PG&E's first interconnection proposal is to establish a new rule, "Gas Rule 27 - Gas Transmission Facilities Connections." This new rule would address the interconnection of electric generation facilities and other large noncore customers who request service from PG&E's gas transmission system. PG&E's second interconnection proposal is to offer a new tariffed service to off-system end users who want to directly connect to PG&E's backbone facilities.
PG&E is proposing Gas Rule 27 to address the needs of large gas customers who require transmission-level service. Rule 27 would apply to transmission-level customers who are served under the following existing gas rate schedules: Schedule G-EG - Gas Transportation Service to Electric Generation; Schedule G-COG - Gas Transportation Service to Cogeneration Facilities; and Schedule G-NT - Gas Transportation Service to Noncore End-Use Customers.103 Rule 27 allows for revenue-based allowances, while ensuring recovery of costs for both reinforcements of PG&E's existing system and the extension of new facilities, through local transmission and customer access charges revenue generated by customers.
PG&E contends that Rule 27 is needed because Gas Rule 15,104 which is the only PG&E tariff applicable to gas transmission interconnections, primarily applies to distribution-level interconnections at pipe pressures less than 60 pounds per square inch, and contemplates transmission-level interconnections at PG&E's convenience. PG&E states that distribution-level facilities are rarely of sufficient capacity to serve large customers. Rule 15 also limits the allowances towards investments made by PG&E to extend transmission facilities to serve new customers. Since transmission-level customers currently pay for the majority of costs associated with any transmission-level extension, Rule 15 creates an obstacle to the citing of electric generation, as well as other noncore load. The revenue credit proposed in Rule 27 would replace the relatively small distribution-based revenue allowance in Rule 15.
If Rule 27 is not adopted, PG&E would have to file an advice letter for an extension of service as an exceptional case,105 under the provisions of Gas Rules 15 and 16,106 each time transmission-level service is sought. Such a filing would be necessary in most instances because the costs of connecting these large customers exceed the local transmission and customer access charges revenues. If Rule 27 is adopted, it will eliminate most of the exceptional case advice letter filings because the guidelines are contained in Rule 27.
Some of the parties propose that the language of Rule 27 be clarified in certain respects, and that connecting customers be provided with additional financial incentives.
The purpose behind PG&E's proposal for a new tariffed service to directly connect off-system customers to the backbone is to attract users who are interested in using PG&E's transmission service as an alternative to using interstate pipelines, a private pipeline accessing California gas production, or an alternative fuel source. This interest has occurred along the Baja path (Line 300) and near the terminus of Line 401. By allowing these end users to connect to the backbone, they will have added supply options, including California and Canadian gas sources, as well as improved service reliability.
In D.94-12-061 (58 CPUC2d 440), PG&E was authorized to offer off-system direct connect service on Line 401. However, this off-system direct connect service does not apply to the rest of PG&E's backbone facilities, and a Line 401 direct connect request requires the filing of an application under the Expedited Direct Connection Docket (EDCD) for each customer.
PG&E's proposal seeks to allow off-system end users to directly connect to PG&E's transmission facilities if they meet two eligibility requirements, which are described at page 18-7 of Exhibit 1, and in the discussion portion of this section. PG&E also proposes to allow the off-system direct connect customers to take other PG&E services, such as monthly balancing, subject to the specific terms and conditions of those services. The off-system direct connect customers will be required to sign an agreement specifying the terms of service, and a customer-specific monthly interconnection charge will be developed and assessed based on the ongoing costs to maintain the meter and interconnection.
Overall, CCC/Calpine support Rule 27. However, CCC/Calpine believe that Rule 27 should be modified to better account for the benefits that PG&E and its customers incur as the result of facilities built on behalf of a particular customer. Rather than requiring the customer to pay the entire estimated contribution in all instances, as proposed Rule 27 would do, CCC/Calpine propose that PG&E share the risk of new interconnections by waiving the unrecovered balance if the customer is able to reduce that balance to meet any of the following milestones: (1) 50% within 3 years; (2) 65% within 5 years; (3) 75% within 7 years. CCC/Calpine assert that that customers that meet these proposed milestones will have demonstrated their viability and the likelihood that PG&E will recover its margin.
CCC/Calpine also propose that Rule 27 be amended to give the interconnecting customer credit for the full costs PG&E avoids by having incremental capacity made available, and to provide for refunds if additional new customers take service from the facility. PG&E should pay for, or credit the customer for, the full costs that PG&E avoids as a result of the interconnection. PG&E's proposal to pay only the incremental cost of these additions is not appropriate.
In order to properly reflect the benefits that can be created by new interconnections, CCC/Calpine suggest that Rule 27 be modified to include a provision similar to Rule 15.E. Rule 15.E provides a customer with a refund of his contribution to a distribution main addition if additional new customers take service from that main. Adding such a provision ensures that interconnecting customers are not required to subsidize improvements enjoyed by other customers.
CCC/Calpine also propose that backbone rate revenue be included in the calculation of customer contributions toward meeting Rule 27's economic benefit test. Customers contribute to net margin to PG&E through the payment of backbone rates. Under the economic benefit test of Rule 27, only revenues from local transmission and customer access charges are considered.
PG&E contends that customers seeking connections to high-pressure facilities should be treated as Special Facilities under Rule 2, rather than under Rule 27. PG&E asserts that high-pressure facilities are a special benefit to the requesting customer that does not benefit the system at large. CCC/Calpine contend that the reality is that new gas turbine generators require high-pressure gas service, and a substantial portion of the costs of interconnections with new electric generation facilities is often the cost of providing higher-pressure service. To recognize the realities of electric generation, Rule 27 should be amended to include within a transmission facility connection, the cost of facilities to provide higher delivery pressures.
CCC/Calpine point out that proposed Rule 27.A.1.d provides that PG&E will not be required to connect with any non-PG&E pipelines. CCC/Calpine contend that in some cases, the most cost-effective way for a new generator to be served is to interconnect with a private or municipal pipeline that is or can be connected to PG&E's system. Rule 27 should not prevent customers from seeking the most cost-effective method of obtaining gas for electric generation.
Given the significant reservations about how the rule will work and its potential impact on customers, CCC/Calpine believe that it may be appropriate to defer consideration of the rule until workshops on the rule have been held.
Duke believes that Rule 27 is acceptable so long as PG&E clarifies that an applicant for new service will be charged only for the costs relevant to its service connection, and any additional costs associated with sizing the connection for future loads be borne by the utility.
LGS expressed concern about the language in proposed Rule 27.A.1.d which states: "PG&E shall not be required to serve any Applicant from transmission facilities, or any other gas pipeline facilities not owned, operated, and maintained by PG&E." That language could allow PG&E to refuse to transport gas withdrawn from storage by customers of independent storage providers and delivered via their ancillary pipelines to PG&E's transmission system. When PG&E witness Haley testified, he clarified that PG&E does not intend to prevent third-party storage providers from serving their customers via third party storage pipelines that interconnect with PG&E's system, and would work with parties to remove any ambiguities in proposed Rule 27.
LGS suggests that the Commission should be clear in any decision approving the Rule 27 proposal, that PG&E must clarify the language of the rule so that the rule has no impact on the delivery of gas to PG&E's system for third party storage. If Rule 27 is approved, the Commission should order the parties to work together to clarify the language.
Mirant is concerned that Rule 27 places a disproportionate share of the cost of additions to serve other customers that come after the initial interconnection, on the interconnecting customer. Mirant believes that a more equitable assignment would be to assign the new customer a share of the costs proportional to the new customer's average use of the new system capacity.
Although PG&E proposes tariff language in Rule 27 to shield the interconnecting customer from having to bear the costs of separate or incremental facilities included in the interconnection project to serve other customers, this language does not address the concern of Mirant about the unfairness of the incremental cost assignment approach. PG&E's incremental approach assigns a share of costs to the interconnecting customer significantly in excess of that customer's share of prospective benefits. Mirant recommends that the Commission require PG&E to amend Rule 27 to give effect either to Mirant's proposal that new customers be assigned a share of costs proportional to the new customer's average use of the new system capacity, or the suggestion of CCC/Calpine that the interconnecting customer be given credit for the full costs PG&E avoids by having incremental capacity made available.
Mirant is also concerned about PG&E's discussion of risk allocation issues. PG&E proposes that Rule 27 apply to system reinforcements, as well as service extensions. PG&E witness Haley testified that Rule 15 uses a standard form agreement that includes a provision attesting that the customer's load justifies the reinforcement work involved, and that should the applicant's load not develop as intended, that PG&E reserves the right to collect the cost of reinforcements that turn out not be necessary. Under Rule 15, the customer is off the hook if the project load is achieved, even if revenues are disappointing. However, under Rule 27, the customer is obligated to pay all of the costs of the reinforcement if the anticipated customer revenue from customer access and local transmission charges do not reach the projected level. Mirant asserts that this distinction is important because it supports the position of CCC/Calpine to waive the unrecovered balance if a sufficient proportion of anticipated revenue is achieved, for providing refunds if additional new customers take service from a new facility, and for including backbone rate revenue in the calculation of customer contributions.
NCGC points out that under proposed Rule 27, if PG&E's cost of constructing the connection or reinforcement cannot be supported by the forecasted local transmission and customer access charge revenues, the customer will be required to pay the difference.
NCGC asserts that the Rule 27 proposal is outside the scope of this proceeding. In addition, due to the slowdown in the construction of new electric generation plants, the rule is currently not necessary. NCGC also notes that connections and reinforcements have been installed in the past without Rule 27. NCGC recommends that PG&E's Rule 27 proposal be dismissed without prejudice, and that the issues regarding Rule 27 be resolved in a workshop.
If the Commission decides to adopt Rule 27, NCGC recommends that we revise proposed Rule 27 as recommended by CCC/Calpine and Mirant so that PG&E bears at least some of the risk of the new interconnection costs.
CCC/Calpine and Mirant also recommend other changes to Rule 27. These changes include the following: include a provision that parallels Rule 15.E to permit a customer to get a refund for the customer's contribution to a capacity addition if additional new customers take service from the new capacity; provide for an interconnecting customer to receive a credit based on the full costs that PG&E avoids as a result of installing an interconnection facility, not just the incremental cost; that the economic benefit test in Rule 27 be modified to recognize backbone revenues that result from interconnecting with a new customer, as well as local transmission revenues; and that Rule 27 be changed to include the cost of facilities that are needed to provide higher delivery pressures rather than continuing to treat such facilities as special facilities under Rule 2. NCGC supports all of these proposals.
ORA states that the ratepayer impacts of PG&E's proposed Rule 27 could not be properly reviewed and assessed within the time allotted, and that such a proposal should be deferred to a later proceeding.
If the Commission does not adopt the proposal for a backbone level rate, or does not adopt a higher load factor, Rule 27 should be changed to allow SMUD to credit some or all of its costs of constructing the SMUD gas pipeline system against PG&E's local transmission rates. SMUD contends this is proper because of the cost savings that PG&E's customers received as a result of SMUD building its own pipeline system to serve its gas-fired plants.
CCC/Calpine and others suggest that a new customer should only have to pay for system reinforcements net of system benefits, and that Rule 27 does not result in an equitable share of system upgrade costs. PG&E asserts that its proposed Rule 27 provides for an equitable allocation of system upgrade costs between the applicant and PG&E. When an applicant applies for service, PG&E's practice is to allocate only the costs of the applicant's interconnection to the applicant. But for the Rule 27 applicant, PG&E would not be making the interconnection. PG&E does not propose to deviate from that practice in proposed Gas Rule 27. If additional facilities are added by PG&E in conjunction with the upgrades required for an applicant, PG&E will pay those incremental costs. According to PG&E's witness Haley, although proposed Rule 27 tariff does not specify that the incremental costs would be at PG&E's expense, such language could be added to clarify the intent of Rule 27.
CCC/Calpine suggest modifying proposed Gas Rule 27 to allow for refunds to reduce a customer's "Unrecovered Balance" if additional customers take service from the interconnection facilities that PG&E installed for the applicant. PG&E recommends that this proposal be rejected as unrealistic. Based on the classification of customers that are covered by proposed Gas Rule 27, PG&E contends it is unlikely that another transmission-level customer will be able to be served from the pipe that PG&E installed to serve the applicant without additional reinforcement. In addition, tracking the other load would be cumbersome, and customers would gain little or no benefit. If sufficient excess capacity exists to accommodate other customers, that incremental capacity would be provided at PG&E's expense.
CCC/Calpine advocate changing Rule 27 to include, within a Transmission Facilities Connection, the cost of facilities to provide higher delivery pressure. PG&E is opposed to this suggestion. PG&E points out that facilities which are of special benefit to a single customer should continue to be treated as Special Facilities under Gas Rule 2, and that other ratepayers should not be expected to subsidize such facilities. Rule 2 only applies to the incremental cost increase between the volumetric design and the applicant's specific request for additional elevated pressure. To the extent special facilities are constructed, these costs are not eligible for revenue-based allowances under proposed Rule 27. PG&E's experience also shows that applicants generally select the option that provides them with the most economical delivery of elevated pressure. Instead of asking PG&E for additional elevated delivery pressure in excess of the prevailing transmission pressure already provided by PG&E in the volumetric design, the applicant may choose the option of installing compression equipment on their side of the meter to accommodate the pressure their equipment requires.
Proposed Rule 27 allows the applicant two options for connecting to PG&E's transmission system: (1) through PG&E-owned and maintained facilities from the interconnection point with PG&E gas transmission facilities to the service termination point, typically at the applicant's facility; or (2) by connecting to facilities the applicant builds, owns, and maintains, from their facility to PG&E's transmission facilities. SMUD recommends changing Rule 27 to allow for PG&E revenue credits against SMUD's costs of constructing its own gas pipeline interconnections with PG&E.
PG&E recommends that SMUD's proposal not be adopted. SMUD should not be given a PG&E revenue credit, when for a variety of business reasons, the party chooses to build, own and maintain its own pipeline facility. PG&E contends that providing such a credit would require remaining ratepayers to unfairly subsidize private ventures. The remaining ratepayers should not be held captive to pay for facilities that are not owned, operated, and maintained by the utility.
CCC/Calpine propose that the remaining Unrecovered Balance be waived if the customer is able to reduce the balance according to certain milestones. PG&E contends it should not be required to waive its right to collect the Unrecovered Balance for investments whose expected average service life for new transmission mains is 45 years. PG&E asserts that it is already assuming a certain level of risk under Rule 27, which limits the cost recovery guarantee period from the new customer to only ten years.
CCC/Calpine suggest that the credits against the Unrecovered Balance include contributions to the backbone and customer access charges, and that the contract that a customer executes under proposed Rule 27 be for backbone level service. PG&E asserts that proposed Rule 27 already adequately and reasonably handles this situation. PG&E points out that proposed Rule 27 contemplates and accommodates interconnections from all of PG&E's transmission systems, and it is highly unlikely that an individual generation facility will cause a need for reinforcements to the backbone. In the event that backbone reinforcement is required, PG&E and the applicant would likely need to negotiate a special agreement to allocate the costs of such reinforcement. Proposed Rule 27.E.3. allows for this possibility by providing a method for filing an exception to the tariff with the Commission for approval.
Where there are connections to the backbone, PG&E will still credit LT and CAC paid by the customer against the costs of the interconnection, and in the form of a contract developed for use with proposed Rule 27. PG&E contends that these credits reflect a reasonable and adequate amount of credit against the costs of the interconnections.
CCC/Calpine propose that backbone revenues be included in the customer credit. PG&E states this proposal should be rejected because the backbone capacity may not be held by an end-user, making it impossible to attribute revenues to that customer. Also, as new more efficient gas-fired electric generation is brought on line, it is likely it will displace older, less efficient generating facilities. Thus, the amount of backbone revenue attributed to the new facility may not be incremental, but actually decremental. Also PG&E has the obligation to serve, and it assumes the risk for costs associated with facilities not supported by revenue.
CCC/Calpine and Mirant object to proposed Gas Rule 27 because it removes from the utility any risk that PG&E will fail to recover the costs of its interconnection with a new electric generation customer. They contend that under Rule 15, PG&E has always borne some of the risk that a new distribution-level customer will remain on the PG&E system long enough to pay off its interconnection costs.
PG&E contends that CCC/Calpine and Mirant mischaracterize the risk allocation between the customer and PG&E, and Rule 15 and proposed Rule 27. PG&E asserts that the risk allocation methodology is the same under Rule 15 and Rule 27. To the extent the applicant generates revenue, PG&E credits that for both new and reinforced facilities. Under both rules, at the end of 10 years, if the customer does not generate the revenue sufficient to cover the costs of facilities, the customer is liable for the balance between the costs of the interconnection and the revenue generated. PG&E asserts that it would be inequitable to encumber the remaining ratepayers with the risk that an individual customer would generate enough revenue to support the costs of such interconnection, while allowing the customer to be the sole recipient of any reward if it does not. As long as PG&E has an obligation to serve, it is reasonable to expect its investments to be supported by revenue.
CCC/Calpine witness Beach asserts that Rule 27 does not require PG&E to serve any pipelines that are not maintained or owned by PG&E, and that it allows only one pipeline to pipeline interconnection. Beach proposes that Gas Rule 27 be modified to allow for multiple interconnections with private pipelines. PG&E points out that under its proposed Gas Rule 27, PG&E would not be required to serve an applicant via a third-party owned section of pipe inserted between PG&E's interconnection point and its meter. The proposed gas rule does not state, as Beach asserts, that PG&E should not be required to serve any pipelines that are not owned or maintained by PG&E.
PG&E points out that Rule 27 is not intended for pipeline-to-pipeline interconnections, where there is no retail end-use gas customers to be served. Instead, the rule is applicable to all connections for permanent transmission-level service to PG&E's gas transmission system serving facilities that qualify for service under Schedule G-EG or Schedule G-NT. PG&E should not be made to serve its customers from privately owned pipelines inserted between PG&E's interconnection point and its metering facilities.
PG&E also contends that proposed Rule 27 allows only one connection per facility. If an applicant requests multiple gas transmission services to a single generation facility, the first service would be installed under proposed Rule 27, and the second or additional services would be installed under Gas Rule 2. Thus, CCC's proposal to modify Rule 27 to allow for multiple interconnections should be denied.
NCGC has proposed that Rule 27 be addressed in workshops before it is adopted. PG&E opposes this, and asserts that the rule should be adopted now. Workshops have already been held, and that NCGC participated in the workshops.
PG&E acknowledges that although the number of proposed gas-fired electric generation plants that could use Rule 27 has gone down, that number could grow again in the future. Without Rule 27 in place, PG&E will have to use a patchwork of exceptional case provisions under other gas rules to accommodate the new gas-fired electric generation plants.
PG&E proposes the adoption of Gas Rule 27, which is set forth in Appendix 1 of Chapter 18 of Exhibit 1. Although PG&E held informal workshops to discuss the proposed rule with interested participants before the proposed tariff was submitted in this proceeding, as indicated in the positions of the parties, there are still a number of issues that the parties cannot agree upon.
PG&E and other parties have discussed a number of projects for interconnection at the transmission-level in recent years. PG&E witness Haley testified that during the last five years, there have been no exceptional case facilities agreements for transmission-level facilities. As of April 2003, there were approximately ten to fifteen requests for interconnection, several of which would fit more appropriately under Rule 27 rather than Rule 15. (RT 346-347.) This testimony is indicative of two things. First, that there has been a slowdown in new connections as a result of fewer gas-fired electric generation projects being pursued. Second, the projects that require interconnection to transmission-level service can or have used exceptional case agreements or the standard provisions of Gas Rules 2, 15 and 16.
Based on the issues that parties have with PG&E's proposed Rule 27, the reduction in the number of requests for transmission-level interconnections, and the existing ability to use exceptional case agreements or the standard provisions of Gas Rule 15 and others, there is no need to adopt PG&E's proposed Gas Rule 27 at this time.
PG&E's second interconnection proposal is to establish a new tariffed service to allow eligible off-system end users to connect directly to PG&E's backbone transmission service. In order to be eligible for this service, PG&E proposes that the end user meet both of the following tariff eligibility requirements:
"1. The customer does or can take pipeline delivery service directly from an interstate pipeline, a private pipeline, or an alternative fuel source, and such service does not in any way depend on services being provided by another CPUC-regulated Local Distribution Company (LDC), even if the customer still maintains a connection to that utility's facilities. If the customer is a new customer and the interstate or private service connections do not currently exist, the customer must verify through a legal declaration that such connections would be made, and service would not be provided by a California LDC, absent a connection to PG&E's transmission system; and
"2. The customer builds and is responsible for, maintaining the necessary facilities at the customer's cost to interconnect to the PG&E backbone transmission system, and to provide or pay for the meter set and other necessary special facilities charges. Connections to these customers will be done under the provisions of PG&E's Gas Rule 2, or another similar agreement." (Ex. 1, p. 18-7.)
Under PG&E's proposal, the off-system direct connect customer will be allowed to use other PG&E services, such as monthly balancing, subject to the specific terms and conditions of those services. The off-system direct connect customers will be required to sign an agreement specifying the terms of service. In addition, a customer-specific monthly interconnection charge will be developed and assessed based on the ongoing costs to maintain the meter and interconnection.
PG&E did not submit a sample tariff for its off-system direct connect proposal. No one objected to PG&E's second proposal, and no cross-examination on this proposal took place.
As the starting point for our analysis of this proposal, we turn to D.94-02-042 (53 CPUC2d 215) and D.94-12-061 (58 CPUC2d 440). In those decisions, we discussed the issue of direct connection to the Line 401 expansion project. In D.94-02-042, we prohibited the direct connection of customers to Line 401, except at Kern River Station. (53 CPUC2d at 245.) Petitions for modification of D.94-02-042 were filed, and the topic of direct connection was the subject of a workshop and comments in that Line 401 proceeding. (58 CPUC2d at 448.) In D.94-12-061, we authorized the direct connection to Line 401 where the customers' loads are incremental to current and future original system loads through the use of the EDCD application procedure. (58 CPUC2d at 443, 448.)
PG&E's off-system direct connect proposal must be clarified in two respects. The first clarification is that PG&E's proposal refers to an off-system customer being able to request a direct connection to "any portion of PG&E's transmission system." (Ex. 1, p. 18-7, emphasis added.) However, elsewhere in Chapter 18 of Exhibit 1, PG&E's proposal refers only to an off-system direct connect to PG&E's backbone transmission service. We clarify for the purposes of this decision that PG&E's proposal is only for off-system end users to directly connect to any portion of PG&E's backbone transmission system.
The second clarification is if this proposal is adopted, D.94-12-061 will be affected to some extent. Under D.94-12-061, both on-system and off-system users who want to directly connect to Line 401 must follow the EDCD procedure. If PG&E's tariff proposal is adopted, off-system end users who want to directly connect to any of PG&E's backbone facilities would no longer have to use the EDCD as provided for in D.94-12-061. (See 58 CPUC2d at 461, App., § 1. Eligibility.) However, new or existing loads located on-system, who seek to direct connect to PG&E's Line 401 at locations other than Kern River Station, will still be required to use the EDCD procedure. In addition, new or existing loads located on-system, who seek to direct connect to other PG&E backbone transmission lines other than Line 401 are prohibited from doing so unless another Commission decision has authorized such a connection.
In D.94-12-061, the criteria for approving a direct connection to Line 401 was developed. That criteria consists of the following: the connecting customer and its load is incremental under the definition in D.94-02-042, as further explained in D.94-12-061; the direct connection cannot displace present or future original system loads; and original system ratepayers must not lose the opportunity to serve future loads that would be served by PG&E's original system if Line 401 did not exist. Under PG&E's proposed eligibility requirements for this off-system direct connect service tariff, these criteria are met. Under the first eligibility requirement that PG&E proposes, the end user must or can be served from an interstate pipeline, a private pipeline, or an alternative fuel source, and such service cannot depend in any way on services provided by another Commission-regulated gas utility. Under the first eligibility requirement, the off-system end user's load is incremental because the other gas utility, which is most likely to be SoCalGas, must not be providing any of the services from which the off-system end user is receiving its natural gas or alternative fuel. In addition, this incremental load is not displacing any present or future loads, and original system ratepayers are not losing an opportunity to serve future load since the load is coming from off-system.
The second eligibility requirement that PG&E proposes ensures that the off-system end user must pay for the interconnection facilities, the meter set, and other necessary special facilities charges.
We authorize PG&E to file a tariff via an advice letter filing which offers off-system end users the ability to directly connect to all of PG&E's backbone transmission facilities. Such a tariff filing shall be consistent with the above discussion. End users who are within the service territory of PG&E who want to directly connect to Line 401 may continue to do so as provided for in D.94-02-042 and D.94-12-061.