California’s two largest natural gas utilities are maneuveringin both the regulatory and market arenas to provide more optionsfor customers, gearing up for a statewide overhaul of the gasindustry by the end of this year. They are trying to avoid some ofthe difficulties of their electric counterparts who are in themidst of a separate market transformation of their own.

Southern California Gas, the nation’s largest gas distributor,and Pacific Gas and Electric, the giant combination utility basedin San Francisco, collectively supply gas to nearly all of thestate’s population except for San Diego County. They are convincedthe now-separate natural gas and electric changes will beconverging in the immediate years ahead and are already preparingto protect their market share.

SoCalGas has obtained CPUC approval for offering flexible ratesto the bulk of its customers, so-called “core” accounts thatinclude millions of residential and small business customers, alongwith about 60,000 medium-size commercial/industrial customers.Under the “Core Price Flexibility Program,” SoCal can cut a dealwith a customer or an aggregator representing blocs of smallcustomers and get the contract approved by the CPUC on an expeditedbasis.

This new program obviously gives the large gas-only utility theability to counter marketers and other suppliers who eventuallywill be able to offer gas deals or gas/electric deals to SoCal’s4.7 million customers. This is similar to the situation that hasexisted for a number of years for a few thousand of the largestindustrial customers in the state, the “noncore” accounts.

The five-member CPUC has approved a settlement among SoCalGas,the CPUC Office of Ratepayer Advocates and a utility consumerwatchdog group, TURN (The Utility Reform Network), permitting thegas utility to offer special deals on unbundling of services asmore real competition comes to natural gas in California toparallel similar opening up of electricity markets.

A SoCal marketing executive said the initial focus will be toprovide “optional tariffs” that encourage customers to re-activateidled equipment, such as residential pool heaters and standby gasengines, or to invest in emerging technologies, such as gas-poweredair compression, refrigeration and water pumping, all of which canbe significant energy loads among some California-based industries.

“[The new program] gives us an ability we have not had before tonegotiate rates and provide discounts to core customers, similar tothe pricing flexibility we have with noncore customers,” the SoCalofficial indicated, adding that the utility hopes to gain CPUCapprovals for these new contracts in a matter of days rather thanmonths.

“This will significantly strengthen our ability to compete inthe core market and to capitalize on marketing opportunitiesquickly.” The gas utility characterizes its new rate program assimilar to the additional rate choices electric utilities will beoffering customers under the statewide restructuring that isscheduled to get under way by the end of March. Although the newprogram is not as broad as a “rate indexing” proposal SoCalGasaggressively pursued unsuccessfully last year, it will still offermore opportunities to beat back future competition than the utilitypossessed in the past.

In the northern half of the state, PG&ampE is concentrating onoffering more options to its 80 to 100 largest transporters ofgas-marketers, other utilities and large, multi-plant industrialoperators who collectively ship a major portion of the 2.8 Bcf/d ofnatural gas that PG&ampE moves from interstate suppliers at theArizona and Oregon borders. Since March 1, these customers have abigger array of choices on how to get their gas shipped, stored anddelivered to the ultimate end-use points within California.

Like SoCalGas with its rate flexibility program, PG&ampEenvisions the almost three-year effort to unbundle transportationrates and services for its largest customers as a means ofstrengthening its competitive position while also stimulating moreretail gas competition in the so-called “core aggregationprograms,” for which there has been an increase in marketerinterest, according to PG&ampE.

With provisions in the Gas Accord designed to simplify theaggregation program, the number of “transport agents” (marketersaggregating small business and residential customer loads) hasgrown from four to almost a dozen, and there will be 15 operatinglater this year, a PG&ampE spokesperson said.

Last week’s start-up represented the completion of a massive,18-month computer technology upgrade effort by PG&ampE andadjustments by its customers that are akin to the challenges nowbeing faced by the two state-chartered not-for-profit organizationsin the new California electric industry. Inability to fullyintegrate very complex computer software systems forced thepostponement of the start-up of the electric industry’s independentgrid operator (ISO) and the wholesale spot market or power exchange(PX) late last year.

Following last week’s start-up of the new gas systems, PG&ampE’sgas accord implementation manager Judi Mosley said both the utilityand some its customers are “still on the front end of the learningcurve,” but generally she said the transition so far has beensmoother than it was for some interstate pipelines integrating thefederal Gas Industry Standards Board requirements last year (pleasesee related story p.10). “Frankly, I was expecting more chaos thanwe have gotten in switching to the new [Gas Accord] system,” Mosleysaid. “I’m not saying it has all been easy, but I am saying ithasn’t been as bad as I thought it would be.”

Richard Nemec, Los Angeles

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