Questar Pipeline has called on FERC to jettison the proposedmerger of powerhouses Sempra Energy and KN Energy, insisting thedeal would “undermine” competition in the gas and electric marketsin southern California.
Hitting closer to home, Questar contends a merged Sempra-KNwould have the “motive and the method” to block the entry of itsproposed gas pipeline, Southern Trails Pipeline, into the southernCalifornia gas market. The “motive,” it claims, would be to preventSouthern Trails from competing directly with Southern CaliforniaGas (SoCalGas), an LDC subsidiary of Sempra Energy, for powergenerators and industrial customers.
Southern Trails, which is seeking FERC approval to be convertedto an interstate gas pipeline, could pose a real threat to SoCalGasbecause it has the potential to become the first pipeline tocompete head-to-head with the California LDC in supplying gasdirectly to generators and other customers in the Los AngelesBasin, Questar said. Because it has a right-of-way into Long Beach,CA, Southern Trails would be “uniquely positioned” to serve itscustomers without having to go through SoCalGas like otherpipelines.
The “means” to block entry is KN Energy’s control over thecapacity of TransColorado Gas Transmission. Although TransColoradois a 50-50 partnership between KN Energy and Questar, KN Energy haseffective control over two-thirds of the certificated capacity ofthe pipeline, according to Questar. It has sole control overone-third of TransColorado’s capacity and it has a partial stake inanother third, which requires its consent to market.
“If the FERC allows Sempra and KN to merge…[they] will havethe incentive and ability to disrupt the TransColorado project andthereby eliminate supply sources from Southern Trails andultimately the southern California market,” Questar noted.
The TransColorado pipeline is a vital link in Questar’s plan tosupply the southern California market with cheaper Rocky Mountaingas supplies in competition with higher priced gas sourced from theSan Juan Basin, Questar said. Without it, the plannedQuestar-TransColorado-SouthernTrails delivery chain to Californiawould be impossible.
Since the Southern Trails’ gas pipeline was first proposed,Questar contends SoCalGas has been doing everything in its power tostop it. It “attempted to convince the City of Corona to withdraw afranchise agreement that authorized Southern Trails…to continueoperating the line under city streets; [it] has attempted to causean increase in the level of franchise fees paid by Southern Trailsto various cities; and Sempra has pushed [state] legislation thatwould increase the burdens on competing pipelines by adding asubstantial surcharge for ‘public purpose’ programs,” Questarcharged.
Additionally Sempra has “manipulated” its rates in an attempt toattract shippers away from Southern Trails, the Salt LakeCity-based pipeline said. “While the FERC certainly should viewlower prices as a good result, the prior history of similarSoCalGas rate reductions indicates that the decreases will beshort-lived-they will last only until the competitive threat isgone.”
One of SoCalGas’ “most lethal weapons” in the fight againstSouthern Trails’ competitive entry is its “Residual Load ServiceTariff” (RLS), which requires any SoCalGas shipper that takes partof its service on another pipeline to pay for up to 100% of itsservice on the LDC-even if the shipper isn’t using it. “This isextremely punitive to partially bypassing customers, and Questarhas found that it affects Southern Trails’ ability to compete forcustomers in the region…Significantly, none of Sempra’santicompetitive actions-including the RLS-have been able to stopSouthern Trails from proceeding with its project. The proposedmerger, however, raises a new and unfair hurdle that seriouslythreatens to undermine Southern Trails’ ability to compete againstSempra.”
The effects of SoCalGas’ alleged anticompetitive actions will be”felt beyond the gas markets,” in the California electricitymarket, Questar said, given that the role of gas in setting themarginal electricity price continues to grow. “Therefore, Sempra’sincentive and ability post-merger to keep gas prices high can andwill have significant effects on the electric market in southernCalifornia by driving up electric prices.”
But Questar believes Southern Trails, if approved by FERC, couldhelp to keep power prices in check because it would reduce thedominance of SoCalGas as a gas supplier for electric generation inCalifornia. “…[I]t was not surprising that many of the bids thatSouthern Trails received in response to its recent open season wereeither from electric generators or from shippers planning to serveelectric generators.”
Questar pointed out that Sempra has everything to gain fromhigher gas and power prices. They would increase the value of its680 MW of generating capacity that Sempra will hold at the end ofthis year, and would boost the profitability of its brokering andmarketing affiliate, Sempra Energy Trading. “Once [Sempra EnergyTrading] has locked in a particular price position in the electricmarket, it can manipulate the price of gas (and therefore the priceof power) to make its position more profitable,” the pipeline said.”This appears to be the most troubling concern because such pricemanipulation in the electric market is very difficult to detect andcan get lost in a morass of paper trades.”
©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |