Citing remarks earlier in the week by Federal Reserve Chairman Alan Greenspan, a California regulator Thursday issued a warning that his state cannot expect to remain aloof from a possible “perfect storm” in a coming winter that would see supply shortages and severe price spikes in wholesale natural gas supplies. He urged more demand-side management and taking more advantage of several unique new supply opportunities, including more Rocky Mountain supplies, for which he suggested the state make “a long-term” commitment.

“We can also take steps now to take more advantage of the state’s own gas supplies by requiring the utilities to use more and increase storage,” said Carl Wood, one of the five members of the California Public Utilities Commission, during its biweekly business meeting Thursday. He called for “bold moves” by the state energy regulators and policymakers, noting that California needs to “stay ahead of the curve” on natural gas matters in the months and years ahead.

“There is a growing level of concern about natural gas supply and demand balances in the United States, and the implications of this for raising costs for both gas and electricity service,” Wood noted. “Nationwide gas storage is at a historically low level, new wellhead production is down, and prices are already high.”

Wood said that California has “worked very hard” in the past two years to address both price and supply issues revolving around natural gas, noting that as a result, the state currently has “adequate supplies of both storage and pipeline capacity, and sufficient in-storage reserves to serve core customers. However, we are not immune from the looming natural crisis.”

He said the emerging gas problem seems “to be one of economic fundamentals — a mismatch of supply/demand.” Thus, he sees shortages and high prices potentially being a problem for the next few years, particularly in the power plant sector.

Noting that California is “relatively well-positioned” to weather the coming storm, Wood said the state needs to take several actions, which he listed as:

Loretta Lynch, former CPUC president and still a commissioner, echoed Wood’s concerns and suggested that the CPUC needs to work more closely with federal regulators to make sure wholesale gas prices are not manipulated as she alleged happened in 2000-2001 at the California-Arizona border. “It is incumbent upon us to do everything we can here in California, as well as working with our colleagues in other states, to keep natural gas prices as low as possible.”

In addition to Wood’s listing of gas action items, Lynch said the CPUC must “first work with FERC and other states to ensure that natural gas price indices are free from manipulation and abuse because as we have seen in the last year, they were falsified.” And second, she wants the state regulatory panel to ensure that gas-buying mechanisms for the state’s private-sector utilities achieve “the proper balance between acquiring least-cost gas and spot market stability.”

Current CPUC President Michael Peevey said he agreed with his colleagues’ assessments, and that the recently adopted statewide joint energy action plan calls for a number of efforts to shore up the efforts to assure adequate supplies at reasonable prices, and reduce future overall demand for gas in the state through renewable resource and demand-side management programs.

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