As a hedge against wholesale energy market price and supply volatility, California should use its extensive underground storage system to establish a “strategic gas storage reserve” to assure reasonably priced and reliable electric generation in the state, an energy consumer advocate told a special meeting of the state’s major energy policymakers Tuesday.

These gas supplies would be held back for use in emergency situations to avoid rolling blackouts and gas price spikes like the state experienced in 2000-2001, said Michael Florio, the lead attorney for the statewide consumer group, The Utility Reform Network (TURN), and a board member for the state electric transmission grid operator, CAISO. He was one of numerous industry stakeholders offering comments on a draft California “energy action plan” designed to establish more “shared goal and joint action” by the state’s regulatory panel, energy commission and power authority.

“I hope you will add the idea of a strategic state gas reserve to your list of possible action items,” Florio told a panel of gubernatorial appointees from the three energy agencies. “What I mean by that is storage of a pre-determined amount of natural gas for emergency use by electric generators. We have adequate gas storage capacity; it is not always filled, and a major problem in the last (2000-2001) crisis was a lack of natural gas in storage.

“We would propose for your consideration that a certain amount of gas be held in reserve for electric generation during extreme conditions. The carrying cost for that by utility ratepayers would be very minimal compared to the costs we paid when there was a shortage of natural gas. The nation has a strategic petroleum reserve, so we think it would be appropriate for the state to have a strategic reserve.”

S. David Freeman, head of the California Consumer Power and Conservation Financing Authority, responded with concerns about what he called “runaway natural gas prices” that are now affecting the state. Freeman said the policymakers were looking for ideas from stakeholders like Florio on how “in the long term, the state can bring those prices under control.”

Freeman said the state is committed to lowering retail electricity rates, which were hiked 40-80% in the wake of the crisis two years ago, but he and his colleagues face an “enemy in these runaway gas prices.” A long-term public power executive, Freeman repeated several times the criticality of the gas price issue, which he characterized as being “in a short situation” that has “not much prospect for it coming under the kind of scrutiny that we would have if we regulated it,” noting that by federal law wellhead gas prices are deregulated.

Florio told the policymakers he had no “silver bullet” to offer, emphasizing gas is deregulated at both the state and federal level. “I think the gas reserve is a way of at least leveling out the spikes in (wholesale) prices,” he said. “When the price is high all year long, we have a big problem.”

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