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CPUC Seeks Social Costs from Bypassing Questar Line

CPUC Seeks Social Costs from Bypassing Questar Line

California regulators have taken a potentially precedent-setting step by asking FERC to condition a certificate for Questar's proposed Southern Trails Pipeline on the company first agreeing to recover from its in-state customers the costs of social programs that would be potentially stranded by its bypass of Southern California Gas (SoCalGas).

The West Zone of the proposed gas pipeline, which would begin at the California border and extend to Long Beach, CA, would bypass the California LDC to deliver gas potentially to the Arco Long Beach Refinery Complex and other state customers, thus enabling them to circumvent the "intent" of California law requiring utility customers to pay for public-purpose programs for low-income residents and energy efficiency/conservation, the California Public Utilities Commission (CPUC) said in its protest [CP99-166]. "The FERC should either deny Questar's certificate application or remedy the...problems" associated with the stranding of these social costs.

Not surprisingly, the LDC poised to be bypassed - SoCalGas - made a similar plea to FERC. Given that California already is a capacity-saturated market, "the only advantage that the Southern Trails pipeline may have [over]...a distribution company is the avoidance of any state-mandated surcharges or cost associated with social programs," SoCalGas noted. If Southern Trails is built, it either will drive up the social costs for remaining SoCalGas customers or it will result in under-collection of such costs, it said. It joined the CPUC in asking FERC to require the proposed Questar pipeline to recover "any existing or future surcharges" from customers on its West Zone.

This marks the first time that FERC has been asked to address this issue - to hold the customers of bypassing pipelines liable for potentially stranded social costs. This definitely is a "case of first impression," said Harvey Y. Morris, principal attorney for the CPUC. The agency believes there is support for its request in Order 888, which would permit a customer-specific surcharge to be added to interstate transmission rates in cases where state regulators don't have the authority to recover stranded costs.

Morris said the CPUC raised the issue in the Questar certificate proceeding because it's the "first new bypass" in the state. Questar is seeking FERC authority to convert a 700-mile former Arco oil pipeline, which runs primarily between northwestern New Mexico's Paradox Basin and Long Beach. It hopes to have it in service by mid-2001. Morris also believes the issue could apply to Kern River, which recently held an open season to build a lateral to Long Beach.

In addition to "thwart[ing] the state's efforts to fund these...public-purpose programs," the CPUC said it objected to Questar's proposed pipeline because it would promote "uneconomic bypass" in the state. It believes the best solution is for FERC to require Questar to impose a volumetric surcharge on its rates to recover the same costs for social programs from its West Zone customers that they would have otherwise had to pay if they were being served by SoCalGas.

Initially, the surcharge should be $0.07294/Dth ($0.07213/Dth for the state's low-income assistance program and $0.00081/Dth for energy efficiency programs), said the CPUC, which noted this was the current rate that the Arco Refinery paid to SoCalGas for public-purpose programs.

"The FERC's condition should not require the initial rate as a permanent rate because that may be unfair to Questar (since SoCalGas' rates approved by the CPUC change from time to time) and may be unlawful." Instead, Questar should be required to "periodically submit limited rate filings to change the surcharge whenever the CPUC changes the intrastate rates for SoCalGas," the California regulators said.

Separately, SoCalGas also questioned the need for the Questar pipeline. It noted that it has made "numerous attempts" to permanently or temporarily release capacity in the area to be served by Southern Trails' East Zone. "SoCalGas had had no takers for this capacity despite rates lower than Southern Trails East Zone rate of 38 cents." It noted it currently is offering to release 80,000 MMBtu/d of capacity on the El Paso system from the El Paso Chaco Plant (point of origin of Southern Trails) to the California-Arizona border at a rate of 27 cents per MMBtu/d through August 2006, and equivalent volumes on Transwestern at 75% of maximum rate through October 2005.

Susan Parker

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