II. PG&E's Motion to Dismiss

PG&E argues that reduced to its essence, the complaint seeks a "backbone-only" rate for gas service to three merchant generating plants owned in whole or in part by Complainants' corporate parent, Calpine Corporation. PG&E moves to dismiss the complaint on the following grounds:

A. The Gas Accord Expressly Requires Payment of the Very Charges Complainants Seek to Avoid.

Under the "Gas Accord," a comprehensive, Commission-approved settlement that establishes the rates and terms and conditions of service on PG&E's California gas transmission system for a term that runs through December 31, 2002, the merchant power plants must pay local transmission charges and certain other charges, and not just backbone charges. The complaint impermissibly seeks a special exemption from the approved Gas Accord rate structure during its term.

B. The Issue Complainants Raise will be Addressed in the Proceedings for the Period After the Current Gas Accord Expires.

PG&E recently initiated discussions with all interested parties, including Calpine and other merchant generators, pursuant to Rule 51 of the Commission's Rules in a process known as "Gas Accord II." One of the issues the parties and the Commission will consider in the Gas Accord II proceedings is whether, and to what extent, local transmission charges should be unbundled from backbone transmission charges.

C. Calpine Corporation has Twice Before Unsuccessfully Raised this Issue Before the Commission.

Calpine Corporation should not be permitted to litigate the issue yet again in this complaint, through an affiliate.

D. The Complaint Improperly Seeks Relief that Cannot be Obtained in this Proceeding.

Whether the local transmission charges should apply to end-users in PG&E's service area whose facilities are located near, or directly connected to, PG&E's backbone transmission system, is an industry-wide issue that requires consideration of a multitude of factors. These broad, industry-wide issues cannot properly be addressed in an individual complaint proceeding.

E. The Complaint Fails to Comply with Cal. Pub. Util. Code § 1702 and Rule 9 of the Commission`s Rules.

Because the complaint seeks to challenge the reasonableness of the Gas Accord and PG&E's authorized tariff requiring the payment by on-system end-users of the local transmission charges, the provisions of Cal. Pub. Util. Code § 1702, and the parallel provisions of Rule 9(a), are invoked. The complaint does not meet the signature requirements for complaints making such challenges. Nor does the complaint allege any facts to show that PG&E violated any law, order or rule.

PG&E argues that Complainants are barred from obtaining the relief requested under any cause of action, because the facts as alleged in the complaint unequivocally demonstrate that the merchant power plants are "on-system end-users" as defined in the Gas Accord. Under the Commission-approved rate structure established in the Gas Accord, backbone and local transmission Charges must be paid by all "on-system end-users" without exception. (Gas Accord, 73 Cal.P.U.C.2d at 814, 819 (II.E.14.b and II.H.1.d-e).) Under the Gas Accord, local transmission charges cannot be bypassed by an "on-system end-user," regardless of the identity of the shipper, the owner of any intermediate natural gas pipelines that may connect to the gas consumer, or the extent of the end-user's actual use of PG&E's local transmission pipelines. The facts alleged in the complaint do not make a case for allowing Complainants or the merchant power plants to circumvent the Gas Accord, which requires that all "on-system end-users" using the backbone system must pay for local transmission charges through the term of the Gas Accord. (Gas Accord, 73 Cal.P.U.C.2d at 799, 800 (I.B.1 and I.B.12.)

The Gas Accord Settlement (D.97-08-055) provides that PG&E must "[u]nbundle the rates and service options for transmission system service from distribution system service" and that "[t]he transmission system is defined as PG&E's backbone and local gas transmission lines." (Gas Accord, 73 Cal.P.U.C.2d at 799 (I.B.1.).) The Gas Accord provides that "[l]ocal transmission costs are included in a separate local transmission charge, which will be collected from all on-system end-users." (Gas Accord, 73 Cal.P.U.C.2d at 802 (II.A.), emphasis added.) It further provides that "all on-system transmission-level end-users must pay local transmission charges." (Gas Accord, 73 Cal.P.U.C.2d at 814 (II.E.14.b.)) The Gas Accord states:

The Gas Accord further states: "The local transmission charge collects local transmission costs and is applicable to all on-system end-users." (Gas Accord, 73 Cal.P.U.C.2d at 819 (II.H.1.e.).) The Gas Accord provides that during its term: "The local transmission charge is paid by all on-system end-users. This charge is nonbypassable." (Gas Accord, 73 Cal.P.U.C.2d at 822 (II.I.8.b.).)

Under the Gas Accord, the first inquiry is whether an entity is an "on-system end-user." To be an on-system end-user, the Gas Accord specifically looks at whether the end-user is: (1) located within PG&E's service territory, and (2) on-system. If these basic requirements are met, then both backbone and the local transmission charges must be paid, regardless of the extent to which the end-use customer makes actual use of PG&E's local transmission facilities.

The Gas Accord defines "on-system deliveries" as "any point at which deliveries are made to, or for ultimate delivery to...end-use...located in PG&E's service territory." (Gas Accord, 73 Cal.P.U.C.2d at 807 (II.E.4.a.).) In contrast, "off-system deliveries" are defined as "any interconnection for delivery outside of PG&E's service territory." (Gas Accord, 73 Cal.P.U.C.2d at 807 (II.E.4.b.).) PG&E asserts that it is indisputable that the merchant power plants are "on-system end-users" under this definition, since they are located within PG&E's service territory, and Complainants have admitted that they are the end-users of natural gas that has flowed through PG&E's pipeline system. (Complaint, ¶ 72.)

PG&E contends the Gas Accord's use of the phrase "ultimate delivery to end-use" in defining "on-system deliveries" makes clear that the physical interposition of a CPN Pipeline segment between the PG&E backbone and the merchant power plants is irrelevant. The connection point between CPN Pipeline and the PG&E backbone is the point for "ultimate delivery to...end-use."

The Gas Accord also addresses the economic separation issue by providing that shippers delivering on-system will pay the backbone transmission charge, and the corresponding end-user will pay the local transmission charge, plus customer access charges. (Gas Accord, 73 Cal.P.U.C.2d at 818-819 (II.H.1.a).) The approved Gas Accord rate structure thus does not require a direct economic relationship between PG&E and the merchant power plants as a basis for local transmission charges. Calpine's shipper/supplier will have an economic relationship to PG&E, so the shipper/supplier will pay the backbone charge, and when there is a "corresponding end-user" in the PG&E service territory (such as the Calpine merchant power plants), the local transmission charges must be paid by the "corresponding end-user" either directly or through the shipper.

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