From today's Gas Daily:

***Breathitt wants more attention on Calif. gas

     Although the energy spotlight has been on California's 
electricity crisis, the number of California gas issues at FERC is 
continually increasing, signaling the need to focus on the gas side 
of the equation, a FERC commissioner said last week.
     "[T]here is volatility in the gas markets as well as the electric 
markets," FERC Commissioner Linda Breathitt said at the American 
Gas Association's FERC Natural Gas Regulatory and Market Issues 
Seminar last week in Washington, D.C. And the cost of gas, she said, 
is the component that has the biggest influence on the cost of 
electric generation.
     Two issues pending at FERC are whether to re-impose price caps 
on secondary market transactions and whether to cap prices on 
gas sales, Breathitt said.
     In addition, FERC recently issued an order to help remove 
obstacles to increased energy supplies into the West (GD 3/15). In 
the order, FERC sought comments on the need to provide rate 
incentives for projects that would make additional capacity 
available by this summer on constrained pipeline systems. "I believe 
that if the commission does provide incentives, we should be very 
precise regarding the activity we are encouraging and the incentives 
we will be willing to consider, if at all," Breathitt said.
     The commissioner also voiced concern over a California issue 
that sits at the state level -- intrastate pipeline facilities. 
California, she said, needs to assess whether its intrastate system 
is adequate to take gas from the border to its market. "I am 
worried that where there is insufficient takeaway capacity, FERC's 
actions to increase capacity to the border may result in problems, 
such as prorationing," Breathitt said.
     Meanwhile, Breathitt suggested local distribution companies in 
California need the ability to use risk management tools. Policies 
should be in place to give gas buyers an incentive to use such 
tools, including price hedging and the efficient use of storage, she 
said.
     But regulators should be careful in noting the difference 
between hedging to reduce exposure to price volatility and what 
Breathitt called "mere speculating." While hedging can be used to 
decrease uncertainty, speculating to beat the market can actually 
increase the possibility of risk, she said.
     Regulators in California and other states should look into the 
benefits of reducing gas buyers' dependence on the spot market. "A 
balanced portfolio of long- and short-term contracts makes a great 
deal of sense when spot prices are at the extreme levels of the past 
year," she said.     CD