Despite the American Gas Association’s (AGA) optimism regarding the growth of natural gas competition within the United States, the Energy Information Administration (EIA) said that concerns about the high energy prices in 2000 and early 2001 and the crisis in California’s deregulated electricity market continue to slow the move toward increased competition in retail natural gas markets.

According to two studies released last week by the AGA, the nation’s natural gas industry is becoming more and more competitive, as more than 80% of the gas consumed in the United States can be acquired from sources that are not the local gas utility.

“While competition among regulated electric and local telephone utilities is still relatively limited, choices are increasing for the nation’s 64 million natural gas customers,” said Bruce McDowell, AGA director of policy analysis. “These ‘customer choice’ options have expanded dramatically for natural gas customers since the Federal Energy Regulatory Commission decided in 1985 that interstate pipelines should serve as common carriers for all gas buyers.”

In the AGA’s two reports titled “Growth in Customer Choice Natural Gas Volumes: 2002 Update” and “Summary of Residential Customer Choice Pilot Programs and Initiatives,” the organization analyzed total volumes of natural gas, as well as the extent to which residential, commercial and industrial customers can shop around for their natural gas supplies.

The studies found that in 2000 (the last year of complete data), 83% of the natural gas consumed in the country could be purchased under a customer choice option. The AGA also said that 63% of all natural gas consumed that year was purchased competitively. The group pointed out that most of the volumes were purchased by electric power generating facilities and industrial facilities.

As for large customers, the AGA found that “virtually all” of the gas consumed by electric utilities (99%) and industrial facilities (96%) could be purchased from multiple suppliers in 2000. Most of the natural gas consumed by electric utilities (92%) and industrial customers (91%) in 2000 was actually bought from a non-utility supplier.

The commercial sector has also followed suit, as an increasing amount of gas is available under a customer choice option. More than 72% of all natural gas used in commercial facilities in 2000 was available for purchase from multiple suppliers (up from 69% in 1998). The AGA report found that roughly 38% of the commercial gas purchased in 2000 was actually bought from a non-utility supplier.

Options also expanded for residential customers in 2000. Nearly six of every 10 U.S. households with natural gas service had the opportunity shop around for their natural gas supplies, the AGA studies found. Between 2001 and 2002, an additional 3 million residential customers had the opportunity to select a natural gas supplier. In all, 29.3 million of the country’s 59.2 million natural gas households had a customer choice option in 2000. Nearly one in five (18%) of those eligible households actually switched suppliers.

Due to lingering stability concerns, the EIA said some states have chosen not to expand pilot programs or have deferred legislative action until new questions concerning reliability and costs can be resolved. Despite the fears, the organization said 20 states and the District of Columbia have programs underway that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company.

“However, the availability, characteristics, and participation rates of these ‘customer choice’ programs vary widely across states,” the EIA said in its U.S. Summary on Retail Unbundling. “Five states and the District of Columbia allow all residential consumers to choose their natural gas suppliers, but a lack of marketer participation has precluded the development of competitive retail markets in two of these states. Seven other states have begun to implement statewide programs, and eight states have pilot or partial unbundling programs in place.”

The EIA added that an additional 10 states are considering action on customer choice, while 18 states have taken no action and two states have discontinued their pilot programs. Consumer reaction to these choice programs has been mixed. All of the eligible residential and commercial customers in Nebraska and Wyoming have elected to choose suppliers, while in other states, such as New Mexico and West Virginia, virtually no one is participating.

AGA’s 60-page analysis contains a complete state-by-state overview of the residential choice programs available in 23 states and the District of Columbia. For more information on the studies, visit www.aga.org.

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