BILL ANALYSIS
AJR 1 X1
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Date of Hearing: April 4, 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 : 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, this resolution
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 2000.
FISCAL EFFECT : Unknown.
COMMENTS :
Request for Re-Regulation . This bill 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 sales by wholesalers using
interstate pipelines.
AJR 1 X1
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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. Arguably a resolution from the
California Assembly would send a signal to both Congress and
FERC that pricing instability in the natural gas industry needs
to be addressed, and that there has been consumer and economic
harm resulting from at least some aspects of the deregulation.
Staff recommendations . 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. A legislative
resolution from California won't solve the problem, but it will
indicate that California is aware of where the problem may lie
and is does send a signal to federal lawmakers and regulators
that price controls within this state aren't enough to solve the
price volatility question.
The author may wish to correct this bill to indicate that FERC
deregulated wholesale gas prices in 2000, not in 1992.
REGISTERED SUPPORT / OPPOSITION :
AJR 1 X1
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Support
None on file.
Opposition
None on file.
Analysis Prepared by : Kelly Boyd / E. C. & A. / (916)
319-2083