The lack of any sense of immediacy surrounding the building of a coastal LNG terminal in California was illustrated by the California Public Utilities Commission's (CPUC) denial on Thursday of a request by the state's major natural gas utilities to modify rules that could apply to interconnecting a terminal to the existing intrastate backbone transmission pipeline system and its ties to markets east of California.

Led by Sempra's two utilities, Southern California Gas Co. and San Diego Gas and Electric Co., along with Pacific Gas and Electric Co., a request was made to the CPUC to modify some of its recently approved rules and restructuring for the Sempra gas transmission pipeline network in Southern California. El Paso Natural Gas Co. and the would-be LNG terminal developer, Australian-based BHP Billiton, filed supporting documentation to the CPUC.

In essence, the utilities proposed to get authorization to develop specific transmission options to optimize their facilities so off-system deliveries could be provided to PG&E and so there were new interconnections to other gas transmission systems in the West. The utilities sought to accelerate the process for considering these changes, but the CPUC saw no urgency in doing so.

SoCalGas and SDG&E argued that their proposal to accelerate consideration of these interconnection issues would "send a strong market signal" to potential LNG developers that "they will have access to the entire western gas market, and that the terms and conditions of such access will be adopted by the CPUC at the earliest possible date." The utilities warned that without timely action, the LNG developers would be more likely to bypass the in-state transmission pipeline network.

At present, the issue of interstate pipeline interconnections is postponed until after May 1, 2008. El Paso and its affiliates contended there was no good reason to delay it that long.

The CPUC said in the wake of the recent state and local rejections that two LNG project proponents -- Sound Energy Solutions (SES) in Long Beach and BHP Billiton offshore Southern California -- "it remains unclear whether these project developers will continue to pursue these two projects.

"Based on the recent permitting actions regarding these two LNG projects, we do not believe there is a need to accelerate the review of an application proposing interconnections with PG&E and other pipelines," the CPUC said in denying the utilities' request. "The utilities' proposed modification would have us review an application for interconnections as early as December 2007, as opposed to the currently authorized filing of no earlier than May 1, 2008.

"We are not persuaded that anything will be gained by accelerating the schedule as the utilities have requested."

The CPUC indicated that in the long term it is also reluctant to do anything that would stir up federal-vs-state jurisdictional issues, given the possible Hinshaw exemption implication if the SoCalGas transmission pipeline begins interconnections with an interstate pipeline. The utilities downplayed any potential problems in this area.

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