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Marketers and Brokers

Fortnightly Magazine - September 15 1995

we have through transportation transactions. More recently, FERC Order 636 caused our traditional pipeline suppliers to exit the merchant function, and the aggregation function assumed by many marketers has been indispensable in the transition to unbundled pipeline services.

Given their contributions to the marketplace, we do not view the gas marketing and brokering companies as threats to LDCs. However, it is certainly true that the LDC gas-merchant function faces a competitive threat from marketers and brokers that is magnified by various factors that place utilities at a disadvantage. Foremost among these is the utility's obligation to provide gas service to all customers. The marketing companies are free to enter or exit the market at will, and are naturally attracted to the largest volume, highest load factor, and most creditworthy customers on a utility's system. As long as the utility remains the supplier of last resort, further retail unbundling will make gas-supply planning increasingly difficult, and impose increasing costs on a utility's remaining gas-supply customers.

A second disadvantage is that utility rates and services are regulated, while marketers are free to contract with customers at individualized rates, terms, and conditions. A third disadvantage is

that utility customers have been able to avoid certain taxes by buying gas from marketers rather than their gas utility. In our service area, this tax disparity can exceed $0.80 per Mcf.

With respect to all three of these factors, legislation will be needed to level the playing field in the retail gas market. We believe that competition in this market has developed to a point where there is no longer a need to regulate the sale of gas at the retail level.

James Schretter

Senior Vice President

C.C. Pace Resources, Inc.

Gas LDCs have a unique competitive advantage in that they can choose to use or let wither. With proven performance and customer relations, gas LDCs can choose to be arrogant and unresponsive to their customers, or they can choose to be proactive and represent their customers' interests. Their choice will determine the effectiveness of gas marketers and brokers. In effect, well-run gas LDCs represent the biggest threat to gas marketers and brokers. A highly customer-responsive LDC, with substantial gas transportation and purchasing power, can excel against many potential competitors.

Alternatively, LDCs that lack economies of scale, are not customer oriented, and approach business in terms of what they are owed instead of what they justifiably earn are vulnerable. Where this is the case, gas marketers and brokers should play a vital part in working to lower customers' cost of gas supply. The broader economies of scale are attractive to customers.

To prevent unfair competition, state commissions need to implement marketing affiliate rules and other regulations similar to federal regulations for the interstate pipeline system. In this way, customers will have fair choices and be able to choose the supplier that clearly has their best interests at heart.

Gary G. Ely

Vice President, Natural Gas

Washington Water Power Co.

Certainly marketers and brokers create additional opportunities for customers. However, gas distribution customers have always had alternative forms of