BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AJR 1X - Cardoza Hearing
Date: May 1, 2001 A
As Amended: April 25, 2001
Non-FISCAL J
R
X
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DESCRIPTION
This resolution urges the President, Congress and the
Federal Energy Regulatory Commission (FERC) to take certain
actions to address the high cost of natural gas.
Specifically, this resolution :
1.Makes general findings regarding the high cost of natural
gas, the negative impact this cost has on California, and
the history of natural gas regulation.
2.Makes specific findings regarding FERC's regulation of
the interstate transportation of natural gas and
excessive rates charged by wholesalers transporting
natural gas to California.
3.Urges the reestablishment of cost-based regulation for
natural gas sales at the California border and the
prohibition of pipeline capacity withholding.
4.Urges the Chairman of FERC to place the issue of
cost-based natural gas regulation on the FERC agenda and
allow it to be voted on.
5.Urges the President to meet with a bi-partisan delegation
of California legislators to discuss the energy crisis.
BACKGROUND
California imports approximately 85% of its natural gas
supply. More than half of imported supplies are
transported from gas fields in the Southwest via pipelines
controlled by El Paso Natural Gas Company (El Paso
Pipeline).
California has been paying a premium for natural gas. The
"basis" is the difference between the price of gas where it
is produced and the price at its destination. The basis is
typically equal to the additional cost of transportation,
however, in California, the basis has significantly
exceeded actual transportation costs. According to this
resolution, border gas prices reached $62/mmbtu in December
2000, while actual production and transportation costs were
about $5.50. Recently, border gas prices have ranged
between $10 and $15/mmbtu, still significantly higher than
other regions. Prices at the Southern California border
are typically higher than prices at the Northern California
border.
The California Public Utilities Commission (CPUC) has
attributed the large basis to the exercise of market power
by El Paso Pipeline and its affiliate, El Paso Merchant
Energy. A significant block of El Paso Pipeline's firm
capacity is controlled by El Paso Merchant, a gas and
electricity marketer. The CPUC contends that El Paso
Merchant has artificially limited gas supplies by
withholding available pipeline capacity, thus raising
prices for gas. High spot gas prices also support high
electricity prices, particular given FERC's approach to
enforcing just and reasonable rates for electricity, where
all sellers may legally charge a theoretical proxy price
based on border gas prices regardless of their actual
costs.
Last year, the CPUC filed a complaint against El Paso at
FERC, charging that El Paso has exercised market power to
increase gas prices at the California border. FERC has yet
to take significant action on the CPUC complaint. It has
recently issued some procedural rulings, but hasn't
addressed the merits of the case. Without naming El Paso,
this resolution appears to be intended to seek federal
action on these issues.
COMMENTS
For the Record. FERC has repeatedly demonstrated a
reluctance to intervene in energy markets to curb wholesale
rates. Given its limited response to ensure just and
reasonable electric rates and its failure to take timely
action on the CPUC's complaint against El Paso, California
should not anticipate meaningful regulatory remedies for
the current energy crisis from FERC. This resolution,
which requests re-regulation of the natural gas market, is
unlikely to change these circumstances. However, it may be
important to let the record show again that California is
seeking relief from exorbitant natural gas prices.
ASSEMBLY VOTES
Assembly Floor (48-7)
Assembly Energy Costs and Availability Committee(12-1)
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
AJR 1X Analysis
Hearing Date: May 1, 2001