Findings of Fact
1. The FERC issued a May 31 Order indicating marketers currently serving California may turn back up to 725 million cubic feet per day (MMcf/d) of firm capacity on El Paso interstate pipeline to El Paso's East of California (EOC) customers.
2. We will not know by July 17, 2002, how much capacity that was previously serving California is being turned back by the shippers and may be signed up for by EOC customers of El Paso, nor will we know what specific delivery points would be served by the capacity that is turned back.
3. If no California replacement shipper acquires this turned back capacity, up to 725 MMcf/d of firm capacity on the El Paso system could be permanently lost to serve California customers.
4. Under the FERC's May 31 Order, the capacity rationalization process involving the turnback by marketers serving California of up to 725 MMcf/d of El Paso capacity could be completed as early as July 31, 2002.
5. When California was deprived of almost 700 MMcf/d of El Paso capacity during the winter of 2000/2001, natural gas prices at the California border were at least two to three times higher than natural gas prices anywhere else in the nation.
6. There is no dispute that during the winter of 2000/2001, El Paso only made available approximately 2,600 MMcf/d of interstate pipeline capacity, almost 700 MMcf/d less than El Paso's certificate obligation to California of 3,290 MMcf/d.
7. High natural gas prices to California result in high electric prices to California.
8. Natural gas demand is dependent on numerous variables, including weather conditions and the operation and maintenance of non-fossil fueled power plants, which are not capable of forecasting with complete certainty.
9. Many of the expansion volumes listed by parties will be used to serve markets other than California but are included in the total capacity identified to serve California.
10. Expansions identified by parties were justified by additional and growing need for interstate pipeline capacity, presupposing that the entire 3,290 MMcf/d of El Paso's certificated capacity to California continued.
11. The FERC found that the Kern River pipeline will have difficulty meeting the needs of markets in both California and Nevada prior to the completion of its major expansion project, even assuming that El Paso's existing capacity of 3,290 MMcf/d to California was available during that time period to meet California's needs.
12. There is a significant need to preserve existing El Paso interstate pipeline capacity in the near future.
13. Southern California border prices were much higher than Northern California border prices or anywhere else in the nation from June 2000 through May 31, 2001, when El Paso was depriving the California market of up to 700 MMcf/d of capacity.
14. Core and noncore customers benefit from preserving sufficient interstate pipeline capacity to serve California's needs.
15. Electric ratepayers of Edison, SDG&E and PG&E benefit from lower natural gas costs and electric rates due to the availability of sufficient El Paso capacity to California.
16. Spreading the costs of turned back capacity over as many ratepayers as possible minimizes the impact of turned back capacity costs on any particular utility's customers.
17. Requiring utilities to subscribe to turned back capacity ensures that it is available to meet core or noncore needs in California through short-term capacity releases, and is not withheld from the California market.
Conclusions of Law
1. In view of the timetable set by the May 31 Order, expedited procedures for comments on the proposed rules were necessary to allow us to ensure that a significant portion of El Paso's capacity to California is not lost.
2. The potential loss of 725 MMcf/d of capacity on the El Paso system presents a real threat to California of the adverse impacts suffered between November 2000 and March 31, 2001 if California utilities or other California replacement shippers do not sign up for the turned back capacity.
3. Yearly demand totals provide little assistance in ascertaining whether SoCalGas' customers' needs during peak summer or winter months can be met if California is deprived of up to 725 MMcf/d of El Paso capacity.
4. In light of the FERC's May 31 Order, which calls into questions the assumption that 3,290 MMcf/d of capacity on El Paso is available to serve California, it may be even more difficult for existing pipeline capacity to meet California's needs if turned back capacity is not signed up for by California replacement shippers or California utilities.
5. All of California benefits by preserving the existing interstate pipeline capacity that has historically served California, and, therefore, all California natural gas and electric ratepayers should pay for preserving this capacity.
6. To the extent that noncore customers or other shippers serving California do not themselves sign up as replacement shippers for the turned back capacity, the utilities should sign up for the turned back capacity at appropriate El Paso delivery points and, in turn, release capacity (in excess of their needs) to noncore customers (or marketers serving noncore customers) under short-term capacity release arrangements.
7. Deviation from previous Commission policy is justifiable in that we are dealing with an emergency situation facing California and in light of the empirical evidence of how much noncore customers were harmed when there was not sufficient capacity to meet California's needs during the winter of 2000/2001.
8. Preapproval and a finding of just and reasonable rates for signing up for the turned back capacity should be guaranteed to the extent the utilities pay no more than the maximum tariffed transportation rate on the El Paso pipeline.
9. By signing up for this capacity and preserving existing interstate pipeline capacity to help ensure that peak needs of California natural gas consumers are met and that electric generators are not deprived of necessary natural gas at reasonable prices, the utilities provide benefits to California.
10. PG&E should sign up for capacity turned back at the PG&E-Topock delivery point on the El Paso system, and the other four utilities should sign up for turned back capacity at the two El Paso delivery points accessing directly the SoCalGas system (i.e., Ehrenberg and SoCal-Topock).
11. No California utility should sign up for the turned back capacity at the Mojave delivery point because this would require an incremental transportation charge on Mojave to reach the utility's service territory.
12. Under current market conditions and in light of the benefits to California of utility retention of existing interstate pipeline capacity rights, it is just and reasonable for the California utilities to keep their existing capacity rights and perform short-term capacity releases when they do not need to utilize all of their capacity rights.
13. Each utility's costs associated with acquiring turned back capacity will be recovered in its own customers' rates but the allocation between core and noncore customers, and gas and electric operations, may differ by utility depending on the utility's specific situation.
14. This decision is not intended to send long-term market signals and is without prejudice to future decisions about diversification, utility responsibility for noncore customers, and other issues that have been raised by the parties in comments.
15. How costs will be allocated among a particular utility's customers would have to be decided in Phase II.
16. It is reasonable to waive the period for comment and review of the draft decision, pursuant to Rule 77.7(f)(9).
ORDER
Therefore, IT IS ORDERED that:
1. The Rules set forth in Appendix A are adopted.
2. Southern California Gas Company, Pacific Gas and Electric Company, San Diego Gas & Electric Company, Southwest Gas Company, and Southern California Edison Company shall subscribe to turned back capacity on the El Paso Pipeline Company consistent with the Rules set forth in Appendix A and this Opinion, and shall be guaranteed cost recovery for such subscriptions, as set forth in Appendix A.
3. To the extent that the California utilities comply with these Rules and this Opinion, they shall also receive full cost recovery for their costs associated with their existing capacity rights on interstate pipelines.
4. No California utility shall turn back capacity rights on interstate pipelines or release their capacity rights under long-term capacity release transactions unless and until the Commission subsequently authorizes such turn back of capacity or long-term releases.
5. California utilities are authorized to release capacity rights under short-term capacity release transactions.
This order is effective today.
Dated ____________________, at San Francisco, California.
APPENDIX A
RULES
A. Definitions
1. "El Paso" as used herein means the El Paso Natural Gas Company interstate natural gas pipeline
2. "El Paso's Southern California delivery points" as used herein means El Paso's delivery points interconnecting with Southern California Gas Company's intrastate system at Topock or Ehrenberg.
3. "El Paso's PG&E-Topock delivery point" as used herein means El Paso's delivery point interconnecting with Pacific Gas and Electric Company's intrastate system at Topock.
4. "Turned back capacity" as used herein means the El Paso firm capacity rights, currently held by shippers serving California that marketers may decide to turn back to El Paso based upon the Federal Energy Regulatory Commission's ("FERC") May 31, 2002 order. See El Paso Natural Gas Company, et. al., 99 FERC ¶ 61,244 (2002).
5. "California replacement shippers" as used herein means any shippers (e.g., marketers or California end-users) willing to sign up for the turned back capacity and continue to use that capacity to transport natural gas to California.
6. "Proportionate amounts" as used herein means the Southern California utilities' fair share of the turned back capacity, taking into account their historic use of natural gas and El Paso capacity on behalf of all of their customers.
B. Subscription to Turned Back Capacity
1. Southern California Gas Company, Southern California Edison Company, San Diego Gas & Electric Company, and Southwest Gas Corporation shall sign up in proportionate amounts for as much El Paso turned back capacity as possible at El Paso's Southern California delivery points to the extent that California replacement shippers do not sign up for the turned back capacity.
2. Pacific Gas and Electric Company shall sign up for as much El Paso turned back capacity as possible at El Paso's PG&E-Topock delivery point to the extent that other California replacement shippers do not sign up for the turned back capacity.
3. After the above-mentioned California utilities sign up for the turned back capacity, they shall use this capacity for their own needs or offer this capacity in the short-term capacity release market to California replacement shippers.
4. These utilities shall file a report with Energy Division stating the amount of turned back capacity (and at which delivery points) to which they subscribed and shall report quarterly to Energy Division on any short-term capacity releases.
C. Pre-approval of subscription
The California utilities' compliance with the above-mentioned rule (i.e., B. Subscription to Turned Back Capacity) is pre-approved by the Commission and found to be just and reasonable provided that the California utilities acquire the turned back capacity at no more than the maximum tariffed rate. To the extent that the California utilities comply with the above-mentioned rule, they should be fully compensated in their rates for the costs associated with their subscription to the turned back capacity, as well as for the costs associated with their existing capacity rights on interstate pipelines.
(END OF APPENDIX A)
