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Marketers and Brokers

Fortnightly Magazine - September 15 1995

fuel from which to choose. In large part, gas distribution companies are in a position to provide "hassle-free" services that will allow customers to focus on their primary business or interests, rather than on the complex issues of the natural gas industry.

In my opinion, the greatest challenge facing distributors is building trust and sustaining relationships with state regulators. In an increasingly competitive

market, this must occur if distributors are to compete effectively in the various market sectors. Additional legislation would probably create more bureaucracy and is not necessary if state regulators permit such flexibility.

B. Jeanine Hull

Vice President &

Assistant General Counsel

LG&E Power, Inc.

Not only are marketers and brokers not a threat to gas distribution utilities, they are a resource for such utilities. Marketers and brokers can and will provide a valuable service to LDCs and utilities by allowing them to hedge and mitigate risks they are unaccustomed to facing. New risks require new approaches.

The factors that stand in the way of full and fair competition are well recognized. Customers will be best served when all suppliers compete under the same set of rules. Putting all parties on such an even legal keel means requiring nondiscrimination and comparability in purchasing decisions (as well as nondiscrimination in selling, which is already required) and repealing any state or federal laws that prohibit one class of supplier from competing in a market open to other competitors. For example, if states decide to permit retail competition, all suppliers need to be free from laws and regulations limiting their participation in that market.

R.E. Terry

Chairman & CEO

The Peoples Gas Light and Coke Co.

Marketers pose a threat to distributors because they are free to compete for end-user sales on an unregulated basis. Unlike marketers, the regulated distributor has an obligation to serve all customers within its service territory, on a nondiscriminatory basis, at regulated rates. Marketers, in addition to being unregulated as to price as well as terms and conditions of service, can target select groups of end users. However, the distributor effectively remains the supplier of last resort, even for customers that do not contract for standby service, when marketers' deliveries fall short. Moreover, marketers are able, in some cases, to use regulation to create an unfair competitive advantage (e.g., by forcing access to below-cost utility services (em like rights to backup deliveries where the discount is not market-justified), making the marketers' sales service more attractive than the utility's.

Consumers would benefit from fair competition, and distributors are capable of competing with marketers for sales to all market segments. However, regulatory or legislative initiatives may be needed. To compete on an equal footing, distributors require 1) an opportunity to profit on the sale of gas, currently denied in most jurisdictions; 2) flexible (yet not unduly discriminatory) pricing power to meet the market; 3) regulatory requirements that do not subsidize business opportunities for marketers (e.g., by allowing sales customers to subsidize transportation rates); and 4) the ability to meet their obligation to maintain system integrity even when marketers' supply commitments