IV. The Legal Standard and the Parties' Contentions

Rule 51.1(e) of the Commission's Rules of Practice and Procedure provides that the Commission must find a settlement "reasonable in light of the whole record, consistent with the law, and in the public interest" before it may approve a settlement. Because this is not an all-party settlement subject to the guidance in D.92-12-019, we follow the criteria set forth in Rule 51.1(e), as explained in D.96-01-011.

"[W]e consider whether the settlement taken as a whole is in the public interest. In so doing, we consider individual elements of the settlement in order to determine whether the settlement generally balances the various interests at stake as well as to assure that each element is consistent with our policy objectives and the law." (Re Southern California Edison Company, 64 CPUC2d 241, 267, citing D.94-04-088.)

The Settlement Parties contend that the settlement is in the public interest and reaches a fair compromise at this juncture in the proceeding. No party opposed the settlement. But, other active parties in the proceeding neither joined the settlement nor commented.

A. Consistent With The Law

1. Section 1708

Section 1708 provides that the Commission may alter or amend any decision upon providing parties with an opportunity to be heard. Here, the parties wish to alter the Gas Accord, which was approved in D.97-08-055.

The parties claim that the Settlement Agreement does not change the basic principles, structure or rates agreed to in the Gas Accord and we agree. Many of the changes adopted in this Settlement Agreement are not addressed in the Gas Accord. Specifically, nothing in the Gas Accord prohibits:

a. The opportunity to have a voluntary self-balancing option.

b. The creation of a system for electronic trading of imbalances, or for the trading of imbalance rights.

c. The creation of an electronic trading system for secondary market capacity.

d. The provision of additional usage information to customers or their agents.

e. The provision of consolidated billing for gas service providers.

f. Gas meter ownership or ownership of meter add-on devices.

However, two provisions of the Settlement Agreement depart from the Gas Accord. First, the Gas Accord does not unbundle core storage costs for core aggregators. It provided for a study of the issue due in 2001, but otherwise did not explicitly unbundle core storage costs from other gas services.²⁹ Second, the Gas Accord does not provide billing credits for CTAs who provide consolidated gas billing to gas customers. In this situation, PG&E avoids certain costs by not having to print and mail a gas bill. The Gas Accord instead contains a provision that "billing and metering costs will remain bundled" for the term of the Gas Accord.³⁰

Nonetheless, the Settlement Parties support these changes to the Gas Accord. After extensive negotiations, they believe that these narrow and specific changes are consistent with their interests. Moreover, PG&E provided general notice to all Gas Accord parties and the service list in D.97-08-055 that the Settlement Agreement might affect certain limited terms of the Gas Accord, and gave them an opportunity to receive confidential settlement documents and to attend a settlement conference to raise any concerns before a settlement was filed with the Commission. Furthermore, the ALJ's Third Ruling Regarding Settlements, served on both the Gas Accord service list and this proceeding's service list, provided another opportunity for a request for hearing. No party to either proceeding raised any opposition to these changes to the Gas Accord.

Under these circumstances, § 1708 does not require that the Commission hold a hearing before approving the Settlement Agreement.

2. Section 328 et seq.

Section 328 is no impediment either. On August 25, 1998, Senate Bill (SB) 1602, became effective, creating § 328 of the Pub. Util. Code . That section expressly allowed the Commission to investigate issues associated with the further restructuring of natural gas services, but prohibited the Commission from "enacting" any gas industry restructuring decisions affecting the core prior to January 1, 2000. It stated that if the Commission determined that further natural gas industry restructuring for core customers was in the public interest, the Commission should "submit its findings and recommendations to the Legislature." As of January 1, 2000, § 328 was repealed by virtue of AB 1421, and replaced by a new § 328, as well as new §§ 328.1 and 328.2, setting forth requirements for bundled gas service to the core, among other things. There is no longer a requirement to report to the Legislature before acting to restructure the gas industry.³¹

The Settlement Parties seek a more specific finding with regard to AB 1421. They seek a finding that "under AB 1421 and any other relevant law, nothing in this Settlement Agreement shall require PG&E to offer consolidated gas billing for CTAs prior to the Billing Availability Date, expected by the end of 2002." (Motion of Settlement Parties, p. 10, Section 1.8.4 of the Settlement Agreement.)

Section 328.2 provides that public utility gas corporations shall continue to be the exclusive provider of revenue cycle services (including billing services) to all customers in their service territory, subject to exceptions for:

a. Parties providing natural gas to noncore customers.

b. "An entity purchasing and supplying natural gas under the commission's existing core aggregation program ... under the same terms as currently authorized by the commission."

The Settlement Parties agree that the changes resulting from this Settlement Agreement are not changes to "the commission's existing core aggregation program" of the kind that affect core aggregators' ability to qualify for this exception and that the core aggregation program as of January 1, 2000, did not include consolidated billing provided by PG&E.

In addition, the Settlement Parties agree that none of the changes in this Settlement Agreement shall require PG&E to expand its current offerings of consolidated billing for core aggregators until PG&E is able to provide such services through its billing system replacement project, which is expected to be completed by the end of 2002. PG&E is not now able to provide consolidated billing for certain types of customers, and creation of this service for such customers prior to that date could cost substantial amounts of money to develop a temporary billing mechanism that would be discarded when the billing replacement project is completed.

We have no difficulty agreeing that the existing core aggregation program as of January 1, 2000, did not include consolidated billing for gas-only customers by PG&E and that the options offered to CTAs if the Settlement Agreement is approved will not fundamentally change the core aggregation program.³² However, we do want to emphasize that the finding requested should be interpreted very narrowly.

The need for a narrow interpretation stems from the verbs used in § 328.2. Nothing in that section or the Settlement Agreement requires a CTA to perform billing. It "may" do so. On the other hand, if the CTA chooses not to do so, PG&E "shall" continue to provide revenue cycle services to all customers in its service territory. Thus, a CTA could decide to have PG&E do the billing. However, we do not believe that PG&E could be forced to do consolidated billing. It could include a separate CTA commodity bill with its billing.

Accordingly, we are able to make the finding the parties request, with the understanding that it is to be narrowly interpreted.

No other inconsistency with the law has been brought to our attention, and we conclude that there is no other inconsistency with the law. Therefore, there is no impediment to making these changes if we find them reasonable in light of the whole record, and in the public interest. (Rule 51.1(e).)

A. Reasonable In Light Of The Whole Record

We find that this settlement proposal is reasonable in light of the whole record for three reasons. First, while the settlement is not a global one, 29 parties with a range of interests support it; the Settlement Parties represent residential consumers, shippers, municipal customers, and competitors in various market segments. It is agreeable to PG&E. Additionally, no party opposed the settlement. When parties from different viewpoints agree on a solution for a problem, even if only on a time-limited basis, it is an indication that it is a reasonable proposal. When the parties who choose not to sign on still do not oppose, it is a further indication of the proposal's reasonableness.

Second, we incorporated the record in R.98-01-011 into this proceeding and we find that the testimony therein generally supports the reasonableness of this settlement. While our promising options might have resulted in a little more change than proposed in this Settlement Agreement , we recognize the commitment of the parties to continue talking about reforms for the post-Gas Accord period. We anticipate more restructuring in conformance with our stated goals at that time.

Third, as to those sections of the Settlement Agreement that raised questions regarding fairness and reasonableness, the record was supplemented by the representations of some of the settling parties at the Informational Hearing on February 24, 2000. For instance, the ALJ and Energy Division staff questioned the derivation of the $700,000 debit for implementation. It appeared that the figure was lower than that originally sought and founded upon cost estimates for each new initiative. PG&E bears the risk of higher implementation costs for §§ 2.1, 2.2.2, 2.2.3, and 2.8, and cannot return to the Commission to request them.

Similarly, the ALJ and Energy Division staff were concerned that it was inequitable to shift the costs of CTA-rejected storage to core ratepayers. PG&E and ORA explained why the CPD should take on about $2 million in additional costs of storage after allocation rejections by the CTAs. PG&E avers that the additional storage is needed for core reliability and peak-day needs; PG&E has had to supplement existing storage through the market during peak winter periods. (Tr. pp. 54, 57-58.) ORA elaborated by stating that one reason for accepting the additional storage capacity is the growth in the number of core customers since the Gas Accord. (Tr. p. 55.) The second reason for accepting the cost of such capacity, ORA explained, is that the CPD is planning to rid itself of 50 MMcf/d of intrastate transmission capacity on the Silverado Path in the near future as a result of a decline in California gas production. The storage capacity, ORA claims, could be used in lieu of the transmission capacity to maintain core reliability.³³

In its BCAP, PG&E also estimates that forecasted throughput for the core will rise 13%. Moreover, as recently as December 1998, PG&E experienced a maximum daily core load peak of 2.7 Bcf, while daily maximum transmission and storage capacity for the core is 2.4 Bcf.³⁴ Thus, the potential expenditure for up to 1.64 Bcf in additional inventory capacity for CPD customers appears reasonable.

We note also the safety-conscious approach reflected in the Settlement Agreement. For instance, the 50% cap on self-balancers ensures that the system operators will have some experience with this initiative without sacrificing safety and reliability. The 1% allowance for accumulated imbalances hews closely to the pipeline swing that can be accommodated safely. (Tr. p. 28.) This safety consciousness is in line with our goals and appears reasonable.

Finally, Settlement Agreements must be viewed in their totality, because each segment will not equally benefit each party. For instance, the benefits of self-balancing are not going to be enjoyed directly by the ratepayers served by the CPD at this time, but perhaps they will enjoy them if the experiment proves successful, and perhaps if self-balancing does result, as hoped, in fewer OFO days, the ratepayers will benefit from that. Similarly, while the unbundled storage program is not of much use to residential customers at present, the growth in storage competition may ultimately bring some benefit to them and the CPD will participate in other initiatives set forth in this Settlement Agreement.

As noted in the Joint Declaration of Darwin Farrar, James Weil and Marcel Hawiger in Support of Joint Motion for Approval of Comprehensive PG&E Settlement Agreement,³⁵

"[T]he Settlement Agreement is reasonable because: (1) it is a reasonable compromise of strongly held views; (2) negotiations were conducted at arm's length; (3) the settling parties represent all affected interests; (4) the stage of the proceeding allows opposing parties to gauge the strengths and weaknesses of their respective positions; (5) counsel and advocates for the settling parties are experienced in public utility litigation; (6) the Office of Ratepayer Advocates is a governmental participant; and (7) the Settlement Agreement is apparently uncontested. Lack of adverse reaction from affected interests favors approval."

We are convinced that the settlement generally balances the various interests at stake for the period of the settlement. Thus, we find that the proposed settlement is reasonable in light of the whole record.

B. In The Public Interest

We find that the range of parties joining this settlement, and the lack of opposition to it, provides some evidence that the settlement is in the public interest. The Settlement Agreement is the result of many months of discussion and negotiation. It represents a broad-based consensus on issues of concern to the market, balancing the interests of marketers, gas suppliers, shippers, storage operators, wholesale and retail end-use customers, and regulatory representatives, as well as the Coalition of California Utility Employees. As noted by parties in the supporting declarations, considerable time and resources are saved for all parties that would otherwise be spent in litigating the promising options identified in I.99-07-003.

Moreover, we find that the Settlement Agreement does advance our stated goals and does address many of our promising options, particularly in tandem with the previously approved OFO protocol. The Settlement Agreement promotes an unhindered market through the new trading platforms, while at the same time its incremental approach protects safety and reliability. The information garnered at the panel on February 24, 2000, assuages our concern that the core would be providing a subsidy for those customers choosing self-balancing. We look forward to the post-Gas Accord restructuring that will take the natural gas industry further towards our goals.

We note particularly a few of the reasons ORA, TURN, and Aglet support the settlement:

"All ratepayers and the public have an interest in reasonable rates. The Settlement Agreement promotes reasonable rates by offering customers more options in choosing the elements of their gas service, which enhances competition, and by limiting rate recovery of the costs to implement the Settlement Agreement. The settled dollar amount for PG&E cost recovery is a fair and reasonable compromise of PG&E's interest in cost recovery and ratepayer interests in low rates.

"Gas market participants have an interest in certainty and stability of rates and terms and conditions of service. The Settlement Agreement promotes this interest by fixing PG&E's tariff provisions through the end of 2002, which coincides with the end of the Gas Accord. "

Another consideration in weighing whether the settlement is in the public interest is who bears the costs of implementation of the agreement. The costs of implementation of the provisions of the settlement agreement are partially borne by ratepayers, up to a maximum of $700,000. Yet some of this cost may be paid by the deposit of a portion of trading fees into the BCA. Other costs are paid directly by the customers benefiting from the opportunity provided. Thus, on balance, we believe that the benefit to the public of these changes outweighs the potential cost to ratepayers of the costs of implementation.

In sum, we conclude that the settlement is consistent with the law, reasonable in light of the whole record, and in the public interest.