California Gas Situation 'Operationally Challenging'

Natural gas supplies in California will be adequate to serve all core customers this year, but there could be curtailments of non-core customers on the Southern California Gas system in the San Diego area, a staff member of the California Public Utilities Commission (CPUC) told FERC last week.

Testifying at the Federal Energy Regulatory Commission's staff conference on the California gas transportation infrastructure, Julie Halligan, assistant to CPUC Commissioner Richard Bilas, said facilities in the state "may be adequate to serve all customers over the next few years, even under adverse conditions," but that conclusion is "very tentative," and curtailments in the San Diego area have "a higher potential."

Halligan noted several projects are underway to add capacity to the SoCal Gas system. She expects the CPUC soon will issue a recommended decision, approving the abandonment of the Montebello Storage Field, which will allow its 23 Bcf of cushion gas to be drained. This will add about 50 MMcf/d of deliverability this year and next. Another proposal would reclassify 14 Bcf of cushion gas to working gas at two other storage fields, making it available for system deliveries.

Bill Wood, the California Energy Commission's natural gas expert, said he also was concerned with SoCal Gas' ability to receive enough gas to fill storage this year. The company could scrape by if power generation demand is light this summer. If the weather is hot and QFs are not fully back on the power system, there could be more demand for gas-fired power that would hinder the storage fill.

A SoCal Gas representative called the situation "operationally challenging," noting the company is working on projects to add 375 MMcf/d of capacity by the end of this year and has proposed a 100 MMcf/d connection with Questar at Cabazon that would add another 100 MMcf/d. Ladd Lorenz told the FERC staff panel the company was considering further expansions, but questioned the need and who would pay for them. SoCal Gas estimates on-system gas demand will decline in future years as more generation units are built out-of-state or off-system, while existing inefficient units on-system will be replaced with new facilities that will not require as much natural gas to operate.

Others, however, pointed to bottlenecks on the SoCal Gas system, particularly at Wheeler Ridge, which will only be exacerbated if new interstate capacity is built to the border and takeaway capacity is not increased.

Michael Solund, representing Occidental Energy Marketing, whose affiliates produce one/third of in-state gas cited the "bizarre allocation procedures," at the border. The competition between in-state gas and interstate supplies at Wheeler Ridge has forced Oxy at times to backhaul Elk Hills gas into Nevada on an interruptible basis to avoid shutting in production. Solund said the problem centers on takeaway capacity issues on the SoCal Gas system, and not necessarily on insufficient capacity into California in general. "Expansion of interstate capacity to Wheeler ridge without corresponding takeaway capacity only exacerbates the bottleneck conditions at that point. It may have the perverse result of shutting in in-state production and discouraging supply development in California.

Penny Barry, manager of BP's supply and transportation in the western region, agreed there need to be changes to existing procedures for allocating capacity at the California border. Going forward she urged FERC to consider interstate projects in relation to development inside the California border. Barry estimated current interstate delivery capacity to California at 7.01 Bcf/d, compared to takeaway capacity of about 6.6 Bcf/d. Proposed interstate and intrastate projects would bring those totals to about 10 Bcf/d feeding into 7.6 Bcf/d of receipt capacity.

Going forward, while FERC cannot dictate how SoCal runs its system, the Commission follow some rules in its examination of interstate projects, Katherine Edwards, also representing BP, testified. Primary is to "protect rights of existing firm shippers when considering additional capacity projects."

To do that, the Commission should require interstate pipelines to sell all excess and expansion capacity under standardized, competitive-bid, open season procedures that are expressly stated in the pipeline's tariff. They should be required to offer meaningful firm recourse service. Also, capacity should not be sold on a primary firm priority basis, if there is insufficient capacity at points along the way to serve pre-existing primary firm contracts. Pipelines should be at risk for expansion projects and should be given no rate incentives above a traditional cost-based rate. Rates for all expansion projects should be scrutinized to prevent rate cross-subsidization between expansion shippers and existing shippers. All firm contracts should specify a defined maximum daily quantity (MDQ) with defined receipt point, mainline and delivery point rights. And scheduling nominations should be capped at a shippers MDQ.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.