Quietly closing the books on about six years of regulatory proceedings and stakeholder negotiations, the California Public Utilities Commission (CPUC) without discussion Thursday approved a program for trading firm capacity rights on Southern California Gas Co.'s transmission system serving the southern half of the state. It addition, the CPUC revised some terms on open season local transmission commitments and expansions, along with rejecting a protest by a coalition of Southern California electric generators.

The Los Angeles-based Sempra Energy gas utility was directed to file a supplemental advice letter outlining that for applicable rate schedules, five-year firm service contracts will be converted to two-year contracts with the same "use-or-pay" commitments in case the regulators ultimately agree no capacity expansion is needed as a result of the utility's open season, the CPUC resolution said.

The CPUC action brings to a close literally years of regulatory proceedings and stakeholder settlements, with regulators giving the green light to SoCal having a system of "firm access rights" (FAR) for wholesale natural gas customers on the Sempra Energy utilities' (SoCal and San Diego Gas and Electric Co.) gas transmission and storage system (see Daily GPI, Dec. 15, 2006).

It was recognized that some stakeholders viewed the new system as far from perfect, and the utility was directed to take steps to fine tune the program before it becomes fully implemented in 2008. SoCal is still in the process of doing that. The CPUC has regularly emphasized that the revamped SoCalGas system anticipates continued growth in California's gas system, with the likelihood of liquefied natural gas (LNG) being part of the mix.

To kick-start FAR, the utilities are holding a three-part open season: first, set-asides for retail and wholesale core customers will be established; second, customers adding expansion or displacement capacity at receipt points can bid; and third, the rest of the receipt points would be covered for all credit worthy market participants. In the second step, end-users or their designated agents can bid for a certain amount of capacity at each receipt point after taking away the first step's collective set-aside for the core sector.

Among the active participants and critics of the FAR system approved were the CPUC's Division of Ratepayer Advocates, the Utility Reform Network, the Southern California Cogeneration Coalition, an ad hoc coalition called "Indicated Producers" that includes Chevron, ConocoPhillips, Occidental Energy Marketing and BP America, and LNG developers including BHP Billiton.

During long proceedings in recent years, some market participants argued the proposed 5 cent/Dth monthly reservation charge had no corresponding cost basis. For interruptible receipt point access service, SDG&E and SoCalGas proposed -- and the CPUC adopted -- a volumetric rate of up to 5 cents/Dth. SDG&E and SoCalGas have proposed a 90/10 (ratepayer-to-shareholder) incentive sharing mechanism, with a $5 million/year cap on the shareholder portion for interruptible revenues.

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