CALIFORNIA GAS TRANSPORT COMPETITION BOOSTED

The California Public Utilities Commission has issued new regulations establishing firm transportation service for industrial users.

The CPUC's order last month also limits California gas utilities' ability to compete with private, nonutility firms in buying gas for customers in the state.

California local distribution companies (LDCs) have 90 days to submit plans and timetables for CPUC review, with full implementation planned for Aug. 1, 1991.

The order is largely a response to complaints by various companies alleging excessive market influence by LDCs in buying gas for sale to industrial users, limited access to pipeline space for transporting gas, and unfair or inefficient cost allocation and rate design policies.

In a related proceeding, CPUC seeks to develop a system to provide reliable access to allocate fairly pipeline space among users. Under such capacity brokering, to be approved by the Federal Energy Regulatory Commission, noncore customers would bid for a certain amount of natural gas at a certain price, with top bids getting highest priority capacity.

BACKGROUND

The commission's order essentially adopts most key elements of a compromise settlement reached among LDCs, consumer groups, and gas brokers that followed a CPUC proposed rulemaking last July.

Alberta's government especially had objected to a CPUC proposal that would have limited Pacific Gas & Electric Co.'s purchases from its affiliate Alberta & Southern, a broker representing Alberta gas producers, to 15% of its supply needs. It also would have required A&S to renegotiate producer contracts.

Alberta maintained the earlier proposed rulemaking violated the U.S.-Canada free trade agreement by intruding a regulatory constraint on free trade between the two countries.

In addition to winning approval of Alberta and Canadian federal officials, the settlement includes PG&E, San Diego Gas & Electric, Southern California Gas Co., California League of Food Processors, California Manufacturers Association, the consumer advocacy group Toward Utility Rate Normalization, Mock Resources Inc., GasMark Inc., and Enron Marketing Inc.

CPUC Pres. G. Mitchell Wilk said, "This decision represents an important interim step in achieving a truly competitive natural gas market where customers' interests are best served. In the final analysis, however, new pipeline construction and capacity brokering programs will achieve the competitive objectives that the commission ultimately seeks, and we will keep the pressure on both fronts.

WHAT IT DOES

The CPUC order limits PG&E and SoCalGas from direct sales to noncore customers.

SDG&E will continue to provide procurement services to noncore customers and to its own electric department.

To provide reliable service to large customers that don't wish to purchase their own gas supplies, LDCs still can sell gas to large industrial core subscribers, if the customers make certain commitments of time and quantity to the utilities. This core subscription service will be priced at the highest noncore rate and includes a separate brokerage fee.

Under the order, PG&E must make available to noncore customers 250 MMcfd of capacity on its Pacific Gas Transmission (PGT) pipeline to Canada. Previously, PG&E had exclusive use of the PGT line because of its high core demand, which includes that of its own electric department. Currently, PG&E purchases Canadian gas through PGT at a price higher than what Canadian producers can get from other customers. The CPC order will boost the number of buyers and sellers obtaining access to PGT transportation capacity.

The settlement agreement also covers implementation in Canada of measures to allow Canadian producers direct access to California end users, taking advantage of the firm transportation service adopted under the CPUC rulemaking.

CPUC also directed PG&E and SoCalGas to give noncore customers access to firm capacity on pipelines from the U.S. Southwest.

NEW SERVICE LEVELS

The order sets up these levels of transportation service for noncore customers:

Firm service, for noncore customers under annual contract who commit for 2 years to a 75% take or pay obligation and a take or pay equal to 80% of the firm transportation rate they are paying.
Annual interruptible service, for noncore customers under annual contract with a 75% take or pay obligation and a penalty equal to 60% of their transportation rate.
Monthly interruptible service, for noncore customers under annual contract with a 75% take or pay obligation and a penalty that's equal to 30% of their transportation rate.
Daily interruptible service, for less than a full month with no take or pay obligation.

Until now, PG&E and SoCalGas had offered only interruptible transportation service to its noncore customers.

Rates for firm service are fixed, but customers may negotiate discounts with the LDCs for the other levels. Rates will be set every 2 years in a biennial cost allocation proceeding, replacing current annual cases.

CPUC backed off its earlier proposal to allow LDCs to create unregulated affiliates to compete in the capacity brokering market. Under the current order, new LDC affiliates are banned unless it can be shown that the competitive market has failed to provide adequate and reliable service.

CPUC also adopted settlement provisions eliminating industrial demand charges. It plans a hearing to consider a cost based substitute for such charges.

EOR SERVICE BOOSTED

In addition, holders of long term interruptible contracts, notably enhanced oil recovery/cogeneration project operators, will have the option of being assigned to monthly interruptible service at the contract price or moving to firm service by paying a price to fall between contract price and firm service rate.

What this does, said CPUC, is allow contract holders more favorable terms than other noncore customers while continuing to honor contract terms.

CPUC Commissioner Stan Hulett said, "For all customers, including EOR customers, the order does nothing which abrogates their existing contractual agreements with the utilities.

"In fact, for EOR contract customers ... (the) decision offers the opportunity of a more reliable service than they currently receive at a discount."

Much of the incremental gas demand growth expected in California in the 1990s is to come from expanded thermal enhanced oil recovery/cogeneration projects in the San Joaquin Valley.