3. Discussion

Described briefly, the critical fuels chain of production, or fossil fuel infrastructure, begins with crude oil and natural gas production. Crude oil is pumped, may be stored, and then transported by pipelines or ships to refineries. It may be stored at refineries before processing. Chemicals critical to the refining process (e.g., hydrogen) may be needed, and may be provided by ancillary facilities (e.g., pipeline from an independent company to the refinery). Refineries produce the refined fossil fuel products, including diesel fuel, gasoline, and aviation fuel. In some cases, the refined product might be stored before transport to consumers. Pipelines and trucks transport the refined products to distribution terminals, airports, and sometimes directly to end-use customers. Natural gas is processed or cleaned at the wellhead, compressed, piped, sometimes stored, and eventually sold to, and consumed by, the customer.

We are persuaded by EPUC, CEC, and the Governor that we must give careful consideration to essential customer status for customers in the critical fuels chain of production. Based on the pleadings and the Governor's June 7, 2001 letter, we are convinced that we must give immediate, interim exemption to petroleum refineries and vital ancillary facilities. We do this for the following reasons.

According to EPUC, crude oil refineries schedule a total refinery shutdown only once in five years. EPUC says that reestablishing production after a sudden and unplanned disruption can take weeks. Repeated outages can cause material damage to process and equipment, according to EPUC. EPUC claims that the loss of production from a single refinery for several weeks can result in a dramatic drop in fuel inventories since there are only 13 refineries throughout California.

The CEC reports that refineries in the critical fuels chain of production are the most sensitive to curtailments of electricity. According to the CEC, a refinery curtailment lasting only a minute can result in total shutdown of the refinery for up to three weeks.

The Governor cites the CEC's Comments to the Commission in support of his request that the Commission exempt petroleum refineries and ancillary facilities. The Governor reports that current supplies of petroleum fuels are very tight, the outlook for gasoline supplies this summer is a major concern, and federal Environmental Protection Agency minimum gasoline oxygen requirements for California may result in further supply reductions, with consequential higher prices. Transportation fuels are critical to public health and safety, particularly law enforcement, medical care responders, and the military, according to the Governor. We are persuaded by EPUC, CEC and the Governor that we must act expeditiously to exempt refineries and vital ancillary facilities.

We decline, however, to provide immediate, complete exemption of all customers in the critical fuels chain of production. Nonetheless, we will give this matter further attention as quickly as reasonably possible. We do not provide immediate, global exemption because we know, for example, that storage facilities may exist at some crude oil and natural gas production facilities. We know that some pipelines successfully participate in interruptible programs with interruptions up to 6 hours. (Reporter's Transcript, Volume 3, pages 285-286.) We know that storage facilities at some refineries can store crude oil coming in, and refined products going out, and accommodate variations in supply and demand. As a result, successful participation in interruptible programs, along with storage facilities, can permit some customers in the critical fuels chain of production to weather periodic, limited electricity interruptions without causing harm to themselves, the broader public health and safety, or the California economy.

Similarly, utilities are under our direction to coordinate electricity interruptions affecting customers in the critical fuels chain of production to minimize disruptions to public health and safety, to the extent feasible. The coordination is not limited to one rotating outage block. We are informed that at least one respondent utility encourages customers in the critical fuels chain of production to identify specific accounts to expedite coordination of interruptions. (E.g., May 10, 2001 Response of SCE to Application for Rehearing, page 9.) Interruptions can have ripple effects throughout the chain of production, but, if coordinated, harm to the customer, general public, and the California economy can be prevented.

A unique situation led to our waiving penalties for two pipeline utilities in January 2001. (D.01-01-056.) That situation involved numerous, sequential, cumulative requests for interruption under interruptible tariffs totaling up to nearly 24 hours each day for several days. That situation is unlikely to be similar to scheduled, sequential rotating outages through many different blocks of customers. Rotating outages are intended to be less than two hours per block, rotating through numerous blocks before returning to the first block for another forced outage, if needed.

EPUC asks that we exclude pipelines on firm service schedules carrying refined petroleum products to airports. EPUC fails to convince us that this is necessary, however, given storage facilities at airports, successful participation by some pipelines in interruptible programs, utility coordination of electricity interruptions of customers in the critical fuels chain of production, and the probable dissimilarity of rotating outages to the experience in January 2001.

We must carefully balance competing interests when providing exemptions from rotating outages. Every additional exemption reduces the pool of customers from which to draw for rotating outages. The potential frequency and duration of rotating outages experienced by remaining customers is increased as the pool of candidate customers is reduced. Maintenance of a reasonable pool of customers available for rotating outages is vital to have rotating outages as a tool in protecting the state from widespread system collapse when demand otherwise exceeds supply.

We previously determined that each utility must maintain at least 40% of its load available for rotating outages to avoid involuntary load shedding and general system collapse. (D.82-06-021.) We apply the same criterion today. (D.01-04-006, mimeo., pages 8-9, 65.) SCE reports that, if asked to provide evidence on the effect of exempting circuits serving all of EPUC's constituents, such exemptions would erode SCE's load available for rotating outages to well below the current 40% minimum criterion. (May 10, 2001 Response of SCE to Application for Rehearing of D.01-04-006, page 3 and footnote 5.²) SCE further reports that a subset of this group might be exempted with significantly less impact on the amount of load available for rotation. As a result, we cannot simply exclude all customers in the critical fuels chain of production without further information.

Nonetheless, based on the pleadings and the urgent request of the Governor, we immediately provide essential customer status normally excluded from rotating outages for petroleum refineries and vital ancillary facilities. We do this by adding Category N to the list of essential customers. (See Attachment A.)

SCE asks that the customers be clearly and objectively defined to promote accurate and expeditious implementation of any necessary system changes. (May 10, 2001, Response of SCE to Application for Rehearing of D.01-04-006, page 4.) In particular, SCE asserts that EPUC's definition is vague and subjective. SCE proposes the use of SIC Codes. We agree. The essential customer status we authorize here is for SIC Code 2911 (petroleum refining), and ancillary facilities vital to SIC Code 2911 (e.g., feedstock chemicals that are required in the refining process).

SCE also asks that we clarify whether or not backup generation should be considered by the utility in applying any exemptions granted here. That is, each utility is under our direction to evaluate the adequacy of standby generating equipment, and consider removing customers with adequate backup generation from the essential customer list. (D.82-06-021 (June 2, 1982), Cal.PUC LEXIS 537, Findings of Fact 2 and 3; Assigned Commissioner's Ruling March 23, 2001, approved and confirmed in D.01-04-006, mimeo., page 65.) We recently eliminated this test for hospitals, however, finding that backup or standby generation required by Office of Statewide Health Planning and Development regulation does not satisfy Commission requirements for minimal essential uses for hospitals. (D.01-04-006, mimeo., page 65.) SCE asks that we explicitly state whether or not refineries and other customers exempted here, if any, should nonetheless be entitled to unqualified exemption even if they have adequate standby generation.

We exempt petroleum refineries and vital ancillary facilities without requiring each serving utility to determine the adequacy of backup generation. The pleadings do not sufficiently differentiate between customers with and without adequate backup generation. We do not have sufficient information to require that this test be applied, and still ensure that we have complied with the Governor's urgent request.

As a result, we will not require utilities to apply this test at this time. As described below, however, we may apply this test to these customers in a subsequent decision. Moreover, we clarify, just as we did in D.01-04-006, that waiving this test here in this limited instance does not disturb utility evaluation of the adequacy of backup or standby generation for other essential customers, and utility consideration of removing such customers from their lists of essential use customers. (D.01-04-006, mimeo., pages 65-66.)

Information will soon be collected on whether essential customer status should be continued for refineries and vital ancillary facilities. If necessary, we may revisit this categorization to make necessary modifications. This may or may not require further limiting of the exemption to ensure that each utility maintains at least 40% of load available for rotating outage. Moreover, we must balance the needs here against needs claimed by others, such as those contained in several pending petitions for essential customer status filed by rapid rail transit agencies. We may also take the status of backup generation into account at that time.

Data is also being collected on whether or not essential customer status should be provided to any or all other customers in the critical fuels chain of production. We expect that information to be filed and served by parties reasonably soon, and assessed quickly by staff. We will address the matter further as necessary. We include within Category N the possibility that we may add other customers in the critical fuels chain of production by further order.