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CPUC Denies Relief from Border Price Discrepancy

CPUC Denies Relief from Border Price Discrepancy

California regulators last week turned down an emergency six-month provisional avoided-cost measure that would have frozen the gas prices used by utilities in their formula for paying must-take qualifying facility (QF) electricity generators.

QF producers sought the rejection, noting the existing law requires a monthly change in the formula, but SDG&E also withdrew its earlier support for the measure, claiming QF output is being cutback.

Southern California Edison Co. made the initial request, and a California Public Utilities Commission administrative law judge initially recommended the regulators' approve the action, but subsequently the ALJ reversed that recommendation.

The CPUC is seeking longer-term relief through an ongoing regulatory proceeding in which the natural gas border price indices and their components are being examined.

By its own internal estimates, the continuing record spikes in California-Arizona border natural gas prices at Topock, AZ, have added $44 million to its payments to so-called qualifying facility (QF) electricity generators the past two months, according to Edison.

The total impact on gas consumers, including California's electric generation plants overall, was estimated to be $100 million by the CPUC last spring when it challenged a FERC ruling on an El Paso Natural Gas Co. contract that it alleges is causing the prices at the California border to skyrocket.

"Those estimates were based on some relatively modest increases in gas costs of 15 to 30 cents earlier in the year," said Edison's Lars Bergmann, director of its QF contracts. "When prices exploded by a dollar or more, and then by three dollars or more in September, we estimated that just for the September price bump, it will increase our QF payments by $29 million and for October another $15 million.

"Unfortunately [the CPUC action] is going to have the potential to make costs higher than they otherwise should be, and we're disappointed. The filing, however, certainly served the purpose of making the (CPUC) aware of the relationship between its Section 5 (FERC) complaint against El Paso [Natural Gas and its merchant affiliate] and how that immediately impacts the payments to QF generators. It is now an issue that is addressed in our petition along with the interstate transportation issue," Bergmann said.

Edison filed its emergency request asking for the CPUC to, in effect, freeze the border price used in the QF payment formula at August levels until the state regulators conclude a pending investigation of the border price issue.

Richard Nemec, Los Angeles

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