Calif. Drafts Would Grant Some Relief Sought by Gas Marketers Regarding PG&E Capacity Assignment, But Would Deny Sought Opt-Out

Two interrelated draft decisions recently issued by the California PUC would grant retail natural gas suppliers at Pacific Gas & Electric a modicum of relief regarding the cost of capacity assigned by Pacific Gas & Electric, but would deny marketers' request for an opt-out of certain capacity assignments.

The Core Transport Agent Consortium and Shell Energy North America had filed petitions for modifications of two separate PUC decisions addressing the holding of interstate capacity by PG&E, and assignment of such capacity to marketers.

First, the marketers sought to modify D.03-12-061 to allow core transport agents to opt out of the allocation of PG&E's interstate pipeline capacity holdings, held on behalf of core customers, when the underlying interstate pipeline contracts come up for renewal or when incremental capacity is added. The marketers sought the opt-out in order to minimize their exposure to stranded costs.

In a separate petition, the marketers sought to modify the requirement in D.04-09-022 that PG&E hold between 962 and 1058 million cubic feet per day (MMcfd) of interstate pipeline capacity for core customers during the winter. Citing a reduction in PG&E's bundled core demand, the marketers requested that this requirement be replaced with the requirement that PG&E hold interstate capacity in an amount equal to between 100% and 120% of PG&E's forecast daily bundled core demand, in order to reduce pipeline capacity costs for PG&E's core gas customers.

In the past six years, PG&E's average daily core demand had decreased from an expected 829 MMcfd in 2006 to below 800 MMcfd, with the recorded average daily core demand averaging 782 MMcfd from 2006-2010. There has been an increase in interstate pipeline capacity available to serve California since 2001, and the market share of core transport agents on PG&E's system has increased from zero in 1991 to about 13% as of June 2012.

Core transport agents (CTAs) are required by D.03-12-061 to take or pay for their pro rata share of PG&E's core interstate pipeline capacity. Since the CTAs believe that PG&E holds excess core capacity, the requirement in D.03-12-061 results in the CTAs having to pay for unneeded capacity, marketers argued.

The take-or-pay assignment requirement was adopted to, "eliminate the subsidy that remaining core ratepayers had paid prior to D.03-12-061 when the CTAs had the right to reject their pro rata share of the transmission and storage capacity without financial consequence," the PUC noted.

"If the petition to modify D.03-12-061 were to be considered, that would cause us to rethink the various elements of the CAT [Core Aggregation Transportation] program because: CTAs would no longer be required to pay for their pro rata share of core interstate pipeline capacity; PG&E's bundled core customers might be obligated to continue subsidizing the CTAs' share of the core capacity; and PG&E's core interstate pipeline capacity requirements would need to be studied," the draft order finds.

"We also note that the CTA settlement contains a provision for the release and sale of the capacity that the CTAs reject. That is also a consideration in deciding whether the petition should be granted or denied because the CTAs receive a credit or a debit associated with the sale of this excess capacity," the draft states.

"Since the petition would cause us to rethink various elements of the CAT program, and its effects on the CTAs and core customers, a more comprehensive approach to examining these issues is needed. To modify D.03-12-061 without a full understanding of the implications of the changes the petitioners have requested, and the opportunity for all interested parties to provide input, would not be in the interests of the Commission or PG&E's core customers. Accordingly, the petition for modification of D.03-12-061 should be denied," the draft proposes.

The draft finds that PG&E's next gas transmission and storage application filing is the appropriate vehicle for the petitioners to raise the CTA opt-out and cost responsibility issues.

As to the discrete issue of the amount of capacity held by PG&E, a separate draft order would grant partial relief, but not in the manner or degree to which the marketers have requested.

Instead, the draft would modify PG&E's winter capacity planning range on an interim basis, effective January 1, 2013, by reducing the range to 900 to 1000 MMcfd. PG&E would also be required to file a new application within six months on whether PG&E's core capacity planning range should be further revised.

"Reducing the winter capacity planning range to 900 MMcfd to 1000 MMcfd will provide PG&E with sufficient lead time to plan for and to execute a reduction in its core interstate pipeline capacity holdings. Core customers will not be harmed by the reduction in capacity, as it will take PG&E a period of time to fully execute. In addition, today's reduction of PG&E's capacity planning range to a lower amount will reduce the cost of interstate pipeline capacity to PG&E's core customers over time as less capacity is procured by PG&E," the draft finds.

Dockets: A.01-10-011 and R.04-01-025