Intervenor CAP Testimony: Parties Challenge Sempra Utilities' Cost-Allocation, BTS Capacity Cuts, and Storage Proposals

On May 15, parties served direct testimony in A.25-09-014, the SoCalGas/SDG&E 2027 CAP filing, which will allocate natural gas costs and set rates, effective January 1, 2027 through December 31, 2029.

Parties' testimony spans:

• Storage cost classification and allocation;
• The Sempra Utilities' proposed backbone-to-local transmission reallocation;
• Weather-design methodology;
• BTS nomination and open-season capacity;
• Regulatory account treatment of the Firm Access and Storage Rights Memorandum Account and Noncore Storage Balancing Account;
• A proposed Rule 23 expansion; and
• SoCalGas's proposal to quadruple the residential fixed charge.

STORAGE CAPACITY BASIS

• The Indicated Shippers and the Southern California Generation Coalition both reject SoCalGas's use of median Envoy postings to classify storage costs, arguing that fixed-cost systems must be allocated on design capacity, not typical utilization. SCGC documents that prior cost-allocation proceedings have used maximum available capacities for this purpose.
• Cal Advocates attacks the problem differently: the 2024 California Gas Report underlying the core inventory proposal has overstated actual core peak demand across five consecutive winters. Cal Advocates recommends reducing core inventory from 76 Bcf to 60-65 Bcf and adding a mid-period true-up triggered by a 5% demand miss.
• On the proposed 8-to-12 Bcf Load Balancing inventory increase, the Indicated Shippers note SoCalGas's discovery response was simply "not applicable" when asked to produce supporting analysis, and that core weather-sensitive loads, not noncore industrial loads, drive balancing requirements.

LOAD BALANCING COST ALLOCATION

The Indicated Shippers argue that SoCalGas's Average Year Throughput allocator bears no relationship to the actual cost driver for Load Balancing Storage (peak demand) and would assign 47.3% of those costs to retail noncore customers whose peak-to-average demand ratio is only 1.30, compared to over 3.0 for core. Shifting to a Peak-Day allocator drops noncore's share to 28.9% and, combined with corrected Local Transmission and High-Pressure Distribution allocations, reduces the noncore's total embedded cost responsibility by approximately $54.8 million.

BACKBONE-TO-LOCAL TRANSMISSION REALLOCATION

No intervenor fully accepts the proposal as filed. SCGC identifies two methodological errors (using the 69% local transmission fraction rather than the 31% backbone fraction, and using non-cold-year recorded data) that together reduce the defensible reallocation to 8% rather than 20.4%, and recommends no reallocation at all.

Indicated Shippers would accept a corrected reallocation of approximately $91 million using consistent peak-day demands. Cal Advocates cites a seasonal mismatch: the reallocation factor is derived from summer electric generation conditions but recovered through a winter-peak allocator, routing summer costs onto residential heating bills. TURN also recommends rejection of the backbone-to-local transmission reallocation.

WEATHER DESIGN

The Indicated Shippers and Cal Advocates both contest the Sempra Utilities' 2014-2018 warm-weather-regime adjustment, which compresses the Historical Heating Degree Day standard deviation by about 45% and shifts approximately $50 million per year in core reliability costs to other functions, including Load Balancing borne largely by noncore customers. Cal Advocates adds that the utilities possess 75 and 53 years of Historical Heating Degree Day data but use only 20 years, and that the flat dummy-variable correction overcorrects some warm years while under-correcting others. Both parties recommend using unadjusted historical data.

FASRMA/NSBA ACCOUNTS

The Indicated Shippers, SCGC, Cal Advocates, and TURN all reject SoCalGas's proposal to use the $27 million NSBA over-collection to eliminate the $4 million FASRMA under-collection. Their shared argument is that the FASRMA balance:

• Reflects a failed Off-System Delivery commercial program that generated only $30,000 in total revenue against $3.1 million in capital costs;
• Has offered no service since 2017; and
• Arose from an Off-System Delivery program authorized in D.11-03-029 on an expectation of net positive revenues that never materialized.

All four of these parties agree the balance should not fall on ratepayers, though their proposed remedies differ:

• The Indicated Shippers and TURN recommend shareholder absorption;
• Cal Advocates recommends recovery from Off-System Delivery customers specifically, or if that is not practicable, a finding of imprudence or proportionate shareholder absorption;
• SCGC recommends the balance be written off against earnings.

On the NSBA side, the Indicated Shippers argue the $27 million over-collection arose entirely from the Unbundled Storage program and should be returned to noncore customers by offsetting costs in the Noncore Fixed Cost Account. Cal Advocates conditionally supports eliminating the Enhanced Oil Recovery Account subject to annual reporting requirements to preserve transparency during Enhanced Oil Recovery's continuing decline.

BACKBONE TRANSPORTATION SERVICE PROPOSALS

SCGC and the Indicated Shippers both oppose SoCalGas's proposal to reduce open season BTS contracting capacity to 110% of the minimum backbone design standard (approximately 2,418 MMcfd). SCGC's compiled five-year Envoy data shows operationally-available capacity has exceeded that threshold every single day since January 2021.

The Indicated Shippers accept the underlying Elapsed Pro-rata Scheduled Quantity leakage problem SoCalGas identifies but propose a phased alternative: applying the Total Net System Capacity cap at Intraday 2 rather than jumping immediately to the Evening cycle, with transparency requirements and transitional protection for shippers holding upstream firm capacity.

RESIDENTIAL FIXED CHARGE

TURN, the Sierra Club, and Cal Advocates all recommend rejection of SoCalGas's proposal to raise the non-CARE fixed charge from $5 to $20 and the CARE charge from $4 to $10 by 2029 (the same proposal the CPUC rejected less than two years ago).

TURN documents that the bottom 40% of non-CARE customers and the bottom decile of CARE customers face bill increases, with low-income, low-usage households bearing the largest percentage hits.

Sierra Club makes the electrification economics case: lower volumetric rates reduce the operating cost advantage of switching to electric appliances, precisely counteracting the price signals California needs. Sierra Club also notes that SoCalGas has actively opposed South Coast Air Quality Management District and CARB rules that would produce the electrification it assumes to justify the charge. Sierra Club recommends eliminating the fixed charge and replacing it with a minimum bill.

Cal Advocates adds that the SoCalGas/SDG&E asymmetry (SoCalGas seeking a 300% increase while SDG&E proposes nothing) is internally inconsistent.

COST-ALLOCATION METHODOLOGY

TURN challenges multiple aspects of the embedded cost study's construction. Asset Retirement Obligations are improperly included in the net plant figures used to allocate rate base, return, and taxes across functions. This inflates the distribution costs assigned to residential customers for obligations that are future-period liabilities, not plant currently used and useful in providing service.

TURN also contests the distribution sub-functionalization methodology, recommends reducing the inventory sub-function allocation for storage wells and lines from 50% to 10% on the grounds that wells and lines exist primarily to inject and withdraw gas rather than maintain inventory. TURN argues that Administrative & General and General Plant costs (totaling approximately $853 million, or 24% of SoCalGas's total revenue requirement) are allocated entirely by a labor factor with no meaningful analytical support for that choice.

TURN also identifies a timing problem: the embedded cost study is built on 2024 FERC Form 2 data, but transmission net book value grew 57% between 2021 and 2024 compared to 26.8% for distribution, and transmission depreciation grew 65.9% versus 25.6% for distribution. Equal-percentage scaling of all functions to match the current revenue requirement fails to capture the fact that transmission costs are growing at more than twice the rate of distribution costs, understating the transmission share of the authorized revenue requirement during the 2027-2029 period and leaving distribution-level customers to absorb cost increases that properly belong to transmission.

On the Long-Run Marginal Cost question, TURN and Cal Advocates both insist it be retained as a binding benchmark, noting the embedded study assigns approximately $490 million more to the residential class than LRMC.

Clean Energy alone supports abandoning Long-Run Marginal Cost, arguing it produces misleading price signals in a declining-load environment where the system is contracting rather than expanding.

OTHER ISSUES

The Indicated Shippers challenge SoCalGas's GHG allowance price assumption of $50-$100/MT (more than three times the $27-$29/MT at which recent Cap-and-Invest auctions have cleared) arguing it artificially suppresses the EG demand forecast by overstating gas generation's simulated operating cost.

Clean Energy contests SoCalGas's Natural Gas Vehicle demand forecast, which uses a two-year average growth rate anchored partly to COVID-recovery-inflated 2023 volumes; actual 2025 growth came in at 2.9% versus the forecasted 6.7%, with under-collection and rate volatility the likely consequence if the overstated forecast is adopted.

INSTANT ANALYSIS

The Indicated Shippers, SCGC, Cal Advocates, and TURN frequently arrive at similar critiques through independent analyses, even where their proposed remedies differ. On the fixed charge, TURN, Sierra Club, and Cal Advocates reconstruct much the same case the CPUC accepted when it rejected a nearly identical proposal less than two years ago.

The BBT-to-LT reallocation may be the most immediately actionable issue. SCGC identified what appears to be a straightforward arithmetic error (SoCalGas applied the wrong fraction) that cuts the proposed reallocation by more than half without requiring the CPUC to resolve any harder conceptual questions. On core storage allocation, Cal Advocates argues the California Gas Report has overstated actual core peak demand in recent winters and recommends reducing core inventory from 76 Bcf to 60-65 Bcf, paired with a mid-period true-up. A planning figure that five winters of data have already proven wrong, with no mechanism to correct it mid-cycle, is a hard position for SoCalGas to defend.