CA Energy Officials Worried About Gas for Electricity
As spot gas prices in California were breaking records again Friday
with $61/MMBtu quotes being reported at PG&E's Citygate, some state
officials already started dubbing the upcoming heating season as California's
"winter of discontent."
"We could have some real problems," said Richard Bilas, the
former energy commissioner and immediate-past president of the CPUC, speaking
last week about his proposal for a modest unbundling of SoCalGas' system,
given the current energy price volatility. Action on the proposed decision
tied to settlements filed late last year and early this year could come
Dec. 21, but observers predict alternate orders will be offered by some
of Bilas's colleagues on the five-member CPUC, and that could push final
action into next year.
If gas prices continue at their precedent-setting levels, California
likely will be intervening at the Federal Energy Regulatory Commission
as it already has been doing regarding last summer's electricity price
spikes, Bilas said.
"There are a lot of things the state can do, but whether they are
done is a matter of philosophical and political judgment," he said.
"If gas prices get totally out whack in the view of a number of state
decision-makers, there is likely to be intervention on behalf of the state
into gas pricing. And I don't know if any of that serves the public well
in the long run, but this is a short-run political problem."
Last Thursday, Sempra Energy's San Diego Gas and Electric Co. utility
asked federal regulators to cap gas transportation costs to the California
border as a companion to earlier requests to the feds to impose cost-based
wholesale electricity price caps. The latest move, SDG&E said, "would
allow a return to more reasonable natural gas prices for generation in
California and assure that the benefits are passed on to (retail) customers
through cost-based electric rates."
Meanwhile, the natural gas expert at the California Energy Commission,
which sites power plants in the state, expressed a lot of concern last
week about this winter's and the longer-term ability of the natural gas
market and infrastructure being able to keep up with the unquenchable thirst
for electricity in the state. With record natural gas prices and the continuing
supply/price woes for electricity, the official thinks all of the major
interstate pipelines serving California need to boost capacities.
The situation as early as this winter could become particularly critical
in northern California, said Bill Wood, a gas expert on the state energy
commission staff, because Pacific Gas and Electric Co.'s system "doesn't
have the same flexibility" as Southern California Gas Co.'s pipes
and storage in the southern half of the state. Generally, the array of
gas-fired generating plants in the north have no oil-burning (alternate
California is dependent for 80% to 85% of its gas supplies from out-of-state
through four principal interstate pipeline systems representing Canadian,
Rocky Mountain and Southwest basins. Five of the 6 Bcf average daily load
comes from outside the state.
"This winter we could very well see curtailments of noncore gas
customers and that could include electric generators, and if they get cut,
we don't have a fallback anymore," Wood said. "In northern California,
there is very little oil-burning capability. In southern California, Edison
plants had the capability, but they haven't burned any oil in years; and
San Diego plants have switched (Nov. 13-17), but people are telling me
they are running up against some air emission rules.
"Next week (Dec. 11-17), we may look back and think this week was
nothing compared to what happens, if we really do get hit by that cold
snap that comes through."
Longer term, the scenario most concerning Wood is that if all of the
new natural gas-fired power plants that are currently under construction
or planned in the surrounding states of Oregon, Nevada, Arizona and New
Mexico are built, pulling new large gas loads off the interstate pipelines
serving California, his state is going to be literally on the "short
end" of the pipeline unless El Paso Natural Gas, Transwestern and
PG&E's Pacific Northwest Pipeline (PGT) boost their capacities, and
in turn, PG&E's utility and SoCalGas increase their takeaway capacities
within the state.
Wood pointed to what Kern River Pipeline is doing to boost its loads
into California (see NGI, Dec. 4) as an example
of what the other interstate pipelines need to do to serve the contemplated
added electric generation load inside of the state.
"Kern River is moving ahead because they see the handwriting on
the wall," Wood said last Wednesday. "They see capacity needed
to take care of power generation, and they are moving in to take care of
"But we may still have some problems inside of California with
all of this new generation that is coming on. It could begin to start taxing
the ability of the utility systems to provide gas supply to them. There
is potential there, even though we really haven't looked at that in detail
Boosts in California's in-state production, which has had some modest
increases, particularly at Elk Hills and other parts of Kern County, will
never be enough, according to Wood. The current contribution is about 1
Bcf, or roughly 15-18% of the state's gas needs. The most Wood sees this
increasing to is about 20%.
"Everything to do with gas matters statewide is on the table and
I am not going to make any predictions," Bilas said during a telephone
interview in which he expressed concerns about both natural gas and electricity
issues in California in the coming year. He said the supply-demand imbalance
for the state's electricity market needs long-term solutions, but he thinks
short-term political answers will win out.
Bilas said the recent state energy commission conclusion that California's
electricity needs can be met with the existing plants underway or proposed
could pan out, but only if an unlikely combination of three factors converge:
all the plants now on the drawing board actually get built, no major electric
or gas transmission bottlenecks occur, and energy prices stabilize.
"Even if all of the proposed plants came on line in two years rather
than three, I think we still would have problems," he said. "Let's
face it, demand for electricity in the Pacific Northwest and California
is growing like crazy. So, until there is something done on the demand
side, so we get some demand responsiveness, just attacking the supply side
I don't think is going to do it."
Richard Nemec, Los Angeles