Hedging programs promise protection against energy-market price spikes, and they can be important to the regulatory goal of sustainable, lowest long-term service cost. But how much price...
Burnertip and Beyond
resort), which is mandated to remain with the gas utility without appropriate compensation, and the threat of physical bypass of the utility. Otherwise, the various entities can be effective partners with the gas distribution utilities in growing the natural gas pie for everyone.
Bernard J. Kennedy
Chairman, President, & CEO
National Fuel Gas Co.
Our industrial and commercial customers have had easy access to alternative gas supplies for several years now. In our Pennsylvania service area, residential customers have the ability to purchase gas supplies on the open market, although the demand has not yet materialized. In New York, the expansion of service unbundling to residential customers is being actively considered. Before long, we expect that any customer on our system will have the ability, if not the incentive, to buy gas from the supplier of his or her choice.
Ironically, the rate design policy mandated by the FERC in connection with pipeline unbundling under Order 636 hampers full retail unbundling. The sheer size of LDC demand-charge responsibility under straight-fixed-variable rates may frustrate initiatives to provide LDC customers with unlimited gas supply choices.
A total unbundling of gas utility services has the potential to benefit all segments of the industry, and more importantly, its customers, if it is taken on as a single, beginning-to-end, coordinated initiative. From our standpoint, the greatest risk is that utility service unbundling will proceed to a halfway point and then stall or stop completely. We are concerned about the further expansion of retail transportation if the utility is to remain the supplier of last resort. It would become increasingly expensive for us to provide a backup supply service for the benefit of a core market that can buy alternative supplies when they are available and attractively priced, and call on the utility when they are not. It will also perpetuate the current reluctance on the part of many utilities to make long-term commitments for gas supplies and upstream transportation and storage services.
The marketing companies stand to benefit most from a piecemeal approach to utility unbundling, because they will be able to capitalize on short-term opportunities without having to worry about long-term service obligations. If unbundling is undertaken comprehensively, and state regulatory agencies offer a balanced risk/ reward profile to the utilities, no single segment of the industry should be unfairly advantaged or disadvantaged. Thenceforth, the market will reward the companies that best meet the diverse needs of gas customers, and our customers will enjoy the benefits of this competition.
Senior Vice President
C.C. Pace Resources, Inc.
True burnertip competition will occur when multiple competitors of the same approximate size and market share, armed with the same information, compete for multiple customers with a minimum of regulations. This environment may take a lifetime to create. Currently, many gas LDCs have the upper hand, and true competition does not exist.
However, as the electric utilities "functionally unbundle" supply from distribution, the gas industry should look at separating inherently regulated from unregulated businesses. The physical distribution of gas is probably a regulated entity, with one operator of