9. Assignment of Proceedings
Michael R. Peevey and Susan P. Kennedy are the Assigned Commissioners, and John S. Wong and David K. Fukutome are the assigned Administrative Law Judges in this proceeding.
1. A diverse portfolio approach for the holding of interstate capacity across supply basins and interstate pipelines with staggered terms maximizes opportunities to benefit core customers with enhanced supply reliability and gas price stability.
2. By Commission order, SoCalGas, PG&E, SDG&E, Southwest and Edison cannot turn back capacity rights on interstate pipelines or release their capacity rights under long-term capacity release transactions unless and until the Commission authorizes such turn back of capacity or long-term releases.
3. The SoCalGas and SDG&E request to negotiate reduced amounts of capacity and to terminate expiring contracts with El Paso and Transwestern is consistent with the goal of achieving a more diversified portfolio.
4. A clearly articulated interstate pipeline capacity approval process, which is flexible and provides for expeditious processing and appropriate regulatory oversight, is needed to provide the utilities with the opportunity to acquire needed core capacity in the most efficient and cost effective manner.
5. It is appropriate to establish interstate pipeline capacity contract procedures now, rather than to delay.
6. The Commission's responsibility to ensure that the proposed contract approval procedures are consistent with the interests of ratepayers is complicated by the utilities' holding company structures and the associated affiliate company relationships.
7. In allowing the utilities flexibility in contracting for storage and pipeline capacity, and in providing the utilities with expedited pre-approval procedures for obtaining such capacities, it is reasonable to impose conditions to discourage utility decisions that would benefit its affiliates at the expense of ratepayers.
8. Both the contract length limit of 3 years and the capacity amount limits (100 MMcfd for PG&E and SoCalGas and 20 MMcfd for SDG&E) should apply in determining whether or not an interstate pipeline capacity contract can be processed under the pre-approved capacity range or authorized capacity commitment procedures.
9. The aggregate capacity of the contracts pre-approved under the pre-approved capacity range or authorized capacity commitment procedures, excluding ROFR, should be limited to 25% of a utility's core interstate pipeline capacity portfolio.
10. The requests of SoCalGas, SDG&E and PG&E to establish and implement expedited advice letter procedures for pre-approval of certain interstate pipeline and storage capacity contracts is reasonable.
11. To allow pre-approval of potentially large or long-term interstate pipeline capacity contracts, with no formal Commission review or approval, is inconsistent with the Commission's duties and responsibilities.
12. For interstate pipeline contracts that cannot be accommodated under the timing of the expedited capacity advice letter procedures, it is reasonable to allow SoCalGas, SDG&E and PG&E to establish pre-approval through the pre-approved capacity range or authorized capacity commitment procedures, with the addition of a formal process that includes ED approval.
13. The SoCalGas, SDG&E and PG&E proposed interstate pipeline and storage capacity contract consultation processes with ORA, TURN, other interested non-supplier parties, and ED are reasonable.
14. It is reasonable to include both ORA and TURN and other interested non-supplier parties in the agreement aspect of the expedited pre-approval processes.
15. If agreement among parties is not reached in the expedited pre-approval processes, it is reasonable to allow the utility to seek approval through either the advice letter or application processes.
16. The capacity planning ranges proposed by SoCalGas and SDG&E could result in less than 100% of the annual average demand being contracted for over the year.
17. The cost of interstate capacity is relatively small as compared to the cost of gas in the spot market.
18. A conservative approach for setting the capacity planning ranges for SoCalGas and SDG&E is preferable to ensure that there is enough infrastructure to meet California's future demand for natural gas.
19. For SoCalGas and SDG&E, the proposed capacity planning range upper bound of 120% of the average daily amount encompasses peak conditions.
20. For SoCalGas and SDG&E, a capacity planning range with a lower bound set at the annual average daily amount and the upper bound set at 120% of the annual average daily amount, for both the winter and non-winter months, is reasonable.
21. PG&E has not justified its proposed capacity planning range.
22. For the winter months, it is reasonable to set the lower bound of PG&E's capacity planning range at the current level of 962 MMcfd and to set the upper bound at 1058 MMcfd over that amount.
23. For the summer months, it is reasonable to reduce the lower bound of PG&E's capacity planning range to 90% of the forecasted annual average demand.
24. PG&E has not justified its proposed system reliability planning standards.
25. PG&E's system reliability standards should be addressed in the BCAP, the incremental storage application, or in a separate application.
26. SoCalGas and SDG&E should specifically include storage in their capacity contract approval processes, and such changes may be proposed in the standard advice letter procedure.
27. It is reasonable to include storage in the capacity contract approval processes.
28. It is an appropriate time to review the role of third party storage providers to assist the utilities in providing core storage.
29. Allowing third party storage providers to assist the utilities in providing incremental core storage can provide long-term cost savings to core customers.
30. A number of implementation issues need to be addressed before third parties can assist the utilities in providing incremental core storage.
31. The viability and costs related to interstate pipeline and storage capacity are more certain than those associated with the new LNG projects that are being proposed to serve California markets.
32. Because of uncertainties related to LNG projects, it is appropriate to review LNG matters more carefully than those related to interstate pipeline and storage capacity projects.
33. The issue of whether individual LNG projects should be built in California, or in Mexico, is or will be addressed in the applicable regulatory proceedings examining each individual project.
34. An open access policy will help prevent market manipulation and assure developers that, at minimum, if they build facilities to the utility's system, the utility will interconnect with those facilities.
35. SoCalGas' request to establish new receipt points goes beyond the concept of ensuring open access.
36. It is prudent to consider California's need for natural gas, other supply options, and the impacts of LNG on California's energy market before establishing additional receipt points that dramatically alter the flow on the SoCalGas system.
37. A number of parties, including potential LNG suppliers, oppose the SoCalGas and SDG&E proposal for rolled-in ratemaking for LNG related infrastructure improvements.
38. The SoCalGas and SDG&E proposal for rolled-in rates will affect customers' rates.
39. There is currently enormous uncertainty regarding which LNG projects will ultimately be developed and when.
40. It is appropriate to await further developments regarding the permitting and construction of LNG terminals before deciding the extent, if any, to which backbone facility costs should be rolled-in to system-wide transportation rates.
41. A policy that presumes LNG suppliers will pay the actual system infrastructure costs associated with their projects should be adopted. However, requests for rolled-in, or any alternative ratemaking treatment, should be allowed through the application process and addressed on a case-by-case basis.
42. The SoCalGas and SDG&E proposal for transmission system integration is intertwined with its proposal to establish firm access rights.
43. Testimony and evidentiary hearings are necessary to give parties the opportunity to reasonably address rate impacts and other concerns on the SoCalGas and SDG&E proposals for transmission system integration and firm access rights.
44. The filing of a separate application by SoCalGas and SDG&E for its proposals for transmission system integration and firm access rights will ensure conformance with requirements of Pub. Util. Code Section 454 (a) relating to rate changes.
45. There is no assurance that the core gas needs of SoCalGas will be met if PG&E's recommendation to use the Wheeler Ridge approach for allocating capacity at Kramer Junction is adopted.
46. SoCalGas' updated proposal to allocate receipt point capacity based on the physical capacities and expected flows of SoCalGas' North Desert Transmission Zone should result in more Rocky Mountain gas supplies flowing onto SoCalGas' system, while allowing SoCalGas' core supplies to flow.
47. Firm off-system deliveries relate to SoCalGas' firm access rights proposal.
48. SoCalGas' peaking rate has been reviewed by this Commission on four separate occasions, in which the Commission has found that it properly discourages uneconomic partial bypass of the SoCalGas system.
49. The BCAP or the application regarding system integration and firm access rights are appropriate forums for addressing reconsideration of SoCalGas' peaking rate.
50. The firm access rights proposal of SoCalGas and SDG&E is not adopted in this decision.
51. PG&E's proposal that ratepayers should fund interconnection with LNG facilities is inconsistent with its current policy where interconnection costs are paid for by the interconnecting pipelines, and is inconsistent with our policy that LNG and existing supplies should compete on an equal footing.
52. The gas quality issue is important because it can affect the safety and performance of appliances, equipment, and vehicles which use natural gas, and may be affected by applicable air quality standards.
53. There are several ongoing activities that are looking into the gas quality issue for LNG supplies.
54. Until we decide whether the current gas quality specifications should be changed, all gas supplies entering the Respondents' gas systems must continue to meet the current applicable gas quality specification tariff.
55. The applicable utility's gas specification tariff should be the governing document regarding all of the gas quality specifications that the supplier must meet.
1. The SoCalGas and SDG&E request to negotiate reduced amounts of capacity and to terminate expiring contracts with El Paso and Transwestern should be granted. The granted authority should also apply to PG&E, Southwest and Edison with regards to their expiring contracts with interstate pipelines. The utilities should preserve their rights of first refusal with the interstate pipelines on existing expiring contracts, but the utilities should not be required to include ROFR provisions in renegotiated or new contracts.Utilities should not use the pre-approval process for any contracts with their respective affiliates.
2. Procedures for processing interstate pipeline and storage capacity contract pre-approvals in an expeditious manner, with appropriate regulatory oversight, should be established and implemented for SoCalGas, SDG&E and PG&E.
3. Pre-approval for interstate pipeline capacity contracts under the pre-approved capacity range or authorized capacity commitment should be limited to only those transactions that cannot be accommodated under the time limits of the proposed expedited capacity advice letter process.
4. The Director of the ED should be delegated the authority to approve or disapprove those contracts that fall under the pre-approved contract criteria.
5. The adopted capacity ranges should be revisited in the utilities' respective BCAPs for possible adjustments.
6. SDG&E shall have until November 1, 2005 to operate within the adopted capacity range.
7. Southwest should work with ORA to develop a capacity contract approval procedure that meets the needs of Southwest consistent with the principles we are adopting for the other respondents.
8. PG&E should be directed to file an application within six months of this decision to address how third party storage providers can be used to assist PG&E in providing incremental core storage services.
9. The existing gas procurement mechanisms may require adjustments to accommodate changing structures of utility core portfolios.
10. PG&E, SoCalGas and SDG&E should submit, for Commission approval, non-discriminatory open access tariffs for all new sources of supply.
11. New receipt points at Otay Mesa, Salt Point and Center Road on the SoCalGas system should not be established at this time.
12. The Commission should hold evidentiary hearings in Phase II of this proceeding into California's future need for natural gas, other supply options, alternatives for bringing LNG to the California market, price impacts of LNG, projected price impacts of LNG on California, deliverability of LNG, and the environmental, gas quality and operational impacts of LNG as discussed in the body of this order.
13. Rate matters are governed by the requirements of Pub. Util. Code Section 454, which requires an application, notice to customers of the proposed rate change, and a finding by the Commission that the new rate is justified.
14. The SoCalGas and SDG&E proposals to establish an integrated transmission system and firm access rights should be considered jointly, in a separate application to be filed within three months of this decision.
15. SoCalGas' updated proposal to allocate receipt point capacity based on the physical capacities and expected flows of SoCalGas' North Desert Transmission Zone, as outlined and illustrated in Attachment A of this decision, should be adopted, and SoCalGas should be directed to make this change as soon as possible.
16. A proposal for firm off-system deliveries into PG&E's service territory should be included in the SoCalGas and SDG&E application to establish an integrated transmission system and firm access rights.
17. New gas supplies should have the opportunity for firm access into the utility system and should be allowed to compete on an equal footing with existing supplies.
18. The SoCalGas and SDG&E proposal that interconnection facilities should be paid for by the interconnecting suppliers in all circumstances should be adopted and should be applied to PG&E as well.
19. A process should be initiated in Phase II to consider the adoption of standardized operational balancing agreements and to address the concerns of the parties regarding such agreements.
20. The Commission should coordinate with the CEC and other state agencies to examine gas quality issues in a technical workshop.
21. Today's order should be effective immediately.
IT IS ORDERED that:
1. Southern California Gas Company (SoCalGas), San Diego Gas & Electric Company (SDG&E), Pacific Gas & Electric Company (PG&E), Southwest Gas Company (Southwest) and Southern California Edison Company are granted authority to negotiate reduced amounts of capacity and to terminate expiring contracts with El Paso Natural Gas Company, Transwestern Pipeline Company or Gas Transmission Northwest Corporation while preserving the rights of first refusal.
2. The requests by SoCalGas, SDG&E and PG&E to establish capacity contract approval procedures are granted, for an initial period of five years, subject to the modifications described in the body of this decision. Six months before the end of the initial period, the utilities are allowed to file an Advice Letter requesting the continuation or modification of these procedures.
3. The Director of the Commission's Energy Division is delegated the authority to approve or disapprove capacity contracts that fall within the pre-approved contract criteria, and shall respond in a timely manner to a utility's written request seeking approval of such a contract.
4. Southwest shall work with the Office of Ratepayer Advocates to develop a capacity pre-approval process consistent with the principles adopted for the other gas utilities, and shall submit the proposed process for Commission approval through an advice letter filing.
5. Within six months of the issuance of this decision, PG&E shall file an application to address how much, and by what process, incremental gas storage needs for the core should be met, as well as the other implementation and legal obligations discussed in the body of this order and any other implementation issues that PG&E feels need to be addressed before the provisioning of core storage is opened to independent storage providers.
6. Within 30 days of this decision, PG&E, SoCalGas and SDG&E shall submit, for Commission approval, non-discriminatory open access tariffs for all new sources of supply.
7. Within three months of the issuance of this decision, SoCalGas and SDG&E shall file an application to request implementation of its transmission system integration and firm access rights proposals.
8. SoCalGas shall make the necessary system modifications as soon as possible to allow shippers on the SoCalGas system to nominate up to another 300 MMcfd at Kramer Junction whenever less than 1390 MMcfd of gas is scheduled at North Needles and Topock, as outlined and illustrated in Attachment A.
9. Phase II of this proceeding shall examine broad supply and demand issues related to LNG as discussed in the body of this order, and establish a process to consider the adoption of standardized operational balancing agreements to connect all new upstream gas pipelines that interconnect with the pipeline systems of SDG&E and SoCalGas.
10. This proceeding remains open to consider Phase II issues.
This order is effective today.
Dated _____________________, at San Francisco, California.
