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CA Bill Would Impose Charges On Interstate Gas Pipeline Deliveries

CA Bill Would Impose Charges On Interstate Gas Pipeline Deliveries

With possible national implications, California has proposed a state law that would impose "public goods" surcharges on all gas sold for consumption within the state, including gas delivered by several proposed federally-regulated interstate pipelines that seek to bypass local distributors and directly serve large industrial customers. The fees would support energy efficiency, weatherization, public interest energy research and development, and low-income programs. The proposed change undergoes its first public scrutiny in a legislative committee hearing in Sacramento on April 19. If passed it is sure to splinter the gas industry between intra-and interstate interests.

The proposal's sponsor, Los Angeles-based Assemblyman Rod Wright, has received assurance from FERC sources that the federal regulators will try to accommodate California's provision should it become state law, according to one well-placed energy lobbyist in the state capital. "We know those are FERC-regulated pipelines, so there has to be some help from the feds to make this thing work," the source said.

According to the bill, a non-utility gas provider shall collect the surcharge from any person consuming natural gas in this state who receives gas service from that non-utility gas provider. There also are specific provisions for FERC-regulated natural gas providers to notify the state of their status as "non-utility natural gas providers" in a direct attempt to more broadly apply the requirement for paying the surcharge.

The proposal (AB 1002), which was refined earlier this month in the lower house of the California Legislature, would directly impact current separate proposals by Williams' Kern River Pipeline to extend its existing interstate pipeline south to Long Beach to pick off large industrial loads in Southern California, and Questar Corp.'s proposed Southern Trails Pipeline, a conversion of a former oil pipeline from New Mexico's Four Corners area to Long Beach.

California regulators recently raised the issue in Questar's certificate proceeding for the Southern Trails project because it's the "first new bypass" in the state. "The FERC should either deny Questar's certificate application or remedy the...problems" associated with the stranding of social costs, the California Public Utility Commission (CPUC) said in its protest [CP99-166].

The CPUC said 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 a Long Beach Arco refinery paid to SoCalGas for public-purpose programs.

"We're opposed to any state charge on interstate pipelines," said Jennifer Pierce, a Salt Lake City-based spokesperson for Kern River. Attorneys and consultants, along with the Interstate Natural Gas Association of America, are examining the legal aspects of interstate pipelines being hit with state charges. One observer said it was assumed that the Natural Gas Policy Act originally was created to stop states from impeding interstate commerce by taxing natural gas supplies crossing state lines. INGAA stands solidly against the imposition of any state fees on FERC-regulated interstate gas operations.

"There are only so many things you can do until FERC has acted," said a Questar spokesperson in Salt Lake City. "But everything is pretty much a go. We're talking to local leaders impacted by the project in California, Arizona and New Mexico, and we'll be ready to go when we get the go-ahead from FERC."

In California, the customers of the state's three major natural gas distribution utilities pay so-called public goods surcharges. Without the proposed state law, customers not served by the three utilities would escape the surcharge.

Richard Nemec, Los Angeles

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