APPENDIX A to A0110011
APPENDIX A to A0110011

ALJ/JSW/avs DRAFT Agenda ID #3004

Ratesetting

12/18/2003 Item 59

Decision PROPOSED DECISION OF ALJ WONG (Mailed 11/18/2003)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company Proposing a Market Structure and Rules for the Northern California Natural Gas Industry for the Period Beginning January 1, 2003 as Required by Commission Decision 01-09-016. (U 39 G)

Application 01-10-011

(Filed October 8, 2001)

OPINION REGARDING THE GAS STRUCTURE AND RATES
FOR PACIFIC GAS AND ELECTRIC COMPANY FOR 2004

TABLE OF CONTENTS

Title Page

I. Summary 2 2

II. Background 3 3

III. 2004 Gas Structure and Beyond 6 6

A. Summary of the Proposals 6 6

B. Continuation of the Gas Accord Structure 8 8

1. Introduction 8 8

2. Positions of the Parties 9 9

a. PG&E 9 9

b. California Cogeneration Council and Calpine Corporation 14 14

c. California Manufacturers and Technology Association 16 16

d. Canadian Association of Petroleum Producers 17 17

e. City of Palo Alto 18 18

f. Department of General Services 19 19

g. Duke 19 19

h. Indicated Producers 20 20

i. Lodi Gas Storage, L.L.C. 20 20

j. Mirant 21 21

k. Northern California Generation Coalition 21 21

l. Office or Ratepayer Advocates 22 22

m. The Utility Reform Network 24 24

C. Discussion 28 28

IV. Winter Reliability Standard and Winter Firm Capacity Requirement 35 35

A. Introduction 35 35

1. Winter Reliability Standard Proposal 36 36

2. Facility Requirements to Support the Winter Reliability Standard 37 37

a. Central Backbone Improvements 37 37

b. Local Transmission Improvements 37 37

c. Backbone Transmission 38 38

d. PG&E Storage 38 38

3. Core Winter Firm Capacity Requirement 39 39

B. Other Proposals 41 41

C. Positions of Parties 41 41

1. Lodi Gas Storage 41 41

Title Page

V. Transmission Services 56 56

A. Background 56 56

1. Current Structure for Local Transmission Services 57 57

2. Current Structure for Backbone Transmission Services 57 57

a. Paths 58 58

b. Firm and as Available Rights 58 58

c. Delivery Points 59 59

d. Standard Service 59 59

e. Negotiated Service 60 60

f. Discounting 61 61

3. Proposals 61 61

a. Basic Backbone Transmission Services Structure 61 61

b. Basic Local Transmission Services Structure 62 62

c. Long-Term Firm Backbone Contracts 62 62

d. Commensurate Discount Rule 63 63

e. Scheduling Non-Performance 65 65

f. Bypass Transportation Charge Proposal 66 66

(1) Introduction 66 66

(2) Potential Bypass of Local Transmission Charge 66 66

(3) Potential Bypass of Backbone Transmission Charge 67 67

(4) Bypass Charge Proposal 67 67

4. Other Proposals Affecting Transmission 69 69

B. Positions of the Parties 70 70

1. CCC/Calpine 70 70

a. Bypass Proposal 70 70

b. Long-Term Contracts 71 71

2. CMTA 72 72

3. California Natural Gas Producers Association 72 72

a. Bypass Proposal 77 77

b. Long-term Contracts 80 80

c. Other Issues 82 82

C. Discussion 83 83

Title Page

1. Basic Backbone Transmission Services 83 83

2. Basic Local Transmission Services 83 83

3. Long-Term Firm Backbone Contracts 84 84

4. Commensurate Discount Rule 85 85

5. Scheduling Non-Performance 86 86

6. Bypass Transportation Charge Proposal 87 87

VI. Storage Services 88 88

A. Introduction 88 88

B. Proposals 90 90

1. Assignments of Firm Storage Rights 90 90

2. Core Firm Storage Service 91 91

a. Basic Storage Services 91 91

b. Injection and Withdrawal Profiles for CFS 92 92

c. Firm Counter-Cyclical Storage Rights for CFS 93 93

3. Standard Firm Storage Service 94 94

a. Basic Storage Services 94 94

b. Injection and Withdrawal Profiles for SFS 96 96

4. Long-term Firm Storage Contracts 98 98

5. Negotiated Firm and As-Available Services 98 98

6. Hub Services 99 99

7. Storage Shrinkage 99 99

C. Position of the Parties 99 99

D. Discussion 106 106

1. Assignments of Firm Storage Rights 106 106

2. Core Firm Storage Service 107 107

a. Basic Storage Services 107 107

(1) Firm Storage Injection, Inventory, and Withdrawal
Profiles for Core Firm Storage 108 108

(2) Firm Counter-Cyclical Storage
Rights for Core Firm Storage 110 110

3. Standard Firm Storage Service 110 110

a. Basic Storage Services, Non-Cycle
Working Gas, and Compression 110 110

(1) Firm Storage Injection, Inventory and Withdrawal
Profiles for Standard Firm Storage 113 113

Title Page

(2) Firm Counter-Cyclical Storage Rights
for Standard Firm Storage Service 114 114

4. Long-Term Firm Storage Contracts 115 115

5. Storage Shrinkage 116 116

VII. Contract Extension and Open Season 116 116

A. Background 116 116

1. Summary of Proposed Contract Extension Process 116 116

2. Summary of Proposed Open Season Process 118 118

3. Participation of PG&E Department in the Open Season 119 119

4. Other Proposals 120 120

B. Position of the Parties 120 120

1. CCC/Calpine 120 120

2. DGS 122 122

3. NCGC 123 123

4. PG&E 124 124

C. Discussion 126 126

VIII. Operations and Balancing 129 129

A. Background 129 129

1. Operational Overview 130 130

2. Operations and Balancing Under the Gas Accord 131 131

3. Balancing Services Proposals 132 132

a. Background 132 132

b. Additional Storage Capacity 132 132

c. Daily Imbalance Limit 133 133

d. Monthly Excess Imbalance Charge 134 134

e. California Gas Production 135 135

f. Measuring OFO and EFO Compliance by
Core Procurement Groups 136 136

4. Nomination Scheduling Process Proposal 137 137

5. Supply Shortfall Proposals 138 138

a. Curtailment Process Proposal 138 138

b. Local Curtailment Noncompliance Charge 141 141

6. Shrinkage Proposals 142 142

a. Adjustment of Shrinkage Proposal 142 142

b. Storage Shrinkage Proposal 144 144

7. Noncompliance Charge Proposal 145 145

8. Anonymous Trading Platform Proposal 146 146

B. Positions of the Parties 147 147

1. CCC/Calpine 147 147

a. Curtailment Proposal 147 147

Title Page

b. Daily Imbalance Proposal 148 148

2. CMTA 148 148

3. California Natural Gas Producers Association 151 151

4. Coalinga 154 154

5. DGS 154 154

6. Duke 155 155

7. Indicated Producers 156 156

8. LGS 160 160

9. Mirant 164 164

10. NCGC 165 165

a. Additional Storage Capacity 165 165

b. Daily Imbalance Limit 168 168

c. Imbalance Charge 168 168

d. Curtailment Process 171 171

11. ORA 171 171

12. Palo Alto 172 172

13. SPURR/ABAG 173 173

14. Wild Goose 173 173

15. PG&E 175 175

C. Discussion 184 184

1. Balancing Service Proposals 184 184

a. Additional Storage Capacity 184 184

b. Daily Imbalance Limit For the Monthly Balancing Option 187 187

c. Disposition of Monthly Imbalances 187 187

d. OFO Obligations for California Gas Production 189 189

e. Measuring Core Procurement Groups' Compliance 192 192

2. Bumping Proposal 193 193

3. Supply Shortfalls and Capacity Constraints Proposals 193 193

a. Diversion or Curtailment 193 193

b. Local Curtailments 194 194

4. Shrinkage Proposals 196 196

5. Noncompliance Charges Proposal 197 197

6. Anonymous Trading Platform Proposal 198 198

IX. Operating and Maintenance Exenses 198 198

A. Summary of O&M Expenses 198 198

B. Positions of the Parties 200 200

Title Page

C. Discussion 205 205

X. Capital Expenditures 208 208

A. Summary of Capital Expenditures 208 208

B. Positions of the Parties 211 211

1. CCC/Calpine 211 211

C. Discussion 216 216

1. Introduction 216 216

2. Non-Cycle Working Gas 217 217

3. Pipeline Safety Act 218 218

4. Winter Reliability Standard 218 218

5. Reduction In Metering Costs and
Power Plant Connections Costs 219 219

6. Gerber Compressor Station 220 220

7. Conclusion 222 222

XI. Cost of Service 222 222

A. Summary of Cost of Service 222 222

B. Discussion 224 224

XII. Demand Forecast 226 226

A. Summary of Demand Forecast 226 226

B. Position of the Parties 228 228

1. CCC/Calpine 228 228

C. Discussion 238 238

XIII. Cost Allocation and Rate Design 240 240

A. Summary 240 240

1. Backbone Transmission Cost Allocation and Rate Design 241 241

a. Gas Accord Period 241 241

(1) Cost of Service and Cost Allocation 241 241

(2) Rate Design 242 242

b. 2004 Cost Allocation and Rate Design Proposal 243 243

Title Page

2. Storage Cost Allocation and Rate Design 245 245

a. Gas Accord Period 245 245

b. 2004 Proposals 247 247

(1) Introduction 247 247

(2) Core Firm Storage Service 248 248

(3) Standard Firm Storage and Market Storage Services 248 248

(4) Load Balancing and Self-Balancing Services 249 249

3. Local Transmission Cost Allocation and Rate Design 249 249

a. Gas Accord Period 249 249

b. 2004 Proposals 250 250

(1) Core and Core Wholesale 250 250

(2) Noncore 251 251

4. Other End User Rate Components 253 253

a. Customer Access Charge 253 253

(1) Gas Accord Period 253 253

(2) 2004 Proposal 254 254

b. Customer Class Charge 254 254

c. Transmission-level Eligibility Criteria 255 255

d. Distribution Rates 257 257

(1) Allocation of Distribution-level Costs 257 257

(2) Balancing Account Protection 258 258

5. Single Electric Generation Class 258 258

a. Gas Accord Period 258 258

b. 2004 Proposal 260 260

6. Other Proposals 263 263

B. Backbone Transmission Cost Allocation and Rate Design 263 263

1. Roll-In Of Noncore Redwood Path Costs 263 263

a. Position of the Parties 263 263

(1) CCC/Calpine 263 263

b. Discussion 278 278

2. Load Factor and Design Capacity 286 286

a. Position of the Parties 286 286

(1) CCC/Calpine 286 286

Title Page

b. Discussion 299 299

C. Storage Cost Allocation and Rate Design 310 310

1. Discussion 310 310

D. Local Transmission 312 312

1. Four-Tier Noncore Proposal and
Backbone-Level Rate Structure 312 312

a. Position Of The Parties 312 312

(1) CCC/Calpine 312 312

(2) Coalinga 324 324

(3) Duke 326 326

(a) Backbone-Level Rate Structure 326 326

(b) Four-Tier Rate Proposal 338 338

(8) Palo Alto 346 346

(9) Sacramento Municipal Utility District 349 349

(10) TURN 353 353

(a Backbone-Level Rate Structure 353 353

(b) Four-Tier Rate Proposal 355 355

(11) PG&E 359 359

b. Discussion 365 365

E. Other End-User Rate Components 372 372

1. Customer Access Charge 372 372

a. Position of the Parties 372 372

(1) Department of General Services 372 372

(2) Mirant 372 372

(3) NCGC 373 373

(4) PG&E 375 375

b. Discussion 375 375

2. Customer Class Charge 378 378

a. Position of the Parties 378 378

(1) TURN 378 378

b. Discussion 378 378

Title Page

3. Transmission - Level Eligibility Criteria 380 380

a. Discussion 380 380

4. Balancing Account Protection Proposal 380 380

a. Position of the Parties 380 380

(1) Duke 380 380

b. Discussion 381 381

F. Single Electric Generation Class 382 382

a. Position of the Parties 382 382

(1) CCC/Calpine 382 382

(2) DGS 386 386

(3) NCGC 387 387

(4) RealEnergy 388 388

(5) PG&E 389 389

b. Discussion 390 390

XIV. Contingency Rate Adjustments 395 395

A. Summary of Proposals 395 395

B. Position of the Parties 398 398

1. NCGC 398 398

2. ORA 399 399

3. PG&E 399 399

C. Discussion 400 400

XV. PG&E Procurement Policy and Core Procurement Services 402 402

A. Summary 402 402

1. Proposals 402 402

a. Winter Firm Capacity Requirement Proposal 402 402

b. CPIM Proposal 403 403

c. Reliability Planning Proposal 404 404

d. Tariff Change Proposal 406 406

2. Other Proposals 407 407

B. Position of the Parties 407 407

1. SPURR/ABAG 407 407

2. TURN 410 410

3. PG&E 410 410

C. Discussion 412 412

XVI. Core Aggregation Transportation Service 416 416

A. Summary 416 416

1. Winter Firm Capacity Requirement Proposal 417 417

2. Transportation Capacity Proposal 418 418

3. Core Firm Storage Proposal 419 419

4. Core Aggregation Growth Proposal 420 420

Title Page

5. Information Proposal 420 420

B. Position of the Parties 421 421

1. SPURR/ABAG 421 421

2. TURN 427 427

3. PG&E 428 428

C. Discussion 430 430

1. Winter Firm Capacity Requirement Proposal 430 430

2. Transportation Capacity Proposal 430 430

3. Core Firm Storage Proposal 433 433

4. Core Aggregation Growth Proposal 434 434

5. Information Proposal 434 434

XVII. Interconnection Services 435 435

A. Proposals 435 435

1. Gas Rule 27 Proposal 435 435

2. Off-System Direct Connect Proposal 437 437

B. Position of the Parties 438 438

1. CCC/Calpine 438 438

C. Discussion 449 449

1. Gas Rule 27 Proposal 449 449

2. Off-System Direct Connect Proposal 450 450

XVIII. California Gas Transmission Risk Management Program 453 453

A. Summary 453 453

B. Discussion 455 455

XIX. Future Gas Market Structure and Rate Filings 457 457

XX. Conclusion 458 458

XXI. Comments on Proposed Decision 459 459

XXII. Assignment of Proceeding 459 459

Findings of Fact 460 460

Conclusions of Law 472 472

APPENDIX A
APPENDIX B

OPINION REGARDING THE GAS STRUCTURE AND RATES FOR
PACIFIC GAS AND ELECTRIC COMPANY FOR 2004

I. Summary

Pacific Gas and Electric Company (PG&E) filed the above-captioned application on October 8, 2001. PG&E's application requested that the Gas Accord¹ structure and rates for its gas transmission and storage system be extended for two more years (through the end of 2004) pending the resolution of PG&E's bankruptcy filing.

In Decision (D.) 02-08-070, we approved a settlement by the parties which extended the Commission-approved market structure, rates, tariffs, and terms and conditions of service for PG&E's transmission and storage system by one year. Under the settlement, the market structure for PG&E's gas transmission service was extended for the period from January 1, 2003 to December 31, 2003, and PG&E's gas storage service was extended for the period from April 1, 2003 to March 31, 2004. Due to the adoption of the settlement, the issues regarding the gas structure and rates for the period beginning January 1, 2004 were unresolved.

Today's decision resolves the gas market structure, rates, and terms and conditions of service for PG&E's natural gas transmission and storage system for 2004. PG&E and the other parties proposed for resolution a number of structural and policy issues, as well as cost and rate design issues. Appendix B of the decision lists a matrix of the issues addressed in today's decision.

PG&E proposed a $453,736,000 revenue requirement for 2004 for its gas transmission and storage systems.² PG&E's proposed revenue requirement represents an increase of 7% over the Gas Accord revenue requirement for 2003 of $423,923,000 million. Today's decision adopts a revenue requirement for 2004 of $436,397,000.³ The adopted revenue requirement represents an increase of 2.94% over 2003 gas transmission and storage rates of $423,923,000.

Today's decision also addresses the various cost allocation and rate design proposals of PG&E and the other parties. Since this decision adopts a cost allocation and rate design methodology that is very similar to what was contained in the Gas Accord, gas transmission and storage rates and charges will rise slightly, reflecting the 2.94% increase in the revenue requirement.

¹ The Gas Accord market structure and rates for PG&E were originally approved in the Gas Accord Settlement Agreement that was adopted in D.97-08-055 [73 CPUC2d 754]. That settlement, and the time period covered by the settlement (through December 31, 2002), is commonly referred to as the "Gas Accord." In addition to the market structure and rates, the settlement addressed PG&E's role in gas procurement for core customers, as well as a number of issues concerning the Line 401 project. Certain provisions of the Gas Accord were modified by D.00-02-050 and D.00-05-049. ² PG&E had originally requested $478,759,000 as its revenue requirement for 2004. This request was based in part on a higher rate of return that PG&E was seeking to litigate in this proceeding. The February 14, 2003 ALJ ruling granted a motion to strike PG&E's cost of capital testimony from being litigated in this proceeding, and stated that "the parties can use the cost of capital established in D.02-11-027 as a placeholder until a decision on the cost of capital for test year 2004 is rendered. ³ The adjustments to PG&E's revenue requirement request, to arrive at the adopted revenue requirement, are shown in Appendix A of this decision.