II. Background

On May 31, 2002, the Federal Energy Regulatory Commission (FERC) issued an order indicating that marketers currently serving California may turn back up to 725 MMcf/d of firm capacity on the El Paso pipeline to El Paso's east of California (EOC) customers.¹ This Commission was concerned that unless California replacement shippers or California utilities acquired the turned back capacity, it could be permanently lost to California. Because the FERC order required the EOC marketers to decide by July 31, 2002, how much capacity they would be turning back, the Commission expedited its rulemaking process and issued D.02-07-037 on July 27, 2002, requiring the natural gas and largest electric utilities to acquire the turned back capacity. The Commission feared that if this capacity was lost to customers outside of California, the loss "could have devastating impacts on both the supply and cost of gas and electricity for California customers." (D.02-07-037, p. 3.)

To resolve this concern, D.02-07-037 established two rules: (1) ordering the gas and electric utilities to each sign up for a proportionate amount of the turned back capacity not subscribed to by replacement shippers serving California, and (2) finding just and reasonable and pre-approving the utilities' subscription to this turned back capacity. Issues concerning the cost allocation for this newly acquired capacity were deferred to Phase II of the proceeding.

A prehearing conference (PHC) was held on September 10, 2002, for Phase II, and then a scoping memo issued detailing the issues for Phase II. The parties filed testimony and rebuttal in April 2003, and evidentiary hearings were held April 28 through May 2, 2003. Opening briefs were filed July 7, 2003, by SoCalGas and SDG&E, Southwest, Edison, PG&E, the Office of Ratepayer Advocates (ORA), Southern California Generation Coalition (SCGC),² The Utility Reform Network (TURN), the California Manufacturers & Technology Association (CMTA), Coral Energy Resources, L.P. (Coral), and Calpine, Duke Energy North America, Mirant Americas, Inc., and Watson Cogeneration Company (Electric Generators or EGs), and reply briefs were received July 28, 2003, from the Electric Generators, ORA, PG&E, Edison, SoCalGas and SDG&E, SCGC, and TURN.

A Proposed Decision (PD) of the assigned Administrative Law Judge (ALJ) issued November 4, 2003. Comments were received from CMTA, the Electric Generators, SoCalGas and SDG&E, SPURR/ABAG POWER, ORA, PG&E, Edison, SCGC, and TURN. Reply comments were received from SoCalGas and SDG&E, ORA, PG&E, and the Electric Generators.