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California Restricts Retail Unbundling

California Restricts Retail Unbundling

California legislators have bowed to industry pressure and extended the state's ban on natural gas unbundling for residential and small business customers. The new legislation (AB 1421) was passed in a late night session in the waning days of the current legislative session and will maintain the utilities' role as the almost exclusive provider for small customers.

The governor is expected to sign the bill, which follows on a similar hold on retail sales passed last year that expires Jan. 1, 2000. There is no expiration date of the new legislation which bans choice for all but aggregations of small customers.

"We supported the bill," said a PG&E utility spokesperson. "A key element for us was that the bill provides that [we] shall continue to provide services to core customers (revenue cycle and after-meter services). There are obvious safety considerations in those services, and we wanted to be able to continue to provide them to our core customers."

An attorney for TURN (The Utility Reform Network) said although the group had been listed as opposed to the legislation, "we aren't unhappy by the final outcome. The bottom line is that we support having a cost-based gas provider of the commodity and related services. So AB 1421 as passed we don't see as a terrible thing," said Marcel Hawiger.

TURN is concerned about the recovery of stranded costs and the fact that the collection of those costs always falls on the ratepayers. "The CPUC has been reluctant to shift any of those costs onto the utility shareholders. So unless there is some solution to the stranded cost problem, we don't recommend unbundling for core retail services."

Hawiger said he was unsure that unbundling would produce lower gas rates for small retail customers. "The existing core aggregation program has not shown that there are actually lower rates or savings from unbundling on the core side," Hawiger said.

In the natural gas restructuring proceedings, TURN has supported looking at unbundling the billing function for gas customers. It supported getting more information on the issue before making a final decision. The new legislation, according to TURN, does not affect the push to unbundle interstate core gas supplies, and it has supported unbundling in that area because it would result in savings to residential customers.

The new law is designed to ensure that the state's major investor-owned gas utilities continue to provide bundled service for core customers, except those who aggregate their loads under the state's eight-year-old program, for which the rules have been relaxed in recent years to allow any residential or small business customer to participate. So far, less than 10% of the customers have participated.

The new law prohibits the billing/metering from being unbundled for core customers, unless they choose aggregation. However, even for those who choose an alternative, the law lessens the credit customers can receive from the utility and prohibits the after-meter services, which are viewed as safety-sensitive, being provided by anyone other than the utility.

California's lawmakers-prompted by the utilities and the labor unions representing gas utility employees-have expressed concerns about natural gas unbundling going as far as it has in the electricity sector. Thus, the new law aims at assuring that "no customer should have to pay separate fees for utilizing services that protect public or customer safety." With gas, those services are viewed broadly to include a range of "basic services" from transmission/storage through after-meter services of leak detection, pilot relighting, carbon monoxide investigations and even high-bill investigations (assuming that a lot of them are related to unidentified leaks).

Observers think the new law is basically consistent with actions earlier in the summer by the California Public Utilities Commission that are now being worked out in settlement discussions among the state's major gas industry participants. Those talks focus on the Southern California Gas and Pacific Gas and Electric transmission and storage systems, mostly as they relate to large commercial and industrial customers and core aggregators. The new law is mainly concerned with small customers.

Richard Nemec, Los Angeles

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