California's Struggling Retailers Look to Legislature

Lost in the higher profile aspects of California's chronic page-one headlines surrounding its energy crisis is the state legislature's inclusion of a ban on retail direct access power deals, dealing the few remaining nonutility power retailers what could be a death blow unless a corrective legislative solution is found. That corrective action was pursued last week when the head of the state Senate energy committee, state Sen. Debra Bowen, proposed to reinstitute retail energy sales (SB 27X) as part of the measures being tossed around in the second month of a special state legislative session called by the governor to address the emergency.

The two firms most fully engaged in the retail energy business in California, once the focus of the state's electricity deregulation efforts going back to 1996, expressed hope Friday they can eventually recover if Sen. Bowen's bill prevails. If it does, they think it will probably come before the end of this month.

"We're waiting to see what the state does about direct access, and we're hoping it will be fair and tack on debt service and other costs to the electricity portion of consumer bills," said Roy Reeves, marketing vice president for Commonwealth Energy Corp, Tustin, CA, the state's largest energy service provider (ESP), and a major player under another brand in Pennsylvania and prospectively New Jersey and Texas, too. "If that is the case, we feel fairly confident that we can compete with the utilities or the state and provide energy to our customers at a lower cost."

If the commodity charge is made a straight pass-through for the customers, it will leave California ESPs in the same position they have been in for the past three years. "If that happens, then we're pretty much dead," said Reeves, noting however that Commonwealth intends to stay in the energy sector in other areas, such as selling a business-to-business Internet-based customer billing system it has developed and in the distributed generation business, which is getting a big boost in California from the state in light of the looming shortages this summer.

Rick Counihan, California public affairs director for Green Mountain Energy, said the retail market is not a top priority among legislators right now, but it is in the mix of things that will be taken up in the next two weeks. In the meantime, Green Mountain has returned more than 80% of its customers-about 50,000-to their utilities and kept 8,000 customers who were on fixed-price contracts independent of the energy credit offered to the other customers through the state-run California Power Exchange, which is in the process of going out of business.

"I think there is enough support behind (legislation) with a clear commitment," Counihan said. "I think it will be resolved in the next two weeks."

Commonwealth has retained most of its 70,000 customers in California because they for the past 18 months have been on fixed-price (5% below market) long-term contracts. "We were able to sign long-term wholesale power contracts and have been able to still supply energy to all of our customers," Reeves said.

In San Diego following last summer's price spikes and the reaction of re-capping retail rates, Commonwealth's customers returned to San Diego Gas and Electric Co., but the ESP has more than made up for those losses with additional customers bailing out of PG&E in northern California, said Reeves, noting that he couldn't blame the San Diego consumers since Commonwealth wasn't part of the state legislative-mandated 6.5 cents/kWh retail price cap.

Like his colleague at Green Mountain, Reeves said he is hopeful a legislative solution will salvage a retail energy market in the state, noting that Commonwealth has been the "lone survivor" in California. "We're really the only ESP of significance still doing business here."

For the few remaining ESPs the "immediate priority," Green Mountain's Counihan said, is getting the recently imposed prohibition lifted. "If that doesn't get done, everything else doesn't matter," he said, noting that what is really needed is a commitment by the state political leaders to fostering a viable retail market.

"A 'home run' would be the state recognizing the value of having a lot of retailers separate from the distribution function of maintaining the poles and wires," Counihan said.

Richard Nemec, Los Angeles

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