MONDAY AGGREGATE: Capital Recovery & Attrition Design; Decarbonization Cost Allocation; Gas System Continuity w/o New Assets

Capital-recovery mechanics dominate today’s report, with utilities pressing on opposite edges of the same constraint: how to fund authorized investment while limiting long-lived gas exposure.

SoCalGas/SDG&E challenge a one-part attrition design they say strands $5 billion in capital, while PG&E and Stanpac advance a consolidation proposal deliberately structured to avoid new assets. In parallel, SoCalGas frames biomethane procurement as a systemwide cost obligation, and SCE continues routine real-estate downsizing.

SEMPRA UTILITIES' RATES

SoCalGas/SDG&E (the Sempra Utilities) filed a petition for modification of a 2024 decision (D.24-12-074), which resolved the Sempra Utilities' 2024 General Rate Case by setting a test-year revenue requirement and establishing how rates would be adjusted in the following post-test years (2025–2027).

• For the post-test period, D.24-12-074 adopted a single post-test-year attrition mechanism that increases the authorized base margin revenue requirement by 3% annually, covering both operating and maintenance expenses and capital-related costs. Rather than separately updating rates to reflect actual capital additions placed into service after the test year, the Commission relied on this uniform escalation to manage rate growth and limit volatility between general rate cases.
• In doing so, the Commission emphasized that post-test-year ratemaking is not intended to replicate a full test-year review, but to provide a streamlined adjustment that supports financial stability while maintaining just and reasonable rates for customers.
• The decision reflected a policy judgment that a fixed escalation, combined with other authorized mechanisms and future rate cases, is sufficient to balance utility revenue needs with ratepayer protections during attrition years, even as capital investment continues under previously approved programs.

Petition for Modification

SoCalGas/SDG&E argue that the authorized post-test-year ratemaking mechanism unintentionally prevents them from recovering Commission-approved capital costs during the 2025–2027 period.

• The petition explains that the decision adopted a one-part attrition mechanism, and in the utilities' view, the mechanism is based on factual misconceptions and does not function as the Commission intended. The companies argue that capital costs and O&M expenses affect revenue requirements differently, and a single escalation factor fails to account for new capital additions placed into service after the test year or for capital projects with mid- or late-test-year in-service dates.
• Consequently, SoCalGas/SDG&E argue they are unable to recover depreciation, taxes, or a return on billions of dollars of authorized and largely recurring capital investments, creating what they describe as $5 billion in missing capital cost recovery over the GRC cycle.
• The petition points to recent Commission precedent (including PG&E’s and SCE’s GRC decisions – D.23-11-069 and D.25-09-030, respectively) where two-part attrition mechanisms were adopted to separately address O&M and capital, and asserts there is no policy basis for treating SoCalGas and SDG&E differently.
• The utilities request that the Commission modify D.24-12-074 to adopt a two-part post-test-year mechanism that separately funds capital additions using a seven-year average of recorded and forecast capital expenditures, escalated by 3%, and to implement the change through amortization beginning in 2026. The utilities assert that this correction is necessary to preserve the regulatory compact, maintain financial integrity, and avoid adverse impacts on safety, reliability, credit quality, and customers.

Responses are due January 16.

INSTANT ANALYSIS: SoCalGas/SDG&E are asking the Commission to revisit a fundamental ratemaking design choice in D.24-12-074, arguing that the one-part, 3% post-test-year escalation does not track the capital investments the Commission authorized in the GRC. The petition presents the issue as a structural correction rather than a rate increase and cites recent GRC decisions where the Commission adopted two-part attrition mechanisms, putting consistency in post-test-year capital treatment directly at issue. The filing will test how the Commission intends to handle capital recovery mismatches between rate cases in the current moment.

GAS SYSTEM CONTINUITY

PG&E and Standard Pacific Gas Line Incorporated (Stanpac) filed a joint application with the CPUC seeking approval for a multi-part transaction that would:

• Transfer substantially all of Stanpac’s remaining gas transmission pipeline assets to PG&E;
• Restructure how Chevron receives gas transportation service; and
• Ultimately wind down the nearly century-old Stanpac joint venture.

Under the proposal, PG&E would acquire Stanpac’s core pipelines and related facilities for $150.4 million, effectively paying about $21.5 million to buy out Chevron’s 1/7 ownership interest, while recovering only a limited portion of the net book value from ratepayers.

Stanpac would remain in existence for a 20-year transition period, during which it would contractually provide up to 30.7 MMcf/d of gas transportation service to Chevron using PG&E’s integrated system under new transportation and inter-utility service agreements, avoiding more than $100 million in otherwise necessary pipeline upgrades.

The filing states:

PG&E thus will have a larger supply of gas in its system than it historically has had. Once PG&E receives this gas into its system, the gas would intermingle with PG&E’s gas, and flow east and northeast toward Lodi and Sacramento for the benefit of PG&E’s customers in those areas. Simultaneously, PG&E will flow a like quantity of gas westward from its backbone partially through PG&E’s legacy transmission system and partially through the acquired Stanpac assets, and deliver that gas at Chevron’s Richmond refinery. Accordingly, PG&E will have a greater supply of gas in its system as a result of the Transaction, which will help PG&E manage gas supply throughout the area.

PG&E argues the transaction produces significant customer savings, improves gas system operations, aligns with state decarbonization and gas-transition policies by avoiding new long-lived gas investments, and sets a firm end date for the Stanpac joint venture. Following that end date, PG&E would acquire Chevron’s remaining stock for a nominal amount and seek to dissolve Stanpac entirely.

Protests/responses are due January 21.

INSTANT ANALYSIS: This filing will test how far the Commission is willing to approve gas-system continuity measures that explicitly avoid new capital investment, relying instead on asset consolidation and long-dated transition contracts. The proposal aligns operational necessity with the Commission’s broader preference to limit long-lived gas assets, suggesting that regulatory acceptance may hinge less on system optimization than on whether future reinvestment is structurally foreclosed.

BIOMETHANE PROCUREMENT

SoCalGas filed two advice letters (6574-G and 6575-G, available here) to obtain CPUC approval of separate biomethane procurement agreements executed under its 2025 Senate Bill 1440 Biomethane Request for Offers.

• In AL 6575-G, SoCalGas requests approval of a biomethane procurement agreement with Anaergia Services dba Riverside Bioenergy Facility, LLC, covering biomethane produced from landfill-diverted organic waste and wastewater through anaerobic digestion.
• In AL 6574-G, SoCalGas seeks approval of a similar agreement with BioTech Energy dba Imperial Valley Green Energy Partners, LLC, which would supply biomethane produced from landfill-diverted organic waste and dry dairy manure.

Both contracts would help SoCalGas meet its short-term SB 1440 procurement obligations and contribute to longer-term Renewable Gas Standard targets through 2030. SoCalGas asserts that the contracts:

• Arose from a competitive, CPUC-approved solicitation process;
• Comply with detailed environmental, safety, and operational requirements (including limits on hydrogen sulfide, vehicle emissions standards, and methane leak remediation); and
• Include reasonable terms for ratepayers.

SoCalGas also requests authorization to recover above-market biomethane procurement costs in rates via its existing biomethane balancing account framework, with costs allocated on a non-bypassable, volumetric equal-cents-per-therm basis to all gas end-use customers. Notably, this method of recovery is subject to further refinement in the CPUC's ongoing cost-allocation rulemaking (R.22-12-011).

Protests are due January 12.

INSTANT ANALYSIS: These advice letters show SoCalGas advancing SB 1440 biomethane procurement ahead of the 2025 landfill-diversion deadline while the center of gravity shifts to cost allocation. The contracts themselves are largely procedural but the real leverage point is SoCalGas’s explicit push to allocate above-market biomethane costs to all end-use customers on a non-bypassable, cents-per-therm basis. With R.22-12-011 still unresolved, the filings frame biomethane as a systemwide decarbonization obligation rather than a niche compliance tool, which ramp up disputes over exemptions, core transport agent treatment, and how broadly the Commission will spread costs as overall gas demand declines.

SCE PROPERTIES

SCE filed an application seeking authority to sell its North Coast office property, located at 28460 Avenue Stanford in Santa Clarita, to a private purchaser for approximately $7.21 million.

SCE explains that the property, an underutilized two-acre office site formerly used by its Transmission and Distribution staff, is no longer needed due to workforce consolidation and hybrid work practices, with affected employees relocating to nearby SCE facilities.

After marketing the property through a competitive process, SCE determined that the selected cash offer with limited contingencies represented the most favorable and least risky alternative, compared with holding the property or waiting for a stronger office market.

The sale is expected to reduce long-term O&M costs and lower SCE’s revenue requirement by retiring roughly $8.37 million in net book value. However, SCE anticipates an after-tax loss on sale of about $1.49 million, which it proposes to allocate to ratepayers consistent with the CPUC’s gain-on-sale policies. SCE says the transaction will not impair utility operations.

Protests/responses will be due 30 days from when this item appears on the CPUC's Daily Calendar.

INSTANT ANALYSIS: This filing is a routine asset disposition that reflects ongoing utility real-estate downsizing rather than a strategic shift. Rate base is reduced, operating costs come off the books, and the resulting loss is proposed for recovery through standard balancing-account treatment, with limited implications for near-term rates or broader market dynamics.