For Immediate Release July 6, 2007 

Much needed rate relief may be just months away, based upon findings by UCAN, the Utility Consumers' Action Network, and its three teams of utility auditors. In reports being formally submitted to state regulators today, UCAN's experts describe, in excruciatingly exact detail, why SDG&E's claimed need for a $1.4 billion increase over the next six years is simply wrong.

According to UCAN's Executive Director, Michael Shames, "In the event that the California Public Utilities Commission actually chooses to stand up to the utilities this year, SDG&E ratepayers can expect electric and gas rate decreases beginning next year that could be as high as $50 a year for the average household."

UCAN commissioned a team of auditors to review SDG&E's utility operations. The
$700,000 study found a large number of accounting peculiarities and exaggerations in over 400 different accounts. Among their findings:

• Since 2000, SDG&E electric rates have climbed to the second highest in the nation and the highest in the Western United States. Only the ratepayers of New York City's ConEd electric monopoly pay more.

• At the same time, SDG&E's profits have increased dramatically since the 2000 Energy Crisis. In the years following the crisis, SDG&E has experienced profit increases of over 80% in some years.

• Customer service and customer satisfaction has declined. An alarming 50% of all SDG&E customers think rates are unreasonably high. In addition, SDG&E's reliance on complicated and annoying voice-activated phone answering systems has resulted in numerous complaints.

• SDG&E has gamed the ratesetting process. The list of inadequacies in SDG &E's application is a textbook example of how ratesetting processes can be abused. UCAN identifies the ways in which SDG&E has gamed the process and recommends means by which regulators can address these abuses, such as returning to a modified historical test year adjusted for a limited number of macro-level known and measurable changes.

• SDG&E withheld documents proving that should be reduced. SDG&E misled the Commission by withholding cost-cutting plans that justify rate decreases and continuing to misrepresent these documents. UCAN recommends that the Commission re-examine utility cost reductions associated with Utility of the Future, Strategic Sourcing and SDG&E's Advanced Meter Intiative (AMI). Ratesetting should be based on SDG&E's 2009 savings in order to set fair rates for the programs in 2010.

• SDG&E rate increases assume efforts to improve productivity will fail. If there is one glaring absence from the utilities filing, it is productivity. While productivity achievements have been notable hallmarks of the past three years in almost every other industry, SDG&E's operations appear to be largely immune to productivity advances.

• SDG&E has double-counted costs and over-stated expenses. In almost every department that was scrutinized, UCAN experts found double-counting, exaggerated expenses, incomplete justifications and blatant errors. In one of the more egregious displays of double-counting, JBS Energy auditor Jeff Nahigian details how SDG&E intentionally underestimated the hard dollar operational savings of the recently-adopted AMI project in order to maximize savings in the General Rate Case (GRC) that flow first to shareholders.

• SDG&E grossly overestimated the labor costs of reading meters. Mr. Nahigian's testimony also details how SDG&E bulked up its forecast in metering and meter reading areas (e.g. base rate funding for additional safety training for non-existent meter readers, adding base rate money to supposedly to send IT staff that support existing advanced meters to conferences when their jobs are being transferred toAMI, etc.).

• Overinflated Sempra Charges. Overland Consulting recommends a decrease of $19,100,000 in payments sought from SDG&E by Sempra Energy, the holding company that owns SDG&E. UCAN's auditors find a number of questionable or unsupported payments sought by the holding company, such as excessive payroll costs, inflated estimates for insurance and questionable legal costs.

• SDG&E's Operating Costs are Inflated. The testimony of JBS Energy witnesses recommends reductions to SDG&E's rate increase that total approximately $60 million (valuing the revenue requirement impact of plant-in-service reductions at 16% of the capital amount and other rate base reductions at 12.5% for return, depreciation, and taxes). Included in that recommendation is a decrease of $15,202,000 in electric distribution expenses, a decrease of $7,779,000 in Customer Service Operations expenses and $9,277,000 in Customer Service and Information expenses, as recommended in the testimony of Mr. Nahigian.

• Depreciation Calculations Must Change. Michael Majoros of Snavely King Majoros O'Connor & Lee, Inc recommends an appx. $51 million reduction for SDG&E revenues on the basis that the depreciation methodology used by SDG&E inappropriately accounts for inflation.