California regulators line up penalties to ensure sufficient gas pipeline capacity

California utility regulators advanced a plan to penalize natural gas distributors when they fail to maintain adequate pipeline capacity, even as the state considers shrinking the gas grid.

The proposal would allow the California Public Utilities Commission to fine gas utilities $50,000/d, or half the maximum allowable penalty. In approving the proposal July 14, the CPUC moved toward resolving a rulemaking that addressed gas reliability issues in recent years (R.20-01-007).

Specifically, problems on two Southern California Gas Co. pipelines resulted in outages and reduced operating pressure that persisted from 2017 through 2019. Combined with reduced capacity at SoCalGas' Aliso Canyon storage field following a massive leak, the conditions resulted in curtailments to power plants, reliability issues for grid operators, and gas price spikes.

Initiated in January 2020, the rulemaking include a review of long-term gas system planning in light of California's climate goals and building an electrification push. Anticipating reduced gas demand, the CPUC is exploring ways to retire parts of the distribution system and avoid unnecessary infrastructure investments.

Penalty seeks to ensure reliability

The proposed decision directs the commission's Utility Enforcement Branch to formally propose a program for issuing citations to gas utilities that fail to meet minimum design standards for backbone transmission capacity. That plan must be consistent with a citation program proposed by CPUC staff in June 2021 and modified by Administrative Law Judge Karl Bemesderfer based on stakeholder feedback.

Gas utilities meet the backbone transmission standard using only pipeline capacity. Established in another proceeding, the standard requires Pacific Gas and Electric Co. and SoCalGas to maintain intrastate transmission systems necessary to serve average daily gas demand when the state experiences 1-in-10-year cold and dry regional hydroelectric power generation conditions (D.06-09-039).

Under the proposed program, the Utility Enforcement Branch would levy the $50,000 fine when a gas distributor's nine-month rolling average backbone transmission capacity fails to meet the standard. The fine would repeat for every day the utility remains out of compliance and would increase to $75,000/d after 12 months of noncompliance.

The penalty is substantial relative to what is allowed under state utility law; the state cap on fines is $100,000 for each violation. The severity reflects the risks of noncompliance, including health and safety impacts and the significant costs of service curtailments and gas price spikes, Bemesderfer said.

Bemesderfer sided with The Utility Reform Network and utilities in using the nine-month rolling average model. This method smooths out daily capacity fluctuations and avoids triggering a fine when a company falls out of compliance for one or several days within a nine-month period. There is also an exemption for force majeure events that push distributors out of compliance.

Clarifying design standards, defining reliability

During the rulemaking, CPUC staff also proposed overhauling another reliability standard for meeting peak demand, which incorporates both backbone transmission and storage capacity. Currently, there are several of these peak day design standards, based on differences in utilities' systems. Staff recommended eliminating them all in favor of a single 1-in-10-year peak day design standard.

Staff said the change would increase "simplicity and clarity." PG&E has said it would jeopardize reliability for core customers, which include residential and small business ratepayers. Meeting the more stringent standard would also require significant transmission and distribution system investments, PG&E said.

Bemesderfer sided with PG&E and other opponents but supported increasing clarity around design standards. Bemesderfer's proposed order required SoCalGas and PG&E to provide demand forecasts for their respective peak day design standards in the biannual California Gas Report.

Finally, the order set a definition for gas system reliability: "Gas reliability is a measure of the gas system's capacity and ability to deliver uninterrupted service. It consists of adequate physical and operational capacity to transport gas in amounts sufficient to meet customer demand."

The final definition excluded a reference in staff's initial proposal to utilities' ability to supply gas. Stakeholders noted -- and Bemesderfer agreed -- that there is a firewall between the SoCalGas and PG&E divisions that distribute gas and those responsible for procuring the fuel.

The rulemaking also explored potential regulatory changes to improve coordination between gas utilities and gas-fired electric power generators. Bemesderfer's proposed order did not include any directives on this issue.