PG&E Eyes Backbone, Storage Expansions as Part of Gas Accord II

Overlooking for the time being its current financial position, Pacific Gas & Electric Co. is eyeing in-state gas transportation and storage expansions in California to help alleviate the current strain on the gas system and prevent likely future curtailments during peak summer demand periods, a utility official said last week.

At a FERC technical conference on California Gas Transportation Infrastructure (Docket PL01-4), PG&E's Dan Thomas, director of products and sales for California Gas Transmission, said the utility's intrastate pipeline will hold an open season in June for 1.2 Bcf/d of "backbone" capacity, including 200 MMcf/d of new Redwood Path expansion capacity that will become available in July 2002.

"The rate impact of capacity/infrastructure investments is small relative to the commodity price exposure," he said. PG&E intends to make its expansion plans part of Gas Accord II, another comprehensive regulatory proceeding the utility plans to begin at the California Public Utility Commission next month.

Thomas said PG&E's transmission and storage capacity is adequate to meet projected 2001 gas demands without curtailments, but the utility expects "very high load factors through the upcoming summer and winter." It also is expecting continued high gas prices and potential for price spikes due to those high load factors.

A large part of the problem this summer will be the smaller contribution of hydroelectric generation into the mix. The state's gas-fired generation plants will continue to be used to their fullest potential, straining the transportation system when combined with summer storage injections. Throughput will be much closer to maximum capacity this summer than last, according to Thomas. Throughput will easily exceed 3 Bcf/d during the spring, summer and fall, in contrast to last summer in which throughput hovered around 2.6 Bcf/d.

The system will need additional firm transportation and storage capacity in the next few years, Thomas said. PG&E is expecting to add 200-500 MMcf/d of Redwood and Baja capacity and 200-400 MMcf/d of new storage withdrawal capacity in the next three to five years. The company also is planning some local transmission enhancements to improve reliability for electric generation.

"For $100 million we could expand [the Redwood Path, from Malin, OR, south] by 500 MMcf/d, which is somewhere between 10 and 11 cents/Dth for the expansion --- the current rate is about 27 cents." Expanding the Baja Path from the southwestern market points (connections with Kern River, Transwestern and El Paso) would be more expensive --- about $400 million to add 200 MMcf/d from Topock, AZ; expansion from Bakersfield or Daggett to the Bay area would cost a little less.

However, the volatility associated with power generation is likely to get much worse. In the past, summer demand fluctuated about 230 MMcf/d. The forecast, however, shows summer fluctuations exceeding 450 MMcf/d. In the past, PG&E used heating degree days to forecasts its peak needs as a planning guide for capacity additions, but in the future it might be wiser to use cooling degree days during a dry summer as a planning guide to gauge capacity requirements, he said. Summer backbone throughput is expected to exceed 3 Bcf/d with a significant and growing portion represented by volatile generation demand, compared to winter backbone transmission throughput forecast at a steady 2.5 Bcf/d.

"Maintaining a reserve margin above dry year demands will: account for difficulty in forecasting [generation] demand; accommodate potential for supply disruptions/limitations; provide market flexibility in the use of storage; help to avoid commodity price spikes; and provide flexibility to manage daily demand fluctuations." He also noted that the cost of providing the reserve margin is significantly less than the commodity cost increases in times of shortage.

To maintain a minimum 10% reserve margin in backbone capacity, PG&E will need to add 133 MMcf/d in 2003, 148 in 2004, 137 in 2005, 176 in 2006 and 218 MMcf/d of firm space in 2007, Thomas said.

PG&E's core load also requires additional peaking storage capacity of about 200-400 MMcf/d, which would cost $15 million to $50 million, he said. The storage expansion would depend on a $60 million installation of a new pipeline, Line 57C from the McDonald Island storage field.

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