Nation's Choice Programs Marginally Beneficial
Have natural gas choice programs taken hold and produced
savings, or is the five-year old concept of offering people a
choice of gas suppliers missing its mark?
A new report by the National Regulatory Research Institute
(NRRI) gave the industry pretty low marks so far for customer
From the first gas choice program launched in a small Iowa town
back in 1995, to today's three million choice customers spread
among 23 states and the District of Columbia, the question remains
the same. Are choice customers receiving more significant benefits
with their natural gas marketer than they did with their old
Apparently the answer is "not yet," according to NRRI's review
titled "Consumer Benefits From Gas Choice: Empirical Findings from
the First Programs."
"Customers have generally received limited benefits from current
programs" the NRRI said in its fourth retail gas study. "The
average price savings for all the selected programs in the study is
3.02 cents per therm, or 7.8%." The NRRI believes that part of the
reason for limited benefits is the fact that marketers and energy
service providers have yet to learn how to repackage value-added
services that their customers demand.
The institute's study also produced evidence as to why most
programs receive a low turnout rate. "The fact that most
residential consumers have remained with their incumbent utility
can be largely explained by economics; the expected benefits
relative to the costs and risks associated with switching to a new
supplier are just too small to induce switching."
Unstable deregulated gas markets such as Georgia's and
Maryland's which have seen marketer after marketer file for
bankruptcy, or simply pack up shop and leave, also contributes to
the reluctance for consumers to leave their incumbent utility.
DukeSolutions heads the list as the most recent gas marketer to
drop out of the Georgia market, leaving only 11 marketers of the
original 21 to serve the deregulated state (see related story this
Maryland is another state which is marred with gas marketer
volatility. However, unlike Georgia, where most marketers have not
been replaced in the past, defunct marketers in Maryland are often
replaced by new entrants. There are still approximately 30
marketers in the Baltimore Gas & Electric service area in that
state (see related story this issue).
Co-authors Kenneth Costello and Mohammad Harunuzzaman felt that
the study mostly confirmed what industry observers had expected,
except for a few irregularities. One thing that surprised the NRRI
was that in several of the programs studied, some marketers
actually were offering prices higher than those of the local gas
utility. Another observation that shocked the study's authors, was
the large range of prices offered by marketers in some of the
The NRRI study did conclude that benefits of existing gas choice
programs consist strongly of lower gas bills, plus the choice of
being billed on a fixed price or variable price scale. The
researchers found that most residential consumers in the programs
it studied signed-up for fixed price contracts, paying a premium to
avoid the ups and downs of the market. The NRRI speculated that
fixed price customers were likely experiencing greater benefit due
to the recent spell of price volatility and $6.00 gas.
"In sum, the analysis for this study suggests that gas customer
choice programs generally have had the intended effects of reducing
prices and improving the efficiency of the market," the study
concluded. "The effects have, however, been observably small." To
achieve greater success, the group believes marketers must improve
their current programs to include lower consumer transaction costs,
better consumer education and the availability of value added
Raymond Lawton, director of NRRI, said the study addressed
important policy questions regarding customer gas choice programs'
short history. "The report should especially assist those state
commissions contemplating either initiating or expanding gas choice
programs in their states," Lawton said.
Parties interested in obtaining copies of the study may call
Costello at 614-292-2831, or e-mail him at Costello.firstname.lastname@example.org.