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CPUC Plans Examination Of LDC Market Power

CPUC Plans Examination Of LDC Market Power

While hamstrung by a state law postponing further natural gas industry restructuring, California regulators last week started a detailed assessment of whether the major investor-owned utilities that they oversee have unfair competitive advantages that must be neutralized by future legislative and regulatory action. In initial proceedings last year, various non-utility market players alleged the state's three biggest gas utilities hold excessive market power over major aspects of the industry.

Six basic activities of the gas business will be examined by panels of witnesses in the regulatory market condition hearings over the final two weeks of January: hub services, gas storage, balancing services, intrastate transmission, utility gas buying for the smallest (residential and small business) "core" customers, and information sharing. If the facts show there is excessive market power in any of these activities, the hearings will develop ideas for changes to correct the situation. However, even if the California Public Utilities Commission's six- to nine-month inquiry concludes changes should be made, such as divesting assets and establishing third-party protections, nothing will be done until state lawmakers receive a formal report and develop the political will to take the gas industry down a path similar to the one the electric utilities are following. The gas utilities argue safety and reliability concerns should keep gas from following the same basic steps as electricity did.

In trying to identify for the elected officials "the most promising structural change options for further study," industry critics indicate the regulators are playing into the hands of the three major investor-owned utilities, all of which are experienced at managing the regulatory process in California.

Although last year the CPUC proposed implementing more gas restructuring this year, subsequent state legislation that passed late last summer with strong backing from regulated gas utilities prevents the regulators from doing anything but studying the issues in 1999. Thus, the ultimate unbundling and divestiture of parts of the gas business must await state legislative action in 2000 or later.

CPUC president Richard Bilas is heading the series of hearings on the gas business in California, which is among the most gas-dependent states in the nation. Bilas indicated the ultimate recommendations to lawmakers will include a comprehensive set of consumer protection rules and assessments of the safety/reliability issues that have been raised mostly by the utilities. "The CPUC's goal in this proceeding is to identify market structure and regulatory reforms that would enhance the positive influence of competitive forces on the provision of natural gas services," Bilas said in a ruling late last year that established the latest regulatory process. "We want to know whether there are problems that must be fixed and, if so, what changes would be appropriate."

Richard Nemec, Los Angeles

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