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AGA: Customer Choice Widespread and Growing

AGA: Customer Choice Widespread and Growing

More than 70% of gas consumed could be bought from suppliers other than local distribution companies under current and proposed LDC transportation programs, according to a report by the American Gas Association (AGA).

AGA said customer choice is available for 97% of electric utility gas volumes and 92% of industrial volumes. In 1996, 89% of all gas consumed by electric utilities was purchased under this option, as compared with 87% for all industrial gas consumed. The customer choice option is available for about 57% of all commercial gas volumes and 31% of all residential volumes. Roughly 23% of commercial gas bought in 1996 was under the customer choice option. Comparable data are not available for the residential sector for 1996.

The AGA report on the growth in customer choice is "heartening because the progress is in the right direction, but you know the key here is the use of the word 'could,'" said Tim Merrill, president of Competitive Energy Strategies Co., a Pittsburgh, PA-based consultant to marketers and industrial consumers. "The key word is 'could be purchased.' Those of us in the business aren't convinced that residential and small commercial programs are really providing effective choice. Choice is being provided, but is it effective choice?"

Issues standing in the way of effective customer choice in Merrill's view are the utility's obligation to serve, LDC pipeline capacity and capacity assignment, and provider of last resort. "Effective customer choice can't really occur until the utility knows it isn't going to be on the hook as the supplier of last resort."

Issues surrounding reliability of service are the main reason no program has dealt with supplier of last resort and truly provided effective customer choice at the residential level, Merrill said. "It's also tied very much into the upstream pipeline capacity the utilities have and must hold in order to maintain that supplier of last resort function. And they won't start giving up those contracts until they're sure those marketers are going to be there."

Merrill pointed to the Columbia Gas of Ohio and East Ohio Gas customer choice programs as examples. The Columbia of Ohio program in Toledo has been effective, Merrill said, because it allows marketers to use their own pipeline capacity. The East Ohio program specifies mandatory capacity assignment from the LDC.

"Each state has to deal with it. It's a state matter, whether it's a regulatory or a legislative matter. We need to redesign the regulatory compact."

Karen Hill, AGA vice president for regulatory affairs recently discussed the problem of capacity overhang - capacity reserved years ago by LDCs on interstate pipes that they no longer need. "Historically, the Federal Energy Regulatory Commission and state regulators imposed long-term contracts to ensure a stable gas supply for all customers. Subsequently, capacity release rules adopted by FERC have unintentionally contributed to the problem of capacity overhang. As events have evolved, marketers are using released capacity to displace utilities' sales, thereby undercutting utilities' contracts. Further, new pipeline construction projects, if built beyond projected consumer demand, could exacerbate the capacity overhang problem.

"To enhance the value of long-term firm capacity, AGA believes FERC should allow flexibility in contracts for primary and secondary capacity, create a framework to prevent abuse of market power and allow the marketplace to allocate the financial risk of capacity. For example, FERC should lift the price cap and eliminate auction requirements to enhance efficiency in the capacity release market."

Joe Fisher, Houston

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ISSN © 2577-9877 | ISSN © 1532-1266
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