As Pacific Gas and Electric Co. was cranking up on implementing a second iteration (Gas Accord II) of its transmission backbone unbundling late last week, a proposed decision from an administrative law judge at the California Public Utilities Commission was circulating to finally implement a comprehensive unbundling of the Southern California Gas Co. transmission pipeline/underground storage system in the southern half of the state.

Separately, the San Diego-based Sempra Energy utilities (SoCalGas and San Diego Gas and Electric Co.) were getting a favorable review from Credit Suisse First Boston (CSFB), based partially on its review of the end-of-last-year rate case settlement. CSFB bumped up its target stock price from $31 to $34/share for Sempra and kept its 2004 earnings estimate the same ($2.75/share).

The PG&E’s utility electronic bulletin board was touting an “upcoming market opportunity” with what it called about 60 core-service cogeneration customers with loads ranging from under 5 MMcf/d to more than 10 MMcf/d looking for potential new gas suppliers as part of Gas Accord II’s new option to do so beginning April 1. But the best SoCalGas can hope for is that the CPUC acts quickly enough this winter to allow it the targeted April 1 start of its new transmission and storage rates.

It has been three years since the first state regulatory decision was rendered on Southern California Gas Co.’s comprehensive settlement on its transmission/storage unbundling. Last Monday a CPUC ALJ released a proposed decision aimed at implementing the basic provisions of the original settlement by April 1.

The latest action comes after a tumultuous three to five years during which settlement parties balked at numerous implementation attempts. Now the judge proposes to close the case. The CPUC could consider the issue at its first regularly scheduled business meeting on Feb. 11, and the Sempra Energy gas-only utility would be cleared within 10 days of CPUC approval to file an advice letter with its new rates for April 1.

Originally viewed as having a six-year life, the comprehensive settlement now has less than three years until its pre-designated expiration date of Aug. 31, 2006. With the elapsed time, an originally envisioned three-year phase-in period for storage rates and revenue retention has been scrapped in favor of SoCalGas assuming 100% risk/reward for the difference between unbundled storage costs and revenues from unbundled storage service. A coalition of merchant generators and Southern California Edison Co. strongly oppose this approach, but it’s included in the ALJ’s proposed implementation.

There are many other issues left on the table, but the ALJ’s attittude was to select the first of two options presented by SoCalGas, namely, to implement the original settlement, casting aside most modifications that had been sought. The ALJ denied a motion last October by marketers and consumer groups, including Coral and TURN (The Utility Reform Network), to modify the SoCal restructuring of its system on the basis the market in Southern California has changed since the institution of the comprehensive settlement agreement (CSA).

In regard to one sore issue — involuntary diversion of supplies — SoCalGas responded to concerns of Coral and other marketers by agreeing to “make a best efforts” attempt to notify balancing parties and end-use customers, through its electronic bulletin board and through other means, of an involuntary supply diversion. Coral had wanted economic penalties for SoCal if it fails to provide notice, but the proposed decision doesn’t provide for that contingency.

In general, the major joint parties argued for modifications because of what they called “changes in intrastate delivery capabilities and core upstream commitments (that) have and will continue to alter the use of receipt point capacity as envisioned by the CSA. Specifically, (the joint parties) state that upstream pipelines have expanded capacity to serve California, and thus the need for capacity at various receipt points has changed.”

Recent upgrades by interstate pipelines coming into the state and upgrades by SoCalGas within the state have all changed the capacity needs at various receipt points. “Joint parties assert that allocation of receipt point capacity rights will change as the upstream capacity rights expand and such changes alter the assumptions made about the value of receipt point rights,” the ALJ noted in his proposed decision, also noting that the same parties believe that proposed liquefied natural gas (LNG) projects, “if built, will alter the need and use of receipt point capacity.”

In essence, the ALJ concluded that the benefits of implementing the long-delayed settlement for unbundling SoCal’s transmission/storage system outweighed the arguments to abandon the deal and start over. Thus, the judge denied the request to vacate the Jan. 12, 2001 decision. The judge made clear he is not suggesting any new policies or modifications to the comprehensive settlement; he simply adopts tariffs for the utility to implement.

Last summer, SoCalGas presented two options — (1) what it called the “compliance case” of implementing the tariffs in the settlement, or (2) what it said was the “preferred case” of making recommended changes by various parties. Assigned CPUC Commissioner Geoffrey Brown, who had privately expressed concerns about rival California private-sector utilities trying to “sabotage” the settlement, issued what the CPUC calls a “scoping memo” in which he limited the case to consideration of the first option — the compliance case.

Brown indicated that separately he would have the CPUC staff explore whether another proceeding in the future should address the proposed modifications to the CSA.

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