XXVIII. Shared Services

SoCalGas and SDG&E are allowed to perform shared services for each other under the terms of the Sempra merger decision,³⁹⁴ D.98-03-073. "SDG&E and SoCalGas will be organized in a manner that allows them to provide the highest quality utility service that focuses on safety and reliability, and is responsive to customers' needs."³⁹⁵ SoCalGas and SDG&E have met the burden of proof to show that the test year forecasts are reasonable. Applicants presented detailed testimony in support of the shared services costs³⁹⁶ with descriptions of the functions of the various departments and explanations of the test year forecast that was derived based on a 2001 Base Year and necessary adjustments to estimate the test year expenses.

ORA in its testimony and litigation brief took exception to the allocation of those shared services costs and in particular the allocation into FERC accounts. But ORA misplaced its focus on the allocation³⁹⁷ rather than perform an examination of the nature of the costs of the underlying services themselves; it is less important to us whether the charges are "correctly allocated" to the right FERC account for financial reporting than whether the underlying programs are necessary and reasonable for safe and reliable customer service. This contrasts with UCAN's approach discussed below. ORA fails to meet its burden to produce evidence that would support a disallowance, assuming SoCalGas and SDG&E met their initial burden of proof.

In the Sempra merger decision SoCalGas and SDG&E were provided with the opportunity to share services. "Each utility Affiliate will, to the extent it makes business sense, share resources with the other utility Affiliate."³⁹⁸ Therefore we will not fault them for sharing services simply because ORA was unable to conduct an adequate audit in this proceeding. We note too that the merger decision provided for an independent audit: "Intercompany transactions and related transfer prices will be periodically audited to ensure that policies are observed and that potential or actual deviations are detected and corrected in a timely and cost efficient manner."³⁹⁹ In that decision, inter-company transactions did not include those between SoCalGas and SDG&E; they were excluded, and only those with the parent and the unregulated affiliates of the parent were to be audited.

As a requirement of D.98-08-035,⁴⁰⁰ the decision that adopted the Affiliate Transaction Rules in R.97-04-011, there is an annual audit performed by expert independent auditors. There was a recent annual audit report by NorthStar Consulting Group (NorthStar) dated May 1, 2003 for both SoCalGas and SDG&E. These two separate reports were filed with the Energy Division and served on the parties in R.97-04-011. The SoCalGas report found the following:

"During 2002 Sempra Energy integrated the operations of SoCalGas and SDG&E. As a part of the integration over 800 Sempra Energy Corporate Center personnel providing shared corporate services were transferred to SDG&E. During the audit, NorthStar carefully examined the provision of shared services to determine if the reorganization had resulted in any compliance problems related to the provision of shared services, separation, or preferential treatment."⁴⁰¹

Without consideration of the validity of NorthStar's findings, we note that these audits could be useful as a basis for ORA and other parties to critically examine the test year requests made by SoCalGas and SDG&E in subsequent proceedings.

ORA proposed a disallowance for SoCalGas only of $1.175 million, but the testimony in Exhibit 302 and the ORA litigation brief⁴⁰² fail to clearly specify the reason that the disallowance is appropriate. We find that ORA has failed to raise a valid criticism of the SoCalGas and SDG&E forecast estimates for shared services.

ORA proposed in its opening litigation brief that it wants to "work with Sempra on coming up with a better format for presenting this data."⁴⁰³ We support this idea, and would suggest that TURN, UCAN and FEA should be included in the discussions.⁴⁰⁴ We will direct the parties to plan, schedule and conduct workshops prior to the next rate case that we may have a more meaningful discussion in the next rate proceedings for SoCalGas and SDG&E. It is our belief that the focus of future regulatory reviews for the adoption of subsequent test year estimates should be on the organization and function in place for the provision of common services. Any cost allocation to numerous FERC accounts is a far less important issue and we would consider any additional reasonable suggestion to simplify the accounting on costs transferred between SoCalGas and SDG&E to avoid the artificiality of allocating costs to accounts that do not reflect the structures and operations of the two companies.

With the exception of Information technology costs also forecast in Account 923, and discussed elsewhere in this decision, we adopt the 2004 forecast for Account 923 as shown in SoCalGas' spreadsheets in support of the Joint Comparison Exhibit.

A. SDG&E Account 921 "E1" and "E2" Sempra Energy Corporate Center (Administrative & General Costs)

SDG&E requested $54.474 million for Test Year 2004 for the company's share of costs for services performed at Sempra Energy's Corporate Center. ORA proposed $48.693 million after a number of specific recommendations that would reduce the estimate by $5.781 million, or about 10.6%. The following table⁴⁰⁵ summarizes the proposed changes.

	Issue Area
	SDG&E Test Year 2004 Estimate	$54.474 million
	Agreed Changes	0.353 million
	Audit Adjustment	0.006 million
1.	Energy-Crisis related consulting406	0.526 million
2.	Employee Volunteer & Giving Programs	0.115 million
3.	Accounting Shared Services	0.527 million
4.	Tax Services	0.506 million
5.	Non-recurring (a)	0.016 million
6.	Training/Development	0.126 million
7.	Diversity Affairs	0.017 million
8.	General Counsel - Allocation Method	0.047 million
9.	Double-count of Life Insurance (a)	0.040 million
10.	Executive Dues & Events	0.020 million
11.	Adjustments Related to Shared Assets	0.040 million
12.	Depreciation, etc., Payroll System (a)	0.024 million
13.	Payroll Taxes (a)	0.203 million
14.	Incentive Compensation	1.764 million
15.	Supplemental Executive Compensation	0.620 million
16.	Long-Term Incentive	0.906 million
17.	Miscellaneous errata not reflected elsewhere	0.284 million
	Total ORA Recommended Disallowance	$5.781 million
	Adopted Recommendations
	Items 1, 5, 9, 12, & 13 (a)	0.809 million
	Employee Volunteer & Giving Program	0.115 million

(a) SDG&E either accepted these changes or did not offer rebuttal.

1. Undisputed Items (1, 5, 9, 12, & 13)

The Joint Comparison Exhibit identified Items 1, 5, 9, 12, & 13, that total $0.809 million, where SDG&E either offered no rebuttal or otherwise accepts the recommendation. We will therefore include these specific adjustments. Additionally, there is a further $0.353 million and an audit adjustment of $0.006 million that SDG&E indicated as included in its request of agreed changes to derive its $54.474 million request.

2. Employee Volunteer & Giving (2)

ORA identified $0.115 million as the costs for the External Affairs & Communications department for two sections, Corporate Community Relations and Corporate Events, that promote employee volunteer opportunities, all of which we do not doubt to be of social value and benefit. We do agree with ORA that as a matter of public policy, we cannot impose any of the costs associated with philanthropic activities on ratepayers. We adopt the adjustment and we also direct SoCalGas and SDG&E to record these costs in a non-utility account or to refuse the allocation of the charge from Sempra.

3. Accounting Shared Services (3) & Tax Services (4)

ORA proposed to disallow $0.527 million for accounting shared services, and in Ex. 302 argues that Sempra has over-estimated the need for Sarbanes-Oxley related expenses. As we discuss in Account 920, we intend to allow Sarbanes-Oxley related costs; we expect a thorough accounting in the next proceeding on the actual efforts necessary to comply. The labor component from Corporate Shared Services is includable in the TLCBA even though the applicants classify these as "nonstandard" costs in Ex. 150.

ORA also argued that it "concludes that Corporate Center, Tax Services, has included 22 new positions" and ORA was concerned that it is not clear that any new tax codes have warranted this large an increase.⁴⁰⁷ In rebuttal, SDG&E takes exception to ORA's calculations and interpretations,⁴⁰⁸ and we cannot judge because ORA does not show its calculations and does not address the rebuttal in its opening litigation brief. Without any response to SDG&E's clarification, we accept SDG&E's position. We will allow these costs, and again, we consider them to be labor and includable in the TLCBA. SoCalGas and SDG&E should provide a thorough accounting for the actual changes in tax-related workload in the next proceeding.⁴⁰⁹

4. Leadership Training & Development (6)

ORA proposed a disallowance of $0.126 million for executive level recruitment costs, and objected to certain costs, which it believes are intended for teambuilding. The prepared testimony in Ex. 302 does not persuaded us that these costs are inappropriate. We have no objection to teambuilding and we expect SoCalGas and SDG&E management to work together well in order to better serve ratepayers (and shareholders). SoCalGas and SDG&E rebuttal convinces us that ORA's calculations are simply faulty; the ORA proposal for duplicative activities incorrectly included non-utility portions too. Another portion of the increase relates to the change in capitalization policy (discussed and adopted elsewhere in this decision) and ORA did not identify that factor. ORA's opening litigation brief merely repeats the original testimony and does not respond to SoCalGas and SDG&E rebuttal, we therefore accept the unchallenged rebuttal explanation as more complete and thorough than the ORA position.

5. Diversity Affairs (7)

In its opening litigation brief, ORA made the following admission: "ORA did not address any issues relating with SDG&E's workforce diversity" and it makes the same statement with respect to SoCalGas.⁴¹⁰ It did, however, propose to disallow the cost for the U.S. Department of Labor's Secretary's Award only stating, "ratepayers should not be asked to pay for campaigns to achieve awards."⁴¹¹ SoCalGas and SDG&E disagreed, arguing in rebuttal that apart from enhancing Sempra's image and reputation, these awards and programs are a demonstration of its commitment to diversity and they contribute to recruiting qualified female and minority candidates.

When we discussed rejecting the side-settlement with Greenlining, we indicated that we expect nothing less than SoCalGas and SDG&E to comply with the spirit and the letter of the law - state or federal - that imposes any legal obligations to ensure workforce diversity, a discrimination-free work environment and a safe work environment. We see the costs here not as corporate image puffery (such as naming a ballpark would be) but as ways of providing the work environment we expect. In the next rate proceedings, as always we will expect SoCalGas and SDG&E to meet their burden of proof to adequately support their rate requests, but if any party can show SoCalGas or SDG&E to be spending any ratepayer money contrary to this workplace objective, or for self-aggrandizing the corporate name, we will disallow the expenditures, including the funding for the responsible officers. But we will not chip away at programs that enhance diversity.

6. Allocation of General Counsel (8)

ORA proposed to allocate the cost of the General Counsel (who serves not only SoCalGas and SDG&E but Global Enterprises too) on an equal one-third basis. SoCalGas and SDG&E argued the cost is correctly allocated in their applications in the same fashion as other legal expenses, to the beneficiary company, and we agree. Even between SoCalGas and SDG&E, an equal split would not be warranted on company size.

7. Executive Dues and Events (11)

ORA proposed what is a traditional adjustment proposal for dues and contributions made for the benefit of senior executives. The proposed disallowances include subscriptions (Wall Street Journal and other utility publications), dues (University Club of San Diego) holiday events, sports hospitality and inter-company shuttle van costs. In rebuttal, SoCalGas and SDG&E argued that these are "costs traditionally incurred by a top executive in the normal course of business."⁴¹² They argued the shuttle lets the executives and shared management travel between San Diego and Los Angeles safely using the telephone or doing paperwork (so we assume someone else drives the van). We will not micromanage two large corporations to the point of $20,000 adjustments (although we have been forced to addressed a number of issues in this range) and while we do not condone ostentatious perks such as sporting event

tickets,⁴¹³ we will allow the costs as a forecast for reasonable travel, meetings and civic interaction.

8. Shared Assets (11)

There is a necessary investment in long-term plant as a part of the cost to provide shared services. This plant is infrastructure to support the services. ORA proposed a $0.40 million adjustment but offered no explanation beyond the statement that "ORA has made some adjustments to plant." SoCalGas and SDG&E could not rebut the adjustment because ORA had not answered a discover request.⁴¹⁴ Without a sound basis, we cannot make this adjustment.

9. Compensation-Related (14, 15 & 16)

ORA proposed the disallowance of $3.290 million for three compensation-related items: 50% of Incentive Compensation, 50% of Supplemental Executive Compensation and 50% of Long-Term Incentive costs. As discussed in the section on Employee Total Compensation, we decline to make any of these adjustments that would provide less than market rate compensation. These estimates, although categorized as "nonstandard" costs are includable in the TLCBA and are subject to refund, to the extent positions are either vacant, or the sum of all incentives paid exceeds the on-target amount of all filled positions.

10. Miscellaneous (17)

Once again there is a large sum, $0.284 million (0.5% of the total) that does not reconcile between SDG&E and ORA spreadsheets. We will rely on SDG&E's spreadsheets in the comparison exhibit to compute the adopted revenue requirement.

B. UCAN's Review of Shared Services

The costs for the Sempra Energy's Corporate Center were reviewed by both TURN and UCAN and a joint consultant, Overland Consulting (Overland). UCAN argued its recommendations that total in excess of $10.0 million are "above and beyond reductions sought by ORA." (UCAN opening litigation brief, p. 181.) Any UCAN adjustment that is an extension above and beyond ORA's, but is not justified on its own merits as different - only "bigger" - will not be adopted if we have already rejected ORA's proposal on the same topic. UCAN did not clearly show the simple arithmetic effects of its adjustments; in the table below we calculated ourselves the difference between UCAN's assertions of the allocation to SoCalGas and SDG&E and its own recommendation.

	Issue Area
	SDG&E Test Year 2004 Estimate	$54.474 million
	SoCalGas Test Year 2004 Estimate	$111.563 million
	Total SDG&E and SoCalGas415	$166.037 million
	UCAN's Proposed Adjustments
1.	External Affairs Sr. Vice President (A-1)	$0.374 million
2.	Legislative Governmental (A-3)	0.935 million
3.	Affiliate Compliance (A-4)	0.496 million
4.	Community Affairs (A-6)	0.302 million
5.	Communications (A-9)	0.254 million
6.	Holding Co. Chief Financial Officer (B-1)	0.136 million
7.	Investor & Shareholder Relations (B-2)	1.377 million
8.	Audit Services (B-3)	0.196 million
9.	Payroll (B-4)	0.071 million
10.	Accounting (B-5)	2.383 million
11.	Corporate Planning (B-6)	0.551 million
12.	Corporate Information Technology (B-7)	3.189 million
13.	Treasury (B-8)	0.718 million
14.	Risk Management - Insurance (B-9)	0.062 million
15.	Tax Services (B-11)	1.030 million
16.	Human Resources Senior VP & Staff (C-1)	0.368 million
17.	Corporate Staff (C-2)	0.333 million
18.	Diversity Affairs (C-3)	0.164 million
19.	Human Resources Information System	0.353 million
20.	Corporate Security (C-5)	0.104 million
21.	Compensation & Benefits (C-6)	0.460 million
22.	Training & Development (C-7)	1.310 million
23.	Corporate Secretary (D-3)	0.165 million
24.	Legal Department (D-4)	0.493 million
25.	Nuclear Property Insurance (IP-2)	1.079 million
26.	All Risks Insurance (IP-3)	2.301 million
27.	Officer & Director Insurance (IL-2)	6.814 million
28.	Excess Liability Insurance (IL-3)	1.622 million
29.	Other Liability Insurance (IL-5)	1.891 million
	Adopted Adjustments
	Affiliate Compliance (A-4)	0.496 million
	Holding Co. Chief Financial Officer (B-1)	0.136 million
	Community Affairs (A-6)	0.302 million
	Corporate Information Technology (B-7)	1.950 million
	Tax Services (B-11)	0.305 million
	Total	$3.189 million

1. External Affairs Senior Vice President (A-1)

UCAN proposed, and SDG&E conceded, that $479,000 for a direct allocation of costs should be dropped. SDG&E also conceded the allocation should be based on all reporting departments, shifting more costs to be retained at the Corporate Center because these additional departments are not allocable to the utilities. UCAN further opposed $144,000 in governmental and regulatory consulting costs that it claimed were not adequately justified.⁴¹⁶ SoCalGas and SDG&E responded that UCAN first reallocated and then objected to costs in the reallocated departments.⁴¹⁷ Neither UCAN or SoCalGas and SDG&E unbundled the change to show the effects of UCAN's other adjustments. We will not make the incremental UCAN adjustment because we cannot consider the effects of other proposed adjustments on the allocation; we will rely on the SoCalGas and SDG&E end-of-litigation calculation.

2. Legislative Governmental (A-3)

UCAN proposed an allocation change, but did not provide adequate detail to allow an examination of the calculation. We again reject the allocation change as inadequately explained and as unjustified. UCAN further challenged consultant costs, and argued that SoCalGas and SDG&E did not show these costs to "directly and primarily benefit ratepayers."⁴¹⁸ UCAN attempted to use anti-holding company arguments when the issue is whether SoCalGas and SDG&E receive adequate services necessary to safely operate the companies, regardless of whether the services are within the utility or the holding company. There is no assertion of duplication. UCAN also complained "no consideration is given to assigning costs to Sempra shareholders." (Ex. 607, p. 3-12.) UCAN provides no explanation for its assertion that it is unlikely that customers would benefit; UCAN provided no analysis of the activities for us to consider. There is no assertion or demonstration of anti-ratepayer-interest legislative advocacy by the Corporate Center. We agree with SoCalGas and SDG&E that the recommendations are "arbitrary."⁴¹⁹ We decline to make an adjustment.

3. Affiliate Compliance (A-4)

UCAN proposed to disallow the entire cost of the affiliate compliance department and argued the costs are incurred only because of the holding company and are only necessary to enforce the affiliate transaction rules that otherwise ensure ratepayers are not harmed by self-dealing between SoCalGas or SDG&E with Sempra affiliated companies.⁴²⁰ SoCalGas and SDG&E responded that the Commission adopted a reorganization structure that included as one of its principles: "Overall policy, governance and strategic oversight, as well as some service and support services, will remain at the Corporate Center, and will be charged to the company for which the work is performed." (D.01-09-056, p. 10, emphasis added here.)

SoCalGas and SDG&E further argued "many of the rules would continue to apply to the Sempra Energy utilities," that is for transactions between SoCalGas and SDG&E.⁴²¹ But SoCalGas and SDG&E miss the point; the only reason that we need to regulate transactions between SoCalGas and SDG&E, and between either of them and the other Sempra companies, is because Sempra chose to have a holding company to simultaneously operate two utilities and the other non-regulated affiliates. The rules prevent abuses of the relationship at the expense of ratepayers. We agree with UCAN that the work is performed to benefit Sempra and the other companies, and the Sempra desire to own two utilities. It is not for the benefit of SoCalGas and SDG&E, who would otherwise deal at arms length with unrelated entities. We adopt the $0.496 million disallowance for Test Year 2004.

4. Community Affairs (A-6)

UCAN expanded on the ORA elimination of costs for community volunteering and giving by proposing to eliminate the entire program, retaining only $122,000 for internal event and meeting coordination services to the two utilities.⁴²² UCAN would eliminate $302,000 that already includes the $115,000 that ORA proposed for disallowance. UCAN has convinced us that ORA did not identify all of the costs, so we will also disallow the incremental $187,000, so that ratepayers do not subsidize SoCalGas and SDG&E philanthropy.

5. Communications (A-9)

UCAN argued that the cost basis for the Communications department "appear to be" inflated because of one-time or non-recurring costs for 2001 energy crisis related videos. (Ex. 607, p. 3-23.) SoCalGas and SDG&E responded that they justified the costs based on ongoing programs and not the 2001 videos. UCAN has not provided convincing evidence that the programs are anything other than ongoing communications programs and we will not adopt the adjustment.

6. Holding Co.'s Chief Financial Officer (B-1)

UCAN proposed to allocate the costs of the corporate chief financial officer in proportion to the allocations of corporate departments and functions that report to that officer and not on a general four-factor method. We agree that management position costs should be allocated consistently with the programs and services under their direction and control. We will adopt UCAN's adjustment of $0.136 million in total for SoCalGas and SDG&E.

7. Investor & Shareholder Relations (B-2)

UCAN proposed two adjustments: (i) disallow all incremental non-labor costs for travel and incremental office expenses because post base-year 2001 costs could not be verified as having been spent; and (ii) allocate costs 50-50 between the two utilities and the other Sempra Companies. We will not disallow forecasts based on auditing into the forecast years. If UCAN had provided a reasonable explanation of why the costs are unlikely to be needed for 2004, we would consider that explanation. But we have rejected all other selective adjustments that depart from the base year methodology.

UCAN does not dispute the need for reasonable costs for investor and shareholder relations programs; it rejected the use of the multi-factor method - which would allocate about 72% of costs to the utilities - in favor of a 50-50 method. The primary method should always be as direct to the cost-causing entity or principal beneficiary as possible. The multi-factor method is a conventional default method. We could for example allocate these costs on the percentage of total capitalization, but we lack that data and an advocate for that method. Absent a more specific and well-justified alternative, we will allow the multi-factor allocation rather than a 50-50 method that is, as argued by SoCalGas and SDG&E, arbitrary.

8. Auditing Services (B-3)

UCAN's objection to the auditing services costs was labor related; the inclusion of three new and two up-graded positions, which UCAN believed were added without eliminating the two old positions. We believe the evidence does not show any duplication. There is a minor difference proposed by UCAN for computer's costs due to the capitalization policy change that we addressed elsewhere. We will not make this second adjustment. We adopt the applicants' estimates auditing services.

9. Payroll (B-4)

UCAN made another adjustment where it argued the direct and primary benefit of providing payroll services for Corporate Center employees is for the Corporate Center and not the utilities. This argument ignores the fact that Corporate Center costs are merely centralized costs the two utilities would otherwise incur. We will not adopt this adjustment.

10. Accounting (B-5)

When we discussed ORA's proposed adjustments we addressed the question of whether Corporate Center Accounting test year costs are reasonable. UCAN has attempted to reargue the role and purpose of the holding company, issues that are outside the scope of this proceeding. We decline to consider the recommendations.

11. Corporate Planning (B-6)

UCAN contended that there is a prohibition on recovering holding company services that do not provide a "direct and primary benefit" to utilities. UCAN recommended reducing the utilities' allocation for Corporate Planning from 47.79% to 6.53%. UCAN also argued that SoCalGas and SDG&E were not direct primary beneficiaries. SoCalGas and SDG&E responded that the Corporate Planning Department supports functions centralized at the Corporate Center that are not included in the utilities and the department works closely with the Treasury department to provide financial and business plans and other duties.⁴²³ We do not find the function to be duplicative or focused solely on the non-utility affiliates. We will not reduce the allocation.

12. Corporate IT (B-7)

UCAN proposed to disallow $1,367,000 in labor expense and $1,293,000 in system maintenance and vendor fees. The labor adjustment, according to SoCalGas and SDG&E does not reflect the change in capitalization - costs are expensed that used to be capitalized - and UCAN did not address the labor associated with new duties in the department. We will not adjust the labor estimate.

UCAN also argued that new information technology systems are not reasonable because they did not appear to increase productivity because of a labor forecast increase. SoCalGas and SDG&E argued that productivity savings did not drive the need for the systems; they are the result of new and increased business requirements including (but not limited to) Sarbanes-Oxley, labor compliance issues, and affirmative action tracking and reporting. By arguing only for cost savings or productivity increase issues, UCAN has not challenged the need for or benefit from the systems. We cannot agree that all systems must always reduce costs or otherwise increase productivity in order to be necessary.

Finally, UCAN argued against the use of the multi-factor method to allocate costs. In the above section, Investor & Shareholder Relations (B-2), UCAN argued for a 50-50 split rather than the multi-factor method. UCAN proposed the multi-factor rate of 72.16% here because UCAN claimed SoCalGas and SDG&E did not provide the information to support an allocation of 91.65% on historical tracking of direct and non-labor costs.⁴²⁴ We are concerned about selecting an allocation based on outcome,⁴²⁵ but UCAN's claim⁴²⁶ that the data was not available to support a tracking-based allocation is uncontested in the opening and reply litigation briefs. We will adopt the multi-factor allocation, reducing the allocation from 91.655 to 72.16%, so we will reduce Corporate Information Technology costs by $1.950 million, i.e., from $9.170 million to $7.220 million.⁴²⁷

13. Treasury (B-8)

UCAN proposed three adjustments to the Treasury Department: (1) eliminate syndication fees for bank lines of credit; (2) reduce the rate agency fees allocated to the utilities; and (3) reduce staff and travel expenses.

UCAN argued that the fees for a syndicate of banks to offer lines of credit properly belong in the cost of capital proceeding and not in base rates.⁴²⁸ There is no citation by UCAN to that being the adopted practice for SoCalGas or SDG&E. The applicants conceded that one adjustment is needed for some costs already recovered elsewhere.⁴²⁹

We would agree that these costs should only be recovered once; to that extent, we will allow their recovery here, but we put both SoCalGas and SDG&E on notice they must affirmatively show in their next cost of capital proceeding - that they are not seeking to recover the same costs, or even incremental costs, in another proceeding in-between applications for base margin revenue requirements. By choosing to request a fixed test year estimate here, SoCalGas and SDG&E implicitly accepted the forecast risks until the next proceeding to set a new test year revenue requirement so SoCalGas and SDG&E should not seek to revise or supplement the allowance in any different forum.

UCAN argued that SoCalGas and SDG&E could not show that the increase in rating agency fees is permanent, and was critical of SoCalGas and SDG&E because the companies could not indicate whether fees had actually increased since the base year. In rebuttal, the companies stated that the majority of costs go to the affiliates, and the first quarter 2003 actual costs were likely to exceed the test year estimate. We find these costs to be reasonable for Test Year 2004. SoCalGas and SDG&E operate in a market where the past sins of some industry participants may reflect on the industry as a whole, at least for the foreseeable future, so we accept the companies' forecast that rating agency costs have risen and will stay higher than the base year. We will not make this adjustment.

Finally, UCAN linked an increase in travel costs to new positions, but SoCalGas and SDG&E responded the travel would be an increase in the current traveling by the Vice President and Treasurer. We will accept this increase and not make an adjustment.

14. Risk Management - Insurance (B-9)

After adjusting the forecast to eliminate one position from its request, SoCalGas and SDG&E argued that UCAN only considered labor and did not consider other specified items in its requested increase for non-labor components, including insurance consulting and travel, that contribute to lowering insurance costs.⁴³⁰ UCAN did not separate its recommendation between labor and non-labor; we will not make the additional adjustment.

15. Tax Services (B-11)

UCAN proposed a disallowance of $65,000 for computers and $305,000 for recruiting. In Ex. 607, UCAN determined that the tax services organization had increased by 19 employees since the base year and that it concurred with the forecast of the number of positions, all of which were now filled. Therefore UCAN argued the recruiting costs were for pre-test year activities.⁴³¹ SoCalGas and SDG&E argued that they would have ongoing recruiting and relocation costs but offered nothing in support of why they would have continuous turnover and why there would always be relocation expenses.⁴³² We agree with UCAN that these costs are not justified; we do not expect a constant churning of employees that requires recruiting and relocation costs on the scale that was necessary to expand the department.

SoCalGas and SDG&E responded that the computer expenses are the result of the change in the capitalization policy (which we adopt elsewhere) so computers that would otherwise be capital items are now expensed. The applicants also said this is a three-year replacement rate which is not consistent with the four-year rate we adopt in this decision, but we lack the detailed information to make that minor adjustment. We will reduce the forecast by $0.305 million for recruiting costs.

UCAN recommended reducing the allocation to the utilities of Tax Services from 58.07% to 45.12%, or approximately $800,000. UCAN derived this based on its reallocation of costs based on business unit employees.⁴³³ UCAN also segregated a portion to the holding company, 21.25%, without explaining why at least a portion of those costs would not be attributable to the utilities. Even a 50-50 split of the "corporate" portion would increase the utility share to 56%. In rebuttal Ex. 114, SoCalGas and SDG&E provided a spreadsheet that showed the employees to be split 60% to the utilities and 40% to the non-utility affiliates, very close to the 58% in its spreadsheets.⁴³⁴ We find that SoCalGas and SDG&E's allocation is reasonable.

16. Human Resources Senior VP & Staff (C-1)

UCAN echos ORA's proposal to disallow team-building expenses described as Leadership Training & Development. We have determined that SoCalGas and SDG&E had justified the costs for this team building or leadership training, and rejected ORA's proposal to disallow. UCAN makes no new or more compelling argument. We will not make UCAN's adjustment of $0.355 million.

17. Corporate Staffing (C-2)

UCAN proposed the total disallowance of the corporate staffing function at the Corporate Center relying on its interpretation of the direct and primary benefit criteria. Because the Corporate Center performs necessary functions for the utilities and non-utility and for the common "parent," it is reasonable to allocate to SoCalGas and SDG&E the fair share of costs of the Corporate Center in lieu of SoCalGas and SDG&E performing these tasks themselves. That includes adequate personnel/labor related support costs. We reject UCAN's proposal.

18. Diversity Affairs (C-3)

We have already rejected ORA's reduction for the Labor Secretary's Award; we will not consider UCAN's reallocation based on its employee count because we do not adopt a significant portion of UCAN's labor adjustments and we will not reduce the costs for this department. We accept SoCalGas and SDG&E's assertions⁴³⁵ that there are continuous costs for training and education to remain proficient and effective in recruiting and retaining a diverse workforce. We expect the training and education to occur throughout the test year and beyond.

19. Human Resources Information System

UCAN had a proposal to disallow some labor costs that we reject because Sempra demonstrated errors in UCAN's assumptions and because UCAN appeared to disallow any projected position that was vacant at the time its consultant performed its analysis.⁴³⁶ We have already made the labor components of Corporate Center costs subject to the TLCBA so we have adequate protection for ratepayers for overly optimistic estimates by SoCalGas and SDG&E. UCAN also proposed to disallow consulting, training and travel costs that UCAN categorized as not recurring; but this as we have said before assumes that no other years between rate cases will have other non-recurring costs. We reject the recommendation.

20. Corporate Security (C-5)

UCAN proposed that this cost center should be reduced in the test year by $80,000 for the costs of maintenance of the executive fleet, assuming the costs are handled by the Fleet Service Department. SoCalGas and SDG&E showed this was not correct. We accept SoCalGas and SDG&E's explanation.⁴³⁷ The balance of the proposal appears to us to be related to UCAN's cost reallocation based on its different employee count. We do not adopt UCAN's allocation changes based on labor differences.

21. Compensation & Benefits (C-6)

We will not consider UCAN's compensation-level adjustments; we have already addressed total compensation levels for SoCalGas and SDG&E and that analysis applies here too. We also accept SoCalGas and SDG&E's assertions that other consulting costs and training are necessary as are the costs for communications concerning employee benefits.⁴³⁸ We reject UCAN's adjustments.

22. Training & Development (C-7)

UCAN effectively disallowed 100% of the requested increase for this department. UCAN asserted the training and development departments lost five positions during the 2001 base period. UCAN proposed a labor reduction of $325,000. SoCalGas and SDG&E disagreed. SoCalGas and SDG&E also argued the focus of the departments has changed from "less focused efforts around general employee training and organizational development to a function responsible for more specific leadership competency-based training, people research, executive development and compliance training programs." (Opening litigation brief, p. 228.)

UCAN proposed a non-labor cost reduction of $1,275,000 because SoCalGas and SDG&E did not provide information on various management and leadership development programs. SoCalGas and SDG&E dispute this and cite Ex. 33, several data responses and also rebutted the assertions that costs were deferred or one-time.⁴³⁹ UCAN appears to overly identify costs as "one-time" without consideration that rates will be in effect for several years. We think it is appropriate for the training programs (in this case) to be continuous - not chopped for a short-term benefit of lower rates. We will require SoCalGas and SDG&E to provide a detailed program listing in their next general rate proceedings showing the frequency of training, the costs of training, and to clearly identify the scope and purpose of all training and development programs. Any labor savings are subject to the TLCBA. We will not cut the non-labor component this time without a reasonable and thorough justification.

23. Corporate Secretary (D-3)

UCAN attempted to bootstrap the allocation of corporate secretary costs adopted for PG&E to fit the SoCalGas and SDG&E situation.⁴⁴⁰ We agree that like PG&E they are regulated utilities with a holding/parent company that have (or had prior to the bankruptcy of PG&E's National Energy Group) non-regulated affiliates. But the relevant allocation for Sempra's corporate secretary to SoCalGas and SDG&E should be based solely on the actual duties and the cost-responsibility of the department relative to all of the Sempra companies. SoCalGas and SDG&E argued the PG&E corporate secretary duties are different, and UCAN did not provide a comparison to show they are similar to Sempra's.⁴⁴¹ UCAN accepted the direct allocation of travel expenses away from the utility and then proposed a 50-50 split of the balance without explaining why this downward adjustment is correct or appropriate. We will not adjust the Corporate Secretary allocations to SoCalGas and SDG&E for the test year.

24. Legal Department (D-4)

SoCalGas and SDG&E provided a detailed explanation of the test year forecast for legal expenses.⁴⁴² UCAN disputed whether or not the forecast of employees in the legal department reasonably reflected the forecast for the test year. UCAN based its recommendation on comparisons of the January 2001 headcount with those in January 2002 and June 2003 and later in errata to Ex. 607 significantly modified its calculations. SoCalGas and SDG&E argued in Briefs that this is an inappropriate update of methodology. SoCalGas and SDG&E argue that actual hiring from the base year into 2002 and 2003 shows the Legal Department "on-track" to have the test year staff on board. We find the UCAN calculations are not a reasonable predictor of actual staff in 2004.

UCAN did not argue the number was too big; only that the rate of hiring was unlikely; therefore, we will adopt SoCalGas and SDG&E's forecast and we will rely on the TLCBA to capture any unspent labor costs.

25. Nuclear Property Insurance (IP-2)

SDG&E contributes to an industry insurance scheme for nuclear generation plants operated by Nuclear Electric Insurance Ltd. (NEIL). On an annual basis SDG&E contributes a premium and, as appropriate based on its reserves,⁴⁴³ NEIL makes refunds to participants such that in recent years SDG&E has had a negative cost; refunds exceeded premiums. The 2004 Test Year dispute between SDG&E and UCAN is over the likely 2004 refund in comparison to recent years. SDG&E argued in rebuttal that the company knows from NEIL the 2004 premiums will rise and the expected refunds will decline. UCAN proposed that we should adopt the 2003 refund based on information that the refunds would "level off."⁴⁴⁴

SDG&E provided later credible information⁴⁴⁵ in its rebuttal exhibit (Ex. 114) that the refunds would significantly decline, so the 2004 estimate declined to a net refund of $0.561 million. We will accept the reliability of this later information and not adopt UCAN's recommendation.

26. All Risks Insurance (IP-3)

UCAN acknowledged it was unable to present premium information and that it was relying on policy declarations rather than recorded expense data. SoCalGas and SDG&E responded that information was available and in rebuttal (Ex. 114) provided adequate supporting information to demonstrate that the test year forecast was reasonable. UCAN, according to SoCalGas and SDG&E identified two policies as related to Sempra business presumed to be in Bermuda and London when the policies refer to the insurers' locations, not the location of coverage.⁴⁴⁶ We agree that SoCalGas and SDG&E met their burden of proof and UCAN did not raise a reasonable concern.

27. Officers & Directors' Liability Insurance
(IL-2)

We addressed this issue in Account 925 and reject ORA's 50-50-split proposal and we will make no further adjustment to Officers & Directors' Liability Insurance. UCAN argued that because there are allegations of market manipulation against Sempra Energy, we should disallow insurance premiums on the theory we would not allow recovery of damages from ratepayers.⁴⁴⁷ UCAN has not shown any proof of wrongdoing. Insurance is to protect honest well-intentioned directors and officers while they perform their duties. If that ever proves not to be the case, not paying the insurance costs is an inadequate response to director and officer misconduct. If there were corporate malfeasance, rather than rejecting insurance costs, we could for example consider other governance condition changes in the holding company relationship with SoCalGas and SDG&E.

28. Excess Liability Insurance (IL-3)

In rebuttal Ex. 114, SoCalGas and SDG&E reduced their combined request for excess liability insurance by $1.355 million⁴⁴⁸ using a 12% increase over 2003 actual premiums that had also increased over 2002 by 12%. UCAN developed a 2004 forecast from an analysis of policy declaration pages. UCAN also disputed this forecast on the basis that the 2003 premium covered a portion of 2004; the policy runs from June 2003 through May 2004. We will not adjust for this fact; as it appears to be a permanent timing difference, thus recorded expenses for every year would reflect a split-year policy period.

29. Other Liability Insurance (IL-5)

There are four components of Other Liability Insurance where UCAN took exception to SoCalGas and SDG&E forecasts: employment practices, broker fees, insurance taxes, and an "other" category. UCAN would reduce the test year estimates by $1.891 million.

UCAN recommended that employment practices premiums should be restricted to the 2002 level because it lacked adequate information on actual 2003 premiums. Fundamentally in a future test year rate regulation regime we are obliged to make educated forecasts and UCAN insists on trying to use the lack of recorded or actual data beyond the base year as a justification for not forecasting. We do not regulate all expenses on a backwards-actual cost test year basis. We adopt all of SoCalGas and SDG&E's forecasts for Other Liability Insurance costs as updated and corrected in the rebuttal testimony (Ex. 114) because it is the best available forecast information.

C. SoCalGas Shared Corporate Services

The costs for the Sempra Energy's Corporate Center were reviewed by ORA in one place in Ex. 302, and the adjustments are different only because of the allocation between SoCalGas and SDG&E. The following table is drawn from Ex. 149, the Joint SoCalGas Comparison Exhibit, and Ex. 64, rebuttal by SoCalGas. We make any appropriate adjustments to SoCalGas allocations below.

	Issue Area
	SoCalGas Test Year 2004 Estimate	$111.563 million
2.	Employee Volunteer & Giving Programs	0.172 million
3.	Accounting Shared Services	0.798 million
4.	Tax Services	0.514 million
6.	Training/Development	0.371 million
7.	Diversity Affairs	0.032 million
8.	General Counsel - Allocation Method	0.047 million
10.	Executive Dues & Events	0.020 million
14.	Incentive Compensation	1.988 million
15.	Supplemental Executive Compensation	0.935 million
16.	Long-Term Incentive	1.062 million
18.	Directors & Officers' Insurance 449	3.752 million
	Total ORA Recommended Disallowance450	$9.111 million
	Total ORA Recommended Disallowance 451	$10.004 million
	Adopted Recommendations	None

1. SoCalGas Account 923 - Outside Services

Unfortunately, the comparison exhibit and both the ORA and Sempra opening litigation briefs do not match. The comparable accounting treatment for SDG&E is in Account 921 "E1" and "E2," above.

The Comparison Exhibit, (Ex. 149) provides this summary:⁴⁵²

Account 923.0	SoCalGas	ORA	Difference
Non-Standard	$96.881 million	$89.565 million	$7.316 million
Account 923.1
Non-Standard	$14.772 million	$12.977 million	$1.795 million
Total
Non-Standard	$111.563 million	$102.542 million	$9.111 million

The ORA opening litigation brief provides this summary:⁴⁵³

Account 923.0	SoCalGas	ORA	Difference
Non-Standard	$97.851 million	$89.565 million	$8.286 million
Account 923.1
Non-Standard	$14.379 million	$12.977 million	$1.402 million
Total
Non-Standard	$112.230 million	$102.542 million	$9.688 million

The Sempra opening litigation brief provided this summary:⁴⁵⁴

Account 923.0	SoCalGas	ORA	Difference
Initial Position	$111.563 million	$102.435 million	$9.128 million
After Ex. 89 and Errata log	$111.563 million	$110.384 million	$1.179 million

SoCalGas and SDG&E describe the account, in conjunction with Account 921 as follows:

"ORA recommended four adjustments related to shared service billings from SDG&E to SoCalGas. These adjustments totaled $9,128,484 in FERC Account 923 and $979,000 in FERC Account 921. The organizations impacted were Human Resources, Strategic Planning and Senior Management. Recognizing the complexity of the issue, SoCalGas endeavored to work with ORA to explain how the allocation process worked. SoCalGas and SDG&E presented reconciliations requested by the ORA to justify the allocations. These reconciliations are included as attachments to Exh. 89. ORA changed their recommended disallowances for shared services to only the expenses that are disallowed at SDG&E. The ORA instructed SDG&E to calculate this amount. This calculation was made and provided to the ORA on September 10, 2003. Based upon the errata change log provided by ORA on September 12, it appears that the recommended disallowance of allocations from SDG&E to SoCalGas was changed from $979,000 for FERC Account 921 and $9,128,484 for FERC Account 923, to a proposed adjustment by ORA of $1,179,473 in FERC Account 923. This new proposed reduction by ORA is based on the ORA proposed adjustments at SDG&E, which are allocated to SoCalGas via the shared service allocation process. These proposed adjustments were addressed in Exh. 72..." (Sempra opening litigation brief, p. 190 (mimeo.).)

Neither ORA, nor SoCalGas and SDG&E, discussed Account 923 or Shared Services issues in their litigation reply briefs. We address this account in the sections that follow, below.

2. Insurance Costs

Insurance costs for both SoCalGas and SDG&E are one type of costs centrally managed by the Corporate Center on behalf of both the two utilities and all other Sempra Energy non-regulated companies, grouped together as Sempra Energy Global Enterprises (Global), or costs that are "retained" by the Corporate Center (Retained Costs). All types of insurance, whether related to SDG&E's liability for its ownership in SONGS, general liability for all companies or Directors and Officers' liability, etc., are centrally controlled and then allocated. Nearly identical exhibits were sponsored by SoCalGas and SDG&E (Ex. 11, 11-E and Ex. 36, 36E, respectively) to present an overview of the insurance coverage, which is then allocated between the utilities, Global or Retained.

Except as we consider and adopt or reject specific recommendations by ORA and other intervenors, in the following sections, we otherwise find SoCalGas and SDG&E met their burden of proof and adopt for Test Year 2004 the SoCalGas and SDG&E end-of-litigation estimates for insurance. We will address specific issues in the appropriate accounts.

3. SDG&E Account 923 - Outside Services

The Joint Comparison Exhibit, at p. 107, states that ORA proposed an allowance of $5.414 million for Test Year 2004, which is $155,000 less than SDG&E's position. SDG&E's rebuttal, Ex. 72, used the pre-errata ORA figure of $5.541 million, but points out the adjustment is never described in Ex. 302. The ORA opening litigation brief fails to delineate the proposal at all. We decline to search for ORA's adjustment, and consider ORA to have withdrawn or abandoned its proposal; therefore, we adopt SDG&E's request for $5.569 million.

4. SoCalGas and SDG&E Account 924 - Property Insurance

For both SoCalGas and SDG&E, the differences are solely the result of not reflecting all errata changes in the results of operations. We will rely on the applicants' spreadsheets for this decision's calculations.

5. SoCalGas and SDG&E Account 925 - Directors and Officers' Insurance

ORA and UCAN opposed the estimates for Directors and Officers' Liability insurance. ORA proposed a 50-50 split between the utilities and the remaining Sempra entities. The proposed split by SoCalGas and SDG&E is a 72-28 split based on a basic default allocation method known as the "four factor" method, which is used for several different insurance types of coverage.⁴⁵⁵ ORA characterized the Commission's adopted position in D.00-02-046⁴⁵⁶ as reflecting a split between ratepayers and shareholders of the costs in exchange for the benefits afforded to each for the protection offered by the insurance.⁴⁵⁷ In PG&E's case, there was not an allocation by PG&E prior to the ORA recommendation (which was actually a 64 -36 split, ORA proposed a $799,000 share to PG&E ratepayers of the total $1.25 million) and it was TURN and Enron (in the PG&E proceeding) that proposed a 50-50 split, which was really a 32-68 split because the $799,000 was further reduced to $400,000.

SoCalGas and SDG&E pointed out the insurance policy in this proceeding has a $10 million deductible before the insurance company pays any claim - and the applicants are not seeking an amortization of any assumed deductible, only the premium. The applicants combined allocate 72% of the premium only to ratepayers. The balance is recovered through either the non-utility revenues available to Sempra Energy or the shareholders' earnings from SoCalGas and SDG&E.

It is not stated in the exhibits whether ORA took the deductible into consideration either in this case, or in its position in PG&E's A.97-12-020 (which led to D.00-02-046). It is clear that SoCalGas and SDG&E allocated the costs between utility and non-utility as a part of the initial filing and would absorb any deductible costs in the event of a claim. SoCalGas and SDG&E pointed out that D.97-07-054 adopted the SoCalGas estimate for Directors and Officers' Liability insurance and the merger decision, D.98-03-073 captured the savings from a combined policy, so SoCalGas and SDG&E argue the Commission should adopt their estimate as reasonable in this specific situation. We agree. The costs for this insurance and the risk of claims, are already adequately divided between ratepayers and shareholders. We adopt the companies' Test Year 2004 estimates.

The final issue is the differences in the ORA and applicants' results of operations, caused by filing errata and not updating calculations. We will rely on the applicants' end-of-litigation estimates because they have been consistent in updating for errata and other changes.

6. SoCalGas Account 930 - Miscellaneous Expense Accounts

a) Account 930.0 - Miscellaneous

There is a discrepancy, like others previously discussed, between the errata positions of parties and the end-of-litigation positions. We will rely on SoCalGas and adopt $5.270 million for Test Year 2004.

b) Account 930.2 - Research Development & Demonstration

SoCalGas requested $9.065 million in research development and demonstration costs and ORA proposed three adjustments: to completely disallow one new and one old project, and a 50% reduction to the administration costs. Additionally, ORA's math in its results of operations spreadsheets and testimony has a $0.403 million discrepancy, so we will rely on the SoCalGas data. We otherwise adopt SoCalGas' forecast and consider the ORA adjustments below.

c) Power Generation

ORA and SoCalGas agreed on the project description of power generation research development and demonstration: it is designed to improve the cost effectiveness, energy efficiency and emission levels of distributed generation products and related technologies, including advanced internal combustion engines, "stirling cycle" engines, micro turbines, fuel cells and hydrogen reformers. SoCalGas requested $2.072 million for Test Year 2004. ORA argued, however, that these are technologies where private entities are now competitively developing products and ratepayers should no longer fund this type of research development and demonstration project.⁴⁵⁸ SoCalGas stated that the purpose of funding this program is to ensure products are developed on an accelerated basis and deployed to improve air quality. SoCalGas argued that distributed generation (where this technology may be deployed) is critical to reduce pressures on the electric grid and that ORA's logic is "reckless and ill-advised"⁴⁵⁹ to abruptly end funding simply because there is now early success, for example, with one product, an Ingersoll Rand microturbine. SoCalGas argued that intellectual property rights from successful research development and demonstration generate royalties that return to ratepayers in addition to the benefits from successful technology in service. SoCalGas disagreed with ORA that fuel cells, another example, are commercially viable now.⁴⁶⁰ We agree with SoCalGas that it is too soon to end funding this type of research. We will not make ORA's adjustment.

d) Integrated Energy System Controls

The integrated energy system controls are activities related to building automation and controls. ORA proposed a disallowance of $0.762 million but provided no specific explanation other than to assert that there are commercial control systems on the market. SoCalGas responded that the commercially available systems are highly specialized prototypes, which are not standardized or supported by vendors. SoCalGas proposed to continue to develop intellectual properties through successful research development and demonstration activities.

We find that the ORA recommendation is too superficial an examination of the role, benefits and purpose of ratepayer-funded research development and demonstration projects and we are concerned that we would be decreasing funding too soon, thus wasting past expenditures, as SoCalGas argued. We note SoCalGas' testimony is light on numbers and heavy on rhetoric (calling ORA "reckless" is inappropriate and a disservice to the record) and we will expect much more data analysis in support of its request in the next rate application.

e) Administration

ORA provided no explanation for its adjustment to administrative costs so we will decline to consider it any further.

As a result of the above discussions, we adopt the SoCalGas Test Year 2004 request of $9.065 million for Account 930.2 - Research Development and Demonstration expenses.

D. SDG&E Account 930 "C" - Environmental Services

We declined to make ORA's adjustment to Account 920 "C" for environmental services labor. Here, ORA proposed a $0.070 million adjustment, about 3%, for salaries and expenses for employees who maintain meter records, field operations, and other tasks. We decline to make this adjustment because we have adopted most of the capital expenditures and expense estimates for maintenance, and we will be consistent here. Any labor savings will be captured in the TLCBA.

E. SDG&E Account 930A - Administration Costs for Rate Reduction Bonds

SDG&E stated that it concurs with UCAN's recommendation to remove $1,110,000 in base year 2001 administrative fees and expenses associated with Rate Reduction Bonds, which was inadvertently included in base year 2001 in Account 930. The adjustment amount was not included in the September 19 errata. (Ex. 120, p. PJF-3.) No controversy remains however, and SDG&E made this adjustment to the end-of-litigation results of operations for Test Year 2004.

F. SoCalGas Account 935 - Real Estate & Facilities Expense

Only TURN raised an issue, maintenance costs for the Pico Rivera chiller maintenance expenses. The issue was not briefed, Ex. 149, the Comparison Exhibit, does not quantify it, and we will consider the issue as withdrawn.

³⁹⁴ D.98-03-073 dated March 26, 1998, in A.96-10-038; 79 CPUC 2d 343.

³⁹⁵ 79 CPUC 2d 343; at 453.

³⁹⁶ Ex. 11 and Ex. 11-E for SoCalGas and Ex. 33 and Ex. 33-E for SDG&E.

³⁹⁷ ORA litigation brief, at 176, 177.

³⁹⁸ 79 CPUC 2d 343; at 453.

³⁹⁹ 79 CPUC 2d 343; at 461.

⁴⁰⁰ D.98-08-035 dated August 6, 1998, in R.97-04-011 an I.97-04-012; 81 CPUC 2d 607.

⁴⁰¹ NorthStar's report at Introduction, p. 2. We only take notice of the existence of the audit, we do not make any discretionary decision here that relies on the audit.

⁴⁰² ORA litigation brief, at 184. This figure does not match ORA's earlier tabulation, but is close to SoCalGas' figure in its brief, $1.179 million, shown above, and further highlights the confusion.

⁴⁰³ ORA opening litigation brief, p. 184.

⁴⁰⁴ The whole subject of inter-company transfers for shared or joint services appears to be poorly understood.

⁴⁰⁵ Source: Ex. 150, pp. 104-105. It should also be noted, ORA's Ex. 302 does not show this level of detail or clarity for its recommendations; the adjustment amounts in Ex. 150 do not appear in Ex. 302. We rely on Ex. 150 as a summary source for the revenue requirement spreadsheets used to adopt the revenue requirements in this decision.

⁴⁰⁶ SDG&E either accepted these changes or did not offer rebuttal.

⁴⁰⁷ Ex. 302, p. 10-13.

⁴⁰⁸ Ex. 64. p. FHA-7 ff.

⁴⁰⁹ There are several occasions where we direct SoCalGas and SDG&E to provide a better explanation or "a thorough accounting for the actual changes" for an activity or program in the next proceeding. We are not proposing this will be a "reasonableness review" that might disallow costs recovered in Test Year 2004 rates. This directive to provide more information is intended to be used to assess the credibility of the forecast methodologies in the next proceeding to the extent that SoCalGas and SDG&E rely on a base year's recorded information. In the case of Sarbannes-Oxley, we expect significant detail once the applicants have some experience in complying with its requirements.

⁴¹⁰ Page 200.

⁴¹¹ Ex. 302, see five lines on pp. 10-15 and 10-16.

⁴¹² Ex. 64, p. FHA-13.

⁴¹³ Details are sparse in Ex. 302, but we would not want the companies, for example, to pay for Super Bowl, U.S. Open Tennis or World Series tickets. We include compensation for all executives at full market rates; executive personal entertainment should not be disguised as a civic obligation. We expect SoCalGas and SDG&E officers to be ethically responsible when spending ratepayer funds.

⁴¹⁴ Ex. 302, p. 10-21 and Ex. 64, p. FHA-14.

⁴¹⁵ These figures are from the Joint Comparison Exhibits, 150 and 149. UCAN's presentation is different, shown by organizational area. We list UCAN's adjustments by topic as litigated and briefed by UCAN. The captions are derived from the UCAN opening litigation brief.

⁴¹⁶ UCAN opening litigation brief, pp. 193-195.

⁴¹⁷ Sempra reply brief, p. 78.

⁴¹⁸ UCAN opening litigation brief, pp. 196-199.

⁴¹⁹ Sempra opening litigation brief, p. 211.

⁴²⁰ UCAN opening litigation brief, pp. 201-203. UCAN's brief repeats an incorrect citation to the 1999 PG&E general rate case included in Ex. 607, p. 3-14.

⁴²¹ Sempra opening litigation brief, p. 211, where SoCalGas and SDG&E give the wrong page citation, for the quoted reorganization principle.

⁴²² Ex. 607, pp. 3-16 through 3-18.

⁴²³ Sempra opening litigation brief, p. 217.

⁴²⁴ SoCalGas and SDG&E's description in Ex. 33-E, p. FHA-46, and UCAN's argument in Ex. 607, p. 4-25.

⁴²⁵ SoCalGas and SDG&E also complain about allocation selectivity: "It seems the Multi-Factor, which UCAN frequently rejects, suddenly seems desirable when faced with a higher, yet more appropriate, allocation rate to the utilities. Sempra's hierarchical cost allocation policy, which is consistent with CPUC policy, always elects a causal-beneficial method, if available, over the Multi-Factor method." (Sempra reply brief, p. 83.)

⁴²⁶ Ex. 607, p. 4-25.

⁴²⁷ UCAN opening litigation brief, Table D-8; applying the UCAN allocation factor of 72.16% to SoCalGas and SDG&E's Common Allocable Costs of $10.008 million instead of using 91.65%.

⁴²⁸ Ex. 607, p. 4-27.

⁴²⁹ Ex. 114, pp. FHA-34 and FHA-35.

⁴³⁰ Sempra opening litigation brief, p. 220.

⁴³¹ Ex. 607, pp. 4-32 and 4-33.

⁴³² Ex. 114, p. FHA-38.

⁴³³ Ex. 607, Table 4-20.

⁴³⁴ Ex. 114, Attached response to UCAN's Data Request 17, Question 9.

⁴³⁵ Sempra opening litigation brief, p. 224.

⁴³⁶ Sempra opening litigation brief, p. 225.

⁴³⁷ Sempra opening litigation brief, p. 226.

⁴³⁸ UCAN opening litigation brief, p. 228.

⁴³⁹ Sempra opening litigation brief, pp. 225-226.

⁴⁴⁰ Ex. 607, p. 6-4.

⁴⁴¹ Sempra opening litigation brief, p. 226, and Sempra reply brief, pp. 88 & 89.

⁴⁴² Ex. 33-E, pp. FHA-79 ff.

⁴⁴³ This is our term, the briefs are not sufficiently detailed - it is the concept that matters, and "reserve" is adequate to describe the issue for our limited purpose here.

⁴⁴⁴ Ex. 607, p. 8-5.

⁴⁴⁵ E-mail from Sempra's insurance advisor, Marsh USA Inc., dated September 17, 2003.

⁴⁴⁶ Sempra reply brief, p. 93.

⁴⁴⁷ UCAN opening litigation brief, p. 287.

⁴⁴⁸ Compared to the original application. (See Ex. 114, pp. 67-68.)

⁴⁴⁹ Directors and Officers' insurance is discussed jointly for SoCalGas and SDG&E in Account 925.

⁴⁵⁰ ORA's disallowance as summarized in Ex. 149, the Joint Comparison Exhibit.

⁴⁵¹ Ex. 64, p. FHA-2, rebuttal to ORA, for both SoCalGas and SDG&E to ORA's recommended adjustments for Sempra Energy Corporate Center allocated costs.

⁴⁵² Ex. 149, p. 88. Reformatted)

⁴⁵³ Page 157. (Reformatted.)

⁴⁵⁴ Page 190 (mimeo.), p. 192 (electronic) extracted from text. Assumes the SoCalGas figures in Ex. 149 are correct because SoCalGas prepared the Joint Comparison Exhibit and calculated the ORA recommendation based on the cited adjustments.

⁴⁵⁵ Ex. 33, attached "Exhibit A-15": Crime, Special Crime; Broker Services; Directors and Officers; Excess liability; Employment Liability, Fiduciary, Group Executive, Broker Fees.

⁴⁵⁶ During the proceeding PG&E agreed that a component of officers' liability insurance should be allocated to affiliates based on relative asset values between PG&E and its affiliates. PG&E reduced the allocation to the utility from $1.25 million to $799,000. This proposal is uncontested and will be adopted. ... TURN, joined by Enron, recommends that 50% of the cost of officers' and directors' insurance allocable to the utility be further allocated to shareholders as a below-the-line expense. Thus, they recommend that PG&E be authorized to recover $400,000 of this insurance cost from ratepayers." (Mimeo., p. 310, (emphasis added).)

⁴⁵⁷ Ex. 300, pp. 4-10.

⁴⁵⁸ Ex. 301, p. 9-46, ff.

⁴⁵⁹ Ex. 69, p. DB-3, lines 9-10.

⁴⁶⁰ Ex. 69, pp. DB-2, ff.