SoCal Gas, SDG&E Propose Interutility Pipeline Integration

By Published On: February 28, 2004

In a far-reaching proposal to the California Public Utilities Commission, San Diego Gas & Electric and Southern California Gas made a bid to integrate their pipeline systems and facilitate reaching new sources of gas, such as liquefied natural gas (LNG). The two utilities are subsidiaries of Sempra; a third Sempra subsidiary, Sempra Energy LNG, is the most active LNG developer in the West, and a fourth subsidiary, Sempra Energy International, develops pipelines. In the February 24 proposal, it appears that the plan would elbow out the domination of traditional pipeline suppliers, such as El Paso, and make way for transports of LNG and Mexican gas. The proposal includes:<ul><li>Integrating the backbone pipeline systems of the two utilities. They claim this would allow equal priority for customers of both utilities for deliveries. The proposal notes that if the two backbone systems are not integrated, the cost of sending new gas supplies to the Otay Mesa power plant will be higher.</li> <li>Providing for an ?authorized capacity commitment? that basically would preauthorize full rate recovery for certain terms of interstate capacity. This part of the proposal also requests fast-track consent through the ?advice letter? process at the CPUC. The utilities say that this ability will lessen their dependence on the two main suppliers, El Paso and Transwestern, while diversifying their portfolios.</li> <li>Tradable access rights established under the utilities? scenario to allow new supplies such as LNG to compete with existing supplies on an equal basis.</li> <li>?Rolled-in? ratemaking for infrastructure needed to access new gas supplies. Historically, consumer groups have opposed this type of ratemaking, preferring to use ?incremental? ratemaking as a less expensive alternative. The utilities presume the rolled-in cost to be $100,000 per MMcf/d and would cap it at a total of $200 million.</li></ul>The proposal leverages Sempra?s utility, LNG, and pipeline development companies. Sempra executives this week told the financial analyst community with thinly veiled glee that they expect a rate of return on LNG investments between 12 percent and 13 percent.</li>

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