[BETA] Fortnightly

CALIFORNIA IS AT IT AGAIN. THE SUBJECT IS NATURAL GAS. What the "blue book" promised for electricity, the newly issued "green book" says it will do for gas.

On Jan. 21, the Division of Strategic Planning at the state public utilities commission issued a new 125-page study, Strategies for Natural Gas Reform: Exploring Options for Converging Energy Markets. On the same day, the PUC opened a new rulemaking (R. 98-01-011), asking for input on the DSP report and posing its own list of some 25 questions on where to go with gas. By late March, nearly 50 companies and groups had filed comments, creating a stack 500 pages tall when downloaded from the Internet. The comments mull over the three basic ideas in the DSP study: (1) take LDCs out of the merchant business, (2) streamline the remaining pipes business with some sort of price cap or performance-based rate making, and (3) create parallel structures (unbundling, pricing, markets) for gas and electricity, since both industries are converging. The PUC promises a draft order by June 1.

The excitement began to fade, however, when the PUC opened its first hearing April 6. Though it attracted at least 30 witnesses (em representing LDCs, marketers, customers, power producers and advocacy groups (em the meeting failed to build much of a buzz. A trusted source who attended the hearings tells me that only two of the PUC's five commissioners, Jessie Knight and Gregory Conlon, asked any significant questions. I hear that President Richard Bilas had little to say, while Henry Duque and Josiah Neeper reportedly kept mum. As my source reports, the overall sentiment was more like, "If it ain't broke, don't fix it."

On the other hand, Conlon reportedly "seemed entranced" by the concept of an independent system operator for gas. However, the DSP has questioned its own suggestion for an ISO and most of the comments have come back negative.

Further, I understand that when Elena Schmidt testified for the PUC's Office of Ratepayer Advocates, she surprised certain of the commissioners by indicating that the ORA did not support the more dramatic proposals on the table. The DSP's market structure "Option 3" would remove utilities from the merchant function. Option 4 would even ban merchant participation by any LDC affiliate. The ORA supported Option 1 (em nothing more than open access for LDCs.

Here's the irony: California already has open access for gas LDCs. Since 1985, most large-volume California customers (the "noncore" group) have bought gas on open commodity markets, taking only transportation service from the local distribution company. If residential customers can aggregate into a big enough chunk, they can do the same thing (since 1992) under California's Core Aggregation Program.

So why the urgency for more deregulation?

The Coming Capacity Workout

The next step for gas restructuring is exactly opposite of what is needed in the power industry. Electric customers now pay for high-cost generation they don't want: nuclear, inefficient peakers, privileged cogeneration. There's not much to gain or lose with transmission.

With gas, however, California customers can already get the commodity