On a strictly partisan 3-2 vote, the California Public Utilities Commission last Wednesday blocked a proposed extension of pipeline capacity allocations to natural gas core aggregators on two western Canadian pipelines feeding Pacific Gas and Electric Co.’s affiliate interstate transmission pipeline in the Pacific Northwest. The aggregators were seeking the same assurance of access to reasonably priced supplies that the core customers served by the utility already receive.

The CPUC majority voting against the move thought it would give core aggregation customers a “subsidy” from the vast majority of customers who have remained with the utility, and that the issue could be re-examined in the upcoming “post-Gas Accord” case reviewing the PG&E gas transmission/storage unbundling of the past few years.

“The need for this adjustment became apparent during the volatile period last winter when the market price of transportation on these (Canadian) pipelines threatened to destabilize service to core aggregation customers,” said CPUC Commissioner Richard Bilas, a former president of the regulatory panel who is now in the political minority on commission. “This is needed to protect those customers from future periods of price volatility.”

The decision should have required that the core aggregators seeking assignment of gas transportation capacity on the Canadian pipelines (Alberta Natural Gas and NOVA pipelines) make a one-year commitment that corresponds to the last year of the PG&E Gas Accord period, Bilas said.

Commissioner Carl Wood, one of three state regulators appointed by the current Gov. Gray Davis, opposed the proposal primarily because it would “provide a subsidy at the expense of all core customers,” and further would “artificially incent” a program that is suppose to “derive its benefits from the competitive market.”

Wood argued that PG&E’s gas utility would be forced to give up some of its own capacity rights on the two Canadian pipelines to the aggregators and then have to pay a higher price to regain some of that capacity at future times when supplies became tight. Those higher prices, he argued, would be borne by the existing utility core customers and the ones on core aggregation would avoid the added charges.

Two aggregators had argued that the move in assuring Canadian capacity was needed for them to retain customers and avoid having them return to the utility service. Wood did not think the CPUC should accept any “responsibility for assuring that gas aggregators are viable businesses.”

“Core aggregators should not rely on regulation to assure that they can continue to run their business,” Wood said. “Like any competitive entity, core aggregators must plan for market uncertainties and not rely in regulatory mechanisms to bail them out. If the aggregators cannot provide service to their customers, then those customers may choose to receive service from the regulated utilities. Customers will not have their choice taken away from them.

“Those customers who choose to participate in the core aggregation program must realize that they bear the entire risk of paying higher prices as a result of exercising their right to choose.”

The aggregators argued that they should get “equal treatment” with the utility core customers.

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