California’s $45 million state-administered group natural gaspurchasing program for major state facilities is growing andflourishing, while a newer electricity buying program, althoughestablished, is not operating because of insufficient potentialsavings, according to the prime administrator for both programs inthe California General Services Department (GSD), who spoke at anindustry meeting last week outside Los Angeles.

Ultimately, one solution for major California public sectorfacilities with multi-million-dollar annual energy bills may be tocombine the 13-year-old statewide gas buying program with the useof distributed electricity generation, said Doug Grandy, chief ofthe state GSD’s energy assessments section. California last yearbought 150 million therms of gas for 119 state, local and highereducation facilities, equating to $2 million in collective savings.At the halfway point of the program this fiscal year, savingsalready are close to the same level., said Grandy, noting theprogram is re-bid annually and Sempra Energy has the currentcontract.

“We’re moving no kilowatt-hours right now-zero,” he said. “Themargins are very, very thin. There is not a lot of money to bemade. If agencies can’t save money off it, why go to the trouble toset it (bulk buying) up?

“You can shift a lot of your costs from electricity to gas ifyou go with distributed generation,” Grandy told a group offacilities managers from large public sector institutions andenergy service providers attending an “energy information exchange”sponsored by Southern California Gas Co.’s Energy Resource Centerand the Federal Energy Management Program. “The gas market can bevolatile, too, so that is why we have risk management instrumentsbecause they help flatten out the peaks. Electricity is justgetting started so there aren’t the same hedging mechanismsavailable.”

Grandy said that more important than the dollar savings thestate is realizing through its bulk purchasing program are the riskmanagement services and the ability to obtain “predictable prices”for the facility operators. In two more years, when California’smajor investor-owned utilities pay off their stranded costs andunfreeze their rates, electricity price uncertainty will become amajor issue for large facility operators.

At that point, Grandy said, the state may actually begin buyingelectricity in bulk through one of the certified energy serviceproviders (ESPs) it has on its bidding list.

“There are structural flaws in the market right now that make itvery difficult for ESPs to do business. Those on our list, such asEnron,we’re looking at capturing market share originally, butthey are not having a very good time right now. We need to have anew marketplace with retail level competition. Then, I think, awhole new industry will blossom (with the ESPs serving the largeinstitutional loads).”

When bulk buying for power is added to the gas purchases, Grandysaid, the same agencies now participating in the gas program shouldbe their to pool their electricity needs, too. He expects the samemix now getting their gas this way.

Richard Nemec, Los Angeles

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