FERC to examine natural gas price disparities in California

By the OGJ Online Staff

HOUSTON, May 21 -- Responding to complaints, the US Federal Energy Regulatory Commission Friday proposed new reporting requirements for natural gas sellers and transporters serving the California market.

The gas price disparity between California and the rest of the country has prodded the commission to question why the market has not functioned to equalize prices. It said higher prices in California should cause more sellers to direct gas to that market, increasing supply; lowering the price; and bringing it in line with the national average. FERC noted that this expected market response has not happened and the price disparity continues.

California prices in December 2000 ranged from $11.79 to $18.80/Mcf, compared to the national range of $4 to $7/Mcf. In May 2001, prices at the California border were in excess of $9/Mcf compared with $4.50 to $4.68/Mcf at the New York City gate.

San Diego Gas & Electric Co., the Los Angeles Department of Water and Power, and the National Association of Gas Consumers filed complaints with FERC about California gas prices. They suggested that the commission impose price caps for short term releases of capacity for service to the California border and to points of interconnection between the interstate pipelines and the local distribution companies. They also suggested sellers state separately the transportation and commodity charge for bundled rates of sales. And finally some suggested a benchmark natural gas price be set and any prices above that be declared by the commission to be unjust and unreasonable.

FERC said the Natural Gas Policy Act gives it jurisdiction over sales for resale of gas by pipelines, local distribution companies, or their affiliates, but not over first sales of gas.

The commission proposed to collect data related to volumes and prices of sales including transportation rates, the daily operational capacity of pipelines to and inside the California market, the actual volumes flowing to and in California, and gas sales and transportation requirements of the local distribution companies.

The commission said it wants to know what percentage of gas moving into the California market is priced at the high spot market prices reported at the border.

Comments must be submitted within 30 days. Depending on those, the commission will determine whether to proceed with the reporting requirement.