California Regulators to Vote Today : Rule Changes Expected in Sale of Natural Gas

State energy regulators are expected to approve today long-awaited regulations that would change the way natural gas is sold in California.

The new rules would permit natural gas utilities to transport gas for a fee, in much the same way as truckers, railroads and air-freight carriers ship products. Only large manufacturers and oil producers would qualify to buy gas under the new service, which permits them to purchase directly from natural gas producers instead of utilities.

The proposed change--an attempt to make California more attractive to heavy industry--conforms with new federal regulations that encourage interstate pipelines to shed their role as gas merchants and become gas shippers. It would give some 1,800 California manufacturers access to out-of-state gas, which is significantly cheaper than gas purchased from utilities because it is not subject to price regulation by the state.

The measure that the state Public Utilities Commission is scheduled to vote on today attempts to strike a compromise between industry, which wants access to cheaper out-of-state gas, and small commercial and residential gas users, which have no choice but to buy gas from utilities, whose prices are regulated by the state. The proposed transportation fee is high--far above the actual cost of providing the service--to prevent a shifting of the utilities’ costs from industry to homeowners.

“It’s a very tricky business,” PUC President Donald Vial said. “If we don’t do it properly, we’ll have a huge redistribution of costs.”

Consumer Advocates Say Rules Favor Industry

Few, however, are happy with the results of the PUC’s balancing act. Large industrial customers contend the fees are so high that gas transportation isn’t worthwhile. “Our view is--why bother?” says Allan Quiat, regional natural gas manager for Chevron, which wants to ship gas from its out-of-state gas fields to its refineries in El Segundo and Richmond.

Consumer advocates complain that the proposed regulations favor industry at the expense of smaller gas customers. “I’d rather see everybody get a better break on price--not just industry,” says Sylvia Siegel of the consumer group Toward Utility Rate Normalization.

Industrial gas users say a lower transportation fee could help them save a good deal of money. Owens-Illinois, which operates seven glass container or plastic packaging factories in the state, says it could cut its energy costs by one-third, or $7 million a year, if it had access to cheaper gas.

Manville says it is now cheaper to ship insulation from Indiana than to make it at its factory in Corona. Without access to cheaper gas, the Denver-based company says it might have to close the plant.

The state’s two largest gas utilities, Pacific Gas & Electric in San Francisco and Southern California Gas in Los Angeles, favor the transportation fees proposal because it protects their profit margins and helps them compete with out-of-state pipelines who want to serve California.

In the world of utility regulation, California isn’t breaking new ground. Utilities in more than 20 states are permitted to transport gas for a fee. In most states the fees are low to discourage big interstate pipeline companies from wooing away utility customers.

In fact, the National Assn. of Regulatory Utility Commissioners recently issued a report urging states to set transportation fees as low as possible--even below cost--to head off competition from interstate pipelines.