The focal point of California’s and various other state energyderegulation plans — nonutility retail energy service providers— has been all but forgotten in the rounds of legal, regulatoryand political battles that have fallen out of skyrocketingwholesale natural gas and electricity prices this year. Althoughthe focal point of the angst has been California, the energyentrepreneurs are feeling the pinch at the retail level elsewhere,too.

“For the short-term, the costs have gone through the roof,” saidFred Richards, founder of The Fred Richards Group, a 90-memberaggregation of medium-size industrial and commercial customers inPennsylvania’s deregulated electricity market. “It is directlyrelated to the recent oil and natural gas price spikes of the lastfew weeks. The prices I have been getting for people who are partof the group are quite a bit higher than expected, but I think itis an aberration.”

Relative to California, Richards likes the high percentages ofcustomers (20% or more) who have switched from utilities inPennsylvania — more than half-a-million earlier in the fall. “Itis much more successful than any other state, but it certainly isnot saturated. We just can’t get any decent prices right now.”

With less than 2% of the eligible customers switching so far inCalifornia over a longer period of time, Commonwealth Energy ofTustin, CA, operates in both states and is surprisingly makingmoney in both, according to its COO Dick Paulsen.

“We’re aggregating some customers (all residential),” Paulsensaid Wednesday during an interview. “We’ll have another 10,000 orso added in California, but because of the pricing from generators,I don’t see how we’ll get any more additional supplies.”

Until the past two months, Paulsen said, Commonwealth wastreading water, adding about as many customers as were returning toutility service, staying around the 50,000 level, but it has beensteadily losing customers in the San Diego Gas and Electric Co.territory to the 6.5 cents/kWh capped retail price. In themeantime, Commonwealth has been picking up a lot of new customersin Pacific Gas and Electric Co.’s vast territory covering thenorthern half of the state, he said, noting it was going to resumepaid advertising after a long hiatus, but the company found it isgetting adequate numbers of new customers signed up through itstelephone customer service representatives.

“The secret to the energy services business is not how manycustomers you have, but if you can buy the energy you need atcompetitive prices,” said Paulsen, adding that Commonwealth hasestablished what he considers a first-rate “back-officecapability,” including its own active energy trading business.

“We’re over our numbers’ plateau (minimum customer load) and areable to make a profit in California. With the number of customerswe have and the energy purchasing capabilities we now have, we’rehere to stay in California.”

Right now, future growth hinges on what comes out of the ongoingCPUC emergency hearings and consideration for granting rateincreases to PG&E and Southern California Edison Co. andperhaps lifting the current retail rate freeze for the twoutilities. Commonwealth and the handful (three or four) of activeESPs in the state also will be watching what the legislature does.

Paulsen said that changes such as allowing the utilities toenter into fixed-price, longer-term bilateral contracts, also wouldhelp his company. “We can jump in and buy with them,” he said.

A long-time natural gas aggregator has a different view of theCalifornia market currently, calling it “a disaster, a joke.” Partof this marketer’s frustration is aimed at the pending CPUCdecision on further unbundling Southern California Gas Co.’sin-state transmission and storage system, and in the process,changing the almost decade-old core aggregation program.

“The electricity restructuring looked like a mistake when theydid it (1996), and it has turned out that way,” said aCalifornia-based marketing manager with TXU. “California’s electricmodel is broken and no one is going to copy it. In fact, otherstates are learning from California how not to do unbundling. Texasis a good example, and it is a multi-billion-dollar market thatopens in 2002.”

Aside from the four-month-old investigations ongoing intoCalifornia’s wholesale electricity market, the TXU marketer saidother investigations are likely to be launched early next yearconcerning what are alleged to be “market manipulation” of both thenatural gas and electricity wholesale prices earlier this month.

TXU never jumped into the retail electricity market and it isstruggling with its natural gas aggregation, although it is one ofthe original participants in the program. The pending CPUC actioncould be the gas program’s “death knell,” the TXU manager said,because the current draft decision is “silent on how the interstatecapacity will be unbundled.”

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