----- Forwarded by Jeff Dasovich/NA/Enron on 04/09/2001 11:00 AM -----


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,8 
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,8 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,8 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.8 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,8 she said.