Retail Unbundling - California

Retail Unbundling - California
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Status: The State allows residential customers to purchase natural gas from marketers through a “core aggregation transportation program” offered by the local distribution companies (LDCs).

Overview: California has had a customer choice program for all residential and small commercial customers (referred to as core customers) since 1995 through its core aggregation transportation program (CAT). The program allows core customers to purchase gas from marketers who have met minimum aggregation levels of 120,000 therms per year. The group that satisfies at least 120,000 therms per year can be made up of any combination of core customers and does not need to be linked by geography or corporate structure. Customers must sign a 1-year agreement to purchase natural gas from the non-LDC supplier. According to the most recent Energy Information Administration data, 29,240 residential customers in California are purchasing gas from marketers, representing about 0.3 percent of deliveries to residential consumers statewide in 2006. About 95 percent of the State's residential and commercial customers are served by three local distribution companies: San Diego Gas and Electric Company, Southern California Gas Company, and Pacific Gas and Electric Company. Although legislation was passed in October 1999 that required LDCs to provide bundled service and be the only providers of billing and metering services, it exempted existing core aggregation programs and included the provision that consumers can choose to purchase gas from another supplier. As of December 2007, only one marketer was participating as an energy service supplier for residential customers. Possible reasons for the low interest from marketers in serving the residential market include high transaction costs and the difficulty in offering competitive rates to core customers.

EIA State Data: In 2006, California had 10,329,224 residential and 442,052 commercial customers. They consumed 492 and 244 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $11.79 and $10.43 per thousand cubic feet, respectively.

Eligibility and Participation in Retail Choice Programs:

Eligibility and Participation by Customer Type, December 2007

Customer Type	2006 Customer Total	Eligible in 2007		Participating in 2007
Customer Type	2006 Customer Total	Total	Percent of 2006 Customer Total	Total	Percent of Eligible	Percent of 2006 Customer Total
Residential	10,329,224	10,329,224	100	29,240	0.3	0.3
Commercial	442,052	442,052	100	15,673	3.5	3.5
Total	10,771,276	10,771,276	100	44,913	0.4	0.4
Sources: 2006 Customer Total: Energy Information Administration, Natural Gas Annual 2006 (October 2007). Eligibility and Participation: Estimated based on 2006 data reported on Form EIA-176, "Annual Report of Natural and Supplemental Gas Supply and Disposition," which is the primary data source for the Natural Gas Annual 2006.

Regulatory and Legislative Actions on Retail Unbundling

Summary: The California Public Utilities Commission (PUC) endorsed restructuring in a collaborative settlement by Pacific Gas and Electric Company (PG&E) and 25 other companies on August 1, 1997, known as the Gas Accord, which gave all PG&E customers the option to purchase gas from other suppliers. In January 1998, the PUC opened a docket to investigate the possibility of restructuring gas markets statewide. After a series of hearings, the PUC identified the most promising options to consider for further study and ordered a cost/benefit analysis of these options with the intent of preparing a report of recommendations for consideration by the State legislature. Legislation was enacted in August 1998 that prohibited the PUC from taking any restructuring action before 2000. This legislation was superseded in October 1999 by Assembly Bill 1421 that mandates bundled service by utilities and requires them to be the sole providers of billing and metering services.

Regulatory and Legislative Actions

Legislation	06/03	Proposal To Make CPUC an Elected Board (SCA 6). Senate's Constitutional Amendments Committee voted to change CPUC to seven-member commission elected by district and subject to term limits of two 4-year stints. Currently CPUC has five governor-appointed members serving 6-year staggered terms. Appointments must be approved by the State Senate. (In 2004, the proposal was left in committee without further action.)
	10/02	Legislation Requiring Energy Policy Report Every 2 Years (Senate Bill 1389). The Warren-Alquist State Energy Resources Conservation and Development Act requires the California Energy Commission to present an Integrated Energy Policy Report to the Governor and Legislature every 2 years based on its assessment of trends in energy markets.
	10/99	Legislation Mandating Bundled Service by Utilities (Assembly Bill 1421, Public Utilities Code). Supersedes prior law that prohibited PUC action on restructuring before 1/1/2000. Mandates that LDCs provide bundled service and be the only providers of billing and metering services. However, it exempts existing core aggregation programs and includes a provision that consumers can choose to purchase gas from another supplier.
	08/98	Legislation Allowing PUC to Investigate Restructuring but Limiting Action (Senate Bill 1602 enacted 8/28/98, creating Section 328 of Public Utility Code). Legislation allows PUC to investigate restructuring but prohibits any action until 1/1/2000 and disallows any restructuring decisions made after 7/1/98 affecting core customers.
Regulatory Action	02/06	PUC Submits Natural Gas Study to State Senate Energy, Utilities and Communications Committee. The study responds to questions regarding market structure, ownership, market power, and price and describes the natural gas market, especially as it relates to California. The study is a collaborative effort of the PUC and the Energy Commission.
	09/03	Switching Policy Clarified for Large Industrials. PUC reaffirmed that industrial electricity customers cannot switch from non-core to core status unless supplier goes out of business.
	05/03	Energy Action Plan Approved. Joint plan with the Consumer Power and Conservation Financing Authority (CPA) and the Energy Resources Conservation and Development Commission (CEC). Goal is to implement a unified State energy policy. Proposes six sets of actions, including ensuring reliable supply of reasonably priced natural gas, optimizing energy conservation and resource efficiency, and upgrading and expanding the electricity transmission and distribution infrastructure. Includes increasing storage capacity and continual monitoring of natural gas prices and trends for signs of market manipulation.
	01/03	PG&E Applies to Extend Gas Accord Through 2004. Company filed proposal with PUC that would increase reliability standards and refine some operational procedures.
	01/03	2003 Work Plan. PUC prepared 2003 work plan for legislature. Includes three primary objectives: (1) reasonable gas rates, (2) matching capacity to needs, and (3) maximizing participation in energy efficiency and low-income programs.
	08/02	PG&E Gas Accord II Settlement Agreement Approved. PUC approved extension of Gas Accord market structure through 2003, at 2002 rates.
	05/02	PG&E Requests Approval of Settlement Agreement. PG&E requested a 1-year extension of the Gas Accord, which would allow the utility to extend existing contracts for firm gas transportation and storage services. It would also fix rates for gas transmission and storage services at existing 2002 levels.
	12/01	PUC Adopts Modifed Comprehensive Settlement for SoCal (see 10/01 below, 99-07-003). Decision (3-2) allows for tradable storage rights and transmission capacity on Socal and San Diego Gas & Electric Co.'s intrastate systems. These lines transport gas to smaller distribution systems within the State. The decision reduces the core aggregation transportation (CAT) program minimum size to 120,000 therms to provide statewide consistency (conforms to PG&E threshold) and removes the cap on core aggregation. Also recommends that the legislature act on consumer protection measures for those using CTAs and ESPs (providing both electricity and gas) in order to eliminate obstacles to competition. Eliminates core subscription program, so that "all noncore eligible customers must either choose a competitive provider for gas commodity service or take service from SoCal at core rates. Allows a billing credit when core aggregators include the utility's billing to their customers. Schedules upcoming proceeding re gas industry structure in post-2002 period. Requires a "market assessment report" 2 years after effective date of the tariff
	11/01	Alternate Proposed Final Opinion re Restructuring Options (99-07-003) (Commissioner Carl Wood). Approves a modified interim settlement (IS) rather than the comprehensive settlement (CS) recommended by ALJ John Wong. Provisions would : (1) establish Hector Road as a formal receipt point on SoCalGas' system at which nominations may be made; (2) provide for the establishment of "pools" of gas on the SoCalGas transmission system to increase the liquidity of trading of gas supplies; (3) allow trading of imbalances to some extent. Would not unbundle core interstate transportation from rates at this time. Would eliminate core contribution to noncore interstate transition cost surcharges (ITCS) and the core subscription option as well as the caps and thresholds for core aggregation programs following PUC implementation of consumer protections. Would reduce the core aggregation program threshold and offer billing options to core aggregators.
	10/01	Proposed Final Opinion re Restructuring Options (99-07-003). Approves a modified "comprehensive settlement" - one of three contested settlement proposals addressing options raised in D99-07-015 as applied to the SoCal and San Diego Gas & Electric Co. gas systems. The decision would reduce the CAT program minimum size to 120,000 therms and remove the cap on core aggregation. Would eliminate core subscription program, so that "all noncore eligible customers must either choose a competitive provider for gas commodity service or take service from SoCal at core rates."
	07/99	New Docket for Considering Costs and Benefits of Various Promising Restructuring Options (99-07-003). The PUC opened a new docket to address the benefits and service costs of various "promising" restructuring options, including effects on labor, safety, consumers, and environment. The order sets a 60-day period for parties to reach consensus on a new market structure that would also allow LDCs to continue offering full service to its core customers. If no consensus is reached, testimony and hearings are scheduled for Sept - Dec 1999. At the end of hearings, the PUC intends to report its findings to the legislature.
	07/99	PUC Identification of Most Promising Restructuring Options (Decision 99-07-015). The PUC identified the "most promising" options to consider for restructuring the CA gas industry and closed the Order Instituting Investigation (OIR) R.98-01-011. These options include: creation of firm, tradable intrastate transmission and storage rights; establishment of secondary markets; making utilities "at risk" for unused transmission and storage resources; cost and rate separation for balancing services; separation of utility hub services from supply purchases; unbundling supply and distribution costs for core customers; elimination of core subscription service; elimination of core aggregation transportation thresholds (after consumer protection measures are in place); competitive metering technologies and competitive billing options (like electric industry); equal access to customer-specific information, transaction details, and pipeline operator demand forecasts by customer class; and establishment of a utility electronic bulletin board for secondary market transactions.
	10/98	New Inquiry Schedule and Postponement. The PUC issued D.98-10-028 establishing a new schedule for its inquiry hearings and testimony and postponing any decisions until after 1/1/2000. As per 8/98 legislation, eliminates requirement of 8/6/98 order (see "Goals of PUC Inquiry") that LDCs file unbundled tariffs by 2/26/99.
	08/98	Goals of PUC Inquiry. Interim Order, D.98-08-30. The PUC set goals of inquiry and short-term steps to aid in assessing possible market reform. Stated goals are to: complement benefits of electric restructuring, eliminate unnecessary cross-subsidies, remove unnecessary market barriers, enhance competition by unbundling supply and distribution services, ensure service reliability and safety, provide sufficient consumer protection, and ensure rates reflect cost of service. As first steps in assessing possible restructuring: LDCs are to categorize costs of each service by function in unbundling tariff filings by 2/26/99; those LDCs with "core aggregation programs" are to remove threshold limits and file tariffs accordingly; and the Energy Division is charged with developing consumer protection rules.
	01/98	Investigation into Restructuring Natural Gas Markets. The PUC opened Order Instituting Rulemaking (OIR) R.98-01-011 on 1/21/98 to assess existing regulatory and market structures and possible reforms that would lead to more competitive markets and energy convergence.