Customer choice for all Pennsylvania natural gas customers couldbecome an option within the next few months, and the law thatemerges from the months of statehouse wrangling could add directionto unbundling activities in other states.

“Pennsylvania is a different animal,” one utility source pointedout. LDCs in the state have devoted more than 50% of theirtransportation throughput for several years to transportation-onlyindustrial and large commercial customers. In other states, such asGeorgia, New York and New Jersey, LDCs have had only limitedexperience with core transportation customers.

In addition, a couple of Pennsylvania’s LDCs actually have putin programs that allow residential and small commercial customersto transport their gas. “So we’re not doing this [restructuring]overnight. We’re doing it based on years of experience. A lot ofthe issues that are being addressed are ones that I think otherstates don’t even realize exist.”

Gas unbundling has been placed on the front burner inPennsylvania, prompting many to predict that legislation openingthe state’s gas market to full competition will be approved by theGeneral Assembly and signed by Gov. Thomas Ridge within the nextcouple of months.

At the behest of Ridge, a “collaborative” group of statelegislators, members of the Pennsylvania Public Utility Commission(PUC) and a wide range of gas industry “stakeholders” have beenmeeting weekly since the beginning of the year to craftindustry-friendly language for the bills pending in both the stateSenate and House. By enlisting gas companies in this effort, thegovernor is hoping to win their support for the legislation.

“We’re on draft seven [of the document]. We’re about to closedown the collaborative process,” said Robert Rosenthal, ratespecialist for the PUC. The latest draft, which still was beingnegotiated last week, will be forwarded within the next two weeksto the Legislature, which is expected to take up thecustomer-choice debate in March. It calls for residential customerchoice to begin by July 1, 1999. PUC Chairman John M. Quain hasbeen heading up the ongoing negotiations in Harrisburg that haveinvolved as many as 75 stakeholders, including marketers,producers, interstate pipelines, industrial customers,institutional customers and consumer advocate groups.

Despite the rally for customer-choice legislation, there aresome who question whether residential customers in Pennsylvaniawill be any better off as a result. Gov. Ridge “wants to get a billon customer choice that tacitly pays lip service to competitionand, if he can get it, that’s great for his political purpose,”said a utility stakeholder, who requested anonymity. “But I don’tthink anybody, except Ridge and the out-of-state marketingcommunity, is really gung-ho about getting a bill done.” Thereason: “nobody really has demonstrated that there’s any room forsaving money on the part of the smaller customers,” he noted.

“The industrials and large commercials are already saving money,but only because they’re able to take advantage of some quirks inthe interstate capacity market that allow them to get capacity atless than the maximum rate. That is not going to happen with theresidentials. I would say that the only reductions you’ll see [forresidentials] will be in the short term.”

The utility participant doesn’t see any measurable savings forresidentials in the three components that affect the price ofburner-tip gas: the transportation rate on the distribution system;the interstate pipeline component and the price of gas at thewellhead. “If the transportation rate on distribution is fixed [ashas been proposed], you’re not going to gain anything there;interstate pipelines are going to want as much as they did before;and the wellhead price of gas floats with the market,” he said.”There’s nothing in this bill that’s going to affect any of thoseprinciples.”

About 130,000 natural gas customers in pilot programs in westernPennsylvania reportedly now are receiving discounts of about 10% ontheir bills, but half of that is due to their exemption from thestate’s 5% tax on gas utility bills. Concerned about the “drain” onthe state’s tax revenues, the exemption is not expected to continueonce the pilot programs end, but the tax rate may be cut to 4%.Without the full exemption, post-pilot savings for residential gascustomers in the state will be almost negligible.

In the course of their “collaborative” talks, the stakeholdersconfronted, and apparently resolved or are close to resolving, anumber of nettlesome issues, according to the PUC’s Rosenthal. Themajor and most contentious issue has been capacityassignment-whether gas marketers, upon luring customers away fromLDCs, should also be liable for the interstate transportationcapacity held by the LDCs to serve their former bundled salescustomers, thereby reducing the prospect of stranded capacity.

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