Comments of the Parties

NCGC does not oppose the adoption of the proposed settlement agreement. LGS supports the proposed settlement agreement in principle, but did not sign the settlement because it wants to remain free to advocate its position that LGS be treated equally with any other gas storage provider on PG&E's system.

Calpine does not oppose or support the proposed settlement agreement. Although Calpine acknowledges the need for certainty with regards to the terms and conditions of transportation capacity after the Gas Accord ends, Calpine points out that the proposed settlement agreement is only a short-term solution. Calpine requests that the Commission find that the settlement agreement has no precedential effect on the final resolution of the Scoping Memo issues, and that the Commission order that the Scoping Memo issues be addressed in this proceeding.

EPNG states that the proposed open season would create a competitive imbalance to the detriment of interstate pipelines transporting gas from the Southwest and to Southwest Gas producers, and would benefit PG&E, PG&E's interstate pipeline affiliate, PG&E Gas Transmission Northwest, and Canadian producers. EPNG contends that this imbalance will occur because only annual capacity, and not seasonal capacity, is being made available during the open season. EPNG believes that after the existing contracts are extended, there is likely to be seasonal capacity available on Line 300. However, since this seasonal capacity on Line 300 will not be made available for the open season, there will be no capacity on Line 300 to compete with the expansion capacity on PG&E's Lines 400 and 401, the Redwood Path. EPNG asserts that this will tend to encourage shippers to request and contract for firm capacity on Lines 400 and 401 rather than on Line 300. To eliminate this concern, EPNG recommends that the Commission condition the approval of the settlement upon PG&E making all unsubscribed capacity, including all seasonal capacity, available to shippers in the open season on an open and nondiscriminatory basis.

DGS states that due to the uncertainty over PG&E's pending bankruptcy, the upcoming expiration date of the Gas Accord, and the limited term of the proposed extension, the Commission has no other real option other than to extend the term of the Gas Accord for one additional year and to market the additional expansion capacity. DGS, however, recommends that the Commission make the following changes to the proposed settlement agreement.

The first change is clarification of whether the Commission wants another deal presented to it regarding the Scoping Memo issues, or if it wants to have a full record on the efficacy of PG&E's Gas Accord. DGS states that PG&E should be required to file an amended application and testimony in response to the Scoping Memo issues within 30 days after the approval of whatever plan of reorganization is adopted by the Bankruptcy Court. TURN supports this recommendation.

DGS also states that any settlement discussions should be deferred until PG&E has filed the amended application, and that the other parties' testimony should follow the holding of a prehearing conference on the amended application. DGS also states that PG&E should be required to provide a full cost of service study on the backbone system and to disclose its revenues from those operations because DGS believes that PG&E has made substantially more than its costs and the authorized rate of return.

The second change sought by DGS is that the open season bidding process should give priority to end use customers before capacity is made available to non-end users. To implement this priority, DGS proposes a two-phased open season. The first phase would allow end use customers to obtain rights to capacity based on their expected demands, net of any rights they (or contracted marketers acting on their behalf) already possess. The second phase would make the balance available to the market.

The third change that DGS recommends is that PG&E should be required to immediately submit a cost of service study before the Commission approves the rates in the proposed settlement agreement. DGS believes that PG&E is making a greater return than it would under traditional cost of service, and that this study will allow the Commission to explore this issue.

SoCalGas and SDG&E state that they generally support the proposed settlement agreement because it would guarantee the continuation of a system of firm, tradable rights on the PG&E system. However, if the Commission does not act quickly to implement D.01-12-018, the decision which approved a system of firm, tradable backbone transmission rights on the SoCalGas system and which is generally consistent with PG&E's Gas Accord system, SoCalGas and SDG&E state that the Commission should reject the proposed extension of the Gas Accord.

SoCalGas and SDG&E recommend that the Commission adopt two specific changes for the PG&E system as a condition of approval of the settlement. The first change is that PG&E should be required to be fully consistent with the nominations protocols of the North American Energy Standards Board (NAESB). Specifically, SoCalGas and SDG&E recommend that PG&E should be required to comply with the NAESB protocols with respect to the bumping of interruptible nominations by firm nominations after the first gas nomination cycle.

Under those protocols, for each day, firm nominations can bump any interruptible nominations up through and including the third cycle of the nomination process. Under the PG&E system, firm rights cannot bump previously scheduled interruptible nominations on nomination Cycles 2 and 3. SoCalGas and SDG&E assert that under PG&E's system, firm backbone rights holders have to nominate 24 hours ahead of time in order to assure that they get their gas scheduled ahead of interruptible shippers nominating in Cycle 1. They argue that such a procedure on PG&E's system clearly disadvantages firm rights holders relative to their rights under the NAESB.

SoCalGas and SDG&E state that all FERC regulated pipelines are required to be NAESB-compliant. If D.01-12-018 is implemented, SoCalGas intends to be NAESB-compliant with respect to nominations and scheduling procedures. By requiring PG&E to be NAESB-compliant, firm holders on PG&E's system, such as SDG&E, can more fully utilize the firm rights that they are paying for, according to these parties.

The second change that SoCalGas and SDG&E recommend is a requirement that PG&E post daily on its publicly-available electronic bulletin board the total amount of gas stored in its underground storage fields as of the previous day. This information is published daily on SoCalGas' GasSelect system, and SoCalGas plans to continue doing so after D.01-12-018 is implemented. SoCalGas and SDG&E assert that this information will provide greater transparency to the market, and that it will affect perceptions as to the demand for flowing supplies and interstate and intrastate pipeline capacity for the immediate future.