III. Phase II

Pursuant to D.02-07-037, the scoping memo for Phase II specified that if the gas and electric utilities fully complied with the decision in terms of acquiring the amounts or percentages of El Paso capacity at the delivery points indicated, then the utilities would recover their costs for the capacity. All parties agree that the utilities complied with the acquisition order in terms of the amount of capacity.³

The scoping memo for Phase II also identified the following issues for resolution:

· How the costs of turned back capacity and pre-existing capacity rights on interstate pipelines should be allocated among utility customers and the appropriate mechanisms for recovery in rates of those costs;

· Any appropriate adjustments to a utility's gas cost incentive mechanism to properly account for both existing and recently-acquired interstate capacity;

· The appropriate date that the utilities can begin recovering the costs associated with their subscription to turned back capacity, as well as costs associated with their pre-existing capacity rights on interstate pipelines, to the extent that utilities have complied with D.02-07-037;

· Whether and how short-term capacity releases of interstate capacity (in excess of the utilities' need) should be allowed; and

· The criteria under which the Commission should authorize adjustments to interstate capacity holdings or long-term capacity releases.