Senator Feinstein Calls for End to Experimental Suspension
of Price Cap on Natural Gas Transportation Charges
February 28, 2001

Washington, DC – U.S. Senator Dianne Feinstein (D-Calif.) today urged the Federal Energy Regulatory Commission (FERC) to end an experimental suspension of the price cap on the cost of transporting natural gas to Southern California.

The suspension has contributed greatly to the California Energy Crisis, directly by leading to increased retail prices for natural gas and indirectly through the increase in production costs of electricity for natural gas-fired power plants.

In a letter to FERC Chairman Curtis Hebert, Senator Feinstein wrote: “Since the Federal Energy Regulatory Commission experimentally suspended a price cap on the cost of transporting natural gas to Southern California, the prices have increased exponentially – dramatically escalating the State’s electricity crisis. While the suspension of the cap was meant to last for two years, the experiment is clearly a failure, and I ask that you end it immediately.”

In February 2000, FERC issued Order 637, which suspended -- on a trial, two-year basis -- the cap on short-term prices for the transportation of natural gas. One result has been that retail prices for natural gas have increased greatly in Southern California – 400 percent higher than they were last year.

The retail price of natural gas includes: 1) the price of the commodity itself; and 2) the price to transport it from place to place.

Prior to the suspension of the cap, retail prices for natural gas in Southern California included approximately $4 per decatherm of natural gas, while transportation costs were capped at 67 cents per decatherm. After the suspension, prices for the commodity increased slightly to about $4.50 per decatherm, while transportation costs increased to $17 per decatherm. And in the middle of December, prices for the commodity increased to $10 per decatherm, while transportation costs skyrocketed to $50 per decatherm.

A decatherm is the equivalent of 1 million British Thermal Units (BTUs), or about 1,000 cubic feet of natural gas.

A copy of Senator Feinstein’s letter is available upon request.