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PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION G-3326

RESOLUTION

Resolution G--3326. Pacific Gas and Electric Company (PG&E) requests revisions to tariff schedule G-SUR - "Customer - Procured Gas Franchise Fee Surcharge." PG&E's request is approved.

By PG&E Advice Letter (AL) 2313-G, filed on April 30, 2001; AL 2319-G, filed on May 31, 2001; AL 2324-G, filed June 28, 2001; AL 2333-G, filed July 31, 2001; AL 2338-G, filed August 30, 2001; AL 2342-G, filed September 28, 2001; AL 2348-G, filed October 31, 2001; AL 2354-G, filed November 29, 2001; AL 2363-G filed December 28, 2001; and AL 2368-G, filed January 31, 2002.

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SUMMARY

This resolution approves various PG&E franchise fee surcharge rate filings applicable for certain gas transportation customers submitted after the termination of its core subscription service. The utility is also instructed to use the method adopted herein for setting the franchise fee surcharge in the future. The franchise fee surcharge is used to collect funds to reimburse municipalities and counties for the utility's use of public lands.

The need to take this action results from a service change by PG&E. Public Utilities (PU) Code section 6353(b) directs gas utilities to determine the franchise fee surcharge for certain transportation customers according to its "... tariffed core subscription weighted average cost of gas (WACOG) exclusive of any California sourced franchise fee factor."1 This condition became inapplicable for PG&E when the utility discontinued its core subscription service on February 28, 2001, pursuant to Decision (D.) 97-08-055.

The procedure adopted in this resolution formally adopts the method PG&E is to use to update the franchise fee surcharge following the end of its core subscription service.

BACKGROUND

The franchise fee surcharge was established in response to regulatory policies which affected the amount collected by energy utilities to pay municipalities and counties for the use of public lands in the course of fulfilling their service obligations.2 Specifically, the franchise fee surcharge was devised to "... replace, but not increase, franchise fees that would have been collected pursuant to this division if not for changes in the regulatory environment such as the "unbundling" of the gas industry."3

The franchise fee surcharge is levied on certain energy transportation customers as specified in Chapter 2.5 of Division 3 of the PU Code entitled, "Municipal Public Lands Use Surcharge." 4 Among other things, PU Code sections included in this Chapter specify which inputs utilities are to use to determine the applicable surcharge and how it is to be assessed.

PG&E collects the franchise fee surcharge from the appropriate gas transportation customers under Schedule G-SUR, as published in its tariff.5 The schedule stipulates that the franchise fee surcharge applies to the volume of gas purchased by customers from third parties and sent over the utility's transmission and distribution system. To update the surcharge rates to reflect changes in gas commodity costs, the utility routinely files advice letters on the last day of the month with rates effective on one-day's notice.6

At issue is the method called for in the PU Code to compute the franchise fee surcharge and the service PG&E currently offers its customers. PU Code section 6353 (b) specifies that one determinant used to develop the franchise fee surcharge for gas utilities is its "... tariffed core subscription weighted average cost of gas (WACOG) exclusive of any California sourced franchise fee factor." Until recently, PG&E was able to set the surcharge rate in harmony with this statutory provision. However, PG&E terminated its core subscription service on February 28, 2001, pursuant to D.97-08-055. As such, the utility no longer maintains tariff rates for core subscription service. 7

To account for the service change, PG&E updated the franchise fee surcharge by using the WACOG the utility uses to prepare its gas procurement rates for core customers published in Schedule G-CP exclusive of California sourced franchise fees with some adjustment.8 Beginning with Advice Letter (AL) 2307-G, the utility stated it would calculate the monthly franchise fee surcharge according to the Schedule G-CP WACOG then in effect less storage costs. 9 Later, in AL 2348-G, filed October 31, 2001 and subsequent monthly filings, PG&E computed the franchise fee surcharge by also deducting intrastate backbone volumetric charges from the Schedule G-CP WACOG.

PG&E provided the Energy Division with reasons why the utility used the different methods described above in formulating the post-core subscription service franchise fee surcharge.10 Using the Schedule G-CP WACOG less storage was claimed to be appropriate because both core and core subscription customers were served from a single supply portfolio and core storage was unavailable to core subscription customers. 11 PG&E explains that also excluding intrastate backbone volumetric charges is warranted because they include a franchise fee cost component and that gas transportation customers are assessed these charges upon delivery of their gas supplies.12

NOTICE

Notice of PG&E AL 2313-G, AL 2319-G, AL 2324-G, AL 2333-G, AL 2338-G, AL 2342-G, AL 2348-G, AL 2354-G, AL 2363-G and AL 2368-G was made by publication in the Commission's Daily Calendar.

PROTEST

PG&E AL 2313-G, AL 2319-G, AL 2324-G, AL 2333-G, AL 2338-G, AL 2342-G, AL 2348-G, AL 2354-G, AL 2363-G and AL 2368-G were not protested.

DISCUSSION

A service change by PG&E has created a need for the Commission to determine the appropriate method the utility should employ to maintain the franchise fee surcharge it assesses certain gas transportation customers. A factor we must consider in this matter is the objective underlying the establishment of the franchise fee surcharge.

The Legislature enacted the franchise fee surcharge so that energy transportation customers share equally in the burden of compensating local government for the use of public lands by utilities in the course of providing service. As stipulated by statute, amounts raised through the surcharge should not exceed the level which would have been collected prior to the implementation of such regulatory changes as the unbundling of the gas industry.13 These principles guide the action we take here.

We recognize that PG&E's termination of core subscription service renders the franchise fee surcharge determination procedure specified in the PU Code inapplicable in the case of its gas business. The relevant PU Code section directs gas utilities to calculate the franchise fee surcharge according to their "... tariffed core subscription weighted average cost of gas (WACOG) exclusive of any California sourced franchise fee factor."14 Although PG&E is currently unable to satisfy this technical provision, as discussed below, we find that the utility can use a suitable substitute for the specified input.

To rectify the existing situation, we maintain that PG&E should calculate the franchise fee surcharge consistent with the Legislature's intentions. Meeting this objective involves fashioning a procedure that will enable the utility to collect the requisite level of funds to fulfill the utility's obligations. According to information provided to the Energy Division by PG&E, this result is achieved by basing the franchise fee surcharge on the utility's Schedule G-CP WACOG exclusive of any California sourced franchise fee factor less storage and intrastate backbone volumetric charges. We have examined PG&E's proposed methodology and find that it is reasonable. Without deducting these costs, PG&E's gas transportation customers would pay an amount greater than that contemplated under the statute.

We conclude, therefore, that PG&E should calculate the applicable franchise fee surcharge published in Schedule G-SUR using the Schedule G-CP WACOG in effect exclusive of any California sourced franchise fee factor, storage costs and intrastate backbone volumetric charges. Additionally, PG&E is required to observe all other applicable PU Code sections related to the franchise fee surcharge.

We also approve the ALs PG&E filed after its core subscription service ceased and under consideration in this resolution. Although the utility used different methods to set the franchise fee surcharge since the service change, we will not require PG&E to adjust its previous filings regarding treatment of the Schedule G-CP WACOG. This is proper because the Commission had yet to formally endorse a ratemaking procedure for the utility to follow after the end of its core subscription service.

Additionally, we note that PG&E's monthly core gas procurement tariff rate filings normally become effective on the fifth business day of the month,15 while the AL filings that adjust Schedule G-SUR rates go into effect on the first day of the month. 16 In order to promote more orderly rate filing processes, we will require future changes to the franchise fee surcharge to become effective concurrently with the utility's monthly core gas procurement rate changes. To implement this change, we will direct PG&E to file advice letters setting the franchise fee surcharge on the same day the utility files its advice letters establishing monthly core gas procurement rates.

COMMENTS

Public Utilities Code section 311(g)(1) provides that this resolution must be served on all parties and subject to at least 30 days public review and comment prior to a vote of the Commission. Section 311(g)(2) provides that this 30-day period may be reduced or waived upon the stipulation of all parties in the proceeding.

PG&E, as the only party to this proceeding, has stipulated to reduce the 30-day waiting period required by PU Code section 311(g)(1) to 14 days. Accordingly, this matter will be placed on the first Commission's agenda seven days following the mailing of this draft resolution. By stipulation of all parties, comments shall be filed no later than 9 days following the mailing of this draft resolution, reply comments shall be filed no later than 14 days following the mailing, of this draft resolution.

Comments were filed by PG&E on April 11, 2002.

PG&E recommends adoption of the draft resolution subject to several clarifications, factual corrections and editorial changes.

We find that the suggested changes and clarifications are in order and have been incorporated into the text of this resolution.

No reply comments were filed.

FINDINGS

1. PG&E filed AL 2313-G on April 30, 2001 to implement changes to Schedule G-SUR.

2. PG&E filed AL 2319-G on May 31, 2001 to implement changes to Schedule G-SUR.

3. PG&E filed AL 2324-G on June 28, 2001 to implement changes to Schedule G-SUR.

4. PG&E filed AL 2333-G on July 31, 2001 to implement changes to Schedule G-SUR.

5. PG&E filed AL 2338-G on August 30, 2001 to implement changes to Schedule G-SUR.

6. PG&E filed AL 2342-G on September 28, 2001 to implement changes to Schedule G-SUR.

7. PG&E filed AL 2348-G on October 31, 2001 to implement changes to Schedule G-SUR.

8. PG&E filed AL 2354-G on November 29, 2001 to implement changes to Schedule G-SUR.

9. PG&E filed AL 2363-G on December 28, 2001 to implement changes to Schedule G-SUR.

10. PG&E filed AL 2368-G on January 31, 2002 to implement changes to Schedule G-SUR.

11. The Legislature intended energy utilities to collect funds from certain transportation customers to reimburse municipalities and counties for the use of public lands in fulfilling their service obligations.

12. The franchise fee surcharge is intended to replace, but not increase, franchise fees that would have been collected if not for changes in the regulatory environment such as the "unbundling" of the gas industry.

13. Chapter 2.5 of Division 3 of the PU Code created a surcharge to be applied to the transportation customers of gas utilities.

14. In part, PU Code section 6353(b) specifies that gas utilities are to use their tariffed core subscription WACOG exclusive of any California sourced franchise fee factor in calculating the franchise fee surcharge.

15. PG&E terminated its core subscription service under D. 97-08-055 on February 28, 2001.

16. PG&E core subscription customers were assessed rates published in Schedule G-CSP.

17. Following termination of core subscription service, PG&E does not maintain rates for core subscription service in its tariffs.

18. PU Code section 6353(b) does not apply for PG&E's gas business with respect to the phrase "tariffed core subscription WACOG" since the utility ended core subscription service.

19. PG&E core subscription customers were not offered core storage service and storage charges were not included in the Schedule G-CSP rates.

20. PG&E core subscription and core customers were served from the same gas supply portfolio.

21. PG&E's gas transportation customers subject to Schedule G-SUR are assessed intrastate backbone volumetric tariff rates, which include a franchise fee cost component.

22. Use of the Schedule G-CP WACOG exclusive of any California sourced franchise fee factor less storage costs and intrastate backbone volumetric charges to set PG&E's franchise fee surcharge will meet the objective expressed in PU Code section 6350.

23. Requiring future updates of Schedule G-SUR to become effective concurrently with PG&E's monthly core gas procurement rate changes is reasonable.

THEREFORE IT IS ORDERED THAT:

1. PG&E shall compute the franchise fee surcharge assessed on the appropriate gas transportation customers based on the WACOG used in the development of the current month Schedule G-CP rates, in effect, exclusive of any California sourced franchise fee factor, storage costs and intrastate backbone volumetric charges.

2. PG&E shall update the franchise fee surcharge in schedule G-SUR by an advice letter filed monthly to become effective concurrently with PG&E's monthly core procurement rate changes. The advice letter shall be filed on the same day that PG&E files its advice letter revising monthly core procurement rates and include workpapers showing the derivation of the franchise fee surcharge published in the tariff sheet (s).

3. PG&E Advice Letter (AL) 2313-G, AL 2319-G, AL 2324-G, AL 2333-G, AL 2338-G, AL 2342-G, AL 2348-G, AL 2354-G, AL 2363-G and AL 2368-G are approved.

4. This resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on April 22, 2002; the following Commissioners voting favorably thereon:

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1 "Core subscription" is a service whereby a utility procures gas for noncore customers.

2 Senate Bill 278 (Stat. 1993, Ch. 233)

3 See PU Code section 6350.

4 PU Code section 6351(c ) defines "transportation customer" as entities, with some exceptions, purchasing gas or electricity from a third party and transporting the gas or electricity over a utility's transmission or distribution system.

5 Schedule G-SUR was created in Advice Letter 1830-G, effective April 1, 1994.

6 Pursuant to tariff changes requested in Advice Letter 1931-G, effective January 1, 1996, PG&E based the franchise fee surcharge on the core subscription WACOG in effect during the prior month. Additionally, the advice letter acknowledged that D.95-12-053 authorized PG&E to use a forecast to construct the Schedule G-CSP (core subscription service) WACOG.

7 PG&E deleted Schedule G-CSP from its tariffs in Advice Letter 2298-G, dated February 28, 2001.

8 In D.97-10-065, PG&E was authorized to establish a new tariff schedule entitled "Schedule G-CP" to show gas procurement costs included in PG&E's core rates. The schedule is updated monthly using a WACOG based on projected gas prices.

9 The first G-SUR rate filing submitted after the end of core subscription service was AL 2307-G which went into effect April 1, 2001. In footnote 1 of AL 2307-G, PG&E states that "The Schedule G-SUR rate was previously calculated using the core subscription WACOG, which did not include storage costs. ... Therefore, the Schedule G-SUR rate will be calculated using the core WACOG excluding storage costs, which is equivalent to the former core subscription WACOG."

10 Beginning with AL 2333-G, uncollectibles were excluded based on discussions with Energy Division staff during which it was noted that PU Code sections concerning the franchise fee surcharge did not make any provision for including uncollectibles in the franchise fee surcharge calculation.

11 See D. 97-08-055 ("Gas Accord"), 73 CPUC 2d, p. 832.

12 The Gas Accord unbundled PG&E's gas transmission service. As a result, intrastate backbone volumetric costs are no longer included in PG&E's transportation rates. Since implementation of the Gas Accord, intrastate backbone volumetric costs are separately tariffed rates. A portion of the intrastate backbone volumetric tariff rate represents a franchise fee component. General provisions for including franchise fee costs in PG&E's rates are found in Preliminary Statement, Part C of the utility's tariff. Additionally, backbone service pursuant to negotiated rates generally includes a contribution to the utility's fixed costs, which includes franchise fee costs. PG&E shareholders are at risk for any costs unrecovered under Gas Accord rates. Although the transmission related provisions of the Gas Accord are set to expire December 31, 2002, PG&E has filed an application (A. 01-10-011) seeking a two year extension of the existing rate structure, which is currently pending before the Commission.

13 See PU Code section 6350.

14 See PU Code section 6353(b).

15 D.98-07-025 authorizes PG&E to change its core gas procurement rates, which includes Schedule G-CP, on the first day of the month in the event gas transportation rates are set to change on the first day of the month. These rate changes are made with a notice period of no less than five business days.

16 See D. 97-10-065.

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