BEFORE THE
PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Approval of Open Season Procedures for Awarding Firm Capacity on its Transmission Facilities.

	(U 39 G)		
Application No. 01-06-020

Comments
of
Pacific Gas and Electric Company (U 39 G)
in Response to
“Administrative Law Judge’s Ruling Shortening Time for Protests or Responses and Replies to the Application Filed by Pacific Gas and Electric Company”

Pursuant to the “Administrative Law Judge’s Ruling Shortening Time for Protests or Responses and Replies to the Application Filed by Pacific Gas and Electric Company,” issued June 14, 2001 in this docket (“Order Shortening Time”), applicant Pacific Gas and Electric Company (“PG&E”) respectfully files the following comments in support of its Application.
On June 13, 2001, PG&E filed an application in the Commission requesting approval of procedures to implement an open season to award post-2002 capacity on PG&E’s natural gas transmission system (hereafter, “Application”).  The open s will provide the market with the opportunity to obtain capacity beyond the end-date of the Gas Accord (December 31, 2002) and to bid for capacity at a time when other market participants are offering capacity to and into California.  PG&E’s Application includes the following documents:
·	“Guide to the California Gas Transmission Open Season,” setting out rules for the open season (Attachment 1);
·	“Checklist and Timeline,” providing an overview of the open season process (Attachment 2);
·	“Establishing Credit,” including procedures and a credit application, to be completed by each potential customer, which will enable PG&E to pre-qualify potential requests for capacity (Attachment 3);
·	“Preliminary Rates” (Attachment 4);
·	A guide to the open season for noncore customers (Attachment 5);
·	“Open Season – Request for Firm Transmission Service,” setting forth the terms and conditions of the parties’ obligations pending execution of a gas service contract (Attachment 6); and,
·	A table of capacity allocations and reservations underlying the open season.  (Attachment 7).

PG&E is very appreciative of Administrative Law Judge Brown’s timely issuance of the Order Shortening Time – one day after PG&E filed the instant Application.  In the “Order Shortening Time,” ALJ Brown poses five questions, to which PG&E is pleased to respond:
Q1.) How much of a core reservation should PG&E maintain?
A1.) Pacific Gas and Electric Company (PG&E) withheld from this open season the following capacity amounts for core customers: a total of 650 Mdth/d of annual Redwood capacity, 400 Mdth/d of annual Baja capacity, 250 Mdth/d of seasonal Baja capacity and 5 Mdth/d of Silverado capacity.  The amount withheld for the core is 100 Mdth more than the current core holdings under the Gas Accord.  In addition, 10 Mdth/d of Redwood capacity and 10 Mdth/d of Baja capacity have been withheld from this open season and will be reserved for wholesale customers.  We wish to emphasize that the above amounts are only being withheld from the open season, but are not being assigned to the core (or wholesale customers) in this open season.  The reserved capacity amounts do not pre-determine either the minimum or maximum holdings that can be assigned to the core.  PG&E will propose an appropriate assignment of capacity for core for its post-2002 needs and parties will have ample opportunity to comment on PG&E’s proposal.  If it is determined that the core should hold less capacity than withheld on behalf of the core from this open season, PG&E will make the excess capacity available to the market at that time.  If it is determined that the core should hold more capacity than is reserved, PG&E will be able to assign to the core some of the other capacity that was withheld from this open season.  The other capacity that is being withheld from this open season is capacity for existing contracts that extend beyond 2003, as well as capacity set aside for a future open season.   (See PG&E Application, Attachment 7, for a tabular format of all capacity.)
Q2.)  Should there be limits on the amount of capacity any one shipper can control?
A2.)  Yes.  PG&E has limited the amount of capacity that may be obtained by any one shipper on any one path.  The limit was selected to balance the needs of several very large end-users versus the need to mitigate the risk that a single shipper acquires enough quantity of capacity where they could control the price of gas at PG&E’s Citygate.  Under the open season rules, a shipper (including affiliated shippers) is limited to obtaining no more than 500 Mdth/d of annual firm capacity for deliveries to the PG&E Citygate.  This limitation (500 Mdth/d) represents only 15% of the total system capacity and only 25% of the system capacity after subtracting the core holdings.  PG&E has several very large end-use electric generation customers on the system and several additional customers who, we understand, plan to substantially expand their gas transportation needs over the next two years.  These customers may, in the near term, require over 400 Mdth/d merely to supply their own needs.  In the longer term, their needs may increase beyond this level.  We believe that a market concentration limit less than the limit in the Application would effectively require these large customers, both on a near term and long term basis, to buy a portion of their needs from other shippers at PG&E’s Citygate.  A lower limit, then, could add unnecessary costs to these customers' cost of gas. 
Q3.)  Should the contracts be long term, short term, or a hybrid?
A3.)  PG&E’s open season permits customers to choose the term most appropriate for their needs, with 15 years being the maximum length firm capacity that may be requested or obtained in this open season.  If the market does not wish to commit to PG&E service for the long term, PG&E is not requiring long-term contract requests to participate in the open season.  This flexibility is unlike virtually all interstate pipelines, which often require long-term contracts.  
PG&E believes there is no single contract term that is appropriate for all of PG&E’s market.  The end-use customers in California are very diverse.  Some customers prefer long-term contracts while others prefer short-term commitments.  The same is true for the marketing entities that do business on the PG&E system.
Another factor that PG&E has considered when setting the maximum term of 15 years, is that many of PG&E’s customers are considering long-term commitments on the upstream interstate pipelines to expand capacity to California.  These customers are less likely to make long-term upstream commitments if they can’t also make matching long-term commitments on the intrastate pipeline that delivers to the end-use market.  PG&E believes that the long-term option in this open season will help California emerge from the current energy crisis. 
In addition, it is important to consider that the open season in this Application is not the only open season for post-2002 capacity on the PG&E system.  PG&E is reserving 325 Mdth/d of annual capacity and 50 Mdth/d of summer seasonal capacity from this open season to be sold in a subsequent open season.  This second open season will be held before 2003, and will permit additional customers to obtain post-2002 capacity.  PG&E intends, in the second open season, to encourage the acquisition of shorter-term capacity to be held by smaller volume customers, typically end-users.
Q4.)  Should any capacity be held out of the open season for short-term purchase later?
A4.)  Yes.  Some market participants prefer short-term commitments.  Many of the customers who desire short-term capacity would prefer to make those commitments closer to the start of the contract term, which begins January 2003.  Accordingly, as noted in our answer to question 3 above, PG&E has reserved capacity for a future open season.  While we are reserving capacity for a future open season, we also recognize that other customers place a great deal of importance on the ability to make longer term capacity commitments at this time, in order to match intrastate capacity with interstate capacity they are currently obtaining.  Furthermore, electric generation customers place a great deal of importance on the opportunity to make long-term electric supply commitments at this time.

Q5.)  What should be the maximum length of the contracts in light of the fact that the entire period covered will extend beyond the limits of the proposed Gas Accord?
A5)  PG&E has chosen a 15-year maximum for its contracts.  Parties may bid for shorter contract terms.  The various business needs of PG&E’s customers dictate the need for various contract lengths.  A contract that extends beyond the next rate case cycle does have a higher level of risk associated with that contract.  Each individual customer will need to determine if the need for  a long-term contract out weighs the additional risks.  PG&E's proposal limiting contract terms to 15-year contracts reflects past decisions where the first time the Commission has authorized long-term contracts, notwithstanding that rates could be anticipated to change during the contract term.  Parties signed 30-year G-XF (Line 401) contracts with PG&E where the rates were contemplated to change with each rate case.  The Crockett Cogeneration agreement is 15 years in length, where rates change with each rate case.  A number of parties have signed pre-Gas Accord EAD contracts for 15 years at contract-specific prices.  Furthermore, long term contracts, bridging various rate cases, are typically done by parties contracting with FERC-regulated pipelines.
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PG&E is hopeful that these comments will assist the Commission in approving an order on July 12, 2001 that grants the approvals requested in PG&E’s Application.  PG&E will be pleased to reply by June 25 to any comments filed by other parties.  
Respectfully submitted,

JOSHUA BAR-LEV
LAWRENCE C. WITALIS
DAVID W. ANDERSON

By:   ______________________
        DAVID W. ANDERSON

Law Department
Pacific Gas and Electric Company
Post Office Box 7442 (Mail Code: B30A)
San Francisco, California  94120 
Telephone:  (415) 973‑6659	
Fax:  (415) 973-5520	
E-mail:  dwa3@pge.com

Attorneys for 	
	PACIFIC GAS AND ELECTRIC COMPANY
June 20, 2001

CERTIFICATE OF SERVICE BY MAIL

	I, the undersigned, state that I am a citizen of the United States and am employed in the City and County of San Francisco; that I am over the age of eighteen (18) years and not a party to the within cause; and that my business address is Pacific Gas and Electric Company, Law Department B30A, 77 Beale Street, San Francisco, California 94105.

	 I am readily familiar with the business practice of Pacific Gas and Electric Company for collection and processing of correspondence for mailing with the United States Postal Service.  In the ordinary course of business, correspondence is deposited with the United States Postal Service the same day it is submitted for mailing.
		
	On the 20th day of June, 2001, I served a true copy of:

COMMENTS OF PACIFIC GS AND ELECTRIC COMPANY (U 39 G) IN RESPONSE TO “ADMINISTRATIVE LAW JUDGE’S RULING SHORTENING TIME FOR PROTESTS OR RESPONSES AND REPLIES TO THE APPLICATION FILED BY PACIFIC GAS AND ELECTRIC COMPANY”

by placing it for collection and mailing, in the course of ordinary business practice, with other correspondence of Pacific Gas and Electric Company, enclosed in a sealed envelope, with postage fully prepaid, addressed to:

CPUC Service List For:  I.99-07-003

	I certify and declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. 

	Executed on the 20th of June 2001.

	AMY S. YU