4. Respondent's Proposals

Following are brief summaries of the Respondents' Phase I Proposals, which were filed on February 24, 2004.

4.1. SoCal and SDG&E

SoCalGas and SDG&E filed jointly. They recommend a diverse portfolio approach and flexibility in their ability to contract for interstate pipeline capacity for the core. They have proposed the "Interstate Pipeline Capacity Acquisition Procedure" as a means to maximize capacity acquisition opportunities with regulatory certainty. The proposal would establish a consultation process with ratepayer groups and expedited pre-approval mechanisms.

Regarding additional access to gas supplies, the utilities identified a number of LNG scenarios as well as additional interstate pipeline capacity opportunities and provided the related preliminary cost estimates. As long as certain cost benefit criteria are met, they propose to roll-in costs for infrastructure improvements related to new sources of supply. For LNG projects, rolled-in ratemaking would be capped at $200 million.

In order to facilitate access to LNG, SoCalGas and SDG&E request that new economically justified receipt points be established as needed. To facilitate access to both of the utilities' customers, they recommend that their transmission systems be integrated. Also, to provide certainty for suppliers and customers that their full gas supply needs can be delivered on any given day, the utilities have proposed that a system of tradable firm access rights be created. Such a proposal would replace the system of rights that was previously proposed and adopted in D.01-12-018, but which has not yet been implemented.

SoCalGas and SDG&E have also proposed interconnection policies that are intended to provide new suppliers with a clear understanding of their obligations, as they plan their upstream facilities.

4.2. PG&E

PG&E proposes supply planning criteria, which it claims will provide a high level of reliability at reasonable cost. Accordingly, the utility has proposed increased pipeline and storage capacities over current levels. PG&E also asserts that the process for acquiring capacity should allow sufficient flexibility to respond to changes in the market and serve as a guiding basis for long-term decisions to acquire more capacity or storage. In order to accomplish this, PG&E recommends expedited pre-approval procedures that are very similar to those contained in the SoCalGas and SDG&E Interstate Pipeline Capacity Acquisition Procedure.

PG&E proposes that project specific approval be granted prior to constructing LNG facilities. Once that is accomplished, in order to encourage the siting of LNG facilities in or near California, PG&E proposes that it, and ultimately its ratepayers, should fund the interconnection of that facility to PG&E's system. PG&E also recommends that it not be penalized if the new supply causes some existing facilities to be used less. PG&E requests that rules be established that would ensure LNG meets existing utility gas quality interchangeability requirements. PG&E also describes how it could access LNG supplies from Mexico.

In order to increase the availability of interstate pipeline capacity at Kramer Junction, PG&E recommends that, until firm access rights are established, SoCalGas should be ordered to create a process to allocate the take away capacity between all affected pipelines based on final scheduled volumes from two days prior.

4.3. Southwest

Southwest was only required to address the sufficiency of interstate pipeline capacity to meet core procurement supply obligations. The utility indicates that its southern California needs for pipeline and storage capacity will depend on the outcome of SoCalGas restructuring. For its northern California service territory, there is only one interstate pipeline that connects directly to Southwest's distribution facilities.

Southwest requests that blanket pre-approval be granted for its acquisition of upstream resources, so long as such resource volumes are within the bounds of its core peak day requirements.