAN argued to do this "because SDG&E has no hourly rates or mandatory dynamic pricing programs that necessitate hourly billing or interval metering ... as of September 2003, the Company has installed only 1,652 interval meters, none of which are on an hourly billing tariff."³²¹ SDG&E pointed out that under AB 1X-29, the Commission is obliged to support real-time meters as funded by a California Energy Commission program³²² - the issues of meter technology and real-time pricing are well beyond the scope of this proceeding - we need only decide whether SDG&E is reasonable in its efforts to support and maintain these metering systems. We will not revisit R.00-10-002, Interruptible Load Programs or R.02-06-006, Advanced Metering, Dynamic Pricing and Demand Response in this proceeding.

UCAN had a related adjustment discussed in Account 903.1, for dynamic tariff and demand reduction programs. As discussed below in Account 903.1, we decline to make that adjustment.

R. SoCalGas Account 903 - Customer Records and Collection Expenses

This is a major account dealing with labor and non-labor expenses for the Customer Contact Center, branch office and authorized payment locations, customer billing, credit and collections, bill distribution, bill payment processing and meter reading supervision. The end-of-litigation request by SoCalGas was for $91.854 million in Test Year 2004.

ORA proposed a large number of adjustments, totaling $3.370 million, or 3.67%, as shown in the table below, taken from the SoCalGas Joint Comparison Exhibit.³²³ The majority of the adjustments are labor related. The ORA proposal is characterized by a number of relatively small adjustments and then two large amounts totaling $0.669 million, where its final litigation position failed to reconcile internally and failed to capture the effects of SoCalGas' errata.

	Issue Area
	SoCalGas Test Year 2004 Estimate	$91.854 million
1.	Call Volume - Customer Call Center	$1.161 million
2.	Multi-Lingual Services - Customer Call Center	0.257 million
3.	Maintenance Costs - Customer Call Center	0.049 million
4.	Quality Assurance - Customer Call Center	0.485 million
5.	Pay Station Technology	0.082 million
6.	Supervisor Span of Control - branch offices	0.115 million
7.	Paper Orders & Processing - customer billing	0.096 million
8.	Credit Analysis Staff	0.665 million
9.	Meter Reading	0.455 million
10.	Call Volume - customer growth	0.217 million
11.	Unadjusted Impact for Errata Ex. 7-E	0.228 million
12.	Aligning Forecasts related to fumigation	0.441 million
	TOTAL ORA Proposed Adjustments	$3.371 million
	Adopted Adjustments
	Maintenance Costs - Customer Call Center	0.030 million
	Pay Station Technology	0.082 million
	Unadjusted Impact for Errata Ex. 7-E	Already Included
	Aligning Forecasts related to fumigation	Already Included
	Adopted Expense	$91.742 million

1. Call Volume (1)

ORA's largest issue with Account 903 was a proposal to disallow $1.161 million of the test year estimate due to the presumed level of customer growth and resultant service calls. By using a three-year average of calls per active meter instead of a five-year average, ORA projected 60,000 fewer calls than forecast by SoCalGas. ORA would reduce the expense by $127,000³²⁴ below 2001 levels instead of increasing the cost by $1,035,000 for a net difference that is $1.161 million lower than the company's request.³²⁵

This method eliminated two higher years, 1997 and 1998, without regard to why they were high and whether the conditions in 2004 and beyond are reflective of a longer or shorter-term trend. SoCalGas asserted ORA "clearly sacrificed consistency to find the timeframe that yielded the lowest possible forecast" because ORA used different time frames - 1999 through 2002 for Account 908, and 1997 through 2001 for Account 909.³²⁶ We note the only way ORA could have a lower average would have been to drop 2001, the base year, which is the highest of the three included in its average. We have noted with concern elsewhere that forecasts appear at times to be more results-selective than methodologically rigorous.

In rebuttal, SoCalGas also included a chart that is most interesting: that as gas prices sharply rose, so did call volume. But the chart is also less than complete for the full five years, so it is not dispositive either. TURN attempted to introduce an adjustment based on 2002-recorded data that no one has been able to properly review, and is not the base year. It was no more convincing than ORA's selective averaging method.

The critical element here is labor - a voice at the end of the phone line to assist customers. We will adopt the SoCalGas forecast, knowing that if call volumes are low, costs should be lower too and most savings will be captured in the TLCBA.

2. Multi-Language Costs (2)

SoCalGas is expanding to seven days a week and 24 hours (24/7) for Mandarin, Cantonese, Korean, and Vietnamese language assistance in addition to English and Spanish. ORA argued that SoCalGas relied on SDG&E experience, but forecasts 10 minutes (not SDG&E's nine) and $3.87 per minute (not SDG&E's $3.10) so the costs are higher per call. The weakness in ORA's method is it used 2001 weekend actual calls for help in Asian languages (5,153) when there was no 24/7 assistance.³²⁷ SoCalGas strongly rebutted the adjustment, in essence arguing the difficulty of estimating the number of calls - for a growing population segment - for a service not previously offered. SoCalGas used double the number of calls than ORA. SoCalGas also disputed ORA's cost estimate, showing that after adjusting for Spanish language calls, the costs (for the reduced availability service) was $38.50 per call, similar to the 2004 estimate of $38.70 per call.³²⁸

In the highly diverse service territory served by SoCalGas, we would be doing the public a disservice if we cut corners on 24/7 Non-English language customer assistance. The public benefit outweighs the risk of over-budgeting for the relatively short time these rates will be in effect. We will not reduce SoCalGas' forecast, but we expect the company in the next rate proceeding to have available adequate detailed records to support the costs for this service.

3. Maintenance (3)

ORA proposed to normalize a "one-time" $25,000 software site license contract to $5,000 per year. (Ex. 301, p. 9-30.) Consistent with our position elsewhere, we decline to make such a granular adjustment that presumes no other one-time events would occur during the life-span of the rates we adopt here. ORA also dropped a $30,000 contract that SoCalGas cancelled. We will accept this adjustment for a known change to the test year, so on a combined basis, we are not taking away all discretionary money for small items while the rates remain in effect.

4. Quality Assurance and Span of Control (4 & 6)

SoCalGas created a Quality Assurance team within the Customer Call Center in 2001, and seeks to enlarge the team in the test year by three positions to a total of 6.57 full-time equivalent positions. ORA agreed with the original team's size but objected to the increase of three positions ($485,000). SoCalGas responded that even if the Commission adopted ORA's call volume forecast, two of the three positions ($399,000) should be approved.³²⁹ We did not accept ORA's call volume forecast so we will adopt SoCalGas' full request.

ORA linked the creation of the Quality Assurance team to reducing the span of control problem because 20% to 25% of supervisor time had been "freed up" (Ex. 301, p. 9-31) and therefore ORA opposed any additional supervisor positions. SoCalGas responded that supervisors were unable to "complete the desired quality observations" and that even with the Quality Assurance team, SoCalGas was still trying to reduce subordinate to supervisor ratios of 24:1 to 20:1, still higher than their desired 12:1 or 15:1.³³⁰ We will allow SoCalGas the added positions, for both Quality Assurance and to reduce the span of supervisory control ratios in the test year. Any positions not filled will be captured in the TLCBA, protecting ratepayers from funding positions that cannot be filled or SoCalGas chooses not to fill.

5. Pay Station Technology (5)

ORA proposed that the development and implementation of the Pay Station technology was a one-time event and proposed to "normalize" the $102,000 cost over five years. SoCalGas did not respond in its opening litigation brief or cite rebuttal in the comparison exhibit, so we will adopt ORA's unopposed adjustment.

UCAN proposed a further adjustment of $134,000 for cost savings as a result of installing pay station technology (in Account 910). UCAN showed no derivation of this adjustment and further did not show that any cost savings were kept by SDG&E and not reflected in the forecast costs; therefore, we will not make this adjustment.³³¹

6. Paper Orders & Processing - Customer Billing (7)

In its opening litigation brief, SoCalGas made this summary: "SoCalGas (Ex. 97, p. 59-60) proposed an increase of about 4.8 FTEs, or $215,000, in customer billing due to customer growth and more paper orders, but ORA proposed to allow funding of only three of those FTEs or about $142,000.³³² (Ex. 301, p. 9-34 to p. 9-35). This is a disallowance of $373,000."³³³ The correct arithmetic difference is $73,000, but the Comparison Exhibit lists the difference as $96,000. Dysfunctional math aside, the ORA adjustment is based on proposed reductions to meter replacements - which we reject elsewhere, and on the difference in fumigation orders - which we reject elsewhere, so we adopt no adjustment to Account 903 for this subject.

7. Credit Analysis Staff (8)

SoCalGas proposed an increase of staff to analyze the credit risks of transactions with both customers and trading partners (for gas acquisition):

"SoCalGas originally proposed to increase its revenue requirement for Credit Analysis personnel by $1,067,000, or 10 FTEs. ORA recommended disallowance of the total amount (Ex. 301, p. 9-36). SoCalGas has subsequently reduced its request to $777,000, which is the cost of 7 of the 10 positions that it has already filled (Ex. 97, p. 68 and SoCalGas witness Petersilia at Tr. v. 14, p. 1,176)." (Sempra opening litigation brief, at p. 145.)

ORA was concerned that the costs of the credit analysis appeared to greatly exceed the levels of uncollectable revenues, and that the function should be coordinated with SDG&E; further, ORA was concerned that SDG&E was also seeking funding for a credit analysis group.³³⁴ In extensive rebuttal, SoCalGas argued that low uncollectable amounts are an indicator of successful credit analysis but in the market environment now, "the deterioration and volatility of the financial condition of many customers and trading partners ... create the need for this group" and requires continued vigilance. SoCalGas emphasized that this group is a shared service with SDG&E and is intended to be more efficient as a result. SoCalGas indicated that there are 50 trading partners for gas acquisition, 18 contracted marketers, seven core aggregation entities and 1,300+ non-core customers for whom the company needs ongoing credit assessments.³³⁵ TURN proposed a very similar adjustment.³³⁶

We recognize that this is a large increase, but we agree with SoCalGas' argument that these are different times, and we will adopt the SoCalGas estimate. As we continue to stress, unfilled positions and salary savings accrue to the TLCBA to protect ratepayers and to avoid the disincentive for the companies to delay or avoid filling positions or to reward them for puffing-up the forecast. We direct both SoCalGas and SDG&E, and ORA, to compare the credit analysis operations for these companies with other large utilities within and beyond California in the next rate proceeding.

8. Meter Reading - $0.455 million (9)

This is an adjustment where the ORA opening litigation brief and testimony (Ex. 301) failed to clearly align with the Joint Comparison Exhibit, (Ex. 149). ORA proposed a disallowance of $0.455 million that is a composite of $177,000 reduction to support staff, $219,000 for instructors and training and $64,000 for an additional supervisor.³³⁷ ORA proposed a total disallowance of $0.742 million,³³⁸ $0.455 million to support additional Meter Reading field instructors and supervisor training and $0.287 million to support additional Meter Reading field instructors and supervisor training.³³⁹ ($0.455 million + $0.287 million = $0.742 million.)

ORA argued that the prior conversion of 100 positions to full-time reduces SoCalGas' training needs, but we accept SoCalGas' assertion that there is a high turnover rate because the position is a transitional entryway into the company and because part-time employees leave for work elsewhere. SoCalGas argued the staff-to-supervisor ratio is extremely high, 43:1, which would justify an additional supervisor. SoCalGas also argued that the supervisor is for employees that are in Account 902 that were accepted by ORA.³⁴⁰

SoCalGas has carried its burden of proof on this point, and we will not make the above adjustments, and further, any labor expenses saved will be captured for ratepayers in the TLCBA.

9. Call Volume Related Adjustments Customer Growth - Communications Expense (10)

ORA argued in conjunction with its call volume adjustment above that it correctly used the three-year average of calls (1999 to 2001 instead of 1997 to 2001) to capture productivity from e-mail and the "interactive voice response" system. The excluded earlier two years had a much higher rate of calls, (1.71 and 1.73 calls per meter) than the last three years (1.44, 1.40 and 1.53 per meter).³⁴¹ The ORA estimate is 60,000 fewer calls than in 2001, but we decline to make the assumption that calls will decrease below the base-year level. ORA proposed lower communications expenses, in Account 903.9, i.e., rejecting SoCalGas' proposed increase of $217,000.³⁴² We will not make this adjustment because we adopt SoCalGas' higher call rate.

10. Unadjusted Impact for Errata Ex. 7-E (11)

As discussed in Ex. 149, the SoCalGas Joint Comparison Exhibit, ORA overstated the total of Account 903 in the 2001 Base Year because it did not up-date its results of operations calculations for changes in Ex. 7-E, the errata for this account. We will rely on the SoCalGas spreadsheets that included this adjustment in the base year for this decision's adopted results of operations. This adjustment is necessary because 2001 Base Year costs - net of adjustments - are escalated to develop the Test Year 2004 estimates.

11. Fumigation Calls (12)

There is no adjustment for fumigation related calls; we will use the SoCalGas estimate as forecast in its spreadsheets and not the out-of-date ORA calculations. ORA accepted SoCalGas' calculation.³⁴³

S. SDG&E Account 903.1 - Customer Records & Collections

For Test Year 2004, SDG&E requested $7.136 million in Account 903.1 which records the costs for a wide range of customer records related services including outreach, information, credit and collections, etc.

There were nine differences in estimates between SDG&E and ORA, two of which SDG&E accepted and are included in its end-of-litigation position (Item 7 below). There is an unreconciled difference in ORA's spreadsheets; we will use SDG&E's end of litigation position as a starting point. The testimony in Ex. 302 and ORA's opening litigation brief bear almost no resemblance to the positions as summarized in the Joint Comparison Exhibit, Ex. 150. The following table is drawn from Ex. 150, and the discussion is drawn from the exhibits.

	Issue Area
	SDG&E Test Year 2004 Estimate	$7.163 million
1.	Ethnic/Diverse Outreach	0.511 million
2.	General Market Expanded Outreach	1.381 million
3.	Special Needs Market Outreach	1.199 million
4.	Residential New Construction	0.800 million
5.	Call Volume - Customer Growth	0.519 million
6.	Additional Customer Service Representatives	0.336 million
	TOTAL ORA Proposed Adjustments	$4.746 million
7.	Two Agreed Changes	0.430 million
8.	Unresolved Difference in ORA Spreadsheets	0.272 million
	Adopted Adjustments
	One-Half of Non-Labor Outreach Increase	0.255 million
	Special Service Representatives	0.104 million

1. Customer Information Expenses

In Ex. 302 (Table 9-10), ORA proposed a reduction of $3.891 million in customer information expenses. (Ex. 150, p. 85, shows Items 1 through 4 as Customer Outreach and Information Expenses, in the above table that totals $2.198 million.) ORA proposed a dramatic reduction in customer outreach and information stating "customer information expenses are discretionary and controllable. SDG&E has a duty to provide it at a reasonable cost."³⁴⁴ First, we disagree; the costs are not discretionary. We insist that a regulated utility provide full and complete information, in an accessible form, to all customers. We do agree that SDG&E (and SoCalGas) must provide the service at a reasonable cost. ORA argued that the 2004 allowance should be "close to historical expenditures" and we would agree, provided ORA could demonstrate that historical services were adequate - and it provided no analysis and conclusion to that effect in Ex. 302 - and that ORA could demonstrate that the increases were for inappropriate activities or excessive cost.

ORA argued, without providing a detailed accounting, that much of the increase is "promotional and marketing" for corporate image building and goodwill; examples are funding the SDG&E's County Fair and Chinese New Year's celebration, and it argues that the Home Builders trade show is funding a corporate position in a competitive market. However, there is no evidence of the latter.

We agree that corporate sponsorship of fairs, parades and other community celebrations is not a ratepayer responsibility. We would also agree that a utility booth at such a fair with customer service information would not be permissible or a good forum to contact customers. However, ORA did not allocate costs to the activities that it proposed to disallow. We will therefore disallow one-half of SDG&E's proposed increase in non-labor costs with the intention that this captures the funding to sponsor fairs, parades and similar activities, that only wave the Sempra or SDG&E banner and name. We will allow the labor costs, and the TLCBA will recover unspent money that does not fund an employee dealing directly with customers to provide customer service.

2. Call Volume and Customer Growth

We are not persuaded by ORA's position with respect to customer growth or call volumes, and we will not adopt the proposed adjustment here. As discussed in above SoCalGas' Account 903, ORA again used the same three-year average adjustment method, dropping the highest two years. ORA argues that the higher SDG&E call volume in 2000 and 2001 was "likely" due to the electricity crisis,³⁴⁵ but did not produce evidence to support this assumption.

3. Special Services Staff

ORA proposed that SDG&E needs only one new full-time employee equivalent position to handle an increase in email by using SoCalGas' lower transaction time of 2.9 minutes instead of 11.183 minutes for SDG&E (an amazing level of time-management precision). This appears to be far too long a time estimate, when compared to SoCalGas; we doubt the SDG&E e-mails are 3.9 times as complicated and long. We will adopt this adjustment of $0.104 million in labor costs.³⁴⁶

ORA also proposed to disallow four positions to provide information on the CARE program and energy efficiency programs, arguing that those positions were previously funded from those programs. We disagree; first, CARE program costs are simply reallocated to non-CARE customers so there is no real difference to customers. The Energy Efficiency program budgets are intended to provide funding for actual programs - it is in the equivalent of a general rate case, like these applications, where we are best equipped to examine how well SDG&E (and SoCalGas) meet their customers service information needs, including information on specialized programs such as CARE or Energy Efficiency. We include these positions in the adopted estimate for Account 903.1 and SDG&E.

T. SDG&E Account 903.3 - Credit Collection

ORA proposed a reduction of $0.400 million³⁴⁷ for credit analysis and collection for SDG&E. We discussed this joint activity already for SoCalGas (Account 903), and we again decline to make a disallowance. Any excess in the labor budget will be returned to ratepayers in the TLCBA for savings because of vacant or unnecessary positions.

ORA also proposed to disallow 2.7 of 6.7 full-time employee equivalent positions for field collectors, a reduction of $0.108 million, based on both a 1.5% growth factor - used by SDG&E - and also by considering a decrease in the forecast uncollectable rate for 2004. SDG&E proposed an uncollectable rate of 0.266%, the average of actual experience for 1997-2001, and a reduction from the last adopted 0.289% (Ex. 30, p. 107). The recorded uncollectable rate in the Base Year 2001 was 0.353%. SDG&E argued that the reduced rate goes hand-in hand with staffing of this unit. Uncollectable revenue is forecast in the Joint Comparison Exhibit to be between $2.739 million (SDG&E) or $2.411 million (ORA). We will adopt the company's estimate; we would like to see further analysis in the next proceeding to determine the most appropriate relationship between number of staff and the percentage of uncollectable bills.

U. SDG&E Account 903.1 - UCAN's Adjustments

UCAN proposed $1.517 million in adjustments to Test Year 2004 that are distinct from ORA's recommendations discussed above. A reconciling of UCAN's arithmetic in its brief³⁴⁸ is shown below.

	Issue Area
1.	Entertainment	$0.150 million
2.	Computer Tech. Staff	0.215 million
3.	Carbon Monoxide Testing -shifting	0.114 million
	Carbon Monoxide testing -low income	0.030 million
4.	Staff Support for Federal Accounts	0.153 million
5.	Inflation in Newspaper Advertising	0.140 million
6.	Outage Notification Staff Reduction	0.063 million
7.	Double-counted Computers	0.014 million
8.	Generic Computer Adjustment	0.051 million
	Total As Presented in Brief	$0.930 million
	Total As Listed in Brief	$0.801 million
	Adopted
	Entertainment	$0.073 million
	Computer Tech. Staff	0.215 million

1. Entertainment Expenses - Commercial and Industrial Customers (1)

UCAN claimed that SDG&E account executives spent money to take customers to professional sporting events and even spent $2,262 on See's Candies. UCAN would disallow $52,000 in non-labor expense, $52,000 in labor plus a further $23,000 each in labor and non-labor, a total of $0.150 million, for what it described as the new account executives in the test year.³⁴⁹ The fact that SDG&E wants to buy these items and charge them to other customers is not reasonable. We will adopt a $73,000 disallowance, only for the non-labor costs. Although SDG&E argued the value of these "tokens" of appreciation in Ex. 122, the best appreciation for a customer who reduces electric load should be a lower bill, not a box of candy paid for by other customers. We allow recovery of the labor component as a reasonable cost for new account executives to meet with customers.

2. Computer Tech. Staff (2)

UCAN identified the labor costs as too high for programs that should be in a "maintenance" mode rather than developmental mode: the 20/20 credit program, a rate rebate program (engendered by the governor's executive decrees during the past electricity market crisis) developing tiered rates in other electricity crisis related proceedings, and climate zone adjustments, also in a separate proceeding. ORA made no comparable adjustment.

We have been cautious in adopting adjustments that would also remove any tolerance for "new" one-time expenses and UCAN proposed only a 50% adjustment, for maintenance, where the amount allowed in rates could be diverted if necessary to new, unforeseen projects. SDG&E will also have significant discretion under the TLCBA to shift available funds between all accounts, so we will adopt the 50% reduction of $0.215 million to Test Year 2004.

3. CO Testing - Demand-Side Management Related Costs (3)

UCAN also opposed SDG&E's proposal to shift $0.114 million of labor and non-labor activities from demand side management programs funded by the public goods charge, to Account 901.3.³⁵⁰ SDG&E disputed the adjustment. We will not shift funds to base rates from special programs that have their own accounting and ratemaking mechanisms; to do so would distort and hide their true costs. But SDG&E correctly argued these costs are not already recovered through the public goods charge. We will not reduce the Test Year 2004 estimate by $0.114 million.

UCAN further proposed that the forecast for the number of dwellings eligible under the low-income program for carbon monoxide testing would be closer to 6,000 and not SDG&E's forecast of 7,500. UCAN cites a declining number of homes to be treated, in D.02-12-019, and relying on SoCalGas data, about 755 of treated units are tested.³⁵¹ We will not make this adjustment; if fewer homes are inspected any labor savings should accrue to the TLCBA because fewer workers or less overtime is needed.

4. Support of Federal Accounts (4)

UCAN argued that SDG&E asked for additional positions in two different accounts (Account 920 as well as Account 903) to perform the same tasks; providing customer account support to federal agencies. SDG&E responded in rebuttal that the tasks are unique and therefore appropriate in the two accounts: Account 903 provides direct information and support to the federal customers, i.e., customer service as would be provided to other commercial and industrial customers, and in Account 920, the company prepares its own response to the possibility of "utilities privatization" from Defense Reform Initiated Directive (DRID 49).³⁵² We will not make this adjustment; UCAN's recommendation is too general and does not address the privatization response.

5. Newspaper Advertising (5)

UCAN argued that SDG&E double-counted for inflation in advertising costs, first as a general adjustment to non-labor escalation and second as a specific adjustment; but SDG&E argued it requested only 7% instead of an 11.5% national average rate of increase. UCAN actually proposed disallowing the total increase. UCAN does not show the details of how this double counting was computed. We will not make this adjustment.

6. Outage Notification Staff (6)

This adjustment was related to UCAN's proposed reduction for underground cable replacement, discussed in the rate base section of this decision. We did not adopt UCAN's reduction to the capital expenditure program and therefore we will not reduce staff that would notify customers of outages related to service interruptions. The labor is, however, subject to refund in the TLCBA if not actually spent.

7. Computers (7) & (8)

UCAN proposed two adjustments for computers, first a three-year replacement cycle, which we have already discussed (and we adopted a four-year cycle), and a further $14,000, intended to adjust for computers already replaced in 2002. UCAN described these computers as "part of the number of computers on which cycle replacement was based in 2004." It is unclear what this adjustment would represent; SDG&E does not appear to have responded in its briefs. Regardless of whether computers are on a three, four, or five-year cycle, 2002 purchases would be replaced no later than 2007 (2002+5) which is three years after Test Year 2004, so these computers would be replaced before another full rate proceeding on base margin. The proposal is unclear and we have adopted an allowance that will replace all machines within four years. We decline to make this adjustment.

8. SDG&E Account 903.1 - Dynamic Tariff & Demand Reduction (UCAN)

UCAN proposed to disallow $0.564 million in Account 903.1 related to dynamic tariff & demand reduction programs, an adjustment that appears to be linked to the proposal to disallow in Account 902 meter reading costs associated with interval meters. UCAN argued these costs are currently recorded in a memorandum account (which means their recovery is uncertain and to be determined in some subsequent proceeding). We will not make this adjustment; we intend SDG&E to recover in its base rates the costs associated with its currently mandated metering and billing programs. SDG&E pointed out that D.02-04-060 required recovery of these costs at the utility's next base rate proceeding.³⁵³

V. SDG&E Account 903.5 - Net Metering (UCAN)

UCAN argued that SDG&E double-counted by requesting not only to fill two existing (2001 base year) vacancies but by also asking for an incremental allowance of $87,000 in labor and non-labor. SDG&E responded that the positions have been filled in 2002 and the further increase is due to the complexity of the manual billing required for net metering. This same rebuttal applies to UCAN's reduction of per-meter costs from $99 to $50 - UCAN presents no analysis and only argued it did "not understand why net-metering is difficult." UCAN also objected to replacement labor for an employee on long-term disability. We will accept SDG&E's estimates; any labor savings will be captured by the TLCBA. UCAN's adjustment for computers is already addressed generically.

W. SDG&E Account 903.5 - Hourly Billing (UCAN)

UCAN had one further proposal to disallow the costs for this account, $138,000 in labor and $15,000 in non-labor (a total of $153,000), for the analysis of hourly billing data.³⁵⁴ We will not make this adjustment; SDG&E is obliged to develop and implement time of use tariffs in conjunction with installing appropriate meters and R.02-06-001. If SDG&E does not need the employees, the salaries saved will accrue in the TLCBA.

We similarly reject all other UCAN objections to the various capital and expense proposals related to metering. Its positions as stated in the opening litigation brief are not properly identified by account and project, and appear to be based on a philosophical argument regarding metering and pricing that are beyond the scope of this proceeding and belong instead in other proceedings, including R.00-10-002, Interruptible Load Programs and R.02-06-001, Advanced Metering, Dynamic Pricing and Demand Response.

X. SDG&E Account 903.7 - Postage Expenses

In the Joint Comparison Exhibit,³⁵⁵ a discrepancy of $174,000 between ORA's testimony and its results of operations spreadsheets is noted but in the text ORA and SDG&E indicate no disagreement exists, that ORA agrees with SDG&E. In ORA's opening litigation brief, there is a discussion of a $387,000 difference.³⁵⁶ We will rely on the Joint Comparison Exhibit and reject any ORA recommendation on this account, and adopt $4.880 million the SDG&E Test Year 2004 estimate.

Y. SoCalGas Account 904 - Uncollectables

SoCalGas asked for an uncollectable³⁵⁷ revenue allowance of $5.869 million based on an historical five-year average rate of 0.385% (i.e., about one-third of 1%) and for a balancing account on an as-incurred basis. ORA used a three-year rate of 0.322%, which results in a $1.107 million reduction. Considering the large increase we grant for a credit analysis in Account 903 against ORA's recommendation, we will not consider a balancing account nor will we use SoCalGas' five-year rate. We have given SoCalGas the tools in Account 904 and by using the recent average rate in Account 904 we still give the company a low hurdle to jump; we expect to see this rate continue to fall as a result, and we find $4.762 million is too high a test year allowance.

TURN proposed an even lower allowance, 0.296% that is another 10% lower than ORA's recommendation. TURN argued the recorded levels for uncollectable revenues were far below SoCalGas' rate of 0.385%. TURN argued that a substantial increase in customer deposits lessens the likelihood of customer default. SoCalGas objected but did not clearly demonstrate the customer group with higher deposits was excluded when it forecast the rate of 0.385%. Again, we find that because we have fully funded credit analysis, against TURN's recommendation too, we should expect a low rate. TURN has shown the SoCalGas rate is too high. We will adopt TURN's $1.218 million reduction, and allow $4.652 million. ($5.869 million - $1.218 million.)

Z. SoCalGas Account 908 - Customer Assistance

This is a major account dealing with very large labor and non-labor expenses for the Customer service and information for the safe and efficient use of utility service. The end-of-litigation request by SoCalGas was for $23.358 million in Test Year 2004.

ORA proposed seven adjustments, totaling $9.113 million, or 39%, as shown in the table below taken from the SoCalGas Joint Comparison Exhibit. The adjustments are split: $3.447 million in labor costs, and $5.665 million in non-labor costs with no adjustment to non-standard costs.

	Issue Area
	SoCalGas Test Year 2004 Estimate	$23.358 million
1.	Outreach to residential customers	2.441 million
2.	Outreach to small commercial & industrial	2.958 million
3.	Outreach to large multi-family customers	0.694 million
4.	Outreach to large commercial & industrial	1.863 million
5.	Community business partnerships	0.500 million
6.	Eservices	0.879 million
7.	Miscellaneous	0.147 million
8.	Inconsistency in ORA Testimony & R.O.	0.457 million
	TOTAL ORA Proposed Adjustments	$ 9.113 million

1. Outreach (1, 2 & 3)

ORA asserted that SoCalGas doubled its actual 2001 expenses in Account 908 in its 2004 forecast - $11.9 million to 23.8 million - and ORA argued that expenditures should be maintained at the historical (recorded) levels because it believes the "majority of the increased funding is promotional and marketing in nature and should not be funded by ratepayers."³⁵⁸ ORA then failed to provide any detailed discussion, illustration or argument in support of this position, other than to point out the level of expenditures had been constant over the past four years. ORA calculated a four-year recorded average of $12.5 million and adds a further $0.881 million for eServices, net of its $0.879 million disallowance.

TURN agreed with ORA and went even further in its proposals to disallow other portions of Account 908, such as eServices, that are allowed in ORA's estimate.³⁵⁹ TURN also expressed concern about what it saw as a shift of program funding:

"SoCalGas seeks $1.914 million of funding for a number of energy efficiency and demand side management programs recorded in this account. Of this amount, $1.475 million represents a funding shift from the public goods charge (in SoCalGas' case, collected in the Gas Consumption Surcharge Fund (GCSF)) to base rates, and $439,000 is sought for `improved non-energy efficiency programs delivered through the ERC (Energy Resource Center).' (Ex. 132, p. 28.) Activities currently funded through the GCSF should remain funded by the public goods charge, and the Commission should reject the proposal to shift that funding to base rates." (TURN opening litigation brief, (SoCalGas), at pp. 74-75.)

SoCalGas argued at great length about the changing demographics of its service territory and the needs of the customers, residential, small, and large, etc. The immediate questions that arose are whether the population changed in a flash, to warrant such an increase - it did not - or whether SoCalGas was previously doing an inordinately inadequate job - no one said so.

Looking at the partial settlement, we see that the parties proposed $15.703 million - $7.376 million in labor, $7.329 million in non-labor, and $0.998 million in non-standard components. The settling parties reduced the request by $7.655 million compared to ORA's $9.113 million and TURN's even larger litigation disallowance.

This is a case where the credibility of the increase as proposed by SoCalGas is hard to grasp, and it is the company's obligation to carry the primary burden of proof, though we would have benefited if there had been a more detailed critique by ORA. We find the scope and scale of the increase unlikely to occur, and it has not been shown as necessary in the test year as proposed by SoCalGas. We specifically reject, as a part of this account, the shift in funding from the public goods charge to base rates. We agree with TURN that funding should not be shifted; costs currently recovered in the GCSF remain in the GCSF and do not move to Account 908. We expect SoCalGas (and ORA in its review of the next application) to be more specific about the programs in this account and focus on the benefits provided to customers. We will rely, in this rare instance, on the SoCalGas partial settlement. We adopt for Test Year 2004 $15.703 million - $7.376 million in labor, $7.329 million in non-labor, and $0.998 million in non-standard components.

TURN identified $0.100 million for measurement and evaluation studies that SoCalGas sought to shift from the GCSF to base rate recovery in Account 910.³⁶⁰ We will not authorize that change either and we will ensure the revenue requirement reflects no increment for a GCSF funding switch.

2. eServices (6)

Although we adopt the dollar estimate of $15.703 million from the partial settlement for Account 908, we need to specifically address the eServices program for the test year. Notwithstanding TURN's objection to this program, we believe that there is definite consumer benefit and value to enhancing online service options including bill payment, and application for CARE, Medical Baseline and all other customer-benefit services. Therefore, we adopt as a component of the Account 908 estimate a minimum expectation of $0.881 million, ORA's recommendation, to ensure that SoCalGas pursues development of eServices.

3. Inconsistency in ORA's Testimony & RO (8)

As discussed in Ex. 149, the SoCalGas Joint Comparison Exhibit, ORA overstated the total of Account 908 by $0.457 million in the test year because its testimony was inconsistent with its Results of Operations spreadsheets. We will rely on the SoCalGas spreadsheets that include this adjustment in the test year to calculate this decision's adopted results of operations. To the extent we adopted the Settlement estimate, this adjustment may be moot.

4. SDG&E Fleet Service Related Adjustments (UCAN)

UCAN proposed a number of adjustments to fleet costs and SDG&E "agreed to accept a reduction of $476,000 (50% of UCAN's proposed reduction) to reflect hiring delays, ..." for fleet services staff. (Reply, p. 73.) This adoption is included in SDG&E's end-of-litigation spreadsheets so we make no further adjustment. We reject UCAN's other fleet adjustments, because we adopt the staffing forecasts (labor costs) subject to the TLCBA so we cannot quantify a specific permanent employee reduction that would allow us to reduce the number of vehicles with any certainty. This is a test-year forecast risk we cannot arbitrarily adjust. SDG&E is equally under an obligation to serve all customers safely and reliably even if actual non-labor costs in one area of operations exceed the test year forecast. The managerial obligation is to use the discretion available to SDG&E (and SoCalGas) to shift non-labor funding as needed. SoCalGas and SDG&E do have authority in the TLCBA to shift labor funding.

5. SoCalGas and SDG&E Real Estate Software

Both SoCalGas and SDG&E have already accepted and included in revenue requirements corrected adjustments for a joint TURN and UCAN proposal to include $0.030 million for operating savings as a result of installing the Strategen Real Estate Software; and we accept SoCalGas and SDG&E's position that TURN and UCAN erroneously considered costs not included in this proceeding when they calculated their proposals.³⁶¹ No further adjustment is required.

a) SoCalGas Account 909 - Customer Information/Instruction

ORA agreed with SoCalGas that the test year estimate of $2.735 million was reasonable,³⁶² but TURN proposed adjustments, which we will consider here. TURN argued that the 2002 actual expense level is appropriate, having provided adequate advertising, SoCalGas called the costs "informational and instructional expenses" and TURN used "advertising" and that SoCalGas failed to justify the need for any increase. The testimony on what value is provided by this information and instruction is simply not in the record; the direct testimony is two sentences and the rebuttal only criticized the withdrawn ORA alternate average forecast and criticized TURN for using 2002-recorded expenses.³⁶³ We do not agree with selectively using 2002-recorded data; if the base year had been uniformly up-dated then we could agree. But nothing in the record supports why we should grant any increase over the 2001 base year. We will hold Account 909 constant at $2.591 million, the 2001 Base Year amount, applying only the standard escalation to the test year.

²⁷³ Ex. 3, p. FA-14 ff.

²⁷⁴ ORA opening litigation brief, pp. 17 - 22, and Ex. 149, p. 61.

²⁷⁵ Ex. 149, p. 2. SoCalGas Joint Comparison Exhibit.

²⁷⁶ Ex. 301, Tables 8-5 and 8-6.

²⁷⁷ See the SoCalGas capital expenditure discussion on Measurement Equipment.

²⁷⁸ SoCalGas has already replaced all 18,000 tin meters located under structures in its service territory (Ex. 7, p. 32). The proposal here would provide for replacement over five years almost all remaining tin meters (500,000 of the remaining 542,000 tin meters).

²⁷⁹ Ex. 149, SoCalGas Joint Comparisons Exhibit, p. 71. Sempra opening litigation brief uses $6.675 million, at p. 134 and ORA uses $6.682 million, at p. 66 of its opening litigation brief.

²⁸⁰ See Ex. 301, 301-E and 301-EE, at pp. 9-6 through 9-10.

²⁸¹ Ex. 7, p. JPP-35 and Ex. 97, pp. JPP-31 through JPP-33. Rebuttal is nearly three times the length of the original request.

²⁸² D.01-11-068, mimeo., p. 6 and Finding 11.

²⁸³ D.01-11-068, mimeo., p. 7 and Finding 12.

²⁸⁴ Code of Federal Regulations Title 49, Part 192, Subpart N-Operator Qualifications.

²⁸⁵ Sempra reply brief, pp. 37-38.

²⁸⁶ Code § 328(b).

²⁸⁷ TURN reply brief, p. 12.

²⁸⁸ TURN reply brief, p. 13.

²⁸⁹ TURN opening brief, p. 62.

²⁹⁰ TURN opening brief, p. 63.

²⁹¹ ORA opening brief, p. 73.

²⁹² Id.

²⁹³ Resolution G-3344, Finding of Fact 9.

²⁹⁴ TURN opening litigation brief, p. 61.

²⁹⁵ Ex. 149, SoCalGas Joint Comparison Exhibit, p. 63.

²⁹⁶ January 19, 2004 Revised TURN opening litigation brief, p. 32.

²⁹⁷ Ex. 149, SoCalGas Joint Comparison Exhibit, p. 63. (The recommendations follow this exhibit and are presently differently in ORA's opening litigation brief.)

²⁹⁸ Ex. 301, p. 8-27.

²⁹⁹ Ex. 8, p. RAK-71.

³⁰⁰ ORA opening litigation brief, p. 125, and Ex. 301-E, p. 12-9.

³⁰¹ Ex. 8, p. RAK-71.

³⁰² Sempra opening litigation brief, p. 48 (electronic copy).

³⁰³ Ex. 301, p. 8-30.

³⁰⁴ Ex. 301, pp. 8-31 - 8-32.

³⁰⁵ Sempra opening litigation brief, pp. 49-51.

³⁰⁶ Sempra opening litigation brief, p. 59.

³⁰⁷ Sempra opening litigation brief, pp. 53 - 54.

³⁰⁸ Sempra opening litigation brief, pp. 51 - 52.

³⁰⁹ TURN opening litigation brief, pp. 38-39, citing Transcript pp. 1,117 and 1,118. (Revised Section 3, dated January 29, 2004.)

³¹⁰ Sempra Reply Brief, p. 44.

³¹¹ Ex. 301, pp. 22-1 - 22-5, and footnote 1, p. 22-2.

³¹² Sempra opening litigation brief, p. 169 (electronic version).

³¹³ Ex. 301, pp. 22-3.

³¹⁴ SoCalGas Joint Comparison Ex. 149, p. 72, Ex. 301, pp. 9-2 through 9-3 and Ex. 7, p. JPP-45.

³¹⁵ Ex. 7, pp. JPP-48 and JPP-49.

³¹⁶ Ex. 7, pp. JPP-51 through JPP-55.

³¹⁷ Ex. 301, p. 9-24.

³¹⁸ Ex. 301, p. 9-25.

³¹⁹ UCAN opening litigation brief, pp. 136-139.

³²⁰ Sempra Reply Brief, p. 54.

³²¹ Ex. 603, p. 12.

³²² See Rebuttal Ex. 122, EF-56 through 60 and Sempra Reply Brief, pp. 55-56.

³²³ Ex. 149, SoCalGas Joint Comparison Exhibit, pp. 74 and 75. The amounts in the ORA opening litigation brief do not track to the amounts in Ex. 149, e.g., Item 10, for call volumes, ($127,000 compared to $217,000). Other sections in the ORA brief fail to follow the Comparison Exhibit, too. This was a persistent problem throughout this brief where ORA's math and organization did not always correspond to the Comparison Exhibit and consequently we have had to make various interpretive assumptions.

³²⁴ Or perhaps $217,000 because the exhibits and briefs do not match.

³²⁵ Ex. 301, p. 9-28.

³²⁶ Ex. 12, p. JPP-51.

³²⁷ ORA opening litigation brief, p. 78.

³²⁸ Ex. 97, p. JPP-44 through JPP-50.

³²⁹ Ex. 97, JPP-55 through JPP-57.

³³⁰ Ex. 97, JPP-58.

³³¹ UCAN opening litigation brief, pp. 156-158.

³³² Sempra opening litigation brief cites $142,000 whereas ORA's opening litigation brief uses $119,000.

³³³ Sempra opening litigation brief, p. 145 and Ex. 149, p. 74.

³³⁴ Ex. 301, p. 9-36.

³³⁵ Ex. 97, p. JPP-62 and JPP-63.

³³⁶ Ex. 501, pp. 18-19.

³³⁷ Ex. 149, SoCalGas Joint Comparison Exhibit, p. 75, Issue 9.

³³⁸ "Meter Reading Supervision expenses are the management costs associated with the Meter Reading expenses. SoCalGas is requesting an increase of $1,727,000 for costs associated with meter reading supervision. ORA is recommending an increase of $985,000 which is $742,000 less than SoCalGas' request." (ORA opening litigation brief, p. 84.)

³³⁹ ORA opening litigation brief, p. 85.

³⁴⁰ Ex. 97, pp. JPP-69 and JPP 70.

³⁴¹ Ex. 301, pp. 9-27 and 9-28.

³⁴² This is the adjustment where the Brief states the adjustment as $217,000 and Ex. 301 states it as $127,000, possibly a transposition error.

³⁴³ Ex. 149, SoCalGas Joint Comparison Exhibit, p. 75.

³⁴⁴ Ex. 302, p. 9-17.

³⁴⁵ Ex. 302, p. 9-20.

³⁴⁶ Ex. 302, p. 9-20; ORA proposed an allowance of $35,000 instead of an identified request by SDG&E of $139,000. (11.183 minutes/2.9 minutes = 3.856.)

³⁴⁷ Ex. 302, ORA's and Sempra's opening litigation brief all use $440,000, but this decision is relying on the Joint Comparison Exhibit, Ex. 150 for determining the final positions. As already noted, ORA's briefs were not consistently updated from the initial exhibits, 301 and 302 to reflect the record as it evolved.

³⁴⁸ There were some differences in the totals within UCAN's Brief.

³⁴⁹ Ex. 602, pp. 29-30. UCAN's testimony claims this is a $146,000 disallowance but the numbers cited total $150,000.

³⁵⁰ UCAN opening litigation brief, p. 101.

³⁵¹ Ex. 602, pp. 31-32.

³⁵² Ex. 122, p. EF-39.

³⁵³ Sempra opening litigation brief, p. 158.

³⁵⁴ UCAN opening litigation brief, p. 13.

³⁵⁵ Ex. 150, p. 88.

³⁵⁶ ORA opening litigation brief, p. 113; computed by compared the cited SDG&E request for an increase of $961,000 and ORA's recommended $574,000, for a $387,000 difference. ORA's reply brief, only 15 pages long, does not address the account.

³⁵⁷ The parties use both "uncollectible" and "uncollectable," sometimes within the same document. We selected "uncollectable."

³⁵⁸ Ex. 301, p. 9-42.

³⁵⁹ TURN opening litigation brief (SoCalGas), pp. 74-76.

³⁶⁰ TURN opening litigation brief, pp. 78-79.

³⁶¹ Sempra opening litigation brief, p. 184.

³⁶² Ex. 149, SoCalGas Joint Comparison Exhibit, p. 78.

³⁶³ Ex. 7, p. 178 and Ex. 132, p. 30.