III. Other Proposals

A. ORA's Proposed Cost-Based Peaking Rate

ORA proposes its own cost-based peaking rate. ORA is concerned that both SoCalGas' proposed peaking rates will have the same negative long-term effect as the RLS tariff, which is to increase rates in the long term by driving large users out of SoCalGas' territory and by inhibiting large users from entering the system. ORA also finds flaws in SoCalGas' cost-based rate methodology because (1) the rate was not developed for each specific, noncore class; (2) it uses a system-wide coincident peak day to develop the peaking rate; and (3) recovery of ITCS costs should be based on actual customer throughput.

To address these inadequacies, ORA presents its own cost-based peaking rate that provides partial bypass customers an interruptible transportation service under a three-part rate. The rate would be comprised of a customer charge, demand charge, and ITSC rate. The customer charge parallels SoCalGas' proposal. The demand charge would be equivalent to the currently authorized end-use customer rate⁵ for the specific customer class and would be computed monthly. ⁶ The ITCS rate, collected volumetrically, would be equal to the current noncore ITCS rate, and be applied to the actual recorded, monthly throughput. In addition, ORA argues that the peaking rate should be applied to the requirements of individual facilities, rather than the customer's aggregated demand for all its facilities, and that SoCalGas should provide a rate for interruptible service.

In summary, ORA does not oppose the concept of SoCalGas' cost-based proposal, but argues that if the appropriate adjustments described above are made to the methodology, it would be acceptable to ORA.

SoCalGas argues that using average noncore costs, rather than individual class average costs like ORA suggests, is more in line with closing the gap between SoCalGas and the interstate pipelines. The pipelines do not typically differentiate between customer classes. SoCalGas also asserts that its proposal to use the system-wide coincident peak day is more appropriate for figuring the demand rate charge than using a non-coincident day. SoCalGas contends it is appropriate to collect ITCS in the demand charge, rather than through a volumetric rate, or recovery of the ITCS costs will shift to remaining customers.

Watson agrees with ORA's proposed three-part customer charge, demand charge, and ITCS rate. Watson, however, suggests several modifications: (1) if peaking service is firm, peaking customers should receive high priority, if service is interruptible, the rate design should parallel FERC's design for the interstate pipelines; (2) there should be no demand charge in months when peaking service not used; (3) the volumetric rate should recover all of the cost categories that SoCalGas allocates to noncore customers on a volumetric basis; (4) customer charges should be based on unscaled marginal customer costs; and (5) peaking customers should not be restricted to daily balancing.

TURN takes issue with two facets of ORA's proposed peaking rate. First, TURN disagrees with ORA position that the peaking rate should apply separately to individual customer facilities rather than to the aggregate usage of the customer in the case of those multiple facilities. Rather, TURN agrees with SoCalGas that it should apply to any customer with multiple facilities. Second, TURN does not agree with ORA that a peaking rate should continue to collect ITCS costs, but agrees with SoCalGas that it should be recovered in the demand charge.

Kern River agrees with ORA that there will be positive benefits to all California ratepayers form additional interstate pipeline capacity, but does not endorse ORA's proposal. Instead, Kern River agrees with ORA's criticisms of SoCalGas' proposals, but can not accept the suggestion of an interruptible peaking service based on a demand charge, instead of volumetric rates.

B. Watson Cogeneration Proposal

Watson, currently the largest cogeneration customer on the SoCalGas system, favors more competitive gas supplies in the Los Angeles region, but maintains that even with more pipelines, it will still need peaking service from SoCalGas.

To address these concerns, Watson proposes its own cost-based peaking tariff. ⁷ Watson asserts that the new rate should have three key attributes: address peaking service on both a firm and interruptible basis, be based on SoCalGas' costs, and be calculated on SoCalGas' current rate structure set forth in the recent BCAP decision, D.00-04-060. With these attributes, Watson argues that its proposal closes the gap between SoCalGas and the interstate pipeline rates.

Under the Watson proposal, the charge for firm service would include the same cost elements of transmission and customer costs that interstate pipelines recover through their SFV reservation charges, consisting of backbone transmission; local transmission; and customer costs. Any remaining SoCalGas costs would be collected in a volumetric rate. In addition, Watson opposes SoCalGas' requirement that customers balance their deliveries and burns on a daily basis. Instead, Watson proposes that peaking customers should be allowed to use the full range of balancing services, from "bare bones" daily balancing to a more expensive monthly balancing service, that are available to regular customers. None of the other competing pipelines offer these more flexible services.

Watson's proposed rate for interruptible service is a volumetric charge that is negotiable up to a maximum rate set at 120% of the peaking demand charge (backbone and local) at a 100% load factor, plus the volumetric portion of the firm peaking rate. Watson also proposes that customers should not have to pay the local transmission portion of the peaking demand charge in months in which they do not use peaking service. Instead, Watson suggests that the local transmission demand charge should be assessed based on a customer's demand on the system peak day. This way, a peaking customer does pay for service for the entire month--even if it only uses it once.

Watson proposes that the peaking rate apply to individual facilities rather than the multiple facilities of a single customer. This is in contrast to SoCalGas' proposal that the multi-unit electric generator provision is still appropriate.

In general, SoCalGas opposes the Watson proposal because it gives the bypass customers service from SoCalGas at the standard class average tariff, without any recovery for demand charges for firm service. Specifically, SoCalGas contests against Watson's peaking demand charge proposal where SoCalGas would be required to reserve firm peaking capacity all year long, but charge a bypass customer only in the month when the capacity is used. SoCalGas also opposes Watson's suggestion to use the peaking customer's usage on the most recent coincident system peak day to calculate the monthly demand charge. This methodology gives an advantage to summer peaking customers, who might have little or no throughput on the coincident system peak-day that occurs during the winter. Basically, this rate is the equivalent to SoCalGas' volumetric tariff for full requirement customers. SoCalGas is concerned that it would underrecover its costs if it had to reserve capacity to provide it on demand even when it is not used, and its remaining captive customers would ultimately pay for this reservation.

SoCalGas argues that if it offered interruptible service, the bypass customers would get the equivalent of firm service, paying at a volumetric rate, which shifts costs to the captive customers. SoCalGas views the large customers as wanting a free ride on back of SoCalGas and the captive customers the interstate pipelines will not serve. SoCalGas contends that its proposal guarantees that any partial bypass customer will save the costs that are saved on the system (the long-run marginal costs) when SoCalGas does not have to serve it, but not at the expense of the core customer.

Kern River and Questar prefer the Watson cost-based peaking rate over SoCalGas' cost-based rate because it allows shippers to mitigate fixed reservation charges. They also prefer Watson's proposal using a volumetric local transmission rate on the theory that local transmission will not be tradable on secondary markets.

In general, the large customers--ones most likely to bypass the SoCalGas system and only need peaking service from SoCalGas--support Watson's cost-based proposal because it favors large users. To support their opposition to SoCalGas' proposal the large users argue that it would have an effective volumetric rate that is actually higher than the cap on the old RLS tariff. This is theoretically possible because under SoCalGas' proposal the unit rate is calculated by dividing noncore margin by the noncore throughput on the system peak in the winter (when noncore throughput is relatively low). This high unit rate is then applied to the peak-month demand of the customer.

Large customers also want the peaking rate to apply to individual facilities, rather than the multiple facilities of a single owner. These customers also want interruptible service, do not want the rate to apply to new customers, and do not want to pay a monthly demand charge for months in which peaking service is not used.

These large customers favor Watson's volumetric rate option because under the Watson proposal, local transmission service is not unbundled, and they support Watson's suggestion that customers have the right to purchase interruptible backbone transportation under a rate which is negotiable, up to a cap equal to 120% of the embedded cost of firm backbone service.