Confirming what the state’s energy crisis made abundantly clear months ago, the California Energy Commission (CEC) staff last week released its final draft report on the state’s natural gas infrastructure, concluding that it is constrained and has caused higher-than-average wholesale gas prices, particularly in the southern half of the state. But the report did not totally rule out market manipulation as a culprit.

It concludes that a combination of infrastructure shortcomings and possible market manipulation has to the higher natural gas prices in California. “Market participants may have manipulated prices even higher than justified by existing infrastructure bottlenecks, but it is the inability of gas customers to rely on competition between gas suppliers that contributed to higher prices in California,” the report stated.

Among a half dozen recommended steps the state can take to help bolster initiatives already under way by utilities and merchant energy suppliers, said the CEC report, which will go to the five-member commission for approval Aug. 22. It stressed encouraging the development of more “independent” gas storage facilities, and taking steps to more fully “optimize” storage, including an increase in its use by large end-users.

As a backdrop to the study’s conclusions, the CEC report noted that both upgrades of in-state infrastructure and interstate pipeline capacity are needed to meet “growing demand in California and throughout the West.” If the current proposed interstate pipeline expansions don’t come online as scheduled, the CEC report said other state actions would be necessary, although it did not spell out what those might be.

For the future, the report said that the CEC will track more closely storage levels and natural gas prices because they are “key indicators” of how extensive problems might be at any given time in the state’s natural gas infrastructure.

The other steps recommended for action are: 1) encouraging more in-state natural gas production (the state legislature already has proposed a new law to provide incentives); 2) setting new “design criteria and reliability standards” for the state’s gas system to reflect what the CEC calls “the changing nature of natural gas demand, especially for electric generators;” 3) establishing integrated planning of the state’s pipeline and storage facilities; and 4) developing a “natural gas curtailment scheme” emphasizing efficiency and optimizing gas use in times of shortages.

The 111-page report, “Natural Gas Infrastructure Issues,” prepared by the CEC Electricity and Natural Gas Committee for final adoption of the five-member politically appointed commission, assessed the state gas industry from the perspective of supply, pipeline capacity (both inter- and intrastate) and storage, with the added elements of the recent historically severe drought in the Pacific Northwest and the in-state pipeline constraints at the California-Arizona border.

As part of the proposed implementation, the report recommends that the CEC work more closely with the California Public Utilities Commission to develop a new curtailment policy that is “fair and at the same time promotes the efficient use of natural gas” during shortage periods. It also proposes that the CEC this fall conduct a workshop to determine ways to have non-core, large energy-intensive customers better optimize their use of natural gas storage.

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