Decision - California



PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

ENERGY DIVISION RESOLUTION G-3304

December 21, 2000

RESOLUTION

Resolution G-3304 Southern California Gas Company requests emergency temporary tariff deviations for its core service and its core subscription services respectively.

Prior to considering this Resolution the Commission will vote on whether to place this item on the agenda. (Government Code Section 11125.3(a)(2).)

By Advice Letters 2978 and 2979 filed on December 11, 2000 and Advice Letters 2978-A and 2979-A filed on December 12, 2000

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Summary

This Resolution denies the requests of Southern California Gas Company as filed and orders instead the suspension of tariff provisions that allow interruptible noncore customers, firm customers with expiring contracts to elect core subscription service and otherwise eligible noncore customers to elect core subscription service or applicable core service schedule. The company is also ordered to file an application to address in detail the ratemaking and customer equity issues entailed in these two advice letters.

This resolution waives protest and response period and the thirty-day period for review and comment.

Background

Southern California Gas Company (SoCalGas) asserts that an emergency exists in the California gas markets. The spot price of natural gas at the California-Arizona border has risen from approximately $6 per MMbtu (60¢/therm) in November to over $50 per MMbtu ($5/therm) as of December 11, 2000. This rapid rise in the spot price of gas at the California-Arizona border has provided an incentive for current noncore transportation-only customers to elect core subscription service to take advantage of the lower cost of gas made possible by SoCalGas’ procurement efforts on behalf of existing core and core subscription customers utilizing the core’s interstate pipeline capacity. If noncore customers were permitted to elect core subscription service, SoCalGas would be required to purchase additional volumes at the California-Arizona border, which would substantially increase SoCalGas’ cost of gas for its existing core and core subscription.

More specifically, approximately 1 billion cubic feet per day of SoCalGas’ existing noncore load is eligible under current tariff rules to elect core subscription service as of January 1, 2001, because this load either is not subject to an existing contract for firm service (i.e., interruptible load), or it is load that is currently subject to a firm transportation contract but the contract expires December 31, 2000. The December weighted average cost of gas (WACOG) for traditional core customers is 65.3¢/therm while the core subscription WACOG is 78.8¢/therm.

Absent some regulatory relief, an addition of 500 million cubic feet per day of load to SoCalGas’ core subscription service as of January 1, 2001, would increase SoCalGas’ WACOG by over 30%, resulting in an increase in the SoCalGas average residential monthly bill by approximately $23 per month. SoCalGas estimates the average monthly bills would also increase for restaurants ($150 per month), schools ($288 per month), and hotels ($280 per month). If all eligible noncore and wholesale load elects core subscription service, these bill impacts would double.

Approximately 270 MMcf/d of noncore load is eligible to elect traditional core service. The December weighted average cost of gas (WACOG) for traditional core customers is 65.3¢/therm. Absent the relief requested herein, if 100 MMcf/d of noncore load elects traditional core service as of January 1, 2001, SoCalGas’ WACOG would rise by over 15%. This would result in an increase to SoCalGas’ average residential monthly bill by approximately $12 per month. The average monthly bill would also increase for restaurants ($80 per month), schools ($154 per month), and hotels ($150 per month).

Currently, there is no excess interstate pipeline capacity serving Southern California. SoCalGas is utilizing all of the interstate pipeline capacity that it has reserved for the core (1,020 MMcf/d) on behalf of its existing core and core subscription customers. SoCalGas’ noncore capacity released to the market (406 MMcf/d) is fully subscribed through at least October 2001, and SoCalGas asserts that there is little or no released capacity currently for sale to the Southern California market. Instead, those who hold interstate pipeline capacity rights are either bringing their own gas supplies in from the producing basins utilizing such rights or are selling natural gas commodity at the California-Arizona border.

In discussing core subscription service generally, the Commission stated in D.90-09-089 that “ . . . the purpose of the core subscription service would not be to provide noncore customers with access to utility gas supplies when they happen to be priced comparatively low, or a means to increase utility loads. The purpose of core subscription would not be to provide customers with yet another competitive option on a short term basis” (37 CPUC2d 583 at 595). Similarly, in D.91-11-025, the Commission stated that “[w]e do not intend to keep core subscription rates artificially low in order to encourage customers to use it” (41 CPUC2d 668 at 697).

Core Subscription Service

SoCalGas specifically proposes that because of the emergency situation it faces with soaring prices for natural gas that the Commission establish two classes of core subscription customers. One class would consist of existing core subscription customers who should be permitted to continue to pay a core subscription rate tied to SoCalGas’ overall gas acquisition efforts on behalf of core and core subscription customers. SoCalGas proposes that the rate for this existing class of customers should be set forth in Schedule No. G-CS and should be labeled as the “CSAV” rate since it will be based upon averaging gas costs between core and core subscription customers consistent with the treatment of existing core subscription customers. The other class of incremental core subscription customers should consist of those core subscription customers that have elected core subscription service to be effective starting January 1, 2001, or later. The rate for this class of customers should be labeled the “CSIN” rate, as it will be based upon the incremental cost of SoCalGas’ gas acquisition efforts for this incremental load. SoCalGas requests authorization to establish a tracking account for this purpose. All other terms and conditions of existing core subscription service would apply to new core subscription customers.

SoCalGas further requests that its wholesale customers be permitted to elect core subscription service at the CSAV rate. SoCalGas’ wholesale customers have requested the ability to elect core subscription service for some or all of their loads without incurring the cost of SoCalGas’ incremental gas acquisition efforts in order to soften the “rate shock” that their core customers otherwise are expected to experience on January 1, 2001. If the estimated core load of SoCalGas’ wholesale customers (City of Long Beach, San Diego Gas & Electric Company, and Southwest Gas Corporation) in the amount of 250 MMcf/d were to elect core subscription service, SoCalGas estimates that it would increase SoCalGas’ core WACOG by 17% in January, 2001. In this time of emergency, SoCalGas believes that it is in the public interest to levelize core gas costs across Southern California, and to avoid the circumstance 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 proposes that its wholesale customers be permitted to elect immediately SoCalGas’ core subscription service at the CSAV rate. While ordinarily such an election is due 20 days before the first of the month, SoCalGas requests that its wholesale customers be permitted to make the election no later than December 21, 2000, for service beginning January 2001. To avoid possible gaming of this offer that could allow SoCalGas’ wholesale customers to obtain a lower gas cost for their core customers than SoCalGas, it wants to reserve the right to reject a specified quantity of core subscription service elected by a wholesale customer for its core.

SoCalGas notes that, on December 6, 2000, SDG&E filed with the Federal Energy Regulatory Commission (FERC) to re-impose price caps for short-term releases of interstate capacity serving California, that sellers of natural gas be required to state separately the transportation and commodity components of bundled rates for bundled sales at delivery points at the California border to enforce this cap or, alternatively, to enforce the cap by adopting a mechanism to limit bundled commodity and transportation sales at these points to 150% of the sum of a reported average commodity sales price plus the as-billed rate for interstate transportation. In SoCalGas’ opinion, if the FERC grants this request, some relief from high border prices will be expected for noncore customers that would be charged the incremental cost for core subscription service under the GSIN rate and, indeed, for noncore customers that do not elect core subscription service but continue to take noncore transportation-only service from SoCalGas and purchase gas supplies at the California-Arizona border.

Core Service

SoCalGas requests that two classes of core customers be established. One class would consist of existing core customers who should continue to pay core rates in accordance with existing procedures. The other class would consist of incremental noncore customers that elect traditional core service beginning January 1, 2001. This class should pay a rate that would represent a commodity rate reflecting SoCalGas’ incremental cost of acquiring gas supplies on behalf of these customers. SoCalGas requests authorization to establish a tracking account to record the incremental cost of SoCalGas’ acquiring gas on behalf of these customers. All other terms and conditions of core service would apply, and such customers would obtain the higher curtailment priority afforded to core customers.

SoCalGas requested expedited consideration of its advice letters for core subscription and core procurement because natural gas prices at the California-Arizona border have rapidly risen to high levels and SoCalGas’ noncore customers are requesting traditional core service or core subscription service. SoCalGas states these customers must know as soon as possible whether the Commission will permit them to elect traditional core service and, if so, whether they will be charged for SoCalGas’ incremental cost of its gas acquisition efforts necessary to serve this new core demand. SoCalGas requests that the Commission address its Advice Letters at the December 21, 2000 Business Meeting.

Notice

Notice of Advice Letters 2978, 2978-A, 2979, 2979-A was made by publication in the Commission’s Daily Calendar. SoCalGas states that a copy of the Advice Letters were mailed and distributed in accordance with Section III-G of General Order 96-A.

Protests

SoCalGas requested that the Commission approve Advice Letters 2978, 2978-A, 2979, and 2979-A as expeditiously as possible. SoCalGas contended that the existing gas commodity rate instability in its market justifies expedited Commission action on its proposal in accordance with Rule 81(f) of the Commission’s Rules of Practice and Procedure. SoCalGas therefore requested that the Commission shorten the protest period from 20 to five days pursuant to General Order 96-A, Section XV, (December 15, 2000) and that their reply would be due the next business day, December 18, 2000. The Commission did not act by December 15th to adopt this shortened protest period.

On December 15th the California Cogeneration Council (CCC) protested Advice Letter 2978. CCC reminds the Commission that there are potential impacts from SoCalGas’ proposal on the short-run avoided costs (SRAC) energy payments to qualifying facilities (QF) in Rulemaking (R) 99-11-022. In that proceeding CCC points out that Southern California Edison Company proposed that SRAC payments should be based upon the SoCalGas WACOG. CCC asserts this results in a “price squeeze” because the SoCalGas WACOG is presently much lower than border prices. CCC then describes a position that “CCC is considering (and may soon propose)” that the SRAC be based upon the core-subscription WACOG.

Tenby, Inc., of Oxnard California, (Tenby) and enhanced oil recovery producer filed a protest on January 15, 2000. Tenby asserts that SoCalGas’ advice letter 2979 is unfair because Tenby gave notice under the prevailing tariff on December 8, 2000 of their intention to switch to core-subscription. This followed a series of negotiations after their current supplier that their contract was being terminated and a new contract could be negotiated which would include “market premiums”. Tenby contacted SoCalGas the same day and they were informed by SoCalGas of their options. Since they received notice of the advice letter, all other offers they now find are at a greater cost than were offered only a few days ago when they were considering the SoCalGas option.

Coral Energy Services (Coral) protested both advice letters without taking a position on the merits of either; it argues that the Commission should treat these filings as a petition for modification of prior Commission decisions on core portfolio procurement in D. 90-09-089. Coral then raises the issues, which it believes should be litigated in such a petition to modify a decision, focusing on the alleged changes to the nature and character of the core gas supply portfolio.

The Office of Ratepayer Advocates (ORA) filed separate protests to the advice letters on January 18, 2000. The Commission did not issue any letter granting SoCalGas’ shortened protest period and these protests are timely. For Advice Letter 7978and 2978-A ORA supports the proposal for a two-tier core-subscription program but opposes the request to allow wholesale customers to elect core subscription. It points out this would be a preferential treatment of a sub-set of non-core customers. ORA supports SoCalGas’ proposals in Advice Letter 2979 and 2979-A and in fact argues further that the core tariffs should be closed completely to current non-core customers. ORA argues that to allow non-core customers to switch negatively impacts existing core customers.

On December 19, 2000, Southwest Gas Corporation filed “comments in support” of Advice Letter 2978, it is one of the wholesale customers which would be allowed to switch to core subscription if the advice letter were to be approved as filed.

Enron Energy Services (Enron)filed a protest to both advice letters on December 18, 2000 mimicking the protest filed by Coral and Enron also proposed that the advice letters were more properly a petition to modify D.90-09-089.

The Utility Reform Network (TURN) filed separate near-identical protests to the two advice letters. TURN stated that it “fully supports the concept of incremental treatment” but that the filings both lacked sufficient details to ensure the (current) core customers would be fully protected from the effects of future changes with respect to the use of transportation capacity currently devoted to core customers.

No reply by SoCalGas to these protests was received in the Energy Division by the close of business on December 18 to be considered in this resolution.

Discussion

Energy Division has reviewed the advice letters and supplements filed by SoCalGas, is very concerned about both the extraordinarily high gas prices and the rapid changes in those prices. The Energy Division is equally concerned that these changes will very soon have a significant impact on SoCalGas core customers with or without the changes proposed by these two advice letters. These high spot prices for gas will ultimately affect the WACOG.

The solutions proposed by SoCalGas are drastic and complex; the imposition of entirely new incremental classes of service which are intended to protect existing customers from a dramatic shift of load into the core portfolio when SoCalGas’ procurement strategy was based upon serving only the current levels of load. The accounting and ratemaking mechanisms are too complicated with a requirement to track only incremental costs for incremental load separate from procurement costs for existing load. As time goes by it will be harder to separate new purchases and/or transportation intended for current customers and purchases only necessitated by incremental customers. The speculative and uncertain impacts of the proposes two-tiered system is not clearly defined or justified to be able to estimate the true impact on either set of customers. Highlighting the hurried and confused nature of these filings, SoCalGas found it necessary to supplement both emergency filings one day after they were filed (before the Energy Division had even begun a review) to “clarify” their requests. The Energy Division is also concerned about the longer-term effects of these two filings on transportation capacity currently reserved for core customers.

Suspending transfers leaves some gas consumers facing the current unpleasant market conditions, but it leaves them in the same markets as defined and accepted for their customer classes last year or the year before. SoCalGas has offered no justification that would suggest they are better off in the end under this two-tier system than if they are left where they are. Even with the current pall over California’s energy markets generally, such a large-scale switch to the incumbent utility only increases SoCalGas’ potential to exercise market power and it clouds the likelihood of the competitive neural gas market correcting itself.

The ability to transfer service was never envisioned to accommodate all eligible customers or a significant portion all at one time. In addition, as SoCalGas has pointed out, the Commission did not intend to allow customers to shift simply to take short-term advantage of price differences in either direction. The Commission did anticipate that at times, some customers would chose for a variety of reasons to return to a utility-provided gas supply and so the election to switch was allowed in current tariffs. SoCalGas seeks to change the rules just as customers seek to exercise the option they believed was available to them. This is pointed out in Tenby’s protest where they argue that SoCalGas staff negotiated with them to switch and was solicited by SoCalGas to switch on December 4, 2000 a mere 8 days before SoCalGas reversed course and proposing a two-tier system.

The Energy Division is concerned too that SoCalGas would propose allowing its wholesale customers to switch and notes that the largest one is its affiliate San Diego Gas & Electric Company (SDG&E). In fact, their parent company, Sempra, made this filing on behalf of SoCalGas and it is hardly disinterested in either the outcome from a financial or a public-relations standpoint. The operating behavior of these two companies is governed by the specific conditions contained in the order which authorized holding company and merger which lead to the formation of Sempra. See D. 98-03-073. This advice letter is not an appropriate vehicle for an action that could be construed as altering the independent operations of the gas procurement functions of SDG&E and SoCalGas. Allowing SDG&E as a wholesale customer to select “core subscription” could be construed as transferring that procurement function largely into the hands of SoCalGas. The Energy Division does not believe that this is reasonable even in an alleged emergency. There has been no showing why SDG&E is incapable of performing their obligations to maintain a competitive gas portfolio. Sempra, as the parent of both companies and the filer of these advice letters on behalf of SoCalGas is seeking to hedge the SDG&E gas portfolio with the SoCalGas portfolio.

When dealing with an alleged emergency, shortened opportunities for parties to effectively participate, and where the solutions are complex, the Commission should look to other options which address the critical concern, have the potential to cause the least harm, and can be reversed or altered as easily as possible. Instead of the new incremental service categories, the Commission should consider the temporary suspension of any customer’s election to change service.

With doubt about the long-term efficacy of SoCalGas’ proposal, the Energy Division believes that the Commission should ensure that it first protects the current core customers from possible harm. Core customers will bear the brunt of the dramatic market price changes soon enough as higher border prices gradually affect the WACOG.

Suspension of transfers would have two consequences; it would protect existing core customers from the “gaming” concerns expressed by SoCalGas but it would also deny other customers of some relief from gas costs that they would argue could not have been foreseen. Nevertheless, the complex SoCalGas incremental service tariff significantly reduces or denies them from benefiting from SoCalGas’ core WACOG too. If SoCalGas’ procurement strategy and transportation costs were producing prices greatly in excess of the current border prices plus transportation customers would be clamoring to leave core service and/or SoCalGas could suffer penalties under its Gas Cost Incentive Mechanism (GCIM).

The proposals made by SoCalGas in this advice letter are cast as being in compliance with D. 90-09-089 and D.91-11-025. The incremental changes allowed in those decisions refer to the acquisition of extra transportation capacity to serve core-subscription customers, who alone should bear that cost. In the intervening nine years SoCalGas never requested a change as drastic as this two-tier rate system they request now on short notice.

Coral and Enron propose that the advice letters are more correctly handled as petitions to modify D 90.09-089, the same one that SoCalGas cites as its authority to file these as a compliance advice letters. A compliance advice letter filed nearly 10 years after the decision seems a doubtful mechanism for so significant a change. The Energy Division recommends that rather than petition to modify these decisions, SoCalGas should file an application in not less that 7 days and not more than 21 days from this date, in order to explore more fully the issues raised by this filing. This would allow a current and complete record to be developed. An advice letter may be both faster and possibly comply with D. 91-11-025, but the long-term scope of these issues seems overly broad for an informal resolution on an emergency basis. An application would require more thorough filed testimony, even if the application is ex-parte, and parties would have the opportunity to research and brief the issues more effectively than is provided by the scant 10 days from the filing of this advice letter on December 11, 2000 and this resolution. More specifically, SoCalGas needs to address why its proposed two-tier system with incremental pricing is fair and reasonable to all customers. This application should also address whether switching customers to SoCalGas’ portfolio is anti-competitive.

If SoCalGas is convinced that any specific customers will be left without service because their current provider is no longer operating in California and no longer able to serve them, then only those customers should be placed on the appropriate existing tariff otherwise available to any customer eligible to return to service provided by SoCalGas.

Comments

Public necessity requires that the 30-day comment period of Public Utilities Code section 311(g) is waived in order to secure the resolve the issues that SoCalGas has raised in its advice letters. We have balanced the public interest in avoiding the possible harm to public welfare flowing from delay in considering this resolution against the public interest in having the full 30-day period for review and comment as required by the Commission’s Rules of Practice & Procedure, Rule 77.7(f)(9). We conclude that the former outweighs the latter. We conclude that failure to adopt a decision before the expiration of the 30-day review and comment period would cause significant harm to the public welfare. Accordingly, we waive the comment period for this Resolution.

Findings

1. The spot price of natural gas at the California-Arizona border has risen from approximately $6 per MMbtu (60¢/therm) in November to over $50 per MMbtu ($5/therm) as of December 11, 2000.

2. If noncore customers were permitted to elect the current core subscription service, SoCalGas would be required to purchase additional volumes at the California-Arizona border, which would substantially increase SoCalGas’ cost of gas for its existing core and core subscription.

3. If wholesale customers were permitted to elect the current core subscription service, SoCalGas would be required to purchase additional volumes at the California-Arizona border, which would substantially increase SoCalGas’ cost of gas for its existing core and core subscription.

4. An emergency exists which is sufficient to warrant addressing these advice letters on a time-shortened basis.

5. SoCalGas’ proposal to create an incremental tier of service is too complicated and speculative to adopt as an emergency proposal.

6. Temporary suspension of the provisions to return to SoCalGas service will protect existing customers from any adverse impacts of a rush of new customers wanting protection from current market conditions.

7. SoCalGas could still transfer those customers whose service provider is no longer offering service in California.

8. The advice letter process is an in inappropriate forum to address changes to the operating relationship of SoCalGas and SDG&E.

9. We have balanced the public interest in avoiding the possible harm to public welfare flowing from delay in considering this resolution against the public interest in having the full 30-day period for review and comment as required by Rule 77.7(f)(9). We conclude that the former outweighs the latter. We conclude that failure to adopt a decision before the expiration of the 30-day review and comment period would cause significant harm to the public welfare.

Therefore it is ordered that:

1. The requests of SoCalGas in advice letters 2978, 2978-A, 2978, and 2979-A are denied as filed.

2. SoCalGas is ordered to suspend transfers of customers to core subscription service, Schedule G-CS or applicable core service schedules except for those customers where their gas service provider is no longer offering service in California.

3. SoCalGas shall file a new advice letter with tariff language that implements the provision of OP # 2 within 7 days. The effective date of the advice letter is today subject to the Energy Division’s review for compliance with this Resolution.

4. SoCalGas shall file an application, in not less than 7 days and not more than 21 to address the issues contained in these advice letters. Service shall be on the widest possible basis and shall include notice of the application to all eligible customers.

5. The 30-day comment period is waived.

This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on December 21, 2000; the following Commissioners voting favorably thereon:

______________________

WESLEY M. FRANKLIN

Executive Director

LORETTA M. LYNCH

President

HENRY M. DUQUE

JOSIAH L. NEEPER

RICHARD A. BILAS

CARL W. WOOD

Commissioners

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