CPUC Opens New Rulemaking To Address Allocation Of Biomethane Costs

The California Public Utilities Commission (CPUC) has opened Rulemaking 22-12-011 to address biomethane procurement cost allocation.

The new rulemaking proceeding is the next step in implementation of Senate Bill 1440, which tasked the CPUC with setting targets and goals for biomethane procurement as a means of cost-effectively reducing emissions of short-lived climate pollutants. In Decision 22-02-025 the CPUC adopted short- and medium-term biomethane procurement targets for the four large investor-owned gas utilities Pacific Gas and Electric Company (PG&E), Southern California Gas Company (SoCalGas), San Diego Gas and Electric Company (SDG&E) and Southwest Gas Corporation (SWG). The medium-term biomethane procurement targets will be approximately 12 percent of core gas customer demand and approximately four percent of noncore gas customer demand (as of 2020). The gas utilities filed their first draft procurement plans pursuant to D.22-02-025 last month. (See California Gas Utilities File Draft Renewable Gas Procurement Plans)

The new rulemaking will address the question of whether and how to distribute above-market biomethane procurement costs between three categories of core and noncore customers. “Bundled core” customers are primarily residential and small commercial and industrial customers that receive all of their gas and related services from the local gas utility. “Unbundled core” customers are customers that have signed up with a non-utility core transport agent (CTA) for natural gas, which is delivered by the local gas utility. “Noncore” customers include large commercial, industrial, cogeneration, utility electric generation and wholesale customers. They have interruptible service and have the option to procure their supplies and related services from third-party marketers. “Above-market” biomethane procurement costs are calculated as the difference in market cost between biomethane and natural gas (which is generally less expensive). Since the gas utilities will have an obligation to procure biomethane, their procurement costs will increase, and this proceeding will determine how that increased cost will be recovered from customers.

The question of allocating costs to CTAs or their customers is complicated by the fact that the CPUC has already committed in Decision 22-02-025 to “work with the Legislature and stakeholders” for legislation requiring CTAs to procure biomethane “at the same rate” as the gas utilities.

The new rulemaking will also consider whether and how to incorporate the transportation and distribution charges avoided by procuring biomethane produced in California in place of natural gas produced out-of-state.

Interested parties may file comments on the rulemaking on or before February 21.

Contact: Brian Biering or Lynn Haug