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NatGas Transportation Rates Taking High Road in California

Large-volume natural gas users in California are feeling the aftershocks in markedly higher pipeline transportation rates after the San Bruno pipeline and Aliso Canyon storage well infrastructure breakdowns, according to comments and questions at a recent industry meeting in Denver.

A building products manufacturer's energy manager told the LDC Gas Forum Rockies & West that three of his plants in Northern California are paying more for transportation than the current gas commodity rates at the Pacific Gas and Electric Co. (PG&E) Citygate. And Cameron Raether, energy manager for Pacific Coast Building Products, is fearful his Southern California plant faces similar hikes after the Aliso Canyon storage field outage.

A one-time chairman of the California Manufacturers' Association (now the California Manufacturers and Technology Association) energy committee, Raether asked a panel of gas buyers that included Brent Mishler, a senior gas trader for Sempra Energy's Southern California Gas Co. (SoCalGas); and Dennis Burke, senior analysts for the City of Long Beach Gas & Oil Department, what rates he could expect in the southern half of the state, given the large transportation rate hike with PG&E in the north.

The two utility representatives did not have any information on what future transmission charges on the SoCalGas system might be, but Cathy Ikeuchi, senior energy operations manager for Albertsons Companies grocery store chain, said her company has been subjected to transportation rate hikes of 30-40% in California. Ikeuchi is an experienced gas buyer who has worked with both major suppliers and buyers located throughout the United States.

For Raether's plants, which can include buildings materials like drywall, clay products, and concrete -- all heavy gas and electricity consumers -- gas transportation charges in Northern California vary based on locations, pipeline service (transportation versus distribution), and volumes.

"Prior to the rate increase [in August], the larger plants were paying about 78 cents/MMBtu for transportation," Raether told NGI. The new rate of $1.57/MMBtu is effective through the end of October. "My smaller plants saw new rates that went up to $3.87/MMBtu [for summer rates; winter starts Nov. 1]."

"These costs include the public purpose charges, and these numbers reflect the total cost that shows up on my PG&E invoice. Any location that consumes less than 25,000 MMBtu on an average monthly basis is going to see these numbers increase for the winter season, and my larger locations [using more than 25,000 MMBtu each month] will hold their summer rates."

A PG&E spokesman did not dispute the customers' claims of much higher transportation charges, and attributed them to the utility's "unprecedented progress" in improving the safety of its system over the past six years. He acknowledged higher rates were approved earlier this year to test, repair and replace parts of the utility's extensive transmission and distribution pipeline systems.

In June, California regulators approved nearly $950 million in increased rates to support PG&E's natural gas storage and transmission pipeline operations. That did not include another pending $850 million disallowance associated with the combination utility's identified shortcomings in handling the 2010 San Bruno transmission pipeline failure and explosion (see Daily GPI, June 27).

At the time, a PG&E spokesperson said the San Francisco-based utility didn't agree with parts of the California Public Utilities Commission (CPUC) decision, but "we want our customers to know that the dedication to our mission of becoming the safest, most reliable gas company in the country is as strong as ever."

Rather than an almost 80% increase in gas operations revenues requested by PG&E, the CPUC unanimously approved a 27.1% rate hike, or $192.9 million more than 2014 in an overall 2015 revenue requirement of $908 million. The utility attributed most of the increase to efforts to enhance safety in its transmission pipeline and gas storage system since the San Bruno pipeline failure.

Raether's building products company has 13 plants spread over seven western states with seven of them in California, six in PG&E territory.

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