By the OGJ Online Staff
HOUSTON, Sept. 27 -- The California Energy Commission is scheduled to consider a controversial report on natural gas, including a call for more state self sufficiency, at its Wednesday meeting.
Consideration of the draft report was delayed after various parties, including state utilities, independent generators, consumer groups, and the California Public Utilities Commission, objected to some of its conclusions. The commission undertook the study after gas prices skyrocketed to more than $10/Mcf last winter.
In comments, the California Independent Petroleum Association (CIPA) said the organization supported the need for increased in-state production and endorsed the report's call to identify dysfunctions in current regulatory and utility policy with respect to intrastate and interstate pipeline infrastructure, capacity constraints, and delivery to end users.
Noting California production has declined to 15% of total in-state gas use from a historic pattern of about 25%, CIPA said regulatory relief and proper incentives would produce an upturn. The producer group blamed the decline on environmental laws, high drilling costs, low gas prices in the 1990s, and labor shortages.
"Many producers believe the operational policies and statutes governing the state's major gas utilities have also contributed to production declines," CIPA said. The organization called for the state to set deadlines for connecting wells to pipelines and new incentives for utilities to accept in-state gas.
The producer group said it takes up to 6 months to receive approval to connect new wells. Interconnection terms are sometimes so burdensome producers have abandoned new exploratory projects, CIPA said. Moreover, utilities have used their interconnection authority to stifle in-state production in favor of out-of-state supplies, it said.
The producer group recommended a series of changes to boost California gas production, including:
-- Encourage new exploration by requiring utilities to install metering sites or allowing producers to install them.
-- Allow producers to bear the interconnection costs, such as pipeline construction and labor, if the utility workforce is overburdened.
-- Require utilities to allow in-state production to flow to alternate markets when pipelines are curtailed or shut-in.
-- Require utilities to sell off gathering systems consistent with state law and the Gas Accord. The Pacific Gas & Electric Co. accord was intended to relax hookup restrictions between producers and PG&E, but PG&E has yet to divest its gathering system, and producers claimed the company continues to restrict access to the market.
-- Prohibit utilities from assessing local transportation charges on gas moved from storage, where the utility has already been paid to move gas.
-- Create incentives for development and permitting of blending facilities.
-- Create new tax incentives for landowners to provide right-of-way and easements.
--Authorize utilities to exercise eminent domain to accommodate interconnection.
-- Allow producers access to fee property, easements, and rights-of-way to tie-in to utility pipelines.
-- Standardize city and county permitting for gas well, pipelines, and interconnections.
Calling the report "one-sided," PG&E said it already is providing rapid and efficient service to in-state producers. The San Francisco utility said most interconnections occur within 45 days and the average connection time is 38 days.
It said it has made several attempts to sell its gathering system "with no success, although not from a lack of trying." PG&E said California producers already have an advantage over out-of-state producers because they don't pay interstate transportation costs that give out-of-state suppliers a lower netback price for gas.