Introduction

This report presents the results of Overland Consulting's review on behalf of Utility Consumer's Action Network (UCAN) and The Utility Reform Network (TURN) of Sempra's 2008 forecasted holding company (Corporate Center) and Shared Utility Services expenses as presented in applications A.0612009 and A.0612010. The report covers the following subject areas, Sempra witnesses and Exhibits.

Within each report section, significant topical areas are covered in separate chapters. For ease of comparison, the chapters in this report generally coincide with the organization of topics reflected in the testimony of Sempra's witnesses.

Analysis Approach and Interpretation of Results

We performed our analysis using information Sempra provided in testimony, workpapers and responses to data requests. We did not have access to Sempra's offices and we did not conduct interviews of Sempra's employees. Our analysis focused on whether Sempra's test year expenses are supported by a reasonable forecasting approach, whether proposed Utilities allocation procedures and factors are reasonable and whether Sempra's forecasted Utilities expense allocations are recoverable from customers under existing Commission policy. Our report does not advocate new policy with respect to holding company or shared utility expenses. It also does not take a position against policies that may be proposed by parties such as the Division of Ratepayer Advocates (DRA). For example, DRA is addressing the question of whether certain executive compensation and incentive plan expenses in the Corporate Center's Benefits Division should be recovered from utility customers. To the extent we did not make an adjustment in a cost center adjusted by DRA it indicates that we have not addressed the issue covered by DRA. It should not be interpreted as advocating Sempra's expense level or opposing the DRA's recommendation.

Although it covers most Corporate Center cost centers and most of the larger Shared Utilities Services cost centers, our analysis should not be considered a comprehensive regulatory audit of these areas. A comprehensive audit, which would have included on-premises efforts and interviews of cost center managers, would likely have produced additional facts and adjustments that could not be easily ascertained through a formal discovery process. The Commission should consider our recommended adjustments in conjunction with recommendations made by other parties who reviewed these areas.

Corporate Center

We reviewed Sempra's test year total and utilities-allocated expense forecast in each holding company (Corporate Center) division. Within most divisions we analyzed Sempra's individual cost centers in detail.1 In some cost centers we identified test year expense center expense and Utilities allocation forecasts that were unsupported or at variance with Commission policies regarding the recovery of costs from utility customers. In these cases, we recommend adjusting Sempra's forecasted test year expense center expense, Utilities expense allocation factors, or both.