Threat of Aliso Canyon extended shutdown still on the table as Governor, legislators debate solution

By Michael Shaw

Capitol Update, March 18, 2016 Share this on FacebookTweet thisEmail this to a friend

Last month, the Southern California Gas Company (SoCalGas) successfully plugged the month’s long leak at the Aliso Canyon Storage Facility near the community of Porter Ranch, northwest of Los Angeles, bringing to a close the first phase in what has become an increasing intense debate about natural gas storage in California. Just a few days later the Assembly Utilities and Commerce Committee passed SB 380 (Fran Pavley, D-Agoura Hills) seeking to halt future activity at Aliso Canyon until it was proven to be safe. At the hearing CMTA expressed support for ensuring the public’s safety and health in the area surrounding the facility, but also stressed the importance of restoring activity due to the importance of Aliso Canyon in Southern California’s energy reliability picture.

SB 380 originally sought to ban further use of the gas storage facility until the entire facility was proven safe. However, energy experts believe that an extended shutdown of the facility would have significant ramifications for Southern California’s supply of electricity and natural gas supplies. Economic impacts from brownouts and potential blackouts as electrical power generation slowed would be undoubtedly significant as manufacturers could lose entire product lines and fuel, medical, and food supplies may run short. This could lead to a negative consequence that has much broader ramifications for Southern California and beyond. California manufacturers depend on affordable, reliable energy in both the forms of electricity and natural gas, and this bill places that at risk by taking the Aliso Canyon facility out of use for an extended period of time. Additional consequences include:

  • Electrical generators in Los Angeles and Orange counties who depend on natural gas from this facility to supply power to the Los Angeles basin could see curtailments that lead to higher prices and brownouts that impact production processes and schedules.
  • Natural gas deliveries to manufacturers would also be curtailed in order to meet the higher priority obligations to supply residences and other preferred customers leading to production disruptions.
  • Higher transportation fuel prices due to supply restrictions resulting from reduced electricity and natural gas deliveries to refineries that depend on both energy sources in order to operate equipment.

 

CPUC Developments

The California Public Utilities Commission (CPUC), California Energy Commission (CEC), and the California Independent System Operator (CAISO) are continuing work on a reliability report that will address the need for the Aliso Canyon facility for energy reliability in Southern California. That report is due to be released the first week of April, but a preliminary analysis painted a very stark picture for the coming summer and winter should the facility be offline for an extended period of time.

In a partial response to the shutdown, SoCalGas and parent company Sempra Energy filed a motion with the CPUC to impose strict new requirements on large natural gas users (noncore customers) that purchase their supply from providers other than the utility. The new rule would require noncore customers to ensure that what they purchase and what they actually use are within a five percent margin on a daily basis, a far tighter standard than the 10 percent monthly margin that noncore customers most currently meet. Further, the daily balancing requirement would also impose a 150 percent penalty on noncore customers, or their agents, if use fell outside the margins.

The potential impact on California manufacturers is quite significant. Faced with a huge penalty for coming up short on natural gas deliveries, some manufacturers would likely buy more than they need and burn off any excess in order to stay within margin. However, for large industrial users this could put them at odds with California’s strict greenhouse gas (GHG) emissions cap and force them to buy more GHG allowances in order to compensate. Classic “damned if you do, damned if you don’t” situation.

A number of manufacturers have already expressed grave concerns with this proposed rule change given that daily operations vary and are hard to predict within such a tight margin. Additionally, it is unclear how imposing such a stringent mandate will improve reliability as it does not address the critical factor of the Aliso Canyon storage facility. CMTA joined with the California League of Food Processors to file comments in opposition to the SoCalGas motion to change to daily balancing requirement. CMTA’s opposition to this motion has been echoed by numerous other groups who universally panned the proposed rule for its questionable value in addressing the challenge and the apparent burden shift to customers for the Aliso Canyon leak.

You can assist CMTA by sharing examples of how this rule change may impact your business operations and steps you would have to take to avoid potential penalties. Your input will be critical going forward. Contact Michael Shaw at MShaw@cmta.net.

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