Ruby LLC
Ruby LLC states its pipeline project is viable and moving forward. On June 25, 2008, Ruby's parent company, El Paso, issued a press release announcing its commitment to move forward with the pipeline project, subject to regulatory approvals. That press release reported, and Ruby's witness confirmed in his testimony, that Ruby LLC has binding shipper contracts for 1.1 Bcf/d of capacity out of a total capacity of 1.3 and 1.5 Bcf/d. These binding contracts include PG&E and at least eight other shippers. Ruby LLC expects additional binding contracts for some or all of the remaining capacity. Ruby LLC states the project will go forward with or without the additional contracts.
We find that the weight of the evidence shows the proposed Ruby Pipeline is a commercially viable project. Ruby LLC testified that it has secured sufficient binding shipper contracts to construct the pipeline.73 While the estimated cost of the project has risen to approximately $3 billion, or 50% higher than Ruby's original estimate, that is due to the extraordinary increase in steel prices and other construction costs since the initial estimate.74 Ruby LLC testified that it has taken steps to contain costs by signing contracts for all the steel pipe needed for the project, thereby locking in the cost of steel.75 Ruby LLC has also signed contracts with a consortium of construction contractors, thus ensuring contractor availability.76 Ruby LLC would not have signed these contracts if it did not intend to proceed with the project.
The ultimate cost of the Ruby Pipeline does not affect PG&E directly because PG&E has a fixed, 15-year rate of $0.68/Dth, plus fuel costs. The reasonableness of Ruby's rising cost estimates is relevant to this proceeding only to the extent they raise doubts about Ruby's ability to attract sufficient capacity commitments beyond PG&E to go forward with the project. Because sufficient capacity commitments have materialized, there is no need for the Commission to consider the reasonableness of Ruby LLC's cost estimates.
GTN claims that Ruby is a risky project because of El Paso's low credit rating. However, Ruby LLC testified the project's viability rests on the shippers' credit,77 and nowhere in the record is the shippers' credit called into question.
At the time PG&E filed its application, PG&E's parent company, PG&E Corporation, had an option to acquire a 25.5% equity interest in the Ruby Pipeline. If the option were exercised, Ruby LLC would become an affiliate of PG&E, and PG&E's transactions with Ruby would become subject to the Commission's various rules governing affiliate transactions.
In A.07-12-021, PG&E requested Commission authorization to enter into the Precedent Agreement with Ruby LLC as an approved affiliate transaction under D.06-12-029, Affiliate Rule III.B.1. On May 6, 2008, PG&E Corporation terminated its option to acquire an equity interest in the Ruby Pipeline. PG&E subsequently withdrew the request in its application for approval of the Precedent Agreement under the Commission's Affiliate Transaction Rules.
On May 29, 2008, the assigned ALJ issued a ruling which informed the parties that the following issues listed in the Scoping Memo would still be considered in this proceeding:
Scoping Memo Issue 1(e): Was the Ruby Precedent Agreement negotiated entirely at arms-length, without any undue favoritism, given that PG&E Corporation at one time had indicated an intent to acquire an ownership interest in the Ruby Pipeline project?
Scoping Memo Issue 7(e): As discussed in Issue 1.e above, were the terms of the Ruby Precedent Agreement negotiated entirely at arms-length, without any undue favoritism, given that PG&E Corporation at one time had indicated an intent to acquire an ownership interest in the Ruby Pipeline project?
73 Exhibit Ruby-20; and 6 TR 548-49, 559, and 565-66.
74 Steel prices have risen nearly 100% since October 2007. (Exhibit Ruby-16, p. 8, lines 27-28 (citing Exhibits Ruby-18 and Ruby-19)).
75 Exhibit Ruby-20; 6 TR 544: 13-19; and 6 TR 595: 24 - 596: 8.
76 Exhibit Ruby-20.
77 6 TR 611: 4-7.
