From today's Gas Daily:


+Three strikes, bill hits California

California Assemblyman Dennis Cardoza,
a Democrat, will introduce a bill today that will
make it a felony for any energy supplier in California
to engage in a conspiracy to drive up prices
or manipulate the market.

The bill would apply to any company selling
gas or electricity into the state or to any of the
state,s utilities, said a spokesman for Cardoza.

Under terms of the proposed legislation,
offenders would be subject to California,s "three
strikes" law, which sentences convicted felons
to jail for life after three offenses. Directors, officers
or any other employees associated with
market manipulation of a company would be
subject to this bill, the spokesman said.

Cardoza will introduce the bill at a press
conference today at 2 p.m. Pacific time. CD

______________________________________________________________________

 No easy solutions to crisis

The crisis in California is far beyond short-term
fixes parading as potential solutions, and
there is no turning back for deregulation in the
state, according to a report released yesterday
by consulting firm Andersen.

California has no choice but to forge ahead in
repairing the damage that ill-planned deregulation
measures have caused, the Energy Crisis in the
Western U.S.: Lessons for navigating regulatory
and market minefields report says. "There,s a common
wisdom that knows you can,t unscramble the
egg," said Matt Smith, head of Andersen,s North
American energy consulting practice. All that can
be done is correct the mistakes, he added.
In addition, steps must be implemented to
prevent the spread of the California "virus" to
other states, electricity marketplaces, Smith said.

"To begin, in our view, the energy crisis in the
western U.S. has produced formidable challenges
for utility industry regulators, state and federal
policymakers, and industry executives," Smith said.
"The virus spawned in California requires new strategies
to contain and reverse the damage.

"The implications for the development of
competitive energy markets go far beyond the
western United States. Unfortunately, California
has taught the nation that regulatory and political
barriers can create and sustain an energy crisis."

The proposed solutions put in motion by
federal and state regulators, as well as California
policymakers, have only led to an increasingly
uncertain market and tension among those
working for a viable resolution, the report says.

"In reaction to the breakdown, many of
California,s political leaders now prefer to abandon
deregulation," the report says.

The report concludes that power shortages
and blackouts are inevitable this summer. The
deregulated marketplace, which took a year to
throw off track, will more than likely take a number
of years to put right, the report says. MCM

________________________________________________________


Competing evidence clouds Calif. investigation

Prompted in part by the California Public Utilities Commission, the 
California Assembly
has been scrutinizing the role that interstate pipelines have played in the 
state,s current
energy crisis. In the efforts to find a smoking gun, legislators have leaned 
heavily on a
report prepared by The Brattle Group, a consultancy commissioned by utility 
Southern California
Edison to dig up evidence of market power abuse.

But the state,s biggest transporter of gas to California -- El Paso Natural 
Gas -- is not
ready to take the rap. The pipeline has commissioned its own study, which it 
recently presented
as evidence that it has not circumvented any laws or regulation.

As reported in both the trade press and national media, SoCal Ed and the CPUC 
are pointing
the finger of blame at El Paso for alleged manipulation of California border 
prices through
affiliate deals and capacity hoarding. And exhibit A in their case against El 
Paso is The Brattle
Group,s study of the California market.

Richard Zeiger, a spokesman for Assembly Member Darrell Steinberg, chairman 
of the
California Assembly Judiciary Committee, told Gas Daily that The Brattle 
Group,s market
study proved that the surge in gas prices at the California border was not 
caused by normal
market forces (GD 4/20). His remarks followed an oversight hearing during 
which Assembly
members questioned Dynegy and El Paso officials about their involvement in 
the California
market.

El Paso presented a different version of events to the Assembly. In a report 
presented to
legislators, a research group hired by El Paso concluded that a convergence 
of factors, not a
conspiracy, caused the price run-up.

Lukens Consulting Group, a Houston-based consultancy, was retained by El Paso 
to conduct
work on several fronts. In its study of the California market, Lukens 
concluded that the
increasing convergence of the gas and electricity businesses was one of the 
main culprits in the
California gas price imbroglio.

Assemblyman John Campbell, a Republican member of the oversight committee, 
said he
"didn,t see any smoking gun" in either report.

"We had our committee hearing, and we certainly had a lot on the Brattle 
Study and a little
on the Lukens study. To some degree, I,m not sure that the California 
legislature is the best
place to adjudicate the differences between these two studies," Campbell 
said. "I believe FERC
is looking at this situation " and it would seem to me that that,s the 
appropriate place."

Campbell said that the CPUC had been prodding the California legislature to 
give support
to its claims of market power abuse by pipelines. "It,s being pushed 
basically by the Public
Utilities Commission here, which believes that there was collusion" by 
pipeline companies to
push up gas prices in California, he said.

The CPUC, Campbell suggested, sought satisfaction before the California 
assembly when
it had failed on the federal level: "There,s a concerted effort, not just on 
natural gas but on other
things here in California, for entities and organizations here to point the 
finger elsewhere for
the problems that we,re having in this state and I think you,re seeing some 
of that with the
public utilities commission."

Whether either report wins over the public incensed by high natural gas 
prices is a different
matter entirely. In the meanwhile, the dueling California market studies seem 
to have taken
on a life of their own.

The Brattle Group Study, for instance, has become the center of a heavily 
litigated effort to
force FERC to compel the release of market data by California market 
participants. Following
on a request by SoCal Ed, which said it needed additional data to round out 
The Brattle Group
report, FERC Chief ALJ Curtis Wagner issued subpoenas to the other three 
major pipelines that
serve the state as well as to Sempra Energy Trading.

Several parties resisted FERC,s call for market information, saying the 
requested data
contained commercially sensitive information. FERC allowed the discovery 
process to move
forward but only after attaching strict data protection rules restricting 
access to evidence
(GD 4/23).

Critics of the pipeline industry have already suffered one setback in their 
case. The commission
recently dismissed the CPUC,s claim that El Paso rigged the auction of a 
large block of
pipeline capacity in favor of affiliate El Paso Merchant Energy. In 
addressing the California
Assembly, representatives of Dynegy said that FERC,s recent ruling on the 
California border
controversy obviated the need for more investigation.

The controversy, however, is far from over. FERC last month also ordered a 
hearing into
whether El Paso Natural Gas and its affiliates manipulated capacity to drive 
up the price of gas
delivered into California (GD 3/29). That hearing is likely to take place 
this summer. (RP00-
241, et al.) NH