California’s energy infrastructure has sufficient upgrades to stave off any repeat of the 2000-2001 crisis through the next two to three years, but failure of federal and state regulatory policy to keep pace casts a lot of uncertainty over the structural advances, according to state energy official and a gas utility executive who spoke to an energy industry conference in San Francisco Friday.

In fact, California regulators who have been very critical of their federal counterparts in the past two years are missing a chance to “trump” the feds on the gas side, said Jeff Hartman, director of energy markets/capacity products at Southern California Gas Co.

Reiterating what he has been saying all summer about the California Public Utilities Commission’s failure to implement SoCalGas’s wholesale unbundling of its upgraded backbone transmission pipeline system in the state, Hartman said the CPUC is missing a golden opportunity to put the state commission in the driver’s seat when it comes to determining how much supply comes into California from the Southwest. The state commission could approve a system of firm tradable transmission rights on SoCal’s system while the Federal Energy Regulatory Commission delays its action on “reforming” the El Paso Natural Gas pipeline system serving the state.

“Ultimately, I think the CPUC has to approve a system of firm tradable rights,” Hartman said.

At the same time the price and supply/demand crunch that California faced for both power and natural gas two years ago should not be a problem unless financial and regulatory uncertainty grows even worse, Hartman and a California Energy Commission official, Bob Therkelsen told the Law Seminars International conference, “Return to Energy Regulation in California.”

“We expect demand to decline on the SoCalGas system, but you have to understand that it is declining from a very high level in 2001 that was unprecedented because of the extremely low (1-in-75 years) hydro supplies and a lot of significant nuclear plants down in the West, creating the so-call ‘Perfect Storm’ developments all converging at once,” said Hartman. He noted that with its upgrades this year, SoCalGas, through storage and daily pipeline deliveries, can satisfy a demand of up to 6 Bcf/d (5.3 Bcf was its all-time system record back in 1990).

“From a statewide perspective, we are in pretty good shape in meeting forecasted electricity demand,” said Therkelsen, deputy director for siting/environmental protection at the state energy commission. “For planning, the state’s reserve margins (for generating capacity) will jump up to 19% next year and 24.5% by 2005. The picture this presents in the near-term is that things look pretty good.

“However, there are a number of uncertainties related to financial conditions and regulatory constraints in the industry, and the utilities are included in that situation. So for those of us in the siting and compliance area, we worry about generation plant maintenance and whether financially strapped generators will be able to keep up with the needed maintenance. Will they defer maintenance leading to more forced outages.” Therkelsen added that what he called “the tug-a-war between the state and federal government” makes the future more uncertain, and thus, reliability of the system more questionable.

Part of the uncertainty surrounds the failure of the state to act on SoCal’s gas settlement implementation, Hartman said. “A key element was that the shippers could have been able to link their wellhead, interstate and (SoCal) backbone access under one set of aligned contractual arrangements with a greater certainty that they could get their gas from the wellhead to the burner tip,” he said. “It would allow the customer a lot of options on managing their access.”

Hartman acknowledged that part of the inaction at the CPUC has been sparked by challenges by consumer and generator groups — one asking for the wholesale settlement to be re-litigated in effect. One sticking point is demand charges for generators, which they resist strongly, he said.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.