A.02-12-027 et al. COM/CXW/mntALTERNATE DRAFT
COM/CXW/mntALTERNATE DRAFT
Agenda ID #3937
(Alternate to Agenda ID #3936)
Ratesetting
Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD
Mailed ______
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of SOUTHERN CALIFORNIA GAS COMPANY for authority to update its gas revenue requirement and base rates. (U 904 G) / Application 02-12-027(Filed December 20, 2002)
Application of SAN DIEGO GAS & ELECTRIC COMPANY for authority to update its gas and electric revenue requirement and base rates. (U902-M) / Application 02-12-028
(Filed December 20, 2002)
Investigation on the Commission’s Own Motion into the Rates, Operations, Practices, Service and Facilities of Southern California Gas Company and San Diego Gas & Electric Company. / Investigation 03-03-016
(Filed March 13, 2003)
(See Appendix A for a list of appearances.)
PHASE ONE DECISION
COST OF SERVICE TEST YEAR 2004 FOR
SOUTHERN CALIFORNIA GAS COMPANY AND SAN DIEGO GAS &
ELECTRIC COMPANY
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A.02-12-027 et al. COM/CXW/mntALTERNATE DRAFT
TABLE OF CONTENTS
Title Page
Phase One Decision
Cost of Service Test Year 2004 For
Southern California Gas Company and San Diego Gas &
Electric Company
I.Summary
II.Overview of the Applications
III.The Framework for These Cost of Service Proceedings
IV.Legal Standards
A.The Public Utilities Act
B.Scoping Memo
3.1. Investment Planning
3.2. Safety and Reliability
3.3. Customer Service
3.4. Utility Operations
3.5. Diversity, Outreach, Contributions, and Minority Contracting
C.Burden of Proof
V.Procedural History
VI.Partial Settlements
A.The Partial Settlements are not Reasonable
B.The Greenlining Institute and SoCalGas and SDG&E Settlement Agreement
1.Workforce Diversity
2.Supplier Diversity
3.Philanthropy
4.Annual Meetings
5.Discussion
VII.Test Year Forecast Methodology
VIII.Return to the Rate Case Processing Plan
IX.Agreement Between Litigants
X.Escalation
A.Labor
B.Non-Labor
C.Capital Projects Escalation
XI.Employee Total Compensation
A.SoCalGas and SDG&E Incentive Compensation
B.Maturing Work Force
C.Pension and Benefits (Account 926)
D.Pension (Account 926.206)
1.Conversion to a Cash Benefit Plan
2.Reorganization Impacts on Pension Expense
3.Other Pension Issues
4.Recoverability of Pension Expenses in Rates
5.Supplemental Pension Requests
6.Corporate Center Pension Expenses
7.Conclusion
E.Medical Benefits
F.Dental and Vision Care Benefits
G.Other Benefits
H.Supererogatory Benefits
XII.Workers’ Compensation – Account 925
XIII.Rate Base
XIV.Capitalization Policy
XV.SoCalGas Plant Additions
A.Gas Transmission
1.Gas Transmission Retrofit – Pipeline Integrity
2.Laboratory Equipment – Budget Category 718
B.Gas Engineering
1.Capital – Software Development Budget Category 723
C.Gas Distribution Operations – Capital Expenditures
1.Natural Gas Vehicle Project (Category 734)
2.New Business & Pressure Betterment
3.Routine Main Replacement
4.Routine Service Replacement
5.Freeway/Franchise Work
6.Other Capital Replacements
7.Cathodic Protection
8.Special Main Replacements
9.Measurement Equipment
10.Support Labor
11.Software Application – Gas Maintenance & Inspection
D.Information Technology Capital Expenditures
1.Windows 2000
E.Information Technology - Desktop and Laptop Computers
1.Replacement Cycle
2.Cost
3.Accounting
4.Gas Industry Restructuring Implementation
F.Customer Service
1.Dispatch Phase I and II
XVI.SDG&E Capital Additions
A.Gas Distribution
1.Geographic Information System and Maintenance & Inspections System
2.Budget Reduction Factor
3.Voice System Replacement Project
4.Otay Mesa Betterment Project
B.Electric Distribution
C.Blanket Budgets
D.Project 230 – Underground Cable Replacement Program
E.Capital Projects Other Than Blanket & Information Technology - Electric
1.Escalation
2.Sorento Substation
3.Sustainable Community Energy Systems
a)Determining the Right Level of Capital Additions Funding
F.Information Technology - Electric
G.Hourly Billing System (Phase II) - Electric
H.San Onofre Nuclear Generating Station - Electric
I.SONGS Costs Not In Edison’s Rate Case
1.New Security Requirements
2.Other Costs Not Billed by Edison
J.SDG&E Line Extension Issues
XVII.Working Cash – SoCalGas and SDG&E
A.Federal & State Tax Payment Lag
B.Municipal Taxes
C.Revenue Lag
D.Accrued Vacation and Withholdings
E.Customer Deposits
F.Hub and Swap Revenues
XVIII.Depreciation – SoCalGas and SDG&E
A.Simple Example of Depreciation
B.Remaining Life Estimates for SoCalGas and SDG&E
C.Simple Example of Net Salvage
D.Net Salvage Estimates for SoCalGas and SDG&E
XIX.Land Rights
XX.Test Year 2004 Customer Forecast
XXI.Clearing Accounts
A.SDG&E Account 163 – Purchasing and Warehousing
B.SoCalGas Account 184.2 – Business Solutions
C.SDG&E Account 184.2 – Fleet
D.SoCalGas Account 184.3 – Capital Tool Repair and Reconditioning
E.SoCalGas Account 184.4 – Customer Services
F.SoCalGas Account 184.6 – Tools and Uniforms
XXII.Operating & Maintenance – Gas Storage (SoCalGas)
A.SoCalGas Account 807 Gas Acquisition Costs
B.FERC Account 814 – Engineering and Supervision
C.FERC Account 824 – Other Expenses
D.Other Gas Storage Adjustments
E.SoCal Account 832 – Maintenance of Reservoirs and Wells
F.O&M – Gas Transmission
1.Three- Year Average Method
2.Other Gas Transmission Adjustments
3.Account 855 – Electric Fuel
4.SoCalGas Account 857
5.SoCal Gas Account 859-- Other Expenses
6.Local 843 Issues
XXIII.Gas Distribution Operations
A.SoCalGas Account 870.0: Operation Supervision and Engineering - Distribution
B.SoCalGas Accounts 870.5 & 870.7: Operation Supervision and Engineering
C.SoCalGas Account 878: Meter and House Regulator Expense
D.SoCalGas Account 879 – Customer Installation Expense
1.Meter Replacements
2.Supervision
3.Seismic Valve Inspections
4.Maturing Workforce
5.ORA’s Spreadsheets and Testimony
E.Fumigation Costs (Within Account 879)
F.SoCalGas and SDG&E CO Testing – Costs in Account 879
G.SoCalGas Account 880.3: Other Expenses– Distribution Field
H.SoCalGas Account 880.4: Other Expenses– Distribution Field
I.SoCalGas Account 880.5 – Safety & Emergency Services
J.SoCalGas Account 887 – Distribution Main Maintenance
K.SoCalGas Account 892 – Distribution Service Maintenance
L.SoCalGas Account 893.2 – Tin Meter Testing
M.SoCalGas - Information Technology Expense – Accounts 880, 903, & 923
N.SDG&E - Information Technology Expense– Accounts 588, 880, 903, 920, 921 and 935
O.SoCalGas Account 901 - Supervision (Staff Support Services)
P.SoCalGas Account 902 – Meter Reading Expense
Q.SDG&E Account 902 – Meter Reading
R.SoCalGas Account 903 – Customer Records and Collection Expenses
1.Call Volume (1)
2.Multi-Language Costs (2)
3.Maintenance (3)
4.Quality Assurance and Span of Control (4 & 6)
5.Pay Station Technology (5)
6.Paper Orders & Processing – Customer Billing(7)
7.Credit Analysis Staff (8)
8.Meter Reading - $0.455 million(9)
9.Call Volume Related Adjustments Customer Growth – Communications Expense (10)
10.Unadjusted Impact for Errata Ex. 7-E (11)
11.Fumigation Calls (12)
S.SDG&E Account 903.1 – Customer Records& Collections
1.Customer Information Expenses
2.Call Volume and Customer Growth
3.Special Services Staff
T.SDG&E Account 903.3 – Credit Collection
U.SDG&E Account 903.1 – UCAN’s Adjustments
1.Entertainment Expenses – Commercial and Industrial Customers (1)
2.Computer Tech. Staff (2)
3.CO Testing - Demand-Side Management Related Costs (3)
4.Support of Federal Accounts (4)
5.Newspaper Advertising (5)
6.Outage Notification Staff (6)
7.Computers (7) & (8)
8.SDG&E Account 903.1 - Dynamic Tariff & Demand Reduction (UCAN)
V.SDG&E Account 903.5 - Net Metering (UCAN)
W.SDG&E Account 903.5 - Hourly Billing (UCAN)
X.SDG&E Account 903.7 - Postage Expenses
Y.SoCalGas Account 904 - Uncollectables
Z.SoCalGas Account 908 – Customer Assistance
1.Outreach (1, 2 & 3)
2.SDG&E Fleet Service Related Adjustments (UCAN) – Account 184.2
3.SoCalGas and SDG&E Real Estate Software
AA.SoCalGas Account 909 – Customer Information/Instruction
XXIV.SoCalGas Administrative and General Expenses
A.SoCalGas and SDG&E Account 920 - Administrative and General Salaries
B.SoCalGas and SDG&E - Sarbanes-Oxley Act Costs
1.SoCalGas and SDG&E Cost Accounting Positions for Capital Expenditures
2.SoCalGas and SDG&E Results of Operations Models
C.SoCalGas Accounts 920 & 921 Administrative and General – Salaries and Expenses for Regional Public Affairs
D.SDG&E Accounts 920 & 921 Administrative and General – Salaries and Expenses for Regional Public Affairs
1.SoCalGas – Human Resources Account 920.2
2.SDG&E – Human Resources
3.SoCalGas and SDG&E Severance Payments
4.Other Proposed SDG&E Adjustments
E.SDG&E Account 920 “B” A&G Salaries – Incentive Compensation Plan and Spot Cash Awards
F.SDG&E Account 920 - “C” Environmental Services
G.SoCalGas Account 921 - Administrative and General Non-Labor Expense
H.SoCalGas Account 921.6 Administrative and General – Real Estate & Facilities
I.SDG&E Account 921 “A” and “F” - A & G Office Supplies & Expenses
1.SDG&E Controller’s Department (2)
2.SDG&E Human Resources (3)
3.SDG&E Labor Relations (4)
4.Strategic Planning (5)
5.Long-Term Incentives (7)
J.SDG&E Account 921 “C” Office Supplies & Expenses – Supplies Management
XXV.Shared Services
A.SDG&E Account 921 “E1” and “E2” Sempra Energy Corporate Center (Administrative & General Costs)
1.Undisputed Items (1, 5, 9, 12, & 13)
2.Employee Volunteer & Giving (2)
3.Accounting Shared Services (3) & Tax Services (4)
4.Leadership Training & Development (6)
5.Diversity Affairs (7)
6.Allocation of General Counsel (8)
7.Executive Dues and Events (10)
8.Shared Assets (11)
9.Compensation-Related (14, 15 & 16)
10.Miscellaneous (17)
B.UCAN’s Review of Shared Services
1.External Affairs Senior Vice President (A-1)
2.Legislative Governmental (A-3)
3.Affiliate Compliance (A-4)
4.Community Affairs (A-6)
5.Communications (A-9)
6.Holding Co.’s Chief Financial Officer (B-1)
7.Investor & Shareholder Relations (B-2)
8.Auditing Services (B-3)
9.Payroll (B-4)
10.Accounting (B-5)
11.Corporate Planning (B-6)
12.Corporate IT (B-7)
13.Treasury (B-8)
14.Risk Management – Insurance (B-9)
15.Tax Services (B-11)
16.Human Resources Senior VP & Staff (C-1)
17.Corporate Staffing (C-2)
18.Diversity Affairs (C-3)
19.Human Resources Information System
20.Corporate Security (C-5)
21.Compensation & Benefits (C-6)
22.Training & Development (C-7)
23.Corporate Secretary (D-3)
24.Legal Department (D-4)
25.Nuclear Property Insurance (IP-2)
26.All Risks Insurance (IP-3)
27.Officers & Directors’ Liability Insurance (IL2)
28.Excess Liability Insurance (IL-3)
29.Other Liability Insurance (IL-5)
C.SoCalGas Shared Corporate Services
1.SoCalGas Account 923 - Outside Services
2.Insurance Costs
3.SDG&E Account 923 - Outside Services
4.SoCalGas and SDG&E Account 924 - Property Insurance
5.SoCalGas and SDG&E Account 925 - Directors and Officers’ Insurance
6.SoCalGas Account 930 - Miscellaneous Expense Accounts
a)Account 930.0 - Miscellaneous
b)Account 930.2 - Research Development & Demonstration
c)Power Generation
d)Integrated Energy System Controls
e)Administration
D.SDG&E Account 930 “C” - Environmental Services
E.SDG&E Account 930A - Administration Costs for Rate Reduction Bonds
F.SoCalGas Account 935 - Real Estate & Facilities Expense
XXVI.SoCalGas and SDG&E - Income and Other Taxes
XXVII.SDG&E Electric Department Operations& Maintenance Expense
A.SDG&E Nuclear Operations & Maintenance Expense
B.SDG&E Account 556 - System Control & Load Dispatch
C.SDG&E Account 557 - Purchase Power
D.SDG&E Account 580 - Operation Supervision & Engineering
E.SDG&E Account 581 - Load Dispatch
F.SDG&E Account 582 - Station Expense
G.SDG&E Account 584 - Underground Line Expense
H.SDG&E Account 588 - Miscellaneous Distribution Expenses
I.SDG&E Account 590 - Maintenance Supervision – Engineering
J.SDG&E Account 593 - Maintenance of Overhead Lines
1.Vegetation Management
2.General Order 165 Inspections - Mapping
3.Other Adjustments
K.SDG&E Account 594 - Maintenance of Underground Lines
L.SDG&E Account 870 - Operating Supervision and Engineering
M.SDG&E Account 880 - Other Expenses
N.SDG&E Account 887 - Mains
O.SDG&E Account 892 - Services
P.SDG&E Account 586 - Electric Meter Testers
Q.SDG&E Account 878 - Relocation of Gas Meters and Regulators
R.SDG&E Account 879 - Gas Customer Installation Expenses
S.SDG&E Account 910 - Miscellaneous Customer Service and Informational Expenses
XXVIII.ORA’s Historical Review
A.Gain on Sale of Blythe Property
B.Independent Audit Fees
C.Reconciliation of Base Year 2001
XXIX.Electric Rate Design – SDG&E
XXX.Comments on Alternate Decision
XXXI.Assignment of Proceeding
Findings of Fact
Conclusions of Law
ORDER
Settlement Agreement between the Greenlining Institute and SoCalGas and SDG&E
APPENDIX A – List of Appearances
APPENDIX B – List of Acronyms and Abbreviations
APPENDIX C – SDG&E Combined Summary of Earnings Test Year 2004
APPENDIX D – SDG&E Gas Summary of Earnings Test Year 2004
APPENDIX E – SDG&E Electric Summary of Earnings Test Year 2004
APPENDIX F – SoCalGas Summary of Earnings Test Year 2004
APPENDIX G – Settlement Agreement between the Greenlining Institute and SoCalGas & SDG&E
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A.02-12-027 et al. COM/CXW/mntALTERNATE DRAFT
Phase One Decision
Cost of Service Test Year 2004 For
Southern California Gas Company and San Diego Gas &
Electric Company
I.Summary
In this decision, the Commission establishes the authorized base electric and gas revenue requirements for Southern California Gas Company (SoCalGas) and San Diego Gas & Electric Company (SDG&E) in the consolidated applications for Test Year 2004 Cost of Service. This decision rejects the two proposed partial Settlement Agreements filed in these proceedings. Phase 1 of these proceedings was submitted on February 19, 2004.
We authorize for SoCalGas $1,465.6 million in natural gas distribution revenues for Test Year 2004. We authorize SDG&E $731.2 million in electric distribution revenues and $208.2 million in natural gas distribution revenues for Test Year 2004.
Note that this alternate was prepared by using the proposed decision as a starting point. We are continuing to review the draft, and may make additional changes, based on comments.
II.Overview of the Applications
SoCalGas and SDG&E filed individual applications seeking to revise their base rate revenue requirements effective January 1, 2004, and seeking authority to establish a formula to adjust the revenue requirement for 2005 through 2008. The applications did not propose joint rates or a single common revenue requirement. Pursuant to Rules 45 and 55 of the Commission’s Rules of Practice and Procedure (Rules),[1] a joint motion for consolidation of the separate applications was filed concurrently with SoCalGas’ A.02-12-027 and SDG&E’s A.02-12-028 on December 20, 2002, respectively, for authority to update their gas and electric revenue requirements and base rates. SoCalGas requested an approximate $130million increase in natural gas distribution revenues for Test Year 2004 and SDG&E requested an approximate $58.9 million increase in electric distribution revenues and $21.6 million increase in natural gas distribution revenues for Test Year 2004. In addition, both companies sought authority for “Margin Per Customer” (MPC) indexing mechanisms. The two companies’ requested revenue requirements included virtually all their expenses for operation, maintenance, safety, and general expenses. By Ruling, the applications were consolidated on January 22, 2003. On March 13, 2003, the Commission issued Order Instituting Investigation (I.) 03-03-016 to allow the Commission to hear proposals other than the applicants’, and to enable the Commission to enter orders on matters for which the utilities may not be the proponent.
These applications were not filed in conformance with the Commission’s rate case processing plan, as discussed below. They are in conformance with specific exemptions granted as a part of previously adopted incentive ratemaking mechanisms.
The requests by both companies for indexing mechanisms and all consideration of any form of incentive ratemaking is in Phase Two of these proceedings.[2]
III.The Framework for These Cost of Service Proceedings
In these cases, as in all others brought under the various provisions of the Public Utilities Act, we seek to promote the public interest. This involves balancing the interests of numerous stakeholders -- residential, business and agricultural end-use customers; utility investors and employees; utility managers; providers of energy services; exponents of environmental and social concerns. In these cases, where we determine the pricing of electric and gas distribution service, we are dealing with essential services that are critical to the well being of our entire state. Through local franchises and the orders of this Commission, California has entrusted management of this infrastructure to the stewardship of SoCalGas and SDG&E, subject to our ongoing regulatory oversight. These two companies are pervasive presences in their communities, and a vital force in the economy of California. We intend to hold them to a high standard of service quality, and we expect prudent and effective management of the financial and human resources we have placed under their control. Under these conditions, we intend to provide sufficient revenues to meet the costs of providing quality service.
SoCalGas and SDG&E enjoy an effective monopoly in the provision of electric and gas distribution service. (C.f., Pub. Util. Code[3] §§ 330(f) (electric) and328 and 328.2 (gas, added by Statutes 1999, Ch. 909, effective January 1, 2000).) This means not only is each the sole provider of the service in its respective territory, but also each has exclusive control over the costs and conditions of such service and, importantly, control over the information about costs and conditions. In order to prevent abuse of this monopoly and its incidents, the Legislature has given the Commission broad powers of investigation intended to make the real costs and conditions of monopoly service transparent. We exercise those powers to assure consumers that the prices they pay for monopoly service are in fact just and reasonable, that they are in fact reasonably related to costs prudently incurred by efficient, conscientious managers to provide the quality of service we expect. This is at the core of our responsibilities.
The schedule adopted in these proceedings[4] reflected the stress and strain on the resources of the Office of Ratepayer Advocates (ORA), the Commission’s internal analytical and investigative body, that have been sorely tested by the workload before the Commission. We were further constrained by the fiscal crisis in recent California that has seen the staff of the entire agency, including our industry advisory divisions, shrink dramatically and the operating budget shrink alarmingly, and thus hampered the ability of this agency to exercise its role in an optimal fashion. Of necessity, not choice, we address Phase One revenue requirements after the start of the test year. In 2003, the Commission staff, including ORA, was stretched by concurrently processing major rate proceedings not only for SoCalGas and SDG&E, but also for PG&E for a Test Year 2004 and Southern California Edison Company (Edison) for a Test Year 2003.
In D.97-07-054 (73 CPUC 2d, 469), the Commission first adopted an incentive ratemaking mechanism for SoCalGas and suspended for the life of the mechanism the requirement to file a general rate case (GRC) . (Ordering Paragraph (OP) 8, 73 CPUC 2d, at 535).) In D.01-10-030, the commission provided a one-year for a fiveyear rate period that was to expire on December 31, 2002. For SDG&E, the requirement to file a general rate case for Test Year 1999 was suspended by D.9712-041 (77 CPUC 2d, 139) and the company was ordered to file a “cost-of-service showing” as a part of the performance based ratemaking (PBR) form of incentive ratemaking mechanism in a proceeding ordered by D.94-08-023.[5] This latter decision adopted an “experimental” mechanism as an alternative to the traditional proceeding. SDG&E’s last-adopted incentive ratemaking mechanism was to remain in effect through 2002 and was extended by the same D.01-10-030 through 2003, along with SoCalGas.
In D.97-04-085, the Commission had found that the typical GRC requirements were a burden on the limited resources of staff and parties because of the workload imposed by the implementation of electric restructuring.[6] We now have the opportunity and obligation to re-establish a rigorous and appropriate review for both SoCalGas and SDG&E when they next file applications seeking to revise their base rate revenue requirements. Accordingly, SoCalGas and SDG&E must comply fully with the extant general rate case processing plan (rate case plan) requirements when they next file, regardless of the outcome or precise nature of the incentive mechanism, if any, which may be adopted in Phase 2 of these proceedings. As a further requirement, we direct SoCalGas and SDG&E to provide the Notice of Intent (NOI), a draft of the intended application, required by the rate case plan to The Utility Reform Network (TURN) and the Utility Consumers’ Action Network (UCAN) and other intervenors. We will allow those intervenorrs to provide a list of filing deficiencies to the applicants along with ORA. We add this requirement in light of the very detailed and significant analysis performed by intervenors in this Phase 1 and in light of the detailed discovery that they conducted.