More than 70% of gas consumed could be bought from suppliersother than local distribution companies under current and proposedLDC transportation programs, according to a report by the AmericanGas Association (AGA).

AGA said customer choice is available for 97% of electricutility gas volumes and 92% of industrial volumes. In 1996, 89% ofall gas consumed by electric utilities was purchased under thisoption, as compared with 87% for all industrial gas consumed. Thecustomer choice option is available for about 57% of all commercialgas volumes and 31% of all residential volumes. Roughly 23% ofcommercial gas bought in 1996 was under the customer choice option.Comparable data are not available for the residential sector for1996.

The AGA report on the growth in customer choice is “hearteningbecause the progress is in the right direction, but you know thekey here is the use of the word ‘could,'” said Tim Merrill,president of Competitive Energy Strategies Co., a Pittsburgh,PA-based consultant to marketers and industrial consumers. “The keyword is ‘could be purchased.’ Those of us in the business aren’tconvinced that residential and small commercial programs are reallyproviding effective choice. Choice is being provided, but is iteffective choice?”

Issues standing in the way of effective customer choice inMerrill’s view are the utility’s obligation to serve, LDC pipelinecapacity and capacity assignment, and provider of last resort.”Effective customer choice can’t really occur until the utilityknows it isn’t going to be on the hook as the supplier of lastresort.”

Issues surrounding reliability of service are the main reason noprogram has dealt with supplier of last resort and truly providedeffective customer choice at the residential level, Merrill said.”It’s also tied very much into the upstream pipeline capacity theutilities have and must hold in order to maintain that supplier oflast resort function. And they won’t start giving up thosecontracts until they’re sure those marketers are going to bethere.”

Merrill pointed to the Columbia Gas of Ohio and East Ohio Gascustomer choice programs as examples. The Columbia of Ohio programin Toledo has been effective, Merrill said, because it allowsmarketers to use their own pipeline capacity. The East Ohio programspecifies mandatory capacity assignment from the LDC.

“Each state has to deal with it. It’s a state matter, whetherit’s a regulatory or a legislative matter. We need to redesign theregulatory compact.”

Karen Hill, AGA vice president for regulatory affairs recentlydiscussed the problem of capacity overhang – capacity reservedyears ago by LDCs on interstate pipes that they no longer need.”Historically, the Federal Energy Regulatory Commission and stateregulators imposed long-term contracts to ensure a stable gassupply for all customers. Subsequently, capacity release rulesadopted by FERC have unintentionally contributed to the problem ofcapacity overhang. As events have evolved, marketers are usingreleased capacity to displace utilities’ sales, therebyundercutting utilities’ contracts. Further, new pipelineconstruction projects, if built beyond projected consumer demand,could exacerbate the capacity overhang problem.

“To enhance the value of long-term firm capacity, AGA believesFERC should allow flexibility in contracts for primary andsecondary capacity, create a framework to prevent abuse of marketpower and allow the marketplace to allocate the financial risk ofcapacity. For example, FERC should lift the price cap and eliminateauction requirements to enhance efficiency in the capacity releasemarket.”

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.