California regulators are scheduled to wrap up the formaldata-gathering phase of their assessment of the state’s natural gasmarkets with an oral argument March 23 in San Francisco. Using thisdata and the record from formal hearings conducted earlier thisyear, the California Public Utilities Commission will establish alist of the most promising options for injecting more competitioninto the state’s natural gas business, beginning next year. Thehalf-day hearing will divide 19 major parties into two discussionpanels: one focused on customer issues and the other oncompetitors. The three utilities will be represented on bothpanels.

All observers agree that before any meaningful restructuring isadded in California leading to more retail competition, a longregulatory road must be traveled and it must lead to ultimate statelegislative action. So the CPUC will conduct cost-benefit analysesof its proposed options as part of a formal written reportultimately submitted to the state legislature. The process isscheduled to be completed before the end of this year, according toa CPUC staff member.

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

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

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

Two weeks of evidentiary hearings in January concentrated onfive major areas: hub services, balancing, transportation, storageand procurement. The issue of divestiture by utilities of some oftheir current assets arose only in the context of storage, withsome parties saying that this might be a way to protect againstfuture anti-competitive moves by the utilities. As part of theCPUC’s narrowing down process, the issue of divestiture will eitherbe studied further or dropped. Greater openness in utilityinformation and the possibility of a gas transmission independentoperators akin the to electric ISO are two other issues that havegained attention, but observers are not sure the CPUC will focus oneither of these two areas. Existing major settlements amongutilities and their largest marketer-shipper-end-use customers alsowill have to be taken into consideration by the CPUC. For example,Pacific Gas and Electric Co.’s “Gas Accord” runs through 2002, buteventual gas industry changes mandated by the legislature couldoverturn some of those provisions unless exceptions are made.

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