10. Order Instituting Investigation
While we do not believe that the evidence presented by Edison and SCGC should change the outcome of this proceeding, we do agree that further investigation is warranted into the causes of the extreme border price spikes in December 2000 through spring 2001. As TURN points out, however, this type of investigation is inappropriate in a SoCalGas-specific application proceeding.
Our order today directs the Commission's Energy Division to prepare an Order Instituting Investigation into the 2000/2001 border price spikes for our consideration. This inquiry should include, but not be limited to, the activities of all major trading entities in and at the California-Arizona border for the years 2000 and 2001 and the impact of those activities on California's energy crisis.
1. During the first six years of the GCIM, core ratepayers received gas at a cost $42 million below benchmark prices.
2. In Year Seven of the GCIM, SoCalGas procured gas at an overall rate $223 million below benchmark.
3. Savings under the GCIM below benchmark are shared on a 50/50 basis by ratepayers and by shareholders.
4. The sharing mechanism provides an incentive for SoCalGas to seek to procure gas for core ratepayers at the lowest overall cost.
5. Gas purchases made under the GCIM are more favorable to ratepayers than those made when reasonableness reviews were in effect.
6. SoCalGas, ORA and TURN have proposed a Settlement Agreement that would increase core ratepayers' share of GCIM savings and would cap the sharing revenue available to shareholders.
7. The Settlement Agreement incorporates most of the changes into the GCIM recommended by the Commission's Energy Division in its evaluation report.
8. Edison and SCGC do not oppose incentive-based regulation of the gas procurement activities of SoCalGas.
9. Edison offers no persuasive evidence in this proceeding to show that the GCIM creates perverse incentives for SoCalGas to increase gas prices at the California-Arizona border.
10. Edison's allegation that the core did not properly fill its storage in Year Seven is contradicted by the evidence.
11. SCGC's criticisms of the proposed Settlement Agreement are without merit.
12. SoCalGas has failed to show that this proceeding is the proper forum to resolve discovery disputes that may or may not occur in A.01-06-027.
1. The public interest is served by extending the GCIM and by adopting changes to that incentive mechanism sponsored by SoCalGas, ORA and TURN.
2. The Settlement Agreement sponsored by SoCalGas, ORA and TURN is reasonable in light of the whole record, consistent with the law, and in the public interest.
3. The joint motion to approve the Settlement Agreement should be granted, provided the Settling Parties do not within 10 days object to a change in Year 9 and beyond to provide for an accepted variance of +5/-5 Bcf.
4. The protests of Edison and SCGC should be dismissed.
5. The Energy Division should be directed to prepare an Order Instituting Investigation into the 2000/2001 border price spikes for our consideration.
IT IS ORDERED that:
1. The joint motion by Southern California Gas Company (SoCalGas), the Office of Ratepayer Advocates, and The Utility Reform Network to approve the Settlement Agreement, appended hereto as Attachment A, is granted; provided, however, that unless a settling party objects in writing within 10 days, the Settlement Agreement is amended to state that the minimum core November 1 storage inventory target for Year 9 and beyond is 70.0 Bcf of physical gas supply in storage inventory with an accepted variance of +5 Bcf and -5 Bcf.
2. SoCalGas is directed to amend its tariff for the Gas Cost Incentive Mechanism (the GCIM) to incorporate the changes set forth in the Settlement Agreement.
3. SoCalGas is authorized to continue to procure gas for core customers pursuant to the terms of the GCIM, as amended.
4. The protests of Southern California Edison Company and the Southern California Generation Coalition are dismissed.
5. Resolution ALJ 176-3041 is amended to show that hearings were required for Phase 2 of this proceeding.
6. The Commission's Energy Division is directed, within 60 days, to prepare for Commission consideration an Order Instituting Investigation into the border price spikes experienced in the period of December 2000 through spring 2001.
7. Application 00-06-023 is closed.
This order is effective today.
Dated June 6, 2002, at San Francisco, California.
LORETTA M. LYNCH
President
HENRY M. DUQUE
CARL W. WOOD
GEOFFREY F. BROWN
MICHAEL R. PEEVEY
Commissioners
ATTACHMENT A
Settlement Agreement Among
SoCalGas, ORA, and TURN
On the GCIM
This Settlement Agreement has been entered into by and among Southern California Gas Company ("SoCalGas"), the Office of Ratepayer Advocates ("ORA"), and The Utility Reform Network ("TURN").
This Settlement Agreement addresses modifications to SoCalGas' Gas Cost Incentive Mechanism ("GCIM") for Year 7 and beyond, except as otherwise specified. This Settlement Agreement will promptly be submitted under joint motion of the parties to the California Public Utilities Commission ("Commission") for approval.
¬ Continuation of the GCIM. As modified herein, the GCIM will continue on an annual basis until further modified or terminated upon Commission order.
¬ Starting in Year 8, the NYMEX Program will be eliminated as a benchmark index.
¬ Additional interstate transportation will be flowed through as a ratepayer cost as long as total transportation does not exceed transportation necessary for retail core load. Any transportation acquired in excess of that required for retail core load in a given month is subject to review in connection with the GCIM audit on an annual basis. Additionally, the 10% Border guideline is eliminated.
SoCalGas will maximize its utilization of firm interstate capacity, and its purchases from the basin and mainline receipt points. Capacity utilization is deemed reasonable if SoCalGas nominates at least 95% of its unreleased rights in a given month. In determining transportation necessary for retail core load, consideration will be given to performance of the interstate pipeline capacity including cuts and pipeline maintenance. All commitments for capacity will be communicated to the ORA and TURN. No commitments in excess of two years will be made without consultation with the ORA and TURN.
All related transportation costs associated with the additional core capacity will be treated similar to other gas commodity charges and included in the Purchased Gas Account. The fixed costs would be recoverable from customers, and basin purchases would be measured in the GCIM similar to other basin purchases.
¬ Non-SoCalGas Receipt Points as a Result of the El Paso Reallocation. These transactions will be separately tracked and the value of interstate capacity dedicated to the core associated with the sale of gas at these receipt points will flow entirely to SoCalGas' core ratepayers. In recognition of these new El Paso Natural Gas Company ("El Paso") receipt points (i.e., PG&E-Topock, Mojave-Topock) allocated to SoCalGas, the GCIM benchmark will be adjusted to include the new points. Similar to the current monthly border benchmark, the new points will be indexed to mutually agreed upon publication(s) and will be volume weighted by actual purchases and sales. If an index is not available for a delivery point, a mutually agreed upon substitute index (i.e., % of another SoCalGas border index) will be utilized.
¬ Portfolio Combination. If the Commission approves the consolidation of the SoCalGas and San Diego Gas & Electric Company ("SDG&E") procurement groups, all purchases for SDG&E will be included in SoCalGas' GCIM sharing band structure. Additionally, any charges for pipeline reservation and storage incurred by SDG&E at the time of the combination will be treated in the same manner as SoCalGas' for GCIM purposes. SoCalGas will file an advice letter in order to implement the appropriate amendments to the GCIM required by the consolidation.
¬ Sharing Bands. Gas markets have been relatively stable for six of the last seven years and should stabilize again. However, in recognition of the potential impact of volatile markets on the current GCIM award formula, the following changes to the sharing bands will be made.
The sharing bands above the benchmark will remain unchanged, with no sharing up to 2% above the benchmark and 50/50 sharing between ratepayers and shareholders if more than 2% above the benchmark. The mechanism will include a contingency for operational emergencies (e.g., earthquakes, pipeline failures, and other force majeure events). If such emergencies result in costs above the benchmark, then ratepayers would absorb these costs. An alternative daily benchmark could be used to measure these purchases.
· The sharing bands below the benchmark, as a percent of annual gas commodity benchmark, will be as follows:
# |
Sharing Band |
Ratepayer |
Shareholder % |
1 |
0.0% -1.00% |
100% |
0% |
2 |
1.00% - 5.00% |
75% |
25% |
3 |
5.00% & Above |
90% |
10% |
_ The shareholder award will be capped at 1.5% of the actual annual gas commodity price.
¬ "Mark-to-Market" Accounting. All GCIM reporting will be done on a "flow month" basis with all activity associated with a particular production month accounted for in that month. Consideration of mark-to-market accounting will be revisited in future years.
¬ Annual GCIM and GCIM shareholder benefit. Beginning in GCIM Year 9, SoCalGas will include the shareholder benefits of the GCIM from the most recent monthly report in SoCalGas' core monthly gas pricing advice letters submitted to the Energy Division, with copies to ORA. SoCalGas will maintain an interest-bearing tracking account associated with the recovery of shareholder benefits. On June 15 of each year, SoCalGas will file its annual GCIM application to the Commission describing in detail the results of the GCIM over the past year. ORA will conduct its annual audit and issue its monitoring and evaluation report by October 15 of each year. Any agreed-upon adjustments in the shareholder incentive award for the past year will be reflected in SoCalGas' next core monthly gas pricing advice letter or as mutually agreed upon by SoCalGas and ORA. If SoCalGas and ORA cannot resolve their differences, if any, concerning recommended adjustments in ORA's monitoring and evaluation report, then the matter will be set for hearing. There will be a reconsideration of the need for an application process in future years.
¬ Storage: SoCalGas is required to meet appropriate storage inventory targets. The core November 1 storage inventory target is 70.0 Bcf of physical gas supply in storage inventory with an accepted variance of + 5 / -10 Bcf. If the November 1 target is not met, however, deliveries must be made to insure that at least 60 Bcf of actual physical gas is reached prior to December 1. The January, February and March minimum month-end targets (equivalent to peak day minimums necessary for serving the core) must be met.
For GCIM Year 8, it is recognized that the winter storage targets may not be met because of high electric generation demand. For Year 8, if SoCalGas' system receipts are near capacity (approximately 3.4 Bcf/d average during April-October), the November 1 core physical storage must equal at least 80% of SoCalGas total system storage. Under these conditions, SoCalGas will operate under the objective of maintaining physical inventory of 55 Bcf for the core, with the caveat that under extreme (hot) weather conditions that SoCalGas may not achieve this goal. If system receipts average below 3.4 Bcf/d, the targets above apply.
Any deviations from these storage targets should be explained in SoCalGas' annual GCIM filing. The above targets and objectives are not intended to describe or limit the core's rights on the SoCalGas system but instead will be adjusted from time to time as may be necessary or appropriate.
¬ Reservations. This Settlement Agreement represents a negotiated compromise among the parties on a number of issues. If not accepted by the Commission, this Settlement Agreement shall not be admissible in evidence in this or any other proceeding. Nothing contained herein shall be deemed to constitute an admission or an acceptance of any fact, principle, or position contained herein by any party.
The Settlement Parties have bargained earnestly and in good faith to achieve this settlement. The Settlement Parties intend that the Settlement Agreement be treated as an entire package and not as a collection of separate agreements on discrete issues. Indeed, in order to accommodate the interests of different parties on such an array of diverse issues, changes or concessions in one section of the Settlement Agreement frequently necessitated changes in other sections. In short, the compromises reflected in the various sections of the Settlement Agreement are closely interrelated. Accordingly, the Settlement Parties shall request the Commission to promptly approve the Settlement Agreement without modification. Any material change to this Settlement Agreement shall render the Settlement Agreement null and void.
Agreed to by the undersigned parties on the dates indicated below.
SOUTHERN CALIFORNIA OFFICE OF RATEPAYER ADVOCATES
GAS COMPANY
By /s/ JUDITH L. YOUNG By /s/ PATRICK L. GILEAU
JUDITH L. YOUNG PATRICK L. GILEAU
Title Attorney for Southern Title Attorney for the Office of
California Gas Company Ratepayer Advocates
Date July 3, 2001 Date July 3, 2001
THE UTILITY REFORM NETWORK
By /s/ MARCEL HAWIGER
Title Staff Attorney
Date July 2, 2001
(END OF ATTACHMENT A)
