CA State Gas Buying Program Grows; Power Still Not Activated
California's $45 million state-administered group natural gas
purchasing program for major state facilities is growing and
flourishing, while a newer electricity buying program, although
established, is not operating because of insufficient potential
savings, according to the prime administrator for both programs in
the California General Services Department (GSD), who spoke at an
industry meeting last week outside Los Angeles.
Ultimately, one solution for major California public sector
facilities with multi-million-dollar annual energy bills may be to
combine the 13-year-old statewide gas buying program with the use
of distributed electricity generation, said Doug Grandy, chief of
the state GSD's energy assessments section. California last year
bought 150 million therms of gas for 119 state, local and higher
education facilities, equating to $2 million in collective savings.
At the halfway point of the program this fiscal year, savings
already are close to the same level., said Grandy, noting the
program is re-bid annually and Sempra Energy has the current
"We're moving no kilowatt-hours right now-zero," he said. "The
margins are very, very thin. There is not a lot of money to be
made. If agencies can't save money off it, why go to the trouble to
set it (bulk buying) up?
"You can shift a lot of your costs from electricity to gas if
you go with distributed generation," Grandy told a group of
facilities managers from large public sector institutions and
energy service providers attending an "energy information exchange"
sponsored by Southern California Gas Co.'s Energy Resource Center
and the Federal Energy Management Program. "The gas market can be
volatile, too, so that is why we have risk management instruments
because they help flatten out the peaks. Electricity is just
getting started so there aren't the same hedging mechanisms
Grandy said that more important than the dollar savings the
state is realizing through its bulk purchasing program are the risk
management services and the ability to obtain "predictable prices"
for the facility operators. In two more years, when California's
major investor-owned utilities pay off their stranded costs and
unfreeze their rates, electricity price uncertainty will become a
major issue for large facility operators.
At that point, Grandy said, the state may actually begin buying
electricity in bulk through one of the certified energy service
providers (ESPs) it has on its bidding list.
"There are structural flaws in the market right now that make it
very difficult for ESPs to do business. Those on our list, such as
Enron, we're looking at capturing market share originally, but
they are not having a very good time right now. We need to have a
new marketplace with retail level competition. Then, I think, a
whole new industry will blossom (with the ESPs serving the large
When bulk buying for power is added to the gas purchases, Grandy
said, the same agencies now participating in the gas program should
be their to pool their electricity needs, too. He expects the same
mix now getting their gas this way.
Richard Nemec, Los Angeles