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Industry, State Regulators Question Unbundling's Future

Industry, State Regulators Question Unbundling's Future

With all the talk of competition coming to the electric industry, the gas industry could be feeling like a stepchild. According to speakers last week at the fourth annual meeting of the Gas Industry Standards Board (GISB) in San Antonio, gas unbundling is anything but a done deal, and many questions remain.

After outlining New Hampshire's advances in electric restructuring - begun about four years ago - Public Utilities Commissioner Bruce Ellsworth noted his state has "looked at gas unbundling over the past years" and found interest only among commercial and industrial customers, which already enjoy unbundled service.

"We found very little interest on the part of residential [gas] customers for any restructuring. So it will be interesting to see as customers see the benefits and the risks from electric restructuring as to how those thought processes and how those requests and requirements will be directed at us."

Bill Boswell, Peoples Gas general counsel, said he thinks he knows why electric restructuring is sparking more attention. "In many respects gas came first for a very significant reason. If you look at what has occurred since the 1980s and earlier than that in some cases, industrial and large customers, large commercial customers, had been able to transport gas for a long, long time, so the kind of pressures that were brought there on the electric industry where large customers did not have that luxury did not exist in the gas industry.

"Where are we going right now with respect to unbundling is to a large extent self generating. It's done to some extent by the state commissions. It's done to some extent by the marketers, and it's done to some extent by the utilities themselves. The reason impetus for change in the gas arena is not as great, I submit to you, is primarily because the large players have had that for a long, long time and they did not need state legislation in most cases to get it as they did in the electric industry."

At the Illinois Commerce Commission, Commissioner Ruth Kretschmer is asking some skeptical questions about unbundling's merits. "The question I have is where are the savings going to come from. Now I know there are marketers here who say that there are going to be huge savings. I have urged our legislators not to make any promises about huge savings, that they may not be there.

"If gas is being purchased at a market clearing price, at a good price-and we will continue to regulate the distribution system, so that will be properly priced-it leads to the interesting question, where are these huge savings coming from. And do customers really want choice, or do they want lower costs, lower prices. .I think we can spend an awful lot of time and energy and money unbundling an industry without the results that customers are looking for. I have great concern that we are giving false hope to small customers, to commercial customers and residential customers, and I think we need to be very careful not to mislead people."

Nonetheless, Kretschmer said competition, real or just looming, has prompted utilities to take the credo of customers service to heart. They're extending office hours, providing toll-free customer service lines, as well as making and keeping service appointments in a manner unheard of in the past. "As customers have more alternatives available to them, customer loyalty will become very important. If a utility hasn't discovered that, it's going to find out the hard way."

Kretschmer was adamant in stating unbundling Illinois gas utilities will not have any stranded costs, and she questioned the wisdom of having utility affiliate marketers while forcing utilities out of the merchant function. "That's where I find the fallacy of the argument being made. First of all, in Illinois we will not have any stranded costs, and I think it's just a farce to say the utility can't be a merchant. If you don't allow the LDC to earn money on the commodity, hey, they're going to be glad to get out of the merchant function, but their affiliate will do it. It's perverse logic. I've had LDCs in Illinois say, 'if you allow us to earn a profit on the commodity, you've made me the merchant.' So we're playing with semantics here." Kretschmer said why not let LDCs stay in the merchant function and benefit from gas sales. As for any profits, they shouldn't have to be shared with end users, she said.

According to Mary Jane McCartney, senior vice president of gas operations at Consolidated Edison, there might not be much left for utilities to do otherwise. "Some marketers really want to own every aspect of the customer relationship. They want to provide the bill. They want to own the meter. They want to read the meter. These are serious issues that require a lot of analysis. As we look down the road to our one million gas customers eventually becoming all transportation customers, when and if we totally exit the merchant function, who is our customer? Are our customers the 30 to 50 ESCOs out there? Or are they the one million people to whom they're delivering gas?"

Joe Fisher, San Antonio

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