In several different segments of the energy industry, California is forecasting smaller natural gas loads for electricity generation in the years to come.

A combination of the impact from more renewables, wholesale price volatility and greater efficiency is expected to lower future gas volumes for electricity production in the state, according to recent developments by both private- and public-sector utilities. The result could mean higher rates for some private-sector gas utility transportation customers and more attractiveness for added out-of-state coal-fired supplies for the nation’s largest municipal utility in Los Angeles.

The Los Angeles Department of Water and Power (LADWP) has been ruminating for nearly two years about whether to join in a proposed expansion of the Intermountain coal-fired power plant in Utah, of which it currently holds a substantial interest. Environmentalists and renewable energy advocates are strongly against such a move for the large muni, but the economics may become more attractive if wholesale natural gas prices and the push for more renewables continue unabated, a LADWP official said during a brief interview with Power Market Today Wednesday.

Another impact is the retirement of old, inefficient plants or the re-powering of them to make them more efficient. LADWPs half-century-old gas-fired plant in the San Fernando Valley section of the city is currently being entirely reworked. When it starts up again in March, it will operate with 30% more efficiency, according to Randy Howard, LADWP’s communications director, who noted that gas-for-power-plant forecasts are also being revised downward because of the number of plants postponed or cancelled over the past two years.

In California’s core/non-core gas market where all large customers (“non-core”) buy their own supplies and pay the gas utilities a transportation charge, customers could face higher pipeline transmission charges because of the lower revenues the utilities are expecting to be receiving from the electric generation plant segment of the non-core market. A San Diego energy consultant complained in a business report earlier this month that commercial customers face a 117% boost in their transportation charges from San Diego Gas and Electric Co.

John Burkholder, principal in the Fallbrook, CA, consulting business, told local business media that the non-core customers — particularly the small and medium-sized ones — lack for representation from both traditional utility consumer organizations and from the utilities since Sempra has merged its two utilities, Southern California Gas Co. and San Diego Gas and Electric Co. SoCal is the sole supplier of gas, at wholesale, to SDG&E.

Thus, Burkholder told a local business journal that the utility serving him, SDG&E, is not going to oppose the non-core transportation rate increase of $23.5 million that SoCalGas is proposing in a cost allocation filing it (and SDG&E separately) made to the California Public Utilities Commission.

According to a Sempra utilities’ spokesperson the primary reason in back of the increased transport charges are forecasts calling for what the utilities call a “significant reduction” in gas use by electric generators and large industrial customers. Reductions in those large revenue streams have to be made up by the remaining transportation (non-core) customers.

LADWP is subjected to increasing conflicting pressures that need to be balanced, as its portfolio does, but all of the scenarios point to smaller natural gas loads for the large utility, which is one of SoCalGas’ largest transportation customers, along with private-sector electric utility, Southern California Edison Co.

LA’s utility is already committed in a multi-year, billion-dollar integrated resource program of re-powering its aging fleet of natural gas generating plants in the Los Angeles Basin, but each will be approximately 30% more efficient, so as a fleet the output will increase but the gas load will drop, Randy Howard said.

At the same time, political pressure is mounting for the city to adopt the state’s standard for renewables of a 20% figure for investor-owned utilities that is being moved up from 2017 to 2010. (Gov.-elect Arnold Schwarzenegger already has endorsed this more aggressive approach.) With the adoption of so-called green sources of electricity (solar, wind, geothermal, biomass and small hydro), less natural gas is needed for power production.

Further, as Howard, at LADWP, confirmed, the more renewables are rushed ahead of their availability, the more of a premium price will be paid for these supplies. That brings a counter pressure away from gas-fired generation with its higher, more volatile prices, in favor of out-of-state coal-fired plants to let the relatively cheap power subsidize the higher cost renewables.

The bottom line, even with California’s historic reliance on natural gas to make electricity, is a strange mix of developments working to decrease that reliance in the years ahead. By the end of November, the Los Angeles City Council is expected to adopt a renewable energy portfolio standard for LADWP. If that standard is anything close to the statewide 20%, further decreases in future LADWP gas-for-power forecasts can be expected.

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