X. Wheeler Ridge

A. Roll-in Treatment

In D.95-04-078, the Commission elected to recover the costs associated with interconnecting SoCalGas' system with the Kern/Mojave pipeline and the PG&E Expansion (Line 401) on an incremental basis. (Re Southern California Gas Co., 59 CPUC2d 608.) These facilities provide customers with new access to approximately 650 MMcfd of Canadian and Rocky Mountain gas supplies. Under the incremental pricing approach, the $40 million investment in these facilities was recovered from the shippers that used the facilities rather than the general body of ratepayers. At the same time, the Commission also adopted a zone rate credit (ZRC) which effectively relieved shippers using the Wheeler Ridge facilities from any cost responsibility for the eastern portion of the SoCalGas system. The eastern portion of the system provides access to southwestern gas supplies over the El Paso and Transwestern pipelines.

In this proceeding, SoCalGas proposes to roll-in the cost of the Wheeler Ridge facilities into overall transportation rates. In conjunction with the roll-in, both the incremental pricing and the zone rate credit would be eliminated. Rolling the incremental facilities into rate base would increase the revenue requirement by $6.83 million. However, this would not result in a rate increase of that magnitude since the increase in the revenue requirement would be virtually offset by elimination of the zone rate credit. SoCalGas also proposes to terminate the long-term contracts for firm access to Wheeler Ridge currently held by SCE and SDG&E.

ORA was one of the original proponents of incremental pricing for the Wheeler Ridge facilities. However, ORA was never a supporter of the zone rate credit. In ORA's view, the incremental pricing for Wheeler Ridge facilities in combination with the zone rate credit, diluted the underlying purpose of incremental rate treatment. Since elimination of both incremental pricing and the zone rate credit is revenue neutral, ORA supports the proposal on the grounds that it would promote administrative simplicity. No party objects to rolled-in pricing for Wheeler Ridge, but there is some objection to relieving SDG&E and SCE from contracts regarding Wheeler Ridge, discussed below.

B. SDG&E and SCE Contracts

Although ORA supports the proposal to roll-in the remaining costs associated with the Wheeler Ridge facilities, it is concerned about the proposal to simply relieve SDG&E and SCE from their long-term contractual commitments to firm access at Wheeler Ridge. These contracts extend to 2006 and would result in demand charge payments to SoCalGas of approximately $6.8 million. SCGC recommends that SoCalGas be permitted to roll-in the Wheeler Ridge costs only on the condition that it continues to enforce its long-term contracts. It believes that relieving SDG&E, a SoCalGas affiliate, of its long-term commitment has the appearance of favoritism and undue preference; nor is it clear why SCE should be relieved from its obligations under its contract when it had to buy its way out of its long-term commitments to both gas supply in Canada and firm capacity on the PG&E Expansion project. (See D.97-12-040.) Given these factors, ORA tends to support the SCGC proposal. However, ORA is not sure that it can be implemented without SCE and SDG&E paying twice for the facilities; once through the contract and again through the rolled-in rate.

SoCalGas and SCE argue that SCE should not continue to be charged for access to the SoCalGas system at Wheeler Ridge while other shippers receive the same service as part of bundled intrastate transportation on SoCalGas. Those shippers, many of whom have firm upstream transportation service at Wheeler Ridge, would be receiving equivalent benefits to those received by SCE and SDG&E under their existing contracts. However, under the SCGC proposal, those shippers would be subsidized by the continued contractual payments made by SDG&E and SCE. SCE asserts that termination of the Wheeler Ridge access agreements will eliminate the present circumstance where customers with firm access rights are not receiving the full value of their Wheeler Ridge reservation charge. Specifically, customers such as SCE and SDG&E are not receiving the firm services they are paying for. SCE believes that this circumstance exists as a result of SoCalGas' windowing practices, whereby access to the SoCalGas system is based on how much gas SoCalGas determines can flow into each receipt point as opposed to the firm and as-available rights for access owned by shippers. SCE believes relieving it of its contract will have virtually no impact on overall transmission rates.

SDG&E points out that, unlike SCE which has ceased all use of its Wheeler Ridge access with the sale of its power plants, it continues to use Wheeler Ridge to interconnect with firm transportation on PG&E, PG&E-GT-NW, and TransCanada to provide a gas supply to its utility procurement customers. SDG&E expects to continue this use for the foreseeable future. Firm access to the SoCalGas system through Wheeler Ridge makes Canadian gas supplies available to SDG&E's utility gas customers on a firm basis. SDG&E supports a roll-in of the Wheeler Ridge facilities, but under a plan that allows SDG&E to retain firm access to the SoCalGas system as it is provided to shippers today. Having contracted for Wheeler Ridge access service through October 2006 in order to ensure interconnection with the remainder of the firm contractual path to Canada, SDG&E declares that it should not now be expected to make a payment subsidizing other shippers in order to buy itself out of this right -- a right it does not want to lose.

Further, SDG&E considers its Access Agreement with SoCalGas to have value to SDG&E and its utility gas customers. It argues although a buy-out payment has no rationale, a continuation of demand charge payments to SoCalGas would be appropriate and acceptable if it were treated as consideration for the access rights SDG&E currently receives. The Access Agreement, in this circumstance, should continue in effect.

Access protocols at Wheeler Ridge and other SoCalGas receipt points are as yet undetermined. SDG&E wishes to retain the current benefits of having made a long-term commitment that could well continue to be beneficial. The evidence regarding the SoCalGas proposal concerning the SDG&E and SCE contracts is unconvincing. We see no need to condition our authorization of rolled-in costs of the Wheeler Ridge facilities into overall transportation rates upon termination, buy-out, or modification of SDG&E's and SCE's contracts. SDG&E desires to continue its contract; we have no evidence of a compelling reason why it shouldn't. SCE desires to terminate its contract; we have no evidence why that desire should affect our decision to roll-in costs. SoCalGas and SCE may rescind their contract, but only if there is consideration for any release of potential ratepayer benefits.