BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 1233 - Pescetti Hearing Date:
July 10, 2001 A
As Amended: June 11, 2001 FISCAL B
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DESCRIPTION
Under existing law , gas utilities are authorized to charge rates
for all reasonable and prudent costs associated with ownership
and operation of natural gas transmission facilities.
This bill prohibits a gas utility from charging local
transmission rates if the gas is delivered to a retail customer
through a non-utility transmission system and the gas is blended
with gas from an in-state source.
This bill prohibits any cost shift to core (residential and
small commercial) customers from this rate exemption.
BACKGROUND
California imports approximately 85% of its natural gas supply,
primarily from gas fields in the southwest and Alberta, Canada.
The 15% of supply derived from in-state sources is typically a
lower quality gas, which burns less efficiently (low-BTU gas).
Low-BTU gas must be blended with higher efficiency gas, such as
propane, to meet pipeline and end use specifications.
Additional supplies of in-state, low-BTU gas are available, but
remain untapped.
The terms of Pacific Gas and Electric's (PG&E) gas utility
operations are defined by the Gas Accord, a comprehensive
settlement approved by the California Public Utilities
Commission (CPUC) in 1997. The Gas Accord establishes the rates
and terms and conditions of service on PG&E's gas transmission
system through December 31, 2002. Pursuant to the Gas Accord,
local gas transmission rates are paid by all end users.
Certain large, non-core gas customers in PG&E's service area are
served by private local transmission lines directly connected to
PG&E's main "backbone" transmission system. These customers are
typically gas-fired power plants. This bill would exempt these
customers from any local transmission rates charged by PG&E if
the gas delivered to them is blended with gas produced from an
in-state source.
According to the author, current local gas transmission rates
provide disincentives to the storage and blending of natural
gas, as well as the construction of pipelines by non-utility
entities. The author states that gas stored off-line before
moving back to the utility's transmission system is charged a
local transmission rate, then charged again when the gas is
delivered to the end user. The author says these additional
charges can make it uneconomical for generators of electricity
or the entities that supply their gas to employ the blending
process needed to make low-BTU gas usable.
PG&E contends it charges to deliver gas from its backbone to
storage, but not to remove it from storage, and that this bill's
exemption could lead to revenue losses of up to $25 million each
year, which, by the terms of the bill, PG&E would attempt to
recover from its other non-core gas customers.
COMMENTS
1)Costs and benefits of the exemption. Given California's
recent experience in the natural gas market, reducing reliance
on out of state gas supplies seems to be a worthy goal.
However, while this bill will definitely lower rates for
certain non-core customers, it lacks any assurances that the
discount will lead to increased in-state gas production.
An ideal policy would provide for the benefits of the rate
exemption to be quantified and weighed against its costs.
From a consumer perspective, if a transmission rate exemption
leads to a cheaper commodity price and/or more reliable
service, it may be worth the trade off. On the other hand,
ratepayers shouldn't subsidize the production of in-state gas
just for the sake of promoting in-state production. If it
doesn't lead to lower costs, ratepayers may pay twice.
The author and the committee may wish to consider whether this
bill should instead authorize or direct the CPUC to reduce
local transmission rates applicable to in-state gas blends to
the extent it finds that the reduction will result in lower
prices, more reliable service, or some other general public
benefit.
2)Exemption conditions need to be clarified to achieve intent.
Under this bill, a gas blend with only 1% in-state gas would
technically qualify for an exemption without significantly
contributing to in-state production. The author and the
committee wish to consider requiring a certain percentage of
in-state gas in the blend to assure that the bill is
consistent with the intent to provide an incentive for
production of additional in-state gas. However, it should be
noted that, even if a blend ratio is specified in the bill, it
may be impossible to verify in the field. Once blended, the
source of components of a gas blend can't be identified, so
whatever the standard is will be difficult to enforce.
As an alternative, the author and the committee may wish to
consider authorizing or directing the CPUC to require a
utility to discount its local transmission rate in proportion
to the volume of in-state gas actually delivered, with the
burden of proof on the customer to demonstrate how much
in-state gas they've purchased. For example, a customer
purchasing 50% in-state gas would be eligible for a 50%
discount on its local transmission rate.
In addition, if delivery via a private local transmission
system is one of the conditions to justify an exemption, the
bill should specify that gas is delivered exclusively through
a private transmission system to ensure that gas which also
travels through a utility's local transmission system is not
eligible for an exemption.
3)Selective statutory ratemaking. Local transmission rates are
one element of a complex regulatory scheme governing utility
charges for natural gas. The cost of the exemption in this
bill are unknown and likely will be shifted to non-core gas
customers not eligible for the exemption. This issue may be
more properly addressed in a more comprehensive ratemaking
proceeding at the CPUC.
In addition, the subject of this bill was addressed in the Gas
Accord settlement. The effect of selectively changing the
terms of a CPUC-approved settlement through legislation may be
to invite other parties to do the same and to undermine the
legitimacy of the existing settlement and future settlements.
ASSEMBLY VOTES
Assembly Floor (75-0)
Assembly Appropriations Committee (12-0)
Assembly Utilities and Commerce Committee
(15-0)
POSITIONS
Sponsor:
Author
Support:
California Independent Petroleum Association
California Municipal Utilities Association
Calpine
Sacramento Municipal Utility District
Oppose:
Pacific Gas and Electric Company
Sempra Energy
Lawrence Lingbloom
AB 1233 Analysis
Hearing Date: July 10, 2001