1. Line 401 competes directly with Southwest interstate pipelines.
2. PG&E sets prices for Line 401 as-available service based on competitive alternatives at Topock.
3. The dominant firm/competitive fringe model is a reasonable description of market dynamics at Topock.
4. Market concentration, ease of substitution for pipeline capacity, similarity of pipeline cost functions, barriers to market entry, and inelastic demand for capacity give SoCalGas and PG&E incentives to exercise price leadership at Topock.
5. Increasing gas market integration is not sufficient to prevent PG&E from exercising market power.
6. Supply basin competition and burnertip price competition do not preclude the exercise of market power in the transportation corridor between Canada and California.
7. PG&E holds market power at Topock and within California.
8. In the context of this proceeding, a conflict of interest arises when PG&E has a duty on behalf of shareholders to contend for outcomes which its duty to ratepayers requires PG&E to oppose.
9. A conflict of interest exists whenever there is a reasonable possibility that PG&E will not exercise its discretion fairly.
10. PG&E has a conflict of interest in marketing Line 401 capacity on behalf of shareholders and brokering unused Southwest capacity on behalf of ratepayers.
11. Under the Gas Accord, PG&E would have a conflict of interest in marketing its Line 400/401 capacity, as opposed to its Line 300 capacity or California Gas Production Path capacity, since PG&E could collect greater revenues from increased throughput over Line 400/401, and its subsidiary, PGT, could collect greater revenues from increased throughput in lieu of throughput on the Southwestern interstate pipelines.
12. The Gas Accord is reproduced in Appendix B to this decision.
13. The Gas Accord has several features that support its approval: (1) it has the support of a broad spectrum of active parties; (2) it would unbundle PG&E’s gas transmission system into separate services, and make PG&E responsible for system revenue requirements; (3) it would resolve difficult issues in several Commission proceedings and a federal court case and provide regulatory certainty during the Gas Accord period; (4) it would divest PG&E of gas gathering facilities; (5) it would phase out PG&E’s core subscription service; and (6) it would assign EAD revenue shortfalls to PG&E.
14. The Gas Accord has other features that oppose its approval: (1) it fails to resolve or mitigate PG&E’s conflict between shareholder and customer interests; (2) roll-in of Line 401 rates is inefficient and contrary to incremental ratemaking principles; (3) roll-in of Line 401 rates could undermine future market tests for new capacity; (4) it provides few direct benefits for core customers; (5) it purports to settle Rule 1 allegations; (6) it does not reflect the interests of Southwest producers and pipeline companies; and (7) it holds uncertainty about disposition of Edison’s side deal payment and other payments to PG&E.
15. Taken as a whole, the benefits of the Gas Accord outweigh its problems, since the Commission’s approval of the Gas Accord includes a discounting rule to address PG&E’s conflict of interest and the Commission’s approval would not preclude future Commission proceedings addressing PG&E’s conflicts of interest.
16. The Gas Accord is reasonable in light of the whole record and is in the public interest, since the Commission’s approval of the Gas Accord includes a discounting rule to address PG&E’s conflict of interest and the Commission’s approval would not preclude future Commission proceedings addressing PG&E’s conflicts of interest.
17. PG&E may have misled the Commission and violated Commission rules by filing testimony about PG&E’s reasons for constructing Line 401 which are inconsistent with the reasons given in the McLeod memo.
18. PG&E warnings to PGT shippers that PG&E might not build matching capacity in California are inconsistent with PG&E’s reliance on PGT commitments to justify building Line 401.
19. Line 401 discounting limits do little to minimize stranded costs.
20. In A.89-04-033, PG&E assured the Commission that existing gas customers that did not receive service over Line 401 would be insulated from any costs or risks associated with the expansion project.
21. The meaning of PG&E’s statements to the Commission is not ambiguous. No interpretation of the statements is necessary.
22. Norcen’s request for findings that PG&E deceived the market into becoming captive to PG&E’s designs, which were antithetical to market signals, is not supported by the evidence and should be denied.
23. Norcen’s request for a Commission order requiring PG&E to accept permanent release of Norcen’s contracted capacity on PGT and Canadian pipelines is not reasonable and should be denied.
24. On July 1, 1997, the Commission’s Consumer Services Division submitted its settlement with PG&E concerning PG&E’s alleged Rule 1 violations, which provides that PG&E would pay $850,000 and require its professional level employees appearing before the CPUC to attend an ethics training course if the Commission approved the settlement.
25. It is not necessary to defer approval of the Gas Accord in order to consider the upcoming Natural Gas Strategic Plan.
26. Approval of partially rolled-in rates for noncore customers is reasonable, only because noncore representatives have agreed to it and because the Gas Accord continues to preserve vintaged Line 400 rates for PG&E’s core customers.
27. Employing a performance-based ratemaking mechanism does not remove a utility’s procurement practices from the scrutiny of the Commission.
28. Disallowances or penalties for behavior favoring shareholder interests at the expense of core customer interests are not limited to those accrued under the CPIM, and are not limited to scenarios in which Southwest is the lowest cost core supply.
29. It would be unfair to allow PG&E to prop up the market clearing price for transportation into its service territory by refusing to discount Southwest to on-system service.
30. The Gas Accord does not explicitly give PG&E discretion over discounting among competing services.
31. All of the signatories to the Gas Accord have authorized representatives to state that they support or do not oppose an amendment to the Gas Accord which requires PG&E to offer commensurate discounts to shippers on Line 300 and the California Gas Production Path whenever PG&E offers discounts on its Line 400/401.
32. It is necessary for the Commission to adopt a commensurate discount rule that will mitigate the conflict between shareholder and noncore customer interests and will allow fair competition between Canadian, Southwest, and California gas supplies.
33. It is necessary for the Commission to continue its oversight over PG&E’s discounting practices in order to determine whether the commensurate discount rule has been circumvented or proves to be insufficient as a remedy for PG&E’s conflict of interest.
34. The ratemaking treatment of Edison’s $80 million side deal payment to PG&E is uncertain under the Gas Accord and will need to be clarified and resolved after PG&E files an advice letter.
35. Regarding revenue shortfalls associated with distribution service discounts, PG&E’s motion for the adoption of the Gas Accord makes clear that PG&E’s shareholders should be at risk for the revenue shortfalls unless PG&E overcomes a strong presumption and establishes that the discounts were reasonable.
36. The Joint Recommendation is described in Appendix D to this decision.
37. The Joint Recommendation has three features that support its approval: (1) it would allow market forces to set Line 300 prices; (2) it would keep the net costs of Southwest gas low; and (3) it would retain incremental ratemaking for Line 401.
38. The Joint Recommendation has two features that oppose its approval: (1) it would be a step away from unbundled rates; and (2) it would set prices for Line 300 and Line 400 inconsistently.
39. Under market-based pricing of utility services, rate certainty becomes a service attribute with market value.
40. Under the Joint Recommendation, the move away from unbundled rates is not reasonable and cannot be balanced against the benefits of the agreement.
41. The Joint Recommendation is not reasonable in light of the whole record and is not in the public interest.
42. By exercising market power in setting Line 401 prices that compete against brokered Southwest capacity, and in pursuing shareholder benefits through backbone credit transactions, PG&E has imprudently placed shareholder interests above original system ratepayer interests.
43. PG&E senior managers have failed the Commission’s best efforts standard for marketing of unused interstate pipeline capacity, have relied on market power to the detriment of ratepayers, have failed to recognize the importance of PG&E’s conflict of interest, and have failed to resolve the conflict of interest in a reasonable manner.
44. Relief from 50% of noncore ITCS charges, 100% of core ITCS charges, and 100% of backbone credit charges under the Gas Accord is fair compensation to customers for past harm caused by PG&E’s conflict of interest.
45. The requests of El Paso and the Joint Recommendation sponsors to establish an IPO should be rejected without prejudice to further consideration by the Commission.
46. El Paso’s request that PG&E be ordered to divest its interstate and intrastate gas transmission facilities should be denied without prejudice.
47. Municipal utility rate parity is beyond the scope of the record in the Line 401 general rate case.
48. Transportation service priority for non-utility gas storage providers is beyond the scope of the record in the Line 401 general rate case.
Footnotes are bracketed and in blue