II. Background

In Order Instituting Rulemaking (R.) 98-01-011, the Commission assessed the market and regulatory framework of California's natural gas industry and considered reforms that might foster competition and benefit all California natural gas consumers. In D.99-07-015, the Commission identified the most promising options for changes to the regulatory and market structure of the natural gas industry. Order Instituting Investigation (I.) 99-07-003 was issued the same day and asked parties to prepare more detailed analysis of the costs and benefits of the promising options, and allowed time for exploring the possibility of settlement before testimony and hearings. Various parties agreed to a "Comprehensive Settlement Agreement" (CSA). The CSA settled the issues raised by the most promising options being investigated in I. 99-07-003.

In D.01-12-018, the Commission approved the CSA with modifications. D.01-12-018 authorized customer access to firm tradable transmission rights on SoCalGas' system and ordered the unbundling from transportation rates of the costs associated with intrastate backbone transmission. D.01-12-018 also allowed noncore customers to acquire intrastate backbone transmission capacity through an open season, or purchase gas at the city gate. D.01-12-018 provided that the utilities' retail core procurement department would continue to reserve interstate capacity, intrastate backbone transmission capacity, and storage capacity to meet the requirements of retail core procurement customers. D.01-12-018 anticipated that the availability of firm tradable transmission rights would allow customers to place an increased reliance on long-term contracts.

D.01-12-018 ordered SoCalGas to file advice letters to implement the CSA. SoCalGas filed nine Advice Letters (ALs) to establish an implementation schedule, tariffs and rules to implement D.01-12-018. Eight of the nine ALs were protested. Protests were received from both signatories and non-signatories to the CSA.

On February 27 2003, the Commission issued Resolution G-3334 which consolidated and denied the ALs without prejudice.¹ Since no hearings were held or record developed, Resolution G-3334 did not modify D.01-12-018 or establish any new policies. Resolution G-3334 simply ordered SoCalGas to file an application to implement D.01-12-018.²

On June 30, 2003, SoCalGas filed Application (A.) 03-06-040, and on July 15, 2003, SoCalGas served its testimony. In its application, SoCalGas proposed two options. SoCalGas refers to option 1 or the "Compliance Case" as implementing the tariff provisions that are in compliance with the regulatory framework adopted by D.01-12-018. Option 2 is described as the preferred case which contains recommended changes to D.01-12-018.

On August 6, 2003, protests and responses were filed.³ On August 8 and 19, 2003, Administrative Law Judge (ALJ) DeUlloa held prehearing conferences.⁴ On August 18, SoCalGas filed a response to the protests. On September 29, 2003, Commissioner Brown issued a scoping memo that limited the scope of this proceeding to addressing SoCalGas' first option, i.e., the compliance case filing. Further, the scoping memo indicated that the Assigned Commissioner planned to explore with the Commission staff the:

"possibility of initiating a new proceeding to evaluate parties' proposals for modification to the CSA in a comprehensive manner that identifies for parties the Commission's policy goals, organizes issues, and also takes into consideration the experiences gleaned from implementation of the compliance case." (Scoping Memo at p. 4.)

An evidentiary hearing was held on November 3, 4, and 5, 2003. Opening briefs were filed on November 17 and reply briefs were filed on November 24, 2003. This matter was submitted on November 24, 2003.