ALTERNATE DRAFT 1a
8/8/02
COM/CXW/mnt * Agenda ID #676
(Alternate to Agenda ID #668)
Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD
Mailed 5/24/2002
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Investigation into the Natural Gas Procurement Practices of the Southwest Gas Company. |
Investigation 01-06-047 (Filed June 28, 2001) |
Andrew Wilson Bettwy and Bridget A. Branigan, Attorneys at Law; Leboeuf Lamb Greene & MacCrae, by Christopher Hilen, Attorney at Law, for Southwest Gas Corp., respondents.
Charles Scolastico, Attorney at Law, Kresse Armour, Lori D. Panzino, interested parties.
Marion Peleo, for Legal Division, Jacqueline Greig, for Office of Ratepayer Advocates, and Marshall Riley, for Assembly Phil Wyman.
Title Page
DECISION FINDING SOUTHWEST GAS'S PROCUREMENT PRACTICES
FROM JUNE 1, 1999 TO MAY 31, 2001 UNREASONABLE 2
Summary 2
Background 2
Procedural Background 4
The Standard for Prudent Managerial Action 5
Issue 1: Were the Actions of Southwest Prudent? 8
Southwest: Gas Procurement was Reasonable 8
ORA: Southwest's Failure to Store Gas was Imprudent 13
County: Failure to Store Gas was Imprudent and Risky 15
Discussion - Flaws in Southwest's Gas Purchasing Policy
Constitute Imprudent Action 19
Issue 2: What is the Appropriate Level of Disallowance that Should
Result from Southwest's Actions? 26
ORA - Disallow $7,269,315 26
County - Disallow $11.7 Million 27
Southwest - Proposed Disallowances of ORA and County are Methodologically Flawed and Unreasonable 27
Discussion: Disallowance Should Be $5.77 Million; Rebates due to Customers Based on Consumption in Winter 2000-01. 29
Other Issues Raised in the Proceeding 31
Did Southwest Take Adequate Steps to Aid its Customers
During the Crisis Period? 31
Should the Commission Order a Core Procurement Incentive
Mechanism for Southwest? 32
What other Steps should Southwest Take Concerning the
Procurement of Gas and the Use of Storage? 33
County's Motion to Strike Portions of Southwest's Reply Brief
or to Set Aside Submission for Taking Additional Evidence 37
Findings of Fact 39
Conclusions of Law 42
ORDER 44
DECISION FINDING SOUTHWEST GAS'S PROCUREMENT PRACTICES
FROM JUNE 1, 1999 TO MAY 31, 2001 UNREASONABLE
Summary
We determine that the failure of Southwest Gas (Southwest) to either use its gas storage or to secure contracts for winter delivery of gas at rates equivalent to the cost of gas that could have been stored during the summer of 2000 constitutes an imprudent managerial action. This makes a portion of Southwest's costs incurred in acquiring gas unreasonable.
It is not possible to precisely reconstruct the way in which Southwest would have deployed a reasonable storage or other hedging strategy. Thus, we cannot declare that one particular level of storage capacity utilization would be reasonable, while another would not. What is clear is that Southwest did not deploy a hedging strategy to protect against the type of price volatility that occurred during the 2000-2001 winter period. This led to higher gas costs over this period than are reasonable.
As a surrogate for reasonable storage deployment, we use an average of Southwest's practices in the five preceding years and assume that Southwest would have injected sufficient gas to fill 82% of its available storage capacity. Using a gas cost methodology proposed by the Office of Ratepayer Advocates, we therefore disallow the recovery of $5,799,067 in gas acquisition costs that Southwest should refund to their customers in proportion to their use of gas during the October-March 2000-2001 heating season.
