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Gas Restructuring: Can Distributors Repeat the Success of Pipelines?

Fortnightly Magazine - October 15 1997

it's not a benefit for customers, and we're anxiously waiting for all the marketers who seem to think they've got the capability at the residential level to do a better job to prove they can do it somewhere else."

Unbundling at the industrial and large-commercial level is a different story, Harper says. His company has almost 10 years in the supplier choice business for these categories of customers. Currently, about half the utility's total deliveries are to industrial and large-commercial markets, and of that 50 percent, about 80 percent (by volume) is transportation-only service.

"[Gas is] going to be competitive because the market's very transparent and the commodity market is very open," he says. "The low cost benefits us because it encourages people to use our product for new equipment."

To ensure that its gas costs stay low, Northwest has set up a trading room and actively engages in hedging and financial derivative products. It has access to diverse supply bases, including British Columbia, the Rocky Mountains and the San Juan Basin. Over time, it has shifted more of its supply to British Columbia as drilling there has ramped up.

Even if marketers don't prove to NW Natural that they can satisfy consumers through residential unbundling, there is always the chance that, as in other states, local regulators will champion the concept. Harper says NW Natural has been "talking actively" about the concept with the Oregon Public Utility Commission.

"We don't want to be legislated out of the supply business," he says. "We want to be a participant when that happens. We don't intend to be a dominant participant. We've got something less than a 20 percent market share in residential. It's a fiercely contested commodity world here, and we would see the same kind of thing ultimately in residential."

Richard Reiten, Northwest's president and CEO, believes residential unbundling will be under way in Oregon in the next three to five years. "But I also believe that a utility like NW Natural Gas should be allowed to continue to provide fully bundled services," he says.

S. Lawrence Paulson is a principal of Hoffman-Paulson Associates, a Maryland communications firm. Paulson is a former communications officer at the Interstate Natural Gas Association of America.

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