Aggregation of small retail natural gas customers is still alivein California, but barely. And it’s future is dim in the wake ofnew state legislation (AB 1421) passed earlier this month and nowon the governor’s desk. The legislation restricts unbundling in theretail core gas markets (see Daily GPI, Sept. 13).

Marketers have been complaining that the state’s two major gasutilities, Southern California Gas Co. and Pacific Gas and ElectricCo., are behind the legislation and have undercut aggregation. Theutilities nevertheless point to a steady increase in the past 18months of the total number of customers opting for the program andthe number of registered marketers that now stands at about 15 or16. Current volumes aggregated represent 5-6% of the state’s totalcore (residential and small business) load, with the vast majoritycoming from small businesses. For example, 20% of the eligible corenonresidential load is aggregated; compared with about 1% of theeligible residential volumes in PG&E’s utility service area inthe northern half of the state. The PG&E utility executiveoverseeing its core aggregation transportation (CAT) program, JerryMiller, said two new marketers with a emphasis on residentialcustomers have added most of the 6,000 new aggregated customers onPG&E’s gas system in the past six months.

Tom Solberg, an official with a group of public agencyaggregators that began California’s core gas aggregation program inthe late 1980s, is pessimistic about the future and skeptical ofthe two utilities’ motives. “Speaking for myself, not myassociations,” Solberg said, “Our attitude toward PG&E and theother utilities has changed significantly (toward the negative)over the past few weeks [when the latest piece of legislation wasbeing crafted].” He noted that his allies fighting the new statelaw will try to get to Gov. Davis before he signs the bill, butthey have little chance of getting him to veto the legislation.Other marketers indicated that they may seek new legislation nextyear to separate safety-sensitive services from others that couldmore easily be unbundled.

For the past two years, California has passed laws restrictinggas unbundling. The latest law assures that the state’s three majorinvestor-owned gas utilities continue to provide bundled servicefor core customers, except those who aggregate their loads under aneight-year-old program, for which the rules theoretically have beenrelaxed in recent years to allow any residential or small businesscustomer to participate. The new law prohibits the billing/meteringfrom being unbundled for core customers, unless they chooseaggregation.

For Texas-Ohio Energy, Inc., a privately held aggregator thathas been operating in California since the program began, the newlaw is not viewed as a problem because the firm is focused strictlyon commodity sales. Of more concern are “cross-subsidies” betweencore and noncore utility rates, said Texas-Ohio Energy’s SteveSnyder. “This summer, SoCalGas’ rates on both sides (core andnoncore) got more in tune with what we see in the real market,”Snyder said. “If you can’t make margin on the small customers, whyeven bother. They are a lot of work and a lot of administrativeexpense to manage.”

Among the marketers who responded to queries, including TXUEnergy Services, UtiliCorp Energy Solutions and PG&E EnergyServices, there is general agreement that core aggregation willcontinue, but mostly with a focus on the larger commercial andindustrial customers rather than homeowners. Most were not activelyagainst AB 1421’s passage, but they don’t like it.

“This could be called the union full-employment act,” saidGerard Worster, a manager with TXU’s San Francisco office.”Obviously we are disappointed in it, although it doesn’t hurt ourbusiness directly. We don’t think this is the way to makeunbundling or choice work in California, but the meter readers wereconcerned about automation eliminating the jobs and they weresuccessful in maintaining them. We’ve never really targeted theresidential side so this [new law] didn’t affect us thatmuch…..it kind of sends a signal that all unbundling is going tobe difficult. For us, it is just kind of a general disappointment.”

Marketers complain that the current system of burying almost allof the utility costs in the transportation rates of the utilitiesmakes it difficult to find significant savings for residentialcustomers. The law further “locks up” revenue cycle services forthe utilities, limiting the amount of credit for this service toaggregators who are the only nonutilities allowed to provide gasbilling services, unlike the electric business in California.

Nevertheless, the utilities maintain that they expect small butsteady growth of the retail core aggregation program in the monthsahead. “We’ve seen continued growth,” said PG&E’s Miller. “Itis not dramatic, but it is steady. We have a couple of marketers[ACN Energy and United Energy] serving the residential market in amass-market approach for the first time.

“I expect to see continued growth because I see peopleinnovating in new ways and testing this market in new ways. How farit is going to go, I don’t know. It is limited by the transactioncosts and by the efficiencies with which these organizations canbuy gas.”

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