CA Regulators Push Forward on Gas Issues

Citing a newfound "emphasis on the natural gas in the past eight months," California regulators last Thursday moved ahead on several key natural gas issues, while delaying action on electricity issues that are caught up in concurrent state legislative proceedings. The regulators also provided an exemption for rolling blackouts for the major petroleum refineries in the state.

The regulators authorized Southern California Gas Co. to make 26 Bcf of cushion and working gas from its idled Montebello underground storage facility available on the market this summer as part of authorization to proceed with selling the facility based on a settlement that concludes the facility is "inefficient, costly and in a nonstrategic location." SoCal intends to begin selling the gas this week. The withdrawal will provide a flowing supply of gas that will ease capacity constraints on gas transmission pipelines, effectively adding an average 50 MMcf/d of capacity to the SoCal Gas system for about seven months, the CPUC said.

"We're trying to develop additional sources of capacity, storage and supply, and the Montebello decision is really going to maximize gas resources this summer," said Loretta Lynch, CPUC's president. "Traditionally, California had only one natural gas peak-in the winter-but now what we're seeing is a dual peak with one in the summer also. So freeing up more storage gas can alleviate any possible price spikes by allowing low-cost gas to be injected into the system just when it is most needed.

"Montebello is an indication of the CPUC's new emphasis on natural gas in the last 8 months in trying to develop additional sources of capacity, storage and supply. Freeing the cushion gas at Montebello is really good to maximize our in-state gas resources this summer."

In other gas actions, the regulators authorized SoCalGas to drill new wells and re-design two other underground storage fields --- La Goleta in Santa Barbara and Aliso Canyon in the northern end of Los Angeles County.

"In redesigning those two fields, there will be many positive consequences in the medium term, meaning by the end of this year or early next," Lynch said. The expansion of the two storage fields will allow 14 Bcf of gas to be re-classified so it can be used as working gas. Also other work will lower the fields' pressure to improve their performance.

The CPUC also ordered an investigation of the gas supply buying practices of Las Vegas-based Southwest Gas Corp., which serves the high desert and mountain communities east of Los Angeles in which retail gas rates spiked this past winter causing a lot of consumer unrest in the areas around Victorville and Barstow, CA, about 100 miles northeast of LA.

Some prospective action on natural gas items was postponed, including the long-standing proposed settlements for the unbundling of the SoCalGas transmission and underground storage systems inside the state. President Lynch said she now wants to develop an alternate order in the case.

Regarding the blackout exemption issues, Gov. Davis earlier in the month urged that the state's 13 refineries and ancillary facilities be awarded an exemption based on their critical role in assuring the state's public safety and health, drawing on a state law that years earlier determined that the petroleum industry is "an essential element" of the state's economy, and therefore, is of "vital importance to the health and welfare of all Californians." The state energy commission also requested the exemptions for the refineries, which represent about 1% of the combined peak loads of Pacific Gas and Electric Co. and Southern California Edison Co.

The CPUC action exempts the petroleum facilities that have been identified as vital by the energy commission.

On delaying the direct access vote, the five commissioners agreed they need to act quickly, but they are split strictly along partisan political lines with the three Democratic Davis appointees favoring a suspension, while the two Republican holdovers favor keeping it.

One of the majority, Commissioner Carl Wood argued that a combination of the governor's long-term contracts and recently approved qualifying facility (QF) generation contracts that account for about 30% of the state's power supplies could end up being "significantly above market," meaning customers would have an incentive to flee if they had the choice of direct-access contracts. His solution is to keep them captive so they can spread costs to a wider base of customers, keeping the impact on individual customers lower.

"In light of that it should be clear that direct access is not really a matter of choice; it is a matter of avoiding regulatory decisions about the allocation of the burden of rates," Wood said. "And especially during a time when we have had to raise rates rather steeply, we should not be providing avenues of escape that saddle the rest of the customers with the burden of these costs. Therefore, I think we should put an end to direct access as quickly as possible."

However, Lynch said to accommodate the legislature so it could explore some options in the very short term, "we are holding the item to the limit of our ability." Eventually, she said, the CPUC must move quickly on direct access to facilitate the California Treasurer moving on the bonds.

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