Despite claims that inadequate takeaway capacity at the SouthernCalifornia border had nothing to do with the record spot priceincreases there this winter, Southern California Gas Co.,nevertheless, plans to expand several receipt points by 150 MMcf/d.

Lad Lorenz, SoCalGas’ director of capacity and operationalplanning, said in an interview yesterday the LDC plans to addcapacity at Wheeler Ridge, the Needles compressor station and atpoints in the San Joaquin Valley. Surprisingly, however, theTopock, AZ, border delivery point was not among the points slatedfor expansion.

Topock by far received the most attention this winter becauseprices there shot to $69/MMBtu, an all-time high for the spotmarket. But Lorenz said an expansion there would be too expensiveand actually isn’t even needed.

“First of all, it’s the most expensive point on our system if wewere looking at incremental expansion,” he said. “Second, is thattakeaway capacity [on SoCalGas, PG&E, Southwest Gas and Mojave]at Topock matches the delivery capacity at that point,” he said. “Alot of that capacity does go to Northern California into PG&E’sterritory, but nonetheless there is no mismatch at the Topockdelivery point.”

There is not a physical mismatch in total capacity there, butthere is a mismatch between what the market demands and whatSoCalGas is physically able to provide, he conceded. “The situationis that all the shippers want to deliver their gas into theSoCalGas system [at Topock], so you could say from that perspectivethere is a mismatch,” he said.

But Lorenz went on to say that there is no incentive forSoCalGas to expand at Topock despite the strong demand there.Takeaway capacity on its system as a whole is unconstrained, hesaid, and to expand that point runs contrary to existing stateregulations. “We have to look at whether we should expand based oncapacity utilization across our entire system not just demand atone particular point. If there are opportunities for parties tomove gas to other receipt points that are underutilized,” SoCalGascannot justify an expansion at the constrained receipt point, hesaid.

If state regulators only would have approved SoCalGas’comprehensive gas restructuring settlement last year, California’sgas market would be a much better place today, according to Lorenz.The situation would not have been nearly as dire this winter, heindicated, had the CPUC approved a pathed approach to capacitycontracting as proposed in the settlement, which has been stuck inthe regulatory process for more than a year. That settlement wouldhave better aligned market demand with intrastate capacity and theLDC’s economic interests, he said. As it stands currently, SoCalGashas no incentive to expand at individual receipt points when thereis existing excess capacity at other receipt points on its system.

“We’re still interested in seeing that settlement move forwardbecause we think it creates the right structure on the system. Butit is an unbundling proposal and further restructuring, and thecommission seems reluctant at this stage to move in thatdirection,” said Lorenz.

Another factor that has been overlooked in recent marketanalysis is the decision by many California market participants notto make use of “fairly substantial” amounts of excess capacity onSoCalGas’ system in the early part of 2000. That turned out to betheir own undoing, said Lorenz.

“Even though there wasn’t demand on the system at that time, thecapacity was available. They could have put gas into storage atthat point in time. Customers elected not to do that, principallynon-core customers – the electric generators and large industrialusers. They elected not to do that at the time because that waswhat the forward price curve on the Nymex said. It said prices inthe future are going to be lower, so there was no economicincentive to store gas early in the year. Obviously, those futuresprices didn’t turn out to be accurate. Those that ignored them madea great choice. During the winter period, there wasn’t much gas instorage to take advantage of.”

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