16. Cap on Secondary Market Transactions

We defer to the 2011 TCAP consideration of SDG&E'/SoCalGas' proposal to eliminate the 125-percent cap on secondary market transactions.⁷⁹ This means that the price cap on secondary market transactions will remain at 125 percent of the reservation charge rate until it is reexamined in the 2011 TCAP.

The system of tradable firm access rights adopted by D.06-12-031 included the creation of a secondary market to benefit the southern California market by allowing market participants to sell or trade their unused/unneeded FARs to maximize their gas procurement strategies.⁸⁰ When D.06-12-031 approved secondary market transactions, the Commission was concerned that FAR holders may unduly profit from trading or selling set-asides in the secondary market instead of using those set-asides to serve core load. As a result, D.06-12-031 established 125 percent of the maximum G-RPA1 rate as a maximum price or "cap" that a FAR holder may receive if it trades or sells FARs in the secondary market.

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. The volume-weighted average price paid for FARs in the secondary market was $0.048, or 103 percent of the volume-weighted average FAR rate. Only eight transactions between October 1, 2008 and December 31, 2009 reached the 125-percent cap,⁸¹ and only two set-aside holders sold short term rights totaling 9,990 Dth/day in the secondary market.

SDG&E/SoCalGas initially proposed eliminating the 125-percent cap on secondary market short-term releases of one year or less, asserting that removing the 125-percent cap would not have a significant impact on the secondary market. Parties supporting the proposal assert that eliminating the cap on short-term secondary market transactions will provide shippers with market price signals that reflect the value of access to the SDG&E/SoCalGas system. Parties opposing the proposal argue that the previous FAR cycle has not provided enough time to assess the potential effects of the proposal.

Deferring to the SDG&E/SoCalGas 2011 TCAP consideration of the proposal to eliminate the 125-percent cap on secondary market transactions is reasonable because it will allow parties to gain experience with the new rates and other modifications to the FAR system adopted by this decision.

⁷⁹ This adopts Recommendation No. 5 of Exhibit No. JRR-1.

⁸⁰ The FAR secondary market uses an electronic trading platform on the SDG&E/SoCalGas EBB to permit FAR holders to release and sell all or a portion of there FARs, and to permit creditworthy parties to purchase FARs.

⁸¹ Three transactions that were at the maximum rate of 125 percent occurred on days when OFOs were called and one transaction occurred during a maintenance reduction.