PG&E 2010 Annual Report Download - page 35

2011 GAS TRANSMISSION AND STORAGE
RATE CASE
In the Utility’s 2011 Gas Transmission and Storage rate
case, the CPUC will determine the rates and terms and
conditions of the Utility’s gas transmission and storage
services for a four-year period beginning January 1, 2011.
Proposed SettlementAgreement
On August 20, 2010, the Utility and other parties,
including TURN and the DRA, requested the CPUC to
approve a proposed settlement agreement, known as the
Gas Accord V Settlement Agreement (“Gas Accord V”), to
set the Utility’s gas transmission and storage rates and
associated revenue requirements. The CPUC’s approval of
the proposed Gas Accord V is subject to the resolution of
several objections raised by San Diego Gas & Electric
Company and Southern California Gas Company
regarding their rights and obligations under the proposed
agreement. Although the CPUC has not yet issued a final
decision on the Gas Accord V, on December 16, 2010, the
CPUC issued a final decision that authorized the revenues
to be approved in the final decision of the Gas Accord V to
be effective as of January 1, 2011.
The Gas Accord V proposes a 2011 natural gas
transmission and storage revenue requirement of $514
million, an increase of $52 million over the 2010 adopted
revenue requirement. The proposed revenue requirement is
$541 million for 2012, $565 million for 2013, and $582
million for 2014. The Gas Accord V proposes average
annual capital expenditures of $174 million and average
annual depreciation costs of $112 million. The Gas Accord
V provides for a 2011 operating and maintenance expense
level of $105 million, which would increase at an annual
average rate of 2% for 2012 through 2014.
The proposed Gas Accord V maintains a majority of the
terms and conditions applicable to the Utility’s natural gas
transportation and storage services that had been
established under previously approved settlement
agreements (the first Gas Accord was approved in 1997).
Under the proposed Gas Accord V, approximately 45% of
the authorized revenue requirements, primarily those costs
allocated to core customers, would continue to be assured
of recovery through balancing account mechanisms and
fixed reservation charges. The Utility’s ability to recover the
remaining 55% of revenue requirements would continue to
depend on throughput volumes and the extent to which
non-core customers and other shippers contract for firm
transmission services. To reduce the Utility’s risk of
non-recovery on these remaining revenue requirements, the
proposed settlement agreement includes sharing
mechanisms. An under-collection or over-collection of the
remaining revenue requirements associated with backbone
transmission services (35% of the authorized revenue
requirement) would be shared equally between the Utility
and customers (both core and non-core). Customers would
be allocated 75% of any under-collection or over-collection
of remaining revenue requirements associated with local
transmission services (13% of the authorized revenue
requirement). Customers also would be allocated 75% of
any over-collection in remaining revenue requirements
associated with storage services (7% of the authorized
revenue requirement), but the Utility would be at risk for
100% of a net under-collection. The Gas Accord V
provides for additional cost recovery mechanisms for costs
that are difficult to forecast, such as the cost of electricity
used to operate natural gas compressor stations and costs
that are determined in other Utility regulatory proceedings.
Safety Phase
On October 15, 2010, the CPUC added an additional
phase to the Utility’s 2011 Gas Transmission and Storage
Rate Case to address the Utility’s natural gas pipeline
safety, integrity, and reliability measures and the Utility’s
emergency response procedures used in its natural gas
transmission and storage operations. This new “safety
phase” will focus on ensuring the safety and reliability of
the Utility’s natural gas transmission and storage system.
The CPUC will review and consider the types of protocols
and procedures that the Utility should have in place or that
the CPUC should immediately order to ensure the safe
operation of the Utility’s gas transmission and storage
operations over the next four years. The ruling notes that
the new safety phase is distinct from the NTSB’s and the
CPUC’s pending investigations into the cause of the San
Bruno accident as well as the CPUC investigation into the
Rancho Cordova accident, any proceedings that may be
opened as a result of the CPUC’s investigation, and any
federal or state legislation that may be adopted. The Utility
expects that at the CPUC meeting to be held on
February 24, 2011, the CPUC will open a new proceeding
to address the safe operation of all of the natural gas
pipelines in California. (See “Pending Investigations”
below.)
Finally, the costs contemplated under the Gas Accord V
do not include potential costs associated with the Utility’s
proposed Pipeline 2020 program of initiatives, announced
in October 2010, to work with regulators and industry
experts to strengthen the natural gas system over the next
decade. The program is expected to focus on the
modernization of critical pipeline infrastructure, the use of
automatic or remotely operated shut-off valves, the
development of industry-leading best practices, and the
enhancement of public safety. As part of this program, the
Utility plans to create a new non-profit entity to research
and develop next-generation pipeline inspection and
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