II. Background and Procedural History

In the complaint, PG&E alleges that LGS is improperly offering the Calpine Entities natural gas transportation services. PG&E claims LGS has a certificate of public convenience and necessity (CPCN) for gas storage services only, and that by offering transportation services LGS is exceeding the authority the Commission granted it in its CPCN.² PG&E claims LGS has established direct interconnections between the pipeline the Commission authorized it to install as part of its natural gas storage facilities and CPN's supposedly proprietary natural gas pipeline in an attempt to bypass PG&E's natural gas transportation charges.

PG&E claims that portions of CPN's purported proprietary natural gas pipelines should be treated as public utility services because they are in actuality dedicated to public use. This is because, according to PG&E, CPN is supplying LGS-transported natural gas to Chevron Corporation and to its own Calpine affiliates (Calpine's power plants). PG&E claims doing so is enough to transform Calpine into a public utility operating in PG&E's territory. However, claims PG&E, PG&E has a Commission-mandated monopoly on such services in its territory, and Calpine is acting in violation of law by bypassing PG&E's natural gas transportation network. Moreover, PG&E claims, Calpine is evading local transmission and customer access and customer class charges for natural gas consumed in PG&E's service area. PG&E seeks reparations from both LGS and the Calpine Entities.

LGS claims it is furnishing Calpine natural gas storage services in compliance with its CPCN. Calpine claims it is not a public utility, but rather a private entity using its own proprietary pipeline to deliver natural gas to its own plants after it receives the natural gas out of storage from LGS. Therefore, both defendants claim, they owe PG&E nothing, as they are not unlawfully bypassing PG&E's natural gas system.

In the October 24, 2003 scoping memo for the proceeding, the Assigned Commissioner and Administrative Law Judge (ALJ) determined that hearings would be necessary³ and that the proceeding would require determination of the following issues:

· Whether the facilities of Calpine Corporation, CPN, Calpine Energy Services, L.P., Calpine Natural Gas Company, or LGS identified in the complaint constitute facilities for the transportation rather than storage of natural gas;

· Whether LGS violated the terms of its CPCN or Commission-approved tariff by offering transportation rather than storage of natural gas;

· Whether LGS's CPCN allows interconnection with a Calpine Entity;

· Whether any Calpine Entity has dedicated the gas pipeline(s) identified in the complaint to public use, rendering any such Entity a public utility;

· If any Calpine Entity is a public utility, what course of action the Commission should take;

· Whether any Calpine Entity unlawfully bypassed PG&E's system and failed to pay applicable tariff rates to the utility;

· Whether LGS was required to seek review under the California Environmental Quality Act (CEQA) prior to constructing or allowing construction of portions of or appurtenances to the natural gas pipelines identified in the complaint;

· Whether the LGS/Calpine interconnection(s) are authorized by the Commission as permissible under Pub. Util. Code § 1001;

· A detailed calculation of any reparations claimed;

· If reparations are awarded, how they should be divided between ratepayers and shareholders; and

· Whether applicable statutes of limitations bar any portion of the claimed reparations under the facts of this case.

The scoping memo also directed the parties to meet and confer and explore settlement of the case. Shortly after issuance of the scoping memo, the parties announced they had reached a settlement of the case. The ALJ held a prehearing conference on January 15, 2004 to discuss what the settlement entailed, and ordered the parties to follow the Commission's Rule 51 settlement process.

In compliance with the ALJ's order and Rule 51, the parties held a settlement conference on January 26, 2004, to which all parties were invited. At the settlement conference, the settling parties discussed all aspects of the settlement, including how the settlement proceeds would be distributed among PG&E's residential and business ratepayers and its shareholders.

On February 6, 2004, again in compliance with Rule 51, PG&E and defendants filed a joint motion for approval of the settlement.⁴ The Utility Reform Network (TURN), Wild Goose Storage Inc. (Wild Goose), Duke Energy North America (Duke), and the California Natural Gas Producers Association (CNGPA) each filed timely comments in March 2004 in support of the proposed settlement. No party opposed the settlement.