D0612031 Regarding the Phase II Issues Attachment
D0612031 Regarding the Phase II Issues Cmr. Chong Concurrence

ALJ/JSW/jt2 Mailed 12/15/2006

Decision 06-12-031 December 14, 2006

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of the Application of San Diego Gas & Electric Company (U 902 G) and Southern California Gas Company (U 904 G) for Authority to Integrate Their Gas Transmission Rates, Establish Firm Access Rights, and Provide Off-System Gas Transportation Services.

Application 04-12-004

(Filed December 2, 2004)

(See Attachment A for the List of Appearances)

OPINION REGARDING THE PHASE II ISSUES

Table of Contents

Title Page

OPINION REGARDING THE PHASE II ISSUES 1 1

I. Summary 2 2

II. Background 3 3

III. Issues Presented 8 8

IV. Firm Access Rights 9 9

A. Introduction 9 9

B. Current System 10 10

C. SDG&E and SoCalGas FAR Proposal 11 11

1. Description of the FAR Proposal 11 11

2. Criticisms and Proposed Modifications to the FAR Proposal 21 21

a) The FAR Proposal and Other Proposals 21 21

b) FAR Reservation Charge and In-Kind Fuel Charge 24 24

c) The Open Season Process 27 27

D. Unbundled FAR Proposal 45 45

1. Description of the Unbundled FAR Proposal 45 45

2. Criticisms and Proposed Modifications 48 48

E. Division of Ratepayer Advocates' Proposal 50 50

1. Description of Proposal 50 50

2. Criticisms and Proposed Modifications 52 52

F. Joint Proposal 53 53

1. Description of Joint Proposal 53 53

2. Criticisms and Proposed Modifications 57 57

G. Discussion 63 63

1. Introduction 63 63

2. Analysis of the Current System 65 65

3. Analysis of the Different Proposals 67 67

a) Introduction 67 67

b) DRA's Proposal 68 68

c) Joint Proposal 69 69

d) FAR Proposal and Unbundled FAR Proposal 76 76

e) The Adopted FAR System 89 89

4. Implementation of the FAR System 108 108

5. Future Review 109 109

V. Citygate Pooling Service 109 109

A. The Proposal and Parties' Responses 109 109

B. Discussion 110 110

VI. Off-System Deliveries 112 112

A. SDG&E and SoCalGas' Proposal 112 112

B. Criticisms and Proposed Modifications 113 113

C. Discussion 114 114

VII. Peaking Rate 120 120

A. Background of the Peaking Rate Tariff 120 120

B. Criticisms and Proposed Modifications 122 122

C. Discussion 122 122

VIII. Biennial Cost Allocation Proceeding 130 130

A. Introduction 130 130

B. Discussion 131 131

IX. Comments on Proposed Decision 132 132

X. Assignment of Proceeding 132 132

Findings of Fact 133 133

Conclusions of Law 138 138

ORDER 141 141

Attachment A

OPINION REGARDING THE PHASE II ISSUES

I. Summary

Today's decision addresses the Phase II issues concerning a system of firm access rights (FAR) for San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas). Other issues that we address are the SDG&E and SoCalGas proposals for an off-system delivery service to Pacific Gas and Electric Company (PG&E) and for a gas pooling service, and whether SoCalGas' peaking rate tariff should be retained.

This decision represents the end of a journey that began in 1998 when we first opened a proceeding to identify reforms to the gas industry in California. The decision also represents the beginning of a new journey as we adopt a FAR system for SDG&E and SoCalGas.

The FAR system will enable any market participant (e.g., end-user, gas supplier, gas marketer) in southern California to hold FAR on the various receipt points on the SDG&E and SoCalGas integrated gas transmission system. This system will ensure that the holders of the FAR will be able to access the receipt points on the transmission system and have their gas transported to the designated delivery points. This is in contrast to the current system where upstream gas shippers and end-use customers have no guarantee that their gas will flow through the receipt points. This problem is exacerbated under the current system when there are capacity constraints on the SoCalGas transmission system.

The FAR system that we adopt is based on SDG&E and SoCalGas' FAR proposal, together with the unbundling of the five cents per decatherm (Dth) per day FAR reservation charge from the end-user's volumetric transmission rate. We also incorporate elements of the Joint Proposal into the FAR system, as well as certain modifications to the FAR proposal that parties had requested. The adopted FAR system represents a balanced approach where the competing interests of all the market participants and the utilities have been considered. With the FAR system, we can expect gas markets to develop at the citygate, as well as at the border. The FAR system will provide gas shippers, marketers, and end-users with new options and opportunities.

Today's decision also approves the off-system delivery service to PG&E, and the gas pooling service. The off-system service will allow gas supplies to flow from SoCalGas' transmission system onto PG&E's transmission system. This off-system service will open up new markets in northern California to potential gas suppliers based in southern California. The gas pooling service will improve and facilitate gas trading and exchanges on the SDG&E and SoCalGas system.

The decision also retains SoCalGas' peaking rate tariff, but does not adopt the proposal to include the multi-unit electric generation (EG) provision as part of the peaking rate tariff.