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Marketers and Brokers

Fortnightly Magazine - September 15 1995

challenges from unregulated competitors. As this occurs, some aspects of the traditional utility franchise are

unraveling. I'm confident that there are "win-win" solutions for both marketers and LDCs. And I think those solutions can (em and must (em encompass customers as well. But before that can happen, LDCs and their state regulators and legislators are going to have to sit down together and do some long, hard thinking about some fundamental issues. We're all going to have to carefully reexamine the concepts that have traditionally geverned the distribution sector in this country.

For instance, how do we define a local utility's obligation to serve in an era when an increasing number of customers (em including such weather-sensitive customers as hospitals and schools (em are buying supplies directly from independent marketers, brokers, and producers that have no such obligation? How should the utility be compensated for maintaining the facilities necessary to a supplier of last resort? What about the cost of programs that assist low-income customers and provide residential service during the winter even to nonpaying customers?

Let me be clear: LDCs aren't looking for protection from competition. Many gas distributors, including CNG's, have faced gas-on-gas competition for years and years, and we all expect that the coming restructuring of the electric industry will result in an integrated energy marketplace that is more competitive than anything we've experienced yet. But LDCs should not be forced to compete while hobbled by restrictions designed to govern a monopoly. Legislators and regulators and LDCs are going to have to work together to find new and innovative ways to fairly spread the costs of social and tax obligations to all the providers in the energy marketplace. That way they can help the LDCs stay competitive, without shifting the cost of social programs to customers. For instance, distribution companies ought to be free to set up marketing affiliates of their own; regulatory barriers inhibiting such actions should be reconsidered. Other potential solutions are

performance-based rates in core markets and improvements in the traditional cost-of-service ratesetting mechanism.

Michael Baly

President & CEO

American Gas Association

Marketers and brokers are an important segment of the competitive natural gas industry. Clearly they compete with local distribution companies for retail sales and are trying to capture market share, but describing them as a threat misses the point. LDCs are marketers of gas in today's environment, participating both as traditional regulated merchants as well as through unregulated subsidiaries.

The threat to regulated LDC sales comes from state regulation and taxation that, in some instances, prevents the utility from competing on an equal footing. Utilities must be able to deliver gas supplies to customers just as unregulated marketers do. They must be able to adjust their prices to respond to changing market conditions. They must not be placed at a price disadvantage by being subject to gross receipt and sales taxes that are not imposed on marketers selling gas. Perhaps most important, LDCs must not bear the cost of social programs and backup services that are recovered in sales rates and not in the