Direct Industrial Sales by Gas Utilities OKd by State

State utility regulators on Friday adopted long-awaited regulations that allow natural gas utilities to haul gas for large industrial customers beginning Jan. 1. The new regulations are designed to help utilities compete with interstate pipeline companies that want to capture a big chunk of the lucrative California natural gas market.

Currently, utilities act only as middlemen, buying gas from natural gas producers and selling it to consumers. About 1,800 manufacturers who use more than 25 million cubic feet of gas a year qualify for the new service.

The new regulations allow Los Angeles-based Southern California Gas and San Francisco-based Pacific Gas & Electric to negotiate the price of gas transportation with the enhanced oil recovery producers in Kern County. The Public Utilities Commission set a floor price of 30 cents for each 1,000 cubic feet of gas. The rate is lower than the 35-cent fee the commission had earlier proposed.

Kern County’s oil producers need large amounts of natural gas to make steam that is injected into the ground to warm the heavy crude oil, making it thin enough to flow. PUC Chairman Don Vial said the commission made the Kern oil field transportation fee flexible so the utilities would be better able to compete with interstate pipelines.

The oil producers, which include Chevron, Shell and Texaco, say they still prefer an interstate pipeline because the PUC can interrupt gas service in times of shortage.

The commission set higher transportation fees for industrial customers. Those customers would be able to choose either 15-year or five-year contracts. The fees under the five-year contract would fluctuate yearly with changes in the utility’s costs but by no more than the consumer price index. Fees under the 15-year contract would change every six months as the utility’s costs change. The industrial customers could also choose to guarantee transportation from the utility’s interstate pipeline supplier. If so, an industrial customer would have to pay a portion of the so-called demand charge--the amount a utility pays its supplier to guarantee a certain portion of its gas supply or transportation requirement.

Industrial customers on PG&E;’s system would pay 54 cents for each 1,000 cubic feet, or 92 cents with the demand charge. Southern California Gas customers would pay $1.18 for each 1,000 cubic feet, or $1.43 with the demand charge. The costs vary because each utility has a different cost structure.

The PUC said the higher rates for industrial customers would prevent the shifting of the utilities’ fixed costs from industrial to commercial and residential gas customers. Consumer advocates, however, aren’t pleased. Michael J. Florio, a lawyer for Toward Utility Rate Normalization, said the new regulation was the “first nail in the coffin for residential consumers.”