In a congressional hearing that featured a thorough review of the El Paso market manipulation case and all the issues contributing to the serious natural gas market malfunction last year in California, FERC Chairman Pat Wood told a House Government Reform subcommittee chaired by Doug Ose (R-CA) that he does not see a need for new legislation.

Nevertheless, Wood said, FERC would assist Congress if needed. However, he indicated that the record high prices were a result mainly of multiple supply and demand factors, which currently are working themselves out, as well as a mismatch between interstate and California intrastate pipeline capacity.

“The Commission has consistently urged the State of California to eliminate any disincentives that may prevent expansion of intrastate infrastructure and provide relief to California customers,” Wood said, adding that recently the California Public Utilities Commission (CPUC) has made some progress. The CPUC recently approved a new merchant storage project, and Southern California Gas Co. (SoCalGas) has several intrastate pipeline expansions underway that will add 375 MMcf/d to the in-state grid, Wood noted, indicating that this would help solve the problem.

However, Gay Friedman, senior vice president of legislative affairs for the Interstate Natural Gas Association of America, told the subcommittee the CPUC is up to its old tricks and continues to erect barriers to new pipeline capacity development. She noted that SoCalGas recently replaced a controversial back-up residual load service — which increases rates on customers who bypass the LDC with service on interstate lines — with a new peaking service, which “still does not level the playing field.”

“Under the peaking service, if an electric generator, for example, wants to take natural gas from SoCalGas and also from a competing pipeline, the generator will have to pay a higher rate for SoCalGas’s service than captive customers taking service entirely from SoCal,” she explained.

“Additionally, just last week San Diego Gas and Electric filed a request for authorization of a peaking service in response to potential competition from the proposed North Baja Pipeline Project,” she added. “These two peaking services discourage the development of interstate pipelines that can directly serve California end-users.”

Friedman claims the mismatch between capacity at the Southern California border and the capacity within the SoCal Gas system was the “fundamental problem” last year, and was caused by the state’s “long history of discouraging the construction of interstate natural gas pipelines.”

Meanwhile, Chairman Ose heard lengthy arguments from representatives of El Paso Corp. and the consulting firm that provided evidence in the El Paso case on behalf of the CPUC. The CPUC charged El Paso with pipeline affiliate rule violations and market manipulation through the withholding of pipeline capacity. A FERC administrative law judge decided earlier this month that El Paso did violate affiliate rules and had market power, but there was insufficient evidence to determine whether it used its market power to manipulate the price of natural gas.

CPUC President Loretta Lynch urged Subcommittee Chairman Doug Ose (R-CA) to work closely with FERC to “make sure they have adequate remedies available in the Natural Gas Act to provide refunds where appropriate where market power has been exercised for past behavior.” Lynch noted that there is disagreement on whether FERC currently has that authority.

“The Congress can make certain that FERC has the full panoply of tools available when they find market power to make sure that Californians eventually don’t find a violation without a remedy,” she said. “We want to make sure the Natural Gas Act provides all the remedies that the FERC believes it needs, to make sure that our markets are competitive going forward and to deter practices that have happened in the past.”

Ose plans to keep a close eye on FERC’s actions on the California gas market, particularly its final decision in the El Paso market manipulation case and its study on the California gas market, a Capitol Hill source said. However, he does not have immediate plans to draw up any legislation addressing these issues, the source said.

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