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CA Energy Officials Worried About Gas for Electricity

CA Energy Officials Worried About Gas for Electricity

As spot gas prices in California were breaking records again Friday with $61/MMBtu quotes being reported at PG&E's Citygate, some state officials already started dubbing the upcoming heating season as California's "winter of discontent."

"We could have some real problems," said Richard Bilas, the former energy commissioner and immediate-past president of the CPUC, speaking last week about his proposal for a modest unbundling of SoCalGas' system, given the current energy price volatility. Action on the proposed decision tied to settlements filed late last year and early this year could come Dec. 21, but observers predict alternate orders will be offered by some of Bilas's colleagues on the five-member CPUC, and that could push final action into next year.

If gas prices continue at their precedent-setting levels, California likely will be intervening at the Federal Energy Regulatory Commission as it already has been doing regarding last summer's electricity price spikes, Bilas said.

"There are a lot of things the state can do, but whether they are done is a matter of philosophical and political judgment," he said. "If gas prices get totally out whack in the view of a number of state decision-makers, there is likely to be intervention on behalf of the state into gas pricing. And I don't know if any of that serves the public well in the long run, but this is a short-run political problem."

Last Thursday, Sempra Energy's San Diego Gas and Electric Co. utility asked federal regulators to cap gas transportation costs to the California border as a companion to earlier requests to the feds to impose cost-based wholesale electricity price caps. The latest move, SDG&E said, "would allow a return to more reasonable natural gas prices for generation in California and assure that the benefits are passed on to (retail) customers through cost-based electric rates."

Meanwhile, the natural gas expert at the California Energy Commission, which sites power plants in the state, expressed a lot of concern last week about this winter's and the longer-term ability of the natural gas market and infrastructure being able to keep up with the unquenchable thirst for electricity in the state. With record natural gas prices and the continuing supply/price woes for electricity, the official thinks all of the major interstate pipelines serving California need to boost capacities.

The situation as early as this winter could become particularly critical in northern California, said Bill Wood, a gas expert on the state energy commission staff, because Pacific Gas and Electric Co.'s system "doesn't have the same flexibility" as Southern California Gas Co.'s pipes and storage in the southern half of the state. Generally, the array of gas-fired generating plants in the north have no oil-burning (alternate fuel) capability.

California is dependent for 80% to 85% of its gas supplies from out-of-state through four principal interstate pipeline systems representing Canadian, Rocky Mountain and Southwest basins. Five of the 6 Bcf average daily load comes from outside the state.

"This winter we could very well see curtailments of noncore gas customers and that could include electric generators, and if they get cut, we don't have a fallback anymore," Wood said. "In northern California, there is very little oil-burning capability. In southern California, Edison plants had the capability, but they haven't burned any oil in years; and San Diego plants have switched (Nov. 13-17), but people are telling me they are running up against some air emission rules.

"Next week (Dec. 11-17), we may look back and think this week was nothing compared to what happens, if we really do get hit by that cold snap that comes through."

Longer term, the scenario most concerning Wood is that if all of the new natural gas-fired power plants that are currently under construction or planned in the surrounding states of Oregon, Nevada, Arizona and New Mexico are built, pulling new large gas loads off the interstate pipelines serving California, his state is going to be literally on the "short end" of the pipeline unless El Paso Natural Gas, Transwestern and PG&E's Pacific Northwest Pipeline (PGT) boost their capacities, and in turn, PG&E's utility and SoCalGas increase their takeaway capacities within the state.

Wood pointed to what Kern River Pipeline is doing to boost its loads into California (see NGI, Dec. 4) as an example of what the other interstate pipelines need to do to serve the contemplated added electric generation load inside of the state.

"Kern River is moving ahead because they see the handwriting on the wall," Wood said last Wednesday. "They see capacity needed to take care of power generation, and they are moving in to take care of it.

"But we may still have some problems inside of California with all of this new generation that is coming on. It could begin to start taxing the ability of the utility systems to provide gas supply to them. There is potential there, even though we really haven't looked at that in detail yet."

Boosts in California's in-state production, which has had some modest increases, particularly at Elk Hills and other parts of Kern County, will never be enough, according to Wood. The current contribution is about 1 Bcf, or roughly 15-18% of the state's gas needs. The most Wood sees this increasing to is about 20%.

"Everything to do with gas matters statewide is on the table and I am not going to make any predictions," Bilas said during a telephone interview in which he expressed concerns about both natural gas and electricity issues in California in the coming year. He said the supply-demand imbalance for the state's electricity market needs long-term solutions, but he thinks short-term political answers will win out.

Bilas said the recent state energy commission conclusion that California's electricity needs can be met with the existing plants underway or proposed could pan out, but only if an unlikely combination of three factors converge: all the plants now on the drawing board actually get built, no major electric or gas transmission bottlenecks occur, and energy prices stabilize.

"Even if all of the proposed plants came on line in two years rather than three, I think we still would have problems," he said. "Let's face it, demand for electricity in the Pacific Northwest and California is growing like crazy. So, until there is something done on the demand side, so we get some demand responsiveness, just attacking the supply side I don't think is going to do it."

Richard Nemec, Los Angeles

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