Untangling LNG Access

The California Public Utilities Commission is trying to figure out, in short order, how to get supplies from new liquefied natural gas terminals into the state and who should pay for the pipeline interconnection and expansions needed to access the imported fuel. Gas companies, suppliers, and shippers cannot agree on what pipelines to use, whether the costs of accommodating new supplies should be folded into the cost of the gas, or whether that should be decided on a case-by-case basis or rolled into utility rates. At a June 17 long-term natural gas supplies workshop, Sempra Energy urged the CPUC to roll the pipeline expansion costs into its ratemaking because of customer benefits, expected to be between $300 million and $1 billion, according to Lad Lorenz, Sempra vice president of regulatory affairs. He suggested that a ceiling of $200 million in costs be set and that amounts in excess of that be determined on an incremental basis by the CPUC. Sempra, which proposes building an LNG plant in Baja California, wants the commission to approve expansions of the Otay Mesa line with the costs built into rates. Other LNG developers, which have agreed to pay the necessary interconnection costs, insist that the North Baja pipeline, which is underused, transport gas supplies in the same vicinity because of lower transportation costs. LNG developer BHP Billiton, The Utility Reform Network, and gas suppliers?odd bedfellows, to be sure?oppose rolled-in rates. Dan Douglass, representing BHP Billiton with a proposed LNG terminal off the coast of Ventura, said Sempra and its LNG partner Shell decided to build LNG plants in Baja to avoid California?s environmental and safety rules. He alleged they knew that getting the terminal?s gas into the state came with higher transportation costs. The Utility Reform Network attorney Marcel Hawiger said allowing Sempra to integrate pipeline expansion costs to accommodate LNG is ?paving the way for a Sempra-Shell energy empire.? Pacific Gas & Electric, which does not have LNG plans on the drawing board, said if the utility has to change its pipeline to accommodate Sempra?s LNG plans, it wants assurance from the commission that there would be full cost recovery for investments. Not only could the pipe for LNG and other gas supplies be interconnnected, but the issue of new pipelines to accommodate LNG is intertwined with the amount of natural gas in storage?and that could affect the need for both LNG and new pipes. Christopher Hilen of Davis Wright Tremaine, representing Lodi Gas, asked the commission to investigate how supplies, storage, and transportation affect each other.

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Untangling LNG Access

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