Word Document

STATE OF CALIFORNIA GRAY DAVIS, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 31, 2001

TO:  PARTIES OF RECORD IN APPLICATION 01-02-015

RE:  ITEM 9 (Agenda No. 3064)

The original draft decision in this matter was placed on the Agenda for the Commission's meeting of May 24, 2001, as Item 9, and remains pending.

The 30-day period for public review and comment on the draft decision has been reduced pursuant to Pub. Util. Code § 311(g)(2). More specifically, the deadline for parties to submit comments has been shortened to June 11, 2001; reply comments are waived.

When the Commission acts on the draft 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 draft decision as provided in the attached section of the Commission's "Rules of Practice and Procedure." Please read them carefully and note the filing dates, the limitations on content of comments, and the requirement of service on all other parties. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served on the ALJ separately, and I suggest hand delivery, overnight mail, or other expeditious method of service on the ALJ.

/s/ LYNN T. CAREW

Lynn T. Carew, Chief

Administrative Law Judge

LTC:avs

Attachment

ALJ/RAB/avs DRAFT Item 9

Decision DRAFT DECISION OF ALJ BARNETT (Mailed 5/31/2001)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the Matter of Southern California Gas Company Advice Letters 2978, 2978-A, 2979, and 2979-A Requesting Emergency Temporary Tariff Deviations For Its Core Service and Its Core Subscription Service Respectively.

Application 01-02-015

(Filed February 15, 2001)

OPINION

By Advice Letters 2978, 2978-A, 2979 and 2979-A Southern California Gas Company (SoCalGas) proposed changes to its core and core subscription tariff provisions to address issues resulting from the extremely high gas prices at the California border. In particular, SoCalGas was concerned about a possible migration to core and core subscription services by noncore customers seeking relief from the high border prices. However, SoCalGas proposed that its wholesale customers be allowed to elect core subscription immediately for their core requirements. In Resolution G-3304 we rejected SoCalGas' proposals and ordered SoCalGas to suspend transfers to core subscription service and to file an application to address the issues raised in the advice letters. Application (A.) 01-01-021 was filed as directed.

The City of Long Beach (Long Beach) operates a municipal gas utility that provides retail gas service to residential, commercial, and industrial customers in the cities of Long Beach and Signal Hill. Long Beach is a wholesale customer of SoCalGas and has approximately 150,000 core customers. On behalf of its core customers, and on behalf of the core customers of SoCalGas' other wholesale customers, Long Beach petitions the Commission to modify Resolution G-3304 to provide relief from the high gas prices that it believes are the result of market concentration and market manipulation, not market forces. Long Beach requests that wholesale customers of SoCalGas be permitted to elect core subscription rates for their core customers.

Long Beach receives some local gas directly into its distribution system, but buys most of its gas at the California border, for delivery across the SoCalGas system to Long Beach. Long Beach asserts that its core customers have been seriously harmed by the high border prices that were the basis for SoCalGas' original proposals. Long Beach files this petition to modify Resolution G-3044 to request that we provide immediate and interim relief, pending a decision in A.01-01-021.1

Long Beach contends that as a result of the high prices for gas transportation to the California border, Long Beach has had to pay prices far in excess of the prices paid by SoCalGas, and Long Beach customers have had to pay much higher bills than similarly situated SoCalGas customers. Set forth below is an average bill comparison for a Long Beach and SoCalGas residential customer for the months of December, 2000, January 2000, and February, 2001. As shown, the Long Beach bills are 75% to 95% higher than the SoCalGas bills, based solely on the differential in the cost of interstate transportation. The interstate transportation cost is about 20 times greater for Long Beach than for SoCalGas. The high gas prices are causing hardship for residents of Long Beach; numerous incidents of harm to members of the public have occurred on account of the high gas costs.

Average Bill Comparison

Single Family Residence

December (72 therms)

January (81 therms)

February (78 therms)

SoCalGas and San Diego Gas & Electric Company (SDG&E) support Long Beach's petition. Their analysis confirms that the experience of the last two months and the rates just filed by SoCalGas for March 2001 show very large differentials between the WACOG2 for SoCalGas' retail core customers and the WACOG for the core customers of SoCalGas' wholesale customers.

The two utilities have developed information about the high rates faced by SDG&E's 700,000 core customers since the start of this year and the effect that allowing wholesale customers to elect core subscription for their core load would have had in ameliorating these high rates.

Actual core procurement rates (recovering the cost of purchased gas and interstate capacity allocated to the core, but not including other transportation costs) for SoCalGas' retail core and SDG&E's core customers were as follows:

They point out that not only was the differential large between SDG&E's and SoCalGas' core procurement rates, but SDG&E's residential gas bills in the first 3 months of 2001 were more than double its residential gas bills for the same period in 2000. An SDG&E residential gas bill based on average annual consumption of 40 therms per month, was higher in 2001 than a year earlier by 137% in January, by 128% in February, and by approximately 125% in March.

SoCalGas core customers have also experienced substantial increases in January - March 2001 over the year earlier, but not nearly as severe as the increases experienced by SDG&E core customers. The increases experienced by a comparable SoCalGas residential customer were 51% in January, 49% in February, and 60% in March.

SoCalGas' presentation shows that if its wholesale customers had been able to take core subscription service for their core loads in January through March of 2001, rates to their core customers could have been significantly reduced. In order to supply the wholesale core, SoCalGas would have had to purchase additional supplies of gas, probably consisting entirely of supplies delivered at the California border. These purchases would have somewhat increased SoCalGas' WACOG, and thus its monthly rates for both its retail core customers and its core subscription customers (including wholesale core load), above the rates SoCalGas actually posted for those months in 2001. SoCalGas and SDG&E have calculated the impact on SDG&E's core procurement WACOG and on SoCalGas' retail core and core subscription rates had SDG&E and Long Beach been allowed to and actually contracted for SoCalGas' core subscription service in this period for all of their core requirements not met by other long-term commitments.

The results are:

SoCalGas concludes that if the Commission had allowed wholesale customers of SoCalGas to elect core subscription for their core loads, substantial rate relief would have been afforded to the core customers of the wholesale customers, with only a modest impact on the bills of SoCalGas' retail core customers. SDG&E core rates would have been between about 19 to 22 cents a therm less than they actually were, while SoCalGas core rates would have been about 6 to 8 cents/therm higher. The 6 to 8 cent/therm increase in SoCalGas rates also reflects the costs of providing Long Beach with core subscription service. SoCalGas and SDG&E expect there is likely to continue to be a spread between border and basin prices that exceeds the as-billed rate for interstate gas transportation, at least for some months to come. Therefore, allowing wholesale customers to elect core subscription until a decision is issued in A.01-01-021 will provide their core customers with rate relief.

SoCalGas and SDG&E support Long Beach's petition for only that interim period that Long Beach itself has proposed; that is, for an interim period until a decision can be issued by the Commission in A.01-01-021. SoCalGas and SDG&E believe that the best long-term solution for retail customers of those two utilities is to consolidate their gas supply portfolios and associated assets, as proposed in A.01-01-021.

SoCalGas points out that the issue of long-term access to SoCalGas' gas supplies and other related assets by core customers of SoCalGas wholesale customers other than SDG&E involves potential interactions with whatever outcome the Commission adopts in its pending gas industry regulatory strategy, I.99-07-003.6 SoCalGas believes the Commission is not in a position in a decision on Long Beach's petition to prejudge what it will decide in Investigation (I.) 99-07-003 or A.01-01-021, and should simply provide that the grant of Long

Beach's petition is without prejudice to what it may decide in I.99-07-003 or A.01-01-021.

SoCalGas proposes the following conditions: Wholesale customers would be allowed to receive core subscription service at the core subscription rate calculated under the existing methodology only to the extent that the rate charged by the wholesale core subscription customer to its core customers was not less than the rate charged by SoCalGas for core subscription service. For instance, SDG&E has some interstate pipeline capacity and Long Beach has contracts for some local California gas production that does not flow through the SoCalGas system. The volumes from these sources are much less than SDG&E's or Long Beach `s full core requirements. However, if the cost of these supplies were less than the SoCalGas flowing gas WACOG, the wholesale customer could achieve a WACOG lower than the SoCalGas WACOG by buying its remaining core requirements from SoCalGas at the regular core subscription rate. There is no justification for raising the WACOG to SoCalGas' retail core customers in order to allow wholesale core customers to achieve a rate lower than what SoCalGas retail core customers would pay.

If this circumstance were to arise, SoCalGas should have the right to price a portion of its core subscription service to the wholesale customer so that the flowing gas WACOG to the core customers of the wholesale customer would not be less than the SoCalGas flowing gas WACOG. SoCalGas should be authorized to request an audit by this Commission, to be paid for by the wholesale customer, if SoCalGas has reason to believe that the wholesale customer is achieving a core flowing gas WACOG lower than SoCalGas' retail core flowing gas WACOG.

We will grant this application. An emergency exists in the Southern California gas markets. The spot price for natural gas at the California-Arizona border has risen eight fold, or more, in recent months. The current gas rates Long Beach and SDG&E core customers pay far exceeds the rates paid by SoCalGas core customers. In this time of emergency it is in the public interest to levelize core gas costs across Southern California and to avoid the situation where natural gas customers located in SoCalGas' wholesale customers' service territory receive much higher gas bills than those located in SocalGas' retail service territory for the same consumption. SoCalGas' conditions to this levelization are reasonable and will be adopted.

We are concerned, however, with the possibility that given the fluctuations in the border price of gas wholesale customers affected by this decision might opt out of their core subscription election. By this decision we seek to levelize rates. Therefore, we condition our approval by requiring those wholesale customers who elect core subscription service to remain on core subscription until there is a decision in A.01-01-021.

This is an uncontested matter in which the decision grants the relief requested. Accordingly, pursuant to Pub. Util. Code § 311(g)(2), the otherwise applicable 30-day period for public review and comment is being reduced to June 11, 2001. Comments may be filed on or before June 11, 2001; reply comments are waived.

Findings of Fact

1. An emergency exists in the Southern California gas markets.

2. The spot price of natural gas at the California -Arizona border has risen to excessive levels.

3. Long Beach's core customers have gas bills from 75% to 95% higher than SoCalGas' core customers.

4. SDG&E's core customers gas bills in 2001 have more than doubled over the same period in 2000.

5. To levelize the gas rates in Southern California for Long Beach and SDG&E core customers in SoCalGas' territory would increase SoCalGas' core customer gas bills by approximately 6 to 8 cents/therm.

6. The savings to the 850,000 core customers of Long Beach and SDG&E would be in the range of 19 to 22 cents/therm.

7. It is reasonable to levelize the natural gas rates for the SDG&E, Long Beach, and other wholesale customers of SoCalGas, with the rates of SoCalGas' core customers.

Conclusions of Law

1. This application should be granted as set forth in the following order.

2. The grant of authority should be conditioned as requested by SoCalGas.

ORDER

IT IS ORDERED that:

1. Resolution G-3304 is modified by

A. Deleting the first full paragraph on page 8, and substituting the following language:

With regard to the core requirements of wholesale customers we approve the advice letters. Wholesale core requirements should be served out of a single portfolio to levelize the gas costs across Southern California during these emergency conditions. Long term issues associated with this treatment should be addressed in the application filed by SoCalGas pursuant to this resolution.

B. Deleting Finding of Fact No. 3, and substitute the following language:

3. Wholesale customers should be authorized to commit to core subscription on behalf of their core loads to levelize core gas costs in Southern California.

C. Deleting Ordering Paragraph 1, and substitute the following:

1. The requests of SoCalGas in advice letters 2978, 2978-A, 2979 and 2979-A are denied, except that wholesale customers are authorized to commit to core subscription on behalf of their core requirements, and must remain on core subscription, pending a decision in A.01-01-021.

2. Wholesale customers may receive core subscription service at the core subscription rate calculated under the existing methodology only to the extent that the rate charged by the wholesale core subscription customer to its core customers is not less than the rate charged by SoCalGas for core subscription service.

3. This order shall remain in effect pending a decision in Application 01-01-021.

4. This proceeding is closed.

This order is effective today.

Dated , at San Francisco, California.

1 The Long Beach petition to modify Resolution G-3304 is docketed as A.01-02-015, the above-captioned proceeding. 2 WACOG means the weighted average cost of gas. 3 Including commodity and interstate capacity rates. 4 Including commodity and interstate capacity rates. 5 Including reservation charge for interstate capacity. 6 For the purpose of A.01-01-021, SoCalGas and SDG&E have assumed that the Commission would approve either the Proposed Decision issued in November of 2000 in I.99-07-003 or the Comprehensive Settlement in that investigation, both of which would close core subscription permanently.

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