7. Backbone Transmission Service Issues

The expansion will increase the Wild Goose facility's injection capacity by approximately 370 MMcf/d and its withdrawal capacity by approximately 500 MMcf/d. The facility's present capacity (injection, 80 MMcf/d and withdrawal, 200 MMcf/d) moves through PG&E's Line 167 and has no direct interconnection with Line 400/401, the Redwood Path. Wild Goose states it intends to continue to use Line 167 for those volumes and so, for the purposes of this proceeding, our inquiry is whether PG&E will be able to provide the transmission service on the Redwood Path necessary to move anticipated expansion volumes or whether peak day constraints are likely.12 Unless a customer holds firm capacity rights on the Redwood Path, the customer's gas will move both to and from the Wild Goose or Lodi storage facilities, under "as-available" or "interruptible" transportation, which is less reliable than firm, but also less expensive.

The evidence on the amount of backbone capacity available to serve the Wild Goose expansion presents a moving target, largely because it requires so many assumptions about system operations as well as about future demand for natural gas and, consequently for transportation, both within California and beyond the state borders. PG&E performed an initial expansion capacity study for Wild Goose in May 2000 (Ex. 127) and after announcing its intention to expand the Redwood Path, provided an update in November 2001 (Ex. 128), during evidentiary hearings. Neither study factors in demand from the Lodi facility, which holds a certificate for inventory of 12 Bcf of working gas with maximum injection capacity of 400 MMcf/d and maximum withdrawal capacity of 500 MMcf/d. (D. 00-05-048, 2000 Cal. PUC LEXIS 394 *16.)

PG&E's initial study suggests the backbone can accommodate the additional Wild Goose injections most of the time (i.e. up to 450 MMcf/d except in winter, when system minimum pressures would permit injections of no more than 350 MMcf/d). Withdrawals present a problem, however; the initial study estimates the backbone can accommodate withdrawals of only 100-150 MMcf/d. Running the electric-driven compressors at PG&E's Bethany compressor station (located on Line 400/401 near the San Francisco bay area load center) more frequently than they operate at present can increase withdrawal capacity to 200-250 MMcf/d.

The update, which includes 200 MMcf/d additional capacity on the Redwood Path, indicates that given average conditions and without the Bethany compressors operating, the backbone can accommodate storage withdrawals of approximately 80 MMcf/d in January and 180 MMcf/d in August (historically, the months for peak day winter and summer capacity demand). With Bethany running, the January and August withdrawal volumes increase, respectively, to 300 MMcf/d and 290 MMcf/d.

ORA and Wild Goose point to a number of uncertainties that may make PG&E's estimates conservative. These include, among other things, the amount of as-available capacity on the Redwood Path if under-deliveries occur at Malin because gas is shipped elsewhere (as has occurred during the past several years) and the amount of additional as-available capacity after expansion of the Redwood Path. Data from the past three winter periods shows unused capacity, on a monthly average basis, in the following amounts: 380 MMcf/d in 1998/99; 245 MMcf/d in 1999/00; and 196 MMcf/d in 2000/01. Wild Goose's much more optimistic synthesis of the evidence (Appendix A to its opening brief) suggests that the backbone may be able to handle storage withdrawals in January of up to 897 MMcf/d and in August, of up to 551 MMcf/d.

In summary, no party argues that there will be insufficient capacity for storage injections-withdrawals present the potential problem area. While the precise amount of backbone capacity available for storage withdrawals is uncertain, the record suggests that during periods of peak demand the backbone may be unable to accommodate full as-available withdrawals from both the Wild Goose facility and the Lodi facility, in addition to other firm and as-available demand on the system. The following section discusses how scarce capacity should be allocated at times of peak demand, should allocation become necessary.

As long as no capacity constraints exist, PG&E pledges to deliver withdrawals from the expanded Wild Goose facility and from the Lodi facility in accordance with the zero toll terms of as-available capacity on the Mission Path, just as PG&E does at present, consistent with Gas Storage Rules 3.1, 3.2, 4.1 and 4.3.13 The parties disagree how to interpret the Gas Storage Rules if capacity constraints on the backbone prevent full withdrawals. The question of how to allocate as-available transmission service among all transportation customers (including customers of independent gas storage) during times of peak demand is one of first impression for this Commission.

The relevant Gas Storage Rules provide:

The Commission adopted these rules in the Gas Storage Decision to remove barriers to storage competition and ensure that independent gas storage providers and their customers were treated no differently than the other gas transportation customers of PG&E and SoCalGas. PG&E charges "postage stamp" rates for each of its path specified backbone transmission lines, such as the Redwood Path, which means a shipper on the PG&E system pays a single, fixed transportation rate to deliver gas to a final, end use destination anywhere on the PG&E system. Under Gas Storage Rule 4.1, if a customer delivers gas into independent storage on the PG&E system, that delivery does not constitute the final, end use destination. In other words, delivery into storage constitutes just part of the full transportation transaction. Therefore, the postage stamp rate paid when gas is transported for injection into storage covers transportation upon withdrawal from storage, throughout the PG&E system, anywhere on the Redwood Path.

However, with the prospect of insufficient as-available transportation capacity during peak demand periods to meet all requests for as-available transportation from Wild Goose and Lodi storage customers, as well as from other transportation customers, the parties strongly disagree about how these Gas Storage Rules should be interpreted. Wild Goose essentially argues that storage customers should have first priority for any as-available transportation over "new" as-available customers, with those who injected into storage earliest entitled to withdraw first. Lodi argues for pro rata allocation of as-available transportation, not just among independent storage customers but also among all customers vying for the same, limited, as available capacity. While ORA agrees that storage customers should pay a single transportation charge for injection and withdrawal, it does not support as-available priority for storage customers; however, ORA does not explain whether that means it shares Lodi's view.

At the other end of this spectrum, PG&E argues that independent storage customers should be allocated that amount of as-available capacity that remains after other customers for as-available transportation have been served; in other words, storage withdrawals should be last in the as-available transportation queue. According to PG&E, Gas Storage Rules 4.1 and 4.3 should no longer apply to storage withdrawals that must travel on the backbone system. PG&E, with support from TURN, argues that location matters, and hence, any independent storage facility that cannot directly serve a load center should not be covered by these Gas Storage Rules, though TURN suggests this issue should be examined more fully in a generic proceeding convened to review the need to amend the Gas Storage Rules. The record is replete with conflicting arguments over whether SoCalGas' primary storage reservoirs do or do not share the load center attributes of PG&E's own McDonald Island, as well as conflicting arguments about whether Lodi or Wild Goose, or both of them, should be considered load center storage.

The result that PG&E and TURN support would require us to amend the Gas Storage Rules, since that result provides independent storage withdrawals with a "lower" priority than other as-available transportation customers. We have insufficient information on this record to determine whether that result would be good public policy; likewise, too few of those who would be affected are represented in this proceeding. On the other hand, Wild Goose's proposal provides independent storage customers with a higher priority than other as-available customers, an advantage that we do not read the Gas Storage Rules to contemplate. We find that Lodi's evenhanded proposal provides the most competitively neutral approach. Therefore, on the record developed in this proceeding, we affirm the Gas Storage Rules in their present form and hold that they require a pro rata allocation of as-available Redwood transportation capacity among all potential subscribers, whether they seek to transport flowing supplies or gas previously injected into storage at the Wild Goose or Lodi facilities. The same pro-ration should apply to allocation of Mission path capacity. We direct PG&E to submit by advice letter, within 45 days of the effective date of this decision, proposed tariffs or amendments to existing tariffs, as appropriate, that address pro ration of as-available capacity among all customers during times when insufficient as-available capacity exists to serve all requests for it.

The tariff proposal should comply with the following principles found in the Gas Accord or underlying the current, standard operating procedures on PG&E's system:

The Scoping Memo relegates to Phase III of this proceeding or to some other, appropriate proceeding, resolution of the following issues: (1) whether PG&E should be required to expand its backbone transmission system to accommodate additional storage capacity, and (2) how the costs of a backbone expansion should be allocated. Yet because the Scoping Memo creates some overlap between the CPCN issues (Phase I) and the deferred issues, the ALJ permitted parties to address this overlap generally, if they saw fit to do so, to provide a broader context for their Phase I positions. We briefly summarize this portion of the record.

A central element of Wild Goose's position is its call for the Commission to adopt a so-called "equivalent service" standard by which PG&E would be obliged to design its backbone system to accommodate maximum withdrawals from all, interconnected storage facilities during times of peak demand (to the extent cost/benefit analysis supports that result) and to operate its system to maximize the efficiency of the natural gas transmission, storage and distribution components. Wild Goose argues that the Commission must embrace the concept of equivalent service to enforce the nondiscrimination tenets of the Gas Storage Rules, if independent gas storage is to continue as a viable alternative to other customer options, such as utility storage and flowing gas supplies. At the present time, Wild Goose argues, prospective storage customers have no "gauge" against which they can assess what level of transportation service they will receive from PG&E, which makes weighing alternatives very difficult. Wild Goose proposes several approaches for implementing this "equivalent service" standard, such as increasing compression on Line 400/401 downstream of Delevan at an estimated cost of $37.5 million, requiring that PG&E increase its use of the Bethany compressor station if that will avoid peak day constraints, and exploring the use of hub-to-hub services to maximize gas deliveries through operational exchanges on the system wherever needed.

PG&E opposes any solution other than physical expansion of the backbone paid for by Wild Goose or other independent storage providers, arguing that it seeks to protect core ratepayers from non-core cost burdens. ORA and TURN reiterate their positions that we cannot make findings regarding the proposed "equivalent service" standard without considering, in much greater detail than this record provides, both the need for backbone expansion and the cost allocation of such an expansion.

We agree with TURN and ORA that the complexity of these issues requires a focused but more generic inquiry than that presented by the proposed expansion of a single, independent storage provider. We also perceive, based on the evidence in this proceeding, that these issues may not be ripe for further review at present. We do not think that this proceeding is the appropriate forum for considering these issues in greater detail and will not order a Phase III. Neither will we open a new proceeding at this time. However, we will not foreclose any party from raising gas transmission priority issues, other system operations issues, and backbone expansion issues, by motion in any suitable, pending, generic gas proceeding. We will continue to monitor developments in the California natural gas market closely. At such time as we do reexamine the potential for transmission capacity constraints, we will want to review all reasonable, economic options, including operational alternatives to physical expansion of existing gas plant.

12 Wild Goose seeks an interconnect at Delevan designed for 700 MMcf/d, according to its witness Amirault, "... so that in abnormal situation, if the circumstances on Line 167 should dictate, and additional capacity on the backbone allows, all 700 MMcf/d could be accommodated [on the backbone]." (Ex. 10.) 13 Unlike the Redwood or Baja paths, PG&E's Mission path is not a physical backbone transmission line but a "contractual" path used to account for deliveries from storage, including PG&E's McDonald Island storage, to a load center destination on PG&E's system (referred to as the "city gate"), irrespective of the actual pipes used to deliver the gas. The Mission path toll is zero cents per decatherm. The toll on injection into the Wild Goose or Lodi storage facilities depends upon the transmission path and the level of service (firm or as-available) that the transportation customer has obtained from PG&E.

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