CPUC Gives LNG Development Green Light

Eager to shed its reputation for being lead-footed in the face of crisis, a divided California Public Utilities Commission adopted aggressive policies paving the way for liquefied natural gas development, including establishing rates to facilitate transporting LNG on Sempra?s system. To ensure that LNG projects won?t be ?stranded on the beach,? private utilities must specify how those projects can interconnect with utility systems. Otay Mesa, a Calpine-developed power plant located at the California-Mexico border whose output is destined for San Diego Gas & Electric, was established as a common receipt point for the SoCal Gas and SDG&E gas systems. The September 2 decision is meant to further signal to LNG suppliers that LNG developments will have access to utilities? systems. The approved plan sponsored by commission president Mike Peevey and commissioner Susan Kennedy cited analysis by SoCal Gas and SDG&E that up to 400 MMcfd can be accessed through Otay Mesa with $7 million in infrastructure improvements. The single biggest criticism the commission faces is ?paralysis by analysis,? admonished Kennedy. The price of natural gas today is twice what it was just two years ago, which hurts residential customers and businesses and pushes electricity prices up, she noted. ?The time to act is now? to adopt policies that will guard against another energy crisis by making it easier to import LNG, Kennedy added. While the decision squeaked through, commissioner Loretta Lynch noted that it would serve a single developer?Sempra. ?What exactly is driving this rush?? she asked, adding that LNG projects won?t come on line until 2006. Lynch had sided with a coalition of environmentalists and politicians who asked for early public hearings on the basic assumptions surrounding LNG development. Peevey rebuffed requests for immediate hearings but said the next phase of the case will focus on more complex issues that will require hearings. ?We need to have this debate on LNG. . . . [The issue is] huge, and natural gas companies don?t want to have the debate,? argued Bill Powers, chair of the environmental organization the Border Power Plant Working Group. ?To give LNG developers a pass is just extraordinary in light of the obvious market weaknesses in letting deregulated partners of utilities call the shots,? Powers said. An interim transportation rate was established for gas delivered through the Otay Mesa receipt point. The fees to move gas will be based on what would be paid for gas delivery on the system of SoCal Gas or SDG&E. But other rolled-in ratemaking was pushed back to a later phase of the case. The decision ?provides California natural gas customers with the ability to tap into a significant and competitively priced source of energy,? according to Art Larson, Sempra spokesperson. The Otay Mesa receipt point is the most direct and least expensive option for Southern California customers, Larson said. In other provisions of the plan, SoCal Gas & SDG&E are allowed to negotiate for reduced capacity contracts and to terminate expiring contracts with El Paso and Transwestern. A process for interstate pipeline capacity approval was established, requiring utilities to adhere to up-front standards. Commissioners Lynch and Carl Wood cast dissenting votes. In other news, with Wood dissenting, the commission decided to reconsider a no-bid renewables contract put forward by SDG&E. It narrowly rejected the contract August 19. Commissioner Geoffrey Brown voted down the 51 MW wind project because he thought it undermined the CPUC?s commitment to competitive bidding. Brown said that he?s determined that SDG&E ?plays by the rules.? The contract will face another vote at the September 23 meeting. Also at this week?s meeting, Pacific Gas & Electric was awarded $120 million to cover costs for system safety and reliability. The decision came on a split vote with Wood and Lynch dissenting. The commissioners objected that the utility was able to skirt reasonableness review for these expenses.

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CPUC Gives LNG Development Green Light

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