X. Assignment of Proceeding
Geoffrey F. Brown is the assigned Commissioner, and John S. Wong is the assigned ALJ in this proceeding.
1. The origin of this proceeding can be traced back to R.98-01-011 wherein we considered and identified appropriate reforms to the natural gas market structure in California.
2. D.99-07-015 acknowledged that PG&E's Gas Accord market structure should be considered for SoCalGas.
3. D.01-12-018 adopted the CSA, which called for a system of firm tradable transmission rights on SoCalGas' backbone transmission system, the unbundling of the backbone costs from transportation rates, and an at-risk rate structure for the recovery of the backbone transmission costs.
4. D.04-04-015 adopted the tariffs to implement D.01-12-018, but due to another proceeding, D.04-04-015 was stayed and extended in D.04-09-022 until further notice.
5. D.04-09-022 directed SDG&E and SoCalGas to file an application regarding their system integration and FAR proposals.
6. The system integration issue was addressed in the first phase of this proceeding in D.06-04-033.
7. Due to the difference between the delivery capability of the upstream gas supplies and the take-away capacity of the receipt points on the SDG&E and SoCalGas integrated transmission system, problems in the delivery of gas can result.
8. Under the current system of allocating capacity on the SDG&E and SoCalGas transmission system: (1) end-use customers are the only ones who can transport gas; (2) SoCalGas allocates the available receipt point capacity to the upstream pipelines daily; and (3) the upstream interstate pipelines allocate the capacity among their shippers using their FERC-approved capacity allocation rules.
9. The current system of capacity allocation can result in a situation where access to the system is available only on an interruptible basis, shippers' gas supplies are pro-rated, and receipt points are constrained.
10. SDG&E and SoCalGas' FAR proposal would allocate access rights to the capacity at a particular receipt point on the integrated transmission system to various market participants using a three-step open season process.
11. The two major differences between the unbundled FAR proposal and the FAR proposal is the unbundling of backbone transmission costs from transmission rates, and putting SDG&E and SoCalGas at-risk for the recovery of the backbone transmission costs.
12. DRA's proposal allocates FAR to end-use customers based on the current allocation of intrastate gas transmission costs in the last BCAP, excluding the California gas production receipt points.
13. The Joint Proposal addresses a process for granting scheduling rights for new or expanded receipt point capacity, and a process for granting scheduling rights for new or expanded receipt point capacity in the Southern transmission zone.
14. This phase of the proceeding revisits many of the same issues that were considered when the CSA was adopted, and the various parties continue to disagree on what kind of market structure is best for southern California.
15. The time is ripe to adopt a system of FAR for southern California.
16. The basic underlying system of firm tradable transmission rights has worked and functioned well in northern California.
17. LNG project sponsors, as well as others, seek assurance that their gas can be delivered into the receipt points on the SDG&E and SoCalGas transmission systems.
18. Although capacity constraints have not been much of a problem during the past couple of years, that does not mean these constraint problems have gone away.
19. With the possibility of LNG supplies flowing into southern California, and other changes in the gas market, receipt point constraints may occur again at other receipt points.
20. Under the current system, end-users face uncertainty over whether their gas will flow through a constrained receipt point.
21. The uncertainty over whose gas will flow affects the procurement decisions of end-users.
22. DRA's proposed allocation method does not provide shippers and marketers with any firm capacity, is likely to result in market participants spending a lot of time to match their needs, and is likely to lead to confusion.
23. The Joint Proposal is limited to creating scheduling rights for new or expanded receipt point capacity, and does not establish a system of FAR for existing receipt points on the transmission system.
24. The capacity allocation proposals considered in this decision vary from the capacity allocation method contained in the CSA that was adopted in D.01-12-018.
25. According to its terms, the CSA was terminated on August 31, 2006.
26. The FAR proposal will continue to provide market participants with flexible options and result in the creation of a citygate market for southern California.
27. The adoption of the FAR proposal provides certainty to FAR holders that their gas can be delivered from the receipt point to the citygate, which in turn will encourage parties to enter into long-term gas supply contracts.
28. The concerns regarding the FAR proposal's complexity, increased costs, and affiliate preference are unwarranted.
29. The facts addressed in the Union Pacific Fuels decision are different and distinguishable from the reservation charge that would be assessed on FAR holders.
30. The transmission system has been paid for in rates by the end-users of SDG&E and SoCalGas.
31. The FAR reservation charge provides the FAR holder with access to the transmission system.
32. It is appropriate that shippers and marketers, who have not paid for the cost of the transmission system, pay for a share of the transmission facilities through the reservation charge.
33. The at-risk provision operates in conjunction with the unbundling of the backbone transmission costs and the 15.75 cents per Dth reservation charge.
34. A reservation charge lower than the unbundled FAR proposal rate of 15.75 cents per Dth is needed to stimulate participation for holding a FAR.
35. A cost-of-service FAR charge based on backbone transmission costs will send the appropriate price signals to users of the system.
36. A FAR system that has a lower unbundled reservation charge and no at-risk provision will provide a baseline for determining whether future adjustments to the FAR system are needed.
37. Putting SDG&E and SoCalGas at risk would act as an incentive to maximize throughput on their system, which is contrary to the energy efficiency and conservation goals, and is not appropriate at this time.
38. It is appropriate to unbundle the FAR reservation charge of five cents per Dth from the end-user's bundled transmission rate, and that the credit-back mechanism not be adopted.
39. The parties proposed a number of modifications to the FAR proposal.
40. The citygate pooling service allows for the aggregation and disaggregation of natural gas at the citygate, and creates a pricing point for customers to buy and sell gas.
41. SDG&E and SoCalGas propose to offer firm backhaul service and interruptible off-system service through backhaul.
42. Off-system service provides gas suppliers with another market to sell their gas.
43. The peaking rate tariff applies to gas transportation service provided to any noncore customer who bypasses SoCalGas, in part or in whole.
44. The multi-unit EG provision used to be in the RLS tariff, but was eliminated when the peaking rate tariff was adopted.
45. The evidence presented in this proceeding has not changed the circumstances behind the adoption of the RLS and peaking rate tariff.
46. If the peaking rate is eliminated, the remaining ratepayers will have to pay higher rates because they will bear the costs that the departing customers would have paid.
47. Without the peaking rate, a bypassing customer who calls on SoCalGas for service would only pay the same rate for gas as those customers who remain on the system.
48. The argument that the peaking rate has discouraged electric generators from siting within SoCalGas' service territory is unpersuasive.
49. D.06-04-033 described why the peaking rate does not apply if SDG&E obtains gas at the Otay Mesa receipt point.
50. The evidence does not support the reinstatement of the multi-unit EG provision as part of the peaking rate tariff.
51. The last complete adjudication of the BCAPs for SDG&E and SoCalGas occurred in D.00-04-060.
1. Due to anticipated changes in gas flows, the likelihood that additional gas supplies will flow into California, and the constraint problems that have occurred in the past and which can reoccur again, the current system of allocation should be replaced by a system of FAR.
2. DRA's proposal is not a practical solution for allocating capacity to market participants and should not be adopted.
3. SDG&E and SoCalGas should incorporate the unbundling concept from the unbundled FAR proposal for the FAR reservation charge of five cents per Dth, and the features of the Joint Proposal that we adopt, as described in this decision, into the adopted FAR system.
4. SDG&E and SoCalGas should perform a cost study of the backbone transmission system prior to filing the next BCAP, and the Commission should adopt a new cost-based FAR charge based on the results of the next BCAP.
5. The conversion of the four types of scheduling right situations into the three-step process of the adopted FAR system, as described in the decision, are appropriate and consistent with prior decisions.
6. D.01-12-018 and D.04-04-015 are now moot as a result of today's adoption of the FAR system.
7. The FAR reservation charge is not unlawful under the holding of Union Pacific Fuels.
8. The credit-back mechanism is not discriminatory, and the replacement of the credit-back mechanism with the unbundling of the FAR reservation charge from the end-user's transmission rate eliminates any alleged discriminatory effect.
9. SDG&E and SoCalGas should be authorized to establish a balancing account so that they are not at risk for any under-recovery of the unbundled FAR reservation charge revenues, and any over-recovery is refunded to ratepayers.
10. SDG&E and SoCalGas' FAR proposal, as modified by today's decision, should be adopted as the model for the FAR system, and SDG&E and SoCalGas should incorporate the adopted modifications to the FAR proposal, as described in this decision, into the adopted FAR system.
11. There are no provisions in the Continental Forge or SCE settlements that prevent us from adopting the FAR proposal as the model for the FAR system.
12. SDG&E and SoCalGas should be authorized to establish the FAR Memorandum Account to track and recover the costs of implementing the FAR system and the other services.
13. SDG&E and SoCalGas should file an AL to implement the tariffs and services needed for the FAR system.
14. A review process to assess how the FAR system is working, and whether any changes or modifications are needed, should be initiated by application 18 months after the initial open season has concluded.
15. SDG&E and SoCalGas' proposal to offer a pooling service should be approved, and an AL should be filed to implement the tariff and services needed for the pooling service.
16. To the extent the costs of implementing the pooling service are not included in the FAR system implementation costs, SDG&E and SoCalGas should be allowed to track and recover from all ratepayers the reasonable costs of implementing this service up to a maximum of $500,000.
17. SDG&E and SoCalGas' proposal to offer off-system delivery service to PG&E, as modified by our discussion in this decision, should be approved, and an AL should be filed to implement the tariff and services needed for the off-system delivery service.
18. The use of SoCalGas' transmission facilities to transport gas to points outside of California raises FERC jurisdictional issues, and has operational ramifications for intrastate transmission.
19. SDG&E and SoCalGas should be permitted to file an application to offer off-system service to pipeline interconnections other than PG&E no earlier than May 1, 2008.
20. The SoCalGas peaking rate tariff should continue in effect, and the multi-unit EG provision should not be included as part of the peaking rate tariff.
21. SoCalGas should be ordered to propose in its next BCAP a redesign of the peaking service tariff or a total redesign of its rates to ensure that viable partial bypass can occur while allowing pipe-to-pipe competition to occur.
22. The causes of the regulatory gap that have led to the peaking rate, including the utilities' rate design, balancing requirements, and other factors, should be reexamined in the next BCAP, and upon closure of the regulatory gap, the peaking service tariff should expire at the conclusion of the next BCAP.
23. SDG&E and SoCalGas should file their BCAP applications no earlier than October 1, 2007 and no later than December 15, 2007.
IT IS ORDERED that:
1. A firm access rights (FAR) system is adopted as the new gas market structure for the integrated gas transmission system of San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas).
a. The adopted FAR system shall be comprised of the SDG&E and SoCalGas FAR proposal, the unbundling of the FAR reservation charge of five cents per decatherm from the end-user's transmission rate, the adopted features of the Joint Proposal, and the adopted modifications to the FAR proposal, as described in this decision.
b. SDG&E and SoCalGas shall incorporate all of these adopted elements into the FAR system.
2. SDG&E and SoCalGas are authorized to offer a gas pooling service on the SDG&E and SoCalGas integrated transmission system, and an off-system delivery service to Pacific Gas and Electric Company (PG&E).
3. SDG&E and SoCalGas shall file appropriate advice letters (AL) to implement the FAR system, the gas pooling service, and off-system delivery service to PG&E.
a. The ALs shall contain the tariff and service offerings, and shall be consistent with, and in compliance with today's decision.
b. The ALs shall be filed within 45 days of the effective date of this decision. The ALs are subject to protest, and such protests shall be filed within 20 days after the ALs have been filed.
c. SDG&E and SoCalGas shall serve the ALs by e-mail on the service list to this proceeding, as well as on interested parties who have requested notification of AL filings for SDG&E and SoCalGas.
4. The FAR system, the gas pooling service, and the off-system delivery service to PG&E shall be implemented and operational beginning no later than 365 days after a decision, resolution, or Energy Division has approved the implementing tariffs and related services.
5. SDG&E and SoCalGas are authorized to establish the FAR Memorandum Account to track and recover the costs of implementing the FAR system and the other services.
a. To the extent the costs of the pooling service are not included in the estimate of the FAR system implementation costs, SDG&E and SoCalGas are authorized to track and recover from all ratepayers the reasonable costs of implementing the pooling service, up to a maximum of $500,000.
6. SDG&E and SoCalGas are authorized to establish a balancing account to track and recover the difference for any under- or over-recovery of the unbundled FAR reservation charge revenues.
7. A review process of the FAR system will be conducted to assess how the FAR system is working, and whether any changes or modifications to the FAR system are needed.
a. SDG&E and SoCalGas shall file an application 18 months after the initial open season has concluded, and shall include the type of information described in this decision.
8. SDG&E and SoCalGas shall be permitted to file an application, no earlier than May 1, 2008, to offer off-system service to pipeline interconnections other than PG&E.
a. The application shall include the type of information described in this decision.
9. The SoCalGas peaking rate tariff shall continue in effect, and the proposal to include the multi-unit electric generation provision into the peaking rate tariff is not adopted.
a. In its next Biennial Cost Allocation Proceeding (BCAP), SoCalGas shall include a proposal for a total redesign of its rate consistent with the discussion regarding closing or minimizing the regulatory gap.
b. Upon closing of the regulatory gap, the existing peaking service tariff shall sunset at the conclusion of the next BCAP.
10. SDG&E and SoCalGas shall file their BCAP applications no earlier than October 1, 2007 and no later than December 15, 2007.
a. The BCAP applications shall include a cost study of the backbone transmission system and a proposal for a new cost-based FAR reservation charge.
11. Application 04-12-004 is closed.
This order is effective today.
Dated December 14, 2006, at San Francisco, California.
Commissioner Chong reserves the right to file a concurrence.
