Southern California Generation Coalition v. California Public Utilities Commission

Filed 5/19/08 Southern California Generation Coalition v. California Public Utilities Commission CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

ORIGINAL PROCEEDINGS; petition for writ of review. Petition denied. Decisions affirmed.

Hanna & Morton, Norman A. Pedersen and T. Alana Steele for Petitioner.

Randolph L. Wu, Helen W. Yee and Pamela Nataloni for Respondent.

Steven C. Nelson for Real Party in Interest Sempra LNG.

Sutherland Asbill & Brennan and Rebecca Day for Real Party in Interest California Manufacturers & Technology Association.

W. Davis Smith, Lisa G. Urick, David J. Gilmore and Aimee M. Smith for Real Parties in Interest San Diego Gas & Electric Company and Southern California Gas Company.

Stephen E. Pickett, Douglas K. Porter and Gloria M. Ing for Real Party in Interest Southern California Edison Company.

Mark D. Patrizio and Keith T. Sampson for Real Party in Interest Pacific Gas and Electric Company.

__________________________________

INTRODUCTION

On March 17, 2008, this court issued a Writ of Review to consider a Decision of respondent California Public Utilities Commission (CPUC) approving a proposal by real parties in interest Southern California Gas Company (SoCalGas) and San Diego Gas & Electric Company (SDG&E) to establish a system of firm access rights (FAR) to allocate transmission capacity of natural gas from upstream pipelines through receipts points into the SoCalGas and SDG&E integrated natural gas transmission system.

The CPUC approved the FAR system in Decision 06-12-031 (D.06-12-031) on December 14, 2006. Petitioner Southern California Generation Coalition (SCGC) filed an application for a rehearing, which the CPUC denied in Decision 07-09-046 (D.07-09-046). SCGC then filed in this court a verified petition for a writ of review.

In this writ proceeding, the CPUC Decisions under consideration include D.06-12-031 and D.07-09-046. SCGC asserts that in D.06-12-031, the CPUC did not make sufficient factual findings on material issues to justify the conclusion that the time was ripe for implementing the FAR system. SCGC also asserts that the actual factual findings made by the CPUC are not supported by substantial evidence. SCGC further asserts that D.06-12-031 is impermissibly discriminatory in the manner in which it allocates the FAR system access rights, called set-asides, to various users of natural gas.

SCGC seeks an order nullifying the foregoing CPUC Decisions. Alternatively, SCGC seeks an order remanding the matter to the CPUC to make additional material factual findings and to set forth sufficient evidence to justify the findings. SCGC also seeks a stay and injunctive relief to restrain the CPUC and the real parties in interest from implementing the new system of access rights and charges.

We affirm D.06-12-031 and D.07-09-046 and dismiss the writ petition. The CPUC supported the conclusion that the time was ripe for adoption of the FAR system in Southern California with separately stated findings of fact on a number of material issues, and those findings of fact were supported by substantial evidence. In addition, the set-asides granted to some, but not all, of the customers of SoCalGas and SDG&E were reasonable under the circumstances.

PROCEDURAL AND FACTUAL BACKGROUND

1. The Parties

Petitioner SCGC is an association of gas-fired electrical generators located throughout California. The purpose of the association is to promote the interests of the electrical generators before the CPUC and other governmental bodies and agencies.

Respondent CPUC is the administrative agency charged with regulating public utilities pursuant to Article XII of the California Constitution and the Public Utilities Act.^[1]

Real Parties in Interest SoCalGas and SDG&E are public utilities within the meaning of section 216, electrical corporations within the meaning of section 218 and gas corporations within the meaning of section 222. SoCalGas and SDG&E were parties to the CPUC proceedings below.

Real party in interest Southern California Edison (SCE) is a public utility within the meaning of section 216 and an electrical corporation within the meaning of section 218. Petitioner SCGC failed to identify SCE as a real party in interest in the petition for writ review. SCE is a customer of SoCalGas and would be affected by the resolution of this matter. SCE was an active party to the CPUC proceedings below. SCE is therefore a real party in interest.

Real party in interest California Manufacturers & Technology Association (CMTA) is a trade association of manufacturing and technology companies, many of whom are customers of SoCalGas and SDG&E. CMTA was a party to the CPUC proceedings below.

Real party in interest Pacific Gas and Electric Company (PG&E) is public utility within the meaning of section 216, an electrical corporation within the meaning of section 218 and a gas corporation within the meaning of section 222. PG&E is the predominant gas and electric utility in northern and central California. PG&E was a party to the CPUC proceedings below.

Real party in interest Sempra LNG (SE LNG) is an affiliate of SoCalGas and SDG&E. SE LNG is constructing a facility in northern Mexico which is intended to deliver natural gas to California. SE LNG was a party to the CPUC proceedings below.

2. An Introduction to the Method for Delivering Natural Gas on the SoCalGas/SDG&E Transmission Pipeline System

The real parties in interest presented the following background information in their answer to the petition for writ of review. We set forth this apparently undisputed information in order to present a more thorough background of the natural gas industry in Southern California.

Natural gas is produced from wells that extract the gas from below ground surface. On one hand, some of the gas received by SoCalGas and SDG&E is delivered by gas producers located within SoCalGass service territory in California. On the other hand, some of the gas received by SoCalGas and SDG&E is delivered by pipeline companies whose pipelines are located upstream of the SoCalGas/SDG&E pipeline transmission system. The pipeline companies include interstate pipelines which are regulated by the Federal Energy Regulatory Commission (FERC). The interstate pipeline companies deliver gas across multiple state lines from producing wells located in Texas, Oklahoma, New Mexico and the Rocky Mountains. The record indicates that the pipeline companies do not necessarily produce the natural gas. In other words, there are also out-of-state and international (Canadian and Mexican) natural gas producers that ship their gas to Southern California by means of the pipelines operated by the interstate pipeline companies.

The Canadian gas is transported from Canada primarily through the pipeline system of PG&E before reaching the SoCalGas/SDG&E integrated transmission system. In addition, liquefied natural gas is also transported by ocean liner. Real party in interest SE LNG is constructing a facility in Baja California, Mexico to receive and regasify the liquefied natural gas.

SoCalGas and SDG&E physically receive the natural gas supplies from the upstream suppliers and from the California producers at receipt points, which are located within Southern California zones. The SoCalGas/SDG&E pipelines which receive natural gas are usually large-diameter, high-pressure pipelines called transmission lines. These high-pressure lines deliver natural gas to a few large-scale customers. Most of the natural gas is delivered to a storage field, such as an abandoned underground gas reservoir, or to the SoCalGas/SDG&E distribution system where the gas is then delivered to the majority of customers at lower pressures.

The capacity of the SoCalGas and SDG&E transmission lines to move gas away from the receipt points is called takeaway capacity. The point where the transmission lines connect with the smaller, lower-pressure distribution pipelines is called the citygate.

According to the CPUC in D.06-12-031, there are five transmission zones in the SoCalGas/SDG&E transmissions system. The zones are: (1) the Southern zone, (2) the Northern zone, (3) the Wheeler zone, (4) the Line 85 zone, and (5) the Coastal zone. (San Diego Gas & Elec. Co. (Cal.P.U.C., Dec. 14, 2006, Dec. No. 06-12-031) [2006 WL 3858043 at p. *5, fn. 14].) Each transmission zone has one or more receipt points.

As explained by the real parties in interest in their answer to the writ petition, and apparently undisputed by SCGC, the real parties have noncore and core customers. Specifically, noncore customers are larger customers that burn 20,800 therms of gas per month or more and generally include electric generating facilities, large manufacturing plants, and oil refineries. For noncore customers, SoCalGas and SDG&E provide only natural gas transportation service. The noncore customers purchase their own natural gas commodity and arrange for it to be delivered to the SoCalGas/SDG&E transmission system. The noncore customers frequently rely upon natural gas marketers to obtain their gas supplies.

Core customers burn less than 20,800 therms of gas per month and include residential and small commercial/industrial customers. For core customers, SoCalGas and SDG&E purchase the natural gas commodity from a gas producer or gas marketer, arrange for the gas to be delivered to the SoCalGas/SDG&E pipeline system, and transport the gas on the SoCalGas/SDG&E pipeline system to the customers premises.

3. The System of Capacity Allocation Prior to Adoption of the FAR System

In the CPUC Decision at issue in the writ proceeding, D.06-12-031, the CPUC explained the system of allocating the capacity on the SoCalGas transmission system to natural gas producers prior to the adoption of the FAR system. We quote this explanation in Appendix A, post, pages A-1 A-2, to this opinion. Here, we summarize the CPUCs description of this pre-FAR system.

The natural gas producers and pipeline companies have the ability to deliver substantially more natural gas to the SoCalGas/SDG&E integrated transmission than the utilities can receive and redeliver to their customers. In fact, the delivery capability is almost twice as large as the takeaway capacity. As new gas supply sources are created, the upstream delivery capability is expected to increase. Due to the difference between the delivery capability and the take-away capacity, problems in the delivery of natural gas can result in what the parties refer to as a mismatch or bottleneck. (San Diego Gas & Elec. Co. (Cal.P.U.C., Dec. 14, 2006, Dec. No. 06-12-031) [2006 WL 3858043 at p. *4].)

Under the system prior to FAR, SoCalGas allocates receipt point takeaway capacity to the upstream pipelines on a daily basis. The operators of the upstream pipelines then allocate the delivery capacity among its shippers using the capacity allocation rules of the upstream interstate pipelines, which have been approved by the FERC. When the shippers volumes on the pipelines exceed the physical take-away capacity of a specific receipt point, the upstream shippers contractual rights govern whose gas will flow on that particular day.^[2] (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *4].)

The process of allocating the amounts of natural gas which can be delivered into the SoCalGas/SDG&E transmission system can result in a situation where access to the SDG&E/SoCalGas system is available only on an interruptible basis. In other words, the amount of natural gas that a particular shipper can deliver into the SoCalGas/SDG&E transmission system can fluctuate from day to day. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at pp. *4-5].)

The utilities, SDG&E and SoCalGas, asserted before the CPUC that this allocation method frustrates both suppliers and end-users, creates confusion in the marketplace, and does not necessarily allow the lowest cost gas to reach the end-use markets. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *5].)

4. CPUC Considers Reforms to California Natural Gas Market Structure

In 1998, the CPUC considered and identified reforms to the natural gas market structure in California in order to foster market competition and benefit California natural gas consumers. (Regulatory Structure Governing Californias Natural Gas Industry (Cal.P.U.C., Jan. 21, 1998, 98-01-011) [1998 WL 209624].)^[3]

As a result of the foregoing rulemaking proceeding in 1999, the CPUC issued a decision identifying options for changes to the market structure of the natural gas industry in California. (Regulatory Structure Governing Californias Natural Gas Industry (Cal.P.U.C., July 8, 1999, 99-07-015) [1999 WL 699509].) There, the PUC explained: In this rulemaking proceeding, we are assessing the current market and regulatory framework for Californias natural gas industry with the goal of identifying appropriate reforms and reporting our findings to the Legislature. . . .  [] After review of the record established through the Market Conditions hearings, in the comments to the Market Conditions reports, in briefs and oral argument, and in comments on the report of the Division of Strategic Planning, we have identified the most promising options for further consideration. . . .  [] The model we seek to explore further is one that preserves the utilities traditional role of providing fully-integrated default service to core customers, while clearing obstacles to the competitive offering of gas commodity, transmission, storage, balancing and other services for all customers in the service territories of regulated local distribution companies throughout the state. We find significant benefits for consumers in retaining this overall utility structure. At the same time, the changes we propose represent significant steps toward mitigating any potential anti-competitive behavior as a result of the utilities continuing ability to offer both traditional monopoly and competitive natural gas services. (Id. at p. *6.)

In the July 8, 1999, Decision, the CPUC also explained: We would extend certain improvements recently implemented in the [PG&E] service territory to ensure that they remain in effect beyond the limits of the Gas Accord and enact similar reforms in the [SoCalGas] service territory. These improvements include the creation of tradable access rights [i.e., FAR] to transmission and storage assets and the development of a secondary market for those rights. We would build upon the PG&E model by directing the utilities to create and maintain electronic bulletin boards that enable market participants to complete secondary transactions in a timely manner. In addition, we would enable customers to have more options in balancing services by directing the utilities to offer separate balancing rates and allowing customers to elect to pay for greater or lesser imbalance tolerances. (Regulatory Structure Governing Californias Natural Gas Industry, supra, [1999 WL 699509 at p. *6].)

The CPUC invited all interested parties to submit detailed cost/benefit analyses of the various changes being proposed to the structuring of the natural gas market. The CPUC noted that a stakeholder-generated solution was preferred because those who participate in the natural gas marketplace are in the best position to understand and accommodate underlying interests. (Regulatory Structure Governing Californias Natural Gas Industry, supra, [1999 WL 699509 at p. *7].)

5. The CPUC Adopts Comprehensive Gas Settlement Agreement

On December 11, 2001, the CPUC issued Decision 01-12-018. There, the CPUC adopted the Comprehensive Gas Settlement Agreement (CSA). (Regulatory Structure Governing Californias Natural Gas Industry (Cal.P.U.C., Dec. 12, 2001, Dec. No. 01-12-018) [2001 WL 171241].) The CPUC intended the CSA to modify the regulatory and market structure for regulating the transportation and storage of natural gas on the SoCalGas and SDG&E transmissions systems. In the decision, the CPUC explained: We believe that the [CSA] will provide significant benefits to all utility customers by allowing customers access to firm tradable transmission rights on SoCalGas system. The costs associated with intrastate backbone transmission will be unbundled for noncore customers. Noncore customers will be able to acquire intrastate backbone transmission capacity through an open season or purchase gas at the citygate. The utilities retail core procurement department will continue to reserve interstate capacity, intrastate backbone transmission, and storage to meet the requirements of retail core procurement customers. These changes will provide SoCalGas (and SDG&E) customers with numerous new service choices, and the opportunity to reduce costs by avoiding services that they do not need. The availability of firm, tradable transmission rights will allow customers to place an increased reliance on longer-term firm contracts. We anticipate that this increased reliance on longer-term contracts will bring with it badly needed price stability and rate certainty to all gas customers. (Id.at p. *362.)

6. The CPUC Orders SoCalGas to File an Application to Implement the CSA, Decision 01-12-018

On June 30, 2003, SoCalGas filed Application 03-06-040 to implement the CSA. (Southern California Gas Company (Cal.P.U.C., Apr. 1, 2004, Dec. No. 04-04-015) [2004 WL 784888 at p. *1].) Following an evidentiary hearing, the CPUC issued a stay regarding implementation of the CSA. (Ibid.) The CPUC explained: Although we are staying implementation of this decision, we fully support a market structure that includes firm tradable rights. (Id.at p. *34.) Subsequently, the CPUC also ordered SoCalGas and SDG&E to file an application regarding their FAR proposals. (Order Instituting Rulemaking to Establish Policies and Rules to Ensure Reliable, Long-Term Supplies of Natural Gas to California (Cal.P.U.C., Sept. 2, 2004, Dec. No. 04-09-022) [2004 WL 2138338 at p. *48].)

7. SoCalGas and SDG&E File Application A.04-12-004 to Implement Their FAR Proposals
On December 2, 2004, SoCalGas and SDG&E filed Application No A.04-12-004. There, the utilities proposed a system for integration of the SoCalGas and SDG&E transmission systems. The utilities also proposed implementation of the FAR system. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *3].) The CPUC bifurcated the system integration proposal from the FAR proposal. The CPUC approved the proposal for system integration in a decision (D.06-04-033), which is not at issue in this writ proceeding. (Ibid.)

8. CPUC Issues Decision 06-12-031 Approving FAR System

With respect to the FAR system, the CPUC received over 100 exhibits and conducted 12 days of evidentiary hearings. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *3].)

On December 14, 2006, the CPUC issued D.06-12-031 in which the CPUC implemented the FAR proposal. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *1].) This is the decision at issue in this writ proceeding.

In D.06-12-031, the CPUC established the FAR system for southern California. The CPUC explained the FAR system generally: Using a three-step open season process, the FAR proposal would allocate access rights to the capacity at a particular receipt point to various market participants on a firm basis. All unutilized firm receipt point access capacity would be made available on an interruptible basis. SDG&E and SoCalGas contend that their FAR proposal will eliminate the unpredictable pro-rationing that occurs under the current system when the upstream pipelines allocate the available capacity on the SoCalGas system.

Under the FAR proposal, the holder of the FAR would be entitled to firm receipt point access at a particular receipt point. This allows the holder [of FAR rights] to ship its gas onto the SDG&E and SoCalGas transmission system at the specified receipt point for shipment to the specified delivery point. The following four delivery points are available under the FAR proposal: (1) to an end-user pursuant to an end-users local transportation agreement; (2) to a citygate pool account; (3) to a storage account; or (4) to a contracted marketer or core aggregator transportation account. . . .   The FAR assures the holder that its designated gas will flow to the specified delivery point.

Under the FAR proposal, the FAR holder will have first priority in scheduling nominations to the receipt point. The FAR proposal also allows the holder of the FAR to exercise the FAR at another receipt point within the same transmission zone on an alternate firm basis. In response to parties concerns, SDG&E and SoCalGas are also willing to allow the FAR to be used for out-of-zone receipt points without an additional charge, which would be scheduled after alternate firm nominations within a zone. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *5, fn. omitted].)

The utilities FAR proposal calls for a three-step open season process for the initial allocation of FAR at the existing and new receipt points. The open season process would take place every three years. . . .   [] In Step 1, the FAR proposal calls for a set-aside of FAR for retail and wholesale core customers, Core Transportation Aggregators (CTAs), holders of certain long-term contracts, and California gas producers. The Step 1 set-aside is for a period of three years.

The set-aside for retail core customers is on behalf of SoCalGas core customers and SDG&Es core customers. They would receive a FAR set-aside in Step 1 to match their qualifying upstream pipeline contracts. . . .  [] Other wholesale customers who serve core loads would have the option to elect to receive a set-aside based on their qualifying upstream interstate pipeline commitments. If the wholesale customer selects the set-aside option, the option would apply to all eligible core quantities. . . .  If the wholesale customer elects not to select this set-aside option, the customer would be responsible for deciding whether to bid for FAR in Steps 2 and 3. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *6].)

For the wholesale customers noncore customers, a wholesale customer may elect to have its noncore customers participate directly in Steps 2 and 3, or it can elect to participate in the open season process on behalf of its noncore customers requirements.

The CTAs will have the option to receive a FAR set-aside based on their qualifying upstream interstate pipeline commitments. If a CTA elects to receive the set-aside, it must do so for all eligible quantities. . . .  If the CTA elects not to receive the set-aside, or the set-aside is less than the CTAs historical demand, the CTA would be responsible for deciding whether to bid for FAR in Steps 2 and 3. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *7].)

Step 2 provides for end-use customers or their designated agents to bid in an open season for up to 75% of the capacity at each existing receipt point, minus any capacity that has been taken as a set-aside. There would be three rounds of bidding. The end-users maximum bidding rights for such capacity would be based on a base load maximum plus a monthly peaking maximum over a base period. The base load maximum is based on the customers average daily historical consumption during the base period. Customers would be awarded as much of the capacity that they requested subject to the 75% limitation and the limit of the capacity in the zone. If the capacity bid exceeds the available capacity at a particular receipt point or transmission zone, all bids would be pro-rated. In awarding receipt point access capacity in Step 2, a preference would be given to annual base load bids over monthly bids. The contract period for Step 2 capacity is for three years. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *7, fns.omitted].)

Step 3 of the FAR proposal calls for an open season for the remaining existing receipt point capacity, expansions at existing receipt points, and new receipt capacity at new receipt points at Center Road, Salt Works, North Baja Pipeline at Blythe, and Otay Mesa, or other new receipt points that become available prior to each open season cycle. Step 3 would be open to all creditworthy market participants. Participants would be allowed in a single bidding round to submit annual base load receipt point access bids. As originally proposed, the contract term for Step 3 capacity is 15 years. At the end of the term, the holder would have a right of first refusal. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *8, fn. omitted].)

After the three-step open season process is completed and SoCalGas posts the available receipt point access capacity on its electronic bulletin board (EBB), the holders of the FAR would be allowed during a two week period to re-contract any part of their FAR capacity from their designated receipt point to a different receipt point in the same transmission zone or in a different transmission zone, so long as capacity is available at the requested receipt point. At the end of the two-week period, SoCalGas will evaluate all requests for changes and grant the requests where receipt point capacity is available. If more capacity at a particular receipt point or transmission zone is requested than is available, SoCalGas will pro-rate the requests among the requesting holders.

Following the re-contracting process, SDG&E and SoCalGas propose to post all remaining firm receipt point capacity on their EBB. Any creditworthy market participant may acquire available capacity on a first-come, first-served basis for a minimum term of one month and a maximum term up to three years . . . . (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *8].)

Under the FAR proposal, all unutilized firm receipt point access capacity will be made available on an interruptible basis . . . , and will be scheduled in accordance with SoCalGas Rule 30 for interruptible capacity. SoCalGas would also have the flexibility to post the daily interruptible volumetric charge at a level below the G-RPA1 rate for all interruptible receipt point service or just for a particular receipt point. If this is done, all interruptible service used by customers at the designated receipt point on that day will be charged the reduced volumetric charge.

The FAR proposal also calls for a secondary market, utilizing an electronic trading platform on the EBB, where a FAR holder can release and sell all or a portion of its FAR, and where a creditworthy party may purchase a FAR. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *9].)

9. The CPUCs Factual and Legal Findings in Decision 06-12-031

In D.06-12-031, the CPUC made factual and legal findings. SCGC contends that certain factual findings are not supported by substantial evidence. To place the disputed factual findings in context, we quote many of the factual findings made by the CPUC, as well as those findings that SCGC challenges. SCGC asserts that factual findings 7, 9, 16, 18, 19, 20, 26, and 27 are not based upon substantial evidence, but constitute conjecture.^[4]

1. The origin of this proceeding can be traced back to R.98-01-011 wherein we considered and identified appropriate reforms to the natural gas market structure in California.

2. D.99-07-015 acknowledged that PG&Es Gas Accord market structure should be considered for SoCalGas.

3. D.01-12-018 adopted the CSA, which called for a system of firm tradable transmission rights on SoCalGas backbone transmission system, the unbundling of the backbone costs from transportation rates, and an at-risk rate structure for the recovery of the backbone transmission costs. [] . . . []

7. Due to the difference between the delivery capability of the upstream gas supplies and the take-away capacity of the receipt points on the SDG&E and SoCalGas integrated transmission system, problems in the delivery of gas can result.

8. Under the current system of allocating capacity on the SDG&E and SoCalGas transmission system: (1) end-use customers are the only ones who can transport gas; (2) SoCalGas allocates the available receipt point capacity to the upstream pipelines daily; and (3) the upstream interstate pipelines allocate the capacity among their shippers using their FERC-approved capacity allocation rules.

9. The current system of capacity allocation can result in a situation where access to the system is available only on an interruptible basis, shippers gas supplies are pro-rated, and receipt points are constrained.

10. SDG&E and SoCalGas FAR proposal would allocate access rights to the capacity at a particular receipt point on the integrated transmission system to various market participants using a three-step open season process. [] . . . []

15. The time is ripe to adopt a system of FAR for [S]outhern California.

16. The basic underlying system of firm tradable transmission rights has worked and functioned well in [N]orthern California. [] . . . []

18. Although capacity constraints have not been much of a problem during the past couple of years, that does not mean these constraint problems have gone away.

19. With the possibility of [SE LNG] supplies flowing into [S]outhern California, and other changes in the gas market, receipt point constraints may occur again at other receipt points.

20. Under the current system, end-users face uncertainty over whether their gas will flow through a constrained receipt point. [] . . . []

26. The FAR proposal will continue to provide market participants with flexible options and result in the creation of a citygate market for [S]outhern California.

27. The adoption of the FAR proposal provides certainty to FAR holders that their gas can be delivered from the receipt point to the citygate, which in turn will encourage parties to enter into long-term gas supply contracts.

28. The concerns regarding the FAR proposals complexity, increased costs, and affiliate preference are unwarranted. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *67].)

In its Conclusions of Law and order implementing D.06-12-031, the CPUC adopted the FAR system for the integrated gas transmission system of SDG&E and SoCalGas based upon the likelihood that the constraint problems which have occurred in the past are likely to occur again, and based upon the conclusion that long-term contacts should be encouraged as a matter of public policy. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at pp. *67-69].)

Notably, the CPUC also ordered that [a] review process of the FAR system will be conducted to assess how the FAR system is working, and whether any changes or modifications to the FAR system are needed. ( San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *68].)

10. PUC Denies Application for Rehearing

On September 27, 2007, the PUC issued Decision 07-09-046, modifying Decision 06-12-031 and SCGCs application for rehearing of Decision 06-12-031. SCGC then filed with this court a verified petition for writ of review.

CONTENTIONS

SCGC contends: (1) the CPUC did not make sufficient separate findings of fact resolving the material issues to support the ultimate finding that the FAR system was necessary and placed consumers in as good or better position than under the current system of capacity allocation; (2) the actual factual findings made by the CPUC are not supported by substantial evidence; and (3) the CPUC violated SCGCs rights by allegedly granting individual capacity set-asides on an ad hoc basis, which was discriminatory. SCGC asserts that the CPUC failed to explain the bases for determining which customers should receive set-asides and the difference in the amount of the set-asides depending upon the type of customer.

STANDARD OF REVIEW

Pursuant to section 1756, subdivision (a), this court has jurisdiction to review CPUC decisions.^[5] (Southern Cal. Edison Co. v. Public Utilities Comm. (2005) 128 Cal.App.4th 1, 9.) Section 1705 provides that CPUC decisions shall contain, separately stated, findings of fact and conclusions of law by the [CPUC] on all issues material to the order or decision.

Section 1757 governs judicial review of the [CPUC] decisions. Pursuant to section 1757, subdivision (a), review by this court shall not extend further than to determine, on the basis of the entire record which shall be certified by the [CPUC], whether any of the following occurred: [] (1) The [CPUC] acted without, or in excess of, its powers or jurisdiction. [] (2) The [CPUC] has not proceeded in the manner required by law. [] (3) The decision of the [CPUC] is not supported by the findings. [] (4) The findings in the decision of the [CPUC] are not supported by substantial evidence in light of the whole record. [] (5) The order or decision of the [CPUC] was procured by fraud or was an abuse of discretion. [] (6) The order or decision of the [CPUC] violates any right of the petitioner under the Constitution of the United States or the California Constitution.

Pursuant to section 1757, subdivision (b), this court is prohibited from holding a trial de novo, taking evidence (other than as specified by the California Rules of Court), or exercising its independent judgment on the evidence. Moreover, CPUC factual findings are not open to attack for insufficiency of the evidence if they are supported by any reasonable construction of the evidence. (Toward Utility Rate Normalization v. Public Utilities Com. (1978) 22 Cal.3d 529, 537-538.)

In addition, the CPUC is not an ordinary administrative body, but a constitutional body with broad legislative and judicial powers. (Wise v. Pacific Gas & Electric Co. (1999) 77 Cal.App.4th 287, 300.) CPUC decisions are presumed valid. (Greyhound Lines, Inc v. Public Utilities Com. (1968) 68 Cal.2d 406, 410-411.) The CPUCs interpretation of the Public Utilities Code is not to be disturbed unless the interpretation fails to bear a reasonable relation to statutory purposes and language. (Ibid.)

DISCUSSION

1. The CPUC Complied With Section 1705

Section 1705 requires that CPUC decisions shall contain, separately stated, findings of fact and conclusions of law by the [CPUC] on all issues material to the order or decision. Although the CPUC has discretion to determine which factors are relevant to a particular decision, the CPUC must state those factors and make findings on the material issues that ensue from those factors. (California Motor Transport Co. v. Public Utilities Com. (1963) 59 Cal.2d 270, 275.) The separately stated findings of fact and conclusions of law afford a rational basis for judicial review and assist the reviewing court to ascertain the principles relied upon by the commission and to determine whether it acted arbitrarily, as well as assist parties to know why the case was lost and to prepare for rehearing or review, assist others planning activities involving similar questions, and serve to help the [CPUC] avoid careless or arbitrary action. (Greyhound Lines, Inc. v. Public Utilities Com. (1967) 65 Cal.2d 811, 813.) Notably, [e]very issue that must be resolved to reach that ultimate finding is material to the order or decision. Statutes like section 1705 have been held to require findings of the basic facts upon which the ultimate finding is based. (California Motor Transport Co. v. Public Utilities Com., supra, at p. 273.)

Finding of Fact No. 15

In this proceeding, SCGC contends that D.01-12-031 violates section 1705 because the CPUC purportedly did not make basic findings to support its ultimate determination in factual finding No. 15 that [t]he time is ripe to adopt a system of FAR for [S]outhern California. (San Diego Gas & Elec. Co., supra, [2006 WL 3858043 at p. *67].) SCGC asserts that D.01-12-031 is therefore invalid under the rationales of California Motor Transport Co. v. Public Utilities Com. (1963) 59 Cal.2d 270, Greyhound Lines, Inc v. Public Utilities Com. (1968) 65 Cal.2d 811, and California Manufacturers Assn. v. Public Utilities Com. (1979) 24 Cal.3d 251. We disagree and conclude that the CPUC made sufficient findings on the issues material to the decision.

In California Motor Transport Co. v. Public Utilities Com., supra, 59 Cal.2d 270, a trucking company applied for a certificate of public convenience to extend its operating authority as a highway common carrier. (Id. at p. 271.) The CPUC approved the application upon a single finding of public convenience and necessity. (Ibid.) The Supreme Court ruled that this single finding on the ultimate issue was insufficient and did not comply with section 1705. The court explained that the CPUC decision did not set forth or resolve the basic facts upon which the ultimate finding was based. (California Motor Transport Co. v. Public Utilities Com., supra, at p. 273.) The court explained that the ultimate finding of public convenience and necessity was so general that, without more, a reviewing court would have to guess as to how the decision was reached. (Id. at p. 274.) In addition, such a general finding did not permit the opposing parties to prepare for review or have the satisfaction of knowing why they lost. (Ibid.) Finally, the court explained that [t]here is no assurance that an administrative agency has made a reasoned analysis if it need state only the ultimate finding of public convenience and necessity. (Id. at p. 275.)

In Greyhound Lines, Inc v. Public Utilities Com., supra, 65 Cal.2d 811, the CPUC issued an order directing Greyhound to institute peak-hour commutation service between certain cities. (Id. at p. 812.) The CPUC based this order upon the finding that  [t]he public interest requires the establishment  of the service. (Id. at p. 813.) The Supreme Court concluded: The ultimate finding of public interest, like that of public convenience and necessity, does not meet the requirement of section 1705. (Ibid.) The Supreme Court annulled the order for failure to comply with section 1705. (Greyhound Lines, Inc v. Public Utilities Com., supra, at p. 813.)

In California Manufacturers Assn. v. Public Utilities Com., supra, 24 Cal.3d 251, the CPUC granted rate increases to SoCalGas and SDG&E, which sought the increases to off-set the rising price of natural gas. (Id at pp. 254-255.) The CPUC established a five-tier inverted rate design for residential service for the summer, providing that high priority nonresidential usage would be charged at the highest residential tier and that low priority or interruptible users would be charged one cent per therm more. The commission stated the rate for interruptible customers was closer to the cost of alternate fuels and will serve as a signal . . . that the hard realities of gas supply and increasing prices are close at hand. Steps by low priority users to convert to alternate fuels must be taken. The commission found the rates fixed reasonable, making them effective immediately. (Id. at pp. 255-256, fns. omitted.) The petitioners there challenged the CPUCs method of allocating the increases among the utility users. (Id. at p. 255.)

The Supreme Court held that the CPUC findings did not comply with section 1705. (California Manufacturers Assn. v. Public Utilities Com., supra, 24 Cal.3d at p. 259.) The Court explained: The findings on the material issues are insufficient to justify the rate spread adopted. While the [CPUCs] asserted justification for changing its method of spreading rate increase is conservation of natural gas resources, neither finding nor evidence exists showing the method adopted will result in conserving more natural gas than would other proposed methods. [] For all that appears in the record before us, the pro rata approaches suggested by the utilities or one of the plans urged by the staff might accomplish less gas usage than results from the rates adopted by the commission. As we have seen, a utilitys revenue requirement is determined by its costs, rate base, and rate of return. In allocating the revenue requirement among several groups of gas users, it is obvious that if an increase is made in the revenue requirement from one, a decrease necessarily follows in the revenue requirement allocable to others. []  . . .  Without some expert testimony or empirical data reflecting elasticity of need and demand for the various groups, it cannot be determined which plan will result in least usage. [] For example, the rate spread adopted by the [CPUC] when compared to the pro rata approaches suggested by the utilities results in higher rates for nonresidential users but lower rates for residential users. The [CPUCs] plan provides a greater incentive to conserve for nonresidential users than the other plans but lesser incentives for residential users. However, in absence of any evidence as to elasticity of demand, it is impossible to determine which plan is likely to result in least usage. Under the [CPUCs] plan when compared to others, reduced consumption by nonresidential consumers may be more than offset by the consumption of residential consumers. (Id. at pp. 259 -260.)

In the present proceeding, SCGC asserts that D.06-12-031 violates section 1705 because the CPUC did not make findings on certain material issues to justify what SCGC considers a fundamental change of the nature of transmission rights of natural gas set forth in finding of fact No. 15, namely, that the time was ripe to adopt a FAR system in Southern California.

Notably, in its writ petition, SCGC does not identify what additional material factual findings were absent from D.06-12-031. Instead, SCGC asserts: The [CPUC] mischaracterizes the reliability of access to the SoCalGas system and erroneously contends that because access rights schemes of one sort or another have been considered for SoCalGas and SDG&E over the past nine years, now is the time to adopt a FAR system. The [CPUC] erroneously contends that there is currently no citygate market in [S]outhern California and erroneously concludes that because the PG&E FAR-type system is working fine, a FAR system should be adopted for SoCalGas.^[6]

We reject SCGCs assertion that D.06-12-031 violates section 1705. This case is not analogous to California Motor Transport Co. v. Public Utilities Com., supra, 59 Cal.2d 270 or Greyhound Lines, Inc v. Public Utilities Com., supra, 65 Cal.2d 811 in which the CPUC made only the single finding that the changes are issue were in the public interest. In addition, this case is not analogous to California Manufacturers Assn. v. Public Utilities Com., supra, 24 Cal.3d 251. In that case, there is no indication that the CPUC made the same level of detailed findings as in the present case. Moreover, the Supreme Court in the California Manufacturers Assn. was addressing both the sufficiency of the findings and whether the findings were supported by substantial evidence. The court stated: [N]either finding nor evidence exists showing the method adopted will result in conserving more natural gas than would other proposed methods. (California Manufacturers Assn. v. Public Utilities Com., supra, 24 Cal.3d at p. 259, italics added.)

Here, by contrast, the CPUCs findings are detailed and address the material issues leading to the decision to implement the FAR system in Southern California. In fact, the findings show that the CPUC concluded:

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