Have natural gas choice programs taken hold and producedsavings, or is the five-year old concept of offering people achoice 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 customerchoice.

From the first gas choice program launched in a small Iowa townback in 1995, to today’s three million choice customers spreadamong 23 states and the District of Columbia, the question remainsthe same. Are choice customers receiving more significant benefitswith their natural gas marketer then they did with their oldutility suppliers?

Apparently the answer is “not yet,” according to NRRI’s reviewtitled “Consumer Benefits From Gas Choice: Empirical Findings fromthe First Programs.”

“Customers have generally received limited benefits from currentprograms” the NRRI said in its fourth retail gas study. “Theaverage price savings for all the selected programs in the study is3.02 cents per therm, or 7.8%.” The NRRI believes that part of thereason for limited benefits is the fact that marketers and energyservice providers have yet to learn how to repackage value-addedservices that their customers demand.

The institute’s study also produced evidence as to why mostprograms receive a low turnout rate. “The fact that mostresidential consumers have remained with their incumbent utilitycan be largely explained by economics; the expected benefitsrelative to the costs and risks associated with switching to a newsupplier are just too small to induce switching.”

Co-authors Kenneth Costello and Mohammad Harunuzzaman felt thatthe study mostly confirmed what industry observers had expected,except for a few irregularities. One thing that surprised the NRRIwas that in several of the programs studied, some marketersactually were offering prices higher than those of the local gasutility. Another observation that shocked the study’s authors, wasthe large range of prices offered by marketers in some of theprograms.

The study did conclude that benefits of existing gas choiceprograms consist strongly of lower gas bills, plus the choice ofbeing billed on a fixed price or variable price scale. Theresearchers found that most residential consumers in the programsit studied signed-up for fixed price contracts, paying a premium toavoid the ups and downs of the market. The NRRI speculated thatfixed price customers were likely experiencing greater benefit dueto the recent spell of price volatility and $6.00 gas.

“In sum, the analysis for this study suggests that gas customerchoice programs generally have had the intended effects of reducingprices and improving the efficiency of the market,” the studyconcluded. “The effects have, however, been observably small.” Toachieve greater success, the group believes marketers must improvetheir current programs to include lower consumer transaction costs,better consumer education and the availability of value addedservices.

Raymond Lawton, director of NRRI, said the study addressedimportant policy questions regarding customer gas choice programs’short history. “The report should especially assist those statecommissions contemplating either initiating or expanding gas choiceprograms in their states,” Lawton said.

Parties interested in obtaining copies of the study may callCostello at 614-292-2831, or e-mail him at Costello.1@osu.edu.

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