At the request of several major market participants, the California Energy Commission revised its draft natural gas infrastructure report to increase its short-term assuredness, but it also raised questions about over-reliance on natural gas for electricity generation longer term. The report is on the commission’s agenda for approval Wednesday (Oct. 3).

Calling it “another piece of the puzzle,” CEC Commissioner Michal Moore, the presiding member of the committee developing the report, said intrastate takeaway transmission capacity is “highly cost effective and can be rapidly constructed,” and the report strongly supports the state expanding its in-state capacity. A major driver, he said, is a collective 100,000 MW of gas-fired new generation plants proposed for the 12 western states making up the Western System Coordinating Council reliability grid.

The new draft of the report concludes that a combination of “insufficient (pipeline) receipt capacity” on both sides of the Arizona border “contributed to the high price of natural gas in the fall and winter of 2000.”

“Whether the prices during this period were, in whole or in part, the result of a free market’s rationing of scarce supplies through a scarcity premium, or entirely the result of price manipulation, is beyond the scope of [this] report,” said Moore in a preface to the 123-page document. “The CPUC is currently making its case before FERC that high natural gas prices were due to price manipulation. The energy commission has every confidence that the interests of California ratepayers will be well represented by the CPUC.”

Moore noted the market dynamics are different today, and in the report there is a call for reexamining the state’s natural gas infrastructure design and planning differently.

“California can no longer plan for the future as if we lived in a regulated, cost-plus environment,” Moore said. “Under price regulation, adverse hydro-electric conditions and extreme temperatures did not lead to extreme price spikes. Under today’s conditions, that is no longer the case.”

The report looks at supplies, interstate capacity, intrastate capacity and in-state storage facilities, and determines that upgrades need to continue on the California facilities, including the encouragement of additional merchant storage projects (there will be two online by November, both in northern California). It notes that in addition to Southern California Gas Co. adding 375 MMcf/d of new transmission pipeline capacity by the end of the year, Pacific Gas and Electric Co. is planning to add between 200 and 600 MMcf/d to its system by 2003.

(No reference in the report is made of the recent development, Sept. 20, as part of the PG&E bankruptcy reorganization plan, to move the utility’s natural gas pipeline and underground storage system under the parent as a nonutility, FERC-regulated operation.)

The report also characterized as “a major departure” from the original analysis that the current gas outlook is improved considerably because the state’s private sector distribution utilities were able to meet all of the peak demand of electric generators this past summer and at the same time get record amounts of gas in storage. (Mild weather and aggressive statewide conservation helped contribute to this outcome.)

As a result, the energy commission report expects the present stable wholesale gas prices to continue through the winter, particularly with the CPUC-approved move by SoCalGas to remove 37 Bcf of storage cushion gas from the idle Montebello underground story facility, along with some from Aliso Canyon and Goleta fields as well.

The report strongly recommends that the state begin to look more closely at its natural gas infrastructure on what it calls an “integrated basis” that combines not only transmission and storage, but extends to charting natural gas and electricity wholesale prices and the types of additional demand-responsiveness programs that are in place for the largest industrial and commercial end-users.

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