SoCalGas tells FERC: ''Transmission pricing matters!''

Business Wire, August 1, 1996

WASHINGTON--(BUSINESS WIRE)--Aug. 1, 1996--Packaging its key message into a sound bite, SoCalGas proclaimed to federal regulators Thursday that ``transmission pricing matters'' in a competitive electricity market and urged regulators to undertake a more exhaustive study of pricing issues through additional technical conferences.

SoCalGas told the Federal Energy Regulatory Commission (FERC) that it strongly supports moving forward with electric restructuring. ``Electric consumers should have the benefits of competition that natural-gas deregulation has brought to gas consumers,'' said Fred John, senior vice president of Pacific Enterprises, in his comments at the FERC's technical conference on transmission pricing.

At the same time, ``How you price a key part of the delivered cost of electricity -- transmission service -- really does matter,'' said John, whose Los Angeles-based company is the parent of SoCalGas.

``In today's competitive gas market, buyers of gas look at the cost of gas supply, but they also look at the cost of its transportation arrangements. It's the delivered cost of energy that counts for the consumer.''

As the FERC moves forward in its efforts to restructure the electric business, it should look carefully at how transmission service is priced, John told the commissioners.

Transmission pricing should be based on the principles of fairness and cost causation, he added, which in SoCalGas' view are synonymous and are part of the criteria that FERC's Transmission Pricing Policy Statement says will be used to evaluate pricing proposals.

``Customers should be charged based on the portion of the transmission system that is utilized,'' John pointed out.

SoCalGas appeared before the FERC to oppose the transmission- pricing scheme filed at the commission by the Western Power Exchange (WEPEX), which includes the three investor-owned power utilities in California. WEPEX has proposed a single access fee -- paid by consumers -- to recover most of the transmission revenue requirement.

SoCalGas, on the other hand, is proposing a two-part access fee -- to be shared by consumers and generators -- that differentiates between the local and regional functions of the WEPEX transmission system.

``It makes sense for consumers to pay for the reliability function of the transmission system,'' John told the FERC, ``but why should the consumer pay for the import function of the transmission system if the consumer is not purchasing any imported power?''

John acknowledged that SoCalGas' motivation on the pricing issue is to reduce the potential that gas-fired power generation in Southern California will be displaced by cheaper coal-fired generation outside the state.

``We want to ensure that gas-delivery facilities built for California consumers continue to be `used and useful,' that they not become stranded costs as a result of a particular electric- transmission pricing scheme.''

In contrast, John noted that Southern California Edison, a WEPEX member, can sell its local gas-fired generation plants and keep its remote generation facilities.

They will receive stranded cost recovery of the depreciated value of the facilities they auction, he pointed out, and at the same time are proposing a transmission rate that will maximize revenues from the remote generation facilities they continue to own.

Splitting the transmission system into local and regional charges, and requiring generators to pay a portion of the regional rate reflecting the transmission facilities used, will ensure that the WEPEX utilities ``do not simply load unnecessary stranded costs upon consumers,'' John said.

CONTACT: Southern California Gas Co., Los Angeles

Mike Mizrahi, 213/244-2540