The possibility of a market-based solution to California’snatural gas industry restructuring stayed alive yesterday when moretime was allowed by state regulators for about 75 parties to hammerout a settlement. Without a deadline extension from the CPUC, hopesof a market-based solution to the state’s future gas unbundlingwould have been abandoned in favor of another round of regulatoryhearings. The settlement process now has until Oct. 27 to come upwith a broad-based agreement. The previous deadline was Sept. 6.

If no significant progress, or a full-blown settlement, isachieved by the new date, a new schedule for hearings will beactivated early next year. In July, the CPUC gave SouthernCalifornia Gas Co. 60 days to work out a deal, but none isforthcoming at this point, prompting SoCalGas to ask for athree-month extension until Dec. 6.

On Monday, Enron suggested a variation requiring tangibleprogress toward a settlement with a timetable for finishing the jobin October and the CPUC administrative judge went for an extensionmore along those lines. According to Enron, the CPUC earlier hadindicated it would consider delays if the parties developed “aspecific plan and timeline to resolve the issues. We believe thatis a reasonable condition.” It went on to say in a CPUC filing that”unfortunately, the settlement has not succeeded in developing aplan and timeline.” At the same time that the CPUC proceedings playout, SoCalGas is developing a new settlement proposal, reportedlydrawing on six suggested alternatives from major parties in thecase. SoCal has indicated it will circulate the new proposal by theend of this week, Sept. 3, for discussion when the partiesreconvene for negotiations in Los Angeles on Sept. 9.

“I think there has to be some sort of comfort level [by the ALJ]that there is [settlement negotiations] progress being made,” saida CPUC staff expert working on the gas restructuring proceedings.The Sept. 1 meeting demonstrated that “the parties are warming upto settlement talks and the discussions are getting prettyintense.” Ultimately, the regulators are looking for a settlementthat allows for more consistency in the statewide transmission andstorage systems of Pacific Gas and Electric Co. and SoCalGas.

“There aren’t enough unique differences [in the two pipelinesystems] to preclude firm, tradeable capacity rights on bothsystems,” the CPUC staff member said. “However, there may be enoughdifferences to require differences in the way the two programs areimplemented.”

Some parties, regulators and outside consultants have said thatthe California system should resemble FERC’s and the other 49states more than it does now if competition in the gas markets isreally going to be enhanced. One energy project developer from outof state with a major facility proposal in the midst of theCalifornia regulatory process noted that his project’s approach inthe settlement negotiations is “the more unbundling the better,”although he understands why many large end-users would prefer thestatus quo, as would the major utilities.

“Who wouldn’t like to retain the ‘free’ balancing they aregetting in the current system,” said the developer, whose potentialcustomers are mixed about the issue of how much more the gasmarkets in California should be opened. “They’d be foolish to wantany changes.”

In any form, further unbundling means more complicatedtransmission and storage systems, which none of the large end-userswant, according to a national consultant who represents one of theinterstate pipelines involved in the negotiations. The utilitieswould prefer the status quo to keep things simple, but if there ismore unbundling, they stand to find ways to make more moneyoverall, the consultant said.

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