INGAA Battles Legislative Attempt to Re-instate Caps

Battling a moves to re-impose the cap on prices paid in the secondary transportation market to California, the Interstate Natural Gas Association of America (INGAA) went on record last week opposing an attempt by Rep. Rick Boucher, D-VA, in a subcommittee mark-up to re-instate the cap legislatively on capacity release and cap transportation rates to the border. However, the Federal Energy Regulatory Commission also is seeking industry comments on whether to reimpose its the rate caps on short-term released capacity.

The high rates paid recently are a result of transportation bottlenecks caused by a shortage of intrastate capacity to pick up gas at the border, Jerald Halvorsen, INGAA president said in a letter to Chairman Joe Barton, R-TX, of the Subcommittee on Energy and Air Quality. Halvorsen pointed out that there is 850 MMcf/d of interstate pipeline capacity to the Topock delivery point, but only 540 MMcf/d of intrastate takeaway capacity. Similarly, there is 1 Bcf/d of interstate delivery capacity at the Wheeler Ridge point, while intrastate takeaway capacity is 680 MMcf/d "There is, in other words, a bottleneck that restricts the delivery of an additional 700 MMcf/d of natural gas into and in the state."

The interstate rates and capacity are not the problem, he said. With increased demand and low storage levels in-state, "higher natural gas prices this winter have reflected the premium paid to get through the delivery bottlenecks and onto the California intrastate gas system." One of the reasons for that is that interstates, for the most part, have been discouraged from constructing lines beyond border points into the state, Halvorsen added. The California Public Utilities Commission has jurisdiction over what intrastate lines are built.

"Prohibiting shippers from releasing capacity at market rates on sales into California could, in effect, reduce the supply of natural gas into the state because shippers could release their capacity to other markets that value it more," the INGAA chief said. "Such an effect only will serve to exacerbate the problems that California is currently facing."

FERC's information-gathering effort on the issue came only days after the Commission proposed imposing a reporting requirement on all sellers of natural gas and interstate pipelines and local distribution companies (LDCs) that serve the California natural gas market (see related story). FERC took this action in the wake of mounting pressure from California and congressional lawmakers to do something about the abnormally high gas prices in California.

"It sounds to me like FERC is finally getting the picture and [is] beginning to move," said Sen. Dianne Feinstein (D-CA), responding to the Commission's efforts to potentially restrain gas prices in California. "I have been urging FERC to take this action [to cap short-term gas capacity rates] for several months now and I hope that the agency moves expeditiously" on the matter.

The Commission's order is in response to specific petitions by San Diego Gas and Electric (SDG&E) and the Los Angeles Department of Water and Power (LADWP) seeking to re-impose price caps on short-term (less than one year) releases of capacity for service to the California border and to points of interconnection between interstate gas pipelines and California LDCs [RP01-180, RP01-222]. The two petitions, which were filed last winter, called on FERC to immediately re-instate the caps for the duration of the heating season (until March 31), and to initiate a proceeding addressing the issue.

The Commission, as part of Order 637 last year, removed the rate caps on short-term transportation deals nationwide until Sept. 30, 2002 as a pilot program. Both SDG&E and LADWP contend that this action has been directly responsible for the high prices for gas delivered to the California border, which are about three times above those in the rest of the country. Feinstein noted that the delivered prices for gas in Southern California yesterday averaged $12.59/MMBtu, compared to $3.70 for the remainder of the western region.

As part of its inquiry, FERC is seeking industry comment on a number of issues: Would re-imposition of the rate cap on short-term capacity release deals into California significantly affect gas prices at the California border? Should re-imposition of the rate cap be limited to California or extended to pipelines delivering into the Western Systems Coordinating Council? What effect do capacity-release transactions have on wholesale electric prices? What would be the impact of re-instituting the rate cap into California in light of firm shippers' ability to make bundled gas sales at the California border? If the Commission should respond favorably to the petitions of SDG&E and LADWP, would this affect shippers' ability to obtain short-term firm capacity?

FERC has asked the energy industry to submit responses within 20 days. "The comments will be used in determining what further actions should be taken by the Commission in response to the petitions" of SDG&E and LADWP, it said.

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