3. Revised Rules for Core Transportation⁵ and
Procurement Services

SoCalGas and SDG&E propose revisions to rules applicable to noncore-to-core transfers, and to large core customers switching from transportation-only to bundled core utility procurement service. There appears to be relatively little opposition to SoCalGas' and SDG&E's proposals in these areas. They propose revised rules for their noncore customers wishing to take core transportation-only service or bundled core transportation and utility procurement service. Currently, the two utilities' rules in these areas are somewhat different, both as a result of Resolution G-3304 imposing a moratorium on election of core transportation and core procurement and of other differences adopted in the past. Regardless of whether the core procurement departments of the two utilities are consolidated, it is appropriate to consider uniform rules for election of core transportation and procurement by noncore customers generally in California, and we take the opportunity of the record developed in this case to do so for these two utilities. We will consider similar changes as appropriate for PG&E separately.

SoCalGas and SDG&E propose that electric generation, refinery, and enhanced oil recovery (EOR) customers of either utility, any of whom consume over 250,000 therms per year, should not be able to choose core transportation service or bundled core transportation and utility procurement service. Other customers with noncore status, after expiration of any firm contracts they already have with their utility, would have the option to switch to core transportation-only service or bundled core transportation and utility procurement service. Moreover, SoCalGas and SDG&E propose that noncore firm service customers be given a one-time option to cancel their existing firm service contract in order to elect core service, provided the election occurs within three months of the effective date of the new service.

SoCalGas and SDG&E propose that they not be required to accept elections by noncore customers for core transportation service if existing utility intrastate capacity is not sufficient, to prevent service to traditional core customers becoming degraded. Customers electing core transportation service should have to commit to a five-year term, rather than a one-year term as is currently required. They would pay the applicable core transportation rates for their class of service, rather than noncore transportation rates. The utilities point out that because core transportation service means a one-in-35 year level of reliability, additional demands on transmission and storage resources will be created. Transmission and storage facilities are long-lived investments. The utilities believe, therefore, that it is reasonable that noncore customers wishing to switch to core transportation service should have to make a five-year commitment before the utility is committed to long-lived assets necessary to provide that level of service.

The utilities propose that noncore customers switching to bundled core transportation service and utility procurement service be required for the first 12 months to pay a "cross-over" procurement rate. The cross-over rate would be the higher of a) the posted monthly core procurement rate (which will include intrastate backbone costs) or, b) the GCIM monthly benchmark for California border purchases plus the per-unit cost of intrastate backbone costs included in the posted monthly procurement rate (because the California border price alone does not cover the cost of intrastate backbone capacity and it will no longer be recovered in the transportation rate). For the remaining four years, the procurement rate would be the same as charged to core customers.

SoCalGas and SDG&E claim that the combination of the five-year commitment and the cross-over rate for the first 12 months of that five years will be sufficient to prevent price arbitrage and protect existing core customers. The cross-over rate will discourage switching to avoid the impact of short-term border price spikes. The five-year commitment will prevent opportunistic switching in and out of utility procurement service. Also, the five-year commitment will allow the utilities to better plan contracts for gas supply and associated storage and interstate pipeline capacity. SoCalGas and SDG&E recommend that they be allowed to propose by advice letter an additional surcharge to the cross-over rate if the provision turns out to be insufficient to avoid the imposition of significantly higher costs on existing core customers.

The utilities assert that the five-year commitment of a customer consuming over 250,000 therms per year⁶ electing core transportation service should carry an

80% use-or-pay requirement (as applied to the core transportation rate) should the customer fuel switch or bypass utility service, as is the case already for noncore customers contracting for firm noncore transportation service (as applied to the noncore transportation rate). The five-year commitment to utility procurement service should carry a 14% take-or-pay requirement in the case of fuel switching or bypass, as now provided for core subscription.

The utilities propose that noncore customers who were already receiving core subscription service before January 1, 2001, should be allowed to switch to bundled core transportation and utility procurement service (with a five-year commitment) on the effective date of this decision, if they are still on core subscription service as of that date, without having to pay the cross-over procurement rate. Currently they receive procurement service at an average portfolio price and did not elect utility procurement service because border prices had spiked.

SDG&E's noncore customers who began core subscription service on and after January 1, 2001, have effectively been paying a rate roughly equivalent to the cross-over rate. Therefore, the utilities' recommend that those customers who elect bundled core transportation and utility procurement service offered as a result of this application should only have to pay the cross-over rate for a period not to exceed 12 months after they commenced core subscription service from SDG&E.

In Resolution G-3304, the Commission made special provision for SoCalGas' noncore customers whose gas supplier withdrew from service in California altogether and who in the judgment of SoCalGas would be left without service, allowing them an exemption from the moratorium on new core subscription customers. SoCalGas believes such customers could be exempted from the cross-over rate for utility procurement service, but should be required to make a five-year commitment for core transportation and utility procurement service.

ORA generally supports applicants' proposed rules for noncore customer transfers to core service, but recommends that eligible noncore customers electing transportation-only service be required to make a permanent commitment to that service instead of just five years. ORA agrees that a customer switching from noncore service to core service with its one-in-thirty-five year reliability criteria creates additional demands on transportation and storage resources requiring the utilities to make substantial commitments that generally last a number of years. Therefore, ORA argues, the customer should be required to make a commensurate commitment to taking core service, which in this case should be a permanent commitment. The storage, transportation, and distribution facilities of the utility are typically depreciated over useful lives of over 40 years. If the utilities make investments of plant with useful lives of over 40 years to serve new core customers, then allowing these customers to opt out after just five years would leave these additional costs to be allocated to traditional core customers. The traditional core customers would then be responsible for the investments required to serve the switching noncore customers that were provided a higher level of service as core customers. Consequently, those customers should not have the option of moving into and then out of core service, even for a five-year period.

We agree that the combination of the five-year commitment and the cross-over rate for the first 12 months of that five years will be sufficient to prevent price arbitrage and protect existing core customers. A five-year commitment is adequate to prevent opportunistic switching in and out of utility procurement service. The five-year commitment will allow the utilities to better plan contracts for gas supply and associated storage and interstate pipeline capacity.