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----- Forwarded by Donna Fulton/Corp/Enron on 05/25/2001 05:36 PM -----
=09Nancy Bagot =0905/25/2001 05:11 PM =09=09=20 =09=09 To: Shelley Corman/Enron@EnronXGate, Mary Kay Miller/ET&S/Enron@ENRO= N, Drew=20 Fossum/Enron@EnronXGate, Robert Kilmer/Enron@EnronXGate, Janet=20 Butler/Enron@EnronXGate, Dari Dornan/ET&S/Enron@ENRON, Glen=20 Hass/ET&S/Enron@ENRON, Bambi Heckerman/Enron@EnronXGate, Frazier=20 King/Enron@EnronXGate, Teb Lokey/Enron@EnronXGate, Dorothy=20 McCoppin/Enron@EnronXGate, Ray Neppl/Enron@EnronXGate, Maria=20 Pavlou/Enron@EnronXGate, Janet Place/Enron@EnronXGate, Michele=20 Winckowski/Enron@EnronXGate, Donna Fulton/Corp/Enron@ENRON, Linda=20 Robertson/NA/Enron@ENRON, Tom Briggs/NA/Enron@Enron, John=20 Shelk/NA/Enron@Enron, Carin Nersesian/NA/Enron@Enron, Steven=20 Harris/ET&S/Enron@ENRON, Joe Hartsoe/Corp/Enron@ENRON =09=09 cc:=20 =09=09 Subject: Briefing on FERC CA Natural Gas Infrastructure conference This memo by Nancy Bagot, ETS, and Donna Fulton, Enron Corp, summarizes wha= t=20 we heard at yesterday's FERC conference and gets to the heart of the issue = in=20 California on the gas side. The FERC Technical Conference yesterday was held by FERC staff and was kept= =20 to very technical, facility and service issues. Staff did not allow any=20 discussion of pricing, because that would be handled in other forums.=20 Commissioners did not make an appearance at the conference, though some of= =20 their staffers were in attendance. Like many FERC Technical Conferences, the May 24th conference on California= =20 Natural Gas Transportation Infrastructure boiled down to parties blaming=20 other parties for the situation in the California market. Generally, (1)= =20 interstate pipelines and others believe more infrastructure is needed, both= =20 to California and within California (and some blame SoCalGas=01, lack of= =20 adequate take-away capacity, failure to provide open access transmission, a= nd=20 allocation procedures), (2) SoCalGas blames the CPUC and believes that,=20 although this is a tight year, service commitments will be met and things a= re=20 fine, and (3) the CPUC and CEC believe things are not out of control going= =20 forward, that their own open proceedings are adequate to handle any gas=20 issues in California, and that CPUC =01&decisions are coming.=018 =20 For FERC Staff, there are two issues at hand: is the problem the mismatch= =20 between interstate and intrastate capacity (and what amount of infrastructu= re=20 should be added into and within California), and/or is it the allocation=20 methodology at a few highly-constrained delivery points into the state. =20 Overall, there is basic agreement that there are problems with both. The State Both the CPUC and the CEC described the intrastate pipeline system as=20 adequate with just minor changes and enhancements, certainly to serve core= =20 customers and likely to serve non-core customers. Like the LDCs, the state= =20 representatives are concerned that building to develop a cushion in a=20 difficult year may not bode well for facilities in =01&normal=018 years in = the=20 future, leaving intrastate capacity stranded. Also, both agencies ticked o= ff=20 a laundry list of proposed LDC enhancement projects and regulatory changes= =20 that are designed to improve the delivery system. According to the CPUC an= d=20 CEC, demand in the state is not going to explode =01) getting LDC storage b= ack=20 up to normal levels should make the difference. FERC Staff questioned the CPUC and CEC speakers at length on the operation= s=20 of the state LDC systems, allocation methods, and the availability of firm= =20 capacity on SoCalGas in particular. There was great concern among Staff=20 about the inability for a non-core customer to contract for specific capaci= ty=20 for primary firm service on SoCal. The CPUC noted that there is a=20 comprehensive settlement before the Commission to unbundle SoCal capacity a= nd=20 allow for tradable primary capacity on an open access system, but the=20 Commission has not yet acted on that settlement. When asked why the CPUC h= as=20 not acted on the settlement that has been pending for a year, the witness= =20 said that there were not three votes. The LDCs Only PG&E and SoCalGas appeared before FERC. Both were adamant that there= =20 was adequate capacity for current demand, as proven by the lack of =20 curtailments over the past year. They also agree that a primary question i= s=20 how to agree on the adequate amount of capacity =01) though it=01,s general= ly held=20 there should be a 15-20% excess, is that for a normal weather year or a dry= =20 hydro year? =20 For SoCal in particular, Lad Lorenz claimed that demand would drop in the= =20 next five years, with normal weather and a reduction of EG load which would= =20 bypass their system (being built directly along interstates pipelines). If= =20 capacity were built to match an excess reserve margin, he wanted to know wh= o=20 would pay for the capacity. The central policy question for SoCal comes do= wn=20 to defining excess capacity and modeling for excess based either on matchin= g=20 interstate capacity or customer demand (based on contracts). SoCal believe= s=20 it should respond to the latter. However, the LDC cites the CPUC as an=20 obstacle for responding to customers, and is looking to the CPUC to accept= =20 its comprehensive settlement which will unbundle its capacity and allow for= =20 tradable primary capacity rights. For PG&E, the situation is different because it functions very much like an= =20 open access interstate pipeline. It does not have the allocation and=20 scheduling issues that are on the SoCal system; however, there is still a= =20 mismatch between interstate and intrastate capacity. PG&E, like SoCal,=20 claims that its system is adequate to meet current demand, though they are= =20 planning some enhancements. They do agree with SoCal on the difficulty in= =20 planning for uncertainty, but in general the northern California LDC is not= =20 facing the difficulties of its southern counterpart. Staff questions underscore the more difficult situation on the SoCal system= ,=20 as nearly all questions focused on SoCal=01,s allocation method, firm capac= ity=20 availability for non-core customers (which include industrials and electric= =20 generation) and possible disconnects between its local and backbone systems= . =20 FERC also queried about interstate and intrastate mismatches at Topock and= =20 Wheeler Ridge, and whether these would be worsened with the addition of mor= e=20 interstate capacity. SoCal consistently answered that its proposed=20 comprehensive settlement on unbundling would resolve most issues, but the= =20 CPUC will not act on it. Interstate Pipelines With every interstate pipeline serving California planning expansions and= =20 four entirely new pipelines on the drafting table, the pipelines call to ar= ms=20 was for more capacity into the state. Demand projections by the pipeline= =20 representatives were vast and optimistic, an example being the Sonoran=20 Pipeline prediction of a 3 =01) 4 Bcf shortfall. And each pipe can point t= o=20 booming open season results as proof of the need for more infrastructure. = =20 Posing an obstacle to this infrastructure development is SoCalGas=01, lack = of=20 capacity and the major problem of allocation =01) SoCal currently can only = offer=20 secondary capacity to any new interstate capacity. =20 FERC Staff agreed that the SoCal allocation is a problem and further proof= =20 that there is a mismatch between intra and interstate capacity. SoCal=20 responded that any new interstate capacity at certain desirable points will= =20 only degrade existing service and again blamed the CPUC and the pipes=01,= =20 allocations. The other concern expressed by Staff is the divergent demand= =20 forecasts of the LDCs, CPUC & CEC, and the pipelines. Others The financial community (Credit Suisse and Merrill Lynch) pointed to a=20 dysfunctional market in California and told FERC that pipelines must be giv= en=20 certainty on returns and the regulatory structure. The message was for FER= C=20 to stay the course, without price caps or changes to the marketing affiliat= e=20 rules, and for California to fix itself, especially the CPUC (the weakest= =20 link). Producers and End Users are concerned that existing shippers=01, rights are= =20 protected and rates remain unaffected by expansions that may later be=20 stranded. There is concern over additional capacity into constrained=20 delivery points that are already pro rationed, especially in light of the= =20 recent nomination gaming debacle at Wheeler Ridge. =20 The California Generators claimed that they were not convinced that SoCal= =20 will be unloaded by bypassing EG. They claimed that there are disincentive= s=20 in California regulation to SoCal's building capacity - specifically the=20 Performance-based Rate mechanism and the Gas Cost Incentive mechanism. Und= er=20 these programs, SoCal gets to keep 50% of peaking service revenues, thus=20 giving SoCal incentive to advantage their own storage services. SoCal gets= =20 to keep tens of millions annually under these mechanisms.=20 Closing Staff Concerns To wrap up, FERC Staff asked why it is Topock in particular that is always= =20 discussed, and it was explained that access to multiple pipelines at Topock= =20 has set it up as the preferred delivery point into California. However, wi= th=20 allocation changes at Topock kicking in, the problems are moving to Wheeler= =20 Ridge. There was also a debate over which is the real problem =01) intrastate capa= city=20 or intrastate scheduling. SoCal again emphasized that it is not a capacity= =20 issue but the mechanism (blame the CPUC for not approving the unbundling=20 settlement), California Generators believe it=01,s all about capacity (blam= e=20 SoCalGas). Future Comments Comments can be filed in this proceeding by June 25. Since the SoCal=20 settlement received so much attention and continues to await action by the= =20 CPUC, should we get supporters of that settlment to file with the FERC=20 stating that this was a fix to some of the problems on SoCal's system and= =20 the CPUC has sat on it? =20 We should find out who is planning to file comments. Though much was said = at=20 the technical conference, many speakers brought slides, and there was a Cou= rt=20 Reporter, Commissioners and their staffers will not likely read the whole= =20 transcript. We could file to emphasize the points that are made in=20 Jennifer's gas talking points. =20 Future Comments Comments can be filed in this proceeding by June 25. Since the SoCal=20 settlement received so much attention and continues to await action by the= =20 CPUC, should we get supporters of that settlment to file with the FERC=20 stating that this was a fix to some of the problems on SoCal's system and= =20 the CPUC has sat on it? =20 We should find out who is planning to file comments. Though much was said = at=20 the technical conference, many speakers brought slides, and there was a Cou= rt=20 Reporter, Commissioners and their staffers will not likely read the whole= =20 transcript. We could file to emphasize the points that are made in=20 Jennifer's gas talking points. =20
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