PG&E and Ruby LLC
PG&E and Ruby LLC state that the market has decided and picked Ruby. This is demonstrated by El Paso's announcement on June 25, 2008, that it has binding contracts for more than 1.1 Bcf/d and that El Paso will move forward with the Ruby project.
TURN
TURN observes that the Commission's let-the-market-decide policy is more than 17 years old. TURN submits that gas and electric markets have changed dramatically since the early 1990's, and that it would be unwise to rely on an outdated policy to reject PG&E's application which offers clear benefits to ratepayers today.
We find that the PG&E-Ruby Precedent Agreement complies with the Commission's let-the-market-decide policy articulated in D.90-02-016. There, the Commission determined it would "support any given interstate project to build additional natural gas pipeline capacity to California based on the project's conformity with the conditions...set forth in [D.90-02-016]."62 These conditions were as follows:
· Economic Justification: The proposed pipeline must be economically justified.
· Supply Diversity: The proposed pipeline should promote supply diversity among the major producing regions within economic reach of the State.
· Capacity Allocation: The cost of the proposed pipeline should be allocated in advance among utility core gas customers, electric customers, and others, and the capacity should be available for short-term and long-term capacity brokering.
· Bypass: To avoid bypass of utilities, the proposed pipeline should interconnect at the State border with an intrastate pipeline subject to the Commission's jurisdiction.
· Cost Allocation: Cost responsibility for the new pipeline should flow to those customer groups that benefit from the pipeline.63
The Commission's focus in D.90-02-016 was not on the competitive process that should be used by utilities to acquire interstate pipeline capacity as GTN seems to suggest. Rather, the fundamental purpose of the Commission's let-the-market-decide policy was to ensure that new interstate pipeline capacity built to serve California satisfied the previously indentified criteria. For reasons stated elsewhere in today's decision, we find that (1) the PG&E-Ruby Precedent Agreement satisfies all of the criteria of the let-the-market-decide policy, and (2) PG&E used a competitive process that was reasonable under the circumstances to acquire the Ruby capacity. Therefore, consistent with the Commission's determination in D.90-02-016 that it would support any proposed pipeline that satisfied the specified criteria, we conclude that PG&E's application should be approved pursuant to the Commission's let-the-market-decide policy.
GTN mistakenly contends that because the Commission held in D.91-07-007 that its let-the-market decide policy did not allow for pre-approval of PG&E's contract for capacity on the Transwestern Pipeline, the Commission should deny PG&E's request in the instant proceeding for pre-approval of the Ruby Precedent Agreement. The precedent established by D.91-07-007 has been superseded by D.04-09-022 and D.07-12-052. The latter decisions authorize utilities to request pre-approval for interstate pipeline capacity and specify procedures for doing so.64 PG&E has followed those procedures here.
GTN
GTN is concerned that much of the gas currently shipped on GTN will migrate to the Ruby Pipeline. For example, PG&E plans to de-contract 250 MDth/d of capacity on GTN for PG&E's Core Gas Supply and to acquire the same amount of capacity on the Ruby Pipeline. GTN states that because its costs will remain roughly the same while the volume it ships will decline, GTN will have to increase the amount it charges per unit shipped in order to recover its costs. GTN estimates that it will have to raise rates by $0.214/Dth in 2012 as a result of the Ruby Pipeline. This would be a 65% increase over GTN's existing rate of $0.33/Dth.
After the Ruby Pipeline is built, PG&E will continue to hold 360 MDth/d of capacity on GTN. However, because GTN will have to raise rates by $0.214/Dth, the cost of PG&E's remaining capacity on GTN will rise by $28.1 million per year (360,000 Dth x $0.214/Dth x 365 days). These higher costs will swamp any benefits that PG&E's realizes from Ruby. Moreover, other California shippers hold capacity on GTN. GTN states the total annual cost to California (including PG&E) will be $46.2 million (591,998 Dth x $0.214/Dth x 365 days). When these added costs are considered, the benefits of the Ruby Pipeline vanish for California as a whole.
GTN disputes Ruby LLC's contention that backhaul service can provide offsetting revenues to reduce GTN's rate increase. GTN states that backhaul service will make only a small dent in the lost revenue caused by Ruby, and that such revenues are reflected in GTN's estimated rate increase of $0.214/Dth.
62 D.90-02-016, Conclusion of Law 4, 35 CPUC2d 196, 252-253 (emphasis added). See also dicta at p. 250 ("[W]e wish to repeat that pipeline projects which conform to our criteria will receive enthusiastic Commission support for their projects, both in California and before FERC") and Ordering Paragraph 1 at p. 253 ("[I]t is the long-term policy of the State of California to support interstate pipeline projects that conform to the conditions set forth...in [D.90-02-016].").
63 D.90-02-016 also established the following criteria that are not relevant to the Ruby Pipeline: (i) jurisdiction over any new pipeline facilities constructed within California must revert to Commission jurisdiction upon specified events; and (ii) proposed capacity should supply gas for enhanced oil recovery.
64 D.04-09-022, pp. 24-25 ("We agree with the concept of pre-approval, which is consistent with &_butType=4&_butStat=0&_butNum=2&_butInline=1&_butinfo=CA PUB UTIL 454.5&_fmtstr=FULL&docnum=7&_startdoc=1&wchp=dGLbVlb-zSkAW&_md5=9ccd1f9944b38defe89308514f91f3de" target="_top">Pub. Util. Code § 454.5, which provides for up front standards and eliminates the need for after the fact reasonableness reviews in electric procurement matters...Our preference would be for all contracts to be submitted for pre-approval either through the application, advice letter or proposed expedited advice letter processes.). See also D.04-09-022, Findings of Fact 8 and 16, and D.07-12-052, Conclusion of Law 41.
