In November 1991 the California Public Utilities Commission (CPUC) shocked the government of Alberta and the province's natural gas producers when it attempted to impose a new set of trading arrangements on what had been a remarkably stable, mutually beneficial, and cooperatively regulated $1 billion (Canadian) a year producer-consumer relationship. The CPUC, responding to institutional and political pressure, sought to use its regulatory authority over gas distribution to force the giant investor-owned utility Pacific Gas and Electric (PG&E) to end its long-term trading arrangements with Alberta producers. The Commission was concerned that the existing arrangements between PG&E and the producers, dating back some 30 years, were an anachronistic regulatory leftover that forced California consumers to pay more for Alberta gas than market circumstances justified. The Alberta government, outraged at the unilateral action, retaliated by seeking to use its regulatory control over gas production to block the CPUC's efforts.
Given the monetary stakes and the issues involved, it is not surprising that the dispute between Alberta and the CPUC became the focus of extensive negotiations between producer and consumer representatives, extended discussions among federal, state, and provincial officials, highly rhetorical public posturing, and a great deal of political and economic brinkmanship. What was surprising was the willingness of government actors to intervene aggressively in the commercial relationship while loudly proclaiming their belief in and support for the "free" market. The outcome was a situation in which rhetoric diverged markedly from actions. This led to a complex mix of charge and countercharge, opposing interpretations, and conflicting regulations at odds with a publicly stated goal of creating a more open, competitive, and less regulated natural gas trade. From this vantage point the Alberta-California gas trade dispute presents something of a paradox. In other words, if both sides endorsed less intervention and free markets, why were they engaging in policies that produced the opposite?
The principal goal of this article is to explain this apparent paradox. Beyond this direct objective, the Alberta-California trade dispute offers an opportunity to explore a larger question: How can we interpret and explain the politics of deregulatory policymaking? Although deregulation can take many forms, it generally involves the restructuring of existing regulatory regimes to allow the market greater latitude to determine the terms of the producer-consumer relationship. Yet despite the complexity of the issues involved, deregulation, like all regulatory policy, is ultimately a political endeavor that entails making choices about the distribution of costs and benefits.
Twenty years after natural gas deregulation moved front and center onto the political agenda in the United States, the study of gas deregulatory policy has entered what might be described as its second generation. The first generation was directed largely at the perceived regulatory failure of U.S. gas policy (MacAvoy & Pindyck, 1975; Starratt, 1974), the struggle to produce the Natural Gas Policy Act (Nivola, 1980; Sanders, 1981; Tussing & Barlow, 1984), and the initial efforts of industry and government parties to adjust to fundamental regulatory change (Blaydon, 1987; Braeutigam & Hubbard, 1986; Snarr, 1991). The second generation of study has been concerned primarily with evaluating the lessons learned during the transition to more open and competitive markets and with predictions about the future of gas trade relationships (De Vany & Walls, 1995; Ellig & Kalt, 1996; Pierce, 1993).
An issue often overlooked in this new era of gas regulatory policy is the role and motivations of government actors. Drawing on the Alberta-California experience, this article directs attention to two considerations central …