ALJ/TJS/avs DRAFT Item 2

11/29/2001

Decision DRAFT DECISION OF ALJ SULLIVAN (Mailed 10/26/2001)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking into whether the curtailment and diversion priorities for noncore natural gas customers in the service territories of Pacific Gas and Electric Company, and Southern California Gas Company should be changed.

Rulemaking 01-03-023

(Filed March 15, 2001)

TABLE OF CONTENTS

Title Page

OPINION DECLINING TO PROVIDE SERVICE PRIORITIES TO ELECTRIC GENERATORS IN THE EVENT OF A NATURAL GAS SHORTAGE 3 3

I. Introduction - Proposed Changes in Gas Service
Priorities Are Not Needed 3 3

II. Background - Gas Tariffs Offer a Range of Services and Levels of Reliability 4 4

III. Procedural History 5 5

IV. Should the Commission At This Time Alter Gas Service
Priorities in the Event of a Natural Gas Shortage or Diversion? 6 6

PG&E Opposes Changes in Curtailment Rules 6 6

SoCalGas Opposes Changes in Curtailment Rules 8 8

ORA Opposes Changes in Curtailment Rules 9 9

Energy Producers Oppose Changes in Curtailment Rules 10 10

Energy Users Oppose Changes in Curtailment Rules 12 12

SCE, WHP, Long Beach, TURN and Palo Alto Did
Not State a Position on Changing Curtailment Rules 12 12

Mirant Supports a Priority for "Must-Run Plants"
When Dispatched to Preserve System Reliability 12 12

CGC, SMUD, and Tractabel Support Priority for Electric Generators; Ultramar Supports Priority for All Energy Producers 13 13

V. Discussion - Providing a Gas Service Priority to
Electricity Generators in the Event of a Natural Gas Shortage
or Diversion Is Not Required at This Time 14 14

Granting Electric Generators a Gas Service Priority
Will Not Provide Californians With Any Benefits Because
Adequate Gas Supplies Make Curtailments and
Diversions Unlikely This Year 14 14

Granting Electric Generators a Gas Service Priority Diminishes the Incentives for Them to Use Gas Storage Prudently 15 15

Proposed Gas Priorities for Electric Generators are Overly Broad and Could Produce Unfair Burdens on Other Noncore Customers 16 16

Policies That Give Preferences to Electric Generators Would Require Complicated Implementation and Enforcement Programs 18 18

Within the Class of Electric Generators, Should the Commission
Provide Priorities to Those with the Most Efficient Heat Rates
in the Event of a Gas Curtailment? 19 19

VI. Should the Commission Alter Gas Storage Policies at This Time to Reduce the Chance of Gas Curtailments? 21 21

TURN Proposes an "Excess Core Storage Program" 21 21

Wild Goose and WHP Propose Changes in Storage Regulations 22 22

EPUC-IP-CAC and PCES Propose Monitoring of Storage 24 24

Aquila Opposes the Monitoring of Storage 24 24

PG&E, SoCalGas, and ORA Oppose Any Changes
in Storage Policy in this Proceeding 24 24

Long Beach and Palo Alto Oppose TURN's Excess Core
Storage Proposal and State the TURN Errs in Charging that Core Wholesale Customers Fail to Store Gas 27 27

Calpine, DENA and DETM, and CGC Oppose TURN's Proposal 27 27

IEP, CIG/CMTA, SCE and Tractabel Make
Limited Comments on Gas Storage Issues 29 29

VII. Discussion - Changes in Storage Regulations at
This Time Are Unnecessary 29 29

VIII. Motion by TURN 32 32

IX. Comments on Draft Decision 33 33

Findings of Fact 33 33

Conclusions of Law 35 35

ORDER 36 36

OPINION DECLINING TO PROVIDE SERVICE PRIORITIES
TO ELECTRIC GENERATORS IN THE EVENT
OF A NATURAL GAS SHORTAGE

I. Introduction - Proposed Changes in Gas Service Priorities Are Not Needed

Granting a priority to electric generators for natural gas service is not needed at this time to avoid disruptions in electric service. Our examination of the natural gas transmission and storage infrastructures of Pacific Gas and Electric (PG&E) and Southern California Gas Company (SoCalGas) lead us to conclude that California, barring an exceptionally cold winter, should have adequate natural gas supplies over the next twelve months. Given current supply conditions, neither PG&E nor SoCalGas anticipates gas service curtailments to either their core or noncore customers. Thus, no supply conditions warrant a change in service priorities.

In addition, an examination of PG&E's and SoCalGas's tariffs indicate that those electric generators holding gas storage rights can obtain services that ensure gas service even if system curtailments occur. Providing higher service priorities to electric generators could undermine current policies that both encourage and allow large gas users to ensure their supply of gas. Electric generators consume two-thirds of all gas provided to noncore customers. In the event of a gas shortage, granting electric generators a priority would, impose unfair burdens on other noncore customers, many of whom supply essential services to California.

Similarly, gas storage regulations need no changes at this time. In southern California, unusually high demand over the past year has led SoCalGas to run its infrastructure at full speed and store all gas not immediately needed. In the face of these market conditions, there is no superior gas storage policy. PG&E, has adequate transmission and storage capabilities for the next twelve months, and insuring the reliability of gas supply does not require regulatory change.