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Gas Restructuring: Can Distributors Repeat the Success of Pipelines?

Fortnightly Magazine - October 15 1997

"But more than pro-choice and pro-competition, we are pro-customer satisfaction."

And customer choice and customer satisfaction are at odds now in many parts of the country where residential pilot programs are offered, NW Natural believes. "Where we've seen supplier-driven initiatives around the country, they have not resulted to date in better products and lower costs and improved customer satisfaction," Harper says. "It's been a mess."

"We don't see any reason, when the customers are not asking for something, to force upon them a supplier-driven initiative that may result in lower satisfaction with our product," he says. "That hurts not only our business but it hurts everybody. It hurts producers, it hurts transporters and it hurts marketers."

NW Natural, Harper stresses, is protective of the image of natural gas and concerned about anything that could detract from that image. The company has managed to achieve impressive customer satisfaction ratings and significant market gains in its own territory, which includes western Oregon and southwest Washington. It claims the highest overall customer satisfaction rating by far of any company doing business in western Oregon, including the Nordstrom department store chain, renowned for customer service. And in a region with the lowest electricity rates in North America, natural gas is getting 95 percent of all single-family new home construction in the primary applications of space heating and water heating, says NW Natural.

Existing homes offer more of a challenge, however, since gas has only 31 percent of the space heating and 24 percent of the water heating market. But Harper reports that about 7,000 customers annually convert from electricity or oil to gas.

This success is attributable in part to aggressive marketing. "We've launched an all-out attack for anything new," Harper says. "We try to make sure our advantage is recognized immediately where new installations are going in." There's also the fact that, like electricity, gas costs less in the Pacific Northwest than in any other place in North America. NW Natural's average city-gate price is approximately $1.10 per Mcf delivered, less than half of what it is in the East. Gas has a price advantage over electricity that is currently in the 35- to 40-percent range.

But competition in the region is still fierce, and NW Natural isn't sitting back and counting profits. "In the new world, there are two theaters of competition," Harper explains. "First and foremost for us is getting the customers to use gas for equipment, appliances and processes in all markets (em industrial, commercial and residential. ... That's the main battle for us, and it will continue regardless of what happens on commodity choice."

"Once the customer has decided what equipment and what process to use, then the question of which commodity supplier comes into play," Harper says. "That's ... a secondary theater of competitive operation for us. We currently do all of that [purchasing and transporting gas] for our residential and small-commercial customers. We will willingly allow others to come in when we're sure that it's going to result in a benefit for customers. Right now, it's clear to us