Although it is an obscure footnote in the state’s draft update to an Integrated Energy Policy Report, Sempra Energy’s Southern California Gas Co. utility is proposing to look for new indigenous natural gas supplies in and around its extensive underground storage fields in otherwise depleted oil/gas areas in Southern California. A request is before the California Public Utilities Commission to set up a rate procedure to reward utility retail customers if the utility finds any commercial-sized amount of gas.

The focus of the filing is what SoCalGas is calling “native” gas, not to be confused with the hundreds of billions of cubic feet of gas that the nation’s largest gas distributor regularly circulates through four underground storage fields and the added cushion gas it has been attempting to obtain at two fields through a substantial re-drilling program authorized by the CPUC in recent years. Historically, the gas-only utility has recovered small amounts of native gas as part of the ongoing operations and maintenance of its storage fields (an average of 68,000 dth/year for the 1998-2002 period).

SoCalGas’ CPUC filing last January was an attempt to set up a regulatory mechanism to “allocate the financial risks and rewards associated with drilling and testing for any new native gas production,” said James Mansdorfer, the utility’s storage engineering manager, in written testimony submitted to the state regulatory commission.

Basically, the rate treatment, SoCal is proposing would treat utility customers like most mineral royalty owners — they would pay none of the finding costs, and they would hold a royalty share that would be considered in the economic analysis of whether to drill new exploration wells.

SoCalGas said it will employ several techniques to make sure that storage gas is not double-counted as “native” supplies, including geologic mapping, gas composition tests, and storage reservoir monitoring. “SoCalGas is committed to ensuring that gas from the storage reservoirs is not produced and sold as native gas,” Mansdorfer said.

Potential benefits from the native gas exploration/drilling program cited by the gas utility include putting more pressure on gas prices to push them downward, providing a boost to local economies from the added E/P jobs, and the possibility that the new native gas finds might lead to finding additional gas reservoir storage space for the utility distribution operations.

Mansdorfer emphasized that at this time, “SoCalGas does not have any meaningful estimate of the gas volumes that might be located and produced,” and as such utility customers “should not bear the substantial financial risk associated with drilling natural gas wells.” Sempra shareholders will foot that bill with the hope enough added supplies will be found to cover the added costs at least.

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