GA Bankruptcies, CA Woes Hinder Deregulation
Two retail marketer bankruptcies in Georgia and the legislative
and regulatory retrenchment in California should take most of the
blame for the slowdown in gas deregulation nationwide, according to
Marie Lihn, principal economic analysis manager for the Gas
Technology Institute (GTI) (see related stories this issue). A
nationwide preoccupation with electric restructuring has not helped
the gas cause either, she said in an interview regarding a new GTI
study on gas deregulation.
"I think we were surprised at how slowly things were moving in
the gas industry," said Lihn. "A lot of states have put things on
the back burner while they are concentrating on electric
restructuring. They don't even want to consider gas restructuring
when they are looking at electric." Illinois is one state that fits
that characterization, she said.
The GTI report, titled "Restructuring Activity Of Natural Gas
Local Distribution Companies," evaluates various factors
influencing efforts to open regulated gas markets, including
electric restructuring, consolidation, convergence of gas and
electricity, the short-term focus of investors and the growth of
information technology. The report analyzes current restructuring
activity in every state.
"You think that the states would just follow along but they have
really slowed down," said Lihn. "The electric industry is so much
bigger and has a larger impact on consumers. Georgia's ongoing
problems with gas deregulation and the shifting regulatory
situation in California also are "making the other states a little
wary," said Lihn.
"And I think that they are going very slowly to try and find out
what to do about the merchant function. That's the big issue that
no one has quite resolved. Should they make the LDCs exit the
merchant function? The only state that has really tried it is
Georgia, and they're the ones that have all the bankruptcies with
their new marketers. It makes consumers a little concerned about
how stable the market is and what the level of service is going to
While some LDCs have taken initiatives to open residential and
commercial market and to meet competitive threats, it is too early
to determine how most LDCs will respond to existing market forces
and how the market will look in the long term, said GTI in a
statement. However, based on discussions with industry executives,
it seems likely that the industry will evolve toward one of the
1. Energy Market Consolidation and Convergence --- Electric
and gas utilities merge on a large scale, resulting in only 10-20
large combination utilities.
2. Household Retailing Convergence and Consolidation ---
Retailing of all products, including all energy products, is
fundamentally altered by the Internet.
3. Efficiency Through Outsourcing --- Local branding remains
more important than national branding, so cost savings occur by
spinning off utility functions to the most efficient provider.
4. Rebound of Regulation --- The utilities retain or reacquire
traditional utility services and responsibilities.
"Of the four scenarios, the first (Energy Market Consolidation
and Convergence) remains the most likely for the long term," said
Lihn. "Recent mergers and acquisitions activity in the industry
(listed in an appendix to the report) demonstrate the market
momentum toward this result. However, the Household Retailing
Convergence and Consolidation scenario represents a strong
potential second scenario."
While state-specific factors influence decisions about the rate
and degree of unbundling activity, the annual residential natural
gas bill in any state was found to have a high correlation with the
extent of unbundling activity. States with the most advanced
unbundling programs are generally also the states with the highest
residential gas bills, GTI said.
The current climate could change significantly because of
soaring gas prices this winter, said Lihn. "If these gas prices
stay firm, it could speed things up again. If they pass through
prices at $3.50 to $4 this winter then customers are going to think
that is way too high and are going to want some other way to get
their gas supply."
Questions about the report or ordering should be addressed to
Kelly Murray, GTI Baseline Center, Arlington, Va., at (703)
526-7832 or by e-mail: firstname.lastname@example.org. The report is $250 for GTI
members and $325 for nonmembers, plus shipping and handling.
GTI, based in the Chicago area, was formed in April by the
combination of Gas Research Institute and the Institute of Gas