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Retail Gas Reform: Learning from the Georgia Model

Fortnightly Magazine - April 15 1997

small scale pilot programs. Pilot programs are too small, too short and subject to too many artificial conditions to provide data that we can rely on as the basis for predicting the performance of a comprehensive retail reform plan. %n5%n Retail reform will begin to produce significant consumer benefits immediately. There is simply no reason to make consumers' wait for these benefits. t

George Hall is a managing director of Putnam, Hayes & Bartlett in Washington, D.C. Richard Pierce is Lyle T. Alverson professor of law at George Washington University.

At a Glance: Georgia's Gas Restructuring Proposal

Various features would encourage retail competition

SB 215 includes a number of features that would encourage the development of competition in Georgia's retail natural gas markets and market-based, cost-reduction regulatory incentives. Among other features, SB 215 would:

• Permit companies that operate gas pipelines or distribution systems to file rates using an "alternative" form of regulation, which includes, among other innovative systems, performance-based ratemaking (PBR). (See, SB 215, proposing the "Natural Gas Competition and Deregulation Act," Section 2 [p. 2], adding Code Section 46-2-23.1);

• Allow gas marketers to make retail sales within the service territory of a gas company. (SB 215, Section 3 [p. 8], adding Article 5, 46-4-153);

• Permit gas marketers to "use intrastate capacity available to it from a gas company to provide interruptible distribution services when not required by the marketer to provide firm distribution service." (SB 215, Section 3 [p. 9], adding Article 5, 46-4-153(a)(4));

Encourage gas companies (operators of pipelines or distribution systems) to unbundle their services and to establish separate rates for each service, thereby becoming an "electing distribution company." (SB 215, Section 3 [pp. 11-121, adding Article 5, 46-4-154(a)(1) and 464-154(c));

• Encourage electing distribution companies to develop methodologies for allocating their intrastate capacity and interstate pipeline rights and storage to gas marketers. (SB 215, Section 3 [p. 12], adding Article 5, 46-4-154(c));

• Provide a framework for determining whether competition exists in the provision of ancillary services to gas marketers and for pricing ancillary services until competition is developed. (SB 215, Section 3 [pp. 13-14~, adding Article 5, 46-4-155(a)-(c));

• Set forth a framework for determining when effective competition exists for distribution service, and providing for electing distribution company rate deregulation and removal of the distribution company's obligation to serve upon that determination. (SB 215, Section 3 [pp. 15-16], adding Article 5, 464-1 56);

• Provide strict limitations on the relationship between an electing distribution company and an unregulated marketing affiliate. (SB 215, Section 3 [pp. 19204], adding Article 5, 46-4-158);

• Provide for a Universal Service Fund to cover uncollectible accounts and contributions in aid of construction. (SB 215, Section 3 [pp. 24-26], adding Article 5, 46-4-162);

• Provide for random assignment of customers who do not designate a supplier. (SB 215, Section 46-4-156 (e)).

Residential Pilot Programs and Unbundling Initiatives

Six local distribution companies in four states start residential natural gas pilot programs this year nationwide, joining LDCs in eight other states. Overall, more than 12 million homes will have a choice of gas suppliers by 2000. That's more than 20 percent