Jim and Jeff:

I think the text highlighted in the article below is interesting in that 
Commission Wood openly admits that the DWR's contacts may be "significantly 
above market" and implies that therefore everyone, not just potential DA 
customers, should have to share the burden - -  I was surprised this was so 
openly admitted!

Jennifer


NGI's Daily Gas Price Index 
published : June 29, 2001
CA Regulators Push Forward on Gas 
Citing a newfound "emphasis on the natural gas in the past eight months," 
California regulators Thursday moved ahead on several key natural gas issues, 
while delaying action on electricity issues that are caught up in concurrent 
state legislative proceedings. The regulators also provided an exemption for 
rolling blackouts for the major petroleum refineries in the state. 
The regulators authorized Southern California Gas Co. to make 26 Bcf of 
cushion and working gas from its idled Montebello underground storage 
facility available on the market this summer as part of authorization to 
proceed with selling the facility based on a settlement that concludes the 
facility is "inefficient, costly and in a nonstrategic location." 
"We're trying to develop additional sources of capacity, storage and supply, 
and the Montebello decision is really going to maximize gas resources this 
summer," said Loretta Lynch CPUC president. "Traditionally, California had 
only one natural gas peak-in the winter-but now what we're seeing is a dual 
peak with one in the summer also. So freeing up more storage gas can 
alleviate any possible price spikes by allowing low-cost gas to be injected 
into the system just when it is most needed. 
"Montebello is an indication of the CPUC's new emphasis on natural gas in the 
last 8 months in trying to develop additional sources of capacity, storage 
and supply. Freeing the cushion gas at Montebello is really good to maximize 
our in-state gas resources this summer." 
In other gas actions, the regulators authorized SoCalGas to drill new wells 
and re-design two other underground storage fields --- La Goleta in Santa 
Barbara and Aliso Canyon in the northern end of Los Angeles County. 
"In redesigning those two fields, there will be many positive consequences in 
the medium term, meaning by the end of this year or early next," Lynch said. 
The expansion of the two storage fields will allow 14 Bcf of gas to be 
re-classified so it can be used as working gas. Also other work will lower 
the fields' pressure to improve their performance. 
The CPUC also ordered an investigation of the gas supply buying practices of 
Las Vegas-based Southwest Gas Corp., which serves the high desert and 
mountain communities east of Los Angeles in which retail gas rates spiked 
this past winter causing a lot of consumer unrest in the areas around 
Victorville and Barstow, CA, about 100 miles northeast of LA. 
Some prospective action on natural gas items was postponed, including the 
long-standing proposed settlements for the unbundling of the SoCalGas 
transmission and underground storage systems inside the state. President 
Lynch said she now wants to develop an alternate order in the case. 
Regarding the blackout exemption issues, Gov. Davis earlier in the month 
urged that the state's 13 refineries and ancillary facilities be awarded an 
exemption based on their critical role in assuring the state's public safety 
and health, drawing on a state law that years earlier determined that the 
petroleum industry is "an essential element" of the state's economy, and 
therefore, is of "vital importance to the health and welfare of all 
Californians." The state energy commission also requested the exemptions for 
the refineries, which represent about 1% of the combined peak loads of 
Pacific Gas and Electric Co. and Southern California Edison Co. 
The CPUC action exempts the petroleum facilities that have been identified as 
vital by the energy commission. 
On delaying the direct access vote, the five commissioners agreed they need 
to act quickly, but they are split strictly along partisan political lines 
with the three Democratic Davis appointees favoring a suspension, while the 
two Republican holdovers favor keeping it. 
One of the majority, Commissioner Carl Wood argued that a combination of the 
governor's long-term contracts and recently approved qualifying facility (QF) 
generation contracts that account for about 30% of the state's power supplies 
could end up being "significantly above market," meaning customers would have 
an incentive to flee if they had the choice of direct-access contracts. His 
solution is to keep them captive so they can spread costs to a wider base of 
customers, keeping the impact on individual customers lower. 
"In light of that it should be clear that direct access is not really a 
matter of choice; it is a matter of avoiding regulatory decisions about the 
allocation of the burden of rates," Wood said. "And especially during a time 
when we have had to raise rates rather steeply, we should not be providing 
avenues of escape that saddle the rest of the customers with the burden of 
these costs. Therefore, I think we should put an end to direct access as 
quickly as possible." 
However, Lynch said to accommodate the legislature so it could explore some 
options in the very short term, "we are holding the item to the limit of our 
ability." Eventually, she said, the CPUC must move quickly on direct access 
to facilitate the California Treasurer moving on the bonds.