Phase II Issues: SoCalGas

The following parties filed briefs: Cabrillo, California Cotton Ginners and Growers Associations (CCGGA) and Agricultural Energy Consumers Association (AECA), Calpine, Indicated Producers, ORA, Questar Southern Trails Pipeline Company (Southern Trails), SCGC, SoCalGas, and TURN.

Much of the documentary and testimonial evidence presented in Phase II focused on concepts for system planning that were substitutes for those advanced in the CSA adopted in D.01-12-018. Almost all of the participating parties testified that they preferred the unbundled approach the CSA promoted, and only proposed less favored suggestions in this proceeding in the event the CSA was not adopted. With the issuance of D.01-12-018 in the GIR, many of the SoCalGas system planning issues from Phase II were rendered moot.

For purposes of this proceeding, the most important change the GIR made for SoCalGas was to create a structure of unbundled, firm, and tradable backbone transmission rights on its system that eliminated the need to consider receipt point capacity allocation. In addition, the GIR provided the following: 1) established a secondary market for intrastate transmission capacity; 2) made SoCalGas at risk for recovery of backbone transmission costs; 3) designated Hector Road as the formal receipt point on SoCalGas' system at which nominations may be made; 4) created firm tradable storage rights with a secondary market for trading those rights; 5) provided for core and noncore customer classes to be balanced separately with no cross-subsidizations; 6) established anonymous monthly imbalance trading; 7) provided for the trading of Operational Flow Order imbalance rights; 8) reduced minimum size requirements and eliminated core market share restriction of the Core Aggregation Transmission program; and 9) eliminated core subscription service.

We must still establish planning criteria and reliability standards for SoCalGas. SoCalGas seeks authorization to plan its backbone transmission system to maintain 15 to 20% annual average slack capacity relative to gas demand under an expected normal weather, normal hydro forecast, as it does now. This plan would supplement SoCalGas' existing 1-in-35 cold year core and 1-in-10 cold year core plus noncore firm service planning standards for local transmission and storage facilities. SoCalGas suggests that the slack capacity should be used for planning purposes, and not as a "specific target to be achieved." Noncore service, SoCalGas argues, has never been designed to be completely uninterruptible.

ORA does not see a need for the Commission to adopt more stringent planning criteria or reliability standards for SoCalGas at this time. Since SoCalGas' system is now unbundled, noncore customers are responsible for determining their individual firm capacity requirements based on their own planning criteria. ORA contends that if noncore customers value enhanced reliability, they can determine how much additional cost for the reliability is justified. If SoCalGas does not have enough capacity to meet noncore intrastate capacity, SoCalGas can determine firm demand by holding an open season, structured like those of the interstate pipelines and PG&E.

TURN argues that the record does not support the adoption of any specific reliability standard, especially the 15-20% slack capacity SoCalGas seeks. TURN advocates uniform standards for system planning for all the utilities on a statewide basis. TURN recommends SoCalGas hold open seasons for noncore customers for capacity expansions and require long-term contracts to recover costs.

Cabrillo proposes making the 1-in-10 reliability standard for noncore peak demand more stringent, in recognition of the benefits to the system and to all customers of adequate transportation capacity. Specifically, Cabrillo wants reliability criteria that meet electric demand during adverse hydro conditions and a slack capacity of 15 to 20%. Cabrillo suggests that a more stringent reliability standard is especially necessary now since the GIR obviates SoCalGas' responsibility to provide firm service on its local transmission and distribution systems to customers who purchase firm receipt point capacity.

Calpine opposes any modification of existing Commission policies that would mandate that SoCalGas maintain any level of excess backbone transmission capacity and instead urges the Commission to continue its policies that permit market forces to drive expansions to the system. Calpine opposes adopting a 15 to 20% excess capacity on the ground that excess intrastate capacity is anti-competitive and will ultimately harm ratepayers.

SCGC proposes a reliability standard that reflects adverse weather conditions, not normal conditions as advocated by SoCalGas, and includes a 15 to 20% slack capacity factor. SCGC suggests that the cost and benefits of this standard can be addressed in the next BCAP proceeding.

Similar to our determinations for SDG&E, we adopt a system planning criteria for SoCalGas of 1-in-10 for noncore customers, and we maintain a 1-in-35 for core customers for local transmission. When open seasons are held in combination with maintaining a 1-in-35 criteria for core and the 1-in-10 criteria for noncore, SoCalGas can use the open season bids to plan expansions of its backbone capacity connected to the receipt points that are fully subscribed.

This planning standard should ensure all SoCalGas customers of adequate transportation capacity, without burdening any customers with the cost of maintaining excess slack capacity. We forecast that SoCalGas will have ample capacity to serve all customer demand under normal conditions through 2006. This forecast is based on the utility's projections for gas demand through 2006, as well as on the predictions that gas demand will decrease, transmission and storage capacity will rise, and gas fired power plants will be more efficient. Therefore, the possibility of curtailments on SoCalGas's system is unlikely.

The GIR instructs SoCalGas to make new capacity from recent expansions available through open seasons. Open seasons, a vehicle to determine the need, timing, and location of capacity additions, were advocated by numerous parties including ORA, TURN, Cabrillo, Calpine, and Southern Trails. ORA and Calpine favor open seasons as the best means for determining the need for additional intrastate capacity. TURN agrees with ORA and Calpine, but with the caveat that capacity planning for core customers should be continued through the regulatory process. Cabrillo sees open seasons as a supplement to the planning process, not as a replacement for it. Southern Trails proposes that SoCalGas hold an open season to determine incremental capacity needs and to identify customers who value this additional capacity and thereby properly allocate it.

SCGC was the only party opposing open seasons. SCGC's contends that open seasons should not be a substitute for appropriate planning criteria. SCGC believes the bidding process that takes place during an open season fails as an indicator of the appropriate size for the system, whereas maintaining a 15 to 20% slack capacity in excess of adverse weather conditions will insure effective gas-on-gas competition.

Open seasons can test the need for further expansions beyond those indicated by application of the planning criteria and can attract customers-by offering them flexible terms and conditions and tradable rights to capacity. Open seasons can be a useful source of information about customers' plans, but should not serve as a substitute for thoughtful system planning. When open seasons are held in combination with maintaining a 1-in-35 criteria for core and the 1-in10 criteria for noncore, SoCalGas can use the open season bids to plan expansions of its backbone capacity connected to the receipt points that are fully subscribed.

The GIR provides for parallel treatment of backbone transportation and storage, including the unbundling of transportation and storage service, creation of firm, tradable rights for transportation and storage, and development of secondary markets for transportation and storage.

The GIR, by creating firm rights at receipt points, and adding Hector Road as a new receipt point on the SoCalGas system, addressed the interstate pipeline issues.

SoCalGas seeks approval of four A.L.: A.L. 2929, filed June 21, 2000; A.L. 2966, filed October 12, 2000; A.L. 3002, filed March 7, 2001; and A.L. 3029, filed June 7, 2001. The Energy Division reviewed the A.L.s, the protests and responses, and determined that the A.L.s all related to capacity issues that were the subject of this proceeding. Therefore, no action was taken on the A.L.s while this OII was open, and they will be resolved in this decision.

A.L. 2929

A.L. 2929 is a request for approval of an open season that was held in July 2000, for allocation of firm transmission service to the SDG&E system under SoCalGas' Schedule Nos. GW-SD and GT-SD. Only SDG&E and GR submitted bids in the open season. The combined requested monthly maximum demand quantities for SDG&E and GR were in excess of the available capacity for January, February, October, November, and December. Consequently, the capacities for those months were subjected to pro rata allocation to ensure that the total capacity awarded did not exceed the delivery capacity of the SoCalGas system.

Otay Mesa Generating Company protested the A.L. because it is constructing a 510-megawatt EG plant in SDG&E's service territory, which it expects to have in operation by Spring of 2003.

SoCalGas withdrew this A.L. on July 1, 2002.

A.L. 2966

A.L. 2966 requests approval of an amendment to a Service Agreement between SoCalGas and SDG&E for long-term firm transmission service under Rate Schedule GW-SD. Under this amendment, SoCalGas will expedite construction of two phases on Line 6900 to be completed by Summer 2001 that will add 70 mmcfd of capacity to Line 6900. SDG&E will pay $5.1 million dollars per year for 10 years as an incremental facilities charge (IFC) in addition to any applicable rates and surcharges for interstate transmission service.

ORA protested this A.L. on the basis that the Line 6900 expansion is part of SoCalGas' Commission approved Transmission Resource Plan as a common-use facilities expansion. In the last BCAP, the Commission adopted a Joint Recommendation that included an $18 million investment cost for Line 6900 and said that it was designed to meet load growth expansion on both the SoCalGas and SDG&E systems and is appropriately treated as common-use facilities. ORA recommends that construction commence and that the "deal" between the Sempra affiliates be examined in this OII.

SCGC protested the A.L. because the contract amendment states that if the CSA is adopted in the GIR, SDG&E will pay the IFC, but if not, the utilities will advocate that Line 6900 be treated as a common-use facility. Since the CSA was adopted in the GIR, SCGC's protest is moot.

Dynergy Marketing & Trade (Dynergy) and PG&E NEG filed comments. Dynergy supports the expansion but is concerned about one Sempra affiliate [SDG&E] paying the costs of a line expansion of another affiliate [SoCalGas] made necessary by the service requested by still another affiliate [GR] and the potential to shift the costs of the extension to SDG&E ratepayers. Dynergy fears that the incremental service contemplated by this A.L. may have the effect of assigning a lower priority to current firm service customers and urges the Commission to examine this issue in the OII.

PG&E NEG recommends that the A.L. be approved with the condition that SDG&E be ordered to temporarily modify Rule 14.16 PG&E NEG does not believe charging a pro rata share of IFC to a SDG&E EG customer is consistent with the Commission's Sempra-wide rate policy.

SDAPCD and SDG&E support SoCalGas' A.L. 2966.

We direct SoCalGas to withdraw A.L. 2966, because we are addressing the cost issues associated with the expansion of Line 6900 in this decision. Line 6900 is a common-use facility of both SoCalGas and SDG&E and all customers on both systems benefit equally, and should pay equally. The cost allocation of expenses relating to the expansion of Line 6900 is discussed in Section IV, Ratemaking Issues.

A.L. 3002

A.L. 3002 requests approval to implement the results of an open season for firm transportation service which was held for noncore and noncore-eligible customers in the area of SoCalGas' system south of Niland Station (Line 6902) in Southern Imperial Valley. This request proposes deviations from Tariff Schedule No. GT-F, Firm Intrastate Transmission Service; Schedule No. GN-10, Core Service for Small Commercial and Industrial; and Rule No. 23, Continuity of Service and Interruption of Delivery, based on the results of the open season. Capacity was pro rated for months that were oversubscribed. SoCalGas first set aside capacity for core customers and Distribuidora de Gas Natural de Mexicalli (DGN), a Sempra affiliate, who is increasing usage this year under an existing contract agreement.

Imperial Irrigation District (IID), CMTA, and CCGGA filed protests. IID and CMTA protest on the basis that SoCalGas denied on-system Imperial Valley customers their tariffed right to elect firm full requirements service without seeking or getting any prior approval or authorization from the Commission. CCGGA protests on the basis that SoCalGas is seeking to eliminate full requirements service and none of the remaining options offered by SoCalGas under the open season will benefit its members.

Although the request presented in A.L. 3002 is not directly addressed by the GIR, the GIR does unbundle backbone and local gas transmission systems, and establish open seasons for SoCalGas. Therefore, the Commission determines that A.L. 3002 is no longer timely. We direct SoCalGas to withdraw A.L. 3002.

A.L. 3029

A.L. 3029 requests approval to implement the results of an open season for firm transportation service that was held for noncore and noncore-eligible customers in the San Joaquin Valley (Line 7000). The A.L. requests deviations to Tariff Schedules GT-F, Firm Intrastate Transmission Service; GN-10, Core Service for Commercial and Industrial Service; and Rule No. 23, Continuity of Service and Interruption of Delivery.

Protests were filed by CCGGA, Tule River Cooperative [cotton ginners and prune dryers], AECA and SCGC. Protestors argue that the tariff deviations requested by SoCalGas are violations of Code Sections 454 and 455 since SoCalGas is attempting to subject them to use-or-pay charges. SCGC further argues that this A.L. should be rejected because SoCalGas is taking two inconsistent positions: the tariff allows them to not offer full requirements service, yet the A.L. asks the Commission to excuse them from having to offer full requirements service.

As with A.L. 3002, the Commission finds that A.L. 3029 is no longer timely and we direct SoCalGas to withdraw the A.L. and redraft it in light of the GIR. At the conclusion of the open season, customers should be allocated capacity to their firm full requirement service level of the past 12 months. Any additional capacity that has been bid should be allocated to current customers, current customers needing incremental new load, and new customers, respectively.

The GIR/CSA addresses numerous issues that affect and are related to local transmission system expansion.

The GIR/CSA specifically eliminates the SIC for SoCalGas.17

The allocation of receipt point capacity is one of the key issues addressed in the CSA. Now that the CSA has created a system of unbundled, firm, and tradable backbone transmission rights on the SoCalGas system, all other proposals are superceded.

The CSA states that SoCalGas' rates cannot change until 2006. However, in this decision we can determine the allocation of costs for Line 6900.

The history of the expansion of Line 6900 and the competing positions on the appropriate cost allocation is set forth in great detail in D.98-03-073. Prior to the 1993 BCAP, Line 6900 was treated as an exclusive use facility of SDG&E and it was assigned 100% of the costs. In the 1993 BCAP, the Commission approved a joint recommendation of SoCalGas, SDG&E, and ORA that treated Line 6900 as a common-use facility.

Line 6900 is part of an integrated system that serves SoCalGas' retail customers in Riverside County and SDG&E as a wholesale customer. The question is who should pay for this line expansion. Should the costs for the Line 6900 be treated as a common transmission facility and allocated equally among all customers of SoCalGas, including SDG&E; allocated only to SDG&E customers; or allocated exclusively to SDG&E's noncore customers. The issue of cost allocation is controversial because at the time Line 6900 was designed and built it was projected to serve a shortage of capacity on SDG&E's system. However, the Commission has since determined, in two previous decisions, that Line 6900, benefits all SoCalGas customer-including SDG&E and its customers.

ORA and TURN fear, however, that large noncore customers, primarily the EGs, will leave Line 6900 when the Baja Norte pipeline project is completed in a few years, and then EG customers will no longer pay for Line 6900. Instead, ORA and TURN contend that captive ratepayers will be subsidizing this line expansion that will provide no benefit to them in the foreseeable future. In fact, ORA and TURN recommend that Line 6900 be priced incrementally and recovered from SDG&E's noncore customers through a surcharge that amortizes the capital cost over a 12-month period.

In D.00-04-060, the Commission approved a settlement treating the Phase 3 and 4 costs of the Line 6900 expansion as common costs paid by all customers on an equal cents per therm basis. Parties raised the same arguments in that proceeding against treating the expansion costs as common costs as they did in the instant proceeding. The Commission considered the competing positions. In D.00-04-060, the Commission determined that the expansion of Line 6900 is designed to serve new SoCalGas customers as well as additional wholesale demand from SDG&E, including service to Rosarito. Since the facilities are designed to meet load growth on both the SoCalGas and SDG&E systems they are appropriately treated as common facilities and should be included in the SoCalGas resource plan (D.00-04-060, mimeo., pp. 43, 44). We will not change that policy here. Line 6900 is a common facility and the costs are to be allocated on an equal-cents per therm basis, across both SoCalGas' and SDG&E's service territories, and for all customers.

The three A.L.s are all moot or no longer timely because of the passage of time or the issuance of the GIR decision. The ratemaking issue for Line 6900 is resolved in this decision by the finding that the line expansion is a common facility and the costs are to be allocated equally across SoCalGas' and SDG&E's service territories.

16 This issue is moot since the Commission prescribed changes to Rule 14, curtailment protocols, in the Interim Decision, D.01-06-008, issued June 7, 2001. 17 Section 1.1.3.4 of the CSA, adopted with modifications, in the D.01-12-018.

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