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

Marketers have been complaining that the state’s two major gas utilities, Southern California Gas Co. and Pacific Gas and Electric Co., and the utilities’ unionized employees are behind the legislation and have undercut aggregation. Enron said flatly that the law’s primary purpose is “retaining market share for incumbent monopoly utilities.” There’s no doubt it will hurt the gas market in California, according to Enron.

“It has an incredible impact on the small commercial and residential gas market, so it is going to be very difficult, if not impossible, to compete in those areas,” said Gary Foster, a Houston-based Enron spokesperson. “While we aren’t currently marketing in those areas, we always want the possibility to do that.”

In addition, Enron said the law would do “absolutely nothing” to enhance safety and would force customers to pay utilities for services they do not receive.

When asked about the new legislation, the utilities pointed to the growth in their small-customer aggregation programs. PG&E said 6,000 new customers have been added to its program in the last six months. The utilities claim that current volumes aggregated represent 5-6% of the state’s total core (residential and small business) load, with the vast majority coming from small businesses. For example, 20% of the eligible core nonresidential load is aggregated; compared with about 1% of the eligible residential volumes in PG&E’s utility service area in the northern half of the state, according to one PG&E official.

The Energy Information Administration, however, said in a June report that as of May 1 only 3% to 4% of the core customers are participating which is a decline from the initial 5% participation level. California’s Core Aggregation Transportation program (CAT) is an optional service that allows core customers to purchase gas from the marketers who have met certain minimum aggregation levels. These levels are 250,000 therms per year (about 470 residential customers) in the San Diego Gas & Electric and Southern California Gas service areas or 120,000 therms per year in the Pacific Gas and Electric service area. Customers must sign a one-year agreement to purchase gas from a non-LDC supplier.

For the past two years, California has passed laws restricting gas unbundling. The latest law assures that the state’s three major investor-owned gas utilities continue to provide bundled service for core customers, except those who aggregate their loads. The legislation prohibits the billing/metering from being unbundled for core customers, unless they choose aggregation. However, even for those who choose an alternative supplier, the law lessens the credits customers can receive from the utility and prohibits after-the-meter services, which are viewed as safety-sensitive, from being provided by anyone other than the utility.

The legislation 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,” including transmission and storage, leak detection, pilot relighting, carbon monoxide investigations and even high-bill investigations (assuming that a lot of them are related to unidentified leaks).

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

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

Marketers complain that the current system of burying almost all of the utility costs in the transportation rates of the utilities makes it difficult to find significant savings for residential customers. The law further “locks up” revenue cycle services for the utilities, limiting the amount of credit for this service to aggregators who are the only nonutilities allowed to provide gas billing services, unlike the electric business in California.

Tom Solberg, an official with a group of public agency aggregators that began California’s core gas aggregation program in the late 1980s, is pessimistic about the future and skeptical of the two utilities’ motives. “Speaking for myself, not my associations,” Solberg said, “our attitude toward PG&E and the other utilities has changed significantly (toward the negative) over the past few weeks [when the latest piece of legislation was being crafted].” He noted that his allies fighting the new state law will try to get to Gov. Davis before he signs the bill, but they have little chance of getting him to veto the legislation. Other marketers indicated that they may seek new legislation next year to separate safety-sensitive services from others that could more easily be unbundled.

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

“I expect to see continued growth because I see people innovating in new ways and testing this market in new ways. How far it is going to go, I don’t know. It is limited by the transaction costs and by the efficiencies with which these organizations can buy gas.”

Richard Nemec, Los Angeles

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