Word Document

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION G-3334

RESOLUTION

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SUMMARY

This resolution consolidates nine Advice Letters (ALs) filed by SoCalGas to establish an implementation schedule, tariffs and rules to implement the GIR Decision. The Advice Letters include: AL 3100-A, filed January 28, 2002; AL 3105, filed January 2, 2002; AL 3109-A filed February 13, 2002; AL 3112 filed January 30, 2002; AL 3117 filed February 2, 2002; AL 3123-A filed March 19, 2002; AL 3146 filed May 1, 2002; AL 3147 filed May 2, 2002; and AL 3174 filed July 23, 2002.

We deny the Advice Letters without prejudice and order SoCalGas to file an application within 45 days to implement D.01-12-018.

In D.01-12-018, the Commission adopted, with modifications, the Comprehensive Settlement Agreement (CSA) agreed to by many of the parties to the GIR proceeding, Order Instituting Investigation (I) 99-07-003. In that decision we ordered SoCalGas to file advice letters to implement the modified CSA. For two reasons, we find it necessary to require an Implementation Proceeding for D.01-12-018. First, the length of time that has elapsed between the signing of the Comprehensive Settlement (CSA) in April 2000, and now is well over two years. There have been changes in the gas market in Southern California since the signing of the CSA, some of them extensive, which may require a closer look at how the various components are implemented than would be possible under an advice letter review process. Second, SoCalGas' proposals on how to implement the GIR are more controversial and complicated than originally anticipated. Eight of the nine named Advice Letters were protested. Protests were received from both signatories and non-signatories to the Comprehensive Settlement. Also, a Petition for Modification of D.01-12-018 has been filed regarding one of the proposals by a signatory to the CSA.

The protests to the SoCalGas GIR implementation advice letters are moot.

BACKGROUND

In Order Instituting Rulemaking (R.) 98-01-011, the Commission assessed the market and regulatory framework of California's natural gas industry and considered reforms that might foster competition and benefit all California natural gas consumers. In D.99-07-015, the Commission identified the most promising options for changes to the regulatory and market structure of the natural gas industry. Order Instituting Investigation (I.) 99-07-003 was issued the same day and asked parties to prepare more detailed analyses of the costs and benefits of the promising options, and allowed time for exploring the possibility of settlement before testimony and hearings. Various parties agreed to the CSA in response to a direction by the presiding Administrative Law Judge (ALJ) asking parties to explore settlement options in I. 99-07-003. This CSA settled all of the issues raised by the most promising options being investigated in I. 99-07-003.

The following twenty-four companies were signatories to the Comprehensive Settlement Agreement, which was signed in April, 2000:

California Cogeneration Council

California Industrial Group and Ca. Mfgrs and Technology Ass. - CMTA

California Utility Buyers, JPA, a California joint powers authority

Calpine Corporation

City of Vernon

Coral Energy Resources LP Company

Dynegy, Inc

Enron Corp

Greenmountain.com

Indicated Producers

Office of Ratepayer Advocates (ORA)

Regional Energy Management Coalition

San Diego Gas and Electric

School Project for Utility Rate Reduction, a Ca. joint powers authority

Shell Energy Services, Inc.

Southern California Edison Company

Southern California Gas Company

Transwestern Pipeline Company

TXU Energy Services

United Energy Management, Inc.

Utility.com

Watson Cogeneration Company

Western Hub Properties, LLC

Wild Goose Storage, Inc.

The GIR Decision approved the CSA with modifications. It allowed customers access to firm tradable transmission rights on SoCalGas' system and ordered that the costs associated with intrastate backbone transmission be unbundled from transportation rates. The GIR Decision allowed noncore customers to acquire intrastate backbone transmission capacity through an open season, or purchase gas at the citygate. The GIR Decision provided that the utilities' retail core procurement department will continue to reserve interstate capacity, intrastate backbone transmission capacity, and storage capacity to meet the requirements of retail core procurement customers. The GIR Decision anticipated that the availability of firm, tradable transmission rights will allow customers to place an increased reliance on long-term contracts.

The GIR Decision ordered SoCalGas to file advice letters to implement the CSA. SoCalGas filed Advice Letter 3099 on December 26, 2001, 3100-A on January 28, 2002, Advice Letter 3104 on January 2, 2002, Advice Letter 3105 on January 2, 2002, Advice Letter 3109-A on February 13, 2002, Advice Letter 3112 on January 30, 2002, Advice Letter 3117 on February 2, 2002, Advice Letter 3123-A on March 19, 2002, Advice Letter 3146 on May 1, 2002, Advice Letter 3147 on May 1, 2002, and Advice Letter 3174 on July 23, 2002.

AL 3099, which establishes a GIR memorandum account, became effective December 11, 2001, after Energy Division review. AL 3100-A, which ends core subscription service and reopens core service to all eligible noncore customers, was not approved by the Commission. Although this AL was protested, SoCalGas put it into effect January 1, 2002 while awaiting Commission approval. AL 3104, which ends the core contribution to noncore ITCS, was not approved by the Commission. However, SoCalGas put it into effect January 25, 2002 while awaiting Commission approval.

NOTICE

Notice of AL's 3100-A, 3105, 3109-A, 3112, 3117, 3123-A, 3146, 3147 and 3174 was made by publication in the Commission's Daily Calendar. Southern California Gas states that a copy of the Advice Letters was mailed and distributed in accordance with Section III-G of General Order 96-A., which includes the interested parties in I. 99-07-003.

PROTESTS

The following is a brief summary of each Advice Letter being denied without prejudice, the Protests received on each Advice Letter, and SoCalGas' response to the protests.

AL 3100-A - Closes core subscription service and provides noncore eligible customers with the option of choosing between noncore or core service. In AL 3100-A, SoCalGas issues tariffs to comply with Conclusion of Law 23, D. 01-12-018, which orders that portion of Resolution G-3304, which suspends transfers from noncore to core service, be rescinded.

Protest to AL 3100-A

Southern California Generation Coalition (SCGC) argues that: SoCalGas improperly restricts Schedule GT-F customers from continuing service on a month-to-month basis. Secondly, SoCalGas attempts to block electric generation customers from exercising their right to elect core service.

Response to AL 3100-A

SoCalGas responds that The Master Services Contract Schedule A which every noncore customer must execute, allows service to continue on a month-to-month basis after the initial term, unless terminated by either party. D. 01-12-018 does not allow previous customer classes who were prohibited from electing core service to switch to core service; it removes the suspension of transfers of noncore customers to core subscription or core service.

AL 3105 - (1) Unbundles pipeline demand charges; (2) allocates stranded costs from unbundled core interstate pipeline capacity equally to core and noncore customer classes; (3) reduces Core Aggregation Transportation (CAT) program minimum size requirements from 250,000 to 120,000 therms annually and eliminates the 10% cap on core market CAT program participation; (4) recovers in rates $2.0 million per year, plus related franchise fees and uncollectible expenses, for capacity-related implementation costs.

Protests to AL 3105

TXU Energy and ACN Energy request the option to secure interstate pipeline capacity at the as-billed rate, for all or some portion of the amount they require in order to provide service to core customers participating in the CAT program.

Response to Protests of AL 3105

SoCalGas responds that the CSA states that Core Transport Agents will be responsible for arranging on their own, the delivery of gas to the system and will not receive a mandatory assignment of any interstate capacity from SoCalGas.

AL 3109 - A Establishes a timeline for implementation of the provisions of

D. 01-12-018. SoCalGas requested the following implementation schedule in AL 3109-A for the major components of the Comprehensive Settlement Agreement (CSA).

(1) Unbundling of Storage Services - April 1, 2002

(2) Firm, tradable intrastate transmission rights - November 1, 2002

(3) Balancing and Pooling Services - November 1, 2002

(4) Retail Services - November 1, 2002

(5) Electronic Trading of Backbone Rights - January 1, 2003

Protests to AL 3109-A

On February 26, 2002, SCGC protested SoCalGas' notice of the open season to start on March 4, 2002, with capacity awarded on April, 2002. On March 5, 2002, SCGC again protested the revised implementation schedule in AL 3109-A and requested an April 1, 2003 simultaneous implementation of transmission capacity unbundling, storage capacity unbundling, and electronic trading of both transmission capacity and storage capacity. Secondly, SCGC protested SoCalGas' two-day lag between the deadline for giving notice of a backbone capacity trade and the flow date, stating that the demand of electric generators cannot be reliably forecasted two days in advance of peak burn days. SCGC contends that electronic trading must be implemented simultaneously with the unbundling of backbone capacity and for holders of unbundled storage capacity. Thirdly, SCGC protests what it characterizes as SoCalGas' abandonment of the CSA three-year period for phasing in the deregulation of rates for storage service under Schedule G-TBS. Finally, SCGC continues to protest SoCalGas' stated intent to terminate firm local transmission and distribution service to Schedule GT-F noncore customers that are taking firm service on a month-to-month basis under expired contracts.

BP Energy Company (BP) protests that SoCalGas should provide public notice of capacity available for auction at each receipt point for Phase 1 no later than 4 weeks in advance of the initial bid date for Phase 1. BP wants specific dates or time periods for notification of successful bids and for the release of data to the industry as the auction progresses. BP also recommends that SoCalGas should establish a more aggressive implementation date for backhaul services - from April 1, 2003 to January 1, 2003.

Response to Protests of AL 3109-A

SoCalGas contends that it made all possible revisions to the schedule based on protests received on AL 3109. Accommodating BP would unduly impact the decision-making timeline for wholesale customers, California Producers, and long-term contract holders. SoCalGas states that it cannot move up electronic trading and it has proposed revised procedures for manually processed backbone capacity trades between November 1, 2002 and December 31, 2002.

In response to SCGC's protest of SoCalGas' schedule deviation, whereby shareholders become increasingly at risk for unbundled storage, and the concomitant increases in pricing flexibility that SoCalGas would be given for unbundled storage service other than the open season, SoCalGas states that due to the time it took the Commission to issue a decision in the proceeding, many of the specific dates in the CSA are no longer feasible. Pursuant to the last BCAP decision, D. 00-04-060, SoCalGas has operated on a 50/50 ratepayer/shareholder risk/reward regime for the April 2001- March 2002 storage year, exactly as contemplated by the CSA and expected by the Settlement parties. SoCalGas argues that it is entirely possible and appropriate to implement the 75 per cent shareholder risk and 50 per cent floor - 200 per cent ceiling pricing flexibility for April 2002 thru March 2003 as specified in the CSA. This approach, according to SoCalGas achieves the Commission's stated intent to place SoCalGas shareholders at 100% risk of unbundled storage on the schedule set forth in the CSA.

In response to SCGC's protest of SoCalGas' proposal to terminate firm local transmission and distribution services to customers with expired Schedule GT-F contracts, SoCalGas states that the contract every noncore customer must execute in order to receive service under Schedule No. GT-F states clearly in Section B, item No. 2 that "at the end of the initial term, this Agreement shall continue thereafter on a month-to-month basis unless terminated by written notice from one party to the other given not less than twenty (20) days prior to the last day of the initial term of any month thereafter."

AL 3112 - Creates three new sub-accounts in the Purchased Gas Account (PGA) to balance the recorded cost of nongas items with corresponding revenues based on rates established to recover the costs.

No protests were filed on AL 3112.

AL 3117 - Specifies tariffs and rules for unbundled storage capacity rights and calculates costs based on the embedded costs rather than long-run marginal costs.

Protests to Al 3117

SCGC protested that SoCalGas' revisions to its storage tariffs should be deferred from April 1, 2002 to April 1, 2003. Second, SoCalGas should be required to provide an accounting to justify the meager amount of capacity that would be made available at embedded cost rates under Schedule G-PAC. Third, SoCalGas should not be allowed to phase-in deregulation of storage service rates over 2 years. Fourth, the Commission should reject SoCalGas' unauthorized attempt to extend the maximum term for G-TBS contracts from 3 to 15 years. Lastly, SoCalGas' proposal to require an accelerated payment of storage service reservation charges is unauthorized and should be rejected.

Response to Protest of AL 3117

SoCalGas responds that it is attempting to implement the Commission's decision; that SCGC incorrectly confuses the 14 BCF of cushion gas at issue in A. 01-04-007 with this proceeding; and the phase-in schedule proposed for 100% shareholder risk of unbundled storage is consistent with the CSA. Any schedule G-TBS contract longer than 3 years will be filed with the Commission for approval. SoCalGas would have no objection if the Commission were to direct them to remove language requiring accelerated payment of storage service reservation charges from the proposed storage tariffs.

AL 3123-A - Proposes to update transportation rates to reflect the use of embedded costs of storage in transportation rates.

Protests to AL 3123-A

Southern California Generation Coalition (SCGC) protests that

SoCalGas shifts the rate increase resulting from the unbundling of storage costs from the core to the noncore. SCGC states that implementation of the CSA has moved beyond ministerial actions to substantive issues and should be set for hearing.

Response to Protests of AL 3123-A

SoCalGas responds that the revisions it made in response to the protests of AL 3123 mean that AL 3123-A will result in almost no cost shift from the time of storage implementation to the time of implementation of backbone aspects, and for the remainder of the term of the settlement. SoCalGas requests that the Commission clarify what its intent was regarding cost allocation because it allocated more capacity to the core than provided for in the CSA. SoCalGas does not believe an implementation proceeding or further litigation is necessary.

AL 3146 - (1) Provides billing credits to those customers of Energy Service Providers (ESP's) whose ESP provides consolidated billing services; (2) unbundles backbone transmission rights using embedded costs and update transportation rates to reflect the use of embedded costs; (3) unbundles nonreliability portion of core storage, (4) establishes pooling rights at the citygate, storage, and receipt points; and (5) establishes new balancing procedures.

Protests to AL 3146

SCGC filed an Application for Rehearing in conjunction with DGS and TURN asking the Commission to grant rehearing, reverse D. 01-12-018, and reject the CSA at rehearing. Absent reversal of D. 01-12-018 at rehearing, SCGC proposes a hearing be set for implementation of the CSA.

In its protest, SCGC includes the following issues:

(1) SoCalGas has overestimated "core ITCS" costs. (2) SoCalGas truncates the three-year phase-in of deregulation of rates for unbundled storage services provided by the CSA, to two years. (3) SoCalGas proposes to deny noncore customer requests for firm local transmission service if it lacks sufficient local transmission capacity. (4) SoCalGas violates the CSA by proposing a formula for determining maximum bidding rights that fails to fairly balance seasonal and annual usage. (5) Bids for seasonal capacity should be given parity with bids for annual backbone capacity. (6) Results of the Open Season and Electronic Trading should be put into effect simultaneously on April 1, 2003. (7) SoCalGas violates the CSA by proposing to levy a volumetric transmission charge on customer-contributed transmission fuel. (8) SoCalGas' proposal to assign a "unique contract number for each successful bid" is unworkable. (9) SoCalGas' proposed Backbone Transmission Receipt Access (Schedule G-BR) fails to include a provision requiring SoCalGas to notify parties of available firm capacity and to make available any capacity held by third parties that has not been nominated for use on a given day. (10) Schedule G-BR contains no provision for any information about capacity ownership to be made publicly available. (11) SoCalGas' proposed Core Gas Storage (Schedule G-CGS) permits transfer to any qualified person any portions of their reliability and nonreliability storage contract rights for any period of time in violation of D.01-12-018. (12) The noncore storage schedules exceed the scope of the CSA by revising the current requirements for using storage to cure imbalances so as to impose a month-of-imbalance as well as month-of-trade requirements. (13) Noncore storage tariffs should provide for more information to be made publicly available. (14) Implementation of storage unbundling should be postponed until electronic trading is available on April 1, 2003. (14) Proposed Transaction Based Storage Service (Schedule G-TBS) should continue to be limited to a maximum of 3 years. (15) SoCalGas violates the CSA by establishing multiple pools for each customer in order to increase revenues from pool transfer fees. (16) "Affiliate" is defined more narrowly than in the Commission's Affiliate Transaction Rules, making it easier to evade the Commission's Market concentration rules. (17) "Core Service" is defined to exclude core elections by all but the smallest EG's. (18) SoCalGas' proposed revision to the Rule 6 creditworthiness requirements for local transmission service is unauthorized. (19) SoCalGas' proposed increase in the Rule 6 credit requirements is grossly excessive. (20) SoCalGas violates the CSA by proposing a provision to permit involuntary diversions of gas supply from noncore customers without paying the $25 credit for diverted gas. (21) SoCalGas' proposal to prorate noncore storage customers "by contract terms" should be replaced by objective criteria for prorating noncore customers to avoid SoCalGas' storage sales representatives from being able to use contract ranking to extract undue concessions from potential storage customers. (22) The scope of Rule 39 should be narrowed to cover unbundled backbone transmission service and unbundled storage service, as contemplated in the CSA with creditworthiness for other services being left to Rule 6. (23) SoCalGas improperly omits the CSA provision that permits existing customers to be deemed to be creditworthy for purposes of receiving an assignment of backbone transmission rights. (24) SoCalGas goes beyond the CSA by proposing to call core and noncore OFO's on the basis of lower prorated injection and withdrawal rights. (25) SoCalGas goes beyond the CSA by proposing to reduce balancing rights for the noncore class to zero when noncore inventory capacity is either fully utilized or fully depleted. (26) SoCalGas goes beyond the CSA by proposing to collect an in-kind fuel charge of 2.44 % on gas remaining in a noncore customer's imbalance account after each monthly imbalance trading period. (27) SoCalGas' proposal that it be permitted to terminate a noncore customer's local transportation service agreement on 15 days' notice should be rejected.

The Utility Reform Network (TURN) (limited protest) states that SoCalGas has no basis for removing local transmission costs from base margin. Secondly, SoCalGas' proposal to unbundle the nonreliability portion of core storage for core transportation aggregators may trigger double recovery of storage costs.

California Industrial Group and the California Manufacturers & Technology Association (CIG/CMTA) protests that SoCalGas' proposed Schedule G-BR would effectively deny certain existing end use customers adequate bidding rights for the open season, thereby jeopardizing their gas service.

Dynegy Marketing and Trade, El Segundo Power, LLC, Long Beach Generation, LLC, Cabrillo Power I LLC, and Cabrillo Power II LLC (collectively, the "Protesting Companies") protest the following issues: (1) SoCalGas' proposed period to limit rights of end-use customers in the open season process of June 1, 2001 through May 31, 2002, as the customer's average daily historical consumption, is neither typical nor average. (2) The Commission should clarify that the 30% market concentration limitation adopted in D.01-12-018 is unrelated to the system-wide maximum bidding rights that are calculated using the historical average daily consumption. (3) SoCalGas' definition of "affiliate" for purposes of the market concentration limit may unintentionally permit the accumulation of considerable market power. (4) SoCalGas' interpretation of the provisions of the CSA on diversion of gas supplies has the potential to create an unduly harsh effect on electric consumers and electric generators. (5) The proposed Rule 23 provisions on diversion have a potential to put electric generation customers in the position of having to choose between violating a diversion order and violating an order of the California Independent System Operator (ISO). (6) Rule 40 should be modified to allow SoCalGas to waive the separate balancing requirement in exceptional circumstances to achieve the paramount goal of maintaining the system within balancing tolerances. (7) SoCalGas' proposed Transportation Imbalance Service (Schedule G-IMB) which calculates a standby charge based on 150% of the average Southern California border price reported in the NGI's Daily Gas Price Index may drive up border prices when gas is in short supply.

Indicated Producers protests the following issues: (1) SoCalGas should modify tariff G-BR to allow tertiary rights for firm transportation shippers to nominate using their firm contract from any access point if space is available. (2) SoCalGas should modify delivery points in Schedule G-BR to include other points as needed. (3) SoCalGas should accept rate election changes during the annual open season process in tariff G-BR. (4) the Commission should set market concentration limits for SoCalGas' Gas Acquisition Department and its affiliates. (5) Include provisions in schedule G-BR for the notification and posting of available capacity at each receipt point in a manner that can be accessed and used by market participants in a timely manner. (6) SoCalGas must be required to seek market remedies prior to confiscating gas from other customers through diversion of backbone supplies. (7) Schedule G-BR specifically excludes ExxonMobil Corp from set-aside rights equal to their historic deliveries to which they are entitled. (8) SoCalGas proposes to declare a Stage 1 OFO when the system is in a state of equilibrium and balancing services are fully utilized. (9) The OFO Forum in Rule 40 should be advisory, not punitive, and be subject to Commission review and approval. (10) SoCalGas should use an index that is commonly used by market participants to calculate standby charges and buy-back rate. (11) Remove the new in-kind fuel charge of 2.44% on imbalances.

(12) Provide a more equitable framework for past-period accounting adjustments. (13) The Pooling Services Tariff (Schedule G-Pool) should increase the number of pool transfers to 20-30 trades without fees. (14) Clarification is needed on the types of transfers that might impose a fee. (15) G-Pool credit-worthiness requirements should not exceed transport MDQ and should not be related to commodity trades. (16) SoCalGas' proposed creditworthiness requirements should be revised to avoid placing an unnecessary burden on shippers interested in participating in the southern California gas market. (17) Schedule G-WHL-HUB, Hub Wheeling Service, should not result in rates in excess of maximum rates for transportation and storage. (18) Schedule G-TBS should expand the interruptible service offerings to the extent injection and withdrawal is unused. (19) Firm Local Transportation Service (Schedule GT-F) contains changes not contemplated in the CSA and more appropriately addressed in SoCalGas' BCAP filing. (20) Components of the postage stamp rate calculation for backbone transmission with escalation should be revisited.

Southern California Edison raises the following issues in its protest: (1) The phase-in period for 100% at risk storage should be 3 years, not 2, as proposed by SoCalGas. (2) Schedule GT-F allows for undue discretion by SoCalGas as to which customers it may refuse to provide firm service. (3) Schedule G-BR places no restriction on SoCalGas' ability to market unsubscribed firm backbone transmission capacity. (4) SoCalGas should be required to post information on its negotiated backbone transportation capacity contracts in a manner similar to its posting of secondary market assignments to allow for greater market transparence and to permit detection of any potential undue discrimination by market participants. (5) The appropriate limit in Schedule G-BR on a customer's right to bid should be the customer's average daily use in the relevant season - not annual average. (6) SoCalGas should provide the opportunity on GasSelect for parties who voluntarily desire to post price information on secondary storage market transactions. (7) The two-day written notice required of transferors of storage rights in the secondary market prior to the first nomination cycle for the effective flow date, places these transactions at a competitive disadvantage to SoCalGas' directly marketing storage rights. (8) SoCalGas' proposal for 15 year storage contracts is inconsistent with the CSA. (9) SoCalGas does not set specific standards for how it will determine physical operating receipt point capacity on a daily basis.

ExxonMobil cites the following issues in its protest: (1) SoCalGas' exclusion of ExxonMobil from any California producer set-asides is discriminatory.

(2) SoCalGas' Gas Acquisition Department reservation is 61 % of the total North Coastal rights and puts SoCalGas in a position to misuse its market power.

Watson Cogeneration Company states that SoCalGas did not propose to unbundle peaking rates, which the Commission authorized in Resolution G-3324.

Phillips Petroleum Company protests that SoCalGas fails to provide a receipt point for gas flowing from LNG import facilities likely to be constructed in Mexico during the term of the CSA.

TXU Energy Services protests that the tariff language is inconsistent with the CSA because the CTA's set-aside rights don't match their share of the core market and the tariff requires CTA's to take rights for all eligible volumes, not just a portion.

Coral Energy Services includes the following issues in its protest: (1) SoCalGas' standard for involuntary diversions is too open-ended. (2) SoCalGas should not be excused from providing an Involuntary Diversion Credit in a force majeure situation. (3) SoCalGas must be responsible to notify all balancing entities of the nature and extent of any involuntary supply diversions. (4) There is no basis for the proposed 2.44% in-kind fuel charge. (5) Core and noncore customers should not be balanced separately. (6) The $50.00 transfer fee for pool-to-pool transfers should not be imposed.

Department of General Services (DGS) mentions the following issues in its protest: (1) SoCalGas ignores seasonal customers for bidding purposes. (2) The unbundling of storage revenues should be phased in over 3 years. (3) The 2.44% in-kind fuel charge is not authorized by the CSA.

Response to Protests on AL 3146

SoCalGas response to the various protestants issues as follows:

1. CIG/CMTA -SoCalGas believes using annual average load for the most recent year is reasonable, but does not object to any other alternative the Commission may desire, as long as the time period is applied consistently to all customers.

2. Watson -SoCalGas will file to unbundle Peaking rates on the same day backbone transmission rights become unbundled.

3. TXU - SoCalGas recognizes an oversight and agrees that its compliance tariffs are inconsistent with the CSA and will rewrite tariffs to indicate that Core Transport Agents have annual options to reserve Gas Acquisition-like firm backbone transmission rights. However, the CSA explicitly states that options must be exercised in full and not in part.

4. TURN - SoCalGas states that Turn's treatment of local transmission costs was not part of the CSA or one of the modifications of D.01-12-018. Issues related to the cushion gas project will be heard in that proceeding.

5. Phillips Petroleum Company - SoCalGas states that Phillips did not participate in the CSA negotiations and their LNG projects are not likely to be in service until 2006, which is the end of the CSA period approved by the Commission. Phillips request for a receipt point is premature at best.

6. Coral Energy - SoCalGas contends that each class should balance storage assets separately. SoCalGas believes that positive monthly imbalances use storage compressor injection fuel just like core injections and unbundled storage injections into storage and the 2.44% in-kind fuel charge applies to all injection. The CSA allows SoCalGas to charge a fee for pooling service until December 31, 2002. Lastly, the OFO forum will be called after each diversion to determine if the diversion charges need to be reset in order to avoid future gaming.

7. Protesting Companies - SoCalGas has no significant problem with (1) bidding rights for end use customers, (2) the fact that the 30% market concentration limitation is unrelated to the system-wide maximum bidding rights, and (3) their interpretation of "affiliate". SoCalGas again states that the CSA requires class balancing.

8. ExxonMobil - SoCalGas responds that the CSA set aside 70 MMcfd for ExxonMobil, in the form of a set-aside for Gas Acquisition, which had a supply relationship with ExxonMobil at the time of the CSA. ExxonMobile sought no provision for reversal of the core set-aside on North Coastal in 2003 even though it knew the contract would expire before the CSA termination.

9. Edison - SoCalGas believes that the schedule for storage risk and pricing flexibility in SoCalGas' advice letter is exactly as contemplated by the CSA. SoCalGas will file errata sheets to clarify the posting of information on secondary market transactions as suggested by Edison. SoCalGas' current tariffs make it clear that it does not have an obligation to extend firm service to noncore customers if it does not have sufficient transmission capacity. SoCalGas already posts on Gas Select how much capacity is available on the current day and a forecast of availability of capacity on the following day.

10. Indicated Producers - SoCalGas contends that the Indicated Producers are intending to rewrite and renegotiate the entire CSA to which they were signatories.

11. SCGC - SoCalGas responds that consistent with the PG&E Gas Accord, seasonal bids should be given lower priority than annual capacity bids. Manual trading protocols have been revised because electronic trading will not be available until January 1, 2003. D.01-12-018 does not prohibit secondary market trading of assigned reliability storage. SoCalGas will file any contracts longer than 3 years with the Commission for approval. Tariffs filed with AL 3146 are entirely consistent with the CSA.

12. DGS - SoCalGas states that nowhere does the CSA state that end-use customers shall have unlimited rights. The 50/50 rate design is as specified in the CSA and has been escalated using annual PBR escalation factors. The in-kind fuel charge is as specified in the CSA. SoCalGas cannot implement electronic trading before January 1, 2003.

AL3147 - Tariffs for Operations Park and Loan Services as they relate to unbundled storage.

Protests to AL 3147

SCGC protests the imposition of an under-performance imbalance penalty on customers taking interruptible Gas Park and Loan Services. Secondly, SCGC protests the imposition of a park imbalance charge on interruptible customers that may have failed to clear their Park account in a timely fashion due to interruption.

Response to AL 3147

SoCalGas states in its response, that it does not charge for park and loan services for interruptible service.

AL 3174 - Complies with Finding of Fact No. 31 in the GIR decision which authorizes SoCalGas to recover in rates $2.0 million per year, plus franchise fees and uncollectible expenses, for the costs of required systems modifications pertaining to implementation. The change in rates is authorized to begin on the effective date of D.01-12-018, December 11, 2001, and continuing until the effective date of a decision in SoCalGas next performance -based regulation PBR application. Initially, SoCalGas filed to adjust its gas transportation in AL 3105, which the Commission has not yet approved. SoCalGas now proposes to have this filing supercede AL 3105 to recover the 2001 and 2002 implementation costs over the four-month period from September to December, 2002.

Protests to AL 3174

SCGC protests that AL 3174 violates D.01-12-018, Order Paragraph 6, which states that SoCalGas should be permitted to recover implementation costs accumulated in the GIR Memorandum Account (GIRMA) only after such costs have been reviewed for their reasonableness, duplicativeness, and incremental nature in the next BCAP.

TURN protests that D.01-12-018, at page 113 states that the costs logged into the GIRMA account will not be recovered through rates until the legitimacy of the costs and their incremental nature is verified in SoCalGas next BCAP subsequent to the date of the decision.

SoCalGas Response to AL 3174

SoCalGas cites Section 1.6.1.1 of the CSA which authorizes it to recover $2 million in rates, plus related franchise fees and uncollectibles, per year from the effective date of this CSA until the effective date of a Commission decision re-establishing SoCalGas' authorized margin after the expiration of the PBR period established for SoCalGas in D.97-07-054. SoCalGas argues that it is the Commission's intent to review costs booked in the GIRMA, other than capacity-related implementation costs, in the next BCAP.

DISCUSSION

We have reviewed AL's 3099, 3100-A, 3104, 3105, 3109-A, 3112, 3117, 3123-A, 3146, 3147, and 3174, the protests thereto and SoCalGas' responses to these protests. This Resolution denies AL's 3100-A, 3105, 3109-A, 3112, 3117, 3123-A, 3146, 3147, and 3174 without prejudice and requires SoCalGas to file an Application within 45 days to implement the GIR Decision. A lengthy delay ensued between the date the case was submitted and the date the Commission approved the GIR decision. The case was submitted on August 1, 2000, the day after Reply Briefs were filed. SoCalGas then petitioned to reopen the case in order to submit amendments to the CSA. The record was reopened on October 6, 2000, the amendments and declaration in support thereof were received into the record, and the evidentiary record was closed again and the matter resubmitted. The Commission approved the CSA with modifications in D.01-12-018, on December 11, 2001, 17 months after the case was first submitted. Many of the dates specified in the CSA for implementation of various components of the GIR were already passed when the Commission approved D.01-12-018. Another ten months has elapsed since Commission approval of D.01-12-018. In all, it has been over two years since the case was submitted and more than 2-1/2 years since the CSA was signed. SoCalGas' proposed date for the unbundling of storage services of April 1, 2002 has long passed. The proposed date of November 1, 2002 for establishing firm, tradable intrastate transmission rights, balancing and pooling services, and retail services will be passed by the time this resolution is presented to the Commission for review.

We are concerned by the number of protests received on the nine advice letters - twenty-three protests in all. The multitude of issues raised by the protestants vastly exceeds that number. Advice Letter 3146 alone had twelve protests, filed by both signatories and non-signatories to the CSA, with a myriad of issues raised. While we may have anticipated protests to some issues from non-signatories to the CSA, we are particularly concerned by the protests from those who signed the agreement. In its response to the protests, SoCalGas made changes and concessions to accommodate some of the protestants' concerns, however, not all issues have been resolved.

Additional delay was caused by the supplementing in their entirety of three of the advice letters. AL 3100 was filed on December 26, 2001 requesting an effective date of January 1, 2002. On January 28, 2002, it was replaced in its entirety by AL 3100-A, still requesting an effective date of January 1, 2002. SoCalGas put the rates in effect January 1, 2002, while awaiting Commission approval of AL 3100-A, even through G.O. 96-A requires the Commission staff to reject any advice letter supplement filed after the effective date of the tariff. On February 13, 2002, SoCalGas filed AL 3109-A which replaced AL 3109 filed January 17, 2002. Both AL 3109 and 3109-A requested an effective date of February 18, 2002, leaving parties without the required 20-day protest period. The Energy Division suspended AL 3109-A on February 13, 2002 to allow parties sufficient time to protest. Finally, AL 3123 was filed on February 19, 2002 and replaced in its entirety by AL 3123-A filed March 19, 2002 which requested an effective date of June 1, 2002. AL 3123-A was suspended on May 17, 2002. The filing and supplementing of these Advice Letters necessitated that additional time be allowed for protests and replies to protests as required by GO 96-A.

Also, a Petition for Modification of D.01-12-018 has been filed regarding one of the proposals. TXU Energy Services, Inc, a signatory to the CSA, filed a Petition for Modification of D.01-12-018. TXU opposes SoCalGas' interpretation of the CSA in connection with the unbundling of interstate capacity costs for core aggregation customers. The CSA provides that Core Transportation Agents (CTA's) will be responsible for arranging on their own for the delivery of gas supplies to the SoCalGas system, and will not receive a mandatory assignment of any interstate capacity from SoCalGas. In its Petition, TXU requests that the Commission afford core aggregation customers an optional assignment of their proportionate share of SoCalGas' reserved core interstate capacity rights. TXU protested the tariffs SoCalGas proposed in AL 3105. A draft resolution (G-3333) was circulated in which the Energy Division expressed its agreement with SoCalGas' interpretation of the GIR Settlement. Both the Energy Division and SoCalGas suggested that any change to the core interstate unbundling provision should be accomplished through a Petition for Modification of D.01-12-018. The Commission has yet to act upon Resolution G-3333 or TXU's Petition for Modification.

Some of the GIR implementation ALs have already been put into effect. AL 3099, which establishes a GIR memorandum account, was not protested, and is in effect. We will allow AL 3099 to remain in effect, as it was not protested and simply tracks certain costs associated with GIR implementation. We will allow AL 3104 to remain effective, as it was not protested, and can be readily implemented without impacting other aspects of the GIR. However, AL 3100-A was protested and is denied without prejudice, so that we can examine its relation to other portions of the GIR, for the reasons explained above.

We require that SoCalGas include the following issues in their Application to implement the GIR Decision:

1. Present a comprehensive proposal on how to implement the GIR Decision.

2. Present a comprehensive implementation schedule which allows simultaneous implementation of (1) the unbundling of storage services, (2) firm, tradable intrastate transmission rights, (3) balancing and pooling services, (4) retail services, and (5) electronic trading of backbone rights.

3. Describe any new issues which have arisen and must be dealt with in the Implementation Proceeding due to the delay between signing of the CSA, the Commission Decision approving Gas Industry Reform, and its implementation. These should include any issues embedded in current Commission proceedings which affect provisions of the GIR, any changes in the southern California gas market impacting provisions of the decision, and any other issues impacted by the delays.

4. Present a proposed schedule for an Implementation Proceeding.

5. Present any other issue which SoCalGas deems relevant to the implementation of the GIR Decision.

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.

The 30-day comment period for the draft of this resolution was neither waived nor reduced. Accordingly, this draft resolution was mailed to parties for comments on November 5, 2002, designated as Draft Resolution G-3334 of President Lynch (Lynch Resolution). On the same day, Alternate Draft Resolution G-3334 was mailed by Commissioner Brown's office (Brown Resolution). Comments were due to be received on both draft resolutions no later than November 19, 2002.

The following is a summary of the positions of the parties who commented on the Brown Resolution and the Lynch Resolution:

California Utility Buyers, JPA, Calpine Corporation, Office of Ratepayer Advocates, San Diego Gas & Electric Company, Southern California Gas Company, Transwestern Pipeline Company, and Wild Goose Storage, Inc. jointly filed comments (Joint Comments) advocating the Brown Resolution because it will implement as promptly as now possible the measures that the Commission found would improve the efficiency of the gas industry in southern California and benefit customers. They state that the Lynch Resolution repudiates the Commission's own decision by postponing implementation indefinitely and effectively reopens the issues resolved by the Commission's decision. They state that the process outlined in the Brown Resolution is fully adequate to resolve the outstanding issues for implementation of the Commission's decision. These comments contend that some issues raised in protests amount to objections to provisions adopted in D.01-12-018 and should be rejected, while remaining issues are largely a matter of interpretation of the CSA are should be resolved during the workshops. Furthermore, a number of timing issues are eliminated because the Brown Resolution calls for simultaneous implementation of storage and backbone provisions, and electronic support systems should be in place from the outset of implementation.

The Joint Comments state that the Lynch Resolution effectively rescinds D.01-12-018 because it requires SoCalGas to file a new application covering the same subject matter as addressed in D.01-12-018 and thereby violates Section 1708 of the Public Utilities Code. The Joint Comments state that delay necessitated by the Lynch Resolution is not in the public interest because: (1) current scheduling procedures on SoCalGas' system create uncertainty and costs for all shippers that would be resolved by the implementation of firm, tradable capacity rights; (2) implementation of D.01-12-018 is needed to allow for rational decisionmaking about expansion of interstate capacity to southern California and expansion of SoCalGas takeaway capacity; (3) implementation of firm, tradable intrastate capacity rights will shift control of gas flow to California regulators; (4) implementation would provide for statewide consistency with the PG&E system, and (5) implementation will remove the core Gas Acquisition Department from a system balancing role and ensure that noncore customers do not use core assets without compensation.

The Joint Comments indicate that a May 1, 2003 implementation date is not feasible. A minimum of two months is required between the time the Commission approves final tariff language and the time that the new systems actually go into effect, to conduct the open season for backbone capacity. Comments suggest that the Brown Resolution set a specific target for issuance of a final resolution and to have the date for implementation be the first of the month at least two months after the final resolution is approved, i.e. June 1, if the final Resolution is issued by the end of March. The Joint Comments also request that the Energy Division conduct the workshop.

The Utility Reform Network (TURN) and Southern California Generation Coalition (SCGC) jointly filed comments to the Brown Resolution and the Lynch Resolution. TURN and SCGC strongly support the Lynch Resolution and urge the Commission to adopt the draft without modification. In their comments they state that hearings are necessary to resolve factual issues left by the CSA and D.01-12-018. They accuse SoCalGas of attempting to use implementation advice letters as a means to obtain tariff provisions that go beyond the CSA. They state that SoCalGas failed to include provisions which were approved by D.01-12-018. TURN and SCGC indicate that the Brown Resolution's allowance for only two workshops is unrealistic, as is a May 1, 2003 implementation date. They propose an implementation date of April 1, 2004. They state that the Brown Resolution errs by permitting SoCalGas to supplement its advice letters in violation of General Order 96-A which explicitly provides that suspended advice letters may not be supplemented. Lastly, TURN and SCGC request that the Energy Division chair the workshops.

Coral Energy Resources, L.P. (Coral) recommends that the Lynch Resolution be rejected and believes that the Brown Resolution correctly focuses on the procedural steps necessary to implement the GIR settlement. However, Coral indicates that the proposed implementation schedule is overly ambitious. It notes that changes in the marketplace will continue to occur in 2003 and these changes should be allowed to play out before the GIR settlement is implemented. Coral suggests a targeted implementation date no sooner than November 1, 2003.

Kern River Gas Transmission Company (Kern River) supports the Brown Resolution with an implementation date of May 1, 2003 and opposes the Lynch Resolution which would delay the CSA implementation beyond 2003. Kern River states that the availability of firm tradable transmission rights on the SoCalGas system will allow customers to place an increased reliance on long-term contracts. It indicates that this reliance is critical to the success of the Kern River expansion which is scheduled to go into service on May 1, 2003.

Questar Southern Trails Pipeline Company (Questar) supports the Brown Resolution which establishes a procedural schedule implementing the CSA by May 1, 2003. Questar indicates that the Application called for in the Lynch Resolution would result in the CSA not being implemented in 2003 and perhaps it would not be implemented at all.

ExxonMobil Gas Marketing Company (ExxonMobil) comments that neither the Lynch Resolution nor the Brown Resolution offer an optimal solution. However, absent modifications to the Brown Resolution, it supports the Lynch Resolution. ExxonMobil indicates that the Brown Resolution does not provide sufficient time for parties to work with SoCalGas to resolve all of the outstanding issues that have been identified to advice letter protests. It indicates that the Brown Resolution would push forward with implementation of the GIR settlement before customers and other market participants are prepared to operate under the new structure and the procedure does not ensure that the disputed issues will be resolved effectively and fairly. ExxonMobil indicates that at least six months is required from the date the tariffs are approved to the date of GIR settlement implementation.

The Indicated Producers (for the purposes of comments to these Resolutions, this ad hoc coalition includes Burlington Resources Trading, Inc., Chevron USA Inc., Conoco Inc., and ExxonMobil Corporation) state that neither the Lynch Resolution nor the Brown Resolution offers an optimal solution. Between the two Resolutions, the Indicated Producers support the adoption of the Lynch Resolution. They state that given SoCalGas' characterization of the Indicated Producers' comments as attempting to relitigate the CSA, they have very little confidence in the workshop format proposed in the Brown Resolution. Furthermore, the Indicated Producers state that given the number and breadth of the protests filed, two workshops in January may not satisfactorily resolve the issues.

BP Energy Company comments that neither the Lynch Resolution nor the Brown Resolution offers an optimal solution. BP states that the two workshops required in the Brown Resolution are insufficient to address and resolve the numerous and complex implementation issues raised in comments and protests, while the new application proposed by the Lynch Resolution will result in a two-year delay in implementing the CSA and not be beneficial for the natural gas market in southern California. BP prefers a process similar to that outlined in the Brown Resolution to address and resolve issues with implementation of the GIR later in 2003 rather than a process that would delay implementation of the GIR until late 2004 or early 2005.

Southern California Edison Company (SCE) supports the Lynch Resolution. SCE cites the substantial disagreement as to the proper implementation of the CSA by supporters as well as opponents of the CSA. They note the number of dramatic and substantial changes to the California energy market since D.01-12-018 was issued that impact the assumptions underlying the CSA. These include the departure of major marketers from the energy marketplace which will likely result in less liquidity to natural gas markets than existed previously as well as current proceedings before the Commission to allocate California's energy utilities the contracts for electric capacity and energy executed by the California Department of Water Resources.

The Department of General Services of the State of California (DGS) supports the Lynch Resolution. However, DGS urges modifications to the Brown Resolution should the Commission decide not to order implementation hearings. DGS indicates that the Lynch Resolution provides a forum to consider changes that have occurred since the CSA was submitted. Significant developments have changed the regulatory and financial environment. These include: (1) the California energy crisis, (2) SoCalGas' elimination of the windowing process, (3) the restructuring by FERC of the El Paso delivery point capacity and upstream operations, (4) the expansion by 375 MMcfd of SoCalGas backbone capacity, (5) expansion of interstate pipelines by over 1 Bcfd by 2003, loss of liquidity in the gas commodity markets, (6) reduced gas throughput levels projected through 2006, (7) FERC's proposal to complete a reallocation of El Paso capacity by May 1, 2003, (8) the PG&E Gas Accord II proceeding currently pending.

DGS believes the scheduled put forth in the Brown Resolution is unrealistic. It suggests that earliest implementation of the CSA would be August 2003. However, since this is in the middle of peak summer demand for electric generation and the middle of the storage injection season, DGS submitted April 1, 2004 as an implementation date. DGS further suggests that Commission staff sponsor the workshops, file a report which parties could review and comment upon and which the Commission could use as a part of its deliberations.

Reply Comments were filed on November 26, 2002 by SoCalGas and SDG&E (jointly), TURN and SCGC (jointly), and DGS. Reply Comments reiterated the positions set forth in those parties original comments and offered rebuttal to comments in opposition to the position of each.

We believe that the Comments and Reply Comments further indicate the complexity and controversial nature of implementation of the GIR decision. Some signatories of the CSA filed comments supporting an application on GIR implementation. Some parties who support a workshop approach acknowledge the complexity of the issues and argue that a workshop process cannot be conducted quickly. We continue to believe that an application should be filed to implement the GIR.

FINDINGS

1. Decision (D.) 01-12-018, Ordering Paragraph 29 directed SoCalGas to file an Advice Letter within 15 business days to implement the decision, except for the implementation of those provisions of the decision for which the Commission explicitly ordered more time be taken. SoCalGas was required to prepare an implementation schedule with its advice letter.

2. SoCalGas requested, and was granted, an extension of the Advice Letter filing date from January 3, 2002 to January 17, 2002, and then supplemented it in its entirety with AL 3109-A on February 13, 2002.

3. Many of the dates specified for implementation in the CSA were already passed when the Commission approved D. 01-12-018.

4. Twelve months have elapsed since Commission approval of D.01-12-018 and many of the dates proposed by SoCalGas for implementation of the various components of the CSA has or will soon pass.

5. Twenty-three protests were filed to the nine Advice Letters named in this Resolution.

6. Protests were filed by both signatories and non-signatories to the CSA.

7. The issues raised in the protests were numerous and complex.

8. Although SoCalGas made some adjustments to accommodate protestants' concerns, not all issues have been resolved.

9. Comments filed on the Lynch and Brown Resolutions confirm the complex and controversial nature of the issues involved with GIR implementation.

10. An Implementation Proceeding is necessary for D.01-12-018.

THEREFORE IT IS ORDERED THAT:

1. SoCalGas' AL's 3100-A, 3105, 3109-A, 3112, 3117, 3123-A, 3146, 3147 and 3174 are denied without prejudice.

2. The protests to the above ALs are moot.

3. SoCalGas is ordered to file an Application within 45 days of the signing of this Resolution to implement D.01-12-018.

4. In its Application, SoCalGas shall:

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 February 27, 2003, the following Commissioners voting favorably thereon:

I will file a concurrence.

/s/ GEOFFREY F. BROWN

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