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California Backs Away from Gas Deregulation

California Backs Away from Gas Deregulation

After almost 18 months of detailed proceedings and negative legislative signals, California regulators have pulled back substantially from original proposals to unbundle the state's natural gas industry along the lines of its electric deregulation.

The latest proposal endorsed by an administrative law judge and the president of the California Public Utilities Commission would include a default level of bundled monopoly utility service, while giving the utilities and other stakeholders an opportunity to reach a settlement this summer on what services eventually should be recommended to the state legislature for unbundling. The latest scenario will be considered by the CPUC at its June 24 meeting in San Francisco.

The most far-reaching among proposals surfacing in early 1998 already have been taken out of consideration. Those include: the divestiture of transmission and storage by California's two dominant gas utilities, Pacific Gas and Electric and Southern California Gas; establishment of an "independent system operator" of the gas transmission pipeline system within the state; and unbundling of the metering function.

There is continuing pressure for more transparency in the wholesale gas market in California, particularly aimed at SoCalGas' operating system for transmission and storage, which came under criticism from many parties in the ongoing statewide gas case as being closed and anti-competitive.

"Essentially the proposed decision outlines a market structure that tries to do two things at once," according to a CPUC staff adviser closely involved in the gas restructuring case. "It recognizes the benefits of allowing the utility to continue to provide the same array of bundled services (procurement, transmission, storage, revenue cycle services, etc.) and at the same time, it really strives to introduce as many competitive elements into that structure, recognizing that the potential for anti-competitive behavior will still exist because the utility is still able to provide fully bundled service.

"It offers some ways to mitigate the latter, however, through provisions such as increased information disclosure, the utilities providing more information on their operations, etc., trying to provide a more transparent market. This is supposed to mitigate any potential for the utilities' distorting the marketplace."

By the end of the year, the CPUC wants to send a formal written report and recommendations to the state legislature, based on a settlement, hearings or a combination of the two.

In the meantime, the proposed decision would attempt to gain early action from the state legislature on consumer protection plans and a lifting of the barriers to more small residential and business (core) customers choosing to aggregate their gas-buying and related services. In addition, SoCalGas will be asked to provide clarification on its existing use of "windows" for setting capacity rights and rates in its transmission and storage system.

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