The California state legislature’s chief advocate for a return to tightly regulated energy utilities absent retail customer choice programs told a legislative committee session Wednesday that natural gas could prove the next serious energy problem for the nation’s most populous state — perhaps as early as this fall or the coming winter. Increasing reliance on gas derivatives is at the heart of the problem, according to the legislator.

Noting that state regulators have shown an inability to quickly respond to volatility in wholesale natural gas prices, state Sen. Joseph Dunn, the chairman of the state Senate’s special committee investigating wholesale energy price manipulation, told a lower house Assembly utilities/commerce committee that California “now faces an extraordinarily serious problem” related to natural gas.

The problem, according to Dunn, centers on the conflicted needs for regulation and deregulation of the industry between producers in the field and middlemen marketers selling the supplies, respectively. He said the current low exploration well count in the oil patch is caused by the producers’ lack of access to adequate capital, and that lack of access is directly attributable to the recent investment swing into gas derivatives.

“To survive successfully in gas derivatives you need a volatile market,” Dunn said. “To be able to invest in the field you need a stable market. That problem is posing a serious risk on natural gas supplies in this country — and it could occur as early as this fall or early next year.”

A fellow state legislator, Assemblyman Joe Canciamilla agreed with some of Dunn’s concerns about manipulations in the wholesale market causing some of the state’s wholesale gas price spikes in 2000-2001, but he said the state regulators’ response to the spikes was “too slow,” regardless of whether manipulation caused the increases in the first place.

“The response was such that it helped to create an imbalanced market, helped to allow the forces manipulating some of the market to take advantage of it,” Canciamilla said. “So I don’t disagree that there needs to be some core of regulation of the system to protect ratepayers who have no options, but I think the concern is how we (the legislature) adddress some of the broarder issues and allow for some competition in the marketplace for energy users who have some flexibility and can move into that market demand and accept some risk.”

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.