1. PG&E proposes to revise the core backbone, interstate and Canadian capacity reservations. Canadian capacity costs are currently recorded in the core subaccount of the Purchased Gas Account. PG&E proposes to record Canadian capacity costs in the core demand charge subaccount of the Core Pipeline Demand Charge along with other core pipeline demand charges, including additional capacity acquired to meet core needs. Since PG&E will retain the Gas Transmission-Northwest (GTN) capacity that is turned back by the gas ESPs, the tracking of the core transport portion of GTN capacity in the Core Transport Interstate Transition Subaccount of the CPDCA is no longer necessary.

2. In accordance with D.00-05-049, the core procurement portion of core storage costs is a component of the monthly core procurement price, effective October 1, 2000. The core transport portion of core storage costs is recovered through Schedule G-CFS. The core storage revenue requirement is recorded in the Core Firm Storage Account (CFSA). PG&E proposes to change the core storage reservation and to expand the applicability of Schedule G-CFS to include PG&E Core Procurement. The core procurement portion of storage costs will continue to be recovered in monthly core procurement rates. Minor changes to the CFSA will be made to implement the proposed changes.

3. PG&E proposes to revise Preliminary Statement Part C, Gas Accounting, Terms and Definitions, and the PGA, to reflect the revisions to the CPIM, including the proposal to remove the alternative benchmark and share the cost of EFO noncompliance charges.

"PG&E believes that a viable structure will be developed during 2003 as part of the Phase II of the El Paso Capacity Proceeding and/or possibly through a separate application. PG&E proposes that Gas Accord II - 2004 will incorporate the revised mechanism subject to further amendments that result from changes that are specific to Gas Accord II - 2004." (Ex. 1, p. 16-11.)

"The current CPIM will be retained as a default structure in the event that anticipated modifications to the existing mechanism, resulting from the outcome of Phase II and/or a separate CPIM application are not approved by the Commission by the beginning of the Gas Accord II - 2004 period. Any new structure developed as a result of the above mentioned proceedings will become effective upon Commission approval. Under Gas Accord II - 2004, the default mechanism or the newly modified incentive structure will be further amended to reflect the new Winter Firm Capacity Requirement and the above mentioned capacity additions."

96 In D.02-07-037, the Commission ordered PG&E and other California utilities to acquire El Paso pipeline capacity to ensure access to the Southwest supply basins. In response to the decision, PG&E contracted for 204 MDth/d of firm capacity. In Resolution G-3339, PG&E was found to have complied with D.02-07-037, and that it met the conditions for recovery of existing and acquired capacity costs, including Transwestern. The allocation of costs was left to Phase II of the El Paso Capacity proceeding. PG&E anticipates that a significant portion of the capacity will be dedicated to core use. PG&E states that the likely augmentation of the core's holdings of interstate capacity, and the change in status of PG&E's Transwestern contract, will result in significant modifications to the existing CPIM. 97 According to PG&E, the alternate benchmark would be made obsolete by the adoption of the Winter Firm Capacity Requirement.

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