Over the strong protests of its large public and private-sector electric generating customers, Sempra Energy’s two California utilities later this year will merge their natural gas buying operations as an efficiency move if state regulators okay a currently proposed decision from one of their administrative law judges. Although the two utilities are in the process of merging their management functions throughout each organization, the gas-buying combination has been a proposal since the time of the merger that eventually would form Sempra was announced in the fall of 1996.

The California Public Utilities Commission has scheduled a vote on the proposal at its April 4 business meeting. Comments on the proposed decision are currently being gathered.

The utilities and regulators are in agreement that the move will “promote efficiency and reduce costs,” but the large public generators, such as the municipal utilities in the cities of Los Angeles, Burbank, Glendale and Pasadena, along with Reliant, AES and Mirant, are strongly opposing the move as being discriminatory and disadvantageous to Southern California Gas Co. customers and a “subsidy” to San Diego Gas and Electric Co. customers.

The proposed ALJ decision would permit SoCalGas and SDG&E to consolidate: (a) gas supply portfolios and related interstate pipeline and storage capacities, charging the same cost of gas to utility procurement (core) customers in both utilities’ service territories; (b) combine management of the two gas acquisition functions into one group; (c) implement revised rules for core and non-core customers; (d) allow non-affiliated wholesale customers to buy gas from the combined portfolio; (e) when current brokering arrangements elapse for unassigned SoCal capacity on El Paso Natural Gas Co.’s system, reallocate that capacity to the two utilities’ combined supply portfolio; and (f) allow employees in the consolidated gas procurement function to participate in the negotiations of any SDG&E power contracts and associated gas supply arrangements involving tolling provisions.

“Basically, the generators feel it is a subsidy from SoCal ratepayers to SDG&E’s ratepayers,” said a source close to the major public sector utilities in Southern California Generation Coalition.”Of course, they will have market power, too, so we felt our prices of gas would be lower if we had some separation of the two, but the commission (CPUC ALJ) shot that down. They think it is more efficient to operate a single portfolio and Sempra claims it will save a million dollars a year in overhead.

“The CPUC likes it, too, providing what it calls ‘regulatory efficiency’. That just means it makes it easier for their staff to hear the cases. (The generators) also think that SoCalGas should keep the unassigned capacity on El Paso just in case we have a repeat of a couple of years ago. It is just becoming quite valuable, but those arguments were shot down.”

SoCalGas and SDG&E jointly filed for the consolidation Jan. 11, 2001 at a time of unprecedented high wholesale natural gas prices at the California-Arizona border. They told the regulators that the combined gas-buying organization would remain separate from the utilities’ gas operations as required by the SoCal-SDG&E merger conditions. Combined the two utilities now have 54 employees dedicated to gas buying; with consolidation, they propose to eliminate seven to nine positions.

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