BILL ANALYSIS
AJR 1 X1
Page 1
Date of Hearing: March 28, 2001
ASSEMBLY COMMITTEE ON ENERGY COSTS AND AVAILABILITY
Roderick D. Wright, Chair
AJR 1 X1 (Cardoza) - As Amended: March 27, 2001
SUBJECT : Natural gas: regulation.
SUMMARY : This resolution : addresses the skyrocketing wholesale
natural gas prices which have been experienced in California.
Natural gas expenditures in the state are expected to be more
than double in 2001 what they were in 2000. Accordingly, AJR 1
X1 resolves that the President of the United States, the
Congress of the United States, and the Federal Energy Regulatory
Commission (FERC) are urged to:
1)Re-establish cost-based regulation of natural gas sales at the
California border by marketers or owners of pipelines.
2)Prohibit withholding of natural gas capacity on pipelines
entering California.
3)Require owners of each pipeline entering California to post on
the Internet on a daily basis the firm capacity available and
information on each firm user of the pipeline.
4)Require marketers to post the price and quantity of each sale
of natural gas at the California border.
EXISTING LAW : Deregulated the sale of natural gas at the
wellhead in 1989. Deregulated natural gas sales by wholesalers
using interstate pipelines in 1992.
FISCAL EFFECT : Unknown.
COMMENTS :
Request for Re-Regulation.
AJR 1 X1 cites to the 1938 National Gas Act which sought to
stabilize natural gas prices due to market concentration in the
natural gas industry through price regulation of the industry.
The resolution also cites to the 1989 federal deregulation
through an Act of Congress that deregulated prices at the
wellhead and the subsequent FERC deregulation of natural gas
AJR 1 X1
Page 2
sales by wholesalers.
It has recently been alleged in the federal jurisdiction by
California entities, and California Public Utilities Commission
(CPUC) has asserted that some out of state pipeline operators
have gamed prices at the border by selling contracts to
affiliate companies at much higher prices than other bidders.
The separate affiliate then sells the gas at the border at an
inflated price.
The Barn Door is Open.
The problem with requesting that Congress order the
re-regulation under a cost of service basis of natural gas sales
at the California border by marketers or owners of pipelines is
that the barn door is already open and those rates have been
deregulated for nearly ten years. If in the federal
jurisdiction it is found that the sort of gaming alleged by
California entities actually took place, then there is a basis
for Congress to make the sort of finding that it originally made
in 1938 that monopolistic market forces were distorting market
prices.
Absent a finding at FERC or establishment of a record of the
type of collusive behavior alleged, it is unlikely that Congress
would react favorably to a state resolution to re-regulate
border prices for a single state. Finally, since the price
remains deregulated at the wellhead, it is uncertain what impact
on the consumer price re-regulation of border or transportation
prices will have.
Staff recommends.
This resolution may be premature given current circumstances.
In other industries, such as the petroleum industry, retail
price spikes have been severe and repeated and are often blamed
on refineries rather than on the wholesale price set by oil
producing nations, and yet eventually prices stabilize. The
existence of a free market is not always as comfortable when the
goods supplied relate to basic necessities such as heat and
electricity. Removal of free market forces from the equation
after ten years should be based on thorough investigation of
cause and effect. It is not clear that at this stage the case
has been made for an Act of Congress to remove free market
forces from border prices for natural gas only in California,
AJR 1 X1
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especially as wellhead prices remain unregulated.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Kelly Boyd / E. C. & A. / (916)
319-2083