III. Position of ORA/TURN

ORA/TURN propose to modify D.97-08-055 and Resolution G-3288 by modifying PG&E Rule 14 to address the charges associated with diversion of gas supplies. ORA/TURN propose that: (1) the OFO penalties to core procurement customers be waived; (2) EFO penalties to core procurement customers be waived; and (3) the involuntary diversion charge of $50 per Dth be modified to reflect the actual market price of gas up to $50 per Dth.⁴ In essence, ORA/TURN's proposal would not subject core customers to penalties of $100 per Dth, or 10 times the market price of the gas, if PG&E is forced to divert noncore gas to meet its core customer needs.

ORA/TURN contend that the current tariffs did not anticipate a situation whereby PG&E would be unable to purchase gas supply because of insufficient credit. They point to the following phrase in support of their argument:

"When operational conditions exist such that supply is insufficient to meet demand and deliveries to Core End-Use Customers are threatened, and subject to the obligations of Core Procurement Groups to utilize all available capacity associated with supply, PG&E may divert gas supply in its system from Noncore End-Use Customers to Core End-Use Customers." (Rule 14-G.)

ORA/TURN argue that the above tariff language envisions that PG&E's Core Procurement Group would be utilizing all its firm gas pipeline capacity to transport gas to its customers before it diverted natural gas supply from noncore end-users. This is not the situation that PG&E finds itself in.

ORA/TURN also point to PG&E Rule 14-G, where it states that prior to a diversion, "PG&E's Core Procurement Department and Core Transport Agents, on behalf of their Core End-Use Customers, will use:

1) their own firm capacity, to the extent gas supply is available;

2) any As-Available capacity on the system at any receipt point to the extent gas supply is available; and


3) capacity made available from Noncore End-Use Customers...."

Ample gas supply is still available in the market. Gas suppliers are simply unwilling to sell gas supply to PG&E. The diversion charge was based on the premise that no other gas supplies were available to the core except for the diversion of noncore gas. Thus, ORA/TURN is seeking to modify the diversion charge only in a situation where core gas supplies are unavailable due to the unwillingness of gas suppliers to sell. Noncore customers who are diverted should still able to purchase replacement gas since there is sufficient capacity on the system.

ORA/TURN contend that the current penalties serve no purpose other than unnecessarily increasing the cost of natural gas to core customers. They assert that the OFO and EFO penalties were developed to encourage marketers and customers to balance supply and demand on the system, and that the diversion penalty was designed to assure that PG&E core procurement had an appropriate incentive to assure gas supply was delivered to the system during cold weather conditions. ORA/TURN contend that the threat of gas suppliers not providing gas supply to PG&E for its core customers was never contemplated or even considered when the rules were developed.

ORA/TURN further assert that the current rules were developed to address circumstances of a temporary and unusually high gas demand by core customers that would result in the need for PG&E to divert gas from noncore customers to meet the high core demand, such as during extreme weather conditions. If diversions were required, it would only apply to a small incremental volume of gas supply. In the situation which PG&E finds itself in, large volumes of noncore gas would be diverted, and core customers would eventually end up having to pay the penalties and diversion charges. ORA/TURN contend that this type of situation was never contemplated by the Gas Accord rules.

ORA/TURN have filed the petition because they fear that if diversion of noncore gas supplies occur, gas marketers may game the situation by refusing to sell gas to PG&E at a low price, but may allow supplies to be transported to noncore customers whose gas will be diverted at the $50 per Dth diversion charge. As a result, the cost to core customers would increase substantially.

In addition to the concern that PG&E may not be able to meet its public utility obligation of providing gas to its core customers, ORA/TURN are also concerned that core and noncore customers should not be exposed to gas supply interruptions, especially when gas is available, and gas revenues from core customers are enough to pay actual gas costs.

ORA/TURN also believe that PG&E should be directed to immediately inform the Commission of the current storage and supply situation, and to inform the Commission of how PG&E intends to ensure that its obligation to provide gas to its core customers is met.

In their reply, ORA/TURN agree that eliminating the EFO and OFO charges and reducing the diversion charge are not viable long-term solutions to PG&E's problem. Other steps need to be taken to ensure that natural gas supplies continue to be purchased for core customers by a creditworthy entity.

In satisfaction of Rule 47(d) of the Commission's Rules of Practice and Procedure,⁵ ORA/TURN assert that it could not file this petition within one year of the effective date of D.97-08-055 because PG&E's financial crisis and related credit situation did not manifest itself until recently, and the need to modify the decision is based on conditions that were never contemplated when the Gas Accord settlement was negotiated and approved.