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CA Approaching Long Road to Restructuring

CA Approaching Long Road to Restructuring

California regulators are scheduled to wrap up the formal data-gathering phase of their assessment of the state's natural gas markets with an oral argument March 23 in San Francisco. Using this data and the record from formal hearings conducted earlier this year, the California Public Utilities Commission will establish a list of the most promising options for injecting more competition into the state's natural gas business, beginning next year. The half-day hearing will divide 19 major parties into two discussion panels: one focused on customer issues and the other on competitors. The three utilities will be represented on both panels.

All observers agree that before any meaningful restructuring is added in California leading to more retail competition, a long regulatory road must be traveled and it must lead to ultimate state legislative action. So the CPUC will conduct cost-benefit analyses of its proposed options as part of a formal written report ultimately submitted to the state legislature. The process is scheduled to be completed before the end of this year, according to a CPUC staff member.

The final oral arguments are likely to be contentious because of the many parties who have been participating in the statewide case advocating different ways to unbundle natural gas roughly along the lines that California used to open up its electricity business.

The CPUC will not hold separate hearings on safety issues related to meter reading and billing as was expected earlier, according to the staff member close to the case. Instead, it will assess those issues as part of the cost-benefit analyses of the options it decides to investigate more closely. As part of those analyses, the issues of reliability, safety and consumer protection will be assessed in detail.

There are at least three or four major groupings of interested parties with a stake in these proceedings: (1) the three investor-owned gas utilities, (2) consumer groups, such as TURN (The Utility Reform Network), the CPUC's Office of Ratepayer Advocates, and utility labor unions, (3) merchant power plant and gas storage operators, such as Calpine Corp., Wild Goose Storage and Western Hub Storage, and (4) large shippers and marketers using the extensive transmission and distribution pipeline systems in the state, including large electric utilities like Southern California Edison and the City of Los Angeles Department of Water and Power.

Two weeks of evidentiary hearings in January concentrated on five major areas: hub services, balancing, transportation, storage and procurement. The issue of divestiture by utilities of some of their current assets arose only in the context of storage, with some parties saying that this might be a way to protect against future anti-competitive moves by the utilities. As part of the CPUC's narrowing down process, the issue of divestiture will either be studied further or dropped. Greater openness in utility information and the possibility of a gas transmission independent operators akin the to electric ISO are two other issues that have gained attention, but observers are not sure the CPUC will focus on either of these two areas. Existing major settlements among utilities and their largest marketer-shipper-end-use customers also will have to be taken into consideration by the CPUC. For example, Pacific Gas and Electric Co.'s "Gas Accord" runs through 2002, but eventual gas industry changes mandated by the legislature could overturn some of those provisions unless exceptions are made.

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