In a case that tests the limits of how far California went in establishing third-party, non-utility natural gas storage, two of the state’s energy heavyweights — Pacific Gas and Electric Co. and Calpine Corp. — are going toe-to-toe over allegations that Calpine has “colluded” with a third-party storage operator, Lodi Gas Storage. PG&E’s utility wants state regulators to come down hard on both the merchant operators.

Calpine and Lodi argue that they are being picked on unfairly and unnecessarily. In one of the nine causes of action outlined in the utility’s complaint, Calpine and Lodi are accused of “conspiracy to operate an unregulated public utility.”

Past partners in various deals, PG&E and Calpine are at odds over what the utility alleges is a blatant attempt to bypass the PG&E utility backbone pipeline transmission system. As a result, PG&E’s utility natural gas retail customers could pay an extra $20 million, an estimated total of past and future fees the two merchant firms have avoided through their alleged schemes.

The utility filed a strongly worded complaint with the California Public Utilities Commission (CPUC) late last month, and almost immediately Calpine fired back by calling the charges “unfounded and counterproductive to meeting the state’s policy goals.”

In the center of the controversy is Lodi Gas Storage, the state’s second underground natural gas storage facility operating on market-base rates. The utility objects to how Lodi uses its 33-mile pipeline connection to the PG&E utility transmission pipeline system. The utility alleges that Calpine has a connection between the utility backbone system and the storage field, and some gas gets diverted that never goes in and out of storage.

“(A Calpine affiliate) is unlawfully operating an extensive natural gas transportation and delivery system in the heart of PG&E’s franchised natural gas service territory, delivering gas to numerous end-use customers without any authorization or oversight by (the CPUC), in plain violation of California law,” PG&E’s lawyers state in the complaint. The utility asked for the CPUC to “immediately” issue a show-cause order to Calpine and Lodi to have them demonstrate why they shouldn’t have to apply to operate as public utilities under the CPUC.

PG&E contends in its filing that the CPUC has a “carefully structured program” for the regulation of third-party storage operators like Lodi. The regulatory commission, the utility argued, has not authorized storage providers to provide transportation or distribution services, both of which it alleges Lodi has been doing in conspiracy with Calpine.

Under CPUC provisions, Lodi is supposed to restrict the 33-mile pipeline’s use to taking gas supplies in and out of its underground storage field. Calpine owns and operates its own power plants and natural gas production fields in the Sacramento Delta area, including various gas gathering pipelines.

Later this month, a Calpine spokesperson said the company would be formally responding (Aug. 27 or 28) to PG&E with a filing to the state regulatory commission.

“The issues raised in the complaint are currently before the (CPUC) in a separate PG&E-initiated (complaint) proceeding and ongoing workshops sponsored by the California Energy Commission and state Division of Oil and Gas and Geothermal Resources,” Calpine said in its prepared statement. “Calpine has worked with PG&E, and will continue to work with PG&E, to resolve these issues in an appropriate manner.”

PG&E’s utility alleged that Calpine is avoiding paying franchise and transportation fees by avoiding the connection with the utility, and in its CPUC filing, it compared this behavior with the “round-trip trades” and the wholesale market manipulation investigations. PG&E’s complaint called the transaction between Lodi Storage and Calpine “natural gas laundering.”

The utility is asking the CPUC to stop the Calpine-Lodi transactions and order the companies to pay back fees and charges.

While referring to PG&E as a “valued and long-time customer/supplier,” Calpine argued in its prepared statement that it owes no charges because its gathering system that is connected to Lodi’s storage project serves solely the Calpine power generating facilities, using Calpine gas or gas it has purchased from third parties. PG&E’s utility and its retail customers are not involved in any way, so the fees are not applicable, the company argued.

Defending its connection with Calpine, Lodi Storage’s Scott Wilson, an operating vice president, said the storage operator is a “public utility,” and as such, it must offer open access. “It is really for the good of the state to provide open access to ensure the adequate and reliable supply of natural gas,” Wilson said.

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