California regulators are expected to begin taking a much closerlook next week at proposals to curb market power in the state’s gasindustry, and their decisions could rapidly accelerate convergenceof the gas and electric industries. Included among the proposals isa plan to force the state’s major utilities to divest gastransmission and storage assets and form an independent gastransmission system operator, replicating part of what was done inthe state’s power industry. California natural gas industryrestructuring proceedings are scheduled to move into overdriveduring four day-long hearings starting April 6 in San Francisco.

The debate surrounding these proposals has intensified followingthe CPUC’s approval last week of the $6.6 billion merger of PacificEnterprises (PE) and Enova Corp., the parent companies for SoCalGasand San Diego Gas and Electric, respectively. The CPUC’s decisionto approve the merger included some changes to limit the potentialfor market power, but the bulk of the potential changes was leftfor the state’s gas restructuring proceedings.

SoCalGas and SDG&E filed a “shared vision for thecompetitive retail natural gas market in California” in a jointfiling on March 23 to the CPUC, noting they agree with thecommission’s consistency concept; however, they urged that safetydifferences in the two energy transmission/distribution operationsbe noted. They contend this is particularly important in theso-called “after-meter” services that involve meters, regulatorsand piping for gas service.

SDG&E’s Bill Reed urged the commission to eliminaterestrictions to core customer choice that do not exist on theelectric side, such as the load requirements and 10%-of-marketrestriction on offering small business and residential gascustomers the choice of selecting their own supplier.

Fred John, a senior vice president with PE, said his company isurging the CPUC to add more customer choice “in the purchase ofgas-related products and services,” while being sensitive to thedifferences in the two industries.

“Our filing recommends an unbundled, open access framework forgas storage and transmission to take advantage of the commoditymarket competition that already exists,” John said, although SoCaland SDG&E do not back the idea of creating a gas ISO.

But Enron, which says it is serving gas to more than 10,000industrial, commercial and residential customers in the state, isurging the CPUC to remove “artificial barriers that a century ofregulation has erected between the gas and electric industries.”

Enron is pushing hard for stronger and clearer distinctionsbetween monopoly utility activities and unregulated energyservices. It wants the utilities to transfer some of their newproducts and services-such as the gas Internet service, EnergyMarketplace-to their unregulated affiliates.

Among ten proposed actions from Enron are: providing anon-bypassable surcharge to cover stranded assets, similar to theelectric industry CTC, and the divestiture of intrastatetransmission/storage assets, or creation of “tradable firm rightsin intrastate backbone transmission and storage facilities throughan auction.”

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