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Blue-Flame Blues: Gas Pilots Sputter at Burnertip

Fortnightly Magazine - October 1 1997

As marketers discover, some LDCs keep a strong grip on the residential class.

Michael Meath of Agway Energy Products has a dream. A dream to tap the 4.5 million natural gas customers in New York State, supplying commodity and then, other services.

New York state unbundled gas rates in March 1996, with new tariffs approved later that year. Since then, just 11,000 customers out of 4.5 million (em less than half a percent (em have decided to use aggregated transportation service.

Not all New York utilities have filed customer aggregation programs, however. Some are limited by Docket No. 93-G-0932 in how fast they can open markets (em by total number of residential users and by the percentage that may switch in each customer class.

Meath's company signed up 275 gas customers in New York through Aug. 1. Eighty-five were residential. That's after three months, and a little less than $6 million in sales. But Meath is losing money.

A friendly competitor jokes that Agway's customers are probably employees anyway, as the company has several hundred workers in Syracuse, N.Y., alone.

But to dozens of power marketers operating in New York, and in New England too, residential gas unbundling isn't a joking matter.

When it comes to opening up the gas commodity business in the Northeast, the franchised local distribution companies generally aren't "marketer friendly," say the new competitors (and some of the "friendlier" LDCs). In fact, some LDCs don't want to exit the merchant function and are making that clear by their business practices. Yet, now is the time to get unbundling right. Gas "choice" programs for residential and small commercial customers are under consideration or under way in all seven Northeast states (see sidebar).

But the reality of those programs has observers wondering.

Foot-Dragging in New York

According to Tom McGrath of Wheeled Electric Power Gas, if an aggregated customer in New York participated with a marketer in Niagara Mohawk Power Corp.'s gas territory last winter, it would have spent 11 percent more than if it stayed on the utility service. Of NiMo's 439,618 residential gas heat customers, about 75 are on transportation, according to Janice Bailey, customer programs manager.

"Although in theory marketers currently have access to all classes of customers in New York state, subject to current caps ... only certain LDCs have seen a significant conversion of customers from traditional sales service to transportation service," writes Enron Corp., in a petition before the state public service commission. "Rate structures make the transportation option more expensive than sales service."

LDCs, Enron says, have competitive advantages: access to customer information, load profiles and other information.

Yet, look at Massachusetts. Under Bay State Gas Co.'s 6,500-customer Pioneer Valley pilot program (em recently expanded with the 99,000 residential and small-business user Choice Advantage program (em marketers have saved commodity customers as much as 18 percent. Marketers say they're making money.

Is there that much of a difference between the New York and the Massachusetts gas business?

"The utilities proposed the rates to the PSC and the PSC bought the deal," McGrath says