3. Procedural Background
On July 13, 2001, SoCalGas filed Advice Letter 3040 requesting Commission authorization to implement a new category of tariffed service that would allow Carriers to place fiber optic cable in SoCalGas' active gas pipelines. On January 9, 2002, the Commission issued Resolution G-3320, which denied Advice Letter 3040 without prejudice, and stated that if SoCalGas desired to offer the proposed service, it must file an application with the Commission to do so. On March 29, 2002, SoCalGas filed Application (A.) 02-03-061 as required by Resolution G-3320. At the same time, SDG&E filed A.02-03-062 requesting approval of the same service on its system under essentially the same terms and conditions as proposed by SoCalGas in A.02-03-061.
On May 13, 2002, the California Cable & Telecommunications Association (CCTA), the Utility Reform Network (TURN) and Sempra Fiber Links (SFL) filed responses to the applications. SFL supported the applications. TURN protested the applications as discussed below. CCTA did not protest the applications and agreed that regulatory treatment of the proposed new service should be consistent with the Commission's treatment of the use of electrical conduit contained in the Commission's right-of way decisions. CCTA stated that if the Commission grants the applications, it must likewise affirm that the nature of the proposed service requires the same protections and requirements embodied in the Commission's investor-owned-utility Right-Of-Way Rules set forth in the Commission's Order Instituting Rulemaking on Competition for Local Exchange service Decision (D.) 98-10-058 as modified by D.00-04-061. Since Sempra Communications, an affiliate of both SoCalGas and SDG&E, is in the telecommunications business, CCTA emphasized the need for cost based pricing to prevent potential cross subsidization and preferential self dealing.
TURN raised the issue of system capacity stating that the Commission should be able to quantify potential impacts of fiber optic conduit on pipeline capacities and that SoCalGas needs to clarify the pipeline eligibility for installation. Regarding load growth and system planning, TURN noted SoCalGas' proposal to install cable unless the utility determines that their load growth forecast within a one-year time frame would create insufficient pipeline capacity to accommodate the cable. TURN stated that planning, for capacity additions, normally occurs on a five year planning horizon and that a one-year horizon may be too short to adequately anticipate system constraints. TURN also expressed concerns regarding the ratemaking aspect where the costs would be included in SoCalGas' 2004 general rate case (GRC), but developing a forecast of revenues will be problematic and speculative. TURN also noted the potential problem of affiliate abuse.
On May 23, 2002 the Utilities filed replies to the responses of the CCTA and TURN. Regarding the CCTA, the Utilities stated that they have proposed to charge for the new services on the cost-of-service basis that CCTA advocates. In addressing TURN's concerns on system capacity, the Utilities emphasized that the proposed service provides access to distribution lines and not transmission lines and that any impact on capacity will only be on a very local area served by a particular distribution pipeline in which fiber is placed. There would be no effect on capacity to serve customers who receive gas through distribution pipeline in which cable is not installed. If the applications were approved, only a tiny fraction of the distribution pipeline mileage could have fiber optic cable installed in the first few years of availability of the service. The Utilities asserted that there would be plenty of time to assess, in practice, the impact of the service on gas capacity and for the Commission to approve changes in the terms and conditions, before any significant impact on system capacity could occur. On the issue of load growth and system planning, the Utilities stated that they would not object if the Commission were to require a five-year horizon, rather than the 12-month horizon in the proposed tariffs, noting the expectation that the most interest for this service would be for installation in built-up areas where there is not likely to be much difference in the projected growth in gas demand over five years vs. over 12 months. Regarding the ratemaking aspect, the Utilities did not agree with TURN's characterization of the costs and revenues, stating that the charges for the new service are designed to offset the incremental out-of-pocket expenses; make-ready charges are to be billed on actual hours of labor and pass through of actual costs of materials and equipment; and the annual recurring charge is intended to generate revenue in addition to out-of-pocket costs, thereby reducing the cost of already-installed pipeline that is otherwise already included in gas rates. The utilities also noted that they are not seeking a permanent resolution of the ratemaking treatment of cost and revenues in these applications, but that the issue should be addressed in the upcoming Test Year 2004 Performance Based Ratemaking (PBR)/Cost-of-Service (COS) applications, which would address miscellaneous revenues in general. Regarding potential affiliate abuse, the utilities stated that its proposed tariff provisions fully protect against any potential for favoritism of affiliates in how the new service is offered.
By an Administrative Law Judge (ALJ) ruling dated June 19, 2002, the applications were consolidated pursuant to Rule 55 of the Commission's Rules of Practice and Procedure.
On July 10, 2002, a prehearing conference was held in San Francisco. At that time, it was indicated that there was a good potential that the parties could reach a settlement on the issues that had been identified. A schedule for settlement discussions and the filing of a settlement document was set.
The initial settlement conference was held telephonically on July 25, 2002. It was indicated that progress was made, there were a few outstanding issues and further discussion among the parties would be useful.1
On August 23, 2002, the Utilities sent a letter to the assigned ALJ documenting several changes to their testimonies and proposed tariff language. The revised testimonies and revised proposed tariffs were also served on all parties in the proceeding. The revisions consisted of the following:
1. The Utilities would not allow installation of fiber optic cable in any pipeline if they estimate that installation would result in insufficient gas capacity in the line in the next 60 months, not 12 months as originally proposed, unless arrangements were made for the carrier to pay to increase the gas capacity to avoid this situation.
2. The utilities would not offer installation in pipelines or service other than those proposed in their amended applications without seeking further approval of the Commission, but the utilities recognize that some adjustment in fees might be appropriate if additional facilities were made available.
3. The Utilities would use a forecast of annual average revenue and costs for the first 36 months of this service in any showing on miscellaneous revenues they make in their next PBR or GRC-type proceeding.
4. The Utilities agreed that it might be appropriate to adjust the amount of the monthly customer charge after operating experience is gained to assure it is cost-based.
5. The Utilities proposed to limit the mileage they would install in the first 36 months of the service, unless they sought and received Commission approval to install larger amounts.
6. The Utilities would provide annual reports on the service for the first 36 months of service and would not oppose the Commission reconsidering the existence or terms of this service after 36 months of experience with it.
On August 27, 2002, TURN sent a letter to the assigned ALJ stating that it had engaged in several settlement discussions with the parties in the proceeding and based on those negotiations, SoCalGas and SDG&E had agreed to modify certain portions of their proposals. Those modifications adequately addressed its issues in this proceeding and TURN indicated its intention to withdraw its protest to the revised applications. On August 29, 2002, TURN filed a motion to withdraw its protest to the applications.
On September 6, 2002, the CCTA sent a letter to the assigned ALJ indicating its concern that the rates for service proposed by SoCalGas and SDG&E are not cost based in a manner that is consistent with D.98-10-058. Its comments focused on the $3,000 monthly charge to recover incremental operation and maintenance costs. Because the service is new, the Utilities did not provide any detailed cost information to support the cost estimate. Additionally, CCTA questioned whether some of the costs are fixed, as contended by the utilities, or variable in nature. Also, since the utilities claimed that they could not provide a forecast of customers and revenues for the new service, CCTA stated that it was impossible to determine whether the $3,000 charge is likely to generate revenues that are sufficient to recover the utilities' Operation & Maintenance expenses or whether the monthly charge will generate revenues that will be well in excess of cost. CCTA also expressed concern regarding justification for continuing, or potentially modifying, this charge in the future. It indicated that the proposed $3,000 rate might have a significant anticompetitive effect even before it can be adjusted, since the magnitude of the charge may deter carriers from using the service before Sempra Communications occupies the limited capacity available along the commercially lucrative pipeline routes. To address this potential problem, CCTA suggested that, for example, the Commission could limit its grant of authority to provide the service on a limited market trial basis. Notwithstanding its concerns, CCTA stated it did not intend to participate further in this proceeding and that it believed the Commission, on its own, is fully capable of discerning the public interest at stake here.
On April 1, 2003, the Utilities filed amendments to A.02-03-061 and A.02-03-062. The Utilities proposed to make pipelines of 2 inches in diameter or greater operating at a pressure of 60 psig or less available under Schedule G-FIG. The Utilities initially proposed to make service available only in pipelines of four inches in diameter or greater. The Utilities also revised their proposed recurring annual charges to reflect the changes in eligible facilities and certain other developments. The prepared testimony and tariff sheets attached to the April 1, 2003 filings also reflected revisions in the proposals of the Utilities that were incorporated in the revised testimony and proposed tariff sheets that were served on the ALJ and parties on August 23, 2002. There were no responses to the April 1, 2003 amendments.
The Utilities' applications have also been subjected to environmental review, which is discussed in Section 5 of this decision.
