California regulators approved new balancing and interconnection rules for Sempra Energy's Southern California Gas Co. (SoCalGas) and California natural gas producers Thursday to put state producers on equal footing with out-of-state suppliers in satisfying California's 7 Bcf/d of demand.

Although they talked for the last few years, the two sides failed to reach a settlement, and the California Public Utilities Commission (CPUC) ultimately had to dictate the new agreements, which follow closely the utility's proposal.

The action was an outgrowth of the CPUC adoption last September of a sweeping set of rules for natural gas transmission and storage operations throughout the state, including establishing a process for resolving the emerging issue of regulating gas quality and heating value from the expected influx of liquefied natural gas (LNG) imports.

"The [latest] agreements address operating/maintenance, metering and other related facilities, along with gas quality, uniform flow of gas, suspension of deliveries and creditworthiness among others," said CPUC President Michael Peevey. "These agreements balance the competing interests of the producers and SoCalGas and other parties to help maximize production of natural gas in California while promoting the safe, reliable operation of the SoCalGas transmission system.

"These agreements will place the California gas production and the interstate suppliers on an equal competitive footing for entry into the SoCalGas system, enhancing gas-on-gas competition."

CPUC action adopts the Sempra utility's interconnection and balancing agreements as "templates for the terms and conditions" of access to the SoCalGas transmission system by the California gas producers. In addition to balancing and specific creditworthiness requirements, the CPUC agreements include:

The principal differences between the utility and producer approaches center on the degree of difference between how California producers and out-of-state producers access the SoCalGas transmission system. The CPUC contends that it has eliminated most of the difference, but the in-state producers don't necessarily agree.

In setting the statewide gas rules last year, Peevey and some of his colleagues said the CPUC wanted to "send a clear signal to the marketplace" that the state regulatory panel would take action in a timely manner and not delay decisions on contested issues. (An administrative law judge had suggested that issues of gas quality, pipeline/storage and environmental review be deferred, with each examined further in separate new regulatory proceedings.)

The latest action regarding California producers and SoCalGas closes nearly four-year-old proceedings that were split into two phases. Previously, the CPUC concluded that the state's natural gas transmission and storage infrastructure was adequate and able to fulfill the state energy action plan goal of assuring adequate, affordable supplies in the years ahead.

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