II. DISCUSSION

A. The Commission did not act arbitrarily or capriciously in prohibiting EG, refinery, and EOR customers from electing core service.

SCGC argues that there is no evidence to support a ban on EG, refinery, and EOR customers from the option of electing core service. Specifically, SCGC asserts that there is no evidence to support the Commission's determination in treating EG, refinery, and EOR customers using at least 250,000 therms per year as noncore customers ineligible to elect core transportation service or bundled core transportation and procurement service. Thus, SCGC claims the Commission has violated Public Utilities Code § 1757, which provides that the Commission's decision must be supported by substantial evidence in light of the whole record.

SCGC is incorrect. There is record evidence to support the Commission's determination. The record shows as follows: the SoCalGas/SDG&E testimony stated that EG, refinery, and EOR "customers have a very different load profile than the general commercial and industrial customers in that their loads exhibit large fluctuations daily and monthly" and "have alternate fuel capability to varying degrees." Ex. 7 (SoCalGas/SDG&E), pp. 12-13. Gas usage fluctuates on a daily and monthly basis for EG, refinery, and EOR customers to a greater degree than other customers. These two elements render it almost impossible for a gas utility to forecast gas usage accurately and lead to potential problems associated with balancing purchases for the core portfolio, thus affecting other core customers. ORA notes that "the extremely large noncore customers such as electric generation, refinery, and EOR customers do not require core service." Ex. 12 (ORA), pp. 10-12.

SCGC offers no contrary evidence regarding the relative size and degree of load fluctuations between EG, refinery and EOR customers and other noncore customers, nor does it dispute how such fluctuations can negatively affect the ability of a utility to make purchasing decisions for core customers. SCGC also never explains why it is so essential that EG, refinery, and EOR customers have the option of electing core service when such customers are sophisticated market participants capable of procuring their own gas supplies and transportation arrangements. SCGC argues that the decision imposes conditions on noncore customers electing core service in order to protect core customers from adverse consequences, and thus "there is no need for a prohibition on any noncore customers electing Core Service." (SCGC's Application for rehearing, p. 8, emphasis in original). However, none of those conditions (a five-year commitment to core service, payment of a cross-over procurement rate for the first year of receiving service, utility discretion to reject noncore elections if existing utility intrastate capacity is insufficient, and granting only a limited, one-time opportunity for noncore customers to elect core service) address the potential harm associated with allowing such large, sophisticated customers with widely fluctuating load the ability to elect core service. The utility's discretion to reject a one-time election if intrastate capacity is insufficient does not resolve the problems associated with potential overcapacity if a noncore EG, refinery, or EOR customer's expected usage over time exceeds its actual usage, with other core customers having to pay for such incorrect balancing. Moreover, there is no evidence that prohibiting EG, refinery, and EOR customers from choosing core service will lead to any hardship for such customers.

In its rehearing application, SCGC also states that the decision lacks sufficient findings of fact and conclusions of law, due to the absence of record evidence. As explained above, SCGC is incorrect that the record lacks evidence to support Ordering Paragraph 3. However, we will modify the decision, based on the record evidence described above, to further clarify why it is appropriate to bar EG, refinery, and EOR customers from electing core service. The clarification is set forth in an ordering paragraph in this order.

B. The Commission did not violate Public Utilities Code Section 453 when it adopted a bar on EG, refinery, and EOR customers with annual use of over 250,000 therms from electing core service, but allowed other customers with annual use of over 250,000 therms the option to elect core service.

SCGC's other basis for requesting rehearing is its allegation that it is unduly discriminatory under Public Utilities Code Section 453 for the Commission to prohibit EG, refinery, and EOR customers that consume over 250,000 therms per year from electing core service, while allowing other customers that consume over 250,000 therms per year for other end-uses to have that option. (SCGC's Application for Rehearing, pp. 2-3).

Section 453 bars utilities from establishing or maintaining "any unreasonable difference as to rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service." But utilities can maintain differences between classes of service if such differences are "reasonable" and justified by relevant, substantive differences between customer classes. As explained in the previous section, the Commission has ample justification, based on different daily and monthly load fluctuations, for finding that it is reasonable to establish a different eligibility for core service (i.e., a ban) for EG, refinery, and EOR customers using over 250,000 therms per year than for other customers, including all others using over 250,000 therms per year.

Because SCGC never directly addresses the underlying reason for the prohibition on election of core service, its numerous arguments against the prohibition do not contradict the reasons expressed in the record for adopting such a ban. For example, SCGC argues that amount of usage is not sufficient to justify the prohibition, and asserts (without referencing the record) that noncore customers using well more than 250,000 therms per year can elect core service while noncore EG, refinery, and EOR customers using just over 250,000 therms could not. This argument implies but does not explain how or why a non-EG/refinery/EOR noncore customer with more usage is a potentially larger burden on remaining core customers than an EG/refinery/EOR customer. SCGC fails to discuss the effect of daily and monthly load fluctuations on core customers, and no evidence to counter that provided by SoCalGas/SDG&E noting that EG, refinery, and EOR customers have much larger daily and monthly load fluctuations than other noncore customers, including those using over 250,000 therms per month.

Similarly, SCGC argues that different load factors cannot justify the different eligibility for core service, arguing that EG, refinery and EOR customers have differing load factors, some low, some high, as do other noncore customers which the Commission has not banned from electing core service. SCGC also complains that EG, refinery, and EOR customers with large load factors will be prohibited from electing core service, implying that sheer size of load factor alone was offered as a justification for the Commission's policy. This argument, however, must be rejected because SCGC did not cite nor offer any record evidence on load factors. But even if the load factors were at the levels suggested by SCGC in its Application for Rehearing, SCGC's argument would fail. Again, SCGC misses the point of the ban, which has to do with unpredictable fluctuations in load factor for EG, refinery, and EOR customers, not to guard only against noncore customers with low load factors.

The other factors specified by SCGC - alternate fuel capability, end-use, and impact on the electric market - are unpersuasive because those factors were not the dispositive factors in the ban. The presence of alternate fuel capability for some customers is potentially relevant because such customers can choose not to take gas service from the utility, with detrimental impacts on other core customers. The end-use of the gas is also potentially relevant to determine eligibility for core service, to the extent that end-use influences the size and fluctuations of load factor and the effect on other core ratepayers. But it is the fluctuations of load factor and effect on other core customers that justifies the ban, not alternate fuel capability or end-use of gas. The decision does not rely at all on potential impact on the electric market as a reason for the prohibition.

C. D.02-08-065 should be modified to correct typographical errors.

In four instances D.02-08-065 referred to "D.02-06-023" as "D.02-06-063" or "R.02-06-063." As a result, four minor modifications should be made to the Decision, as set forth in an ordering paragraph in this Order.