HomeMy WebLinkAbout0167.094, .
~. •.•. . .:~
-
February 17, 1994
Honorable City Council
Polo Alto, California
MmDben of !he Council:
R=ort iD Brief
. ,,",,---.~',: .~.
This report. approved by !be Ublities Advisory Commission, forwards !O Council information
regarUing!he January 1994 Gas Inregraled Rcsou= Plan (IRP). No action is required at this
time. Included in !he report are:
1. Information and assumptions about gas supply and transportation resoun:es.
2. A deso..-,;ptiOIJ of the analysis u'W:d to evaluate the possible ga.o:; rescNlrc.e p1alL'>.
3. Short-and Icng-rerm ",eool!nendatioDS.
RprlnTvmA
Integra!ed resource planning is a research activiry that resui[s in .a busmes.... action pian.
Information is ga!hered and a:JaIyzed !hrongb a !II1K:lUred process 10 find !he relative costs 01
many plans. Palo Alto', Gas IRP is an analysis of plans involving both supply and demand-si(k
resources. The goal of this IRP is to develop a framework for decision making in !be gas
utility.
Tho plaJming process was inmate<! to determine wbelher me City should make " IS-year
commitment to !be Mojavo pipeline, • propo<ed intrastate gas pipeline that will bypass Pacific
Gas ok Electric. To address !he problem, staff evaluated all of !he gas supply and transportation
alternatives available to !he City. The poIOntiaJ gas resources included: Southwest US andJor
~ supply via five different transpOrtation options, demand-side management, and
CMR:167:94
•
i
"'-..
,--/'
~~' -
ownership of CaliforrWt g&S production. Two cliteria were used to cJlta..."llirn: each pl:m. to[a]
resource cost and rate impact
Utilities Adyjsoo: CgmmjWpD Action
The January 1994 Gas iRP was presented to the VAC OD J.ruary 5. 1994. In the preceding
year. tile UAC has examined tbe Gas iRP as it has progressed fro", !be estabhshmeru of
~ alternatives and evaluation criteria to its current: form. At the December 6. 1993
meeting. the UAC made a moti(m £0 accept the Gas Integrated Resource Plan and 8.C'..cept within
it tbe short-lenn action plan on page 27.
It was found that Southwest US gas via the Mojave Pipeline and one other ajlemati¥e Canadian
gas via thc P-""ific Gas Transmission Pipeline and PG&E system, are equally attractive. For thaI
reason S!alf will continue the negotiations wilh both Mojave and PG&E. Staff t.'1en '" ill issue
a report with a fmal recommendation at the conclusion of the negotiation process.
Re.pectfuIly submitted,
C-~+\-..1,,~
TOM HABASH!
Manager Resource Planning
l{n.·j
EDWARD;~
Director of Ulilities
~~.~
BERNARD M. STROJNY
Assistant City Manager
A_: January 1994 Gas lruegraled Resource Plan
cc: Utilities Advisory Commission
CMR:167:94
/
lilY OF PAlO ALlO
G4S UIIUIY
lmuary 1994
1NIEGRA1ID RESOURCE PIAN
Prepared by the Utilities ])epa! tment
Resource Planning Staff
PrinJed 011 lIecycied P.:per
Table or Contents
Table of Contents ........................ , ........ , ..... i
ListofFigu= ............ , ................ , ..... , ......... , iii
List of Tables .. , ......... ,., ... '................. iii
l..isl of Abbn:viations . . . . . . . . . . . . . . . . . . + • • _ • • • • • • • • • • • • • • • • • • •• iv
Execulive SIlnlI!IDY . . . . . , . ' . . . . . . , . . . , . . ' . . . . . . . . . . . . . . . . . , . . . . 1
Cbaptcr 1 Background & Context of :be IRP . , . . . . . . . . . . , . . . . . . . . . . . . . 3
1.1 Historical Background .. . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . , . . . . . 3
1.2 Motivation", do :be Plan ....... , ' ....... , .................. 3
1.3 _ Surrounding Gas PWming .,.,., .................... , .. ' . 4
1.3.1 FERC VS CPUC R£gulation . . ' . . . . ' . . . . ' . . . . . . . . . . . . . . . . . 4
1.3.2 Copadry IJroko'inglReleau .....................,........ 4
1.3.3 Oth<r Proaedlng, . , ........ , .. ' .... ' .. , .. , ........... 5
1.3.4 Cal/Qila/CaIi[omill Dispwe ............................... 5
1.3.5 Moj~ Pipeline ..•................ , ........•........ 6
1.3.t; Gas Dmumd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3.7 Noneo,.. Quromen ...... , ........................•... 7
Chapter 2 Cbarocreristics to Appraise ............................ .... 9
2.1 0lU ............ , ....................................•
2.2 Relillbility ........ , ....... , ......... , .................. 9
2.3 Gas Supply Options ....•...... , ........................... 9
2.4 Storage. . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Operational CoDCeTll> ...................................... 9
2.6 RcguIatory Sensitivity ..•.... , ... , ............. , .. , ........ 10
2.7 Availability ........................................... 10
2.8 Experience ............... , ........... , .. , .. ' .......... 10
2.9 Administtation .................. , ...................... 10
2.10 EnviromnemaI Impacis .....,.............................. 10
2.11 Robustness ................ , ............ , .............. 10
.::-',
Chapter 3 Qualitative Assessmeru of Alttrrunives . . . . . . . . II
lnb:rstau: Gas Supply and TraIL'!""",,;oD ......................... II
PG&E Allemati ... es .................................. 12
100% PGf ................................... 12
50% PGT and SO% EI Paso ........................ l3
101J'JI, EI Paso ................................. 14
CQ" Subscripri<>n . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Moj"'" PipeIiM .................................... 14
3.1
3.1.1
'.I.U
3.1.1.2
3.U.3
3.1.1.4
31.2
3.2 Ownmhip of Califomi.1 Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . IS
3.3 Demand Side Mcasu= .................................... 16
Cbapter 4 Decision Analy,is .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Problem Formulation ..................................... 17
4.1.1 .Ailematives •. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.2 Un.."mi1inti.. . ..................................... 19
4.1.2.1 Gas Demand .................................. 19
4.1.2.2 FinanciIJI Rat .................................. 19
4.1.2.3 Gas Prices ...............•......•............ 19
4.1.2.4 Pipe/iN! Commilmenl Level and Rat.. .................. 19
4.1.2.5 Slorage .................••.................. 19
4.1.2.6 Orho Mcjave Costs ............................. 20
4.1.2.7 DSM •...................................... 20
4.1.2.8 Drilling ...•................................. 21
4.1.2.9 R£guIa;ory and Administrative ....................... 21
4.2 Dctcrministi<: Analysis .........•..............•............ 2.
4.2.1 l'Ia)Jou .............................•........... 23
4.2.2 SeruitM!)· AMlysiJ ..•................•.............. 23
4.2.3 Dezl!T'1'Jnisric Outcome and Resldrs . . . . . . . . . . . . . . . . . . . . . .. . 25
4.3 Probabilistic Analysis ..................................... 26
4.3.1 Purpose .....•.....................•............• 26
4.3.2 Expm ItllerMws and Key Variables . . . . . . . • . . . . . . . . . . . . . • . . 25
4.3.3 kruIts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
..................................... 29
Appendix A Description of Uocertain Variable,
Appendix B Details from Detenninistk S!lldy
Appendix C Deuils from Probabilistic StlJdy
ii
--. -
I •
Figure I
Figure 2
Figure 3
Figure 4
Figure S
LISf OF FIGURES
Gas Use vs Purchase ........... .
SclJematlc of Pipeline System . . . . .
Decision Tree, Detmnirustic p~ . .
Influence Diagr.m .......... .
Decision Tree, Prob3bilistic Phase ...... .
.................. 7
........ 11
. . . . . . . ... 18
..... " . 22
. . . . . . . . . . . .... 2S
Figure A-I ......................... Palo AllO Historical Gas U"'ge
Figure B-1 ............. . ... Variable Sell.5itivity Tornade Diagram. TRC
Figure B-2 ....................... Variable Sell.5itivily Tornado Diagram. SAR
Figure B-3 through 809 ... _ . . . . . . . . . . . . . . . . ... Rainbow Diagrams
Figure 808 . _ . . . . . . . . . . . . . . . . . . . . . . . . . . ....... Nominal Plan TRC
Figure 809 ................... _ . . . . . . . . . ... Nominal Plan SAR
Figure C-I ....................... Probabiliry Distnbution Canadian Gas Price
Figure C-2 . _ . . . . . . . . . . . . . . Probability DislIfoution Southwest US Gas Price
Figure C-3 ................... _. Probability Distnbution EI Paso Pipeline Rate
Figure C4 .,. _ ........................ _ ......... _ Ri3k Assessmeru
Figuno C-5 . _ .. _ ..... _ .................. Annual Cost by Caregory Mojave
Figuno C-6 ............................... Annual Cast by Category PGT
Figuno C-7 ... _ . . . . . . . . . . . . . . . . . . . .• "ulmJaI Cost Comparison Mojave vs PGT
LIST OF TABLES
Table 1 Summary of Alternatives ...... _ . . .......... 18
Table 2 Cbanses in Nominal Policy -TRC ....... . . . . . . . . . . . . . . . . . . . . . 24
Table 3 Changes in Nominal Policy -Rate Impoct . _ .... _ .. _ ...... _ ...... 24
Table 4 Negotiable Variables, Probabilistic Phase ................ _ ....... 28
Table A-I _ . _ ....... _ ......... _ ..... Uocertain Va,iables Deterministic Phase
iii
APGA
CERA
Co,
CPUC
DSM
DTH
PERC
IRP
LDC
MCF
MM8TlT
NPV
PG&E
PGT
ron:
SAR
mc
WACOG
LIST OF ABBREVIA TrONS
American Public Gas Association
California PubLic Utilities Commission
Demm:! Side Managemem
Deca<benn, one million British thermal units
Federal Energy Regulatory CommissioD
~ Di£tributioo Company
One thousand cubic feci am srandard tempetalUre and pressure
One million British thermal units
Net Presem Value
Pacific Gas and Electric Company
Paciflc Gas Transmis<ion pijleline
Pacific Gas transmission expansion pijleline
SySll:m Avenge Rate
Total """""" cO<!
Weighted Average Cost of Gas
iv
-------
~ -.
--_._----"------
Executive SWill my
~ resoon:e planning is a research activity that results in a business action plan.
Infilrmatloo is ga!hemI and .nal,zed th.'1lIlgh a structured process to find the relative costs of
lIIany plans. Palo Alto's gas lRP i5 an analysis of plans invotving both StIpp!)-and demand-side
resour<:es. The goal of this lRP is to de\-elop a framework for de";si"" making in the gas utility.
The ~ gas resource planning process was initiated to de!ennine "bether the City should
make • IS-year eotr.mitmem to the Mojave pipeline, a proposed L"ttastate gas pipeline. Another
decisioo had to be made fIrst to ansv.-er the qu<:stion, "Should Palo Mo acx:q:t a pceammged deal
fa: interstate pipeline capacity from Pacific Gas & Electric Company (PG&E)?,' The la!ter
dccisioo was made with the original dedsioo still imrnin<nt
This tqJOrt documenIs the City of Palo Alto integrated gas = planning acti;ity that was
dooe to address these iss..,.. Included in the report are:
I. Information and asswnptions about gas supply and b3ilSfXJ!tB1ion resources.
2 A desaiptioo of the analysis used 10 evaluate the JlOSSlble gas resource plans.
3. Short-and long-tenn reco!IlI!le!lda.
To """"'" the qw;tion regarding Mojave. dedsion analysis ~hniques were used in the planning
]2OCeSS because these methods provide a systematic ".r 10 examine complex silUalioos. The
]2OCeSS has five ""!ior steps: problem formation, model de\-e!opmen~ risk analysis, plan
adoption, and action.
The p!apooe of the problem furmuJaticn ~ is 10 define !he problem, gen=te a list of
a11<matives and uncertain variables, and eslabiish the criteria used to evaluate the alternatives.
To address the problem of ddmnining if Palo Alto should make a 15-year commitmertt 10
Mojave pipeIine, SIaff evaluated all of the gas supply and transpclt3rire aItematives available to
the City.
The JlOI=l!iaJ gas = Included: SooIhwest and/or Canadian SUFriy via five difIi:tent
transpottation options, dcmaIld-side management, and ownership of California gas productioo.
Two criteria were used to examine each plan, tot.! resou.= cost (mC) and Iate impact
The analysis J'I'OC"SS began with the developmtnt of. value model ,.hic:h links the un=taintics
to III ouIl:mJe so that the alternatives can be wwpaied The model analyzes all the gas resource
optioos avaiIable COIlSldering the !IllII1)' UIICer!Binties that exist about the future. These
UIJa2'taimies are b3IldIed by developing a reasonable r3Ilge of values fa: each variable that will
affi!ct the cost of any I":SO\II1:e.
The objective of the deterministic phase is to reduce the numbet of posstble plans and the
rrumber of variables to only the most ,iable plans and sensitive 'Wbles. The det<rministic
jiJase analysis n=Iterl in postponing the dedsions aboot demand-side managcmcnt (DSM) and
-",
."~"
California ptXIuaion until the nex! IRP. The OI'Jy remaining allematlv,," were the out-of-stale
gas and n.nsporilltion options. This decision Wa'l found to be sensitive to thm: variables: the
price of gas in the SotJIhwest US, the dis<:cunt for Canadian gz. and the market price roc EI Paso
Na!waI (J&<; pipeline ~.
1b:se !hn:e variables "ere analyzed further in the next phase, the probabilistic stage. For each
VlIriabIe, an expert was iderttilied to assess the iikelihood of the future v.eJue of!he variable. The
export's judgomm! "as cIrIMn cut by using. fannal. struclll!td iJl!eview process. The result
was a probability dL<zr:ibulion of the JX>SSible values far each variable. The model was lh6J
updared U'Iing !be infonnaIioo from the expert intttviews.
Once sIaff deo.-eIoped an unde:standing about the future througt! the above analysis, !be da.-isions
were revisited The first decision that had to be made was v.1lether io aco:pt a ~ dell
for inretS!ale capacity from PG&E Based 00 the analysis, staff r=mmended not to accept the
deal. The action eliminated one of the five alternatives.
WIIh !be ~ deal rejeded, Palo Alto still had to make a short-= decision, "Should
Palo Abo bid for short-tmn Pacilic aa. Transmissim (POT) capacity 00 the ~ mari<et?'
Staff 1"C<XlIIllIIfnd to bid for capacity rights dJrough SUITtlIIeI" of 1995 in orda-to secure pipeline
capacity without eflecting !be Mojave decision. A bid ,,"" made. and Palo Alto was SIICO:<Sful
in olXaining 1his capacity.
The original questi<ln, "Should I'liIo Alto make a IS-year t'"tntliCild~ to !be Mojave pipeline?',
still had to be answered. It "'MIS found that Mojave and one other ahemative, Ca!mdian gas via
!he POT and PG&£ pipeline's, are equoUy attrBCtive. The other three a1ldrotives had net presem
values approximardy 515,000,000 bigherthan the Mojave and P<.J' options. Staff !e<'OIlllDdIds
to engage in ~ons with Mojave and PG&E to hRak the tie. Some quamitative infamatioo
was inlcmiooalJy omittai from this r<pOIt to preserve the oonfiderrtiaJ~ of !be negotiaIioos.
Staff will issue a report with a final iCCOOJIfidldation at the cmclusioo of the negotia!ioc process.
2
1. BacI!gmWld and Context of the IRP
1.1 Hstorical BIrlgrolind
Since 1986, the Federal Energy Regulatory Commissioo (FERC) and State Commissions
have been wcOOng toward the dtregu!atioo of the natural gas busin<ss A new FERC
rule is in place whid! ",ill complete this deregulation by making interstate pipeline
capacity, whid! has been monopolized by big local distnootion companies (LOCs) like
PG&E, available to customers like Palo Alto.
Until 1991, Palo Alto relied aIrnos: entirely 00 PG&E for its gas procurement and
tzallsIX"tation needs. t, 1991, an interim program was put in place by the California
Public Utilities Commission (CPUC) to allow "holesale and industrial custOmeTs to
procure gas supplies on their O\\n and use the !.lXs' L= pipeline capacity to
IrlInspO!t the gas to the California border. Palo Alto successfully participated in the
IXOgram by ~ing Jow-cost Canadian gas from Shell Caroda and using PG&Ps pipeline
riglus to lIallsport it
In AllgIlst of this year Palo Airo signe<l a new gas supply ~ wi1h another
Canadian produ=, Suncor Inc. Suncor holds pipeline cap"dty 00 the Pacific Gos
Transmissioo e:.pansioo pipeline (PGTX) mud! is • new line from Canada to the
California border. Suncor ~ the gas to CaJilixnia. Palo Alto has inttastate
tt31lSPOltation service from PG&E to br'.ng the gas to the city gate.
1.2 MI1ivaIion to 00 the Han
For the future, the City has some inl=sting opponunities. AIthougb Palo Alto always
bas the choice to become • PG&E customer again, the City has the ~ty to acquire
intasIate pipeline capacity of its 0'Ml. FERC Order 636, along with the CPUC, capacity
broIrering program, provides the framework for inu:rstate pipeline capacity to be released
by PG&E and SoCaIGas to other parties. Capacity on PGT and El Paso Narun!I Gas (El
Paso) Pipelines is ",'lIi]able through the capacity brokering JrOCCSS.
In addition, the MJjave Pipeline Company has propos<xI to build an extension of their
pipeline from the Arizma border into Northern California, completely bypassing PG&Es
system. TIlIIing is critkal as Palo Alto will need to make a oommitmern to MJjave by
early 1994.
3
,.
1.3 lssues Swromxing Gas Planning
1.3.1 FERC Vemus CPUC RegWIIIon
EVal thou!#1 Palo Alto's gas utility :s regulated by Cit:o' Couocil, the ",,"!ions of the
CPUC and the FERC affect !he gas utility • great deal,
To insure that Palo Alto's interests are not overlooked, Palo Alto has participated
in all ",-levant proceedings aI !he CPl:C and has become more involved recently
with FERC issues. These a::tivities take a great deal of staff and consulting time
and IDOIII')'. In addition to Resou= Plaming SIaIf spending time on these issues.
the City AtIoole)Is ofike also carries a large burden to stay abreast of the
happenings in the regWaIay arena.
All gas transportatioo alternatives before us require the util ization of at least """
interstate pipeline. That ClCIIlS Palo Alto will be con=ned ,.ill! FERC decisiom
regaxdIess of the transponation al1<:rnative chosen. To dale. Palo Alto has not
spent nu:h time appearing and testifYing aI these proceedings. Staffbelioves this
srtu.tion will remain SlalUs quo becalIse (I) The FERC moves sJowl)' and does not
make &equern ~ to !he reguhII<xy structure, (1) Oz interests are indi=tIy
JnlIeCIed be::ause of the huge IUIIIlber of municipalities IICro!S the COllIllIy that
participllle at !he FERC, (]) Palo Alto already participates through membership in
the American Public Gas Associarion. and (4) It "ucld be • wa<le of time and
money Ie participate as a stand-alOlle party in any procoeding althe FERC unless
there is a very oanmv fo."" on NorIhem California
The CPUC proceedings affect Palo Alto through those alternatives that rely on
PG&E's inIrastate grid fur trnnspottation to !he city gate. Unlike the FERC, the
Califurnia Commissioo reguJariy holds proceedings to rev;.,. and change raIeS on
the PG&E system. Palo Alto is unique in that it is the unly municipalutilily on
PG&E's system that participau:s in the prooeedings, A great deal of time and
money are required Ie aae:I4't Ie protect Palo Alto's interest at the CPUC. In fact,
nearly our entire consulting bu:lg<t of $] 50,000 (approximately 6% of the total
it-. llimsponalion oost) is spent in this fushion. UnfurtunaIely, Commissioo
decisions are most oficn unfavorable to Palo Alto, and in many ,mtances the
City's conccms have been ignoml all togelher.
eap.;ity~
Regulatory issues are !he most complica!ed and unc<rtain aspect of plonning for
Palo Alto's gas utility. As discussed in !he intnxho:tiun, the regulatory framework
of the gas industty is in !he midst of. tadical change. Mmy uncertainties remain
aOOut how the marlcet will behave in this new stIu<:ture,
The FERC has issued Order 636 which lays out guidelines for interstate pipel ines
4
to release capacity on an "J."!l marl<et. Interested CUSIomer.'i rna) bid up to the
maximum approved rnte for space en e:h.i1 ~cuIar pipeline. PG&E is releasing
capacity on PGT trom Canada and on El Paso from the Southwest U.S.
However. Onler 636 00es allow LDCs to make pre-arranged deaIs to release
capocity before it goes to the open market In this ""'" the CPUC rules come into
play be<:all'le PG&E and SoCalGas are the main interstale capocity holders in
California, and the CPUC regulates boIh of these entities.
Palo Alto can reserve capacity for i1s core (resid<ntiaI) load through a pre:nnmged
deal wi1h PG&E. H:lwever, under this option Palo Alto is required to split i1s
capacity equally between the PGT and El Paso pipelines and pay the full as-billed
rate on boIh pipelines. This could make good gas supply corura:ts harder to
negotiate since our load is already moderately su.d and extremely seasonal.
1.3.3 0Cber I'rtla!e!tDgs
The CPUC has sever:;] other proceedings un,""",,=, ,,11iob Palo Alto has been
evaluating and will continue to monitor. The fu.t one concerns the unbundling
of PG&Es stornge senrice. This "ill result in tMklng sL.-.-age avaIlable as a
separate serviee from the intrlIstare transponation servke. S~.lI unhundl ing
may l""'ide customer> with the ability to store gas on SoCalGas or Ihird party
storage S:JStems. CUm:ntly, !'rJ&Es tranSpOrtlIIion :ate includes stcrage cc&s.
Another proceeding which has just been announced "ill make inlrnstale capacity
.... 1IiIabIe through a lxukering mechanism. The plOceedillg has not begun, so no
infurmaliOilisavailabIe.
The Biennial Cost A1100ation Proceecfmg (BC."J') determines bow lIlll<:h of
PG&Es revenue requirernertt will be aI1oc:ned to each customer. The next BeAP
will be in J 994.
The Long Run Marginal Cos! (LRJvIC) proceeding set guideli:1CS foc a new
m<!hod of allocating cc&s to FG&E custorncn. Rates are oow based on the Ioog
nm matginal cost each ctJSICmer causes !'rAE to incur.
U,4 ClmadaICaIifotD Di5pJIe
For SC\'e!3l years, there has been a dispute between Omada and California
regarding price and availability of gas supplies. This is an extremely complicated
issue. Canadian gas has been sold under cootract io CaIlfani. by a distinct group
of producers knov.n as the AIberIa and Southern Pool (MS).
The price of gas to California has been based on a "neIback" pri<:e. This means
that the price of gas has been calculated by subttacting the cost of trar>;portation
5
from Canada '" California from the price of U.S. gas at the California border.
The result is !hat the cost 10 California customer> is ..tmost !he same v.he!h<r the
!!BS comes from Canada 0< the Soothwest u.s. "-'""'PI for • small discourJ by the
Canadians. Many have described the si!Ualion as a carteI because the A&S gas
that ends up in California is sold at a substantially higher price than the gas tim
goes to the local Canadian market.
Wbtn the CPUC issued its capacity brokering decision, the Commission de<:lared
these CC!1I!ac!s to be null and "oid and argued that steps !l1lJSt be taken to J1X)\"<
toward. competitiyo marke! = quickly than orisinally planned. Naturally. the
Canadians have not re5JX1!1<Ied liIvorably to the CPUC's disregard for these
cootta:ts. Negotiations have recently concluded v.hich ddmnincd !!ow nwch
PG&E will pay 10 n:st!UC!Ure the Canadian COtttr...:ls. This cost was
"W'u"imately S250.000,OOO and "ill be passed on the rate poym and stock
holder.; of PG&E and the PGT customers.
MljIwe PIpeIino
As memi<n:d, Mojave is a jlI\lIXl5ed pipeline from the Ari20na border 10 Northern
Califumia. The success or faIlure of the project bas enonnoos implicat..'ons to the
CaIifornia gas mada:t.
Mojave "ill be an int<rstate pipeline regullIIed orJy by the FERC. Eve!)'
=aomer that switches from PG&E to the Mojave system will cause a greater
1uden (II !boo-remaining (II PG&E's system In order to discoInge bypass
(alSlomo:rl; leaving PG&E and the CPUC jurisdiction,) the CPUC has approved
sevemI discounted contracts as an incentive to stay. The problem is that the
CPUC can not bind furun: Commissims to honor discoumed rates, so there is 110
gwrB!IIee !hat the discoun!s won't disappear in the future.
Palo Alto is in the same position as all porentiaJ bypass CUSIo!'!ler.i. Two good
0UfC0ttIQ; "'" possible: (I) Mojave is buil~ the project is cost<ffectiYO fur the
City, and Palo Alto is coonected to it; or (2) Palo Alto =iYes a <fuw.Jrued rnIe
from PG&E as an mantive '" SIa)' on the system Anocher possible outcome is
that MljaYO is built, Palo Alto does not comect to Mljavc, PG&E does not offer
a discomted rate to Palo Alto, and the City ends up paying stranded costs caused
by the b).poss of other PC'..&E customers. Palo Alto docs believe, however, !hat
the pipeline 00IIIfCIiti00 that Mojave "ill foster will benefit the stale of California
and every CIl:!toIIII:r (II the PG&E system. Thc:refure, the """l! po!lSlble outcome
is the iiIilure of the Mojave proj~ and Palo Alto has participated at the stale and
fode:allevel in suppon of the pipeline expmsion.
l.3.6 Gas Demoad
Palo Alto's av..-age gas demand is approximately 10 MM:FD (MilIioo cubic em
per day.) This varies si!Jnificantly beIv.een summer and winter with a typicaI
6
, .
average July usage of 5,000 MCre and .... crag<: January usage of 19,000 MCFD
Annually, the purchase profile could malch the demand profile depending on the
amDUil! of storage available 10 PaiD Alto, Figure 1 sho\\~ Palo Alto's gao purcl!ase
profile ",til and "ithou! S!O<age for 199:-1994.
City of Palo Alto
N.Jn.jrai G.u Use .a!1d Purchase Profile
~".,..
18 ,
16 ,
14 t '" ,. :
.. 10-~:~.
4 '
2 '
0 -----_ .. _-
f e. 1S > " .. 0 ~ • ., c i -;; .: -, .. ~
• <:
• W
Flg1n I
Since Palo Alto is 110! c::<pcriencing much grov.lh. healing degree days are tlte
most iJIl!XlIcmlI variable in detomining the City'S gas demand. An econometric
modcl using regression as the forecasting method "'th bigh and low boundaries
set by two standa:tI de ... iatiOllS was used 10 de-. ~lop the demand f=cast.
Howeve:-, the IRP docs not tten demand as • fo=ted ,alue insteaC, it is
treated as an 1II1CeI1aimy. Palo Alto's historica! gas usage and !he r:mges ... hlch
"""" resred in !he decision anaJ:.~is process are shown in Figure 4, in section
4.2.4.1
1-3.7 Nooro~ 0Alme0s
ApproximaIeIy ten pe=ru of the City's load is <:OO1prised of YlOIlCOO! =.
These custom:rs receive • dis<:ourned rare bo:tause of their sta!Us as ar.ailable
custome:s "'th aitema1C fuel capability. Staffhas llIlderuli<en discussion "1t1l the
noncore customers to make them aware of the !le\\ regulato<y environment.
Some of these ~ have expressed that they "1lIII to cootinue to be served
7
". '-'
by Pak> Alto Mille others have expressed the desire 10 acquire pipeline capacity
and/or gas supplies on the'.r cr.' n. Resource Planning and Rates have been
working IOgdhcr to establish a ~' 10 provide ttansportation-only service 10 lOose
customers who d<:sin: it.
8
2. ClJar.k:teristics 10 Awrnise
In order to evaluate each altematiVe. 3 I ist of eleven criteria wen: developed. Each one is
dc:la1bed below althougll most are .. If explanatory. Each of these <harncteristics were
coosiden:d during the development of the value model in the problem fomrulation phase of the
dedsion analysis process. This list was the basis for deter:minir.g the costs to be induded in the = cost of each alternative and the uncertain variables to be tested in the dctetministic
phase.
2.1 0JSt
The cost< (both present and future) associated wiTh eacl: alternative include: (1) the
inrcrstate and inttastate tran.sportalion charges, (2) gas commodity costs, (3) investment
or capital costs, (4) opera1lng <0Sl<;. (5) storage, (6) back-up, (7) other ='1arges, (8)
regulatory and litigation costs, and (9) adrni.-rlstratP.'e costs. Unit costs :m: usually
expressed in $ l"" decathe!m.
2.2 Reliability
Reliability is critical to the City. The reliability of a pipeline system may be assessed by
its configuratioo. the number of lines serving the area, etc. Back-up service ill case of
an emagency may need to be as.sc:ssed for some altematives. In addition, reliability
provided by <XlIIIraCt = 'With the pipeline. gas supplier. or oIher end-users is possible,
2.3 Gas SURiY q,ti1llJl
The sou= of gas supplied via the variety of basins, producers and marXeters and made
available tbtou£h any of the transport&ion alterr.atives is important. The two main
regions providing gas supply to California are Canada "h.idt includes gas from Alberta
and British Columbia and domestic supplies including gas from the Permian basin, the
San Juan basin, and the Rocky !l.-Iountains. Califomi.a gas also contributes some supply
to the state.
2.4 SIDnIge
Storage can be considered '" reliability insuroix:e if it is used to supply gas to Palo Alto
at a time of cunailmcm 011 the int=td.e pipeline. However, Palo Alto also u!Jli=
storase to fIattcl the Iood rrofile and to buy inocpensive gas in the summer fur winttt
use. The storage o¢oos =ociln<d with eacl: n' .. ,pouation aItanativc rnu<;I be
coosid=red.
15 ~ofiooaI o.nr-.s
Any change to the operatior. of Palo Alto's gas distnbutioo S)SIem is criticallD be aware
of and to include in the evaluation. Such changes may include • diff=n number or
coofiguration of meter statiOl1S or a differ.,..! delivery pressure from that much the City
has now. Soch changes may cause the City to add staff or make inIemaI staff changes
9
> •• ":"
.,' "-.---; ~~ -...:"" .
resulting in additional costs. Engineer'.ng's input on this issue is key.
u; RegWoIDIy Sensitivity
The CPUC and the FERC are both major players in the "",-ural gas market It is
~ to n=gnize the impact of regulation on each alternative and each alternative's
vulDcrability to future regulation.
1.7 A1'lIIIaIili1y
The cum:nt and future avmlability of each alternative is an ~ element. This
ai!Iriln also includes bottleoo:lcs associated wilh each altem:llive. For example,
Southwest US. gas supplies may be plentiful, but if PG&E does not hove adequate
pipeline capacity from Topock, AZ, the gas will DO! be able to reach the market
2.8 bpait"'"
The utility !IIl!fi's experience in handling the various aspects of each alternative is
oomido:red.
1.9 J"muidtalioo
The smff handles <XlrItI:lcts, nominaIioos, and daily balancing. The impoct on
administtative \\Uk is !aka! into accocnt. Consulting costs are also included in this
categ<xy. If smff is unfumiliar "itlt ;odministoring an altanativC; co<!SUIting or oIher
servioc cost may need to be considered
2.10 1Do....... . I ~
Cld!eNise """"n as ex:emalities in an IRP, the environrnenraI characteristics of each
alt.mative will be examined in a broad sense
2.11 &lu!I'''.
Each plan's elCpOSUl"e '" risk is exmnined in the final stage of the ana!ysc.. A roI:ust plan
is me .... tich will still be desirable UIIdcr various advase future scmarios. This may be
achie>-"Cd through the flexibility of !he alternatives.
10
3. QJaiHative Assessmmt of Alternatives
First, !he gas utility undertook • broad =men! of all potential supply-side and demand-sid<;
resoun:e altematives. The fuUo",ing is • qualimlive description of each of !he alternatives.
3.1 T1lIII51XIltaDoo am SlJAiy from Canadian or Domes1ic Regions
Palo Alto needs to get the majority of its gas supply from 0IltSid<: the state of Otlifornia.
This supply "'" come from domestic produce:; ill the SouIhwest U.s. or the Rocky
MounIains or from Canada. This gas may reoch Palo Alto via several interst3le and
inttasmIe pipelines. The map below is • sdlematic of the pipelines ser;ing or proposed
10 serve California.
NATURAL GAS PIPE' jNg SYSTEM
~
~
.~I~ 0_11
i
\
_ JI''i7:li: .. ,,.;-
_ lI''iilE' I"H"'~:)'fE 11:)("./1=10"
_ ''!lIE f)ll:ll,\NQ "1 .. 1t"IN!
_ \IIC .. ,II/E E,;>II~.sIC'"
_ 'WC~M'E I!!X:17:HG "11l'!:"-I ... !:
IIC·I~~-::"''' E~I Ci" I
"'7 .. 1_ .... 0 I.
1'lII .. lOnrt,'l'IIU'
"''''!:;':NCS
FJg1ft Z
11
. .:07:< .. ,":
:-<~~:'
~.,,;~ ..
r,'
3.1.1 PG&E Al1Iematives
3.LLl
Four of the five interstate gas and lransp<Jrtaiion alternatives rely on PG&E for
intr.IotaIe service. M!i.ve is not schaIuled to be in operation until13le 1995, so,
even if Palo Alto chooses !be Mojave alternative, a plan needs to be made for
irmstate transportaticn In the PG&E sysI<m L~ !be interim. Hmve=, the
following cllaracteristics of !be PG&E system must be taken into accrunt in our
Img-tenn pian.
Cmt "., RctWitity
PG&E does not have a guaranteed rate. A discounted irIIra.ta!e rate with PG&E
would have to be negOOa!ed foc any of these a!tematives to clearly be more cost
effi:ctive than M!iave. PG&E docs have three main lines serving Palo Alto and
50 years of prov"" rdiable SCf\;"" so it is not pe=ived tc require additior.al
back-up servi<e.
Gas 0.." .... '"
The ],(,AE optioos do allow a=ss tc the many produc= in both Canada and the
Southwest. Howev.,., ecooomic tlJem' and our analvsis shm>~ that the Canadian
gas pi= have and will conIinue to ti-ack liS gas pi;a:s keeping the diffi:n:ntial
rela!ive~ srmlI.
This t:."sponaliun option is cxttemely sensitive 10 regu1aMy turmoil PG&E
future rates are UIlI:C1ain, and c';en • discounted cO<1lract approved by the CPU('
is not guaramced because: 00 Commission may be held to • p-e'Viom
Canmission's decision. If the proposed M!iave Iareral is not built and bypassing
the PG&E system is no longer dI1 option, the CPU(' may determine that the
discount was in¥udcnt and nullify the COIlIr3Ct between Palo Alto and PG&E.
1'G&E option 1: 100% PGT
Buying gas from Canada and transpcxting it ""er the PGT pipeline to
California is one aItemarivc that utiIi= PG&E's inIrnstIIe pipeline system.
In reoIity, MO imerstaIe pipc1ines carry gas from Canada to Califixnia,
PGT and the PGT expansion pipeline. Even though the maximum rate 00.
the PGT ecpansioo pipc!inc is more than the rate on the existing PGT line,
statfhelieves it is reasonable to assume that capacity on both pipelines will
be sold at the same price to buyers. The == of int=e capacity is
the l'CO'lOIl fcc this pi .. IOiDenon. MIlly Cana<fmn produc= and marl<eters
OWII capacity m the more expe11'ive PGTX pipeline, but their gas will be
f<rced to 0JIJl!l"le with gas flowing 00 the less expensive existing pipc1ine.
The difierer>:e in pipeline costs, therefore, will be =Iized by the gas
produ= !lIIher than the end user in California.
12
3.1.1.2
.... -.
The price of bot'> the e:v.isting and e.'qlallS1L'11 pipeline C3J"Iclty is unkncm"
due to restIUCIllrin~ cost:; \\hich will be recovered throueh rates and the
p",,,ibie FERC deCision to fOU-in the two pipelines so thai one single l1IIe
awli'" to bo!h. This .ttemative is modeled as one in the IRP altlxlugh the
foU""ing are three strategies that could be followed to ilnplemenr this
option.
i. Bid on the open market for as much POT capacity as possible.
Palo Alto Ms done this as , short-tam action, but the Citv could
continue "il" this strntegy into the t\Jture. •
ii Negotiate with PG&E for the assignment of Palo Alto's full
capacity rights on POT.
iii. Rcly on gas suppliers and marl«:ter,; who have ~ on the
POT expansion pipeline to supply Palo Alto -.ith its full <r partioJ
gas requiI dueats.
PG&E 0ptUm 2: 5Im PGTI51J% E1 Ft1so to PG&E Gr.d
Under the CPUCs capacity broke!ing program, wholesale customers are
permitted to reserve pipeline capacity for their core customers on the same
basis as FG&E reserves fur their customers. Therefore, Palo Alto "m be
required to split its ~. requiremenIs betw= the PGT and EI Paso
pipelines. Palo Alto did IlOl accqx this option, so it was eliminated from
fu:thcr consideration in the analysis,
To take ~ of the res:rvation righls olfm:d by the CPUC, the City
"oold have paid the highest ~ l1IIe charged on eacl1 of the
existing systemS. In the ca<e ofJ>(,"T the me, '" least for the interim. is
low. Although, a puceeding cum:nIly at the FERC may roD in the cost
of the PG1X resulting in a melded rare "Nch is much hig!H:r. Capacity
on El Paso .ls in = and is selling on the open market for less than the
ma>.:irIwm ra!e.
Even 1bough Palo Alto WOldd be saddled with fuD-pricW EI Paso capacity,
this <¢on could be b::tter fiom • 'IRC stand point than taking 100% of
the capacity CII EI Paso bo:ause the POT pmim will be used to .. ;cess
less ~\ .. C2nadian gas supplies. Stil~ a capacity giut exists, and it
was not m:ommended that Palo Alto take 00 the responstbility of the pre
arr.mgal deal. This option 'MIS IIlOO: costly than 100';, POT and also
required a ~ corntnitrnont which limited our f1=bility to chose
other optiom.
13
3.L1.3
3.1-1.4
3.1.2
PGAE q.tion 3: jlJO% EJI'rIso to l'GM's Grid
El Paso c:apacirj is cumntly available on the """" marXet It is in over
supply and is being soid at a diswunt. This alternative is expected to have
a high TRC because the price of Southwest US gas is predicted to be
slig/ltly higher than Canadian StJjlpIies, but this alternative gives the City
greater t1<X1bility in the future since Palo pJto = choose the term of
ccmmitment.
PGAE q,t;on 4; eo... Sd!&:tiption
Un!l11991, Palo Alto was a core s<IIJ"aiber of PG&E. Core Subscription
service includes gas supply and gas tr.lIlspll,1ation This option is still
avaiIJlble to the Citv. This aItemaIive does not afford Palo AIro onv of the
benefits of discooined il!te:state capacity ,; gilts. In addition, IIiis plan
renders our entire gas suWI, and lrn!l:;prI!Alion subject to CPUC
regulatioc.
M:ljave could take the place ofPG&Es inIras!ate transportatioo service which the
City poes<n!Iy d<pends on. Mojave will operare as an inI=ta!e pipeline bypassing
PG&E's sysIfm to connett CUSIOIner5 thereby avoiding California Public Utilities
Coolmission jurisdietiO!t E>en!hough capacily brok<ring has caused Palo Alto
to DDke an immediare decision among the PG&E alternatives, the decision about
~~ave is imminent.
Cmt ad IW"udiljlY
Mojave is offering a IS-year guar.mtced transmission rate of SO.47 per d=therm
(D'IH) at a max:imum of 1% escalmion per year ,.hich the CPUC has no corttroI
OVCI". In!C<StIIe capacity on either EI Paso or Tran.western. will also be required,
and IaIc5 on these pipeIiDes are expected to be disaxm!c:I in the future.
Since Mljave is ooIy one pipeline, as opposed to PG&E's three, back-up
p-oIeCtion may be required. R.:seard! bas sbown that ov..-90% of the municipll
gas Wlities in !he oountty =eM: gas fium • single pipelino !hal CX!CJds an
~ distance of 40 rm1es to an inI=tate pipeline Nevertheless. if Palo Alto
chooses this option, provisions will be oegotiB!ed to miti@llle against ~"Y
or CUI"I3iJment conditions and to OSSIR gas deliveries for our scasonaI residential
load.
Some capital C<JSt will be incutred to modify one or more of the City's meter
14
· , , :7
.... <.-
stations to krtm:onnect \\.irh MOj2ve. Engineering has completed a hydraulic
study "hich shows LIJat one receipt point is not enough for the Cir:'s disttibution
system to functi<hL Palo Alto's Engineering sWf r.as also <le\'elopcd a propos<:d
inIm:oonect configuration and associated cost estimates. The responsibility for
the cost of CXIra stations "iIt be part of the negotiatioo process.
Gas O!mmocitr
Many producer> are accessible via the Mojave pipeline. The most omious so=
of supply is the P=rian Basin ",trich can be accessed by the El Paso and
Tr.lI1S\\estem pipelines, The price of S<:ruthwest gas relative to Canadlan gas was
a criticai variable in the IF-I', The variable was studied using indu.<;try experts to == the probability disttibution of the po<iSible future discounts for Canadian
gas. Sel1ioo 4,3 discuss<s the probabilistic phase of the analysis. and Appendix
C contair-.s the probability distribution fo< the COTIl!nodi!y prices.
QJmiiqnal Coomns
The main ~oml concern is how well the CitYs distribution system =
function with only one receipt point rather than the current four receipt points,
As discussed above, the City of Palo Alto Engineering staff has modeled the
hydraulic effects on the system of an intm:onnect with Mojave and has fuund that
multiple <:mno:ttim points wili be needed Additional pip<ng and meta stations
will result in a higher investnlell! cost associated wim the Mojave alternative,
RcgnIaOpQr SmWivi\V
This !I3nsport3tion option is relativdy insemillve to reguIat<X)' rurmoil Since
Mojave will be an inrerstme pipeline, it "iil be subject mil' to FERC regulation
The prqiect will be built under a special e:qx:dited c'frtificate wtrich means that the
M!jave ~ must oo.r any cost ov=, Therefore, the rate is guanuneed
f<y 15 years, and Mojave can !lOt impose any i3Ce increases regardless of the final
C05t of the J:roject or any 0!fJer factors,
Aywla1J!jty
Mojave faces considerable <WOSition from PG&E and the CPUC The utilities
staff has r=ived varying opinions from gas industry c=>Ultanti ilDd mar'Aetm
ranging from a 50% to 100% probability that Mojave will be built The
probability of. lateral to Palo Alto is also UiJlclrnm
3.2 OwneIsli.p of Califoma ProWctiOD
Another interesting optioo the City has is to participate in a partn<.nhip to drill ga'i wells
in California and adlIa!ly ""n its ga'i supply, It is unlikely that Palo Alto would ;", able
to, or wan! to, rely solely on its O"'ll wells because th<re is a high risk assocU!Ie<l with
15
•
l
, :-\-: "'~'-;
-':~'~
mlling b<olusc of the huge uncertainlY about the: level production and the life for any
givt:n \Will. However, this option may supplemen! oot-of-swe gas supplies and is included
in the !'1'5 IRP .
Vemda National, a California gas producing company in Sacramcnto, ha. discussed
porIlItrSbip amJIlg<met1!S for reserves and drilling progrmns. This is the only oppor1llnity
tba! exists b!he City at this time.
DSM g<n<:<aIly refers to comervatioo measun:s Mlich the customers of !he utility
undertake OIl their homes or businesses. Tbc:se measures result in changing the demand
paItml kr gas. In this "")', 1hese OSM resources an: often refim:d to as an altemative
soon:e of supply.
Ukc QIIif.:.rrria gIllS, this optioo docs not relieve the City from choosing one of the
UiiiSjlttl!lli.Jn altmJatives di"''5sed in this report. Om DSM is included in the 00,
baa"",·er, a JIlIJJd.<:ommodity OSM srudy is urxJern.ay ",hich will jlI'O\ide more
iufoona!im about the poteotiaI kr DSM programs in Palo Alto.
16
' .... ----
4. Decision Analysis
Making resoI.:I'CC planning deci<iOl'.s is a complex problem sin«: there are usually many
competing supply-ar.d demand-side resouroe5. In addition, th= decisions must be made in spite
of the fuct that rmny future events carmot be kr"",n or predicted. D:ci;ion analysis techniques
provide a systematic way to break dov.n complex decisions into manageable co!!1pOflaltS. Each
stage of the process gives anal)~ and decision-makers valuable incite into the problem and helps
to focus on the most critical elements surrounaing the decisioo Ihm must be made.
The steps in the decision analysis process are sl"mn in the fon""ing diagram:
Assess Devel~ Evaluate Decide Establish
Si:wticn Alternatives' Risks Among an Action
lI-.famarion Alternatives Plan
Problem D:!=inistic Probabilistic Evaluation Action
Fonnulation Analysis Analysis Communication
4.1 Prolllem Fonmlalion
The puzpose of the problem fomruiation stage is to define the problem and the set the
scope of the analysis. The steps include: (I) state the problem, (2) genernte a list of
aItematives and ur=tain ,..nabios, (3) designate the criterion or criteria upon which
candida!e plans will be compared.
The quostioo "hich prompted the lRP was: "Should Palo Alto make a IS-year
COOhllmt .. It to Mojave pipeiine"" In order to ar.swc:r this que;tioo, it was necessary to
analyze all alternatives and choose the optimIlm plan for the IS-year planning horizon.
In addition, the City had to chose whether or llOI to """"i'I a prearranged deal with PG&E
foc interstate pipelille capacity. T"" criteria were used to examine eachpJan, IRC and
rnte impact TRC includes the resource cos-., tr"d!lSJXI!l'Ition cost. the cost of demand-side
progrlt!IIS to the utility and to the =tomer.;, and the environmcmaI cost to society from
tuning !IOIUr.!l gas.
4.1.1 AItomaIiva
A list of all the feasible alternative for meeting the CitYs gas supply needs was
genc:ra!td. The alternatives were discussed qualitatively in Cluq1ll:r 3. The three
decisions and all the alternatives are sbown in Table I below.
17
SurnmaryofAltemalives
lnlersI3le Gas & Tra"spJCwion
Mojave
PGT
EI Paso
PGTIEI Paso
Con: Subscription
Ownership of CaIifumia ProduaiOll
Yes, do j21icipa!e
No, do 1101 pattkipate
Demmxl-Side Mana"","""
Nooe -
Levell
Level 2
l..eveI 3
Commens
Domestic gas to El Paso to Mojave
Canodiz gas 10 PGT to PG&E
I
Domestic gas to El Paso to PG&E
50"10 on fui, 5i)% ll!I El Paso to PG&E
Buy aD gas and ttlIilSpJltatioo from PG&E
I Do or don~ patticipare in a Califumia
I ~ prosram for a patiOll of the
C"Ys load
I
15% of demand by 1008
1
10% of demand bv 2008
[50/. of demand by 200S
Taele I
Tho:se alternatives ""'. also be illllS1I3lci in !he form of a "decision tree" "hich is sbov.TI below
in Ftgure 3. Eacb paih from left to rigfu !hrough the _ ~ a plao. lhis combination
of aItoroatives yields 40 plans.
---
18
4.1.2
4.1.2.1
4.1.2.2
4.1.2.4
UDl>!ftlin Variables
The uncertain variables thai affect the TRe and rate impact for the various plans
fall into the ge:=aI categories 'xlow. For the most part, each ,,!Iiable was given
a nominal, hi gh, and low value. and these range. are described and tabulated in
rmre detail in Appendix A
GasDmrni
The demand was set at • base forecast for 1993 and then escalated at an
uncertain rate. This variable growth rate encornpasscs the possible growth
or e::onomic decline or S'jstern b)pass by Palo Alto's indusIrial customers
that the City could experien.. ... v.tich wooId change the amount of gas
consumed over the 15 year period.
bjldion _ Discow Rats
The inflation rate is the average rate of inflation over the evaluation
period. The discount rate i, 3% higher than the inflation !lite.
GasP1i=
The price of gas in the Pennian basin is the index for the price of all the
gas v.+Jch reaches CaJifOO1.ia. The escalation rate aver the planning
horizon was treated a.; an Il!lIX<1ain variable and the discount or premium
for Canadian supplies \Va.; also an un.~. PG&Es weighted average
cost of gas (WACOG) was a calculated value from the resulting prio::s of
domestic and Canadian supplies.
Pfpe/inI! eo. .. ,itJ ...... Levd md Rat!S
The batiSjXJI tatioo rate fa-every inttastate and int<rstate pipeline in the
analysis wa<; a variable. These include, Mljave, PG&E, PGT and El Paso
pipelines. An additiooai cost is added 011 to all alternativ<s that include
PG&E ttansportation. 11-""sttanded oost" is <lui: to the restructuring of
some PG&E =acts, and all ~ .. ill p"y a portion of them.
It was assumed thai pipeline capa:ity "ill be reserved to meet Palo .AJto's
cold wealher f<:.m:ast less any DSM It was also assumed that surplus
capacity could be laid off at a fu!ction of its cost The high value of each
layoffw.able was lOO'V. of!he original price paid. This all""" us to test
the value of reserving eJCBCtIy as much capa:ity as necded. The model
also includes a cost that is incurred by =ving too little capacity and
having to buy defickncies at a pn:miuru. .
~
The amount of st~ avaHable and the cost of thai storage for each
1Iat1Sp(X!a!ion a11<r!'.at.ive was <:oosidercd. Stornge affects the cost of gas
19
4.1.2.6
4.1-2.7
. : ~'-"
.':"-.'
'"': ...
. ' ,'.-'
--".-,.~ .
be=Jse it allo". more gas to be purchased in the sumJl1fr months "bile
prices are lower. Stor.g< on PG&E s system is charged based on total
througf1put It was assumed that slDr'3"oe an lvloj .... e will be charged baled
on 5101'age capaci:y although the oominaJ """" 3SSUllle5 no 510rnge is
3V'"oilable on the Mojave system
Other Moj;1¥' CasIs
Back-up co;! -This includes the cost of back-up ..moe fium PG&E (l{
other means of JlfO'iding servi« in the case of an emergency or
curtailment Gas pipelille systemS in g:=al are vay reliable systemS
gina: they cootain no mechanical parts, and stafl's """"""". has sllmm :bat
over 90% of the municipaJities in the CO\JIIlIy are "",'<XI by a single
pipeline. ~mbdess, this cost was added as a precautioo to • poosible
pclicy decisioo requiring back-up to a.;:munt for the fuel: that Mojave will
have only one pipeline serving Palo Aho v.hile FG&:E has three. A
reliability study is und"",.y by Mt~"''e staff members v.hich will be used
to make the decisioo aIxxtt the ne<d lOr back-up sa-vice. Palo Alto's
rnpital cost to tie into the Moj .... e 5)= "as also considered to be an
UIlCCSIain variable.
DSM
DSM IIDgrarn> are conservatim and load managetrent progtamS that
impoct sales and peak day usage. Three DSM levels were evaluated in the
IRP. These levels provide • c"",p<tI .. .,ive rnngo of ,"1llues that model
~ of llSM IIDgrarns that are similar to tlIcse IIDgrartlS currently
being implemented by PG&E.
The variables in the DSM levels included DSM Pe:fonnance as a % of
1Blgeted DSM and the D&"l enviromnenIal benefit. The environrnmIal
be:ldit of the avoidance ofburning gas was calculated using the California
En«gy C<llnmission's value of S33/ron of Co, = $1.I9/MCF (thousand
cubic feet.)
Tho level of DSM targe<ed, the utility program COSIs, and the CUSlortrr
coots wore set ,'3Iues, IlO! variables. Theses values are des<n'bed beicw.
An ~on V;IIS made that the program would begin in 1995 and
cooiinuc: 1hroughoot the ewluatioo period
• Three levels of DSM impoct 10 be acccrnpIished by the year
2008 were assum<d 100el 2 was 10"10 of load lOr the year 2008.
The high level was 15% by 2008, and the low level was 5% by
that year.
4.1.1.8
• Annual participant costs llSSOciatcd v.ith eac.~ !evel of DSM are
$220,000 for the nominal c&Se, 5750,000 for the high case:, and
$41,000 for the tow case
*' Annual program costs 3ssociated ~th each level were S110,OOO
for the nominal case, $290,000 for the high and S41,000 for the
low case
The Domina] case assumes that .all program:; are implemented with full
participation. In general .these programs are mosdy water hearing., space
heating, and process -:.ontrols rebate programs The low level scenario was
obtained b)' selecting the least expensive measures oul of the ~ominal case,
which iiIe mostly residenbaJ, commercial, and industrial water heating
needs. The high leveL scenario is comprised of a pro,gram sort of
expensive measures that are added 10 the nominal ,ase, Typically. these
measures were remdential space beating, and comrnercialfindustri al space
heating and process controls.
DriIIiIfg
The production rate was set at about 1 {'II/a of Palo Alto's demand tn 1994.
The investment cost to achieve this level of production, the ongoing
operating costs and the dec] ine rate of the wells were treated as uncertain
variables. Data for this analysis originated from an enensive report OD
California Production done by bean Research corporation in 1990. The
values were escalated 10 current dollars and compared against 3I1. .aauaJ
drilling programs which Palo Alto has re-.;ewed within the past two years.
Rquktory .t Alimini,'''.:''
Administrative costs and costs associa..ted Vl.1th participating in the FERC
and CPUC proceedings were includ~d in the model. The model assigns
the low, nom.inal, or high value to specific-alternatives_ PGT, EI Paso, and
Moj ave all have jow a.dministrati. 'Ie costs, 50% PGTlE: Paso and drilling
have high adm.inistrative costs, and core subscription has a low
adminiMrative cost The administrative cost associated with DSM is
included in the utility program cost
The role of these uncerta.in variabT es in 0 U-! analysis may b: expressed in
an influence diagram, Figun:. 4,
21
1_-' -' -=:..!
22
4.2 DEImMlNJSIIC ,,,,""AL YSIS
4.2.1 PIaplse
The JlIIIP05" of the detmninisti< phase is to develop a value model ,.ruch links
!be IDlCCI1ainties to an outcome so thai the all<rnatives can be CO!llpOled =l to
reduce !be number ofvariables L~ oro.:-to fOCl!S attention on only those variables
that affect the decision being made. In Jcne the UAC "3S prESC1l!ed with the
results of the dc!er.ninistic analysis. However, enhancemerrts to the model
required • revised deterministic anal)!sis to be presented in September.
Sensi1Mty AnaIyn.
The 'nominal plan' is the optimal policy (the one \\ith the lowest IRC or rate
impact) when all variables are set to their nominal or base valu<:s. The oominal
plan using IRC "'as to purchase dom:stic gas, transport it on Mojave pipcline,
participate in California drilling, and do level 2 DSM. The nominal plan using
rate impact did nO! include any DSM These optirnaI policies did DO! chmged
fiom the original de!enninistic analysis.
The nominal plan is !JOt a Lccoonnended action plan. It is mly • base line from
which II> test !be atrect of the Il!1I%l1ain variables on the decisioos being made.
It is also • base line from ..nkh to test the affect of a decision 011 the other
decisioos. It is impxtam not to focus oc the nominal plan itself but to focus on
the variables and altemati .. es that cause the plan to change.
The sensitivitY of each L.LIlCfI1Bin variable was tested by rurming the model with
1be target variable at its high and low values while holding all other ,wiables at
their nominal value. The ,'Brlable was deemed sensitive if the optimal policy
changed from the nominal plan "hen the target variable was set at its high or low
c:x!reme. Tables 2 and 3. below, show the change; from the nominal plan at the
low and/or high ,-alues for each sensitiv'e variable. Blank spaces indica!e that the
chasen "ltemative was identical to that chosen in the nominal plan.
23
Olange in Nominal Policy at Extreme
Values of Uncertain V2riables TRe
Variable SIsre IntersIa!e Ga<; O .. netShip of
& California
Tr.mspottatioo I Production
NominAI PIan Mojave Yes
Canadian Ga<; lY.scount -low PGT
Mojave Back-up cost -high PGT
IXilling Investmenl -high No
IXilling CFating Cost -high No
DSM PertixlllllUX -low
DSM F.nviroomcIlIaI Benefit -low
Ie
O.ange in NorninaI Policy at Extreme
Values of Uncertain Variables
RA.TE IMPACT
Variable State lntcrslaIe Gas o..nership of
&. California
Transportalioo Productioo
NOmina! PIan Mojave I Yes
Canadian Gas Di=unt -low PGT
M:Jjave BId-up cost -high PGT
Drilling Inve:;tm,m -high No
OOIing ~ Cost -high No
Southwest Gas Price -low No
Gas Use -bigh
e
24
· ,
DSM
Level 2
Level I
DSM
Nooe
Leve! I
~ .... ,
-,1;,,-:)
4.2.3 ~c Qsmme oad R&c<o" ....... jo ...
lhe critical decision at this time: is to choose the bc:sI ~ 1I".mspct laticn
altemariv:s. ~ other 1\\0 decisions, drilling.oo DSM _ no! depolObs 00 the
trarISpON!ion dccisiOlL Th=t"= the drilling and DSM clccisions .... no!
considered in the remaindo-of this analysis.
AMthcr """"" far JlOS!PC'DIlg the DSM decIsion 31 this ti,,,. is the lWIti,
coI!lIlXXlirv DSM stIJdy "lll<:h is cm=lv undc-.\2'. ~ SIlldI.' ><ill cIarit\' the '
DSM potOmial for Paio .-'Jt.o, Also. it is' befie\'ed ihaI the drilling decisiai .. ill
need 10 be eva<UUd on the basis of! specific projea or ~ Rt:sul!s from
the integrated DSM ,rudy and an: ~.fc drilling projOClS sbooid be incbMW in
the next gas IRP.
Since the probabilistic phase is an analysis of the gas tr.IrISpc<tatia crcision C<!/y,
the numbe:' of plans is roduced from 40 to five ~ dc:ision tree for the
probabilistic phase ;s shnv.n in Figure 5. Several ,-.riables W<>'t fOlD! to be
scm-itive fur this dccisim and ~. ~ disclIs...,J in the !lClC! 5CCticn AJso. since
DSM is the only decision '.,n;<:h affectS r.!le 1mpacr dii!=!)' than it affeas 1RC,
ally the IRe anai~,is "-" done in the probabili<tic phase.
inlersta\&
Gas &
T ratl$portation
GASIRP
DECISION IRE"
ProcabiHslic Pha ••
?G"i
FIgIft S
< Tr;.C
.,
\
".
,,/ -.;y.J
43 PROBABIIlSTIC ANALYSIS
4.3..1 lUplse
';he purpose of the probabilistic phase is to closely examine the boundaries of the
uoo:nain variables, inteniew ""P"rtS to constItIct the probability distnbution curve
for each critical variable, and run the model using the probabilistic data
bpett ~ and &y Voriables
It was d<tmnined that the variables from the deterministic phase could be divided
into two~: (1) ur=tain variables whose values could DOl be koo"n prior
to decision making time, and (2) values tbot could be negotiated, and therefore,
known at the time • decisioo is made.
Fer example, the COl'! of back-up service for the Mljave aitemative was
det<nnincd to be a negotbble ,mue rather that .... uoo:nain variilhle. The variable
was set to its low value for the probabilistic analysis, but it may be incroased
iaaementaUy to <kI:mnine Palo Alto's breake ... "" point mth regard to this cost.
Also, • new negotiable 'mile was added, the daIly demand quantity 00 Mljave.
We have been negotiati"g mth ~ave and performing an c¢mi2ation study to
dctcrotine the most cost-effective maximum daily demand quantity foc the
conIraCl Daily and moothly p:naIties foc being OO! of balance are the main
concern. The goo) is for Polo Aha to meet its peak requiremeots "itile keeping
<XlSls <Im>D.
Three variables wo", 1reat<d proOObilistica!ly: (I) the discoont fur Canadian gas
supplies, (2) the cost of Sou!hwest US gas supplies, (3) the market price of EI
Paso pipeline capacity.
The price of dorr.estic gas and the relative price of Qmadi"" gas have many
possible future \ahles. Two official price fun:casts of C.anadiM and Southwest
US gas "ere orouned. The tim was the Cambr'4e Energy Reseord, Assodatioo's
forecast "hile the ocher was done by McGraw Hill v.hich "lIS provided to Palo
Alto by PG&E. In additioo. a gas industry and economics expert "as interviewed
using a systematic procedure for assessing proilebility data for 00Ih ur=tain gas
price variables. The Canadian gas price variable was assessed a second time by
IiIIOIh<r industty expert to verify the results. LikeMse, the expert was inl=iewed
to assess his judgemaIt about the third urx:enain ,1Iliab/e, the markc! price ofE!
Paso pipeline capacity.
The resulting probability distn'butions are s~ in Appendix C. E.'<IraCting the
c:>qJC<ts ~.1 about thc variables is • rompkx problem Each interview
IasIed for a minimum of twO boors, and a huge amoun! of L-tfoonation regarding
the ~5 views about the relative likelihoods of future scenarios W;t; extracted.
26
,
. ,
However, some basic deductions can be made about the experts belidi; by
.xamining the distributions. rOt i."1Stln<:e, ~.,. e.'qlCI"t beiieves that it is likely that
Canadian gas wiJl be priced relatively I"""," !han Soothwest gas supplies. The
basis for this is the finding and produ.."tion = in Canadian gas fields "'" lower
and it is pe=ived that the gas consumption market in Califory.ja will continue to
be vital to Canada.
The probability distribution fc.r the price of Southwest gas indicates a beiief that
the price is just as likely to increase as de=ase. The assumption which leads
to this conclusion is the for=; that woold lead to a price increase (growth in US
gas demand) are coonI=ea by forces that would cause • price decrease
(tecI:nologicaI i~ ""wnsizing of US oil and gas coo;panies, and "
more rompe!itive California merl<e! place.)
11"" probability distribution ior the)Tice orEl Paso pipeline capacity indicates that
the expert beli",'es int..'rSUle pipeline capacity to Oliifomia is in excess supply,
and that capacity is I ike!y !() be heavily discounted 00 the open rnaJi<et as a n:sull
~
The results of the SlUdies and the int"",i""", ."""" input to the roodcl, and the
altematives were evaluated again The PGT and Mojave alt<marives Wt:re both
atttactive with regard I<l TRe v.1ten the rest of the variables were set to thcir
norninaI values.
The sensitivity of each neg<Jliable varillble '''''s tested again by nmnlng the model
with the probabilistic data for the C=dian discilUnl, price of Southwest gas, and
price of EI Pa", Capacity. A variable "'''' deemed sensitive v.I!en the optimal
policy changed from the nominal plan as the target variable was set at its 0lCImIle
high or low wlue. Table 4 bel",,' shows the """"irive variables.
27
NEGOTIABLE v ARlABLES -PRaiABIUSlIC PHASE
Variable State Alternative ~=----------=~~~-------------~ Maximum Daily QJar.tity Moi:< ... e -~jgh PGT
Mojave Capi::a.l Coot -high POT
PGT
Table 4
As m<mioncd above, the maximum daily quantity, Palo Ahds capital cos: to inten::onn«:t with
Mljave, and back-up cos: may he able to be pinned doml by COOII3Cl negotiation. Sioce PGT
and Mojave ~ equally aIIracti-;e alternatives, the final recommondatioo will depend O!l the
n:sults of Palo Alto's negoIiatioos v.ith PG&E and Mojave,
Fipcs C-7 and C-8 in, Appendix C show !he cos: components for !he Mojave and PGT
alb:matives 00 an annual basis over the IS-year planning horizon. Figtae C-9 is • tctalized
amwaI cost ~ beOO:en !he two alternatives. TlIese graphs d:pkt expected vaJues only;
the risk involved for each a1temallve is represented by Figure C-4.
28
5. RECa\1MENDATIONS
So I Short-Tenn Action Plan
Two shM-lerm actions were recommended and taken as a result of this lRP. First, the
Cily rejected !f-", pre-arranged assignment of capacity by PG&£ This action did have
Ioog-tenn irnpfications since one at the five alternatives \\35 el:minated Secood, the City
bid for base load capacity on the PGT pipeline fur a lerm of II months beginning aug\5t
I, 1994 (the <:xl of our current gas supply coo!ract) and ending June 30, 1995. lNs will
secure inexpensive inr=tate transportation for Palo .. Jto fur the interim period I".uo Alto
will still have til make arrang<rn<n!S ,.ith • PGlX shipper t<> supply gas for the peak
oc:eds over the capacity the City 0\>llS 011 PGT.
After June 30, 1994, Palo pdt<> may P"'P"'" another inIerim strategy before service <JIl
MJjave commences or participate in onoIher sho!t-or long-term w!lmribllelll on the PGT
pipeline oc enIer inro an arrangement ",ith a PGTX shipper.
5.2 long-Tenn Action Plan
The PGT and lvlojave alternatives are equally attractive Icng-teml plans because the IRC
!Or both plans are nearly idell!ical. The final rtwtttt,,,,,idation will depend on the =1s
of the oegotiaIions currently being conducted "ith represen!3tives from lvlojave and
PG&E.
29
APPEl'IIllIX A
Description of UnceJ1ain Variables
In order to UIlderstand the c!a;i,ion analysis p!"Dbierr. the altem2li\es as weI! as the un=tainties
..mch affe<:t the aItemati"", = be identified. This is part of the problem fomnllation phase
of the process. In this apperxlix. each ,..nable ts described in deW!.
A.I Gas Demaod
Demand, for p!llp<lSfS of the IRP. was tre:lIed quite diffen:ruly than in the City's gas use
furecast. To forecast, staff uses an economdric model "ith a SIlIndard deviatioo of two
in order to bound the forecast ,,;!h a high and low rang<. Since the objective in the
problem fhrnrularioo stage is to understand our r:mge of uncertairuy rather than to fore=!
or rmlict the future, this method was no! used.
Instead, an average forecast for 1993 "~ used ,.bile the annual growth rn1e was
coosiden:d to be an ~. This approach sirnpli1ies the derr.and in the model and
can simulate the Iong-tmn growth or economic decline pos5lble fur Palo Alto. Grov.th
may be caused by an increase in ecooomic activity in the City wlule a decline may occur
as it result of business le:!ving Palo !I.ito or b)passing the gas utili!)'. The historical usage
and !he scenarios that \"",! tested in the decision analysis :Ire shO\'oD in Fig!ire A-I.
700-
5<IJ-
"" -
City of Palo ,lJ!o Historic Usage
and FtJlrJre Sanarioo
-.;
C\JTl.iJIIE s..:!!'iL'tlCS --------
_-...o---,-----~
---------------------
• ~---------------
-MIS':"C~CAL-:-~ -~ --0'!'i,1'oIO
:~':'SiE OE-:RE,.I,SE WCi'l'E.'SC
FIgure A-I
A-I
'-,.
OR
OE'~:Sc
-. ~'.
A.2 FIaancilII Rates
A21 Ir(laion Rae
The infIaIion rale ";IS Irea!ed as an uncertainly "ith • oominaI value of 4%
A.2.2 IJiscoua Rill!
The discount rate was tied to the inflation rme; it ";IS calculated as the inllatim
rate plus 3%
A.3 GIIII PIicos
A.3.1 Sot8IrwesI US c... Prices
The price of gas in the Permian &;in is the key factor for deImnining the price
of gas 10 ('.alifomia. A IlOmi11lll value for 1993 prices was used "ith a variable
escalation rate, tied to irulation, over 15 y=. This variable was treated was
given a probability distributioo in the probabilistic JX!ase lOr the analysis.
A.ll ~ Ga> Pricer
Canadian gas prire; ~ for the CaIifcmia marl<et place are indexed 10 the
P<rmian price. The uncertainly in the model was Ihe discount or premium for
Canadian gas relative to P<mlian gas over the IS year period. This uncertainty
was also further analyzed in the probabilistic phase.
am, SItJscripIiofr
Gas sold 10 core subscription custorne!l; was nxxleIed as half at the ~
Jri:es and half at Carmdian prices plus an :Idmini..<;lJ:ative fee escalated at the !lite
of intlaIim.
Seawtd Dijfdtl/Ui
The differcx:e l>c:I:w= summer and winter prices was set at $0.20 per dIh. The
diffen:nce was estimated by """",ing historical data m gas prices in the PInJIian
basin.
A.4 Pipeline Rates
A.4..1 PG&E
The variable iepie,c"ti:lg PG&E inIrastate trnnsporta:ion rnICS was given a
nrcnjnal low, and bigb value. The escalarioo rate over IS y= was also a
variable with the nominal value "f"'l to inIlatioo. The nallspaLatioo rate was
multiplied by the actual usage for each year to srrivc: at a tcIal oost for inIras1ate
~ There is no capacity layoff; the forecast is revised periodically.
PG&E will be assigned 3 portion of the Canadian gas oontract resttucturing costs.
"/bese COSiS will be passed m to customers. The money will be paid by direct bill
IlItber IhIIl a surcharge of a period of three years. A nominal, low, and bigh value
A-2
-------
,
.' ,
for this charge 'v.JS a5,;1Imed based on estim,lled total bU)'-<l1l! casts of
5150,000,000 10 $300,000,000.
A.4.2 Mojave
The MojaYe transportation rate was treatc:d as a variable in the deterministic phase.
The nominal and high rate """ $().4 7 per dth escalated at I % per year. The low
range """ SO.4O per dth based on the PffiSIbility of a Iowa approved rate by the
FERC. A load fJJctor of 95% was used to determine the lola! cost of
lldl6jXli attion on the Mojave system The effect of laying off capacity on the
Mojave system """ tested by setting the value of laid off capacity between 0%
and lOO'A; but the final analysis assumed ~1J.lt ZlOIJt of the Mojave capacity would
be laid off
A.4.3 PGT
T"" main factoo; affect the PGT rate: roll-in and restructuring casts. Roll-in is
a term used to descnbe the process of combining to. low cost of the existing, old,
clepreciared PGT pip>1ine ,mil to. vigil cost of the new expansion pipeline, PGTX
The result is ident;ca1 rates for service on either pipeline. The oppo6iti: of rolled
in is incremenlBl. Restrw:turing costs will be added as a suzcharge to the PGT
rate as a resuJt of the conttact negotiations between PG&E and Omadian gas
produa:rs. The amount of the cootmct huy-oot "ill affect the amoum of the
surcharge b=use it will be divided up amoog all the CIIStot=-s on the system
Three distinct cases were chosel for d., nominaL iow and high IlIIlge5 for the
PGT rate. The nominai case assumed a modernte restru::turing cost, $225,000,000
for the entire system, and roll-in by 1995. The low case assumed a low
restnx:turing cost, $150,000,000 and no rcll-in wlule the high case a'iSUrI1<d a ~igh
restructuring cost, $300,000,000, and immediate roll-in.
As for the amount of capacity purchased, an aOO:jua!e level of capacity to rover
Palo Alto's winter peak was assumed. Unused capacity greater than 10'10 ova
actual usage """ assumed 10 be laid off at nominal, high, and low vaJues of
[00'/., 125'/~ and 50"10 of the price paid
A.4.4 8ABo
Pipeline capacity on the EI Faso NaturG! Ga& pipeli!!e is av,flable om ell open
nmI<et. The high value for the price of this capacity WI!S assumed to be the fuD
as-bilIed rate whiI. the nominal value assumed " modera!e discount and the low
value assumed a o.q.,. dis<ounL
Like PGT capacity, an adequate level of capacity to cover Palo AIto's winter peak
was assumed to be purehased. Unused capacity greater than 10% over actual
usage was assumed 10 be Ia.~ off at nominal, high, and low values of 100'/"
125%, and 50% oethe price paid
A-3
"'-. ------.
A.5 SIotIge
.u.1 PG&£
Even !hough a proceeding is unden;llY \0 unOOndIe staage from the existing
trallspu:1lIIion rnie, Palo AlIO will still be required 10 take some of PG&E's storage
in or;J". to rc:Iain our peak day protecticn status, The amount and the cost were
0<pI!rlIIe variables. The nominal case was the amJ\.."1I of storage prue Alto should
be allocmed today at the CIlITeflt cos:. High and low values for both amount and
price wm: a1so rrodeled.
A.5.2 M<ifrw~
The nominal case assumes !hat 00 stornge will be available OIl the Mojave syBt_
however. a bigh range was CS'.ablished equal 10 the amoont of storage currently
<IVlIilabi. (JQ the PG&E syS!errc A ""'go of costs were rrodeied. These costs
wm: assumal 10 apply only to the amount of gas injCCled or "ithdrawn limn
storage r:Jther than on the \OIal sy= throughput as the PG&E storage is
modeled.
A.6 Other MljIM a..t.
A.6.1 Cif1i1d Cos!
The capital 0JSt for Palo Abo to inb;JOOInltX! with Mojave pipeline is a function
of the hydnmlic requlleWeUlS of the gty's distnOOticn system. The nominal, low,
and high values fer these costs were derived from Engineering's pre1imina:y cost
estimates based on various scenarios .... hich retj'.rire different numbers of meier
S!l!Iim 10 be installed. The costs occur in 1995 in the model
A.6.2 Ba:k.1fJ Cast
A.7 DSM
It was assnned !hat su:ne fonn of back-up ,"",ice, presumably from PG&E,
would be subsaibed 10 as a precautioo against Mojave's one line being
intmupIed. Since PG&E does not offir back-up =i....., at 1his time, a 1>'i<!e range
ofpossible V"d1ues wm: establisbed. Reliability studies of the ~1:Jjave system may
render back-up from PG&E ur.r>e<essaIi'. Another foon of back-up being
coosiden:d eOlllils Palo Alto contracting wilh G!her Mojave C\lStOI1Im Ie assign
pipeline capacity to the City in • period of cururiimfm. These costs were
esVmatet! by having infonnal convt=tions ..;th the Mojave shippers v.no have
t!Xj» I ed interest in such an arrangement. The cost fur the capacity =igmnmt
is estimattd to !3lI well within the variable !3I'lges.
A. i.l EladN4"ZJ~ Bm!!fit
The nominal enviImmenta1 benefit was calculated usb!! the California energy
Commission's wiue of 533 per ton of carbon dioxide wbidl yields a value of
51.91 per M:F of natur.aI gas burned. In the mode~ every M:F of DSM was
given '"' ~ credit of SI.91 because the Jroduction of CO2 would be
avoided. The efre<t of changing this V'.n.vle over • range of $0 10 55 per MCF
was IA:sIed.
A4
· ;
-i_ : .
. ~ ...• ~.
"'<-~~~ ..
.. '>'_ " i ,-~
A. i.2 Peifomsro?
The cost to the utility and to the CtJStomer were set in L'>is analysis. The ,ariable
was the pt'lformance oi the ~ in O!hcr words, how much DSM Palo Alto
actually r<nliztd for the same amount of money. This value had a range for 50%
to 15Q"/. of the ~ amount of DSM.
A.8 Califo ..... DrilliIIII
A.S-l Jnv~ Cost, ~ Cost, and Dffline Il4e
The productioo rate was set aI about 10'% of demand vmich the cost to achieve
this amount of B3S was IJ!1<l:rtairL The investment, oper.tting rosts, and decline
rate wc:r: obIained using R= Researd!'s 1990 report on Califcmia production
and Gala received from • proWcer in the Sacramento basin "00 was proposing
just such a~ in 1992.
A.9 ~ and AdIDaisIraIiv.
A9..1 AdmbGIJai~~
The admirlistnIIive = of each aitemative were originally treated as variables.
~er. the 6naJ ana!ysis as&mJfX! sct administtative costs for each aI1emative.
Mojave. PGT, and EI Paso were assumed to bave nominal administrative rosts,
\Wile the 5(1'50 split had a high cost and the core subscription a/tematiYe had a
low administraIive cost The ""'ges were based on the "lIue of staff time need
to administer each aJtanatiYe.
A.9.2 FERC
All altematives included a cost for lobbying and litigation at the FERC. The
amount was treated as an uncertainty. The values include staff and con:.-uJting
time to deaJ with me issues.
A.9.3 CPfJC
QUy alternatives v.ruch involved PG&E inttastate =pottation service included
this uncertain variable. The nominal case was based on the current CO!l.>.uting
budget and stafl" time spent 00 CPUC f'OC1'edings and issues. A high and low
boundary were assumed.
A-5
DEIlR'\1INISIlC PHASE
UNCERTAIN V ARlABIE RA."I'GES
• IXIS
Value Value Value
/. /, -~?o ,.
,0
lnflation Rate 4% 2%~ 8%
SouIhwcst !!"S csalatioo % 1% .} % 4%
Cf"Iadian discount % 0% -2QP1o 20"10
• Mojave Rate 0.47 , 040 0.47
• PG&E Rate 0.68 0.42 1.00
• PGT Ra!e 0.17 I 0.15 0.31
• EI Paso Rare 027 0.16 0.39
LayolfValue % of original prire
Mojave Layoff ~'O 1000/,
PGT Layoff 1<Xn"O SO"I0 125%
EI Paso Layoff 100% SO"I0 125%
"Stranded PG&E Cost Slyw 44,000 29,200 58,400
PG&EAmount mc£i\'ear 300,000 189,000 400,000
• PG&E Pri<:e Slmd(alJ) 0.08 0.Q4 0.10
Mojave Amount m:tiv ... 0 0 300,000
• Mojave Pri<:e $fmd(stmxl) 1.00 0.50 1.50
Capital Cost S 1,500,000 150,000 4,000,000
Back-up Cost Slyear 1,000,000 40,000 4,OCO,OOO
En.viromncotal Benefit Slmcf 1.91 0 5.00
Pe:formance %tlIrge! , 100% SO"/. 150%
mna
bM:stmeDI: Cost $ 1,000,0000 300,000 6,000,000
• Opeming Cost $fmcf .73 0.52 1.04
Decline Rate o/oIyCll' 5% 2% 10%
• Administrative Cost Slyear 200,000 75,000 350,000
• fERC Cost Slyear 60,000 10,000 100,000
• CPUC Cost $!year 300,000 100,000 400,000
• Seasonal wriables ,.t.kb change over !he evaluation periOO
A-<>
" .. -.'
APPENDlXB
Details from DetemiDistic Study
The purpose of the dettrrninistic phase is to develop a value model which iinks the uncertainties
to an 0llIC0me SO that the altemaives can be ccmparcd and to reduce the number of variables
and alternatives in orda to 10cus alli:ntion on onlv those volriables and alternatives that affeet the
decision being mode. Two conclusions were dro\.n from the dc:tmninistic phase: (1) The DSM
and drilling decisions may be postponed because they do not affect !he critical interstate gas and
ttansportation deci.si0lL and (2) The lDJ!l1ber of variables may be redu=l to three.
SENSITIVfIY ANALYSIS
The "nominal plan" is the optimal policy (the one v.ith the lowee: TRe) ",hen all variables are
set to their nominal or base values. In tl-.is analysis the nominal plan ...ncn using me as the
aiterion is to purchase domesti<: gas, ~ it on Mojave pipeline, participate in California
drilling, and do level 2 DSM The nominal plan for rate impact does not include any DSM
The sensitivity of each uncertain variable "as tested by running !he model v.im the target
variable at its blllh and low values while holding an O!her variables at their nominal value. The
variable is deemed sensitive if!he optimal poll.: changed from the nominaJ plan ",ne" the target
variable is set at its high or low exIreme.
The pbonomaloo of se!lSitive versus noo-sensitive variables is illusttllled in the IDmado diagrams
in labeled Figures ~ 1 and B-2 The nominal plan is designated by the vonieal line in the middle
of the diagram. The effect on the 'IRe or rate impact is shown by the length of the bar neoct to
each variable. However, only the shaded bars indicate a change in policy caused by changing
the target variable to its high or low value. The rainbow diagrams presented in Figure B-3
throogb B-9 illusttate "here policy changes occur and .. hat the policy chan..,. are across the full
r.mge of values.
Finally, the relatiombip betw= the interstate gas a ... d transportation decision and the O!her two
decisiCllS is shawn. in Figures B-10 and B-1I. The illustrati"", prove that no mailer which
.. 't<ma!ive is cbooen in the initial decisiOll, the decisirn en DSM and drilling remain.< the same.
This relationship allowed the DSM and drilling decisirn to be postponed until the next gas lRP.
B-1
sw .. _ -..........
........ ~COIt:
~1I'IrIIJICW1:w
PG&f~r.a .... ~ ......
fl F"MD W,olf ....... --...... ---
FERC_ ---CPIJO_
.......... c..:
_ ...... PG&E
PGU-._ PGT __
-
PI'Io.,_.,.r~~ .... PGT __
Value Sensitivity Diagram
~i4kL:_,_,
t:::s
'-
I
-,oaxm:o -""""'00'0
B-2
• -T';' _
~forSWGas
ITI1'Iatian Rn
_ Bocl<-l.I!> Coo!
Oiscat.Int fOr ~ GM:
EP T tens Rata
Gau..
"_~Co«
MQj ..... TI"IIle RD
Iwount Storage em Mo!ate
~7rwM~..ate
EP LayaIf Villus
Produdior! 0ec::Iina Rate
Orilng li"NftImef'lt Ccsl
_~gC'"
!'ERC Coo!
_~V_
OSM~an~
CPUCCoo<
'-Io~ StDIage Cost
Amo\Rlt Sl'orage or. P""'AE:
FG&E Storage COld
Value Sensitivity Diagram
SAR
< f-~
, <
-' -. -----
-3.8 -3.:2
FIglft B-2
B-3
"·161 SOOOOO j
·162000000 j
I
·162SOOOOO 1
-163000000 " ~ ·163SOOOOO 1
-154000000 1
-1645OOOOQ 1
·165OOCOOO j
Canadian Gas Price
(% eli"""",,!:rom Southwest price)
.. N o'Cl.ina.l
.165500000, 'IL. ____________ ---\: ______ -/
1 ~ PC! -~~l~------~----------~~~w~j~.v~e~--~------~------------
·1537SOOOO , ,
-165OOOO1lO ~
::::1
.16S750000 I
·170000000 1
<J ~ 1112!OOOO..I
I!' -172500000 j
-l737SOOOO 1
·175000000 1
-1i6250000
-177SOODOO
-1717SOOOO
-18OOCK1OOO
·C12 -':U5 -0.1 ·(t05
%
Figure B-3
c
Back-up Cost
(%.\'Oar)
PC!
0"05 0"1 0.15
5COOOC 1000000 10,10000 CJOOOOO 2500000 30l'MOO 3500000 oM)OOOQO
$)'ear
figure e-4
~5
-'--~ -'61<JOaXJO
-16"'iSI:X:.DlJ l~el
-18BC1XDX1 ~ I , '
Q.S 0.6 0.7
E5C3ia1iOl1
Figure .B-3
DSM Performance
o.a
(~d~l
Level 2
rNOtDinal
oj.
~
Figu:r~ 8-6
B4
1.1 1.2 ,3
Production Operating Cost
(S,MCF)
_'85<100000~.~ ::=j
-16eOOOOOO j '-
~-1862000001' ~~
-~t86400000 ~ \
-llJe11OOOOO j ~~DOQ't dull i
-1ll8800000 I
-187000000 Nominal Dr!ll i
-167200000 I i 1---,--I '
0.5
-1e5200000
-11lS4GOOOO j
-Wi6000001
-165800000 1
-166000000
~-188200000 J
-1611l4OOOOo
-1~
-1 "68OOOOc
-1 !17000000
-187200000
0.5
Drill
0.7 0.8 0_9
SJI,ICF
Figun B-7
Drilling Investment
[ToaJ S)
1.1 1.2 1.3
~
~----.------(NOminal
Don't drill
1000000 5000000
Gas Demand
(annual escalation rate)
-0.02 -0.015 -001 -0005 o 0.005 0.01 0015 0.02
%
Fig'J.l:i!. B-9
8-7
'!J'..,.c _______ "" __ ~~M--r,.rry ......... "~'"'"::i~~c=O.--------~~
-~\~::""~~i.. _____ :'}
,-'''''''-___ ''''''''''_-'r
LJ -
1",
r;:a;aa. j I.Eo'E. ~ (J
ooc:... II ~ ~i~i
(J
\ """
~
~ (j
'" --[]
F\gIft B-IO
~ i\
\1\ a._'"ASQ
I
\
la
NO~ _____ --;,-,
~ 1'~"'';:'''''~'-----< ~ -r~~~~'''''''''''''_",~",,~~ ____ -<~
------r"'1
1>-9
·."
APPENDIXC
Detlils from Probabilistic Study
The purpose of the probabilistic phase is te close!)' examine the boundaries of the uncertain
variables, interview experts to = the p-obaDility distribution curve for each critical
variable, and run the model using the probabilistic data
It was det<nnined that the variables frcm the detmninistic phase CNId be divided into t-"O
c:areg<ries: (I) true variables 'Mlose values could not be """"" prior to decision making time and
(2) value; that could be negOOared, and th=fore, known at the tim.: a decision is made.
For example, the oost of back-up service for the Mojave alternative "as determined to be •
~e va\ue rather 1ha! a true v:niaOle. The variable was set to its low value for ,he
probabilistic analysis, 00t it may be inCI1.'3SCd incrementally to determine Palo Alto's breaIa:ven
poim with regard til this = On the oIher hand. the discount fcr Canadian gas is clearly • true
variable with many possible future Y.!L'es. and further analysis "as done.
B.l I'robDIity ~
Probability a1COding is a formal process for quantifY expert~. The cxpat's
l.now!edge is t:3p!Ured through • structured inl=iew designed to ensure the consideration
of an rekvant infmnatiort The process is designed to minimize ambiguity and to cootrol
biases which are inberem in any humans ju<lgm1ents. The procedure utilizes. vmiety of
tools and techniques tc simplify the numerical assessment of uncer1ainty. The result and
product of the systemaIic procedllre i; a probability distribution which expresses the
e>qJC:t's opinioo of the relative likeliJ-.ood of possible OUII.-omes. The finaI step in the
eocoding process is to ~ the oontirruous distriburioos for use in the IRP model.
B.2 Restits Or tbe Process
A gas industry and economics expert was interviewed about the price of Canadian gas
supplies relative to Soolhw<sl U.S. gas using the systematic proced1= for assessing
probability data In addition, t'Ml publish<d price forecasts of Canadillll and ~
U.S. gas w= obtained: the Cambridge Energy Rfsearch Associotioo's forecast and •
MoGmw Hill l'orecIt;t. The probability aiSIrJ bution that resulted D:om interviewing the
c:>qlCrt was WiDpIIled against the publish<d forecasts. According to our e>qJC:t's opiPjon,
there is a 40"1. probability that the 0CbJal relative price of Canadian gas "ill be lower and
a 60"10 that the price will be higher th:m the McGraw Hill fo!=sted value. This forecast
was done for PG&E at the time they were justif}ing the pipeline expansicn to Canada.
The CERA forecasled values, bo"~er. feU within the 90% confidence range of oor
e>qJC:t's distribution. The distribution is sncmn in Figure C-I \Wich is a plot: of
probability VC'SUS IRe.
CI
•
, .
-"-'
r • '"
The results of the studies and the L"Iterview were input to the modeL and the alternatives
were "valuated again Two more ,1Irlab1es were fO'J:Jd 10 be se!1Sitive for the
lr'..uspoi tlIioo decision, the price of Southwest gas and the market price of cspacit)' 00
the EI Paso pipeline. The EI Paso rare and the price of So\;thwe;t gas required additiooal
pubabilistio analys!." so the same industry expcn "as D..,n:;ulted to arrive at a probabiiity
distribution for the possible values. The resulting distributions are sho"'n in Fig.r.:s C-2
and C-3.
The cumuJative probability distributions develcp.'d during the expcn intcrviens were then
discreri2r:d or approximated by a few represanative values and associlI!ed probabilities.
In this case, !he coo:inuous distributions ,"'re approximated by tree value and associB!ed
jrOOability pairs. The estimates used ,,= !he cumulative probabilities of O. 085, 0.5, and
0,915 "i:h likelihoods 0(25%, 50%, and 25% ~"cI)'. These points ore indicated
or! Figures e -I IlIrough e-3.
R3 Risk Analysis
In order to ",a1ll31e lhe risk the utility faces, a cunrulative probability cfislnbution of!he
IRe was dc\Ielcp.'d fur each n-.msportatior! option. The analysis siJovI,~ the expected
value: fur each aItemalive's IRe and all the possible valw:s of IRC for each all<mItive.
The results can be seen in Figure C4. .
SC\'mII things C3tI be delermincd from this analysis: (I) ~~ave and PGT have expected
'IRe values ~ SI5,OOO Ies., than the otber alternative;, (2) W.ojave has a
slightly higher expected value fur IRe, and (3) at the 9O'!'o confidence level M!Jjave 's
me is ~ 10 be lower than PGTs. Nominal values for the costs still being
negotiated were used to develop this risk profile,
Figures C-S and C~ srow the armuaI costs for Mojave and PGT by coot categ<Xy. figure
C-7 in an annual TRC <:ornpIllisoD between the two aI\ernatives. The data "'as obtained
by using the expected value fur each probabilistic variable .m the nominal ,a1ue fur all
O!hc:r variables. The cumulative probabilities are lost in this anal}sis. The graphs were
goneraIed solely fur the putpose of comparing !he relative si2e of the various coot
categories for each alremative and to show the relative value of coot on an anrrual basis
fur the top two ~
C-2
--...,. .~------
. '.
.. '-~
"
," .
I ,
-'
\
I
, I
" I w
1N1UtVII,Wtll KLlria D~lluy r tl~ pnO~Ofllr'V fHCOOlN(J "lRM
B1i1t.'H;r 1((111 HOc/hflar
nAIf. HJIll/')) __
0,0
O~
0,1
un
0,2
II ,
03
1I fJ
•
0,1
O.!,i
0,5
t! 4
08
fI :1
(J_T
II ;,
08
41 1
o.
1,0
II" I" i I' i i" I :/ Iii II; li I' HI: I 1Eili1Lili1JJ:iJ , II i Ii 1111 : II Iii I: IHIll
(l.{1 0.7 O.H II.!' I,ll
1.1 1.2 I.) 1,5 1,4 Irlj!;lIrc l;-I
V,AItIAlfI I
15-Yi6'ur 8veragf~ hltenHitllHllll b(lnl~r Ilrlc" uf (;.lll/l,llali gaH bnuml for Caltflwnia :t '"ellltl_vA to I'enulllll prke!J. (1UIIll-JpJlt!r) I;I)MMI_UI
-'-'/
',{..
2 c
it
0
!E
8 <.>
:0 .. ,.
~ ..
~
" L
I~
~
0-
~ -c
w
i< c
w v
!
<; • c
g
"
o
ci
~
l1li
rI7
~
~
~ ~
~
,~ ;
~
c .. = ".
Q " 0
~
" o
~
~
..
e
.. 0
'"
i'"
'0
" -
~
§:
~
• "
~
~ ~ ~":
"", '=c
~ . I
~
~ '" -,
'~c:3'c -c':=.:c',', ~,,~:
'";.: ..
:~:=c ~cC:
O';=f ;:',c c
N ,
;c~='
'" on ~ , ..
0; e ~ " = ':: e
C-4
-'-' -
2 I
~ • • I 0 " • -t
~ • •
~ '"
" 1
, •
~
= • • • .2 • • .. • ~'" o-w
~ • • 0 • ~ = ~ • --• • > ~ ,
• -• 0; • " .-~ ><
;; ;;
~ • " i
> ~
'" N ., • .. '" ~ '" '" .. .. .,; ,.: C C C c <' ,.: .. ~ ~ ..
" 0 • 0 ,
~ ~,
~ -0 <> ~ '" Z -w ~ c
> '" -~ W
;; :;: .. " " Ii ..
I~ '" '"
0 < ..
e c.
"--
~ • • •
~ " • 'ii • • • 0
§
C ~ 0
" ~
{; ;;
E ;:
'" S: ~ "'"'
~ c ~ g
~
" '" ~ • "5 " g ~
"
~ " " • > • 0 • • , • ,
"
,
• • • ~ :; ;; 0
• " " • • '" ,
~ E • ~ • 0 ,
" > • li • ,
~. • , • ,
" • , i-i: ~ •
:!
~ ~ :;;
::w c " = ! ~ ~ " > ::;
c " " " ., ~ " .. ~ .. ~ .. = ~ " " " " c
'::-3
--~-. , .. ..-1t e.,.
"-.
,
I
I
... ' ...... 1
-,1." 1
J., .. '
,
RISK ASSESSMENT OF ALTERNATIVES
Figure C·4
1 r ---i--rr --·----------I--_>-~
O 9
I I i I -i---;:"--··-l
• 1 i ' , --, .' . I
i --------,! I-~----·---
0.8
~ 07 ..J .
iii
~ 06 o .
~
n a.
J, ~ 0.51
~ 0.4'
:::> ::;
~ 0.3 o
0.2
0.1
o
,! :
/: ! ., . '. ,
" t ,
" i ; , ., , ., , ., , .,
,/
, , ,
./ J' .. .: "
J
/ /~.
--'--:....L·T -·---
100000000
J _--+~:-----::~"">/. D~~~~~:
! J~ ,,~'
~' ! ,./ -:1
1
.'.
/: I'! ! ,. ;, !
/ : t' ! i
I /!' ,
, :
!
i
I I
_11_ .i ..
150000000
--·1
200000000
TRC
T--Ti
250000000 300000000
DECTRAN:
PGT
DECTRAN:
El._PASO
DECTRAN:
CS • ~ f
20,000,000
!
18,000,000 .:.
I
16,000,000 t
14,000,000 +
12,000,000 (i --
10,000,000
8,000,000
6,000,000
I 4,000,000
! : I I j . I ' , j f ' ~!; ,
2.000'00; JIIIIIII.III.III
20,000,000
~S,OOO,OOO
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
T
T
!
t
2 3 4 5 6 7 B 9 101112131415 Hi
YEAR
Ftgute CoS
PGT IPG&E COSTS
-_ -=i
-:..-=:: _ -.J
-......".; --....; ---., ----i _-~
-:--~~-
2 3 4 5 6 7 8 9 10 11 '2 13 14 15
YEAR
C-7
---.~--.--.---
=:J Capital cost
3 Admin
• FERC
• Gas .cost
C Interstate transport
• Intr.ilstate transport.
• Storage
:::J CPUC
• FERC
• Gas cart = lnter3tare transport
• Intrastate Transport
----.~p-----
Mojave VI PG&E Total Resource Cast
20.000.000 T
18.000.000 +
16.000.000 i 1'.000.000 I
12.000.000 ! , • ?G&"
10,000.000
8,000.000 = Mojave
6,000.000
<.000.000
2.000.000
a
2 :3 4-5 e 7 a 9 '0 11 12 13 14 15
YEAR
FIglft C-7
C-g