In an $88.1 million switch, California regulators last weekdecided to reallocate the bulk of Southern California Gas Co.’s$161.8 million in 1997 step-down charges paid to El Paso NaturalGas and Transwestern interstate pipelines serving southernCalifornia from the mass regulated consumers to large industrial(noncore) customers. SoCalGas maintains that the buy-out eventuallywill save its customers between $320 and $525 million.

Small consumer advocates, such as The Utility Reform Network(TURN), love the reversal, while representatives for the state’slargest energy users – California Manufacturers’ Association (CMA)- are “appalled” by the turn of events, and think it might be theharbinger of rougher treatment of some of the state’s largestbusinesses (and employers) in the future.

“It is going to cost us a lot of money,” said Kevin Smith, CMA’senergy legislative advocate in Sacramento. “There certainly was aless onerous road [regulators] could have taken had they adopted analternate opinion which was more balanced in its allocationsbetween core and noncore customers. We are strongly disappointedand basically disturbed at what hopefully is not a trend where (thestate) starts gouging large, noncore customers.

“This was a rehearing of a pretty firmly set decision [from thepast]. This thing has sort of smacked of being a bad deal from thebeginning. We knew that once the decision was made to rehear thecase that something was going on, and that we were going to take itin the shorts on this one. Obviously (the decision) confirmed oursuspicions.

“I think there is an overall disappointment in the (CaliforniaPublic Utilities) Commission in particular because we are wonderingif this is the beginning of the great unraveling for largeindustrial customers. From a practical standpoint, we have memberswho it is not an idle threat to say could go elsewhere. We’realways concerned with losing companies in California where energycosts are huge. Unfortunately, a lot of times these regulatorydecisions ignore the practical economics, including the benefitsthat core customers have received from the deregulation and largeindustrial customers’ movements to reliance on interstatepipelines.”

CMA’s energy committee probably will discuss the possibility ofan appeal when it meets Nov. 16, Smith said. In contrast, TURN,which originally requested the rehearing in 1997, thinks the latestdecision only provides “partial justice” since it believes thatcore customers should never have paid any of the surcharge becausethe consumer group argues that the large industrial customers havereceived all of the benefits of the lower interstate transitioncharges since SoCalGas’s step-down.

The CPUC’s latest action determined that Transwestern’s $77million in step-down charges should be treated as “InterstateTransition Cost Surcharges (ITCS).” CPUC policy set earlier in the1990s limited the smallest (core) customers, meaning residentialand small business, to a 10% share of ITCS costs. The rest of thecharges – $84.8 million – were due to fees to SoCalGas as its partof a settlement on the reallocation of El Paso’s revenues. Theseare considered “new” costs, the CPUC said, so core customers willpay for 40% of them; the largest noncore customers will pay therest (60%). The credits and charges will all be reflected in ratesnext year, the CPUC said.

Prior to the step-downs, SoCalGas held a total of about 2.2Bcf/d of natural gas capacity on the two interstate pipelines; alittle over 1 Bcf/d was reserved for core customers and the restwas brokered.

“The difference between the price SoCal paid and the price itreceived for the capacity is considered ‘stranded costs’,” the CPUCsaid in its news announcement on the decision. “[The costs] areallocated among the utility’s customers on a equal cent-per-thermbasis, except core customers’ liability is capped at 10% of thecost of their capacity reservation.”

Richard Nemec, Los Angeles

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