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Calif. regulators resolve to maintain gas network while shrinking need for it

The California Public Utilities Commission opened a rulemaking to figure out how to maintain natural gas utility systems while shrinking the number of customers who pay for them as the state moves to reduce carbon and methane emissions.

Noting that gas facilities must be maintained for what could be a decades-long transition to greenhouse gas-free energy, the commissioners unanimously decided Jan. 16 that old regulations requiring customers to pay proportionately for their use of the systems will not work in the long run.

The PUC named commission-jurisdictional natural gas providers, including Pacific Gas and Electric Co., Southern California Gas Co., San Diego Gas & Electric Co., Alpine Natural Gas Inc., Southwest Gas Corp. and West Coast Gas Co. Inc., as primary parties in the proceeding. It also ordered independent gas storage providers such as Wild Goose Storage Inc., a subsidiary of Brookfield Infrastructure Partners LP, and Sacramento Natural Gas Storage LLC, to participate, and it invited many other parties such as municipal utilities, the California ISO and Edison International subsidiary Southern California Edison Co. to do so as well.

In September 2018, the state passed Senate Bill 100, setting a 100% clean energy by 2045 goal and a 60% by 2030 renewable portfolio standard. That legislation, along with California's greenhouse gas emissions standard, requires the state to wean itself off gas-fired generation and reduce carbon emissions from other sources.

"As retail sellers procure less electricity from gas-fired generators, which comprise approximately 30% of the demand for natural gas in California, the gas throughput assigned to these customers will also decline, thereby allocating more costs to remaining customers, such as residential, small commercial, and industrial ratepayers," the PUC said in its order instituting the rulemaking.

The state also is moving to discourage the use of natural gas for residential and commercial space and water heating, and municipalities have begun to institute targeted bans or incentives for customers to switch from gas appliances to electric.

But California's decarbonization effort is creating troublesome financial issues for its gas systems as costs under current billing practices are being spread among fewer customers, and companies fear they could be stuck with stranded costs.

Responding to those and other concerns, the PUC decided to examine reliability issues and regulatory solutions to ensure that "as demand for natural gas declines, utilities maintain safe and reliable systems at just and reasonable rates, and with minimal or no stranded costs," the order stated.

The commissioners acknowledged that they have placed a tall order, especially since the state has had major problems with aging infrastructure.

Commissioner Clifford Rechtschaffen said the commission faces a "seemingly intractable problem," and Commissioner Liane Randolph, who presided over the proceeding in which the order was prepared, said the regulators will have to find ways of maintaining the systems as long as customers depend on them.

For her part, Commissioner Martha Guzman Aceves emphasized "the importance of looking at non-market solutions and regulatory controls to contain costs and ensure reliability."

Pacific Gas and Electric is a subsidiary of PG&E Corp., SDG&E and SoCalGas are subsidiaries of Sempra Energy, and Southwest Gas Corp. is a subsidiary of Southwest Gas Holdings Inc.