Recognizing that they are basically treading on federal turf, California state legislators are trying to determine exactly what, if anything, to do as a result of last week’s energy oversight committee hearings on the issue of the inflated California-Arizona natural gas border prices, according to staff members for the elected officials. An answer may not come until next month when a written report by the oversight committee is completed.

In the meantime, an attorney for the California Public Utilities Commission said Tuesday that the regulators will proceed with preparations for the May 14 FERC hearing on the question of whether El Paso Natural Gas and its affiliate, El Paso Merchant Energy, exercised undue market power as the CPUC alleged in a complaint filed a year ago.

State Assembly Oversight Committee Chairman Darrell Steinberg and other committee members have made it clear they are convinced El Paso used its market power to drive up prices, causing Californians to pay excess gas and electricity costs ranging from estimates of $100 to $750 million, but they also conceded that testimony by El Paso, El Paso Merchant and Dynegy Corp. executives last week failed to reveal a “smoking gun.”

At least one member of the committee, an Orange County Republican, John Campbell, reminded his colleagues that making extra profits in a crisis is not on its face illegal or unethical, and there is no evidence so far that El Paso or its affiliate violated any federal laws or regulations. As a result, the most that might come out of the recent state legislature’s informational hearings is a resolution urging FERC to provide some retroactive rate relief, and more protections going forward.

“The problem is clear — California border prices for natural gas are double what they are anywhere else in the nation, and the legislature is just trying to find out why,” said Harvey Morris, a CPUC attorney who also testified at last week’s state oversight committee hearings. “It causes a lot of pressure on electric prices to go up.”

Morris said the state regulators and legislators are still interested in getting some retroactive relief from FERC even though the disputed contract between El Paso and El Paso Merchant Energy expires at the end of May, a little more than two weeks after the market power hearing.

“We’re scratching our heads trying to determine if we do win in this (FERC) hearing, what exactly do we get for it?” Morris said. “If we were right all along, how are we going to get a remedy? A hearing a year later on a 15-month contract is very questionable.”

Morris does think the state can take actions on intrastate transmission capacity and storage regulation about the general problem by “changing the market dynamics in California.” Nevertheless, the state still has no jurisdiction over interstate prices or wholesale marketers.”We have various proceedings at the CPUC looking at what can be done with intrastate utilities and facilities,” Morris said.

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