IV. Review of the Stipulation

The stipulation provides for a revenue requirement of $4,713,616 through 2002, an 8.9% reduction from SoCalGas' application.²¹ It excludes $7,687 in costs incurred in anticipation of the El Niño storms and $286,118 for lost gas, as recommended by ORA, but allows an additional $425,000 in costs that were incurred after the application was filed but before ORA and SoCalGas entered into the stipulation.²² It also caps recovery for future costs that were not yet incurred.²³ SoCalGas contends that the stipulation precludes it from recovering over $1.2 million in costs properly attributable to the El Niño caused storms of 1998 and that "undoubtedly greater amounts that have yet to be fully discovered." (Opening Brief at p. 11.)

We find that the settlement, as modified and clarified herein, is reasonable in light of the whole record, consistent with the law, and in the public interest. The exclusion of costs incurred in anticipation of the El Niño storms and the lost gas, by themselves, do not make the settlement reasonable since the former costs are excluded from the CEMA by prior Commission decision prohibiting the recovery of costs incurred prior to and in anticipation of a catastrophic event (D.93-11-071)²⁴ and the latter reduction is necessary to prevent double counting since it is a component of SoCalGas' BCAP. However, SoCalGas assists in making the stipulation reasonable by agreeing, at the evidentiary hearing, to forego interest on the unamortized balance in the CEMA that would otherwise have been recoverable pursuant to its CEMA tariff, which totals $361,026 for 2000-2003.

A key element of the stipulation relates to SoCalGas' and ORA's agreement to cap recovery of future costs attributed to the El Niño caused storms of 1998 to $425,000 in actual incurred costs. Testifying in support of the stipulation, SoCalGas witness Yee confirmed that the negotiated settlement included a "cut off from recovery of any residual or ongoing incremental O&M, El Niño O&M and capital costs at $425,000," noting that, to date, SoCalGas "has incurred in excess of $317,000 above the negotiated settlement of $425,000" and stating that "we expect that those costs will continue to increase." (Yee, Tr. Vol. 1, p. 29.) Mr. Yee later sponsored Exhibit 19, which shows that $445,158 in repair costs were incurred up to November 30, 1999 and are excluded from recovery under the stipulation. Mr. Saline also testified to an anticipated $40,000 to $50,000 in costs to restore withdrawal lines that were pushed off their supports by mud, which he attributes to the El Niño storms. (Tr. Vol. 2, pp. 181; 192.)

We believe that this agreement is critical to the reasonableness of the settlement. We interpret this agreement to mean the following with respect to future recovery of costs attributed to damage sustained as a result of the 1998 El Niño -caused storms:

1. All O&M expenses are settled by the stipulation, as approved in this decision.

2. All reasonable carrying costs for those capital investments specifically approved for recovery in the PD may be recovered in future base margin proceedings.

3. All costs related to capital investments that either were a) disapproved in the PD; or b) identified by SoCalGas as costs it has agreed to "forego" as a condition for approval of the stipulation, as identified and reviewed during the evidentiary hearing,²⁵ are not part of SoCalGas' weighted average rate base. To the extent that SoCalGas has incurred depreciation expense on these items, these costs are not recoverable. Further, SoCalGas may not raise disallowed costs in future proceedings. These costs were specifically identified by SoCalGas as costs that would be foregone by virtue of the stipulation and were reviewed in this proceeding. We will not allow for future recovery of these costs. Allowing SoCalGas to seek recovery for these costs in a later proceeding would render the stipulation meaningless and would result in duplicative proceedings, which is not in the public interest.

4. All costs related to other capital investments which are arguably attributed to the 1998 El Niño-caused storms, other than those costs referenced in number (3) above, in any future base margin proceeding setting rates for 2003 and beyond, must be specifically itemized and identified, must reference this decision, and, then, will be carefully scrutinized for reasonableness in accordance with the principles set forth in this decision.

While we do not preclude SoCalGas, per se, from seeking recovery of other capital expenditures that are arguably traceable to the 1998 El Niño -caused storms, including future damage caused by further earth movement resulting from the removal of "resisting forces" occurring during the 1998 landslides and in the areas weakened by the 1998 storms, in future base margin proceedings, we intend that those costs be carefully scrutinized in accordance with the principles set forth in this proceeding. Thus, we specifically direct SoCalGas, if it seeks to include such costs in future base margin proceedings for inclusion in rates post-2002, to specifically itemize and identify such costs and to reference this decision so that the Commission can determine their reasonableness. Such a review is particularly important since, as we noted earlier, SoCalGas' expert witness specifically opined that the effects of the storms might be manifested weeks, months, and even years later and we believe that there is a serious issue regarding the location of these pipelines.

Further, we reduce the $425,000 in actual incurred costs by the costs associated with the relocation of Lines 404 and 1011 under Work Order 94377 since we found that these costs should be disallowed. We modify the stipulation accordingly.

In sum, we find the stipulation as modified and clarified herein, reasonable in light of the record as a whole because: (1) an issue remains whether relocating the pipelines prior to the storms of 1998 would have been cost-effective; (2) the total dollar amount of the settlement, as modified herein to remove the costs associated with work performed under work order 94377, is reasonable as a compromise between strongly held interests, in light of SoCalGas' determination to forego accrued interest and waiver of the costs of recovery of El Niño-caused storm damage subsequent to entering into the stipulation, as clarified above; and (3) we are satisfied that ORA and SoCalGas represent a broad range of interests-ORA represents the long-term interests of all California utility consumers and SoCalGas represents the interests of the utility. This stipulation in this case, as modified and clarified, satisfies our concern that the CEMA not be abused by using it to recover costs that may be more appropriately considered in a utility's cost-of-service proceeding. Thus, the stipulation, as modified and clarified herein, generally balances the various interests at stake. For similar reasons, with our additional clarification, and given the lack of opposition to the stipulation, we find that the stipulation is in the public interest.

If the stipulating parties agree with the modifications to the stipulation, we adopt the stipulation as modified. If not, we reject the stipulation and render this decision based on the evidentiary record developed in this case.