NGI The Weekly Gas Market Report
A comprehensive report on gas unbundling released by the U.S.General Accounting Office found that as of July 31 of this yearonly about 3.9% of the of the residential gas customers eligible tobuy gas from suppliers other than their regulated gas utility weredoing so. Roughly 553,000 residential gas users behind thecitygates of 43 gas utilities in 16 states were participating incustomer choice programs. Commercial participation levels were notavailable. The report, titled Energy Deregulation: Status ofNatural Gas Customer Choice Programs, was requested by Sens. JeffBingaman (D-NM) and Dale L. Bumpers (D-AK).
Retail gas competition has been slow to develop, but it’s stillin its infancy, the report noted. Furthermore, there have beennotable benefits from customer choice. Twelve of the 38 gasutilities that responded to the GAO survey estimated cost savingsfor residential and small commercial customers were averagingbetween 1% and 15% off of total gas bills. And 31 utilities in thesurvey reported that marketers were offering customers additionalservice choices, including reducing exposure to price swings,fixed-price options, fixed monthly bills and even non-gas productsand services.
GAO drew attention to several things that have hindered programdevelopment or limited the benefits of customer choice. Not allprograms, for example, allow price competition on upstream pipelinecapacity and gas supply. The programs that allow both can open alarger percentage of a gas bill to potential price savings. On aColumbia Gas of Ohio bill, for example, pass-through gas commoditycosts represent about 40.4% of the total bill, while transportationand storage costs are an additional 18.2% of the bill. In total,the pass-through portion of the bill is nearly 59% of the totalcost. Several survey respondents noted that while commodity savingsare hard to come by savings on transportation and storage costs canbe significant. Marketers have greater flexibility to rely on theshort-term market as compared with utilities that typically rely onexpensive long-term contracts based on peak-day demand.
The survey also found a high correlation between the requirementthat marketers pay for the utilities’ upstream capacity and themarket share established by marketing affiliates. For example,marketers were required to use the utilities’ upstream capacity inthree Pennsylvania pilot programs (Equitable Gas, Peoples Naturaland National Fuel), and one Ohio pilot (East Ohio Gas), and in allof those pilots affiliated marketers captured the majority of thecustomers participating. In the pilots where marketers could usetheir own upstream capacity, such as Columbia Gas of Pennsylvania,Columbia Gas of Ohio and Cincinnati Gas & Electric, themarketing affiliates did not have the highest concentration ofcustomers.
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