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CA State Gas Buying Program Grows; Power Still Not Activated

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 contract.

"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 available."

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 institutional loads)."

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

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