4. An assessment of how the FAR system is working.
As discussed above, the need for the FAR system arose from the mismatch between the ability of upstream interstate and intrastate pipelines to deliver much greater volumes into the SDG&E/SoCalGas system than the SDG&E/SoCalGas gas transmission system was capable of receiving and delivering. Because shippers holding upstream capacity could nominate more gas than the SDG&E/SoCalGas system was capable of receiving, SDG&E/SoCalGas had to limit upstream confirmations to the supplying interstate pipelines based on the lower volumes that could be received at any particular receipt point into the system on any given day (the receipt point "daily window").
The daily windowing procedure resulted in frequent reductions to shippers' scheduled volumes on a pro rata basis by the upstream pipelines, particularly at those SDG&E/SoCalGas receipt points that were the most popular and economically attractive. Shippers would often over-nominate volumes in anticipation that nominations would subsequently be reduced to fit within a receipt point's capacity. The practice of over-nominating by shippers inevitably led to pro rata reductions to scheduled volumes and thereby increased scheduling uncertainty for all shippers.
The FAR system adopted by D.06-12-031 sought to address the problem of scheduling uncertainty by allocating specific quantities of available receipt point capacity to various shippers interested in backbone transportation service, and by ensuring that a FAR holder has a firm right to transport its gas over the transmission system to the city-gate. The Commission expected any participant awarded firm capacity rights in the open season process to be able to access that capacity at the various receipt points and have gas transported to the designated delivery points.
The Commission also expected the FAR system to promote the development of a city-gate gas market and to provide gas shippers, marketers, and end-users with new options and opportunities, including the ability to move FAR's to alternative receipt points and trading FAR's in the secondary market. D.06-12-031 scheduled a future review to assess how the new FAR system was working to determine if any adjustments or modifications were needed, and this proceeding undertook that assessment.
4.1. How Well Has the FAR System Addressed
Scheduling Uncertainty?
An assessment of the FAR system should compare the performance of the SDG&E/SoCalGas integrated gas transmission system before implementation to its performance after implementation of the FAR system. Because the FAR system was adopted to address the problem of scheduling uncertainty, we compare the percentage of nominated volumes (deliveries) that were confirmed into the SDG&E/SoCalGas system before and after implementation of the FAR system in order to measure changes in "scheduling certainty."
The record shows that, when compared to the period prior to FAR implementation, the FAR system has substantially reduced but not eliminated scheduling uncertainty. Much of the continuing scheduling uncertainty results from receipt point or system-wide capacity constraints caused by scheduled maintenance activities or OFO events.
Prior to FAR implementation, 65 percent of nominated volumes were confirmed into the SDG&E/SoCalGas system. After implementation of the FAR system, and including scheduled maintenance periods and OFO events, almost 96 percent of nominated volumes were confirmed during the period between October 2008 and September 2010. Thus, on average, 31 percent more nominated volumes were confirmed into the SDG&E/SoCalGas system after implementation of the FAR system than before implementation.
Excluding the August 2009 to December 2009 prolonged maintenance period, 99 percent of nominated volumes were confirmed into the SDG&E/SoCalGas system. During the August 2009 to December 2009 prolonged maintenance period, 88 percent of the nominated volumes were confirmed into the SDG&E/SoCalGas system.
The record shows that the rate of nominated volumes confirmed into the SDG&E/SoCalGas system increased significantly under FAR, even during periods when maintenance activities reduced receipt point capacities and OFO events reduced system capacity. When compared to the rate of nominated volumes confirmed into the SDG&E/SoCalGas system during the period prior to FAR implementation, the system of FAR has been successful in reducing scheduling uncertainty.
Some parties decry the FAR system's performance during scheduled maintenance and OFO events, and assess its performance as unacceptable. Although D.06-12-031 acknowledges that access to the SDG&E/SoCalGas system worsens when there are receipt point or system capacity constraints, nothing in D.06-12-031 suggests that the FAR system was intended to alleviate receipt point constraints caused by scheduled maintenance or system-wide constraints resulting from OFOs.
As discussed above, the FAR system was established to address "bottleneck" problems resulting from interstate and intrastate pipelines attempting to deliver more gas than the receipt points on the SDG&E/SoCalGas system were able to take away at a given time. Thus, criticism of the FAR system's performance during scheduled maintenance and OFO events is largely misplaced because the FAR system was not intended to eliminate uncertainty caused by scheduled maintenance activities or OFO events.
However, as discussed below, this decision adopts specific recommendations designed to improve the performance of the FAR system during scheduled maintenance periods and OFO events. In addition, as a result of settlement discussions among the parties, SoCalGas has modified its procedures for allocating receipt point capacity during OFOs.13
4.2. Other Benefits of the FAR System
When the FAR system was initiated, SDG&E/SoCalGas established a new pool to facilitate gas commodity exchanges at the SoCalGas city-gate to permit customers to aggregate gas supplies from multiple receipt points on the SDG&E/SoCalGas system. The city-gate pool authorized by D.06-12-031 facilitates gas commodity exchanges at the SoCalGas city-gate and benefits buyers and sellers of natural gas by permitting customers to aggregate gas supplies from multiple receipt points on the SDG&E/SoCalGas system.
The SoCalGas city-gate pool has become a highly transparent pricing point traded on the Intercontinental Exchange (ICE). The increased trading volumes through ICE have contributed to a competitive market at the SoCalGas city-gate pool for buyers and sellers of natural gas, and the SoCalGas city-gate pool has become an increasingly liquid point with active gas trading by producers, end-users and marketers.
The FAR system has preserved shippers' flexibility to exchange their receipt point rights with parties holding FAR rights at other receipt points in a manner similar to that existing prior to FAR implementation. In addition, the FAR system provides a secondary market where FAR holders offer their unused firm rights to other shippers, marketers, end-users, or other interested third parties.
The secondary market provides FAR holders additional flexibility by allowing shippers to buy and sell their unused, short-term firm capacity in the secondary market at market-based rates up to the 125-percent cap established by D.06-12-031. From September 24, 2008 to March 2, 2010, 40 parties participated in the secondary market, completing 264 transactions with contract terms of one day to three years.
In summary, compared to the period prior to FAR implementation, the FAR system has substantially reduced scheduling uncertainty, retained shippers' flexibility, facilitates gas commodity exchanges at the SoCalGas city-gate pool, and provides for a secondary market for trading unused short-term firm capacity. However, as discussed below, certain modifications to the FAR system are needed to further improve its performance.
Before addressing parties' proposed changes to the FAR system, we provide a brief description of the current Open Season process.
13 SoCalGas filed Advice Letter (AL) 4139 on July 28, 2010 requesting approval to revise its tariffs to modify the allocation of receipt point capacity due to a system capacity limitation during an OFO event. AL 4139 was uncontested and approved by the Commission on August 27, 2010 and became effective September 1, 2010.
