CA Regulators Tackle Host of Gas Infrastructure Proposals

California regulators this week could start to lessen some of the uncertainty surrounding the in-state markets in the first of a series of natural gas infrastructure expansion decisions that ultimately could greatly expand the two major utility intra-state transmission/storage systems and make it easier for new interstate expansion projects into the state to get completed.

When the California Public Utilities Commission meets in a special continuation business session Thursday, it will consider allowing Southern California Gas Co. to free up about 24 Bcf of cushion gas at its idle Montebello Underground Storage Facility that is slated to eventually be abandoned. However, a bigger move by the CPUC would be to act on the long-stalled comprehensive settlement to open up the SoCal's intra-state transmission and storage system.

The CPUC held an en banc information hearing for all of its five commissioners earlier in May to hear arguments for and against the settlement. Indications are the commissioners are ready to move, but it would still take several months of processing before a comprehensive settlement could be okayed by the state regulators.

"It appears to be back on (the CPUC's) radar screen and we're still hopeful that they will do the right thing," said Lad Lorenz, gas operations director at SoCalGas. "They are apparently taking a fresh look at the whole thing, but they haven't given any indication when they might act."

SoCalGas has been criticized by a coalition of Southern California generators for having little incentive to expand its pipeline capacity because of current rules that allow it to re-sell supply and related services in a tight market. Added pipeline capacity could hurt SoCal's storage business, some critics charge.

"The uncertainty of what the ultimate regulatory strucuture is going to be on a going-forward basis is causing everyone in the market, including us, concern, making it difficult to make decisions," said Lorenz, noting that SoCal since last August has had a proposed global settlement before the regulators.

Part of the provisions of the overall settlement, Lorenz said, would make it easier for determining when system expansions are necessary because it is based on customer commitments and contracts for capacity on the system.

"Absent that, we're in the current regulatory system and we build the system based on consumer needs," he said. "We've always done that, and we haven't had any curtailments in 10 years now." (And he added that SoCal doesn't expect shortages when things get tight this summer.)

Lorenz said the settlement and the other gas storage expansion ideas now before the regulators would make future expansions easier, but he drew short of saying the regulatory delay on the settlement is preventing SoCal from making expansions now.

Meanwhile, despite the rigors of the bankruptcy court, Pacific Gas and Electric Co. is contemplating expanding its backbone and storage system in a proposal it intends to make to the CPUC later in June ("Gas Accord II").

While its pipe and storage infrastructures are thought to be "adequate" for this year, the PG&E utility is expecting continued high load factors and prices over the summer and winter periods.

Of concern to both utilities is the current interest among elected officials and regulators to increase reserve margins to the double-digit levels. Their question is who is going to pay for maintaining the excess capacity; the same question applies to the electric side, too.

In implementing current plans to add 375 MMcf/d of pipeline capacity, SoCalGas would increase its overall capacity to more than 3.9 Bcf/d. "Our indications are that is going to be more than adequate and will add substantial excess capacity," SoCal's Lorenz said.

The existing expansions now before the CPUC but not part of the global settlement struck last year would be re-evaluated in light of the settlement should it be adopted in the next two or three months, Lorenz said.

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