The California Energy Commission has delayed until Sept. 12 consideration of a staff report recommending California natural gas utilities be required to maintain a 15-20% reserve margin, or "slack capacity."
The final draft of an assessment of natural gas infrastructure issues was scheduled to be adopted at the CEC's Aug. 29 meeting. The report, undertaken in the wake of the California energy crisis, called for new reliability standards for the state's natural gas transportation and storage system that take into account changing gas demand, especially for electric generators.
Tight supplies and limited transportation capacity and storage capacity contributed to last year's run-up in gas and electricity prices, the report concluded.
"Given the cost to consumers, the state needs to recognize the role played by the natural gas-fired generators in causing strains on the natural gas utility pipeline system and take steps to assure that the current bottlenecks are eliminated," it said.
Actions recommended
The report recommended that standards for reserve capacity should take into consideration regional conditions in the Western States Coordinating Council, winter and summer peak needs, and the potential for a dry spell every 10 years that could affect hydropower resources.
The standards should also take into consideration that many noncore customers don't have alternative backup fuel capability, it said, and called for the commission to conduct a risk assessment and other analyses to be used as the basis for revisions to existing standards for the state's natural gas system.
The report said the state must move "quickly and decisively" to approve intrastate pipeline capacity additions to remove in-state bottlenecks. It also noted that new demand in neighboring states in the North- west and West is displacing California demand on interstate pipelines.
With many proposed additions in the works, the problem of gas reaching California at the border could be resolved. However, the report said, if the projects do not materialize on schedule, state actions may be needed.
In the meantime, it called on the CEC and the California Public Utilities Commission to develop a curtailment policy that is fair and promotes efficient use of gas during periods of limited supply. If Califor- nia relies on the current curtailment policy to meet peak winter demand, the state faces an increasing chance of electric generator curtailments during unusually cold winters and extremely hot summers.
More storage needed
With storage playing a bigger role in gas supply and demand, the report called for the CPUC and CEC to jointly examine the need for additional independent gas storage facilities in the state. Extra storage could serve peaking needs and result in a secondary market, that helps to keep prices down, it concluded.
It also said other options warrant investigation, including:
- The California Independent System Operator could require gas storage for reliability-must-run (RMR) plants to meet annual and seasonal generation requirements. An RMR plant is a generating facility that the ISO can call upon to provide energy essential to the reliability of the system. The tariff of an RMR plant includes a fixed payment to compensate for availability and a second, variable payment to compensate for cost-based rates, if the unit is not participating in the market.
- The ISO could offer contracts to generators that would allow recovery of gas storage costs.
- The Department of Water Resources' contracts for electricity could require gas storage.
- The CPUC's siting conditions for new power plants could require a level of gas storage to meet corresponding demand.
- The California Consumer Power & Conservation Financing Authority could invest in or acquire gas storage for electric generation.
- The CEC, CPUC, and the Federal Energy Regulatory Commission should investigate ways to encourage a secondary gas storage market.
- The CPUC could provide more incentives to store gas by tightening up the utility balancing rules.
The CEC electricity and natural gas committee said it plans to conduct a fall workshop on options for making the best use of gas storage to deal with concerns of noncore customers.
