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The Future of the Local Gas Distributor

Fortnightly Magazine - February 1 1995

arrived. Or when the home state is small, with only one or two politically powerful LDCs dominating the distribution business.

Some common fortress rate design techniques include high monthly fixed meter charges for transportation customers, prohibitive imbalance penalties, onerous credit requirements for shippers, denying load pooling to middle market consumers (blocking system balancing for the emerging non-regulated retail merchants), overallocating interstate charges to LDC transportation rates, making it difficult to obtain necessary metering and dispatching data and back-up service; setting exorbitant winter storage service rates, and giving preferential treatment to transportation customers who acquire brokered interstate transportation capacity from the LDC.

Fortress rate design can and will succeed as an expedient but temporary solution. Some LDCs may lean on this strategy to prolong the transition to retail deregulation and competition. But it won't prepare LDCs for the day when unregulated merchants and outraged captive consumers smash the rate base and storm the Bastille.A Time To Change

The rate base today is something to build on, not live on. The LDC rate base, as we have known it, is melting away. It cannot be frozen in place. Those LDCs who recognize this fundamental truth will become something new: A hybrid energy services company with a regulated logistical franchise and an unregulated brand name. Those LDCs that fail to evolve will disappear-their managers scattered and their very name forgotten. For some, a mere two to three years remain before it is too late. None enjoys so much as a decade's grace.

Vinod K. Dar is Chairman of both Jefferson Gas Systems, Inc., a private investment company, and its electric subsidiary, Jefferson Electric Inc. He also serves as Senior Advisor to RCG/Hagler, Bailly, Inc., an international energy and environmental consulting firm. As industry executive and private consultant, Vinod Dar he has written over 100 articles and given over 70 speeches on the strategic and management issues facing North American energy companies.

(Callouts:)

The vast majority of LDCs deliver less gas than most unregulated marketers.LDCs have not done well in capital-intensive commodity plays such as coal mining, timber, oil and gas exploration, or hard rock mining.(Sidebar:)

LDC Core Assets

Access to consumers

Name recognition

Regulatory knowledge

System operating knowledge

Monopoly over physical gas movement (to all but largest customers)

Rights of way

Large cash balance (sometimes)

(Sidebar:)

LDC Core Weaknesses

Stale corporate culture

Decisionmaking by committee

High-cost operations

Excessive overhead

Ignorance of customer needs

Underestimating competitors

Mistaking rate design for pricing

Obsolete billing software

Fragmented physical systems (sometimes)(Sidebar:)

Winners for the 90s

Unregulated gas and electricity marketing

Energy-related software

Measuring and metering technologies

Billing and collection systems

Gas gathering, treatment and processing

Second-generation market area supply hubs

Needle peaking market area storage projects

Gas-fired peaking generation (markets with transmission bottlenecks)

Fuel procurement (as an outsource vendor)

Gas vehicle fueling stations

Vehicle fleet conversion

Appliance servicing

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