Resolution Template - California



PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ITEM 31 (Rev. 1)AGENDA ID: 17011ENERGY DIVISIONRESOLUTION G-3545 November 29, 2018RESOLUTIONResolution G-3545. Pacific Gas and Electric Company seeks a temporary waiver of the Core Interstate Capacity Planning Range for the 2019 and 2020 non-winter period. PROPOSED OUTCOME: Adopts Pacific Gas and Electric’s (PG&E) requested waiver of the Core Interstate Capacity Planning Range for the 2019 and 2020 non-winter period. The utility shall file a Tier 1 advice letter to request termination of the waiver if prevailing market conditions warrant or to serve core customers reliably. SAFETY CONSIDERATIONS:No safety impact as the request only involves PG&E’s interstate pipeline capacity holdings. ESTIMATED COST: The estimated cost savings from PG&E’s proposal not to acquire the additional pipeline capacity is approximately $3.6 million. By Advice Letter 4003-G, filed on August 3, 2018. __________________________________________________________SummaryPG&E seeks a temporary waiver from the Core Interstate Pipeline Capacity Planning Range (Planning Range) to hold less interstate pipeline capacity to serve core customers than the prescribed amount. The waiver would only apply during the non-winter period for 2019 and 2020. PG&E’s request is reasonable and approved because the waiver should not impair core reliability. This one-time waiver is non-precedential and should not be cited as support for any future requests for a waiver or to modify the Planning Range. Under the procedures adopted in Decision (D.)15-05-010, the Planning Range specifies the minimum and maximum amount of interstate pipeline capacity that PG&E should obtain to serve core customers. The utility said it will have 8 thousand decatherms per day (MDth/d), or 1.3%, less capacity than the 618 MDth lower limit of the Planning Range for the 2019 and 2020 non-winter period. PG&E claimed that this lack of capacity should not cause any reliability problems due to the minimal amount of the shortfall and the time of the year when the waiver is in effect. If the waiver is granted, PG&E will avoid incurring the administrative costs and financial burden of obtaining the incremental pipeline capacity. The waiver would expire when the Planning Range is updated after a new core demand forecast is issued. This Resolution finds that the interstate pipeline capacity shortfall should not impact PG&E’s ability to serve core customers as demand is expected to continue to decline and gas supplies remain ample. Additionally, the waiver only applies during the non-winter period, when core demand is relatively low.PG&E’s request is reasonable and approved. The utility shall file a Tier 1 advice letter to terminate the waiver if prevailing gas market conditions change or for reliability purposes. This one-time waiver is non-precedential and should not be cited as support for any future requests for a waiver or to modify the Planning Range. BackgroundThe Commission established the Planning Range to ensure that gas utilities have enough firm interstate pipeline capacity to serve core customers reliably. In D.15-10-050, the Commission adopted the current Planning Range methodology used by PG&E to determine the quantity of interstate pipeline capacity it should obtain. PG&E utilizes interstate pipelines to transport gas it procures at out-of-state production basins for use by core customers. The utility secures this capacity by entering into firm transportation capacity contracts with interstate pipeline companies for a designated term. At the California border, the gas enters PG&E-owned pipelines and continues to flow to customers or into storage for later consumption. A portion of the interstate pipeline capacity is allocated to Core Transport Agents (CTA) to transport the gas that they purchase for their customers. To supplement out-of-state supplies, PG&E and CTAs can procure gas from downstream markets such as at the citygate, which do not require the utility to obtain interstate pipeline capacity. A determination of the amount of interstate pipeline capacity PG&E should hold is done through the Planning Range process. It was initially adopted in D.04-01-025, at a time when gas shortages were a concern, and revised downward in D.15-10-050, when gas market conditions had changed. As currently structured, the Planning Range requires PG&E to possess firm interstate pipeline capacity that is between 80% and 105% of forecast average annual daily core demand for the non-winter (April through October) and between 100% and 115% of forecast average annual daily core demand for the winter (November through March) periods. The core demand forecast used to set the pipeline capacity volumes for these parameters is presented in the California Gas Report, with a new forecast published every two years. The utility files an advice letter updating the Planning Range each time a new California Gas Report core demand forecast is released. In Advice Letter 3997-G, filed July 31, 2018 and approved September 4, 2018, PG&E calculated the 2019 and 2020 Planning Range by applying the percentages adopted in D.15-10-050 to the core demand forecasts published in the 2018 California Gas Report, resulting in the following: Interstate Pipeline Capacity Planning Ranges Adopted in Advice Letter 3997-GSeasonMinimum Capacity Holding (MDth/d)Maximum Capacity Holding (MDth/d)Non-WinterApril 2019 – October 2019April 2020 – October 2020618811WinterNovember 2019 – March 2020772888In the extant Advice Letter 4003-G, PG&E is requesting a temporary waiver of the Planning Range for the 2019 and 2020 non-winter period to avoid obtaining additional interstate pipeline capacity. In Advice Letter 4003-G, PG&E stated that on April 1, 2019, it will hold 610 MDth/d of interstate pipeline capacity for the non-winter period, which is only 8 MDth/d less than the lower limit of the Planning Range approved in Advice Letter 3997-G. Ordinarily, when a shortfall occurs, PG&E would obtain the additional amount of capacity needed to meet the Planning Range. However, since the deficiency consists of only 1.3% of its overall contracted capacity, PG&E requested that it be granted a waiver from the Planning Range for the 2019 and 2020 non-winter months. The two-year waiver would expire when a new core demand forecast is published in the California Gas Report and the Planning Range is correspondingly adjusted. If the waiver is approved, PG&E explained that it will avoid the administrative and financial burden of procuring the incremental amount of capacity needed to meet the Planning Range and then allocating a portion to each CTA. PG&E estimated the avoided costs of not obtaining the pipeline capacity would be at least $3.6 million for the two-year waiver period. The utility explained that the waiver should not cause service problems as core demand is low during the non-winter period compared to the wintertime, and it expects to have ample gas supplies for customer usage and planned storage injections without the additional 8 MDth/d of capacity. The Planning Range for the winter period would be unaffected by the waiver. NoticeNotice of PG&E Advice Letter 4003-G was made by publication in the Commission’s Daily Calendar. PG&E states that a copy of the Advice Letter was mailed and distributed in accordance with Section 4 of General Order 96-B. ProtestsPG&E Advice Letter 4003-G was not protested. DiscussionDetermining whether PG&E’s requested temporary waiver is reasonable involves consideration of gas market conditions, the period when the waiver would be in effect, and what alternative sources of gas are available to the utility and CTAs for core customers. Our evaluation of PG&E’s waiver request centers on whether it would jeopardize the service provided to core customers. Interstate pipeline capacity provides PG&E with direct access to a stable supply source and, as discussed in D.04-09-022, the Planning Range was adopted “to ensure that California does not face a natural gas shortage in the future.”A key factor to examine is the current gas market outlook for the two-year period of the waiver. The 2018 California Gas Report stated that core demand is expected to decline by 0.9% per year in PG&E’s service territory. Reasons cited for the decline are continuing appliance improvements, conversion of gas to electric appliances, energy efficiency programs, and warming winter temperatures. Additionally, the California Gas Report noted that gas supplies will remain ample and that the continued growth of shale gas has increased the volume of gas available to California. These trends indicate that gas supplies should not be constrained in PG&E’s service territory and suggest that the risk of service disruptions if the waiver is approved is remote, particularly in light of the other factors discussed below. Further, the requested waiver would not affect PG&E's noncore customers, and, therefore, have no impact on gas supply for summer electric reliability. While the current Planning Range parameters approved in PG&E Advice Letter 3997-G are based on the 2018 California Gas Report core demand forecast and would reflect the market conditions discussed above, the magnitude of the interstate pipeline capacity shortfall is only 1.3% of contracted capacity. This does not appear to be a significant deficiency in an environment of falling demand. Furthermore, the waiver would only be in effect during the non-winter period and not the wintertime when temperature-driven usage can strain the gas system. Consequently, the possibility of a gas supply shortage occurring during the waiver period that would necessitate the acquisition of the additional capacity is unlikely. Moreover, to compensate for the reduced access to out-of-state supplies, PG&E and CTAs can also purchase gas for core customers at markets such as the citygate, which would not require the utility to obtain the incremental capacity to meet the Planning Range. Although these spot purchases may be subject to more price volatility than at out-of-state production basins, the expected abundance of available gas and the low-demand time of the year the transactions would occur makes the probability of price spikes minimal.Based on the above analysis, we conclude that PG&E’s waiver should not impair the utility’s ability to serve core customers. Therefore, we find PG&E’s request in Advice Letter 4003-G reasonable, and it is approved. If PG&E determines that, due to prevailing gas market conditions or to maintain core reliability, it would be prudent to acquire additional interstate pipeline capacity to meet the Planning Range, the utility shall file a Tier 1 Advice Letter requesting termination of the waiver. The approval of PG&E’s request should not be interpreted as the Commission placing less emphasis on the importance of holding firm interstate pipeline capacity to meet core customers’ needs. This one-time waiver is non-precedential and should not be cited as support for any future requests for a waiver or to modify the Planning Range. Additionally, as PG&E stated in the AL, it is proposing a procedure for requesting future waivers of the Planning Range in Application 17-11-009. In that proceeding, we will determine the appropriate process for making similar requests in the future. For future planning, PG&E should not necessarily rely upon the use of a waiver as an alternative to obtaining the amount of interstate pipeline capacity specified by the Planning Range process. CommentsThis is an uncontested matter in which the resolution grants the relief requested. Accordingly, pursuant to PU Code section 311(g)(2), the otherwise applicable 30-day period for public review and comment is being waived. FindingsThe 2018 California Gas Report predicts core gas demand will decrease in the future and that ample gas supplies will be available to PG&E to meet core demand.The amount of interstate pipeline capacity PG&E needs to meet the Planning Range should not impact its ability to serve its core customers during the time of the waiver.The waiver would be in effect during the non-winter months when core demand is relatively low. PG&E and CTAs can purchase gas at markets such as the citygate, which do not require the utility to procure interstate pipeline capacity. The expected availability of gas during the non-winter 2019 and 2020 period should minimize the possibility of price spikes during the time the waiver would be in effect.The estimated cost savings from not obtaining the interstate pipeline capacity is at least $3.6 million for the two-year waiver period. This one-time waiver is non-precedential and should not be cited as support for any future requests for a waiver or to modify the Planning Range. Therefore it is ordered that:Pacific Gas and Electric Company (PG&E) Advice Letter 4003-G is approved and effective today. PG&E shall file a Tier 1 Advice Letter if it determines the waiver approved in this Resolution should be terminated if prevailing market conditions warrant or to serve core customers reliably. This Resolution is effective today.I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on November 29, 2018; the following Commissioners voting favorably thereon:_____________________ALICE STEBBINSExecutive Director ................
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