Attached please find, in ASCII text format, the Rebuttal Testimony of R. 
Thomas Beach on behalf of the Indicated Electric Generators.

Please contact me if you have any questions.

Christa Goldblatt
Office Manager
Crossborder Energy
christag@crossborderenergy.com
510-649-9790
"There is hope, but not for us."  -- Franz Kafka
 - att1.htm

                                                   Exhibit No. 18

              BEFORE THE PUBLIC UTILITIES COMMISSION
                    OF THE STATE OF CALIFORNIA



Investigation on the Commission's Own Motion to        )
Consider the Costs and Benefits of Various Promising   )
Revisions to the Regulatory and Market Structure       )    I. 99-07-003
Governing California's Natural Gas Industry and to          )
Report to the California Legislature on the            )
Commission's Findings.                       )
                                        )







             REBUTTAL TESTIMONY OF R. THOMAS BEACH
           ON BEHALF OF INDICATED ELECTRIC GENERATORS
                         IN SUPPORT OF
            THE COMPREHENSIVE SETTLEMENT AGREEMENT







                                   R. Thomas Beach
                                     Principal
                                   Crossborder Energy
                                   2560 Ninth Street, Suite 316
                                   Berkeley, California 94710
                                   Telephone: 510-649-9790
                                   Facsimile: 510-649-9793
                                   E-mail: tomb@crossborderenergy.com

                                   On behalf of
                                   Indicated Electric Generators

May 5, 2000,                          Subject Index



INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .1

SCGC / TURN EXAGGERATE THE DIFFERENCES BETWEEN THE PG&E AND
     SOCALGAS SYSTEMS. . . . . . . . . . . . . . . . . . . . . .2
     The Commission Should Focus on a Statewide, Consistent Structure for the 
Gas Utilities
          Moving Forward, Not on Whether PG&E and SoCalGas Have Had Similar
          Problems in the Past . . . . . . . . . . . . . . . . .2
     SoCalGas' Backbone System Serves the Same Function as PG&E's, and Can Be
          Unbundled in a Manner Similar to the PG&E Gas Accord .3
     The Benefits of the Gas Accord's City-Gate Market Have Been Substantial 
for Electric
          Generators . . . . . . . . . . . . . . . . . . . . . .3
     Customers Have Not Had to Hold Capacity or Pay Demand Charges to Realize 
These
          Benefits . . . . . . . . . . . . . . . . . . . . . . .4

SCGC'S AND TURN'S COST / BENEFIT ANALYSIS OF TRANSMISSION UNBUNDLING
     IGNORES THE BENEFITS AND OVERSTATES THE COSTS . . . . . . .4
     SCGC / TURN Fail to Recognize the Benefits of Transmission Unbundling4
          Unbundling will provide competitive benefits in the city-gate 
market4
          The Comprehensive Settlement reduces rates for EG customers6
          The Comprehensive Settlement reduces risks for EG customers6
     SCGC / TURN Greatly Overstate the Impact of Demand Charges.7
,              BEFORE THE PUBLIC UTILITIES COMMISSION
                    OF THE STATE OF CALIFORNIA

Investigation on the Commission's Own Motion to        )
Consider the Costs and Benefits of Various Promising   )
Revisions to the Regulatory and Market Structure       )    I. 99-07-003
Governing California's Natural Gas Industry and to          )
Report to the California Legislature on the            )
Commission's Findings.                       )
                                        )


             REBUTTAL TESTIMONY OF R. THOMAS BEACH
           ON BEHALF OF INDICATED ELECTRIC GENERATORS
                         IN SUPPORT OF
            THE COMPREHENSIVE SETTLEMENT AGREEMENT

     My name is R. Thomas Beach. I am principal consultant with the firm 
Crossborder
Energy. My business address is 2560 Ninth Street, Suite 316, Berkeley, 
California 94710.  My
experience and qualifications are described in Attachment RTB-1 to the direct 
testimony that I
served in this proceeding on May 4, 2000.


I.   INTRODUCTION

     This rebuttal testimony responds to the direct testimony of the Southern 
California
Generation Coalition (SCGC) and The Utility Reform Network (TURN) in support 
of their "Post-
Interim Settlement Agreement" (PISA), which was submitted to the Commission 
on April 3,
2000.  The sponsors of this rebuttal testimony include past, present, and 
future electric generation
customers of the Southern California Gas Company (SoCalGas) and San Diego Gas 
and Electric
(SDG&E).  The sponsors of this testimony are all signatories to and 
supporters of the
Comprehensive Settlement Agreement that over 20 parties filed on April 17, 
2000.  For the
reasons set forth below, the sponsors of this testimony do not support the 
SCGC / TURN PISA
to the extent that it fails to unbundle intrastate transmission, a step that 
is one of "the most
promising options" that the Commission has identified for the restructuring 
of the SoCalGas
system.  I recommend, instead, that the Commission adopt the Comprehensive 
Settlement
Agreement, which moves forward on all of the Commission's "most promising 
options," including
unbundling intrastate transmission.  The Comprehensive Settlement Agreement 
enjoys broad
support from the full range of stakeholder interests in the southern 
California gas market.


II.  SCGC / TURN EXAGGERATE THE DIFFERENCES BETWEEN THE PG&E
     AND SOCALGAS SYSTEMS.

     In D. 99-07-015, at page 14, the Commission identified the creation of a 
system of firm,
tradeable intrastate transmission rights as one of its "most promising 
options" for the further
restructuring of the SoCalGas system.  A significant element in that 
determination was the
Commission's desire to follow the model of the PG&E Gas Accord, and thus to 
encourage
statewide consistency in its gas restructuring program.  The SCGC / TURN PISA 
now asks the
Commission to re-consider that finding, and to defer any further unbundling 
of intrastate
transmission service on the SoCalGas system.  In support of that aspect of 
the PISA, the
witnesses for SCGC / TURN testify (1) that the unbundled transmission system 
adopted for
PG&E under the Gas Accord responded to a unique set of problems that have not 
been present in
southern California, (2) that there are significant structural and 
operational differences between
the PG&E and SoCalGas systems, and (3) that the Gas Accord structure has not 
benefitted end-
use customers in northern California.  None of these assertions are correct.

     A.   The Commission Should Focus on a Statewide, Consistent Structure 
for the
          Gas Utilities Moving Forward, Not on Whether PG&E and SoCalGas Have
          Had Similar Problems in the Past.

     SCGC / TURN witness Mr. Florio describes at length the problems that led 
to the
adoption on transmission unbundling for PG&E in the Gas Accord settlement.  
He views PG&E's
difficulties as far more extensive than those that SoCalGas now faces, thus 
justifying more
"extreme measures" such as the unbundling of intrastate transmission.  SCGC / 
TURN Testimony,
at Section 2.1.1.2.

     In my view, both PG&E and SoCalGas have faced the same types of 
problems, even if the
economic distortions on the PG&E system have been greater.  On both systems, 
shippers have not
had a system of firm capacity rights, allocated by non-discriminatory, open 
access procedures, to
govern who had access to what receipt point.  On the PG&E system, the attempt 
to discriminate
against PGT Expansion volumes that sought to use PG&E's Line 400 resulted in 
the "crossover"
problems at Malin.  Similarly, SoCalGas' "windowing" procedures have not 
provided firm, non-
discriminatory access at SoCalGas' receipt points.  "Windowing" has 
restricted the access of
competitive gas supplies to receipt points such as Wheeler Ridge, just as the 
"crossover ban"
limited the competition to sell gas at Malin onto PG&E's Line 400.

     Furthermore, SoCalGas has also faced the same sort of "conflict of 
interest" charges as
PG&E.  SoCalGas' core procurement department has been criticized for 
monopolizing the Hector
Road receipt point, to the benefit of SoCalGas' shareholders through the Gas 
Cost Incentive
Mechanism.  See D. 99-07-015, at pages 15 - 18.

     However, the Commission should not decide the future structure for 
California's gas
industry on the basis of whether SoCalGas' past problems have resembled 
PG&E's past
difficulties. For electric generators, what is important is that the 
structures that the Commission
adopts in both parts of the state should solve these problems and should be 
consistent on a
statewide basis.  The new electric market is a statewide market.  There are 
already at least two
merchant electric generators (Dynegy and Duke) and a number of QF projects 
under common
ownership that operate in more than one gas utility service territory.  
Another merchant plant
developer (Calpine) has made no secret of its intent to operate plants 
statewide.  This trend
promises to increase competition in the electric market.  To encourage this 
trend, the Commission
should focus on carrying through on D. 99-07-015's promise to increase the 
statewide consistency
of California's natural gas restructuring program.  The unbundling of 
intrastate transmission was a
key element of the PG&E Gas Accord, and should be a foundation of the further 
restructuring of
the SoCalGas system, as well.

     B.   SoCalGas' Backbone System Serves the Same Function as PG&E's, and 
Can
          Be Unbundled in a Manner Similar to the PG&E Gas Accord.

     Mr. Florio claims that the "network" nature of the SoCalGas system 
argues against
following the Gas Accord model for unbundling backbone transmission service 
for SoCalGas.
Yet Mr. Florio concedes that SoCalGas' mainline facilities that extend from 
the Los Angeles basin
to the interstate pipelines on the California / Arizona border do resemble 
interstate pipelines.
SCGC / TURN, at Section 2.1.1.3. SoCalGas' lines running north from the L.A. 
Basin to the
Wheeler Ridge interconnects also are clearly backbone facilities similar to 
PG&E's.  With respect
to local transmission, SoCalGas' network of local transmission lines inside 
the L.A. Basin is
similar to PG&E's network of local transmission lines in its load centers in 
the Bay Area and
Central Valley.  Indeed, both the PG&E and SoCalGas systems can be considered 
to be "spokes"
of backbone lines transporting gas from the interstate pipeline receipt 
points to "hubs" of
networked local transmission facilities.  The two systems differ in the 
length and number of the
"spokes" (SoCalGas' are shorter and more numerous), but operationally these 
components serve
the same function.  In my view, there is just as strong an operational basis 
for unbundling
SoCalGas' backbone and local transmission facilities and services as there 
was for unbundling
PG&E's.

     C.   The Benefits of the Gas Accord's City-Gate Market Have Been 
Substantial
          for Electric Generators.

     Mr. Weil downplays the benefits that the Gas Accord has produced through 
competition
among suppliers in the PG&E city-gate market that the Gas Accord created.  
First, he appears to
cite the existing data as showing "average benefits of around 2 cents or more 
per MMcf/d."
SCGC / TURN, at Section 2.2.2. As cited in my direct testimony, the actual 
benefits have been
more than 2 cents per mmcf/d   $0.03 to $0.08 per Dth.  Mr. Weil opines that 
such savings are
not significant for core customers.  Ibid., at Section 2.2.2. Regardless of 
whether one agrees with
him, such competitive reductions in transportation costs are very important 
for electric
generators, whose total transportation rate is likely to be roughly $0.35 per 
Dth, and who, as Ms.
Yap states, "sell into a highly competitive PX market."  SCGC / TURN, at 
Section 2.4.1. For an
electric generator, a 10 to 20% reduction in gas transportation charges is 
well worth pursuing, as
shown by SCGC's active participation on SoCalGas BCAP issues that would lower 
SoCalGas'
EG rates by far smaller amounts.

     D.   Customers Have Not Had to Hold Capacity or Pay Demand Charges to
          Realize These Benefits.

     Mr. Weil also asserts that the fact that relatively few end use 
customers hold backbone
transmission capacity on the PG&E system shows that unbundling under the Gas 
Accord has not
benefitted customers.  He opines that this is due to the high transaction 
costs associated with
holding capacity.  SCGC / TURN, at Section 2.2.3. Ms. Yap also describes at 
length how the
transaction costs associated with managing transmission capacity tends to 
force end users to buy
from marketers.  Ibid., Section 2.3.1. She concludes that unbundling has been 
"great for
marketers" but "not good for customers."  Ibid., at Section 2.3.1.

     This testimony ignores the fact that marketers do not exist independent 
of their customers.
If a marketer's services do not add value for the customer, then that 
marketer will not remain in
business for long. Under the Gas Accord, most noncore end users in northern 
California have
been buying gas from marketers in the PG&E city-gate market.  However, the 
available data on
PG&E city-gate gas prices   discussed above   show that end users have 
realized significant
savings from these purchases, compared to the option of buying gas at the 
California border and
managing their own transportation to the city-gate.  These city-gate 
purchases have not involved
paying demand charges or incurring transaction costs associated with managing 
capacity.
Competition among marketers has assured that customers benefit from 
marketers' efficiencies in
managing transportation costs.



III. SCGC'S AND TURN'S COST / BENEFIT ANALYSIS OF TRANSMISSION
     UNBUNDLING IGNORES THE BENEFITS AND OVERSTATES THE COSTS.

     SCGC and TURN attempt to present a cost / benefit analysis of 
transmission unbundling,
largely through the testimony of Ms. Yap, in an effort to show that the costs 
outweigh the
benefits.  Ms. Yap ignores several significant benefits from unbundling, 
greatly exaggerates the
possible costs, and presents unsubstantiated assertions about the impacts of 
unbundling on
generators in the Los Angeles basin.

     A.   SCGC / TURN Fail to Recognize the Benefits of Transmission 
Unbundling.

          1.   Unbundling will provide competitive benefits in the city-gate 
market.

     The experience with transmission unbundling under the PG&E Gas Accord has
demonstrated that end use customers realize competitive benefits from the 
creation of a city-gate
market.  The city-gate market moves gas-to-gas competition between suppliers 
closer to the
customer, and allows the customer to avoid risks associated with paying 
demand charges or
managing backbone transportation. Those customers who believe they can 
achieve greater profits
by managing their own transportation have that option, and since not all 
transportation rights on
the PG&E system are held by marketers, it is obvious that such customers do 
exist.

     Mr. Weil doubts that the city-gate benefits seen on the PG&E system will 
materialize, due
to "Southwest supply dominance" at SoCalGas receipt points.  SCGC / TURN, at 
Section 2.2.2. Presumably this refers to the fact that gas prices tend to 
trade within a narrow range of a few
cents per Dth at all of the receipt points into the SoCalGas system.  Ibid., 
at Section 2.3.1. The
price differentials at the SoCalGas receipt points are much lower than the 
significant price
differentials that have existed between Topock, Arizona, and Malin, Oregon, 
the two major
receipt points into the PG&E system.  However, recently the Malin / Topock 
price difference has
been due almost entirely to the $0.10 to $0.12 per Dth transportation rate 
differential between
PG&E's Redwood and Baja paths.  Over the most recent year for which data is 
available, Malin
prices have been essentially equivalent to Topock prices, when adjusted for 
the downstream
transportation rate differences.  This integration of the Malin and Topock 
markets has been the
result of rising Canadian prices relative to U.S. markets, which has produced 
a competitive
equilibrium between Canadian and domestic supplies serving northern 
California.  Yet over this
year the benefits of PG&E city-gate purchases has actually increased, even 
though there was very
little difference between Malin and Topock prices delivered to the end user.  
From May 1999
through April 2000, PG&E city-gate prices have been $0.05 per Dth to $0.11 
per Dth lower than
the comparable cost of border purchases plus PG&E's full backbone 
transportation rates.  This
data is summarized in my Table 1.  Contrary to the SCGC / TURN testimony, 
this recent
experience suggests that the price benefits from competition at a new 
SoCalGas city-gate may be
just as large as those actually observed on the PG&E system.

Table 1

Natural Gas Market (May-99 through Apr-00)   $/MMBtu

Gas Prices
                             Malin
                             Topock
                         PG&E City-gate


California Border:
                              2.44
                              2.56



City-gate Market:


                              2.71








PG&E Transportation:
                            Redwood
                              Baja



                                                          Firm:
                                                           0.32
                                                           0.22



                                                  As-Available:
                                                           0.38
                                                           0.26









Price of Border
Purchases at City-gate





Firm:
2.76
2.78



As-Available:
2.82
2.82









Benefits of City-gate overBorder Purchases





Firm:
0.05
0.07



As-Available:
0.11
0.11


Data Source: Natural Gas Intelligence
              2.    The Comprehensive Settlement reduces rates for EG 
customers.

          Transmission unbundling, as proposed in the Comprehensive 
Settlement, will result in a
modest reduction in transportation rates for electric generators.  My direct 
testimony discussed
how transmission unbundling under the Comprehensive Settlement will reduce EG 
rates by $3
million per year in 2002, or about $0.01 per Dth, compared to the SoCalGas 
rates adopted in the
recent BCAP decision, D. 00-04-060.  In addition, the Comprehensive 
Settlement unbundles
transmission rates on an embedded cost basis, removing roughly half of the EG 
rate from
SoCalGas' complex, contentious long-run marginal cost rate design.  This will 
enhance the
certainty and stability of SoCalGas' EG rate   a particularly important 
factor to EG customers
that may seek to build new gas-fired capacity on the SoCalGas system.

              3.    The Comprehensive Settlement reduces risks for EG 
customers.

          Ms. Yap comments at length on how "if a generator's fundamental 
risk increases, investors
demand more net income from the operation to compensate them for that 
increased level of risk."
SCGC / TURN, at Section 2.4.3.  In my view, the Comprehensive Settlement 
reduces a number
of important risks for electric generators, compared to the SCGC / TURN PISA, 
as follows:

0         SoCalGas shareholders will assume 100% risk for the recovery of 
unbundled backbone
          transmission costs.  This protects electric generation customers 
from bearing higher
          backbone transmission costs if SoCalGas discounts backbone rates or 
if declining
          throughput leads to reduced backbone transmission revenues.

0         The Comprehensive Settlement prices transmission services on an 
embedded cost basis
          through August, 2006.  This removes the calculation and allocation 
of marginal transmission
          costs as an issue in the next SoCalGas BCAP case.

0         The Comprehensive Settlement uses a defined 79% load factor to 
price backbone
          transmission service through the term of the settlement.  This 
removes the risk that declining
          throughput on the SoCalGas system could raise backbone transmission 
rates in the next
          SoCalGas BCAP case.

0         The Comprehensive Settlement reduces customers' risk for revenues 
from unbundled
          storage services to 25% in the second year (beginning in April, 
2002), while the SCGC /
          TURN PISA maintains the 50% risk adopted in D. 00-04-060 through 
2002.

0         The Comprehensive Settlement unbundles SoCalGas' transmission, 
storage, and balancing
          services.  This will offer electric generators a number of new 
opportunities to reduce their
          costs, including (1) city-gate gas purchases, (2) self-balancing or 
competitive balancing
          services, and (3) new, competitive storage services.  In my 
opinion, these opportunities
          reduce the risk that generators in the Los Angeles Basin will be 
caught in a "price squeeze"
          between their gas costs and their electric revenues, because they 
will have more ways in
          which to reduce their gas costs.

          B.  SCGC / TURN Greatly Overstate the Impact of Demand Charges.

          The use of demand charges for backbone transmission service appears 
to be the focal point
of SCGC / TURN's opposition to transmission unbundling.  Throughout their 
testimony, SCGC /
TURN overstate the impact of demand charges:

0         Ms. Yap's Figure 1, showing the impact of a customer's load factor 
on its average
          transportation rate, assumes that the customer's entire rate is 
collected in a demand charge.
          SCGC / TURN, at Section 2.4.1. She fails to note that the demand 
charge for firm backbone
          transmission under the Comprehensive Settlement will be only about 
22% of the total EG
          rate under the SFV rate option, and just 12% of the rate under the 
alternative backbone rate
          with a 50% demand component.

0         Ms. Yap presents the results of "a study of more than half of the 
generators in the Los
          Angeles basin" that purports to show that "SFV-style" demand 
charges could increase
          annual fixed costs by "as much as 20 percent."  SCGC / TURN, at 
Section 2.4.2. I have
          examined the workpapers for this study, obtained in by Southern 
California Edison in
          discovery, and it is based on wholly unrealistic assumptions for 
how generators will buy gas
          under the Comprehensive Settlement.  First, the study assumes that 
each generator will
          contract at the SFV rate proposed in the Comprehensive Settlement 
for a quantity of firm
          backbone capacity based on the generator's theoretical maximum gas 
use in a day (that
          is, its generating capacity in MW, times its average heat rate, 
times 24 hours).  Apparently,
          this assumption is made regardless of whether the plant has 
actually ever used that much gas
          in a single day.  The plants studied are mostly intermediate-load 
or peaking units, and almost
          certainly never operate at anything approaching full capacity for 
all 24 hours of a day.  As a
          result of this assumption, the plants studied are assumed to 
contract for 1,426 MDth per day
          of backbone capacity.  According to the study, these units 
represent 43% (i.e. less than one-
          half) of the gas-fired capacity in the Los Angeles Basin.  If all 
generators in the basin
          contracted for capacity in this way, electric generators alone 
would demand 3,316 MDth per
          day of capacity, or 93% of SoCalGas' total receipt point capacity!  
There is obviously no
          such demand today for firm service to electric generators on the 
SoCalGas system.  Second,
          the study assumes that the generators will make no effort to 
broker, release, or sell the
          massive amount of excess capacity that they have bought and will 
derive no revenues from
          such off-peak capacity sales.

          Thus, the study's dire picture of the impact of demand charges on 
low-load factor
     generators assumes that such generators massively over-contract for 
capacity, and fail to
     take advantage of the numerous means available under the Comprehensive 
Settlement to
     reduce or eliminate their demand charge risks:

          The Comprehensive Settlement offers an optional backbone rate with 
a 50% demand
          charge that almost halves the demand charge risk, but offers the 
same firm priority as the
          SFV demand charge.

          Under the comprehensive settlement, interruptible service at 
volumetric rates is always
          available at no more than a 20% premium over firm backbone rates, 
and may even be
          available at less than the firm backbone rates, particularly during 
low-demand periods.
          With a backbone rate of $0.0719 per Dth, this premium is no more 
than $0.0144 per Dth.
          Ms. Yap observes (in Section 2.3.1) that the interstate pipelines 
supplying SoCalGas have
          at least 1,000 MMcf/d (or 30%) more capacity than SoCalGas' 
intrastate system.  She
          does not recognize that SoCalGas' backbone system also has more 
than 900 MMcf/d of
          excess capacity, plus substantial excess storage capacity.  Due to 
this excess intrastate
          capacity, it is difficult to imagine a scenario, for the 
foreseeable future, in which a low-
          load factor generator would ever have to pay more than the maximum 
interruptible rate
          for "virtually firm" backbone service.

          I have re-calculated the results of the SCGC / TURN study, under 
the assumption that
          generators in the Los Angeles basin take interruptible service, in 
order to avoid demand
          charges, at the full $0.0144 per Dth premium for interruptible 
service.  In this case, the
          generators' annual fixed costs increase by just six-tenths of one 
percent (0.6%).  In
          reality, I expect that interruptible or released firm service will 
be available for much of the
          year at all-volumetric rates that are much less than the maximum 
interruptible rate.

          The Comprehensive Settlement will establish an active market for 
the trading of
          backbone capacity on the SoCalGas system.  This will provide a 
means for electric
          generators to rationalize their holdings of intrastate capacity, 
and may be a source of firm
          capacity at volumetric rates.  Again, the SCGC / TURN study of the 
impact of demand
          charges assumes that generators do not use this secondary market.

          Ms. Yap fails to recognize that low-load factor generators will be 
able to avoid paying
          demand charges (and save money on intrastate transportation, as 
well) by buying gas in
          the city-gate market.  Ms. Yap's primary concern with the city-gate 
market appears to
          be the fear that marketers will be able to charge a significant 
premium for city-gate sales
          during periods of capacity constraints.  SCGC / TURN, at Section 
2.3.1. Ms. Yap's
          testimony fails to explain her assertion that the city-gate market 
could become a
          "bottleneck" on the SoCalGas system.  Upstream of the city-gate 
market, SoCalGas will
          have over 900 MMcf/d of excess backbone capacity, plus significant 
amounts of unused
          storage capacity.

          Ms. Yap's "bottlenecks" and marketer-manipulated high prices have 
not materialized in
          two years' of experience with the PG&E city-gate market, even 
though PG&E has less
          excess transmission capacity and far less storage capacity than 
SoCalGas.   PG&E city-
          gate prices did experience one brief spike, due to very high demand 
during the cold snap
          just prior to Christmas in 1998, but on average PG&E city-gate 
prices have provided
          significant benefits to end users, compared to purchases at the 
California border.  In
          addition, the data that Mr. Weil cites on the parties holding 
capacity on the PG&E system
          shows that 75 parties hold capacity on the Redwood path alone, and 
does not suggest any
          undue concentration of capacity holdings on the PG&E backbone 
system.  Ibid., Table 1,
          Section 2.2.3.

          Furthermore, the Comprehensive Settlement has numerous provisions 
to ensure that any
          one marketer will be unlikely to accumulate a dominant share of 
capacity to the SoCalGas
          city-gate market.  First, noncore end use customers will have the 
initial two open seasons
          in which to subscribe to up to 50% of the available backbone 
capacity, without
          competition from marketers.  This should ensure that end users that 
are interested in
          holding capacity will be able to acquire the capacity that they 
desire, and is likely to lead
          to an even greater number of holders of capacity than resulted from 
the Gas Accord open
          season, in which end users and marketers competed together.  
Second, the Comprehensive
          Settlement limits any one party from holding, at the end of the 
open season process, more
          than 40% of the intrastate capacity from any individual SoCalGas 
receipt point.  Third, if
          any party attempts to withhold firm intrastate capacity, in an 
effort to drive up prices, that
          capacity will be available for SoCalGas to sell as interruptible 
service, and SoCalGas will
          have a strong incentive to market such capacity, because it is 100% 
at risk for the
          recovery of backbone transmission costs.

     The SCGC / TURN testimony tries to portray low-load factor generators as 
caught in a
"price squeeze" between capped PX prices and increased fixed operating costs 
due to the
imposition of demand charges for intrastate transmission.  SCGC / TURN, 
Section 2.4.3.  The
testimony paints a grim picture of plants closing, and jobs lost, in the Los 
Angeles Basin.
However, there are a number of elements in this picture that simply do not 
add up:

0    The testimony appears to assume that low-load factor generators pay the 
SFV demand
     charges, and take none of the steps discussed above to mitigate or 
eliminate the impact of
     demand charges.

0    The testimony does not recognize that there will be a $3 million dollar 
reduction in rates to
     the EG class as a result of the Comprehensive Settlement.

0    The testimony asserts that the increases in operating costs as a result 
of demand charges will
     be serious enough to force plants to close.  Even accepting SCGC / 
TURN's inflated figure
     of a 20% increase in fixed costs, SCGC / TURN provide no financial data 
that substantiates
     their assertion that an increase of this magnitude is likely to force a 
significant number of
     plants to close.

0    SCGC / TURN fail to appreciate the logical way to avoid the "price 
squeeze" that they so
     fear: buy gas in the SoCalGas city-gate market.  City-gate buyers will 
avoid paying demand
     charges, so their fixed operating costs will not increase.  In addition, 
the SoCalGas city-gate
     market is likely to be the gas market that is most tightly linked to 
electric prices in southern
     California, because it will be the closest market to the generators' 
point of consumption and
     because almost 60% of noncore loads on the SoCalGas / SDG&E system are 
electric
     generators.  As a result, generators buying gas in the SoCalGas 
city-gate market will have
     the highest assurance that changes in their gas costs will be reflected 
in changes in electric
     prices, thus reducing the risk of a "price squeeze between gas and 
electric prices.  This has
     certainly been the case in northern California.  Straightforward 
statistical analyses that I have
     performed show that the PG&E city-gate gas price is more highly 
correlated to PX electric
     prices than are gas prices in any other market in the state, presumably 
because electric
     generators in northern California use that market and because it is the 
closest market to the
     generators' burner tips.

0    SCGC / TURN attempt to argue that the closure of low-load factor plants 
in the Los
     Angeles Basin, due to the imposition of demand charges, will have 
serious implications for
     electric reliability.  SCGC / TURN, at Section 2.4.5. At the same time, 
SCGC / TURN argue
     that generators will not be able to recover demand charges because less 
than 20% of the
     capacity in the basin is under Reliability Must-Run (RMR) contracts and 
that there is
     "intense competition" for available RMR contracts.  Yet the lack of RMR 
contracts in the
     basin is due to the fact that there is enough capacity in the basin to 
provide more-than-
     adequate reliability and to assure that few generators can exercise 
local market power.  If
     some generators in the Los Angeles Basin go out of business due to 
demand charges, a more
     likely scenario than blackouts is that PX prices will rise in southern 
California, the ISO will
     make available more RMR contracts in the basin, and those contracts will 
provide a higher
     level of cost recovery, thus offsetting the impact of the demand charges.

     This completes my rebuttal testimony.