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Regulators Approve Plan Aimed At Easing Natural Gas Logjam

Regulators Approve Plan Aimed At Easing Natural Gas Logjam

Regulators say the change will keep energy flowing, but critics say it could lead to price volatility.


Staff Reporter

In a bid to reduce the congestion in local natural gas pipelines that contributed to skyrocketing prices last winter, state regulators have approved a plan to allow Southern California Gas Co. to sell long-term contracts for capacity on its pipelines to major industrial customers and gas marketers.

The Dec. 11 decision by the state Public Utilities Commission was welcomed by the state’s industrial community, which had pushed for three years to change the way natural gas is distributed in Southern California.

“Right now, major business users of natural gas have to draw up all sorts of contingency plans to ensure they get the gas they need, which costs time and money,” said Keith McCrea, outside counsel to the California Manufacturers & Technology Association. “This gives businesses greater certainty that the gas brought in to the state can get to their facilities.

But critics say the plan could allow a handful of natural gas marketers to snap up the pipeline capacity, which in turn could lead to price volatility similar to what happened late last year under the state’s botched deregulation effort.

“This whole scheme is a way for the marketers to get greater control over the pipeline market,” said Marcel Hawiger, staff attorney for The Utility Reform Network, a consumer advocacy group.

In its decision, the PUC gave the green light to the Gas Co., a unit of San Diego-based Sempra Energy, to sell capacity at five major entry points to its pipeline system in phases over the next year. It is at those entry points, particularly one at the California-Arizona border known as Topock, that bottlenecks arose last year, forcing major natural gas customers to seek more expensive gas through other entry points and exacerbating an already steep run-up in natural gas costs.

The PUC plan, which was approved after three years of negotiations between Sempra, industrial users, pipeline companies and natural gas marketers, is modeled on a similar agreement reached in 1998 over the use of Pacific Gas & Electric’s pipelines in Northern California.

“This is going to make natural gas supplies much more reliable for our major industrial users through the L.A. area,” said Ladd Lorenz, director of capacity and operational planning for the Gas Co.

But Hawiger said that many of the large industrial users, particularly refineries and electricity generating plants, have deals with marketers already. This plan, he said, would give those marketers more control over the pipelines, thus giving them more power to set the market rates.

“It’s the secondary market that really concerns us. If gas supplies get tight and you have a handful of marketers controlling the pipelines, they could exercise market power, just like the energy companies did to the electricity market a year ago,” Hawiger said.

PUC Commissioner Richard Bilas said that was unlikely to happen because significant amounts of natural gas have been stored throughout Southern California in recent years. Those gas supplies could be drawn down when supplies became too tight or the bottlenecks too severe on the pipelines.

For the present, it’s the opposite scenario of surplus capacity that most concerns Gas Co. officials. “Under this new plan, we have less assurances of revenues on our system,” Lorenz said. “If not all the capacity is subscribed at certain entry points, then we lose potential revenues.”

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