BILL ANALYSIS                                                                                                                                                                                                            1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                               DEBRA BOWEN, CHAIRWOMAN
        

        AB 1233 -  Pescetti                                    Hearing Date:  
         August 29, 2001           A
        As Amended:              August 27, 2001          FISCAL       B

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                                      DESCRIPTION
                                           
        Under  existing law  , gas utilities are authorized to charge rates for  
        all reasonable and prudent costs associated with ownership and  
        operation of natural gas transmission facilities.

         This bill:  

        1.Requires the California Public Utilities Commission (CPUC) to  
          investigate impediments to the in-state production and storage of  
          natural gas as part of a gas utility's rate proceeding.
        2.Prohibits the CPUC from adopting rates that  discourage  in-state  
          production or storage of natural gas.
        3.Authorizes the CPUC adopt rates to  encourage  in-state production  
          or storage of natural gas, including, but not limited to, reducing  
          local transmission rates applicable to in-state gas blends, unless  
          it finds that such action will likely result in consequences  
          adverse to the interests of gas customers.

                                      BACKGROUND
         
        California imports approximately 85% of its natural gas supply,  
        primarily from gas fields in the southwest and Alberta, Canada.  The  
        15% of supply derived from in-state sources is typically a lower  
        quality gas, which burns less efficiently (low-BTU gas).  Low-BTU  
        gas must be blended with higher efficiency gas, such as propane, to  
        meet pipeline and end use specifications.  Additional supplies of  
        in-state, low-BTU gas are available, but remain untapped.

        The terms of Pacific Gas and Electric's (PG&E) gas utility  
        operations are defined by the Gas Accord, a comprehensive settlement  
        approved by the CPUC in 1997.  The Gas Accord establishes the rates  
        and terms and conditions of service on PG&E's gas transmission  









        system through December 31, 2002.  Pursuant to the Gas Accord, local  
        gas transmission rates are paid by all end users.

        According to the author, current local gas transmission rates  
        provide disincentives to the storage and blending of natural gas, as  
        well as the construction of pipelines by non-utility entities.  The  
        author states that gas stored off-line before moving back to the  
        utility's transmission system is charged a local transmission rate,  
        then charged again when the gas is delivered to the end user.  The  
        author says these additional charges can make it uneconomical for  
        generators of electricity or the entities that supply their gas to  
        employ the blending process needed to make low-BTU gas usable.










































                                       COMMENTS
         
         Round Two.   The prior version of this bill was heard by this  
        committee July 10.  The prior version provided an exemption from  
        local gas transmission rates for in-state gas blends delivered to  
        certain non-core customers.  At the July 10 hearing, the author  
        agreed to amend the bill to provide broader policy guidance to  
        remove disincentives to in-state production and storage of natural  
        gas.  As amended, the bill is intended to provide such guidance to  
        the CPUC without being overly prescriptive.
                                           
                                   ASSEMBLY VOTES
         
        Assembly Floor                     (75-0)
        Assembly Appropriations Committee  (12-0)
        Assembly Utilities and Commerce Committee                       
        (15-0)

                                       POSITIONS
         
         Sponsor:
         
        Author

         Support:
         
        California Independent Petroleum Association
        California Manufacturers & Technology Association
        California Municipal Utilities Association
        Calpine
        Sacramento Municipal Utility District

         Oppose:
         
        Pacific Gas and Electric Company
        Sempra Energy





















        




        Lawrence Lingbloom
        AB 1233 Analysis
        Hearing Date:  August 29, 2001