ALJ/TJS/avs DRAFT H 3

1/23/2002

Decision ______________

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company to Continue the Unbundling of Interstate Transmission Charges from Core Transport Rates, and to Address Canadian Transmission Capacity and Charges As They Relate to Core Transport Rates, Beginning January 1, 1998.

Application 96-09-028 (Filed September 18, 1996)

OPINION GRANTING IN PART

PETITION TO MODIFY DECISION 97-12-032

I. Summary

We grant in part the Petition of the Association of Bay Area Governments Publicly Owned Energy Resources (ABAG POWER) and the School Project for Utility Rate Reduction (SPURR) to modify Decision (D.) 97-12-032 (Petition) to require Pacific Gas and Electric Company (PG&E) to offer natural gas aggregators serving core customers an assignment of a proportionate share of the gas transmission capacity on the Canadian pipelines known as ANG and NOVA at the "as-billed" rate.

Over the last year, the extreme volatility in the market price for gas transportation on these pipelines has threatened to destabilize the 6 percent of the core natural gas market served by core aggregators. For example, gas transportation costs on the ANG and NOVA pipelines in December 2000 rose to a market price of $9.18 per Dth, - a 35-fold increase in cost from the "as-billed" rate of $.26 per Dth that PG&E's customers paid. The remedy sought by ABAG POWER and SPURR, an assignment of transmission capacity at the "as-billed" rate, will introduce a measure of certainty and stability to the costs of transporting gas from Canadian basins.

Granting core aggregators an assignment of transmission capacity will produce positive benefits for all core customers. In particular, it will help preserve customer choice for all customers, it will stabilize the operations of a diverse set of gas suppliers and purchasers now operating in the core market, and it may result in reduced prices to the customers of core aggregators. Although granting core aggregators an assignment of ANG and NOVA capacity last year would have resulted in price increases to core customers of about 1 percent, this is a reasonable cost for stabilizing this sector of the gas supply market. Moreover, market conditions this year should cause this new policy to produce no increased prices to core customers.

Finally, we adopt a series of restrictions on those seeking an assignment of gas transportation capacity on the ANG and NOVA lines to ensure that regulations will stabilize the gas market without subsidizing the provision of gas by core aggregators. In particular, as a condition for receiving an assignment of ANG or NOVA capacity, a core aggregator must make a one-year commitment to capacity on the ANG and NOVA pipelines, renewable upon expiration through the end of the Gas Accord. Moreover, the assignment of capacity is limited to the average gas taken in the year ending June 1, 2001, the year preceding the filing of the petition. There will be no allocation of ANG and NOVA capacity to new core aggregators.