ALJ/HSY/lil Date of Issuance 10/20/2008

Decision 08-10-025 October 16, 2008

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Determine Issues Relating to the California Utilities' Procurement of Natural Gas Supplies from Liquefied Natural Gas Sources.

Rulemaking 07-11-001 (Filed November 1, 2007)

DECISION DETERMINING PROCEDURES FOR

PROCURING LIQUEFIED NATURAL GAS SUPPLY

1. Summary

The California Public Utilities Commission (Commission) opened this rulemaking to consider issues relating to whether and how the largest California utilities should enter into procurement contracts for natural gas from liquefied natural gas (LNG) suppliers on the West Coast, in order to help ensure that there will be adequate supplies of natural gas at reasonable prices to meet California's long-term needs. The order instituting rulemaking set forth two specific areas of inquiry. First, we sought comment on how ratepayers can best benefit from long-term LNG supply contracts. Specifically, we inquired whether the utilities can negotiate long-term LNG supply contracts to guarantee reliable gas supplies at a reasonable cost , and whether ratepayers benefit more by allowing the utilities to continue to purchase natural gas without regard to whether the supply is domestic or LNG. Second, we sought comment on what procedures the utilities should use to solicit LNG supply offers and what procedures the Commission should use to pre-approve LNG supply contracts.

With respect to the first question, the comments generally recommend against adopting particular reliability and/or cost guarantee requirements for long-term LNG supply contracts, suggesting that the reasonableness of any contract should be evaluated on the basis of the contract as a whole. The comments further suggest that ratepayers may benefit from LNG without the need for the utilities to serve as anchor tenants and, in any event, will benefit most by allowing LNG supply to compete head-to-head with domestic supply.

With respect to the second question, although the comments present a range of opinion on how the utilities should solicit LNG supply and how and whether the Commission should pre-approve it, there is general consensus that LNG supply should compete head-to-head with domestic natural gas. We agree. We, therefore, decline to develop special guidelines or procedures for the utilities' solicitation and procurement of LNG supply at this time, or for the approval of cost recovery related to LNG supply. LNG supply procurement and cost recovery should continue to be subject to the procedures that apply to the procurement and cost recovery for natural gas supply generally.