STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor
PUBLIC UTILITIES COMMISSION
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3298
October 7, 2008 Agenda ID #8003
Ratesetting
TO PARTIES OF RECORD IN APPLICATION 07-12-021
This is the proposed decision of Administrative Law Judge (ALJ) Timothy Kenney, previously designated as presiding officer in this proceeding. The Assigned Commissioner is Timothy Alan Simon. The proposed decision will not appear on the Commission's agenda for at least 30 days after the date it is mailed. This matter was categorized as ratesetting and is subject to Pub. Util. Code § 1701.3(c). Upon the request of any Commissioner, a Ratesetting Deliberative Meeting (RDM) may be held. If that occurs, the Commission will prepare and publish an agenda for the RDM 10 days beforehand. When the RDM is held, there is a related ex parte communications prohibition period. (See Rule 8.2(c)(4) of the Commission's Rules of Practice and Procedure (Rules), accessible on the Commission's website at www.cpuc.ca.gov.)
When the Commission acts on the proposed decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.
Parties to the proceeding may file comments on the proposed decision as provided in Article 14 of the Rules. Pursuant to Rule 14.3, opening comments shall not exceed 25 pages.
Comments must be filed either electronically pursuant to Resolution ALJ-188 or with the Commission's Docket Office. Comments should be served on parties to this proceeding in accordance with Rules 1.9 and 1.10. Electronic and hard copies of comments should be sent to ALJ Kenney at tim@cpuc.ca.gov, Assigned Commissioner Simon at tas@cpuc.ca.gov, and Commissioner Advisors Robert Mason and Paul Phillips at rim@cpuc.ca.gov and psp.cpuc.ca.gov. The current service list for this proceeding is available on the Commission's website at www.cpuc.ca.gov.
/s/ ANGELA K. MINKIN
Angela K. Minkin, Chief
Administrative Law Judge
ANG:hkr
Attachment
ALJ/TIM/hkr DRAFT Agenda ID #8003
Ratesetting
Decision PROPOSED DECISION OF ADMINISTRATIVE LAW JUDGE KENNEY (Mailed 10/7/2008)
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of Pacific Gas and Electric Company for Authorization to Enter into Long-Term Natural Gas Transportation Arrangements with Ruby Pipeline, for Cost Recovery in PG&E's Gas and Electric Rates and Nonbypassable Surcharges, and for Approval of Affiliate Transaction. (U39G and U39E) |
Application 07-12-021 (Filed December 21, 2007) |
(See Appendix for List of Appearances.)
DECISION APPROVING GAS TRANSPORTATION ARRANGEMENTS
DECISION APPROVING GAS TRANSPORTATION ARRANGEMENTS 1
1. Summary of Decision 2
2. Summary of A.07-12-021 4
3. Procedural Background 7
4. The Pipeline Projects 9
5. Summary of the Active Parties' Positions 12
6. Jurisdiction and Standard of Review 13
7. Issues 13
7.1. Access to Rocky Mountain Gas Supplies 13
7.1.1. Position of the Parties 13
7.1.2. Discussion 15
7.2. Costs and Benefits for Core Gas Supply 17
7.2.1. Position of the Parties 17
7.2.2. Discussion 19
7.3. Costs and Benefits for Electric Fuels 22
7.3.1. Position of the Parties 23
7.3.2. Discussion 25
7.4. Alternatives 27
7.4.1. Position of the Parties 28
7.4.2. Discussion 31
7.5. Capacity on PG&E's Redwood Path 35
7.5.1. Position of the Parties 35
7.5.2. Discussion 37
7.6. Recovery in Retail Rates 40
7.6.1. Position of the Parties 40
7.6.2. Discussion 41
7.7. Core Procurement Incentive Mechanism 45
7.7.1. Position of the Parties 45
7.7.2. Discussion 47
7.8. Environmental Considerations 48
7.8.1. Position of the Parties 49
7.8.2. Discussion 51
7.9. Other Issues Raised by the Parties 52
7.9.1. Selection Process 53
7.9.2. Let the Market Decide 62
7.9.3. Higher Costs on the GTN Pipeline 65
7.9.4. Capacity Release Revenues 69
7.9.5. Redeployment of GTN Pipeline Facilities 70
7.9.6. Commercial Viability 72
7.9.7. Compliance with Affiliate Transaction Rules 75
7.9.8. Revisions to Affiliate Transaction Rules 81
7.9.9. Separation of Procurement Functions 85
7.9.10. FERC Policies 90
7.9.11. Due Process 92
7.9.12. U.S. Dept. of Transportation Regulations 103
8. Conclusion and Implementation 103
9. Categorization and Need for Hearings 107
10. Comments on the Proposed Decision 107
11. Assignment of the Proceeding 107
Findings of Fact 107
Conclusions of Law 111
ORDER 113
Appendix: Appearances
1. Summary of Decision
This decision grants the application filed by Pacific Gas and Electric Company (PG&E) for authority to contract for long-term capacity on the proposed Ruby Pipeline. If built, the Ruby Pipeline will transport gas from Opal, Wyoming to Malin, Oregon where it will interconnect with PG&E's system. The key terms of PG&E's contract with Ruby Pipeline, LLC are as follows:
· PG&E will acquire firm pipeline capacity of 375 thousand dekatherms per day (MDth/d) for a 15-year period beginning November 1, 2011. Of this amount, 250 MDth/d is for PG&E's Core Gas Supply Department and 125 MDth/d is for PG&E's Electric Fuels Department (Electric Fuels).
· PG&E will acquire 250 MDth/d for Electric Fuels for an initial 4-month period of July 1, 2011 through October 31, 2011.
· PG&E will pay an anchor-shipper rate equal to the lower of $0.68/Dth or 5% lower than the Initial Recourse Rate. Assuming PG&E pays $0.68/Dth, its annual cost for 375 MDth/d of capacity will be $93.1 million. PG&E will also pay a fuel charge equal to approximately 1.1% of the actual volume shipped.
· PG&E has the right to receive any lower rate that Ruby Pipeline, LLC, provides to another similarly-situated shipper.
· PG&E may annually reduce its Ruby Pipeline capacity by 20% increments beginning in year 11 of the initial 15-year term.
· At the expiration of the initial 15-year term, PG&E may annually renew, for a one-year term, all or part of the contracted capacity. PG&E's right to annually renew the contracted capacity expires after 10 years (i.e., after 10 one-year renewals).
PG&E also requests authority for Electric Fuels to obtain matching downstream capacity on PG&E's intrastate pipeline known as the Redwood Path. Thus, PG&E seeks authority for Electric Fuels to acquire 250 MDth/d of firm capacity on the Redwood Path for a 4-month period beginning July 1, 2011, and 125 MDth/d for a 15-year period beginning November 1, 2011. PG&E's current tariffed rate for firm service on the Redwood Path is $8.9095/Dth/month. This equates to an annual cost of $13.4 million for Electric Fuels' 125 MDth/d of capacity on the Redwood Path, plus a usage rate of $0.0070/Dth. PG&E's Core Gas Supply Department already has matching capacity on the Redwood Path.
The Ruby Pipeline will provide PG&E with access to prolific and growing gas supplies in the Rocky Mountains. Today's decision finds that it is in the public interest to grant PG&E's application because (1) PG&E has a need to diversify away from its heavy reliance on declining Canadian gas supplies, (2) the proposed Ruby Pipeline provides a cost-effective means for doing so, and (3) there are no better alternatives. PG&E is authorized to recover from its core gas customers and bundled electric service customers the costs PG&E incurs to transport gas on the Ruby Pipeline and Redwood Path pursuant to the gas transportation arrangements authorized by today's decision.
The authority granted by today's decision is subject to the following conditions.1 First, PG&E shall obtain Commission authorization before exercising, or not exercising, its right to annually reduce its Ruby capacity by 20% increments beginning in Year 11 of the Ruby contract. PG&E shall likewise obtain Commission authorization before exercising, or not exercising, its right to annually renew the Ruby Pipeline transportation arrangements after the initial 15-year term of the Ruby contract.
Second, the transportation benchmark component of PG&E's Core Procurement Incentive Mechanism shall reflect the actual transportation rates that PG&E pays under its contract with Ruby LLC.
Finally, PG&E negotiated its Ruby contract at a time when PG&E's parent company had an option to acquire a 25% ownership interest in the Ruby Pipeline. This created a conflict of interest between PG&E's shareholders and ratepayers. To protect ratepayers from conflicts of interest in the future, PG&E is henceforth prohibited from negotiating, without prior Commission approval, for gas supplies or gas-transportation services with entities in which unregulated affiliates of PG&E have an option to acquire an equity interest.
1 Additional conditions are listed in the Ordering Paragraphs of today's decision.
