5. Structure and Operation of the Capacity Allocation Process

As summarized above, the FAR system conducts a three-step Open Season process every three years to initially allocate receipt point access rights to capacity on the SDG&E/SoCalGas system for the three-year backbone transmission cycle. Subsequent to the Open Season process, and on a daily basis, customers may use their rights to nominate (schedule) the transportation and delivery of gas into the SDG&E/SoCalGas system.

Step 1 (Pre-Open Season) provides for a three-year set-aside of receipt point capacity access rights for retail and wholesale core customers, Core Transportation Aggregators, holders of certain long-term contracts, and California gas producers. The set-aside for retail core customers is on behalf of SDG&E's/SoCalGas' core customers that receive a capacity set-aside in Step 1 to match their qualifying upstream pipeline contracts. Other wholesale customers who serve core loads may elect to receive a set-aside based on their qualifying upstream interstate pipeline commitments.¹⁴

Step 2 provides for customers or their designated agents to bid up to their maximum bidding rights, defined as a base load maximum (based on
36 consecutive months of consumption data ending four months prior to the start of the process to assign/award receipt point rights) plus, for certain customers, a monthly peaking maximum over a Base Period.

Step 3 is comprised of Step 3A and Step 3B. Step 3A participants may bid for the available receipt point capacity remaining after Step 2. Step 3B participants may bid for receipt point capacity resulting from expansions at existing receipt points or new capacity at new receipt points that become available prior to each three-year Open Season cycle.

After the three-step Open Season process is completed and SoCalGas posts any remaining available receipt point access capacity on its Open Season Bidding System, the capacity holders are allowed two weeks to "re-contract" (request re-assignment of) any part of their capacity from designated receipt points to different receipt points in the same transmission zone or in a different transmission zone, if capacity is available at the requested receipt point. At the end of the re-contracting period, SDG&E/SoCalGas evaluate requests for changes and grant the requests where receipt point capacity is available and prorates the remaining capacity among the requesting holders, if more capacity is requested than is available at a particular receipt point or transmission zone.

Following the re-contracting process, SDG&E/SoCalGas make available on the EBB (Electronic Bulletin Board) all remaining receipt point capacity and any creditworthy market participant may acquire available capacity on a first-come, first-served basis for a minimum term of one month and a maximum term up to three years. All remaining unutilized receipt point access capacity is made available on an interruptible basis during the remainder of the three-year backbone transmission cycle.

¹⁴ If the wholesale customer elects not to select this set-aside option, the customer may bid for FARs in Steps 2 and 3. A wholesale customer may elect to have its noncore customers participate directly in Steps 2 and 3, or it can elect to participate in the open season process on behalf of its noncore customers' requirements.