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California PUC Issues Final Decision Involving Pacific Gas and Electric

  • Mar 30, 2020 9:44 am GMT
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SAN FRANCISCO, California, March 28 -- The California Public Utilities Commission issued the following order (Case No. 20-03-018): Application of Pacific Gas and Electric Company (U39G) for Commission Approval Under Public Utilities Code Section 851 to Sell the Gas Local Transmission Line 306 to Southern California Gas Company (U902G).

DECISION AUTHORIZING SALE OF GAS LOCAL TRANSMISSION LINE 306 FROM PACIFIC GAS AND ELECTRIC COMPANY TO SOUTHERN CALIFORNIA GAS COMPANY

Summary

Pursuant to Section 851 of the California Public Utilities Code, this decision authorizes Pacific Gas and Electric Company to sell its local gas transmission Line 306 to Southern California Gas Company. This decision also grants in part and denies in part the proposed allocation for the gain on sale of the Line 306 assets. In addition, this decision grants the proposed ratemaking treatment for the gain on sale and the joint motion to file certain information under seal. We conclude that approval of the sale is not adverse to the public interest.

This proceeding is closed.

1. Background

1.1. Procedural Background

On April 4, 2019, as amended on June 26, 2019, Pacific Gas and Electric Company (PG&E) filed the instant application./1

The Utility Reform Network (TURN) and the Public Advocates Office (Cal Advocates) filed timely protests, and PG&E replied to the protests.

A prehearing conference (PHC) was held on June 19, 2019, to discuss the issues of law and fact, need for hearing, and schedule for resolving the matters in the proceeding. During the PHC, the assigned Administrative Law Judge (ALJ) raised the possibility of directing Southern California Gas Company (SoCalGas) to file testimony supporting its assertion regarding the need to replace Line 44-1088 and related cost data. In lieu of having SoCalGas file testimony, the parties offered to file PG&E's and SoCalGas' responses to Cal Advocates' data requests.

On July 15, 2019, the Cal Advocates, PG&E, and SoCalGas jointly filed (1) a motion to enter four data responses (Attachment A) into the record (Data Response Motion), (2) a motion to designate as confidential certain information in Attachment A (Confidential Data Motion), and (3) a notice informing the public of where to access the redacted version of Attachment A. Pursuant to the Scoping Memo and Ruling, on November 15, 2019, PG&E and SoCalGas filed a document describing the contents of the compact disks that contained the data responses, and PG&E also served testimony to address issues eight and nine of the Scoping Memo and Ruling./2

The proceeding was submitted on November 21, 2019.

1.2. Factual Background

Built in 1962, PG&E's Line 306 is an intrastate pipeline that spans approximately 70 miles from Kettleman to Morro Bay, California. PG&E constructed Line 306 primarily to serve its Morro Bay Power Plant, which was decommissioned in 2014. Currently, PG&E uses Line 306 to serve 2,400 residential customers and a prison in Avenal, and small commercial customers, including a vineyard and waste-water treatment plant. In addition, pursuant to a Master Exchange Gas Delivery Agreement (MEA) between SoCalGas and PG&E, Line 306 also serves customers in SoCalGas' service territory./3

On December 20, 2018, PG&E and SoCalGas executed a Purchase and Sale Agreement (Sale Agreement), which, among other things, provides that PG&E agrees to sell Line 306 to SoCalGas for $25 million./4

SoCalGas seeks to use Line 306 to serve customers who currently use its Line 14-1008, a 55-mile gas pipeline, which, according to SoCalGas' Commission-approved Pipeline Safety Enhancement Plan, must be replaced./5

SoCalGas asserts that the direct cost to rebuild Line 44-1088 is approximately $153 million./6

PG&E asserts that selling Line 306 to SoCalGas for $25 million would be more beneficial for ratepayers than the two alternative options: (1) continue to own and operate Line 306 and (2) abandon Line 306. PG&E compared the options by determining the net present value (NPV)/7 of cash inflows and outflows for the period of 2019-2028. Selling Line 306 yields the highest NPV cash inflow of $11.7 million. In contrast, continuing to own and operate Line 306, or abandon it, is estimated to cost ratepayers approximately $18.7 million and $25.9 million, respectively.

The sale will generate a net gain for both the depreciable and non-depreciable (e.g., land) Line 306 assets. As of December 31, 2018, the net book value of the depreciable assets for Line 306 was approximately $3.845 million; thus, the after-tax gain on the sale of those assets is approximately $15 million./8

The after-tax gain on the sale of the non-depreciable Line 306 assets is approximately $2000.

With respect to the allocation of the gain, PG&E asserts that, while D.06-05-041 requires 100 percent of the gain on sale of depreciable routine assets to be allocated to ratepayers when the after-tax gain is $10 million or less, it believes that applying this rule here is reasonable even through the instant sale will result in an after-tax gain that is higher than $10 million. For the non-depreciable property associated with Line 306, PG&E proposes to allocate 100 percent of the gain to shareholders because "[f]or non-depreciable property (land) under FERC jurisdiction, the gain on loss on sale must be allocated 100 [percent] to shareholders."/9

PG&E proposes to account for the ratepayer's share of the gain on sale in PG&E's transmission rates by reducing the authorized core and non-core local transmission revenue requirement on a pro rata basis over the 2019 rate case cycle (2019-2022). The reduction will be allocated between core and non-core customers using the currently-adopted local transmission allocation percentages. The remaining gain on sale that exists after the end of the 2019 rate case cycle will be recorded in PG&E's plant, depreciation reserve, and deferred tax accounts--all of which will be incorporated into PG&E's subsequent transmission revenue requirement./10

However, the transmission rate for Line 306 customers in PG&E's service territory will not change as it is determined by the billing terms of the MEA, which shall remain in effect after the sale has been executed./11

With respect to pipeline records for Line 306, PG&E documented a Feature List, which itemizes certain pipeline attribute data, including construction drawings, as-built records, strength tests, and purchase documents. Pursuant to PG&E's internal Utility Procedure TD-4125P-02, it stored the Feature List for Line 306 in its electronic system of record and Geographical Information System. PG&E represents that it has provided SoCalGas with all of the record information it possesses for Line 306./12

In addition, PG&E has provided SoCalGas with other information such as Cathodic Protection records, valve maintenance records, and land rights information including, rights-of way, easements, and fault crossings./13

PG&E provided the records through email, electronic data transfer protocol, compact disks, in-person meetings, and site visits./14

Full text of the decision is available at: (docs.cpuc.ca.gov/PublishedDocs/Published/G000/M330/K551/330551846.pdf)

* * *

1/ Pacific Gas and Electric Company, Application 19-04-003 (Application).

2/ PG&E's testimony is identified as Exhibit (Exh.) PG&E-1 and admitted as of the date of this decision.

3/ Application at 2 (citing Resolution G-2902).

4/ Application, Attachment B "Purchase Price and Payment" at 8.

5/ Application, Attachment E, March 26, 2019 Letter from Cedric Williams, Vice President for SoCalGas to the California Public Utilities Commission (SoCalGas Letter) at 1; see also Southern California Gas Company, Decision (D.) 14-06-007 at 24-25.

6/ Application, SoCalGas Letter at 1.

7/ NPV measures the after-tax value created by a project. Application, Attachment C at 1.

8/ Application at 4.

9/ Id. at 4.

10/ Id. at 6.

11/ Id. at 7. The MEA allows SoCalGas and PG&E to serve each other's customers using their respective transmission lines. The "[g]as exchanges under the MEA are trued-up and accounted for monthly." Application at 2.

12/ Exh. PG&E-1 at 1-2.

13/ Id. at 2-2.

14/ Id.

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