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Gas Restructuring: Can Distributors Repeat the Success of Pipelines?

Fortnightly Magazine - October 15 1997

market transformation by changing the way it obtains gas supplies. On the commodity side, "we're in what I'll call the monthly or even daily trading business these days," says the PSE&G g.m. "We no longer, from a gas supply standpoint, have long-term contracts." In addition, PSE&G has an agreement with BPU staff and the ratepayer advocate that allows it to make off-system sales of surplus gas or capacity. Customers get 80 percent of the margin the utility makes on such sales, while PSE&G keeps the remaining 20 percent.

And PSE&G is taking a hard look at its substantial interstate pipeline transportation and storage portfolio. It has tremendous flexibility in its contracts. Starting in 1998, the company has transportation and storage contracts that come up either for termination, renewal or renegotiation. "So I feel very comfortable about our ability to effectuate the kinds of changes we need to match our portfolio with the changing load requirement that we have," Wohlfarth says.

As for residential choice, that story is clearly not over. Wohlfarth concedes that perhaps PSE&G's four-town plan was probably not as attractive to marketers as a broader-based program would have been. Another New Jersey utility took the approach of opening choice to 5,000 customers on a statewide basis, and its program was sold out in a matter of weeks. But in addition, Wohlfarth says, PSE&G's gas costs are very competitive. "Our supply and capacity costs on an aggregate basis are the lowest in the state," he says. "I think marketers are looking at our gas costs and how much savings they can give the residential customer and the effort to go out and sell to that customer, and are probably deciding it's just not going to be a successful effort."

There hasn't been an outcry from residents in the four towns targeted about the lack of gas supply competition. This raises the question of whether residential choice is a "politically desirable event or truly something the customer wants.

"Clearly the interest [in choice] is much greater on the industrial and commercial side, as we find when we do our customer surveys," Wohlfarth says. "We get tremendous high marks when we talk about reliability and service, across the board (em industrial, commercial and residential. When you get to price, the bigger the customer, the more interested he is.

"We've encouraged letting competition play out in the industrial and commercial market, and we have no problem with that happening in the residential market as well," Wohlfarth says. "But you can't force a customer to buy from someone else if he doesn't want to."

NW Natural:

Pro-Choice, But No Surrender

At NW Natural, known until recently as Northwest Natural Gas Co., Rick Harper pointedly notes that he is not opposed to choice. Harper, v.p. of marketing and gas supply for the Portland, Ore., utility, says the company has been incorrectly labeled as an opponent of allowing residential gas customers to choose their suppliers. He wants to set the record straight.

"I just want to make it clear that we are pro-choice and pro-competition," Harper says.