Docket: A.13-12-012; 1.14-06-016
Exhibit Number: G1N-2
Commissioner: Peterman
Admin. Law Judge: Amy YipKikugawa
PG&E 2011 Gas Transmission and Storage Rat~ Case
Prepared Testimony
314015780.I
Application: =09-.-0.._9__
- _ _ _ __
(U 39 G)
Exhibit No.: _ _ _ _ _ __
Date: September 18. 2009
Witness: Various
PACIFIC GAS AND ELECTRIC COMPANY
2011 GAS TRANSMISSION AND STORAGE RATE CASE
PREPARED TESTIMONY
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PACIFIC GAS AND ELECTRIC COMPANY
2011 GAS TRANSMISSION AND STORAGE RATE CASE
TABLE OF CONTENTS
Chapter
1
2
Title
Witness
INTRODUCTION AND POLICY
. PG&E'S.GAS TRANSMISSION FACILITIES AND
SERVICES
Steven A Whelan
Roger Graham
3
PG&E'S GAS STORAGE FACILITIES AND
SERVICES
Roger Graham
4
OPERATIONS AND BALANCING SERVICES
Jack E. Dunlap
5
OPERATING AND MAINTENANCE EXPENSES
Frank W. Maxwell
6
CAPITAL EXPENDITURES
Rick C. Brown
Roy A. Surges
7
PLANT, DEPRECIATION EXPENSE AND
RESERVE, AND RATE BASE
Anthony E. Biacci
8
COST OF SERVICE
Rosemary L. Green
9
COST RECOVERY AND REVENUE SHARING
MECHANISMS
David S. Thomason
10
THROUGHPUT FORECAST
Jeffery S. Bennett
Eric Hsu
Kate M. Tiedeman
11
COST ALLOCATION AND RATE DESIGN
Ray Blatter
M. Daniel Mclafferty
Appendix 11 A
DETAILED RATE TABLES
Ray Blatter
Appendix 11 B
TRADITIONAL BACKBONE RATE CALCULATION
Carl Orr
Ray Blatter
CORE GAS SUPPLY
David F. Elmore
12
Appendix A
SUPPLEMENTAL REPORT ON THE LINE 57C
PROJECT
-i-
PACIFIC GAS AND ELECTRIC COMPANY
2011 GAS TRANSMISSION AND STORAGE RATE CASE
TABLE OF CONTENTS
(CONTINUED)
Chapter
Appendix B
Title
STATEMENTS OF QUALIFICATIONS
-ii-
Witness
Jeffery S. Bennett
Anthony E. Biacci
Ray Blatter
Rick C. Brown
Jack E. Dunlap
David F. Elmore
Roger Graham
Rosemary L. Green
Eric Hsu
Frank W. Maxwell
M. Daniel Mclafferty
Carl Orr
Roy A. Surges
David S. Thomason
Kate M. Tiedeman
Steven A. Whelan
PACIFIC GAS AND ELECTRIC COMPANY
CHAPTER 1
INTRODUCTION AND POLICY
(STEVEN A. WHELAN)
PACIFIC GAS AND ELECTRIC COMPANY
CHAPTER 1
INTRODUCTION AND POLICY
(STEVEN A. WHELAN)
TABLE OF CONTENTS
A. Introduction ........................................................................................................ 1-1
1. Scope of Application ...................... :............................................................. 1-1
2. Overview of Revenue Requirements and Rates .......................................... 1-2
B. Gas Accord Market Structure ............................................................................ 1-4
C. RegulatorY' Background ..................................................................................... 1-6
D. PG&E's Key Proposals ..................................................................................... ~ 1-9
1. Rates That Compensate PG&E for Investments in Infrastructure to
Ensure Reliable, Safe Services, and Access to Diverse Gas Supplies ........ 1-9
a. Gas on Gas Competition and Environmental Cost Drivers Backbone .............................................................................................. 1-10
b. Pipeline Safety Act.- Backbone and Local Transmission ..................... 1-11
c. Local Transmission Reinforcements ..................................................... 1-11
d. Winter Storage Reliability ...................................................................... 1-11
e. Gill Ranch Storage Project.. .................................................................. 1-11
2. A Single Core and a Single Noncore Rate for PG&E's Backbone
Transmission Service That Will Enhance Gas-On-Gas Competition,
Help Attract Diverse Gas Supply Sources and Reduce Backbone Rate
Volatility ...................................................................................................... 1-12
3. A Demand Based Backbone Rate Design Is Superior to the Current
System Average Load Factor Methodology ............................................... 1-14.
4. PG&E's Backbone Rates Should Be Set at a Level That Provides a
Reasonable Opportunity to Recover the Adopted Backbone
Transmission Revenue Requirement .............................................. ,.......... 1-15
5. A Revenue Sharing Mechanism That Will Address Potential Over- and
Under-Recovery of the GT&S Revenue Requirement.. .............................. 1-16
6. Changes to PG&E's Operations and Balancing Services........................... 1-17
7. Changes in Cost Recovery Mechanisms .................................................... 1-18
a. Cost of Capital, A&G, Uncollectibles, and Pension Allocations ............. 1-18
1-i
PACIFIC GAS AND ELECTRIC COMPANY
CHAPTER 1
INTRODUCTION AND POLICY
(STEVEN A. WHELAN)
TABLE OF CONTENTS
(CONTINUED)
b. Electricity Costs ..................................... ,. ............................................. 1-20
c. Greenhouse Gas-Related Costs ........................................................... 1-21
E. Testimony Presented ....................................................................................... 1-21
F. Conclusion ....................................................................................................... 1-22
1-ii
PACIFIC GAS AND ELECTRIC COMPANY
CHAPTER 1
INTRODUCTION AND POLICY
(STEVEN A. WHELAN)
1
2
3
4
s
A. Introduction
a
1.
Sc~pe
of Application
Pacific Gas and Electric Company (PG&E or the Company) presents in
7
s
this Application its proposed Gas Transmission and Storage (GT&S)
9
revenue requirements and rates for 2011through2014. PG&E proposes to
10
continue, with several changes, the Gas Accord market structure originally
11
approve~
12
Commission) in Decision 97-08-055, and most recently extended for a
13
3-year term (2008-2010) by the all-party Gas Accord IV settlement approved
14
by the Commission in Decision 07-09-045.
15
by the California Public Utilities Commissio.n (CPUC or
· In support of this request,
PG&E offers testimony covering operating
16
and maintenance expenses, capital expenditures, and the resulting revenue
17
requirements. PG&E also presents its demand and throughput forecast for
18
2011-2014, as well as cost allocation and rate design proposals.
The Application proposes several revisions to the ratemaking for
19
20
PG&E's GT&S system, approved in Decision 03-12-061 (also known as Gas
21
Accord 11-2004), which was the last application where such changes were
22
considered in detail by the Commission.[1] As described below, the
23
changes in ratemaking that PG&E proposes are consistent with recent
24
Commission decisions encouraging investments to increase reliability and
25
gas
26
Gas Capacity Order Instituting Rulemaking (OIR), Decision 06-09-039,
21
which was adopted in the wake of the Energy Crisis of 2000-2001. These
28
proposed changes are also warranted by changes in market conditions and
[1]
s~pply
competition, such as the Commission's Phase 2 decision in the
Subsequent GT&S rate cases were resolved by settlements in which
significant elements were "black box" in nature. The 2005 rate case was
settled in Gas Accord Ill, approved by the Commission in Decision 04-12-050.
The 2008 rate case was settled in Gas Accord IV, approved by the
Commission in Decision 07-09-045.
1-1
1
Northwest Natural Gas Company. Gill Ranch Storage LLC is the
2
operator of the facility. The Gill Ranch project will connect with Line 401
3
approximately eight miles north of Panache station. PG&E's portion of
· the project is approximately 4.9 MMDth of working gas capacity.
4
5
Consistent with PG&E's commitments in Application 08-07-033,
6
none of the costs for the Gill Ranch Project are being allocated to Core
7
storage or load balancing services. Rather, all of the costs and
8
capacities from PG&E's portion of the project are assigned to Market
9
Storage.
10
By this Application, PG&E requests that the Commission assure the
11
recovery in rates of all of these needed. capital expenditures, at· PG&E's
12
authorized rate of return. Doing so is consistent with the Commission's
13
overarching policy goal of promoting sound investments in California's
14
energy infrastructure in order to protect customers against excessively high
15
energy bills and to ensure system reliability.
2. A Single Core and a Single Noncore Rate for PG&E's Backbone
16
17
Transmission Service That Will Enhance Gas-On-Gas
18
Co~petition,
19
Reduce Backbone Rate Volatility
Help Attract Diverse Gas Supply Sources and
Gatural gas market conditions in northern California continue to evolve.
20
21
In recent years, the marginal gas supply source has switched frequently
22
between Canadian supply sources and Southwest U.S. supply sources,
23
including Rocky Mountain supplies. In other words, the price djfferentials
24
between Canadian and Southwest supply sources may favor one basin or
25
another, depending on market conditio1l9
PG&E proposes creation of a single Core Redwood-Baja rate and a
26
27
single Noncore Redwood-Baja rate to eliminate rate bias or preference on.
28
the PG&E backbone system towards any particular source of out-of-state
29
gas supplies.[11) The backbone rates for each customer class would be
30
different from eaGh other, but would result in each class of customers paying
31
the same rate whether they use the Baja or Redwood path. The
[11)
Northern California gas production would continue to have a Silverado path
rate that encourages consumption of this supply source, consistent with state
policy.
1-12
,,.
1
Redwood-Baja rates for the Core c.ustomer class have been developed in a
2
way that preserves the benefits of the Core's vintage Line 400 capacity.
3
Thus, Core customers are not disadvantaged by this backbone rate design.
4
This proposal is presented in more detail in Chapter 11, "Cost Allocation
s
and Rate Design." Equalizing PG&E's Redwood and Baja rates will ensure
6
that the marginal backbone path is not priced higher than the alternative
7
path, which will help enhance gas-on-gas competition. This approach to
a
rate design will increase pricing efficiency by allowing supplies from the
g
north and south to compete with each other on the basis of California border
10
prices, without backbone rate differences coming into play.
11
PG&E believes that enhancing gas-on-gas competition at the Citygate
12
provides direct benefits to northern California gas consumers. In addition,
13
because the marginal supply source changes frequently and the marginal
14
backbone path varies over time, equalizing backbone rates will likely provide
15
1s
more stable PG&E Citygate prices.
17
volatility as new facilities are added to different backbone paths. Spreading
18
the costs of new facilities across a wider throughput base helps minimize the
19
rate impact on any one path. It also helps reduce PG&E's cost recovery
20
risk, thus reducing ~ potential disincentive to invest in infrastructure.
21
Equalizing Redwood and Baja path rates also reduces backbone rate
Furthermore, PG&E's operation of its backbone facilities has changed in
22
recent years and the paths are now operated on a more integrated basis.
23
As described in Chapter 2, with the reversal of the Bethany compressor
24
station, southern-sourced gas can flow north to Creed Station (north of
25
Brentwood) on Lines 401 and 2, and then flow south into the Bay Area. In a
26
similar way, northern-sourced gas can flow south to Panache Station and
21
then north on Line 300 to the Bay Area. This larger integration of facilities is
28
another reason supporting a single, undifferentiated rate for the Core and
29
Noncore customer classes, respectively.
30
Moreover, from a contractual standpoint, Baja receipts have never been
31
limited to transportation on the Baja facilities (Line 300); this gas has always
32
been able to flow contractually to any point on the system, even to Malin.
33
Similarly, Redwood receipts have not been limited to transportation on the
1-13
1
Redwood facilities (Lines 400, 401 and 2), but can flow contractually as far
2
south as Topock.
3
Another important benefit of a policy favoring undifferentiated backbone
4
rates is to provide an assurance that new supply opportunities will not be
5
disadvantaged by a higher PG&E backbone rate for a particular path, if and
6
· when such supply is connected to the PG&E backbone system. Since all
7
customers benefit from gas-on-gas competition, it is appropriate that the
8
cost of transportation on the backbone system be spread
9
the connecting pipelines to out-of-state .sources. This will enable all supply
10
sources to compete on an equal footing for sales to northern California gas
. 11
12
13
equal~y
across all
consumers, who will be the ultimate beneficiaries of such a policy.
3. A Demand Based Backbone Rate Design Is Superior to the
Current System Average Load Factor Methodology
14
In conjunction with the above proposal to create a single Core and a
15
single Noncore backbone rate, PG&E also proposes a simpler and more
16
conventional demand-based backbone rate design, rather th.an the present
17
complicated system average load factor rate design. In previous GT&S rate
18
cases and Gas Accord settlements, backbone rates were not calculated
19
based on path-specific demands (throughputs) because developing
20
forecasts of path-specific demands would have been difficult and
21
contentious. Accordingly, previous Gas Accords made the simplifying
22
assumption, for rate design purposes, that all of the backbone paths make a
23
proportional contribution to serving PG&E',s total gas load. This was the
24
essence of the load factor based rate design: the denominator of the
25
backbone rate calculation for a particular path was the product of the path
26
capacity and the system average backbone load factor, not a path-specific
27
throughput forecast.
28
PG&E's proposal to create a single Core rate and a single Noncore rate
29
lends itself to also switching to a demand-based rate calculation. The
30
demand on the Core Redwood-Baja "path" is simply the total· Core demand.
31
The demand on the Noncore Redwood-Baja "path" is the total Noncore
32
demand, less a small portion of that demand served by the Silverado path
33
and served under G-XF contracts. This approach vastly simplifies the
34
backbone rat.e design by eliminating the need for the complex calculation of
· 1-14