V. Discussion

The proposed open season raises numerous policy questions that the Commission must address, however, the necessity of addressing each of the relevant issues prior to approval of the open season is questionable.

While we appreciate the parties' desire for certainty, we will not deny PG&E's application. We believe it is appropriate to allow PG&E to continue its current open season while we consider its Gas Accord II proposal. We believe that PG&E's stated goals of providing its customers with options to compare against the offerings of interstate pipelines and determining to need for intrastate capacity additions are worthwhile goals that we should support.

We acknowledge that this will leave potential bidders in the position of considering long-term business arrangements when they do not know precisely the conditions that will apply. However, we note that this is not an unusual situation. As PG&E points out in its comments, parties have previously signed 30-year G-XF (Line 401) contracts with PG&E where the rates have been subject to change with each rate case, and a number of parties have signed pre-Gas Accord EAD contracts for 15 years at contract-specific prices.

We note that, in the absence of the Gas Accord II filing and the deliberative process that will accompany that proceeding, the approval granted today allows PG&E to continue with its open season, but defers approval of the specific open season procedures. We anticipate that PG&E will file applications for approval of any long-term contracts awarded under the open season. It is through this review process, that we will approve or reject the open season procedures.

In addition, PG&E and potential bidders are put on notice that any contract that extends beyond the term of the Gas Accord has a higher level of risk associated with it. Individual customers will need to determine if the need for a long-term contract outweighs that additional risk.

We also provide guidance to PG&E in the form of putting PG&E on notice of certain issues that are of concern to the Commission. Issues that we intend to thoroughly review in future applications for contract approval include, but are not limited to: (1) is the core reservation sufficient; (2) should the term of the contracts exceed the proposed term of the Gas Accord II; (3) whether end-users should have priority access to capacity rights; (4) whether the process for PG&E's UEG bidding is appropriate; and, (5) whether there should be caps on secondary sales of capacity.

We will not delay approval of the open season in order to consider the Gas Accord II application, but we put PG&E on notice that our approval of the open season is limited. It is possible that our review of the Gas Accord II application will lead to consideration of whether policy changes should be made that would affect the results of the open season. Approval of the open season does not limit the Commission's authority if the Gas Accord II requires changes to PG&E's ratemaking structure or to PG&E's services.