July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Gas Restructuring: Can Distributors Repeat the Success of Pipelines?
A talk with two LDCs. First, PSE&G appears content to cede sales to marketers, Second, NW Natural intends not to give in just yet.
This much is clear: Energy utilities are headed for an unbundled future.
As states from both sides of the country implement residential and commercial natural gas unbundling, require residential choice pilot programs and grapple with electric industry restructuring, competition shows no signs of slowing. To boot, some members of Congress seem eager to give competition a national push.
But while a federal approach appears to have guided the restructuring of interstate natural gas pipelines in a way that has benefitted the gas industry as a whole, some experts doubt that local distribution companies, under state regulatory jurisdiction and subject to state laws and the vagaries of local economic conditions, are appropriate candidates for a "one-size-fits-all" approach.
I interviewed executives of two large, long-established gas utilities, one on the East Coast and one in the Pacific Northwest, asking how they have reacted to the winds of change.
Enlisting the Enemy
New Jersey's largest gas utility, Public Service Electric & Gas Co. of Newark, responded to a call from the state Board of Public Utilities for a residential choice pilot program by opening up four towns in different parts of the state to gas marketers interested in competing with PSE&G to supply gas to homeowners. So far, no one has chosen to enter the market.
It's not because of a lack of PSE&G effort. Eager to demonstrate to the BPU that it is serious about the pilot, PSE&G tried to recruit competitors for residential gas supply after carefully choosing the towns for geographical balance and for the social, economic and racial makeup of the state.
"I've personally made calls to marketers urging them to enter the program," says Dave Wohlfarth, general manager of gas supply for PSE&G. "We've had two or three who said they would look into it, but none has decided actually to solicit customers."
The utility's experience on the industrial and commercial side has been completely different. Supplier choice has been in effect in New Jersey for more than two years, and marketer interest has been lively from the start. "We started with about 20 suppliers delivering into our marketplace," Wohlfarth says. "As time has gone on, two things have happened. One, the number of suppliers has increased. Now I believe we have more than 40 suppliers that are qualified to sell.
"But what we've also seen (em and I think this is a classic example of the way the marketplace works (em is a thinning out of the real active marketers," Wohlfarth says. "Initially, we got a lot of marketers that were very new to the business. One in particular that called me up was a customer of ours in a completely different business. ... I said this is a little different from the wholesale gas marketing business, where you could provide gas on an interruptible basis. You're going to be selling to firm customers and you have to have firm supply and capacity commitments