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Fortnightly Magazine - March 1 1999

high that they discourage new technology.

"Also, not enough people are looking at the interrelationship of natural gas with the electric distribution system." I asked why, given how there's supposedly so much excess pipeline capacity for bringing gas to California. Was the problem a lack of fuel diversity?

"Yes," said Hoge, "fuel diversity could be a problem, but not so much with the big pipes, but with the small pipes, the local gas distribution lines."

What will happen at the PUC? Morse marked out some positions in the June 5 letter:

"Some parties believe that ¼ failure to resolve this question would create a policy vacuum that could be filled by the UDCs in ways that conflict with the PUC's restructuring policies.

"Still other parties believe that the substitutability of DG for transmission and distribution means that any further unbundling of generation and ancillary services from the wires is fundamentally an artificial one. [They] believe that further unbundling is not the important next step, but rather the task is to determine rules that value the siting and dispatch of distributed resources."

The June 5 letter invites the PUC to consider an ISO operator for the distribution sector - an "IDO" to create price signals for DG and distribution system investment, just as ISOs enforce locational marginal pricing and transmission congestion contracts to regulate regional grid networks.

Meanwhile, DG prices are dropping rapidly. Market penetration is accelerating, not only in DG, but also in other forms of distribution competition, as Morse recounts: "About three weeks ago [mid-January], an irrigation district condemned PG&E's wires at book value. If that continues to happen, it will open the flood gates."


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