A (Consolidated) (U 338-E)

Transcription

1 Application No.: Exhibit No.: Witnesses: A.-0-0 A.--0 (Consolidated) SCE-0 Robert Grimm (U -E) Rebuttal Testimony of Southern California Edison Company in Support of Joint Petition for Modification (Joint PFM) of Decisions (D.) and D. -0-0, as modified by D.--0 Before the Public Utilities Commission of the State of California Rosemead, California February, 0

2 SCE-0: Rebuttal Testimony of Southern California Edison Company in Support of Joint Petition for Modification (Joint PFM) of Decisions (D.) and D , as modified by D.--0 Table Of Contents Section Page Witness I. THE PFM S PROPOSAL IS NECESSARY TO A PROPERLY FUNCTIONING MARKET UNDER THE CIRCUMSTANCES PRESENTED HERE... R. Grimm A. Witnesses Brubaker and Borkovich s Theories Are Sound When Applied to a Properly Functioning System... B. The PFM Proposal Will Not Create System Imbalances... C. Maintaining Uniform Low OFO Rules for PG&E and SCG/SDG&E s Systems for Uniformity s Sake Is Not in the Best Interest of Customers... i

3 0 0 I. THE PFM S PROPOSAL IS NECESSARY TO A PROPERLY FUNCTIONING MARKET UNDER THE CIRCUMSTANCES PRESENTED HERE A. Witnesses Brubaker and Borkovich s Theories Are Sound When Applied to a Properly Functioning System SCE supports and agrees with the abstract theoretical arguments presented by Witness Brubaker, on behalf of Indicated Shippers. For instance, Mr. Brubaker is generally correct that the Operating Flow Order (OFO) protocol is an enforcement mechanism to protect system reliability, including under constrained conditions. In fact, on behalf of PG&E, I led the effort to develop the low OFO procedures memorialized in the Gas Accord Settlement (the Gas Accord). I did not offer testimony in that proceeding because the Gas Accord was resolved through a settlement. However, had I offered testimony, I would have offered similar testimony as Mr. Brubaker regarding the intended function of the OFO rules. Likewise, SCE agrees with Mr. Borkovich that the uniformity of rules should not be abandoned merely on the basis of certain customers speculation. In A.-0-0, I sponsored testimony that asserted that a unified statewide approach to low OFO noncompliance charges is preferable. But Mr. Borkovich s suggestion that the PFM proposal is based upon speculation or seeks special treatment for certain customers is a misrepresentation of the facts, which SCE set forth in detail in my declaration in support the PFM s proposal. The facts matter because abstract theories and opinions are dependent upon the stability of the facts and assumptions upon which they rely. As discussed in greater detail below, the theories regarding the proper operation of uniform low OFO rules simply do not prove true given the changed Indicated Shippers Testimony at p.:-, -. SCG/SDG&E Testimony at p. :-. A.-0-0, SCE Exhibit, Grimm Testimony at p..

4 0 0 circumstances that exist today in which the southern California gas system is not functioning properly due to reduced storage and transmission capacity. B. The PFM Proposal Will Not Create System Imbalances Witness Brubaker states that the lack of or low number of Stage OFOs or Emergency Flow Orders (EFOs) is evidence that the current OFO protocols have been effective at managing the use of the system and maintaining reliability, and that [e]liminating the system operator s ability to use the threat of higher penalties as a system management tool could significantly affect system balances. First, Brubaker is incorrect about the proper measure of a success for low OFO protocols. The proper measure of success is whether () gas and electric reliability is maintained during periods of gas system stress () at a reasonable, if not the lowest possible, cost to all gas and electric customers in southern California. SCE contends SCG/SDG&E s current OFO protocols do not satisfy the cost impact threshold. Second, Brubaker mischaracterizes the PFM proposal because the proposal does not eliminate[e] the threat of increasing penalties. The Joint PFM proposes that the Commission reduce the $ noncompliance price component of a Stage and Low OFO to $ per Dth. Stage and OFO events will thus have the same noncompliance charge, but the stage is able to increase thus allowing SCG/SDG&E to impose tighter imbalance tolerances and providing a strong signal to the market that the system is becoming increasingly constrained and therefore approaching a more severe noncompliance charge. With regard to Stage, the PFM proposes the total charge OFO imbalance or noncompliance charge would be $ per Dth plus the Daily Balancing Standby Rate, which is the SoCal Day Ahead Citygate Index posted on ICE, rounded up to the next whole dollar. Because the Stage low OFO total imbalance charge is based upon and will always be higher than the SoCalGas Citygate price, the purported immediate measurable negative effect Mr. Borkovich Indicated Shippers Testimony at pp. :-:. Id. at p. :-. A.-0-0, Opening Brief of SCG/SDG&E, at page.

5 0 0 claims will result from the PFM proposal if there is a large discrepancy between the OFO noncompliance charge and the SoCal Citygate price will not and cannot occur if the system operator calls a Stage low OFO. Thus, the increasing threat of penalties remain a real and cognizable part of the PFM s proposal. For the foregoing reasons and those explained in greater detail in my declaration, which is attached to and incorporated by reference in SCE s direct testimony, the PFM s proposal will promote the reliability and cost minimization objectives discussed above. C. Maintaining Uniform Low OFO Rules for PG&E and SCG/SDG&E s Systems for Uniformity s Sake Is Not in the Best Interest of Customers Uniformity for uniformity s sake is form over substance. There is no material benefit to maintaining uniform low OFO rules for PG&E s and SCG/SDG&E s territories when uniform rules, paired with disparate system conditions, exacerbate disparities between the two markets. As discussed in my declaration, PG&E s noncore customers have not experienced the same level of price volatility and frequency of high gas price spikes as SCG/SDG&E noncore customers because the PG&E s system generally has sufficient storage and transmission capacity. The PFM proposal is designed to rectify this disparity. Stated differently, departing from uniform rules will promote gas price consistency between the two systems. The conditions in SCG/SDG&E s territory have changed dramatically from the conditions described by SCG/SDG&E in A when the low OFO protocols were proposed and ultimately adopted. In A. -0-0, SCG/SDG&E described the need for the opportunity to set low OFO imbalance charges sufficiently high to keep the SoCal Citygate price similar to the PG&E Citygate price SCG/SDG&E Testimony at p. :-: (emphasis added). Typically, gas system capacility differences between the PG&E system and the SCG/SDG&E system are the reason why gas prices are higher in the SCG/SDG&E gas system. Occassional Citygate price spikes are to be expected when high demand conditions exist. The concern the PFM is addressing is the impact of the consistent spread between the SoCal and PG&E Citygate. Granting the relief requested in the PFM should not have an affect on the occasional and expected price spikes that occur in high demand conditions.

6 in order to avoid gas being delivered into the higher priced market. Figure I- shows that the SoCal Citygate price has been consistently higher and much more volatile during recent periods of stress than prices in the PG&E system. 0 Figure I- The data in Figure I- conclusively shows that the price volatility during periods of stress, such as extreme weather conditions, began when Line - ruptured on October, 0. By contrast, since the date of the Line - rupture notice, PG&E s Citygate price (the blue line) has largely tracked SoCal Border prices, even during cold and hot spells. This suggests that the PG&E system has A.-0-0, Opening Brief of SCG/SDG&E, at pp Attachment C: California Public Utilities Commission ( CPUC ) and California Energy Commission ( CEC ) Joint Agency Workshop, CPUC/CEC staff presentation, Southern California Natural Gas Prices, January, 0 at based on data from Point Logic and IHS Company.

7 0 0 sufficient pipeline and storage capacity to provide for functioning market, including providing shippers an economic opportunity to change their flowing gas supplies to meet changes in their expected gas demand. In contrast, the SCG/SDG&E system is significantly constrained, and noncore shippers do not have sufficient means to change their flowing gas supplies to meet changes in expected gas demand, and thus effectively become price takers of the relevant OFO stage noncompliance charge when they have an imbalance that they cannot directly manage. This situation is particularly acute for CAISOconnected electric generators, which are required to follow CAISO dispatch instructions regardless of their forecast gas position. As I identified in my declaration, small amounts of penalty gas costs can significantly drive up the price of power for all CAISO market customers. Indeed, SCE s ERRA account balance was undercollected by more than $00 million in 0, largely due to much higher power prices than forecast because of the significant impact that SoCalGas citygate prices were having on power prices. Beyond the economic impact on power customers that SCG/SDG&E OFO penalty structure is creating, the imposition of higher than necessary OFO noncompliance charges on SCG/SDG&Econnected electric generators is creating a potential reliability situation. In its Opening Brief in A , SCG/SDG&E described a scenario in which significantly higher gas prices in the PG&E service territory than in the SCG/SDG&E service territory may create balancing problems in the state. That discussion is descriptive of the current situation, but in the reverse. During cold weather and other times of system stress flowing supplies may trade at a premium in Northern California, causing the economics for dispatching a plant in Southern California to be more favorable that dispatching a plant in Northern California. As a result, demand for natural gas by electric generators increases in Southern California at a time when our system is already stressed by low deliveries of flowing supplies and high sendouts. This creates additional operational challenges for SoCalGas and SDG&E, and could potentially throw our system into a curtailment when a curtailment would not otherwise have been necessary.

8 0 0 The low OFO and EFO procedures proposed by SoCalGas and SDG&E would solve this particular problem by giving us the ability to institute tighter balancing requirements when PG&E calls low OFOs and EFOs. By adopting a statewide approach to low flowing supplies coming into California during times of stress, the Commission would prevent balancing rules in Northern California from creating operating problems in Southern California. This change should also simplify and clarify the somewhat complex relationship between natural gas and electricity generation for a uniform approach to balancing throughout the state. Given that there was no uniform system prior to that Application, SCG/SDG&E were asking the Commission to depart from a current practice and adopt a new practice to address the potential for harmful disparities. SCE s PFM is similarly requesting the Commission depart from a current practice to rectify a harmful disparity. The condition that SCG/SDG&E was asking the Commission to protect against in its Opening Brief in A.-0-0 was one in which the amount of flowing gas into California would be limited and would therefore flow to the highest price market. Here, the opposite conditions are present. There is no shortage of gas available to California. There is, however, a shortage of flowing gas supplies available to southern California as a result of local limitations on the SCG/SDG&E system. Adequate gas is available to be delivered into California, but SCG/SDG&E s constrained system conditions limit the flowing gas available to southern California. This local system limitation explains the data in Figure I-, which shows a wide disparity between PG&E and SoCal Citygate prices during equivalent times of stress on the gas systems due to weather. And, now that PG&E Citygate prices tend to be much lower than SoCal Citygate prices, gas-fired electric generation is being limited in southern California and increased in northern California, increasing the likelihood of an electric system disruption if major transmission or electric generation is forced out unexpectedly. Maintaining higher noncompliance charges for SCG/SDG&E Stage and cannot attract gas to southern California when the SCG/SDG&E pipeline system cannot deliver it and its gas storage capacity is not available to noncore customers. As a result, the only thing that a SCG/SDG&E Stage or noncompliance penalty charge will do is potentially increase the price for gas to customers including A.-0-0, Opening Brief of SCG/SDG&E, at pp. -. Id. at pp. -. With the caveat discussed in footnote, supra.

9 0 electric generators that have no ability to avoid the higher penalty price, unless they refuse a CAISO dispatch instruction which would lead to a different compliance concern. As a result, there is no virtue in maintaining uniformity in SCG/SDG&E and PG&E OFO noncompliance charge amounts at this time because that uniformity is not promoting the best interests of the system or customers. Instead, the Commission should adopt the PFM proposal to lower the cost of the Stage and low OFO noncompliance charge until such time that SCG/SDG&E can provide sufficient pipeline and storage capacity to give noncore shippers an opportunity to manage their gas demand changes in a competitively functioning intrastate gas market. SCE respectfully submits that the Commission must be prepared to deviate from an otherwise reasonable objective of uniformity when it is clear that just and are not resulting from the uniform practice.