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Key Vote Approaches on Southern California Transportation, Storage Market

Key Vote Approaches on Southern California Transportation, Storage Market

As is usually the case, the California Public Utilities Commission (CPUC) appears split (with one commissioner undecided) ahead of a key decision expected to be made on Feb. 11 on Southern California Gas Co.'s (SoCalGas) comprehensive settlement agreement on transportation and storage unbundling, a SoCalGas official said Monday.

Making matters even more unclear, the CPUC also is taking comments on whether there may be a policy conflict created by the settlement, which would put the utility at risk for recovering revenue from storage and backbone gas transportation. Some observers note that forcing the utility to maximize the use of its storage and transportation assets runs counter to a CPUC policy promoting the installation of excess energy infrastructure capacity in the state to help lower prices and minimize the impact of any unexpected events.

A proposed decision released last week by a CPUC administrative law judge (ALJ) settles all the contested issues and paves the way for implementation of the comprehensive agreement on April 1 (see Daily GPI, Jan. 20). The CPUC is expected to consider the issue at its first regularly scheduled business meeting in February, and the Sempra Energy utility would be cleared within 10 days of CPUC approval to file an advice letter with its new rates for April 1.

The settlement, which is very similar to PG&E's Gas Accord, would open up backbone gas transportation, receipt point and storage capacity inside Southern California to competition and trading.

Among the many changes, would be a new SoCalGas Citygate commodity pricing point, which commodity index publishers, such as NGI's Daily Gas Price Index, already are planning to add to a list of California market points. However, it is still unclear what impact the changes may have on trading gas at existing border and interconnection points with upstream pipelines.

"We're expecting that there will be the same kind of utility citygate market in Southern California [that there is in Northern California]," said Jeff Hartman, SoCalGas' director of energy markets and capacity products. "The [settlement] unbundles our backbone facilities, and the idea is that once you pay the 8-cent/Dth postage stamp rate from any of the receipt points you effectively have transportation from the receipt point into the utility citygate just like on PG&E's system. The difference is that we just have more points of entry than PG&E has. From the citygate to the burnertip there also will be the basic tariffed distribution service."

Customers will have rights to certain amounts of storage and transportation capacity and will then bid on the remaining capacity. They also would have the option to trade their capacity.

SoCalGas has a total of about 3,875 MMcf/d of firm takeaway transportation capacity from its major receipt points. About 1 Bcf/d will be set aside for core customers with rights to capacity at certain receipt points (Ehrenberg, Needles, Topock and instate production). About 200 MMcf/d will be set aside for California producers. Certain wholesale customers also will have rights to about 200 MMcf/d. And the remainder would be provided to other market participants through a bidding process.

About 1,500 noncore end-use customers and possibly some marketers will hold transportation capacity rights, and about 150 customers probably will hold storage. Although storage has been unbundled from transportation capacity for many years in Southern California, there will be enhanced trading flexibility involving the storage asset once the settlement is implemented.

"There will be greater secondary rights," said Hartman. "There will be specific set-asides [of capacity] for wholesale customers and then there will be a new service called G-Pack, which allows customers to bid for set quantities of storage at cost. Anyone else who wants something above and beyond that can then go into what we call the TBS program, which is our transaction-based storage service."

Core customers also will have rights to about 1 Bcf/d of upstream transportation capacity on the upstream El Paso Natural Gas and Transwestern pipeline systems.

The implementation schedule, however, is far from certain. The CPUC could delay a final decision to consider policy matters. It could approve the settlement and then retroactively change it. SoCal also has told the commission that the systems needed for implementation would take several months to install.

"What we said in the hearing was that we needed three and a half months to finish the IT systems once we got commission approval of the tariffs," said Hartman. "The judge in the [proposed decision] has basically said we should be implementing on April 1. When we file our comments on Feb. 2, we are going to remind the judge again that there is a certain amount of time required for us to get the systems up and running for nominating and scheduling to the backbone [transmission system] and allowing the trading of those rights."

The utility would not say what the cost of implementation would be or whether the entire unbundling process would be revenue positive for the company. The only real significant financial changes for the utility, according to Hartman, are the greater at-risk provisions for storage revenue, which was raised to 100% at risk from only 50%, and the 100% at-risk treatment for the backbone transportation revenue, which is only a small portion of the regulated utility's total distribution revenue.

"I don't know that the changes are all that sweeping from a financial perspective," said Hartman. "We have not made any public statements about this.

"Initially, when we signed the settlement, we said we would adhere to it. We have since taken a position that suggests that this settlement may not be the direction the commission wants to go in."

Hartman noted that the commission has moved in a direction of trying to encourage additional sources of supply into the state. There is a proposed ruling that has been released that suggests that having the utility be at risk for investments may run counter to these policy positions. "If you are trying to incent the utility to increase throughput on its system, but on the other hand you are telling it that because the state is running out of natural gas that you want to encourage conservation, those two may appear contradictory," Hartman noted. The commission has put these issues out to receive comments on Feb. 23.

If approved, the provisions of the comprehensive settlement will expire in August 2006, after which a new proposal would have to be implemented.

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