VI. Should the Commission Alter Gas Storage Policies at This Time to Reduce the Chance of Gas Curtailments?

Following the adoption of the order initiating this rulemaking, the Joint Ruling noted the importance of gas storage for the operational functioning of a gas transmission system. The Joint Ruling asked parties to comment on whether the Commission should change gas storage regulations at this time. The Scoping Memo affirmed that an examination of this question would constitute the second focus of this rulemaking.

TURN, Wild Goose, and WHP proposed major changes in policy. Some parties expressed opposition to specific aspects of TURN's proposals, and others opposed changes at this time. Certain parties suggested minor changes to gas storage regulations. We summarize the comments below.

TURN Proposes an "Excess Core Storage Program"

TURN presented a gas storage program that it called the "Excess Core Storage Program." Under TURN's proposal, core customers would store excess gas for winter beyond the current needs of the core. To finance these storage costs, TURN proposes that all wholesale core loads receive an allocation of the "Excess Core Storage Gas" based on a weighted average of cold year loads with core wholesale customers given a "double weighting." In particular, the wholesale core would receive a double share of the costs of gas that is either injected or withdrawn. TURN justifies this allocation with the allegation that wholesale core customers hold limited storage rights to meet their gas needs, and TURN alleges that they do not have "any storage at the moment."

For other storage costs not related to the costs of gas, TURN proposes that noncore customers bear 75% of the costs related to all excess gas storage, allocated to the entire noncore on an equal cents per therm basis. TURN justifies this allocation by asserting that retail core customers do not need the excess gas storage program, and therefore should not bear these costs. The remaining 25% of costs, however, are allocated to core users.

In Reply Comments, TURN criticizes SDG&E, a wholesale customer, for providing incomplete data on its use of storage. We are concerned about such incomplete information in particularly because we are unsure whether TURN's allegation in its opening comments that core wholesale customers have no gas in storage at this time may not be accurate. TURN also criticizes SoCalGas for its statement that gas markets do not require more regulatory intervention.

Wild Goose and WHP Propose Changes in Storage Regulations

Wild Goose proposes that the Commission adopt storage regulations that require electric generators to store a specified number of days of gas supply in order to meet emergency needs. Wild Goose asks that regulations require all generators to reserve storage rather than relying mainly on the gas transportation system to supply critical gas needs. Wild Goose also asks that the Commission restrict noncore customers' ability to borrow gas freely off the gas infrastructure.

Wild Goose further urges that the Commission remove obstacles to the construction of gas storage facilities in California. Wild Goose points out that PG&E bears risks for the construction of new transmission lines needed for gas storage, and believes this provides a disincentive to the construction of both transmission and additional storage. Wild Goose also recommends a change in PG&E's and SoCalGas's tariffs to replace current gas supply/demand balancing provisions with stricter balancing tolerances and penalties, thereby encouraging better planning by those using natural gas.

Wild Goose notes that the comments of many parties reflect a need for improvements to the gas infrastructure. Wild Goose therefore recommends that the Commission end this current proceeding and initiate a new proceeding that focuses on changes in policies and regulations in order to promote the construction of gas infrastructure.

WHP asserts that the current natural gas regulatory structure that applies to PG&E's gas system works well. However, WHP recommends two changes to the current regulatory structure. First, it recommends that the Commission seriously consider the imposition of a requirement of daily balancing of gas for all transporters on the PG&E system. Second, it recommends that PG&E develop mechanisms to interrupt customers purchasing "interruptible" gas when needed and that the Commission impose stiffer penalties for "being out of balance" or using the gas of others during curtailment periods.

WHP argues that the Commission has insufficient facts to adopt the TURN proposal. More specifically, WHP opposes TURN's plan as a backward step, leading to the re-regulation of a major element of the gas market and disrupting investments in storage facilities. WHP further argues that TURN's proposal is fraught with ambiguities.

WHP supports Wild Goose's suggestion that the Commission modify gas balancing regulations. WHP, however, does not support Wild Goose's recommended requirement that generators place several days of gas supply in storage. WHP opposes what it terms the "rebundling of gas storage service to captive customers," and calls for the elimination of certain gas charges made to captive customers on the SoCal Gas system. WHP asks that the Commission establish transmission and interconnection guidelines, as well as stricter balancing rules, to facilitate the develop of the gas infrastructure and the use of storage.

EPUC-IP-CAC and PCES Propose Monitoring of Storage

EPUC-IP-CAC call on the Commission to "carefully calibrate core storage capacity, inventory levels and withdrawals to moderate the possibility of noncore curtailment or diversion." In addition, they call on the Commission to facilitate the expansion of gas transportation capacity.

PCES provides only limited comments on gas issues. PCES states that the gas market would benefit from access to daily information on how utilities are meeting their scheduled gas storage targets.

Aquila Opposes the Monitoring of Storage

Aquila, a gas marketer, opposes attempts to monitor a particular purchaser of storage capacity. It believes that for the near term, fewer regulations pertaining to gas storage would better promote the efficient use of storage. Similarly, Aquila states that requiring PG&E and SoCalGas to store gas for potential sales to noncore customers unwisely substitutes regulatory judgments for the "rational economic judgments of market participants."

PG&E, SoCalGas, and ORA Oppose Any Changes in Storage Policy in this Proceeding

PG&E notes that its gas system has adequate capacity to meet the storage needs of its core customers. In addition, PG&E believes that its current assignment of transmission and injection capacity will enable it to fill its core storage requirements this summer and to meet its winter withdrawal needs.

PG&E also argues that the Commission should not make any regulatory changes that impose new requirements on the noncore use of PG&E's unbundled storage services. PG&E notes that its entire storage inventory for noncore gas customers is under contract for this year. PG&E speculates that if those holding these storage rights refill their storage by December, this could moderate gas prices on the PG&E system. Further, PG&E notes that its storage and park-and-lend gas services already allow PG&E to claim unused firm storage capacity for use by others, a core element of TURN's plan.

PG&E contends that no party has made an adequate case that supports a change in storage regulations. PG&E further argues that the Gas Accord II proceeding offers a better venue for a consideration of the storage proposals made by Wild Goose, WHP, and TURN.

Similarly, SoCalGas maintains that it will fill an adequate amount of storage to meet the needs of the core and noncore this year. SoCalGas also states that it is taking steps to increase the capacity of its transmission lines, thereby increasing the overall capacity of the gas infrastructure. SoCalGas cites a number of proceedings before the Commission, which, when resolved, will increase the amount of gas available from storage releases over the next year.⁵

Like PG&E, SoCalGas, although opposing any changes in storage regulations at this time, believes that those holding storage rights should consider both the economic and reliability aspects of their gas storage decisions. SoCalGas also believes that the current "winter balancing rules" provide adequate incentives to ensure the reliable functioning of the SoCalGas system. SoCalGas further notes that there is unlikely to be enough transmission capacity on the backbone transmission infrastructure to fill storage this year.

SoCalGas notes that the storage injections contemplated by TURN would require additional injection and inventory rights, but all rights are currently sold out on the SoCalGas system. Moreover, it charges that a basic assumption of TURN that the gas system will prove unreliable in Southern California this winter is wrong.

ORA argues that the current policies are "adequate and should not be changed." ORA characterizes the TURN proposal as a "drastic policy change" and cautions that unintended consequences will result. ORA argues that TURN's proposal is based on the false assumption that this year will be the same as last year, and that SoCalGas will experience gas shortages this winter. ORA sees the situation as far different this year and does not anticipate gas shortages. It notes that SoCalGas is already running its gas system at full speed. ORA also notes that SoCalGas's effort to release "cushion gas" held in storage but not longer needed should alleviate supply conditions this winter.

Moreover, ORA identifies particular developments that make the implementation of TURN's proposal impractical. In particular, since SoCalGas is running its system at full speed, there is little opportunity to inject additional gas into storage this year. ORA notes that PG&E, SoCalGas, and Wild Goose Storage point out that their services are fully subscribed, and therefore the Commission cannot reasonably order increased uses of storage. ORA also contends that TURN's method of allocating transportation costs using a "double weighting Excess Core Storage Gas costs" will result in SDG&E paying triple for gas storage, which it views as inappropriate.

ORA argues that the Commission should consider changes in gas procurement and storage policies such as those proposed by EPUC/IP/CAC outside this proceeding. ORA identifies the PG&E Gas Accord II proceeding and the next SDG&E/SoCal Gas BCAP as the appropriate forums.

ORA, supports Wild Goose's recommendation that the Commission prohibit PG&E's California Gas Transmission Department from loaning out the core's physical gas supply. Nevertheless, ORA's main theme is that the Commission should give the market a reasonable opportunity to respond to the changed conditions and that changes in gas storage regulations at this time fail to make sense.

Long Beach and Palo Alto Oppose TURN's Excess Core Storage Proposal and State the TURN Errs in Charging that Core Wholesale Customers Fail to Store Gas

Long Beach strongly opposes TURN's Excess Storage Proposal. Long Beach states that TURN errs in its charge that core wholesale customers fail to store gas. In particular, Long Beach points out that it uses all the storage that it has under contract. It concludes that TURN's proposal to impose additional gas storage costs on Long Beach is unfounded on fact, and Long Beach requests an evidentiary hearing to prove the substance of its comments.

Similarly, Palo Alto asks that the Commission reject TURN's Excess Core Storage Program and its double allocation of costs to wholesale core customers. In addition, like Long Beach and SDG&E, Palo Alto strong objects to TURN's allegation that PG&E's wholesale customers have placed other customers at risk by not storing gas in PG&E storage facilities.

Calpine, DENA and DETM, and CGC Oppose TURN's Proposal

Calpine argues that the Commission should reject TURN's excess core storage program. Calpine notes that requiring the entire market to pay for added core storage will lead to an increased reliance on spot markets, because this approval decreases the incentives on noncore customers to contract for storage. Calpine believes that the current situation provides the proper incentives for noncore customers to hold and use storage. Finally, Calpine argues that TURN's storage proposal inappropriately burdens noncore customers with costs to pay for a service that primarily benefits core customers. Calpine opposes this cross subsidization from gas to electric customers.

DENA and DETM also oppose TURN's storage proposals. DENA and DETM oppose placing additional financial obligations on PG&E that are unrelated to serving core gas customers. Although DENA recommends that the Commission consider potential expansions to gas injection system, it believes that any efforts to make a utility procure gas for noncore customers will erode the viability of independent storage fields and harm California.

DENA and DETM express support for SoCalGas's proposal to sell cushion gas and increase the gas it holds in storage. In addition, DENA and DETM argue that the Commission should promote efforts to develop additional storage fields and to expedite the storage projects of Wild Goose and WHP. To facilitate the storage of gas, DENA and DETM propose that the Commission should permit utilities to offer an "intraday" gas transportation service, allowing unused transmission capacity to be sold to those who wish to store gas. Finally, DETM and DENA request that the Commission establish a regulatory process to upgrade the gas transportation system.

CGC also opposes TURN's Excess Core Storage Gas Program. CGC states that there is no "excess core gas storage" available, and that TURN's proposal would require utilities to break contracts with those who have already bought storage. CGC doubts that workable storage standards would emerge from a proceeding focussed on TURN's proposal. CGC, like others, points out that TURN's proposal leads to a double recovery of storage costs. It concludes that TURN's proposal is an "unworkable, unfair and opportunistic scheme to get more gas stored with noncore customers bearing the majority of the costs."

Finally, CGC states that the SoCalGas system has reached the point of full utilization and requires expansion. CGC cites a shortage of storage facilities, and argues that if there is unused storage, this arises from transmission constraints. In reply comments, CGC states that it is unnecessary to address policy changes concerning gas in this proceeding. Instead, CGC points to other proceedings that it believes offer better venues for exploring gas issues.

IEP, CIG/CMTA, SCE and Tractabel Make Limited Comments on Gas Storage Issues

IEP limits its comments on gas storage issues to statements that support a proactive approach by the Commission to the development of California's gas infrastructure. CIG/CMTA notes that granting electric generators priority for gas would likely reduce the use of gas storage. SCE notes that if long-term contracts for electric power were done on a firm basis, this would provide electric generators with the incentives to secure necessary flowing gas supplies and firm gas storage. Tractabel asks that the Commission encourage all noncore customers to use the utilities' storage services.