BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Investigation on the Commission’s Own Motion to Consider the Costs and Benefits of Various Promising Revisions to the Regulatory and Market Structure Governing California’s Natural Gas Industry and to Report to the California Legislature on the Commission’s Findings.

FILED
PUBLIC UTILITIES COMMISSION
JULY 8, 1999
SAN FRANCISCO OFFICE
INVESTIGATION 99-07-003

ORDER INSTITUTING INVESTIGATION

The Commission opened Order Instituting Rulemaking (OIR) R.98‑01‑011 on January 21, 1998 to assess the current market and regulatory framework for California’s natural gas industry and to adopt reforms that emphasize market-oriented policies in the hopes of creating benefit for all California natural gas consumers.  The Strategic Planning Division’s report, Strategies for Natural Gas Reform:  Exploring Options for Converging Energy Markets, was attached to the Order.
In an order issued today, we identified the most promising options for changes to the regulatory and market structure for the natural gas industry, and asked parties to prepare more detailed analysis of the costs and benefits of these options.  These costs and benefits include safety, consumer protection, environmental and labor impacts related to various change options.  In that decision, we also closed the OIR.  In this order, we create a new investigation docket to receive evidence concerning the costs and benefits of the various change options and to consider the final proposals that should be included in a forthcoming report to the Legislature.  To assist us in this process, we incorporate the entire record from R.98-01-011 into the record for this proceeding.
The Commission’s Inquiry Up to This Point
In today’s OIR decision, we set forth, in detail, the underlying procedural history.  For our purposes here, it may be useful to refer to certain key points in the Rulemaking proceeding:
1.	On August 6, 1998, the Commission issued its first Interim Order in this rulemaking, Decision (D.) 98-08-030.  In that order, the Commission affirmed its intention to use all the information presented to us to develop a market structure decision that would provide focus for our final determination of appropriate market structure.  Second, the Commission articulated its goals in assessing changes to natural gas market structure.  We repeat those goals below.  Third, the Commission denied, without prejudice, the Coalition of California Utility Employees and the Southern California Gas Workers Council (CCUE/SCGWC) motion for determination of the applicability of CEQA to the rulemaking, and clarified we would entertain subsequent motions on that subject after issuing our market structure proposal.  Finally, the Commission identified a number of short-term steps intended to improve both our understanding of, and the operation of, the industry.  These include: a) directing the respondent utilities to file applications no later than February 26, 1999 identifying the functional categories to which all costs should be allocated, by service; b) requesting the Energy Division to develop proposed consumer protection rules for the natural gas industry; and c) requiring the utilities with Core Aggregation programs to file, following Commission adoption of consumer protection rules, advice letters reflecting the tariff changes necessary to remove the threshold limits on core aggregation participation.
2.	On August 28, 1998 the California Legislature and the Governor enacted Senate Bill (SB) 1602, creating Section 328 of the Pub. Util. Code.  That section expressly allows the Commission to investigate issues associated with the further restructuring of natural gas services, but prohibits the Commission from “enacting” any gas industry restructuring decisions prior to January 1, 2000.  It also states that any natural gas restructuring decisions for core customers issued after July 1, 1998 shall not be enforced.
3.	On October 8, 1998,  in response to this legislation,  the Commission issued D.98-10-028, the Second Interim order in this rulemaking, setting a new procedural schedule, including a prehearing conference, evidentiary hearings, briefs, oral argument and open comment meetings, to assist in preparing a report to the Legislature identifying proposed long-term market structure for the natural gas industry.  In that decision, the Commission clarified that, in the absence of further statutory instruction, we would not adopt a final market structure policy decision before January 1, 2000.  Finally, the Commission noted that, consistent with SB 1602, it would not require the utilities to file unbundling applications as directed in D.98-08-030.
4.	On January 19, 1999, President Bilas and Administrative Law Judge (ALJ) Weissman convened two weeks of panel-style hearings to receive extensive testimony regarding the array of options and proposals for hub, storage, balancing, transmission, and core procurement services.  Briefs following the hearings were filed on February 26, 1999.  Reply briefs were submitted on March 11, 1999.  The Commission heard oral arguments and the case was submitted on March 23, 1999.
The Process for Undertaking This Investigation
Using the extensive record from R.98-01-011 as a foundation, we will now explore, in more detail, the anticipated costs and benefits related with the more promising structural changes.  We start by encouraging all stakeholders to agree on a comprehensive set of terms for restructuring the gas industry in a manner consistent with the decision issued today in R.98-01-011.
Any resulting settlement agreement should be filed in this docket and served on all parties to R.98-01-011.  After receiving and reviewing any such agreement in a manner consistent with our discovery rules, we will determine whether it succeeds in covering all relevant topics related to the promising options and assess the need for receiving additional evidence related to some or all of the provisions of the agreement.  In the absence of a comprehensive settlement, we will move forward with the introduction, in the record of this investigation of evidence as to the costs and benefits related to the various promising options.  We will use the schedule included in today’s decision in R.98-01-011, which is as follows:
Cost-benefit testimony distributed		September 22, 1999
Cost-benefit rebuttal testimony
distributed						October 6, 1999
Hearings on costs and benefits of 
promising options identified here		October 25-29, 1999
Opening Briefs on costs & benefits
filed							November 19, 1999
Reply briefs on costs & benefits 
filed							December 3, 1999
Open Comment Meetings			To Be Determined
Goals
In D.98-08-030, we identified certain goals that we would pursue in assessing the existing natural gas market structures and considering a long-term strategy for regulating the industry.  These goals continue to apply as we move to a new phase of our investigation:
1.	To complement and enhance the benefits of electric restructuring.
2.	To eliminate inappropriate cross-subsidies.
3.	To guard against unnecessary barriers to the entry of competitors into various aspects of the natural gas market.
4.	To mitigate competitive abuses that may occur because one firm exerts inordinate control over the functioning of the marketplace.
5.	To enhance competition by providing separate rates for each major component of utility service and allowing customers to choose to have other firms substitute their services and charges where appropriate.
6.	To ensure that the rates customers pay for utility services reflect the cost of those services.
7.	To preserve the low-costs currently enjoyed by California natural gas customers.
8.	To provide adequate consumer protection.
9.	To ensure that natural gas service is safe and reliable.
SB 960
We preliminarily determine the categorization of this proceeding to be quasi-legislative, and preliminarily find that evidentiary hearings will be needed.  Commissioner Richard A. Bilas and ALJ Andrea L. Biren are assigned to this proceeding.
The assigned Commissioner and ALJ will hold a prehearing conference at a date to be determined (approximately 45 days from today).  At this conference, we will establish a service list, discuss the scope of the proceeding, and determine whether sufficient progress has been made in negotiations to merit any changes in the above schedule.  Interested party status will be limited to those who demonstrate an intent to actively participate in this proceeding.  Others will be provided with access to all materials related to this matter through e-mail delivery or posting on the Commission’s web site.  Until that time, we will use the service list from R.98-01-011 for all communications related to this docket.  All parties should do so, as well.

IT IS ORDERED that:
1.	An investigation is instituted to consider the costs and benefits of various promising options for change in the natural gas industry as identified in a decision issued today in Rulemaking (R.) 98-01-011.  The scope of our inquiry into costs and benefits is discussed in that order.
2.	The respondents in R.98-01-011 are respondents in this proceeding.
3.	The full record in R.98-01-011 is incorporated by reference in this proceeding.
4.	We preliminarily determine that this is a quasi-legislative proceeding and that evidentiary hearings will be required.
5.	The Executive Director shall cause a copy of this order to be immediately served on all respondents and on all interested parties in R.98-01-011.
This order is effective today.
Dated July 8, 1999, at San Francisco, California.

						RICHARD A. BILAS
								         President
							HENRY M. DUQUE
							JOSIAH L. NEEPER
							JOEL Z. HYATT
	Commissioners

I abstain.
 /s/  CARL W. WOOD
            Commissioner