CAEM Study: Gas Dereg Has Saved Consumers $600B

Nearly 20 years of competition in the natural gas market has reduced national energy costs by more than $600 billion, according to a new study issued last week.

This amounts to per-household savings of $5,938 as a result of gas deregulation, which began in the late 1970s with the phased removal of wellhead price ceilings, then graduated to lighter-handed regulation of interstate pipelines and now is focusing on opening up the distribution end, according to the study commissioned by the Center for the Advancement of Energy Markets (CAEM), a non-profit think-tank in Washington, DC.

"The nearly 20 years of competition we've experienced in the natural gas industry proves that the right conditions can foster lower costs for consumers and motivate the industry to make investments that benefit the environment, our economy and our national security," said CAEM CEO Ken Malloy.

In addition to the cost savings to the public, the study credits deregulation for the rise in the number of gas suppliers at the wholesale and retail levels; a reduction in long-term price fluctuations, although it has triggered more short-term price volatility; greater focus on energy-efficient purchases by customers, making gas the fuel of choice for many; and industry improvements in how its buys, sells and trades gas supplies. In addition, it noted that light-handed regulation of gas pipelines has been a big factor in passing through lower commodity costs to consumers.

In short, the study reveals that the gas deregulation skeptics of the 1970s and early 1980s "were wrong by a long shot," according to CAEM.

"What we also need to recognize is that we've witnessed a re-distribution of wealth from foreign oil producers to domestic natural gas producers, and that these lower prices have contributed measurably to a more stable inflation rate, lower greenhouse gas emissions and improved our [national] security due to a reduced reliance on imported oil," said Malloy, who formerly was on the staff at FERC and the Department of Energy.

The study, entitled "California Here We Come: The Lessons Learned from Natural Gas Deregulation," offers guidance for the energy markets in the western state: 1) put the right regulatory framework in place, half measures are more dangerous than doing nothing; 2) don't expect results overnight, stay the course; 3) markets do work, and consumers and the environment will be winners under properly executed reform; 4) the costs of change are easier to calculate than the benefits; all the studies about gas deregulation underestimated the benefits; and 5) organized consumer advocates are often very wrong about the impact changes will have on consumers.

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