IV. Discussion

In this discussion, we have taken heed of PG&E's advice that the use of the term gas "curtailment" and gas "diversion" have separate and distinct meanings in PG&E's Gas Rule 14.

A curtailment is described in the PG&E Gas Accord settlement as whatever steps PG&E "determines are operationally necessary in the event a constraint on local transmission or distribution threatens service to customers." This includes a curtailment of noncore customers. (73 CPUC2d 754, 811, App. B, § II.E.11.) PG&E Gas Rule 14 does not specifically define what a curtailment is, but instead talks in terms of capacity allocation at a receipt point, and delivery point service restriction. Rule 14.A. states:

"Capacity allocation is a reduction or adjustment of the nominations at a specific Receipt Point to match the capacity available at the Receipt Point or the capacity available in transmission facilities connected to the Receipt Point. A Delivery Point service restriction is a reduction of the daily quantity delivered for the Customer or temporary interruption of the Customer's service. A Customer's intrastate service choices will affect the frequency and duration of capacity allocations and delivery point service restrictions."

Rule 14 goes on to describe in Rules 14.B. and 14.C. the type of capacity allocation constraints at the receipt point, and the constraints which restrict service at the delivery point. (See 73 CPUC2d 754, 811, App. B, § II.E.10.)

A "diversion" is described in Rule 14 as follows:

"When operational conditions exist such that supply is insufficient to meet demand and deliveries to Core End-Use Customers are threatened, and subject to the obligations of Core Procurement Groups to utilize all available capacity associated with supply, PG&E may divert gas supply in its system from Noncore End-Use Customers to Core End-Use Customers." (PG&E Gas Rule 14.G.; 73 CPUC2d 754, 811, App. B, § II.E.12.)

In a curtailment situation, Rules 14.D.1. and D.2. provide that PG&E will allocate service in the following order: to all firm service, which will be treated equally, with pro rata allocation of nominations if necessary; and then "As-Available service will be scheduled according to contract price, with the lowest price capacity interrupted first." (Footnote omitted.)

In the event of a diversion, the diversions will occur in the following order:

"a. Supply scheduled under As-Available transmission service will be diverted in order of increasing transmission contract price and on a pro rata basis for all volumes transported under the same price. However, supply under scheduled deliveries from storage using As-Available transmission service will be treated as the highest priority Firm transmission service . . . .

"b. Supply scheduled to Noncore End-User Customers under Firm transmission is diverted on a pro rata basis.

"c. Scheduled deliveries from storage using Firm or As-Available transmission service will be treated as the highest priority Firm transmission service and will be diverted on a pro rata basis." (PG&E Gas Rule 14.G.1.)

The purpose of NCGC's petition is to keep the gas flowing to electric generators in PG&E's service territory in the event gas supplies to noncore customers are curtailed or diverted. NCGC believes that "there is a heightened need to avoid curtailments or interruptions of gas service to electric generation in the current crisis . . . ."

We agree with NCGC and PG&E that electricity generation is important, especially when more electric generating capacity is needed. However, for the reasons described below, we do not agree that NCGC's petition to modify the PG&E Gas Accord decision and resolution should be granted.

Although the DOE orders reference former President Clinton's January 19, 2001 declaration that a natural gas supply emergency exists in the central and northern regions of California, and that the emergency "threatens the continued availability of natural gas for high-priority uses, including electric generation,"¹⁰ those orders and the declaration did not address PG&E's curtailment and diversion priorities.

The priority of service rules have been in existence in one form or the other since November 1991. In D.91-11-025 (41 CPUC2d 668), the former system of using end-use priority to determine curtailments was eliminated. In its place, the Commission adopted a curtailment system whereby noncore customers would receive service according to their level of payment. Interruptible noncore transmission service would be curtailed before firm noncore transmission service. In a diversion situation, firm noncore transmission service customers are diverted on a pro rata basis, except that UEG volumes are curtailed before cogenerator volumes. (41 CPUC2d at pp. 686 and 725.)

In D.93-09-082 (51 CPUC2d 441), the alternative fuel requirement for noncore customers was eliminated. The effect of this was to raise the UEG priority to the same level as other noncore customers except for cogeneration. (51 CPUC2d at pp. 444 and 448.) Then in the PG&E Gas Accord, all noncore uses, including UEG and cogeneration, were made equal in priority. (73 CPUC2d at pp. 810-811.)

As described above, the process leading up to the curtailment and diversion priorities contained in the PG&E Gas Accord was not developed overnight. These priorities should not be changed without a thorough evaluation of the ramifications resulting from the proposed modifications, and the input of affected parties. The settlement itself noted that the "Accord is a negotiated compromise on a number of issues related to many proceedings," and the "Accord is to be treated as an entire package and not as a collection of separate agreements on discrete proceedings . . . ." D.97-08-055 acknowledged that both core and noncore customer representatives "settled many difficult economic and regulatory issues" in the Gas Accord settlement. (73 CPUC2d at p. 774.) A similar opportunity should be provided before the priority of service rules are changed.

The responses of CIG/CMTA and PG&E warn of the consequences to other noncore customers if electric generators are given a higher priority. If the gas supplies of non-electric generator customers are diverted or curtailed, it is likely that some of these noncore customers will be forced to shut down or reduce their operations. Although the generation of electricity is important, the choice between a shortage of electricity and a shortage of natural gas for other noncore customers is a difficult one. If gas destined for non-electric generator customers is curtailed or diverted, this is likely to impact the manufacturing operations and gas needs of one-third of the noncore gas load, approximately 1100 customers. If these noncore customers have to reduce or shut down their operations because of a lack of gas supplies, a number of employees are likely to be laid off, manufacturing processes will suffer, and these combined impacts are likely to have ripple effects throughout the state's economy. In addition, if electric generators are given a higher priority, there could be health and safety impacts as well.

We recognized this potential impact in D.01-12-019. We stated in part "that setting priorities for gas service would require a careful consideration of the many users of gas and the importance of their goods and services for California," and that a "simple `electric generator' approach to setting priorities is not a reasonable approach to such a complex issue." (D.01-12-019, p. 17.)

We also determined in D.01-12-019, that barring an exceptionally cold winter, that there should be adequate natural gas supplies over the next 12 months. In addition, we found that no curtailments or diversions are likely for the systems of PG&E and SoCalGas. (D.01-12-019, pp. 13-14.)

We also noted in D.01-12-019 at page 32 that CGC's comments to the draft of that decision acknowledged that the crisis that provided the motivation to give electric generators a higher priority for the natural gas had passed.

For all of the above reasons, NCGC's petition to modify the PG&E Gas Accord and Resolution G-3288 should be denied.