Peevey Alternate Comment Dec. on Opinion Regarding the Applications to Modify or Clarify Resolution G-3304

Background

Tenby operates an enhanced crude oil recovery business in Oxnard, California. Tenby uses most of the natural gas to generate steam, which is injected into the ground to extract the crude oil.

The events which resulted in this dispute occurred when natural gas prices in California rose to unprecedented levels during the winter to spring of 2000-2001. According to Tenby's application, BP Energy (BP) was Tenby's gas supplier from September 1, 1999 until about December 30, 2000. Tenby purchased natural gas from BP at the California/Arizona border, and SoCalGas transported the gas to Tenby's facility pursuant to a Master Service Contract and Intrastate Transmission Agreement (Master Services Contract).

On November 30, 2000, BP provided Tenby with 30 days' notice that it was going to terminate its gas supply service contract. Tenby then contacted SoCalGas. According to Tenby, after repeated solicitations from SoCalGas and other providers, Tenby elected to enter into a "core subscription" contract with SoCalGas. Tenby states that in accordance with SoCalGas' instructions, it accepted SoCalGas' offer of "core subscription service" by sending SoCalGas a written notice, dated December 7, 2000, which states:

"Per our conversation, Tenby, Inc. hereby provides written notice of the termination of our Master Service Contract and our Interstate Transmission Agreement effective December 31, 2000. We elect to take service under SoCal Gas tariff schedule number GN-10, effective January 1, 2001." (Declaration Of Julie Chase, Ex. A.)¹

On December 11, 2000, SoCalGas filed Advice Letter Nos. 2978 and 2979 with the Commission.² These advice letters proposed that the Commission establish two classes of core subscription customers. The first class would consist of existing core subscription customers who would be allowed to continue to pay a core subscription rate tied to SoCalGas' overall gas acquisition effort on behalf of core and core subscription customers. The second class would consist of those core subscription customers who elected core subscription service to be effective beginning January 1, 2001 or later. Since the deviations that SoCalGas was requesting would have changed the rates for those services, Tenby submitted a letter to the Commission on December 12, 2000 in opposition to SoCalGas' request.

Resolution G-3304 was adopted by the Commission on December 21, 2000. In that Resolution, the Commission denied the requests contained in Advice Letters 2978, 2978-A, 2979, and 2979-A.³ Ordering Paragraph 2 of the Resolution ordered SoCalGas "to suspend transfers of customers to core subscription service, Schedule G-CS or applicable core service schedules except for those customers where their gas service provider is no longer offering service in California." Ordering Paragraph 3 of the Resolution also ordered SoCalGas to "file a new advice letter with tariff language that implements the provision of OP #2 within 7 days," and stated that the effective date of that advice letter would be December 21, 2000, subject to the Energy Division's review of the advice letter for compliance with the Resolution.

A copy of the Resolution was obtained by Tenby on December 26, 2000. According to Tenby, SoCalGas' representatives informed Tenby that it might find the Resolution to be "disappointing." In response to further inquiries, Tenby received a voice message on the afternoon of December 28, 2000 indicating that Tenby "should `set things up with a marketer,' so it would not be hit with SoCalGas' expensive imbalance penalties." (A.01-12-042 Application, p. 5.) On December 29, 2000, Tenby received an electronic note from SoCalGas informing Tenby that it was still a transportation-only customer. (Declaration Of Julie Chase, Ex. D.) Tenby alleges that because "of SoCalGas' breach of its existing contract with Tenby and unwarranted threat of costly gas imbalance penalties, Tenby was forced to scramble in the remaining hours before the end of the year holiday and entered into a costly gas service contract with another provider on Friday, December 29, 2000."⁴ (A.01-12-042 Application, p. 5.)

As a result of the above events, Tenby contacted the Commission and was directed to the Energy Division. Letters supporting the positions of both Tenby and SoCalGas were reviewed and a teleconference was held with the parties on January 31, 2001. Following the teleconference, on or about January 31, 2001, the Energy Division staff sent an electronic note to both Tenby and SoCalGas which states in part:

"The following is an informal opinion of the Energy Division, and it is not binding on the Commission:

"Tenby applied for core service (GN-10) in writing on December 7, 2000. Tenby elected to take that service on January 1, 2001.

"It appears that there are no other non-core customers that made such a request in writing.

"Tenby initiated its request prior to SoCalGas filing Advice Letter 2978 and 2979 on December 11, 2000 and 2978-A and 2979-A on December 12, 2000. Tenby initiated its request prior to the Commission's Resolution G-3304 on December 21, 2000.

"Application for core service (GN-10) does not require a signed contract.

"BP Energy was and still is providing gas to Tenby.

"Ordering Paragraph #2 of G-3304 directed SoCalGas to `...suspend transfers of customers to ... applicable core service schedules except for those customers where their gas service provider is no longer offering service in California.'

"As a matter of equity, it appears that Tenby's date of transfer (although not effective date) to be a GN-10 customer should be December 7, 2000 in light of the significant and unexpected events that occurred during the interval between its request on December 7, 2000 and its requested effective date of January 1, 2001." (Declaration Of Julie Chase, Ex. H.)

Following the Energy Division's electronic note to Tenby and SoCalGas regarding the informal opinion, SoCalGas began to provide Tenby with core GN-10 service on February 1, 2001.

In response to Ordering Paragraphs 2 and 3 of the Resolution, SoCalGas filed Advice Letter 2981 with the Commission on December 28, 2000. The advice letter contained the following language under the heading of "Requested Tariff Changes":

"As a further clarification, customers taking non-core transportation service on December 21, 2000, will not be eligible for core subscription or core service, except as identified in the above applicability statement, even if they requested the transfer prior to December 21, 2000, since such service would not begin until January 1, 2001, which is after the effective date of Resolution G-3304." (Declaration Of Julie Chase, Ex. I, p. 3.)

On February 2, 2001, the Energy Division notified SoCalGas by letter about the effective date of the tariff sheets attached to Advice Letter 2981. The letter also stated that:

"In the Advice Letter itself, the last full paragraph in the section Requested Tariff Changes which begins, `As a further clarification...' and ends, `after the effective date of Resolution G-3304' should be deleted since this narrative goes beyond compliance with Resolution G-3304." (Declaration Of Julie Chase, Ex. J.)

According to Tenby's application, it suffered damages as a result of the following:

"Tenby suffered damages when it was forced to scramble in the remaining business hours of 2000 and enter into a costly gas supply contract in order to cover SoCalGas' breached contract. Because of the dramatic increase in the cost of gas, Tenby was forced to curtail its steam injection operations for that month in order to mitigate its damages. That is, Tenby [sic] costs of operation would greatly exceed its profit if it remained at full operational status. Tenby still suffered losses, but it was able to mitigate its losses by curtailing its steam injection operations. (Tenby used only 17,784 MMBTUs of natural gas in January, 2001 rather than the typical monthly use of approximately 30,000 MMBTUs.)

"The production of crude oil is a cyclical process occurring over several months. Accordingly, curtailment of steam injection operations affects oil production for approximately five (5) months afterward." (A.01-12-042 Application, pp. 7-8, citations omitted.)

On September 25, 2001, Tenby filed a civil lawsuit against SoCalGas in Los Angeles Superior Court, Case No. BC258497. The lawsuit seeks damages in the approximate amount of $404,000 plus interest as a result of the events described above.

In a stipulation filed with the Superior Court on January 22, 2002, Tenby and SoCalGas agreed to stay the lawsuit until the Commission issues a decision on the two petitions for modification of the Resolution. This stipulation was confirmed in a January 22, 2002 order of the Superior Court. (Case No. BC258497, Parties' Stipulation and Order To Stay Proceedings Pending Public Utilities Commission Decision, p. 4.)

On December 13, 2001, SoCalGas filed its "Application For Modification Or Clarification Of Resolution G-3304," Application (A.) 01-12-050. On December 21, 2001, Tenby filed its "Petition For Modification, Or In The Alternative For Clarification, Of Resolution No. G-3304," A.01-12-042.⁵ Tenby filed a protest to SoCalGas' application on February 1, 2002. SoCalGas filed a response to Tenby's application on January 31, 2002, and Tenby filed a reply to SoCalGas' response on February 11, 2002.

On January 31, 2002, SoCalGas filed a motion with the Commission to consolidate the two applications. The motion to consolidate was granted in an administrative law judge's (ALJ) ruling dated March 7, 2002. In that ruling, the parties were also directed to file a response as to "why the Commission should proceed with hearings or a decision regarding the clarification or modification of the Resolution, when that issue is central to the pending civil matter." (March 7, 2002 Ruling, p. 5.) Responses to the ruling were filed on March 22, 2002 and March 25, 2002 by Tenby and SoCalGas, respectively. Tenby and SoCalGas also filed replies to each other's responses on April 8, 2002.

On February 7, 2003, the scoping memo and ruling was issued for these proceedings. Among other things, the scoping memo and ruling determined that because the Commission has no jurisdiction to award the kind of damages that Tenby is seeking, the Commission would not hold any hearings "into whether the December 7, 2000 letter notice created a contract, whether SoCalGas breached such a contract, and whether damages are due to Tenby for the alleged breach." (Scoping Memo and Ruling, p. 9.)

On April 22, 2003, the complainants informed the ALJ and SoCalGas by electronic mail that at the April 22, 2003 status conference in the civil lawsuit, the Superior Court Judge lifted the stay of the lawsuit and set the matter for trial on September 15, 2003.

¹ Although Tenby refers to "core subscription" or "core subscription service" at different places in its pleadings, the December 7, 2000 letter referred to "GN-10" service. GN-10 service is for core service, while core subscription service is Schedule G-CS service. ² Advice Letter Nos. 2978-A and 2979-A were filed on December 12, 2000. ³ Ordering Paragraph 1 of the Resolution mistakenly referenced AL "2978" twice. The second reference to AL 2978 should have been to AL 2979, as evidenced by the other citations to AL 2979 throughout the Resolution. (See Declaration of Julie Chase, Ex. C, p. 12.) ⁴ Tenby's provider of gas in January 2001 was BP. ⁵ Both applications were originally tendered for filing as petitions for modification of the Resolution. The Commission's Docket Office changed the petitions for modification to applications.