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Electric/Gas Convergence, Meter-to-Meter

Fortnightly Magazine - May 1 1997

Enova/PE merger finds

California utilities learning

how to "micro-unbundle."

here's a meter war ticking away out West, pitting natural gas against electricity.

Enova Corp. is set to acquire Southern California Gas Co. through a merger with the gas utility's parent company, Pacific Enterprises. This strategy raises a tantalizing question: Can the new, merged company sell electricity "through" SoCalGas meters, using customer contacts on the gas side to grab market share in electricity from Southern California Edison, whose territory overlaps that of SoCalGas?

This prospect puts a new shine on electric/gas convergence. It shifts the focus from upstream commodities to downstream products. It redefines "customer relationship" (em from distribution functions to retail services, where the meter is king. In the pejorative, to those who want to keep control of their meters, it's called "micro-unbundling."

Simply stated, micro-unbundling describes the process of identifying the individual components of electric (or gas) utility distribution service, and asking whether such components should be broken out as deregulated services, opened to the market. The metering function marks one component.

Micro-unbundling could cede ownership of the customer gateway to unregulated marketers, allowing suppliers to provide telecommunications, Internet and other services. That is where the energy services industry will make most of its money under restructuring, some say, since commodities will sell strictly on price and carry thinner margins. That is one reason why many believe better meters are needed.

Micro-unbundling also has raised the question of whether gas deregulation should move lockstep with electric.

Edison's worst fears, reflected in its federal and state commission filings about the merged group's market power, are that through unbundling, Enova-PE will remain the only company in Southern California able to supply both gas and electricity. The company also worries Enova-PE will forage in Edison's market, first selling these (em and later, other (em services via SoCalGas meter sockets and years-old billing relationships.

Several million customer alliances are at stake in the overlapping territories. What those customers could see is the same confusion as England and Wales during unbundling there.

The most recent twist in this developing micro-unbundling scenario occurred in early March. An administrative law judge at the California Public Utilities Commission recommended that retail services, or "revenue cycle services," should be unbundled under an "open architecture" model, not a proprietary utility-owned model that would bar others in a free market. Edison favored the proprietary route. Companies could bill customers jointly with a supplier, or both the distribution company and the supplier could bill on their own, according to the ALJ.

If the PUC had accepted the ALJ's recommendation, all revenue cycle services performed by California utilities would have opened to competition. But it seemed to expose Edison in particular because of the dual-fuel option Enova-PE would enjoy (em an option that could build customer relationships and launch future service markets.

Who has the primary customer relationship? The ALJ seemed to say "whoever can earn it."

Before any resolution surfaced, however, politics intervened.

As sketched by Eric Woychik, a consultant to the Utility Consumers' Action Network, Democratic legislators, led by Senator Steve Peace,

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