BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA

Rulemaking on the Commission’s Own Motion to Assess and Revise the Regulatory Structure Governing California’s Natural Gas Industry	

R.98-01-011	

JOINT COMMENTS OF THE
COALITION OF CALIFORNIA UTILITY EMPLOYEES
AND THE
SOUTHERN CALIFORNIA GAS WORKERS COUNCIL
IN RESPONSE TO THE COMMISSION’S
ORDER INSTITUTING RULEMAKING

	The Coalition of California Utility Employees (“CUE”) and the Southern California Gas Workers Council offer the following joint comments on the Strategies for Natural Gas Reform, (“Green Book”) prepared by the Division of Strategic Planning (“DSP”). 
I.	INTRODUCTION AND SUMMARY

The “Green Book” is a deeply flawed set of proposals to solve problems which either do not exist or do not merit the proposed solutions.  It proposes changes in regulation for which there is no need, desire, or benefit to be gained.  Many of the actions proposed in the Green Book are either already in existence (e.g., customer choice in gas procurement, incentive ratemaking via PBRs) or in process (e.g., unbundling of intrastate gas transmission pricing 

under the PG&E Gas Accord), and as such are not controversial.  These comments will not dwell on those proposals.  However, the major upheavals proposed by the Green Book for the gas market structure, such as abolishing the core gas procurement function for local distribution companies (LDCs) and prohibiting LDCs from providing bundled core gas service, are unjustified, poorly considered and reckless.  
•	The Green Book admits that gas rates are not high, but its proposals could raise gas rates.  
•	The Green Book reports that electric rates are high, but does not report that its proposals could raise electric rates.  
•	The Green Book recognizes that storage is important to ensure supply reliability, but does not recognize that unbundling storage for core customers could reduce reliability.  
•	The Green Book documents the dangers of natural gas, but does not mention the inevitable explosions, fires and personal injuries that will result if after-meter services are unbundled and some customers, especially low income customers, decide to attempt activities that specially trained utility employees now perform.
•	The Green Book concedes that customers may want the LDC to procure their gas, yet inexplicably recommends prohibiting customers from exercising that choice.  
•	
The Commission has struggled for four years to address the stranded costs from electric restructuring, yet the Green Book does not propose any mechanisms to address the stranded costs of gas restructuring.  
•	Most distressing to us, the Green fails to even mention, much less analyze, the effect of its proposals on the thousands of utility employees whose lives would be disrupted.
II.	VERTICAL SEPARATION OF CURRENT LDC ROLES COULD INCREASE COMMODITY SUPPLY COSTS

The Green Book acknowledges that “high rates and technology are not driving the need for gas reform.”  Gas procurement competition has been in existence for years in both the noncore market (where it is the rule) and the core market (where it has remained the exception).  Both markets now benefit from PG&E’s buying power.  Even where core customers rely on the LDC for procurement, the Commission effectively requires that procurement practices reflect competitive pricing.  Not only are high gas supply costs not a problem which needs fixing, the market structure changes proposed by DSP may actually raise gas commodity costs.
A.	
Increased core costs because of loss of buyer advantages

Currently, Canadian gas costs less delivered to California than Southwest U.S.  gas, as the Green Book acknowledges at several points. Such a price differential can exist because the relatively few California 
buyers and relatively large number of Canadian sellers mean that Canadian gas sales currently occur in a buyers’ market.  But forcing LDCs out of the gas procurement function and replacing them with multiple new entrants would diminish and probably eliminate the current buyers’ market.  New entrants into the Canadian gas procurement market would pay a premium for “low-cost” Canadian supply, driving its delivered price up towards that of Southwest supplies.  As the Green Book itself concedes, “the often-large differential between [Canadian and Southwest gas prices] will provide a powerful incentive for retail service providers to compete with higher-priced Southwest gas at the California border.  Keeping the utility in the procurement function will mitigate this behavior.” 
If California customers have to pay competitive market prices for Canadian gas, they will be paying significantly more than at present.  The 

Green Book acknowledges the importance of ensuring that “the benefits to Northern California consumers of PG&E buying – and more importantly, pricing – gas supplies in the Canadian basin, are not lost.”  But banning PG&E from the commodity procurement business would have precisely that effect – increased commodity costs for Northern California consumers.
The Green Book implies that the current buyers market for Canadian gas can somehow be maintained after eliminating the largest single buyer, calling for the Commission to “establish a framework that ensures lower Canadian prices continue to be reflected at the end-user level,” perhaps an Independent Procurement Agent (“IPA”) that would assure its customers that “the price they pay for Canadian gas reflects producer competition in the basin, and not competition with often higher-priced Southwest supplies at the California border.” 
It is hard to know where to start in cataloguing the problems with the Green Book’s suggestions for preserving the current low cost Canadian gas supplies.  On the one hand, it is hard to imagine what the Commission could do to intervene in a Canadian market with numerous new entrants vying to buy commodity gas for delivery to California, with resultant upward pressure on Canadian gas prices.  On the other hand, suppose the Commission could successfully intervene in the Canadian gas commodity market to preserve the 
current buyers’ market.  Then what?  If we assume that electric market analogue holds, there is no direct linkage between the prices marketers pay to acquire commodity gas and the price at which they can resell that commodity gas to retail customers in California.  The DSP’s term “framework” is clearly a code word for market intervention to prevent commodity procurers from charging what the California market will bear.  The Commission can and does require PG&E to pass through Canadian gas procurement costs without regard to California market conditions.  Is DSP seriously suggesting that the Commission impose the same requirement on “unregulated” marketers?  Even if the Commission tried to regulate the price at which marketers could sell commodity gas, how would it do so?  Would the Commission require every marketer to disclose both its gas acquisition costs and its selling prices, in order to determine if commodity prices were being marked to market unfairly?  What would the definition of “unfair” be?
The DSP tries to avoid the obvious pitfalls of allowing unregulated marketers to be the sole purchasers and resellers of Canadian gas by suggesting an IPA.  The IPA would replace a large regulated buyer subject to performance incentives and required to perform the commodity procurement function on a non-profit basis (PG&E) with a  large non-profit government corporation similarly operated.  What is the point of that?  Nationalization is not competition.  The Green Book effectively rejects its own idea of an IPA: 

“the IPA is an untested framework.  The source and amount of funds to establish and operate an IPA are unknown; in any case, those costs would be an additional procurement cost for those customers who elect to remain with an IPA.  Finally, and perhaps most important, the IPA framework does not provide accountability for failure or an economic incentive to operate efficiently.”

In short, banning PG&E from the commodity procurement business risks the loss of low-cost Canadian gas supplies.   Mandating customer procurement from unregulated marketers risks retail price equilibrium between Canadian and Southwest gas prices even if the new marketers are still getting Canadian gas at lower prices than Southwest prices.  An IPA will not solve the problem.  The Commission should not tamper with the existing gas procurement mechanisms, which are functioning to the benefit of all Californians.  It would be a sad, and costly, legacy if gas reform meant sending millions of extra dollars from California to Canada.
B.	Increased core costs because of the need for profits for deregulated commodity procurers

Under current regulation, gas LDC procurement costs are passed directly through to customers.  Except to the extent authorized by the Commission through incentive mechanisms, reductions in procurement costs flow to ratepayers, not to shareholders.  However, deregulated commodity procurers would expect to make a profit, not just flow their costs through to their retail customers.  It is thus possible that core costs would increase throughout California (not just for PG&E, for the Canada-related reasons discussed above) if the DSP’s proposal to divest the LDC’s of their procurement function were adopted.  Indeed, the Green Book concedes that “the Commission has generally been successful in ensuring utility procurement practices reflect competitive pricing.  Current market-driven utility commodity purchasing practices may therefore leave little room for potential profit.”  Turning over the procurement market to entities which cannot make an adequate profit at current prices will simply lead to higher prices.
C.	Increased noncore costs from losing the benefit of the buyer’s market for core procurement

The Canadian pricing issue discussed above applies to noncore prices as well.  To the extent PG&E’s purchasing power has held down Canadian gas prices to non-PG&E buyers as well, noncore customers have benefited along with core customers.  Eliminating PG&E as an oligopsony buyer of Canadian gas will eliminate any free rider benefits which have been accruing to noncore purchasers of Canadian gas.  This would raise prices for noncore customers.
One immediate impact of increased Canadian gas prices to noncore customers would be that, after four years of effort to restructure the electric 
market to lower electric prices, the Commission would undermine that effort by increasing fuel costs to precisely those electric generators that will often set the market clearing price for electricity.  In short, gas reform would raise electric prices.  A more perverse impact of the DSP proposal is hard to imagine.
III.	THE DE FACTO ABOLITION OF THE CORE CATEGORY WOULD IMPERIL RESIDENTIAL SERVICE RELIABILITY

The DSP proposes to unbundle various services which are currently bundled together as part of core gas service.  DSP proposes to unbundle and supply competitively storage, commodity, and transportation services.  Since the key difference between core and noncore service is the bundled nature of core service, DSP’s proposal would de facto abolish the core category.  “Core” customers would be as free as noncore customers to purchase different quantities of different services, with differing costs and differing levels of service reliability.  We assume that the right to choose among competitive suppliers of unbundled services includes the right to not choose a service at all, or to choose a supplier who offers a very low level of a given service.  DSP suggests that new gas suppliers will compete for who can offer the most reliability to their retail customers, and will want 
storage.  But the converse will also occur, and probably more often.  Suppliers will compete for customers on the basis of price, and one way they will get low prices is by reducing the amount of storage they use, with the resulting decrease in the reliability of supply, compared to current core service.  If core customers can choose not to purchase reliability (e.g.  storage, peak day deliverability, etc.), then they will be in the same position as noncore customers, for whom reliability is something to be bought, not an automatic right.
	Noncore customers currently are large, presumably sophisticated customers, who can consciously enter into tradeoffs between price and reliability of supply (particularly peak-day supply).  There is absolutely no reason to expect the same of core customers.  For many customers, price will be the driving issue, and they will choose the certainty of lower price over the risk of impaired service reliability.
IV.	UNBUNDLING SAFETY SERVICES WILL DECREASE THE DEMAND FOR THEM AS CUSTOMERS CHOOSE TO SAVE MONEY BY NOT PURCHASING PREVIOUSLY BUNDLED SERVICES
 
In general, if people think they don’t need something or can’t afford it, they choose not to buy it.  The previous section discussed how unbundling reliability-related services such as storage will lead core customers to try to 
do without them in order to save money.  The same is true of various safety-related services the DSP proposes to unbundle.  In addition, suppliers of safety-related services will have financial incentives to supply inferior products, incentives which were absent in the regulated world.  Unbundling would reduce safety, inevitably leading to explosions, fires and personal injury.
A.	Core safety-related services such as appliance checks and pilot light turn-on

The DSP identifies a variety of after-meter services that it apparently considers to be candidates for unbundling.  It then cautions that “utility employees are specially trained to maintain the integrity of the physical distribution systems and to promote consumer safety” and that “safety-related issues such as alternate provider qualifications, standards, licensing, liability and enforcement must be considered,” but denies that safety-related issues “should be an impediment to unbundling these services and subjecting them to competitive pressures.”  The DSP has ignored the basic economic reality that, unless the current LDC practices are grossly imprudent, the cost of “alternate provider qualifications, standards, licensing, liability and enforcement” could easily overwhelm any savings from competition.  

Even more importantly, the DSP ignores the reality that the most likely substitute for bundled utility after-metering services is not an alternative supplier but no supplier at all.  If people have to pay for a service which was formerly free (on the margin, since it was part of bundled service), they will consume less of it.  People will re-light their own pilot lights rather than pay someone to re-light, whether the LDC or a third party.   They will no longer use the LDC or anyone else’s appliance inspection service once they have to pay extra for that service when they use it.   Unless the Commission intends to forbid customers from performing after-meter services themselves (and even if it tried to, how could it enforce the ban), it is sure that pricing formerly bundled services will lead some customers to try to perform those services for themselves, or do without them completely, with consequent risks for safety.   
The only question is how many explosions, fires and personal injuries would result.
B.	Potential safety issues associated with competitive, unregulated suppliers of storage

	On the supplier side, there are also safety problems associated with unbundling.  Safety risks apply not only to non-utility providers of after-meter services, but also to storage services.  Large natural gas compressors pump gas to storage fields at pressures up to 4,000 psig.  Without extensive preventive maintenance programs and highly trained employees to maintain and operate the storage facilities, the risk of major equipment failure and other catastrophic events would be greatly increased.  Unbundling storage means that there will be economic pressures on storage providers to cut costs, even if that means increasing risks.
V.	ABOLISHING THE CORE PROCUREMENT ROLE FOR THE LDC IS FUNDAMENTALLY WRONG

The DSP’s favored market structure option calls for electric generation divestiture and the elimination of the core procurement function.  The Commission has already faced the issue of divestiture in both its electric restructuring and Enova-Pacific Enterprises merger proceedings, and does not need to order any further divestiture beyond that already under way.  The comments above have already discussed how abolishing the procurement role would tend to increase costs for core and noncore customers.  More generally, abolishing the LDC’s core procurement role is neither desired by customers, consistent with providing customer choice, consistent with the Commission’s decisions on electric restructuring, or likely to save customers any money.
A.	Abolishing LDC core procurement is not desired by core customers

Core customers already have the option, through the core aggregation program, of having their procurement performed by someone other than the LDC.  The fact that over 90 percent of them have declined that option is strong evidence that the great majority of customers are content with the current system.  There is simply none of the groundswell of demand for alternate providers which the Commission professed to hear in the electric sector.  Indeed, even if there were such a groundswell, that would still not be evidence that customers wanted to be precluded from choosing the LDCs for procurement.
B.	Abolishing LDC core procurement is not consistent with providing choice to customers

As the Green Book itself acknowledges, “not all gas customers will wish to receive their gas service from competing non-utility suppliers.… [E]liminating the regulated utility procurement function essentially removes a potentially important choice from the array of consumer options.”  In fact, it’s worse than that.  The LDC is not a “potentially” important choice for procurement services; it is the actual choice of over 90 percent of current customers.  Based on results among small customers in the electric market, the LDCs are likely to remain the preferred choice of the great majority of core customers, if that choice is available to them.  Why should customers be prohibited from choosing to continue with their current commodity provider?  For a Commission marching to the drumbeat of customer choice to seriously consider such a draconian anti-choice decree is astonishing.
C.	Abolishing LDC core procurement is not consistent with electric restructuring

In the electricity market, the Legislature and Commission have realized that many customers will wish to stay with their current service provider.  Electric UDCs are not only allowed, but required to continue to procure supplies for those customers who want their supplies bundled with UDC distribution services.  Moreover, electric UDCs are allowed to have unregulated affiliates in the electricity marketing business.  If electric UDCs can have unregulated affiliates engaged in procurement, it would be completely inconsistent to ban gas LDC’s from procurement, even on a regulated basis.
D.	Abolishing LDC core procurement is not likely to save customers any money

As the Green Book acknowledges, the Commission already has market-based incentives for the LDC’s to operate their procurement function efficiently, and those incentives function well.  In addition, the Commission requires the LDC’s to pass through their gas procurement costs to ratepayers directly, with no markup to reflect market conditions or customers’ willingness to pay.   For ratepayers to save any money from non-LDC core procurement, new entrants into the procurement market would have to buy gas more cheaply (in the aggregate) than the LDCs, and they would have to pass those lower purchase costs through to customers rather than retaining them as profits.  There is no evidence before the Commission that either would occur.  On the contrary, the failure of core aggregators to obtain lower purchase costs than the LDCs shows this is not likely to occur.
VI.	UNBUNDLING CORE GAS SERVICES WILL RESULT IN EITHER STRANDED COSTS OR UNECONOMIC BYPASS

When electric deregulation was first proposed, the Commission was cognizant that deregulation would lead to stranded costs, and directly addressed the issue of stranded cost recovery.  Customers who believed early electric marketer claims of 30 percent rate reductions eventually learned that those claims could only be true if stranded costs were evaded.  Gas unbundling will lead to a similar dilemma: either unbundled prices will be set competitively and stranded costs will result, or they will be set uncompetitively and uneconomic bypass will result.
Unbundled services can be priced on either a marginal cost (“MC”) basis or an average cost (“AC”) basis.  AC will usually exceed MC (and will always exceed the short-run MC) because sunk capital costs are part of AC but are not part of MC.  If the Commission requires LDCs to price unbundled services on an average cost basis (e.g., based on “fully allocated” costs), then competitors whose costs are greater than the LDC’s MC, but less than its AC, will be able to engage in uneconomic bypass, raising total system costs as well as shifting costs onto remaining LDC customers.  Inaccurate price signals, different from those in a truly competitive market, will be 
established.  As customers desert the LDC’s regulated AC prices to buy at competitor’s lower prices, the AC for remaining customers will rise, tending to create a “death spiral” for the service priced at AC.
The DSP argues that the Commission should not mandate AC pricing by the LDCs for unbundled services, but allow competitive pricing.  Well-established economic theory holds that the resulting prices will equilibrate at MC.  But pricing at MC will not recover sunk costs when MC < AC, so pricing at MC will automatically result in stranded costs.  
For the particular case of core procurement services, which the DSP does not propose to let the LDC’s sell at any price, there will also be stranded costs.  The full cost (i.e., AC) of core procurement would be removed from LDC rates, but only the marginal cost (MC) would be eliminated from LDC costs.  Thus, once again, there would be stranded costs equal to the difference between MC and AC.  
This should be no surprise to the Commission, given its four year struggle with stranded costs from electric restructuring.  Yet the Green Book contains no provisions for addressing its creation of a whole new class of stranded assets in the gas sector.  This omission again demonstrates that DSP’s proposals are not ready for serious consideration.
VII.	
IMPLEMENTATION OF THE GREEN BOOK WOULD BE FRAUGHT WITH PROBLEMS 

Electric restructuring shows that implementation of deregulation raises endless problems even after the broad outlines have been decided.  Gas restructuring along the lines proposed by the DSP would be no exception.  Many of the measures proposed by the DSP might be impossible to actually implement, or sufficiently complex and/or expensive as not to be worth the trouble.  Just as no one in 1994 could have anticipated the full range of implementation issues that would arise in the electric sector, so we cannot now foresee all the possible problems with gas restructuring.  What follows is a very short list of some problems we foresee already.  Many of these problems are at least alluded to in the Green Book, but identifying a problem does not make it go away, nor does it mean that the problem should be ignored and one should go forward anyway.  Sometimes, the existence of serious implementation problems is a sign that one should be doing something else.
A.	Lack of meters makes much of core unbundling meaningless or worse.

The Green Book proposes that balancing should be done on a daily basis, and priced on an unbundled basis, so that “shippers whose delivery and usage match should not have to pay for the load balancing flexibility they do not need.”  But this idea is meaningless in the context of a core market 
where metering is done on a monthly basis.  How is a shipper supposed to know if its delivery and usage match on a daily basis if its customers’ usage is only measured monthly?  The Commission will be back to the world of load profiling that has been so contentious on the electric side, and presents such enormous opportunities for cherry-picking and anti-conservation incentives.  
	Alternatively, the Green Book suggests that the lack of time-of-use gas meters can be dealt with by “establish[ing] a timetable for implementation” of TOU meter installation.  Yet in the next paragraph, the Green Book implicitly concedes that such meters would not be worth their cost to small customers, stating that for “smaller customers, there do not appear to be advantages, however, to pricing natural gas in smaller increments than either the seasonal or monthly increments as it is currently done.”  So small customers would apparently use load profiling indefinitely, and their daily “usage” that decides the level of imbalance charges faced by their shipper(s) would be a calculated rather than metered value.  The Commission should look forward to extensive load profiling litigation if it goes down this path.
	As with balancing, so with storage.  Metering to bill residential customers for their use of storage does not exist.  Peak day use is not measured at the residential level for gas, any more than real-time electricity consumption.  The whole debate over real-time metering for small customers 

would have to be fought again in the gas sector.  But if peak day use is not measured, how are customers or their new non-LDC commodity suppliers to be billed for storage?  Load profiles again?
	More generically, any hub service that is unbundled will need to be rebundled before it can be sold to customers who only have monthly metering.  For most core customers, no means exists to measure the quantity of any such unbundled service other than the monthly commodity quantity.  Unless all unbundled hub services are to be priced proportionally to metered commodity use (i.e., on a cents per monthly therm basis), there will be no metered basis for billing.  But there is no reason to believe price signals 
denominated in cents per monthly therm make any sense for unbundled services other than gas commodity supply itself.
	Finally, the Green Book suggests that, due to the existence of hourly variations in electricity prices after April 1, 1998, “hourly fluctuations in gas prices may evolve.”  This raises the specter of calls for hourly metering of gas use, not just daily metering, with yet further increases in metering costs for small customers.  Alternatively, commodity suppliers to customers who don’t have hourly metering will have to absorb the risks of intra-day price variation themselves, passing that risk on to their customers in the form of higher prices for those without the more specialized meters.  Either way, the development of gas markets on ever-shorter time scales does nothing for small core customers, except give them a chance to pay increased metering costs.
B.	Separating gas transmission and distribution would increase physical bypass incentives, increasing societal costs and shifting costs inappropriately

If the in-state backbone pipeline and storage facilities of the LDCs were no longer owned by the LDCs (as proposed in DSP market options 2 (Transco variation) and 4), then there would be an incentive for any customer located near the backbone system to interconnect directly to that system and no longer purchase anything from the LDC.  Such customers would thereby avoid all costs (including stranded costs) associated with the remaining LDC facilities.  But if customers bypass the gas LDC by interconnecting directly with an independent backbone transmission company, this would result in duplicative facilities (a dead loss to society as a whole), and would shift costs to remaining LDC customers.
C.	Lack of curtailability for core customers

Core customers who exercised their new rights to choose among unbundled services by not buying storage would theoretically be subject to peak day curtailment, but no physical means exists to implement such curtailment or verify that it has occurred.  The Green Book concedes as much.  But if core customers remain physically noncurtailable, they (and their suppliers) will have every reason to avoid paying for storage.    
	DSP might argue that core customers will be required to buy storage based on their imputed peak day requirements as calculated from load profiles.  Such a solution effectively rebundles storage back into the gas commodity, since the load profile would  mathematically link commodity usage to storage usage.
D.	Non-LDC core procurement: how does one get there?

The DSP acknowledges that implementing its Option 3 (ending LDC core procurement) could not be done by “eliminating the utility’s procurement service immediately.  Competition will not exist overnight.  There would be 
much work to be done.…”  But while doing that “work” implementing Option 3, the Commission would encounter problems that DSP barely alludes to.  For example, the DSP suggests that an HHI of .18 might be a quantitative measure of adequate competition in the core procurement product.  To have such an HHI, no single market participant can have more than a 42 percent market share, even if every other participant has a negligible share.  But if an LDC is allowed to compete to provide core procurement, and its market share while doing so has already fallen from the 

current 90+ percent to below 42 percent, then that is evidence that the market is already working and it makes no sense to then forbid the customers who still use the LDC for core procurement from doing so anymore.   
Alternatively, the DSP suggests a model based on telecom in which a “checklist” would be established of conditions that would have to be met before the LDC could be banned from the core procurement business.  If the LDCs really are the manipulative abusers of market power that Option 3 is designed to prevent them from being, a more perverse implementation methodology could hardly be imagined.  The LDCs would get to stay in the core procurement business (and according to the DSP, have both motive and opportunity to engage in various villainous behaviors) until a list of conditions had been met.  The LDCs would have every incentive to sabotage the successful achievement of those conditions.  On the other hand, since the conditions would presumably relate to fair and competitive markets, once they were met there would no longer be a need to ban the LDCs from the market!
VIII.	
A BLIND SPOT?

Four years ago, the Commission released its “Blue Book” proposing electric restructuring.  Not only did that proposal contain no consideration of the destructive effects of restructuring on thousands of utility employees, the 
word “employee” did not even appear in the Blue Book.  
CUE devoted dear resources to right this wrong. CUE’s proposal for employee-related transition costs was embraced by the Commission in its Policy Decision and codified by the Legislature in Public Utilities Code section 375.
Unionized utility employees also became crucial advocates for reliability, sometimes the only advocates.  Customers will benefit from the reliability provisions contained in Public Utilities Code sections 345, 346, 348, 360, 362, 363 and 364.  Customers will also benefit from the Commission’s General Order 165 which for the first time imposes specific requirements to inspect and maintain distribution facilities, and from standards for transmission system maintenance imposed by the ISO.  Edison’s customers will benefit from the incentives now incorporated into its 
PBR to reward Edison for improved reliability and penalize it for degraded reliability.  All customers will benefit as PBRs for other electric utilities follow the Edison model.

Regulatory actions to maintain reliability are required, but ultimately cannot succeed without the efforts of utility employees.  When back-to-back “100 year” storms wreaked havoc in Northern California in 1995, the public blamed cutbacks in utility employees for the extended outages.  Then, the 
Commission quickly saw that the public interest demanded adequate numbers of trained employees.  After the Northridge earthquake, hundreds of Edison employees worked without sleep through multiple shifts to restore vitally needed power to damaged areas.  During this year’s El Nino storms, extraordinary efforts by utility employees have brought praise from the public and the Commission.  Reliability does not just happen.  Utility employees make it happen.
The public sees this clearly.  Yet, the Green Book contains no acknowledgement that the proposed policies would put thousands more utility employees at risk of losing their jobs. 
Why are utility employees overlooked again?
Any valid analysis of potential reform of the natural gas industry demands consideration of the effect of various policies on utility employees.  Customers have invested millions of dollars in their training and the 

employees are, to some extent, a public resource.  The people who provide 
safe, reliable service are entitled to a place at the policy table alongside profit.  Rational analysis must balance the adverse economic impacts on the employees with the purported economic benefits of the new policy.  The Green Book, like the Blue Book, saw none of this.  
Myopia has no place in any color book.

Dated:  March 23, 1998

Carl Wood
Alex Ahumada
Southern California Gas Workers Council
600 S. New Hampshire
Los Angeles, CA 90005

David Marcus
P.O. Box 1287
Berkeley, CA  94701-1287
Consultant to CUE		
Respectfully submitted,

_________________________
Marc D. Joseph
Adams Broadwell & Joseph
651 Gateway Boulevard, Suite 900
South San Francisco, CA 94080
(650) 589-1660 Voice
(650) 589-5062 Facsimile
mdjoseph@adamsbroadwell.com

Attorneys for the Coalition of California Utility Employees	

TABLE OF CONTENTS
PAGE NO.

I.	INTRODUCTION AND SUMMARY	1

II.	VERTICAL SEPARATION OF CURRENT LDC ROLES COULD INCREASE COMMODITY SUPPLY COSTS	3

A.	Increased core costs because of loss of buyer advantages	4

B.	Increased core costs because of the need for profits for deregulated commodity procurers	7

   C.	Increased noncore costs from losing the benefit of the buyer’s market for core procurement	8

III.	THE DE FACTO ABOLITION OF THE CORE CATEGORY WOULD IMPERIL RESIDENTIAL SERVICE RELIABILITY	9

IV.	UNBUNDLING SAFETY SERVICES WILL DECREASE THE DEMAND FOR 	THEM AS CUSTOMERS CHOOSE TO SAVE MONEY BY NOT PURCHASING PREVIOUSLY BUNDLED SERVICES	10

A.	Core safety-related services such as appliance checks and 
	pilot light turn-on	11

B.	Potential safety issues associated with competitive, 
	unregulated suppliers of  storage	12

V.	ABOLISHING THE CORE PROCUREMENT ROLE FOR THE LDC IS FUNDAMENTALLY WRONG	13

A.	Abolishing LDC core procurement is not desired by core customers	13

B.	Abolishing LDC core procurement is not consistent with providing choice to customers	14

C.	Abolishing LDC core procurement is not consistent with 
	electric restructuring	15

D.	Abolishing LDC core procurement is not likely to save customers any money	15

VI.	UNBUNDLING CORE GAS SERVICES WILL RESULT IN EITHER STRANDED COSTS OR UNECONOMIC BYPASS	16

VII.	IMPLEMENTATION OF THE GREEN BOOK WOULD BE FRAUGHT WITH PROBLEMS	18

A.	Lack of meters makes much of core unbundling meaningless or worse.	18

B.	Separating gas transmission and distribution would increase physical bypass incentives, increasing societal costs and shifting costs inappropriately	21

C.	Lack of curtailability for core customers	21

D.	Non-LDC core procurement: how does one get there?	22

VIII.	A BLIND SPOT?	24