PUC Proposes Price Rules for Natural Gas

The California Public Utilities Commission on Thursday proposed regulations that would change the way natural gas is marketed in the state.

The proposal would allow large industrial natural gas customers to buy gas directly from producers and transport it through utility pipelines. It closely parallels a new federal rule that deregulated interstate gas transportation, allowing utilities to buy gas directly from producers.

For the last year, large industrial natural gas users in California, including Owens-Illinois, U.S. Borax & Chemical and San Diego Gas & Electric, had sought a way to obtain cheap natural gas directly. About 20% of the country’s natural gas is sold on the “spot,” or non-contract, market at prices far below those set by utilities.

Industrial Users

Donald Vial, PUC chairman, said the transportation rates proposed by the commission should satisfy the industrial users while protecting small residential natural gas customers. If the transportation rate was set too low, he said, residential and small commercial customers would be forced to pick up a greater share of utility costs as the big gas users left the system. “It’s very tricky business,” he said.

Vial said the commission is seeking the change to make California’s regulations “compatible” with federal transportation rules. He said the proposal would also help the state’s utilities compete with several out-of-state pipelines that are seeking federal approval to serve the Kern County oil fields, the nation’s largest new natural gas market.

Fred John, vice president for regulatory affairs at Southern California Gas, said the proposal, which is similar to one suggested by the gas company, makes industrial customers “economically indifferent” between transporting gas or buying it from the utility.