[BETA] Fortnightly

The California Public Utilities Commission has approved an agreement that will resolve a multifaceted case concerning pricing of services and operation of intrastate natural gas pipeline facilities by Pacific Gas and Electric Co.

The agreement, known as the "Gas Accord," also initiated significant changes in the way PG&E operates its business by increasing competition and customer choice. To mitigate the effects of market power held by the company, the commission imposed a series of discounting restrictions on PG&E.

As reported earlier ("Gas Accord Unlocks PG&E Market Hold," Headlines, Oct. 15, p. 12), the case involve issues concerning PG&E's 1991 decision to build Line 401, the intrastate portion of a natural gas pipeline from Alberta, Canada to Kern River Station near Bakersfield, Calif. PG&E will pay about $300 million to settle lawsuits by potential competitors.

To increase competition, PG&E will unbundle rate and service options for gas transmission and distribution systems. The restructuring will leave shareholders at risk for earnings on the transmission portion of its business. (The utility's service territory is served by an integrated high-pressure transmission system that resembles and an interstate gas pipeline system more than a typical local distribution system. The unbundling plan will permit PG&E to operate those facilities similar to an interstate pipeline and to continue to provide distribution service to individual customers.)

Transportation rates are unbundled according to specific paths over the transmission system rather than based on specific assets used to provide individual service components. This feature troubled the commission, but would allow for service over established facilities as opposed to a newer and more expensive expansion line. It said that PG&E's acceptance of responsibility for revenue requirements under the "path-based" unbundling without balancing account protection would offset the theoretical defects of such a design.

To expand customer choice, the accord reduces PG&E's role in arranging supplies for core customers and reduces its holdings of interstate transportation capacity. The company's core procurement department will continue to hold some storage capacity to ensure system and customer service reliability, but end-users will be free to seek commodity and transmission services from alternative suppliers.

The commission said PG&E had exerted considerable market power in the state's gas transport industry and noted a conflict of interest in the operation of its gas system. To alleviate those concerns, the commission ruled that whenever PG&E offers a shipper a discount on its on-system expansion facilities it must offer a commensurate discount to all shippers on certain other transportation lines. It said without such restraints, PG&E might unduly burden its core ratepayers with the higher costs, while allocating lower costs to its more competitive customers. The same conflict might also interfere in establishing a gas transport system with fair competition among suppliers in Canada, California and the southwestern U.S. Re Pacific Gas & Electric Co., Decision 97-08-055, a.92-12-043, et al., Aug. 1, 1997 (Cal.P.U.C.).

Phillip S. Cross is an associate legal editor with Public Utilities Fortnightly.

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