In a decision that approved and denied parts of two settlements with a six-year history, the California Public Utilities Commission (CPUC) last Thursday issued a series of changes for the natural gas utility operations in the southern half of the state. The most significant is the merger of gas-buying operations by Sempra Energy's two utilities -- Southern California Gas Co. (SoCalGas) and San Diego Gas and Electric Co. (SDG&E).

The CPUC's action was also significant for what it did not do, namely change the current gas purchase incentive mechanism for the utilities or the allocation of revenues from unbundled gas storage services. Both issues will be taken up in future proceedings that deal with the utilities' overall allocation of its costs.

The two Sempra utilities and Southern California Edison Co. had made a joint application for approval of up to 34 separate natural gas utility operating changes that had been hammered out in two previously CPUC-approved settlements since 2001 and the time of the state's energy crisis. The major issues related to core (resident/small commercial customer) operations, unbundled storage and provisions for unbundled storage capacities.

"Most importantly, this decision approves the consolidation of SoCalGas and SDG&E's gas procurement and management function into one portfolio," said CPUC President Michael Peevey. "I believe this will promote efficiency and reduce costs."

In addition, Peevey said the decision will help safeguard the competitiveness of several aspects of the SoCalGas market, while helping assure more reliability and stable retail gas prices for the core customers.

The questions of allocating revenues and costs between ratepayers and shareholders for both the unbundling of storage or the buying of wholesale gas supplies drew various proposals from stakeholders, Peevey said, but those issues will have to be dealt with separately in the future.

Commissioner Timothy Simon supported Peevey's proposed approach because he said it "effectively balances the need to resolve the differences" among the three utilities, while recognizing that there is "not a strong enough record to make prudent decisions on all of the contentious issues."

Simon said many "important issues" are still left to be dealt with by the regulators, pertaining to what he called "natural gas infrastructure" to the biennial cost allocation proceeding (BICAP). The BICAP, which the utilities' will file in early February, will provide "an open, transparent public process" that will include all parties.

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