Vote on gas report delayed California Energy Commission

By the OGJ Online Staff

HOUSTON, Aug. 22, 2001 — The California Energy Commission delayed until Sept. 12 consideration of a 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 Wednesday 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.

The report recommended 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 hydro resources.

The standards should also take into consideration 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 reports said the state must move “quickly and decisively” to approve intrastate pipeline capacity additions to remove in-state bottlenecks. It also noted new demand in neighboring states in the Northwest 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 commission 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 California relies on the current curtailment policy to meet peak winter demand, the state faces an increasing chance of electric generator curtailments during unusually cold winter conditions and extremely hot summers.

With storage playing a bigger role in gas supply and demand, the report called for the PUC and the commission to jointly examine to need for additional independent gas storage facilities in the state. Extra storage could serve peaking needs and result in a secondary market, helping 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 plants to meet annual and seasonal generation requirements.

— The ISO could offer contracts to generators that would allow recovery of storage costs.

— The Department of Water Resources contracts for electricity could require storage.

— The commission siting conditions for new power plants could require a level of storage to meet corresponding demand.

— The California Consumer Power & Conservation Financing Authority could invest in or acquire gas storage for electric generation.

— The commission, the PUC, and the Federal Energy Regulatory Commission should investigate ways to encourage a secondary storage market.

— The PUC 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.

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