PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION					RESOLUTION G-3273
MARCH 2, 2000

RESOLUTION

Resolution G-3273.  Southern California Gas Company  (SoCalGas) Requests Authorization to Offer a Newspaper Subscription Service.   This resolution approves SoCalGas’ Advice Letter 2812 given certain conditions, and requires SoCalGas to file an amendment to its advice letter.

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SUMMARY

In Advice Letter 2812, Southern California Gas Company (SoCalGas) requests authorization to offer a new nontariffed service: the sale of subscriptions for newspaper delivery.  SoCalGas proposes to solicit its utility customers when the customer calls to request either a turn-on or transfer of gas service.  The Utility Reform Network  (TURN) and the Office of Ratepayer Advocates (ORA) filed protests against SoCalGas’s advice letter. SoCalGas’ advice letter is approved given certain conditions, listed herein. SoCalGas shall file an amendment to its advice letter that satisfies these conditions. 

BACKGROUND

The Commission issued Decision (D.) 97-12-088 that established its Affiliate Transaction Rules (Rules).

In response to several petitions for modification of the Rules, the Commission issued D.98-08-035, which modified some of the Rules established in D.97-12-088.  Rule VII of these Rules covers utility products and services.

Rule VII.E addresses the procedure for utilities to follow in order to offer new, nontariffed products and services.  Rule VII.E.1 states,

	 Prior to offering a new category of nontariffed products and services as set forth in Section VII.C above, a utility shall file an advice letter in compliance with the following provisions of this paragraph.

1.	The advice letter shall:

a.	demonstrate compliance with these rules;

b.	address the amount of utility assets dedicated to the non-utility venture, in order to ensure that a given product or service does not threaten the provision of utility service, and show that the new product or service will not result in degradation of cost, quality, or reliability of tariffed goods and services;

c.	demonstrate that the utility has not received competition transition charge (CTC) recovery in the Transition Cost Proceeding, A.96-08-001, or other related CTC Commission proceeding, for the portion of the utility asset dedicated to the non-utility venture; and

d.	address the potential impact of the new product or service on competition in the relevant market, including but not limited to the degree in which the relevant market is already competitive in nature and the degree to which the new category of products or services is projected to affect that market.

e.	be served on the service list of Rulemaking 97-04-011/Investigation 97-04-012, as well as on any other party appropriately designated by the rules governing the Commission’s advice letter process.

On June 7, 1999 SoCalGas filed Advice Letter 2812 pursuant to Rule VII.E.   SoCalGas proposes to sell newspaper subscriptions to its customers whenever they call the utility to request a gas service turn-on or transfer.  (Subscription offers will not be made to customers requesting disconnection of services, payment arrangements, leak investigations, billing inquiries or other general inquiries.)  SoCalGas states that the subscription offer will not be offensive or annoying to a reasonable customer and will be presented in a professional and courteous fashion.  SoCalGas states that the utility service purpose of the call will be completed before the customer is asked if he/she is interested in receiving the newspaper or newspapers (if more than one has contracted with SoCalGas.)   If the customer is not interested, the call will be terminated.   Information about the customers who accept the offer will be sent to the newspaper of choice.  The newspaper will handle all delivery, billing, collections and service inquiries.

A newspaper that wishes to participate in SoCalGas’ solicitation program must maintain “adequate customer service resources to handle billing, collections and service inquiries”.  The newspaper must also currently provide home delivery to at least 100,000 customers in SoCalGas’ territory, and must offer to SoCalGas customers the same price (or lower) as offered by the newspaper to customers that call the newspaper directly.   The newspaper must specify which cities it would like to include in its offer, and it must currently provide home delivery to all areas of each city it designates.  The newspaper cannot be an affiliate of Sempra Energy.  

SoCalGas will initially provide its solicitation service to each newspaper that meets its participatory requirements for a trial period.  Only designated customer service representatives will be trained to make the offer during the trial period.  If the trial period is “successful”, all customer service representatives may be trained to make the offer.  SoCalGas states that all appropriate measures will be taken to ensure a “continuing high level of customer satisfaction”.   SoCalGas notes that if “customer satisfaction levels do not meet SoCalGas expectations during the trial period, or if customer acceptance is low,” it will place a moratorium on subscription offers until it revises the script or it will terminate the agreement with that newspaper.  

SoCalGas will offer the subscriptions solely at its discretion.  If the call center is at peak volume, SoCalGas expects that subscription offers may not be made.  During off-peak times, SoCalGas may also establish maximum talk time for the subscriptions should customer satisfaction be adversely affected by multiple solicitation offers.   

NOTICE

In accordance with Section III.G of General Order No. 96-A and in compliance with Section VII.E.1.e of the Rules, SoCalGas sent a copy of the advice letter to the parties on an attached service list, and to all parties of record in R.97-04-011, I.97-04-012 and A.96-10-038.   Public notice of the advice letter was made by publication on the Commission calendar.

PROTEST

The Utility Reform Network (TURN) and the Office of Ratepayer Advocates (ORA) filed separate protests to this Advice Letter on June 25 and June 28, 1999.

SoCalGas filed a Motion to Dismiss Protests (Motion) on July 2, 1999.  The Administrative Law Judge Division directed SoCalGas to submit the Motion to the Energy Division.   SoCalGas subsequently sent the Motion to the Energy Division on July 27, 1999.  

The Motion is addressed in this resolution.

DISCUSSION

SoCalGas argues that neither TURN nor ORA have met the “minimum grounds” for a protest as specified in the Affiliate Rules.  SoCalGas cites Rule VII.E.3 that states that a protest of an advice letter for a new product or service shall include:
 
a.	An explanation of the specific Rules, or any law, regulation, decision, or Commission policy the utility will allegedly violate by offering the proposed product or service, with reasonable factual detail; or 

b.	An explanation of the specific harm the protestant will allegedly suffer.

SoCalGas asserts that neither protestant has met these requirements, and therefore the protests must be dismissed by the Commission.

The protests raise several different issues.  Each issue is separated and analyzed in the subsequent sections on two levels: 1.) compliance with the Rule VII.E.3; if the particular issue is in compliance with this Rule, then 2.) a discussion on the merits of the protestants’ positions and SoCalGas’ specific responses follows.

Customer Intrusion

Compliance with Rule VII.E.3 
TURN states that SoCalGas’ solicitation program should be a customer convenience but has the potential to be intrusive and coercive.   TURN recommends that the following characteristics be a requirement of the script to be used by SoCalGas’ customer service representatives:

1.	It is clear that subscription service is not tied in any way to utility service
2.	The utility purpose of the call is completed before the solicitation offer is made, and
3.	The call is terminated if the customer expresses a lack of interest in the offering.

TURN also recommends that the script be reviewed and approved by the Commission, and that implementation of the script be monitored to ensure that the script will not be offensive or annoying, and that it will contain no hard-sell connotations.  TURN also recommends that any sales incentives for customer representatives be prohibited as a means of preventing undue pressure on customers to subscribe.

ORA recommends that SoCalGas circulate a complete script to all the parties for comment, and that the script be ultimately Commission-approved “to ensure that minimal intrusion for customers is maintained.” ORA recommends a Commission-approved script so that SoCalGas “is aware that this activity is subject to monitoring and compliance.”  

Neither TURN nor ORA provide an explanation of a rule, law, regulation, decision or policy that will be violated by SoCalGas’ proposed service.  However the protestants describe the potential harm their constituents could suffer if the proposed service is not managed and monitored appropriately.  The protests are therefore in compliance with Rule VII.E.3.b.  Specifically the protestants state that the proposed solicitation service by SoCalGas could become “offensive” and “annoying”, or may result in “intrusion” and “coercion”.  TURN notes that “the call center is the most immediate point of contact between the utility and its customers.”  The implication made by TURN is that the call center is an important aspect of the utility’s delivery of quality customer service.  If the call center is misused by SoCalGas in providing the solicitation service, then customer service quality could suffer.   While the protestants’ explanations of these harms could have been more detailed and direct, the Commission recognizes that their concerns for these harms are valid and the potential for them to occur is real. Thus the protests meet the requirements of Rule VII.E.3.b and are not dismissed on that basis.

Positions and Responses 
SoCalGas’ Motion does not respond directly to TURN’s first recommendation that the three characteristics noted above be required as part of its script, but its states that the newspaper solicitation will contain the same characteristics listed by TURN.  SoCalGas does respond to the parties’ recommendation that the Commission review and approve the script.  SoCalGas states that such an effort amounts to micro-management and hinders SoCalGas’ ability to adjust and modify the script as necessary.  SoCalGas stresses that in order to maintain high levels of customer satisfaction, it must be given sufficient latitude to decide the details of the program.  SoCalGas also responds to TURN’s recommendation that sales incentives for customer service representatives be prohibited.  SoCalGas states that it has no plans to tie sales incentives to the offerings..

The solicitation script characteristics listed by TURN are consistent with the Commission’s rules for nontariffed products and services.  For example, Rule VII.C.4.c requires that a nontariffed offering should not adversely affect the cost, quality or reliability of tariffed utility products and services.  The three characteristics listed by TURN work to attain the goal expressed in Rule VII.C.4.c and should be part of the design of the solicitation script.  SoCalGas has already expressed its intention to incorporate these characteristics and therefore the parties agree.  TURN’s recommendation on this issue is moot.

TURN’s recommendation that the Commission review and approve the actual script has merit.  SoCalGas provided a draft script to the Energy Division as an example of what the script might say.  The draft script is designed in a manner that is not consistent with the second characteristic listed above: the need to complete the utility service purpose of the call before making the solicitation offer.  The draft script states:

	“By the way, Mr. or Mrs. (customer name), The Gas Company is offering the best subscription price available for home delivery of the (newspapers names).  May I save you another call by setting up delivery of the (newspaper name) today?”

If customer declines:
	“Thank you, one moment please, while I complete your Turn-on request.”

It is clear in this example that the utility service purpose of the call is not complete before the solicitation is made, even though SoCalGas represents in its advice letter that this will not occur. While this discrepancy is a subtle one, it is an indication that the utility and the parties may have different interpretations of the characteristics they appear to agree upon.  This example validates TURN’s and ORA’s recommendation that the script be reviewed and approved by the Commission to ensure that the desired characteristics are clearly implemented in the design of the script.  We are further swayed by TURN’s comment that the customer service representatives are the utility’s first line of contact with the customer.  Given that the newspaper solicitation service is a new service offering, it would be prudent for the Commission to see the final script to be adopted by SoCalGas.  Changes to the script should be submitted to the Energy Division for review.  We are not convinced that a review process of the script would be overly burdensome or seriously impinge upon SoCalGas’ operation of the program.  TURN’s protest is granted on this issue.  SoCalGas should provide its final solicitation script as part of its amended advice letter filing, as discussed further in this resolution.

TURN’s concern about sales incentives is a valid one, and SoCalGas has responded that it has no plans to implement incentives for its customer service representatives.  TURN’s protest on this issue is therefore moot.  For the sake of clarification, the Commission finds that any sales incentive plan for this program is inappropriate and is prohibited.

Compliance with Section VII.C.4 (Conditions required for products and services offered on a nontariffed basis)

Compliance with Rule VII.E.3 
TURN states that SoCalGas is inconsistent and ambiguous regarding the use of peak versus off-peak times for allowing solicitation.  TURN recommends that the Commission require SoCalGas to (1) define peak periods (based on time of day, volume of calls, or other necessary criteria), and (2) prohibit newspaper solicitation during peak times.  

TURN’s protest on this issue is similar in nature to the issue discussed above in that SoCalGas could be harming customers by being in violation of Rule VII.C.4, specifically subsection (c).  This rule requires that nontariffed offerings do not adversely affect the cost, quality or reliability of tariffed products and services.  TURN’s implication is that SoCalGas’ provision of its proposed service without defining peak periods, or limitations during those periods, may result in adverse impacts on the utility’s tariffed offerings.   As noted in the prior discussion (p. 5), TURN could have been more direct in describing the potential harm for its constituents, however the implication is clear enough, and therefore the protest meets the requirements of Rule VII.E.3 and is not dismissed on that basis.

Positions and Responses 
SoCalGas responds by repeating its earlier assertion that TURN’s recommendation will result in micro-management of the program.  SoCalGas states that peak periods vary depending upon the season, time of day, staffing levels, etc., and an attempt to define such periods would be impractical.  Besides the impracticality of defining peaks, SoCalGas states that there could be adverse impacts to its revenues or decision-making ability if the peaks are defined as either too low or too high.  SoCalGas also asserts that the Commission has already set a Performance-Based Ratemaking (PBR) standard that measures customer satisfaction with SoCalGas’ call center.  Because SoCalGas is provided an incentive to maintain high levels of customer satisfaction through its PBR, it emphasizes the need to have the flexibility and discretion to manage the program without definitions or limitations imposed upon it.  

SoCalGas provides a compelling argument about its incentives to maintain customer satisfaction.  The PBR standards motivate SoCalGas to monitor (and if necessary, improve) its call center for effective customer satisfaction.  TURN’s recommendation to define peak periods and to prohibit solicitation during those periods ignores the purposes of PBR.  PBR is designed to provide the utility an incentive to maintain acceptable levels of utility service.  Assuming that SoCalGas intends to reap the benefits of those incentives, it stands to reason that it will make the effort to monitor, adjust and manage its solicitation program in coordination with the performance measures established for its utility service.  TURN’s recommendation is also impractical, as it would be a complex and time-consuming matter to define peak periods given the many factors that create a “peak”.  Given the PBR standards that are in place, the effort to monitor SoCalGas’ compliance with a prohibition during peak periods would not seem to be cost-beneficial.  Unlike TURN’s recommendation that the Commission review and approve the script, this recommendation for peak definitions, and prohibitions based on those definitions, would be a hindrance to SoCalGas and could result in adverse effects to its program as well as its overall quality of service.  TURN’s protest on this issue is denied.

Nondiscrimination

Compliance with Rule VII.E.3 
SoCalGas states that it may choose to not offer subscriptions of a particular newspaper if there is insufficient customer interest as determined in a trial period or later monitoring.   SoCalGas also requires all interested newspapers to have “adequate customer service resources to handle all billing, collections and service inquiries related to the subscription expeditiously and professionally."  TURN states that these conditions are too vague and enable SoCalGas to subjectively limit its solicitation efforts to only one newspaper.  TURN recommends that the Commission require SoCalGas to specify in advance what measure of customer acceptance will be deemed sufficient to continue solicitation and to also specify its criteria for “adequate customer service resources.”

TURN also notes that the eligibility criteria proposed by SoCalGas (home delivery to more than 100,000 customers) is too restrictive and that the Commission should investigate the need for it.  TURN states that there are other methods of achieving simplicity in the program rather than limiting the number of newspaper participants (assuming that saving time and gaining simplicity is SoCalGas’ motivation for the criteria).  TURN suggests that SoCalGas’ script be broken into two parts: first, the customer is asked a generic question if he/she is interested in hearing about a newspaper subscription offer.  Second, if the customer is interested, then the representative can read off all the newspapers for that area.   TURN argues that this approach would eliminate the time-consuming process of reading the names of each participating newspaper at the beginning of every solicitation because not every customer will be interested in the product.

TURN’s protest on this issue does not specifically explain how SoCalGas’ program poses a specific harm to its constituents, and leaves the Commission to decipher on its own what the harm could be.  In spite of this shortcoming, the protest is difficult to dismiss because it carries an issue that is at the very core of utility nontariffed offerings: the effect upon competition.  Market competition is a major concern of the Commission.  TURN implies that discrimination by SoCalGas in administering its solicitation program results in anticompetitive impacts for the local newspaper market.  While TURN does not represent the interests of the newspaper industry, its concern for anticompetitive behavior on that industry has merit because such behavior could affect choice, price and quality of service for the particular product.  Such impacts can be considered specific harms to ratepayers in SoCalGas’ service area.   Therefore, while TURN’s protest could have been better articulated, it is not dismissed in regards to Rule VII.E.3.

Positions and Responses 
SoCalGas provides several responses to the recommendations made by TURN.  SoCalGas argues that TURN’s attempt to specify SoCalGas’ customer satisfaction and service criteria amounts to micro-management and presents managerial difficulties for the program.  SoCalGas asserts that a prescriptive, detailed standard for customer satisfaction and service would deny SoCalGas the subjective judgment necessary for a company to evaluate its business partners.  SoCalGas also points out that it has no incentive to favor a particular newspaper over another but that its only incentive (through PBR) is to make sure that customer satisfaction is kept high. 

SoCalGas also argues that there could be situations that cannot be quantified or detailed in a prescribed customer satisfaction performance measure; an effort to do so may then result in lowered customer satisfaction with the utility.  SoCalGas provides an example of how a prescriptive standard is not effective:

	“For example, if a standard is adopted that requires SoCalGas to refrain from discontinuing a contract unless a certain volume of customer complaints is received, SoCalGas could not take into account the nature of the complaints.  Obviously a complaint that a newspaper denied service on the basis of the customer’s nationality or religion would be more serious than a complaint that the paperboy’s throw was errant.  Prescriptive, detailed standards are not appropriate.” 

There are certainly some drawbacks to developing specific standards for customer satisfaction and service criteria as pointed out by SoCalGas.  We deny TURN’s protest on this issue because we believe the existing incentives for customer satisfaction in SoCalGas’s PBR are sufficient. 
TURN’s recommendation that the Commission investigate SoCalGas’ criteria for participation in the program is also denied.  SoCalGas limits participation in the program to newspapers that have at least 100,000 customers with home delivery service, in addition to some administrative qualifications.  According to SoCalGas, the reason for the size limitation is to maintain efficiencies in its operations and to keep customer satisfaction at high levels.  SoCalGas asserts that the existence of any newspaper is not a sufficient reason for SoCalGas to devote valuable customer service talk time to serve its purposes and that there are currently seven newspapers that meet the minimum circulation criteria.  

We are satisfied with SoCalGas’ size limitation of 100,000 home delivery customers.  It is impractical to require SoCalGas to solicit subscriptions for any newspaper operating in its service territory.  The company’s limitation of its service to newspapers with 100,000 home delivery customers is not unnecessarily restrictive, as this results in a pool of potential customers of seven newspapers.  As long as the service is offered to each of these newspapers in an open and competitive process, this satisfies the Commission’s goal to foster competitive markets.  Furthermore, this pool of newspapers that satisfy the 100,000 home delivery customer limitation is likely to grow over time as population increases. 

Rule VII.E.1.d requires the utility to address the issue of competition in its advice letter filing so that the Commission can make an appropriate assessment of the potential impacts of the new product or service on the relevant market(s).  The rule states that prior to offering a new nontariffed product or service, the utility must file an advice letter that shall:

	“Address the potential impact of the new product or service on competition in the relevant market, including by not limited to the degree in which the relevant market is already competitive in nature and the degree to which the new category of products or services is projected to affect that market.”

In response to this requirement, SoCalGas provided the following information in its advice letter:

	“The offering of newspaper subscriptions enhances competition by providing newspapers with a new marketing channel for reaching potential customers who are likely at a point of decision with regard to newspaper home delivery.  Newspapers already extensively use telemarketing and as noted above, at least one is working with the Southern California Edison call center to secure subscriptions.   The offering of newspaper subscriptions to inbound callers to SoCalGas requesting turn-on or transfer of service is simply a customer convenience, saving them time and effort.”

SoCalGas complies with Rule VII.E.1.d.  This “new marketing channel” will help mitigate the transaction costs of reaching new potential customers who are new to the area and are unfamiliar with existing newspapers.  Further, the entry of SoCalGas into the telemarketing industry, for this one limited service, is unlikely to have a significant impact on that industry, as there are already dozens of incumbent firms.  This industry is marked by its ease of entry, which requires very little in capital and start up costs. TURN’s protest on this issue is denied.

TURN provides a recommendation that is intended to alleviate the conflict between operating the program efficiently and opening the program to as many participants as possible.  TURN recommends a two-part script in which the customer is asked only a general question of whether they want to know more about newspaper subscriptions.  If the response is positive, then the customer is provided a list of newspapers (within the area) to choose from.  TURN’s suggested two-part script could potentially solve the problem of efficiency in that every customer is not initially provided a long list of newspapers to consider.   It is unclear as to how long the list would be since several newspapers compete in limited areas of SoCalGas’ territory.  SoCalGas states that it “does not believe that any area has more than three newspapers providing home delivery.” TURN’s suggested two-part script is unnecessary, as we have found that SoCalGas’ proposed size limitation of 100,000 home delivery customers is acceptable.

Compliance with Section VII.D (Conditions Precedent to Offering New Products and Services)

Compliance with Rule VII.E.3 
TURN recommends that the Commission insures that all incremental labor costs, including costs for training customer service representatives, be allocated to the new product.

ORA states that SoCalGas should provide a detailed description of the accounting mechanism that would prevent cross-subsidization of the newspaper service from other services and a statement clarifying that none of the costs associated with this activity will be borne by ratepayers.  ORA further recommends that SoCalGas provides a forecast of the revenues from the proposed activity and how it will flow through the revenue sharing element of its performance-based ratemaking mechanism (PBR).  In addition ORA requests SoCalGas to address alternatives to the PBR mechanism, and that ORA and other parties should have an opportunity to propose alternatives to the PBR mechanism.

The protestants fear that the costs for SoCalGas’ proposed solicitation service could be subsidized by ratepayers.  The harm of cross-subsidy by ratepayers is obvious, and it is not necessary for the protestants to explain it further.  The same can be said about ORA’s concern that the revenues from the program are appropriately shared with ratepayers.  The protests meet the requirements of Rule VII.3.E and shall not be dismissed on this basis.  

Positions and Responses 
SoCalGas has several responses to the protestants.  SoCalGas states that it will record revenues from the program in the “Other Miscellaneous Revenues” account, and all costs that are incremental to the service will be separately tracked.  SoCalGas also notes it will adhere to the reporting requirements set forth in Rule VII.H, which are designed to show that ratepayers are not subsidizing the program.  As a point of emphasis, SoCalGas commits that it will use separate tracking of incremental program costs to keep these costs out of rates in subsequent rate proceedings.  SoCalGas also states that because it is subject to PBR, there would not even exist the opportunity for SoCalGas to include the incremental costs in its rates.  

SoCalGas states that it is both impossible and unnecessary for it to provide a forecast of revenues or an explanation of how the revenues would flow through the PBR mechanism, as requested by ORA.  SoCalGas explains that its lack of experience with the program makes any forecast too speculative to be of value to the Commission, and even if such a forecast could be produced, it is not required by Rule VII.  Furthermore SoCalGas notes that Rule VII does not require the advice letter to explain in detail how the revenues flow through the PBR mechanism, and that D.97-07-054 and its tariffs provide the details ORA seeks. 

Rule VII.D describes the conditions that must be established by the utility prior to it offering a new nontariffed product or service.  Subsections 1and 2 of this rule read:

1.	A mechanism or accounting standard for allocating costs to each new product or service to prevent cross-subsidization between services a utility would continue to provide on a tariffed basis and those it would provide on a nontariffed basis.  

2.	A reasonable mechanism for treatment of benefits and revenues derived from offering such products and services, except that in the event the Commission has already approved a performance-based ratemaking mechanism for the utility and the utility seeks a different sharing mechanism, the utility should petition to modify the performance-based ratemaking decision if it wishes to alter the sharing mechanism, or clearly justify why this procedure is inappropriate, rather than doing so by application or other vehicle.

SoCalGas’ mechanism for allocating costs to its proposed new service is only generally described in its advice letter, but appears to present a reasonable plan to prevent cross-subsidization.  SoCalGas identified the incremental costs of the proposed program to be labor costs related to the additional telephone time to make the offer, and to record the customer’s information.  

In response to a data request from the Energy Division, SoCalGas clarified its cost-tracking efforts.  It noted that for the trial period of the program, it would calculate the incremental cost by determining the average talk time from the script for both acceptances and rejections.  The talk times are multiplied by the number of acceptances and rejections, and these figures are then multiplied by the hourly employment cost of part-time customer service representatives, the incremental resource added.  The hourly employment cost includes wages and applicable overhead.  In addition all implementation costs will be included.  SoCalGas also notes that when the offers are made system-wide it will compare the average amount of time for a service turn-on call (with solicitation) with the average amount of time for a service turn-on call prior to the program being implemented.  The time difference is then multiplied by the hourly employment cost of part-time customer service representatives.   

SoCalGas states that the “incremental” costs of the program include the employees’ wages, applicable overhead, and implementation costs.   SoCalGas’ definition of “incremental” cost for the subscription program is vague, and it is not clear if SoCalGas intends to use the fully-loaded costs of the program.  (For example, the fully-loaded costs of the program’s labor should not only include wages, but benefits, payroll taxes, supervisory time, pensions, insurance, etc.)  The fully-loaded overhead costs should include the space occupied by the employee, office supplies, equipment (such as phones, computers, copy machines, office furniture), and any other direct costs incurred in the provision of the service.   Using these fully-loaded costs is the appropriate method for tracking the true costs of the program and it prevents cross-subsidization by ratepayers.   Given our interest in preventing cross-subsidization of nontariffed products and services, we direct SoCalGas to track the fully-loaded costs of the newspaper subscription program.  SoCalGas’ shall delineate in an amendment to its advice letter the details of its effort to track the fully-loaded costs of the program.  ORA’s protest is granted on this issue.  We also direct SoCalGas to track the fully-loaded costs for its other nontariffed offering categories and to provide that information in the periodic reports required by Rule VII.H.

TURN recommends that the “incremental” cost to train the customer service representatives should be tracked as an incremental cost of the solicitation program.  SoCalGas’ data response does not clearly indicate if the costs to train the employees are included as incremental costs of the program.  It is not clear as to what TURN means by “incremental” cost.  TURN’s recommendation makes sense to the extent that solicitation training for customer service representatives should be tracked as a cost of the program.  All other training for customer service representatives that is not related to the solicitation program should be separated from the costs of solicitation training and tracked in an appropriate fashion by SoCalGas. TURN’s protest, as it has been interpreted in this discussion, is granted on this issue.

Regarding revenue sharing, SoCalGas states that it will use its existing PBR mechanism to allocate the revenues of the program to ratepayers.  Rule VII.D.2 requires the utility to use a “reasonable mechanism”, and SoCalGas’ decision to use its PBR mechanism meets this requirement.  In fact, Rule VII.D.2 implies that the utility’s PBR mechanism is the “default” choice for revenue sharing, in that it requires the utility to file a Petition to Modify its PBR decision should it desire to use a revenue sharing mechanism other than PBR.  ORA’s recommendation that SoCalGas address alternatives to the PBR mechanism is not required by the Rules.  Neither do the Rules permit ORA an opportunity to propose alternatives to the PBR mechanism, nor do the Rules require SoCalGas to provide revenue predictions or detailed explanations of how the revenues will flow through the PBR mechanism.  ORA’s protest on these issues is denied.

Billing and Customer Contact

Compliance with Rule VII.E.3 
TURN notes that due to the potentially serious problems associated with joint billing, the advice letter should be clarified to indicate that SoCalGas would not bill and collect for any newspaper using the service.  

TURN does not fully explain what the “serious problem” is, and leaves the Commission to speculate on its concern.  While TURN’s protest on this issue falls short of what is required in Rule VII.E.3, it is made moot in any case because SoCalGas’ advice letter is very clear regarding billings and collections.  The advice letter states, 

	“SoCalGas will not collect any payment for the newspaper subscription, but will merely transmit the information to the newspaper so that the newspaper may fulfill the order.  The newspaper will handle the delivery, billing, collections, and service inquiries related to the subscription.”  

TURN’s protest on this issue is unfounded and denied.

Contracts

Compliance with Rule VII.E.3 
ORA recommends that SoCalGas file with the Commission all of the agreements it makes with the newspapers for the proposed service.  The purpose of the filing would be to ensure that SoCalGas is consistent with its representations in the advice letter, and that it is compliant with Commission directives.

ORA implies that ratepayers could suffer harm if SoCalGas does not follow through on the representations made in its advice letter.  While ORA does not explain the specific harm to ratepayers, the general implication is simple enough to understand since a failure by SoCalGas to implement its commitments could result in adverse impacts to ratepayers.  The protest for this issue complies with Rule VII.E.3 and is not dismissed on that basis.

Positions and Responses 
SoCalGas responds that the rules do not require it to file its newspaper contracts with the Commission.  SoCalGas also notes that there would be confidentiality concerns should the contracts be filed, and there is question of fairness in that contracts for other nontariffed products and services are not currently filed.  

SoCalGas is correct that the rules do not require the utility to file its contracts with the Commission.  ORA’s interest is to ensure a level of monitoring so that the utility does not deviate from its commitments.  Should the utility provide the nontariffed product or service in a manner different from what was approved, potential harm to ratepayers could occur.  ORA’s point is well taken.  But the current rules already provide for monitoring the utility’s nontariffed products and services.  Rule VI.C provides for an annual audit, by independent auditors, which is intended to verify that the utility is in compliance with the Affiliate Transaction Rules, including Rule VII which governs nontariffed product and service offerings.  In addition, the Commission’s complaint procedures are available if the utility does not follow through on its representations to the Commission.  ORA’s protest on this issue is denied.

Notice 

Compliance with Rule VII.E.3 
ORA lists several concerns about the solicitation program (the eligibility requirements are too restrictive, the manner of solicitation could be abused by the utility, the offer could become annoying and a nuisance).  ORA recommends that SoCalGas should serve a supplemental filing on all newspapers in its service territory to provide the Commission with comments and concerns from the newspaper industry.

ORA’s protest on this issue is similar to those issues already raised by either TURN or ORA, such as anticompetitive harms and degradation of customer service.  As discussed previously, these issues meet the requirement for protests in Rule VII.E.3 and are therefore not dismissed on that basis.

Positions and Responses 
SoCalGas responds that a supplemental filing on all newspapers in its service territory is not required by the Commission’s Affiliate Transaction Rules, the Rules of Practice and Procedure, or any law or regulation.  Rule VII.E.1.e requires the advice letter to be served on the service list of Rulemaking 97-04-011/Investigation 97-04-012 and any other party appropriately designated by the rules governing the Commission’s advice letter process.  SoCalGas states that it has served the advice letter on its General Order 96-A distribution list as well as the parties in the proceeding specified in Rule VII.E.1.e. SoCalGas asserts that it has complied with the Commission’s rules regarding notice of its advice letter and that there are no grounds for ORA’s recommendation.

SoCalGas is correct that it has complied with Rule VII.E.1.e.  The company has served the advice letter on all the parties this rule requires.  We see no need to expand the service list of this filing at this time as ORA suggests. 

COMMENTS

The draft resolution of the Energy Division in this matter was mailed to the parties in accordance with PU Code Section 311(g).  Comments were filed on February 14, 2000, by SoCalGas, TURN, and Pacific Gas and Electric Company (PG&E).   In summary, there are three primary differences in these draft resolutions:

•	The ED resolution rejects the advice letter, specifies deficiencies, and instructs the utility to file a new advice letter to correct these.  The Alternate approves the advice letter, but also instructs the utility to file an amendment to correct identified deficiencies. 

•	The ED resolution requires SoCalGas to provide an analysis of market impacts as required by Rule VII.E.1.d.  The Alternate finds the statement about the market provided in the advice letter to be sufficient.

•	The ED resolution requires that the utility serve the new advice letter on trade associations in the affected markets.  The Alternate finds this to be unnecessary.

Both SoCalGas and PG&E support the Alternate, while TURN supports the ED Draft.  SoCalGas characterizes the market impact analysis required by the ED Draft as “extensive” and argues that it would “take many months,” be “music to the ears of high-priced economic consultants,” and would add no useful information.  PG&E supports this view, does not think that SoCalGas should be required to file a new, revised advice letter, and saying that, for the purposes of Rule VII.E.1.d, it is sufficient to say that there are a number of competitors in the market and that the entry of the utility “will enhance competition.”  PG&E says that this process would delay a process that should have been resolved already, as the original advice letter was first filed in July, 1999. 

TURN argues that the ED Draft recognizes “the potentially anti-competitive implications” of SoCalGas’s entry into these markets and says that the ED Draft “is more consistent with the letter and the spirit of” the Rule.  TURN states that the Alternate would “accept as fact SoCalGas’s baseless assertions” about its impact on competition.  TURN points out that “[t]he Commission often states its commitment to avoiding anticompetitive impacts,” and that the ED Draft is an opportunity to demonstrate its resolve.

SoCalGas and PG&E also opposes the ED Draft’s requirement that firms in the affected markets be served with the revised advice letter filings.  SoCalGas says that this “would require additional time and effort” and would be expensive.  The utility says that the Commission should not expand the notice requirements, “particularly in the absence of any obvious competitive concerns.”  PG&E says that “other federal and state agencies” have jurisdiction to protect competition in markets that are not strictly utility service, “and are vigilant in doing so.”  TURN does not comment on this issue.

SoCalGas states that it can work with the Energy Division to make sure that the script used by the customer service representatives is acceptable to the Commission, and that the script would not need full Commission approval.  The utility also has no objection to the requirements regarding its tracking of fully-loaded costs of the program.

SoCalGas also interprets the Alternate as allowing the utility “to proceed with its newspaper subscription program without the need for additional Commission approval.”  The utility defends its interpretation by saying the Alternate “identifies no major concerns with AL 2812,” and that the original advice letter was submitted nine months ago, and thus it would be reasonable to allow the utility to proceed immediately.

Discussion:

We agree with the positions taken by SoCalGas and PG&E, insofar as they support the Alternate.  We disagree with SoCalGas, however, about its interpretation of our intention regarding the script and when they may begin to offer this service.  The script will be filed with the amended advice letter, required by the Alternate to be filed within 30 days of the effective date of this resolution.  The resolution that is prepared to dispose of the amended advice letter will review the elements of the advice letter, including the script.  

Further, it is not our intention to allow SoCalGas to begin this service before satisfactory disposition of the amended advice letter.  The amended filing will go into effect on the 40th day after filed, unless the Energy Division notifies SoCalGas that the advice letter is not in compliance with this resolution, and that it requires a further order of the Commission.

FINDINGS OF FACT

1.	Pursuant to Rule VII.E, SoCalGas filed Advice Letter 2812 on June 7, 1999.

2.	The protests meet the requirements of Rule VII.E.3.b and are not dismissed.

3.	The solicitation script to be used by SoCalGas shall include the following characteristics: 

•	It is clear that subscription service is not tied in any way to utility service,
•	The utility purpose of the call is completed before the solicitation offer is made, 
•	The call is terminated if the customer expresses a lack of interest in the offering.

4.	Commission review of the solicitation script, and subsequent changes to the script, would not be overly burdensome or seriously impinge upon SoCalGas’ operation of the program.

5.	Any sales incentive plan for the solicitation program is inappropriate and is prohibited.

6.	Defining peak periods and prohibiting solicitations based on those definitions, would be hindrances to SoCalGas and could result in adverse effects to its program as well as its overall quality of service.

7.	SoCalGas is in compliance with Rule VII.E.1.d.

8.	Tracking the fully-loaded costs of the program is appropriate and prevents cross-subsidization by ratepayers.

9.	Solicitation training for customer service representatives is a cost of the program.

10.	SoCalGas’ use of PBR as its revenue sharing mechanism is reasonable. 

11.	The Rules do not require SoCalGas to address alternatives to the PBR mechanism. 

12.	The Rules do not permit ORA an opportunity to propose alternatives to the PBR mechanism.

13.	The Rules do not require SoCalGas to provide revenue predictions or detailed explanations of how the revenues will flow through the PBR mechanism. 

14.	SoCalGas clearly states that the newspapers will be responsible for delivery, billing, collections, and service inquiries.

15.	Rule VI.C provides for an annual audit, by independent auditors, which is intended to verify that the utility is in compliance with the Affiliate Transaction Rules, including Rule VII which governs nontariffed product and service offerings.

16.	SoCalGas has complied with Rule VII.E.1.e.

17.	The script will be filed with the amended advice letter, required by the Alternate to be filed within 30 days of the effective date of this resolution.  The resolution that is prepared to dispose of the amended advice letter will review the elements of the advice letter, including the script.  

18.	It is not our intention to allow SoCalGas to begin this service before satisfactory disposition of the amended advice letter.  The amended filing will go into effect on the 40th day after filed, unless the Energy Division notifies SoCalGas that the advice letter is not in compliance with this resolution, and that it requires a further order of the Commission. 

19.	The protests of TURN and ORA are granted to the extent specified herein.

THEREFORE IT IS ORDERED THAT:

1.	SoCalGas’ Advice Letter 2812 is approved given the conditions listed herein.

2.	SoCalGas shall file an amendment to its advice letter within 30 days of the effective date of this Resolution.

3.	SoCalGas’ shall delineate in its amended advice letter the details of its effort to track the fully-loaded costs of the program.

4.	SoCalGas shall track solicitation training for customer service representatives as a cost of the program.

5.	SoCalGas shall track the fully-loaded costs for its other nontariffed offering categories and to provide that information in the periodic reports required by Rule VII.H.

6.	The Energy Division shall direct the scope of the annual Affiliate Audit pursuant to Rule VI.C to include a review of new nontariffed offerings and their consistency with both the representations made by the utility, and the findings of the resolutions that approve them.

7.	SoCalGas shall include its final solicitation script as part of its amended advice letter.  

8.	SoCalGas shall include subsequent changes to the solicitation script as an appendix to its periodic reports filed pursuant to Rule VII.H.

9.	The amended filing shall go into effect on the 40th day after filed, unless the Energy Division notifies SoCalGas that the advice letter is not in compliance with this resolution, and that it requires a further order of the Commission.
 
10.	This resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on March 2, 2000; the following Commissioners voted favorably thereon:

______________________________
WESLEY M. FRANKLIN
       Executive Director

									  RICHARD A. BILAS
										President
									   HENRY M. DUQUE
									   JOSIAH L. NEEPER										        Commissioners		
I dissent. 
/s/ CARL W. WOOD
        Commissioner

I dissent.
/s/ LORETTA M. LYNCH
        Commissioner