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GAO Reports on Slow Progress Of Gas Unbundling

December 21, 1998
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GAO Reports on Slow Progress Of Gas Unbundling

A comprehensive report on gas unbundling released by the U.S. General Accounting Office found that as of July 31 of this year only about 3.9% of the of the residential gas customers eligible to buy gas from suppliers other than their regulated gas utility were doing so. Roughly 553,000 residential gas users behind the citygates of 43 gas utilities in 16 states were participating in customer choice programs. Commercial participation levels were not available. The report, titled Energy Deregulation: Status of Natural Gas Customer Choice Programs, was requested by Sens. Jeff Bingaman (D-NM) and Dale L. Bumpers (D-AK).

Retail gas competition has been slow to develop, but it's still in its infancy, the report noted. Furthermore, there have been notable benefits from customer choice. Twelve of the 38 gas utilities that responded to the GAO survey estimated cost savings for residential and small commercial customers were averaging between 1% and 15% off of total gas bills. And 31 utilities in the survey reported that marketers were offering customers additional service choices, including reducing exposure to price swings, fixed-price options, fixed monthly bills and even non-gas products and services.

GAO drew attention to several things that have hindered program development or limited the benefits of customer choice. Not all programs, for example, allow price competition on upstream pipeline capacity and gas supply. The programs that allow both can open a larger percentage of a gas bill to potential price savings. On a Columbia Gas of Ohio bill, for example, pass-through gas commodity costs represent about 40.4% of the total bill, while transportation and storage costs are an additional 18.2% of the bill. In total, the pass-through portion of the bill is nearly 59% of the total cost. Several survey respondents noted that while commodity savings are hard to come by savings on transportation and storage costs can be significant. Marketers have greater flexibility to rely on the short-term market as compared with utilities that typically rely on expensive long-term contracts based on peak-day demand.

The survey also found a high correlation between the requirement that marketers pay for the utilities' upstream capacity and the market share established by marketing affiliates. For example, marketers were required to use the utilities' upstream capacity in three Pennsylvania pilot programs (Equitable Gas, Peoples Natural and National Fuel), and one Ohio pilot (East Ohio Gas), and in all of those pilots affiliated marketers captured the majority of the customers participating. In the pilots where marketers could use their own upstream capacity, such as Columbia Gas of Pennsylvania, Columbia Gas of Ohio and Cincinnati Gas &amp Electric, the marketing affiliates did not have the highest concentration of customers.

Rocco Canonica

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