California regulators Thursday authorized Sempra Energy's two major utilities in the state to expand their off-system natural gas sales to include all of the interconnection points on their intrastate pipeline network. Both firm and interruptible sales are authorized with a base rate of 5 cents/Dth.

Southern California Gas Co. (SoCalGas) and San Diego Gas and Electric Co. (SDG&E) now can expand firm off-system deliveries on terms and conditions regulated by the California Public Utilities Commission (CPUC), including the need to hold an open season and gain approval from the CPUC for each individual contract. The Sempra utilities originally sought this authority three years ago, and the environmental impacts and other issues were resolved in 2009 (see Daily GPI, June 5, 2009).

In recommending adoption by the CPUC as a means of creating more gas-on-gas competition, Commissioner Timothy Alan Simon cited the North American shale gas boom and California's dependence on gas. Simon said he thinks the role of gas in the state's economy is under-appreciated, and he hopes the expansion of off-system sales will provide benefits to existing on-system gas consumers and the state's economy.

"We don't hear much discussion in California on the enormous shale gas reserves that are having a very positive impact on energy supply in the nation, but it is clearly a benefit to our ratepayers," Simon said. "Even though this clean fossil fuel source is often taken for granted in this state, this decision will clearly have a benefit to [natural gas] ratepayers and shareholders alike.

"The offering of off-system service shall not result in any adverse operational impacts to the on-system customers," said Simon, adding that there will be a range above and below the base rate for the service going as high as 15 cents/Dth and as low as 1.5 cents/Dth. "Any discounts below the base rate must be offered on a nondiscriminatory basis."

SoCalGas and SDG&E previously obtained regulators' approval for expanding their interruptible and firm off-system gas deliveries to neighboring private-sector utility Pacific Gas and Electric Co. (PG&E). In response, the South Coast Air Quality Management District and the Southern California Generation Coalition raised air quality, gas quality and other environmental issues. In June 2009 the CPUC concluded that air quality issues had already been considered and could not be revisited.

"This decision will allow SoCalGas to fully integrate our system with natural gas markets in the western United States, allowing customers to bring natural gas onto our system, store it and then take it off our system," a Sempra utility spokesperson said. "Additionally, this would allow for a more transparent and fluid market to help reduce prices for SoCalGas on-system customers."

SoCal believes that this will mean fuller use of its overall system, and thus it should help drive down costs to the on-system customers, and as an offshoot lower retail electricity prices. "The western U.S. electric market is already integrated and with today's decision, so will the natural gas market," the utility spokesperson said.

Overall, the Sempra utility gas transmission pipeline system has up to a dozen interconnections other than with PG&E, including one or more with El Paso Natural Gas Co. (Needles and Blythe, CA); TransCanada North Baja Pipeline (Blythe); Transwestern and Questar Southern Trails Pipeline Co. (Needles); Kern River Gas Transmission Co. and Mojave Pipeline Co. (Wheeler Ridge and Kramer Junction); and TransCanada GTN (Kern River Station).

There are continuing concerns that the CPUC's approval of off-system deliveries from all points on the Sempra transmission pipeline system will allow transportation customers of the two utilities to send gas supplies to east-of-California customers and open some gas quality and environmental problems. This issue drew protests during the proceeding, centered on the Sempra utilities bringing in more gas from their parent company's North Baja California liquefied natural gas receiving terminal, adding supplies that are perceived as being more polluting than domestic gas sources.

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