VI. Assignment of Proceeding

Loretta M. Lynch is the Assigned Commissioner, and John S. Wong is the assigned ALJ in this proceeding.

Findings of Fact

1. D.03-12-061 addressed PG&E's natural gas market structure for 2004 and 2005, and adopted the Line 401 at-risk adjustment.

2. The First and Second Petitions, and the Supplement to the Second Petition, reflect an evolution of PG&E's position and the negotiations that have taken place in A.04-03-021.

3. PG&E's First Petition seeks to modify D.03-12-061 by adding a new paragraph which would clarify that the Line 401 at-risk adjustment should only be applied to the original Line 401 facilities.

4. If PG&E's First Petition is granted, PG&E's 2004 backbone transmission rates would increase.

5. Mirant and NCGC believe that the Line 401 at-risk adjustment was correctly applied to the facilities constructed in 2002.

6. PG&E's Second Petition seeks to modify D.03-12-061 by having the Commission strike the language that endorses the Line 401 at-risk adjustment.

7. The purpose of the Supplement is to explain the relief requested in the Second Petition in relationship to the proposed settlement in A.04-03-021, and to provide some mathematical examples of the effects of the Line 401 at-risk adjustment.

8. Although TURN had taken the position that the Line 401 at-risk adjustment was correctly applied to the facilities constructed in 2002, TURN's response to the Supplement acknowledges that the adjustment may result in a disincentive for investing in future infrastructure expansions.

9. TURN's response to the Supplement proposed that instead of eliminating the Line 401 at-risk adjustment language from D.03-12-061, that an additional paragraph be added describing how the adjustment may result in a disincentive, and that the adjustment after 2007 should only apply to Redwood Path capacity built prior to 2002.

10. As an alternative to TURN's proposed paragraph, PG&E proposes that the Commission add an additional paragraph to D.03-12-061 describing how the Line 401 at-risk adjustment suffers from several flaws, including how the adjustment discourages future infrastructure investment, and that PG&E should include in its next rate application a load factor for backbone rates that does not perpetuate the problems that the adjustment suffers from.

11. As a result of the proposed settlement in A.04-03-021, which would establish PG&E's gas transmission rates for 2005 through 2007, PG&E is willing to leave the Line 401 at-risk adjustment language intact if its paragraph regarding the flaws with the adjustment is added to D.03-12-061.

12. There is no need to strike the language in D.03-12-061 that refers to the Line 401 at-risk adjustment, as requested by PG&E in its Second Petition.

13. The mathematical examples in the Supplement support PG&E's point that the Line 401 at-risk adjustment could create a disincentive for PG&E to invest in the gas transmission infrastructure.

14. The adoption of the paragraph to be added to D.03-12-061 resolves the concerns that PG&E raised in its First and Second Petitions and the Supplement, and the concerns of the other parties

Conclusions of Law

1. The respective paragraphs that PG&E and TURN seek to add to D.03-12-061 agree that the Line 401 at-risk adjustment can create a disincentive for future investment.

2. The policy of this Commission is to ensure that California has the necessary gas transmission, distribution and storage facilities to meet California's natural gas needs.

3. Adding an additional paragraph to D.03-12-061 to address the disincentive issue, similar to what PG&E and TURN have proposed, is warranted.

4. PG&E's Second Petition, which has been changed as a result of PG&E's reply to the Supplement, should be granted by adding the paragraph set forth in the discussion section of this decision before the last paragraph on page 292 of D.03-12-061.

5. All other relief that PG&E and the other parties seek with respect to the Second Petition and the Supplement should be denied.

6. PG&E's First Petition should be deemed moot.

7. This proceeding should remain open to consider the remaining petition for modification of D.03-12-061.

ORDER

IT IS ORDERED that:

1. The July 2, 2004 "Second Petition of Pacific Gas and Electric Company for Modification of Decision 03-12-061" (Second Petition) as changed by Pacific Gas and Electric Company's (PG&E) October 25, 2004 reply "To Parties Who Responded To PG&E's Supplement To Its Second Petition for Modification of Decision 03-12-061," is granted as set forth below.

a. Decision (D.) 03-12-061 shall be modified by adding the following paragraph before the last paragraph on page 292 of D.03-12-061 after the line "a reasonable opportunity to recover its revenue requirement:"


"In a petition for modification of D.03-12-061, PG&E has raised the issue that the Line 401 at-risk adjustment that was adopted in this decision (D.03-12-061) for the purpose of setting PG&E's backbone transmission rates suffers from several methodological flaws, including creating a disincentive for PG&E to continue investing in the natural gas transmission infrastructure. We are cognizant of the disincentive that the Line 401 at-risk adjustment could create, and our policy of encouraging continuing investment in the gas transmission infrastructure so that consumers are protected from extreme price spikes, price volatility and service curtailments. Although we adopted the Line 401 at-risk adjustment for setting rates, and a proposed settlement in A.04-03-021 proposes to set rates for 2005 through 2007, PG&E is free to propose a different methodology for calculating its backbone rates when it files its next rate application for its gas transmission system."

b. All other relief requested by PG&E and by the other parties in connection with PG&E's Second Petition and the Supplement to the Second Petition is denied.

2. PG&E's February 24, 2004 "Petition ... for Modification of Decision 03-12-061" is moot.

3. This proceeding shall remain open to address the outstanding Petition for Modification of D.03-12-061 filed by Duke Energy North America and Duke Energy Trading and Marketing.

This order is effective today.

Dated December 16, 2004, at San Francisco, California.

Previous PageTop Of PageGo To First Page