Although not including the more contentious issues surrounding incentives and the performance-based ratemaking (PBR) process, San Diego-based Sempra Energy’s two utilities last week filed a partial settlement in their joint cost-of-service rate filing with the California Public Utilities Commission. The PBR details are left for the regulatory process to resolve or a future settlement.

This makes the third settlement in the joint utilities’ major rate case. Two earlier ones are still before the CPUC, awaiting action.

Employee unions and major utility consumer groups were among the parties settling, along with the CPUC’s independent consumer branch, the Office of Ratepayer Advocates (ORA). The settlements are geared to allow San Diego Gas and Electric Co. (SDG&E) and Southern California Gas Co. (SoCalGas) to avoid the need for future general rate case filings until 2008.

The focus of the settlement filed with the CPUC last Wednesday was on earnings sharing between utility shareholders and retail ratepayers, cost-of-capital issues and future rates and revenue requirements. According to the filed settlement, SoCalGas would have an annual revenue requirement of about $1.5 billion this year, while SDG&E’s revenue requirement would be a little more than $1 billion in 2004

.In the years between now and 2008, the two utilities will be able to raise their revenue requirements by percentage ranges each year. For example, SoCalGas can raise its revenue requirement next year by 2% to 3%; SDG&E by 3.2% to 4.2%, and the percentages increase each year, with the utilities being able to go up to 4.3% and 4.8%, respectively in 2007.

The fundamental issue of the use of incentives and how they are applied still needs to be resolved. ORA, for example, wants penalties to be applied as well as rewards, if the utilities fall significantly short of their targets on reliability,safety and customer satisfaction. Current PBR processes provide only for rewards.

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