Aliso Canyon’s Impact on Electric Reliability in Southern California

While the leak at the Aliso Canyon storage facility has been plugged since February 18, it is still high priority news throughout California, with the state government, energy agencies and gas and electric utilities continuing to evaluate its condition.  Specifically, they are trying to determine whether and under what conditions the storage field—the largest of four that supply Southern California Gas Company (SoCal Gas)—could return to service, and even more specifically, what steps, if any, should be taken to mitigate the impacts while it remains unavailable.

Southern California and the greater Los Angeles area have never faced a situation where they have not been able to rely on Aliso Canyon for gas supply on days when natural gas demand exceeds the capacity of the Los Angeles basin natural gas pipeline network, which is well below the peak day natural gas requirements in Southern California, with the difference historically having been made up from underground storage.  Moreover, the use of the storage fields is critical in the summer for Southern California natural gas-fired generation that is used to meet peak electric load on hot summer days.  Storage field operations also support the use of natural gas year round by manufacturing companies that use natural gas in their industrial processes.  .

As of right now, the underground inventories in Aliso Canyon are critically low at just 15 Bcf versus a capacity of 86 Bcf.  No new injections of natural gas are currently being allowed, so how that remaining inventory is managed over the coming summer could be critical not just for this summer, but also for this coming winter.  The 114 remaining wells in Aliso are being inspected, and completion of that testing process is required before any final decisions will be made about the resumption of injection operations.  These uncertainties raise the potential for increased volatility in power and gas prices.

Constellation continues to work with all involved stakeholders, the legislature and the California energy agencies to ensure the best possible outcome for continued service to our customers.

A Crucial Supply Resource For More than Four Decades

Aliso Canyon has been a key source of gas supply for 11 million customers within the Los Angeles basin since the 1970s, when it was converted from a working oil production field to natural gas storage.  Its 86 Bcf of storage capacity is the second largest for its type in the U.S. and it provides critical gas supply to the greater Los Angeles area during the summer for electric cooling load and in winter months when pipeline import capacity is not sufficient to meet the heating load.  Over the years, manufacturing and other commercial industries have incorporated natural gas use into their operations as well, and the storage field provides an important balancing service for that usage as well.  SoCal Gas can accept up to 3.875 Bcf/d of gas from interstate pipelines that deliver gas from either Canada or producing regions such as Texas and New Mexico. However, realistic expectations are that there would only be 3 Bcf/d available from interstate pipelines. The gas pipeline infrastructure can be seen in the map below (green lines) along with the Aliso Canyon storage facility.  In winter months, natural gas demand can be as high as 5.1 Bcf/d and on many days can average above 4 Bcf/d.  The difference between this demand and the pipeline capacity needs to be made up by natural gas stored at Aliso Canyon or other storage facilities located throughout California.  Aliso Canyon is by far the largest storage field in the fleet – its 86 Bcf of capacity equates to 63% of of SoCal Gas’s natural gas storage capacity.  The California Public Utility Commission (CPUC) in its Decision 07-12-019 determined that SoCal Gas would need to withdraw from storage 2.292 Bcf/d from storage to meet in 1-in-10 and 1-in-35 year demand scenarios of extreme winter days.  The CPUC estimates that 1.65 Bcf/d could come from the three other storage facilities (Honor Rancho, La Goleta and Playa de Rey) but that the difference of 0.642 Bcf/d would need to be made up by Aliso Canyon.

There are 17 major gas-fired generation facilities, representing 9,800 MW of capacity within the Los Angeles basin that rely on Aliso Canyon for supply, and those could be impacted this summer as well.  In July and August, there are typically between 13-18 days of withdrawals from Aliso Canyon, while in the winter Aliso Canyon has seen gas drawn from storage 21-31 days per month.

The Potential Impact On Southern California’s Gas Supply

In terms of how ga supply is managed, there are two categories of customers on SoCal Gas’s system: core and non-core customers.  Core customers are typically residential and small businesses for whom SoCal Gas procures and delivers gas, and they represent about 80 percent of SoCal Gas’s annual load.  Non-core customers are generally larger commercial and industrial customers, hospitals and oil refineries, and electric generation.  These customers procure their own natural gas supply and transportation but pay SoCal Gas for local delivery of their gas.

Non-core customers typically have to balance their deliveries of gas to their load on a monthly basis and can purchase storage to help with the balancing requirement.  The availability of large amounts of storage on the SoCal Gas system has provided significant flexibility to non-core customers as well as to SoCal Gas’s procurement of gas and system management for its core customers.  The unavailability of Aliso Canyon dramatically changes that flexibility.

One likely change would be the increased use of Operational Flow Orders (OFOs) – to customers (or their suppliers) to match their scheduled deliveries more closely to their usage in order to reduce the stress on the storage system.  Under an OFO, if a customer does not match its deliveries to its load more closely, the customer pays penalties that increase based on the level of the imbalance the customer has created.

Next Steps to Mitigate The Impact

A Technical Assessment Group made up of The California Energy Commission (Energy Commission), CPUC, California Independent System Operator (California ISO) and the Los Angeles Department of Water and Power (LADWP) has issued a Draft Action Plan (DAP) consisting of 18 measures to mitigate the impact of the loss of Aliso Canyon this summer. The Technical Assessment Group identified the possibility that there could be 14 days this summer when gas curtailments could be significant enough to cause electric service interruptions to millions of gas customers, including electric generation facilities.  The DAP consists of the following measures for summer 2016.

These measures are being discussed among regulators and affected parties.

Of particular note, DAP considers the remaining 15 Bcf of gas that is in the storage field now to be generally sufficient to address the coming summer peak electric load requirements, and indeed the plan states that the 15 Bcf should be utilized to prevent summer electricity interruptions.  If this drawdown occurs, and new injections into the field are not permitted, the field would provide no service at all next winter.  While the field is permitted to continue withdrawals of the remaining 15 Bcf, whether it will be allowed to resume any injections remains unclear.

Senate Bill (SB) 380 would require independent inspection and testing of all remaining 114 wells at Aliso Canyon to ensure they are certified to not be a public risk before any injections could resume.  The legislation is in final conference between the Assembly and Senate and could be signed by the Governor within the next two weeks.  If the bill is signed by the governor (which seems likely), and the testing is not completed in time to resume injections before next winter’s heating season, it is likely that only emergency action called for by the governor in response to a specific reliability threat could override the restrictions.

In addition, SoCal Gas had asked the CPUC for permission to require all shippers of natural gas to meet a daily balancing that all deliveries be within 5% of their daily usage (or forecasted usage in the case of core customers).  However, a settlement among SoCal Gas and interested parties sets aside that requirement and instead would implement some modification to the existing OFO authority that SoCal Gas has that would provide the utility with more ability to manage daily gas operations through the OFO protocols.

These actions could have significant impacts on natural gas prices going into the summer and through next winter.  Constellation is actively engaged in these discussions in order to ensure the best possible outcome for continued service to our customers.

Please contact your Constellation representative or West Regional Vice President, Jay Cattermole, at 925-552-9604 or Jay.Cattermole@constellation.com with any questions you may have as to how any of the proposed changes could impact your organization.

Source: Aliso Canyon Action Plan to Preserve Gas and Electric Reliability for the Los Angeles Basin: Prepared by staff of CPUC, CAISO, CEC & LADWP, 2016.