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Blue-Flame Blues: Gas Pilots Sputter at Burnertip

Fortnightly Magazine - October 1 1997

of New York. "They rolled every conceivable cost and charge into the fuel adjustment."

Eric Sullivan of NorAm Consumer Services says the company's accountants determined it wouldn't be worthwhile for the company to try to make money in New York, so it didn't enter the market. He says he couldn't readily provide details, adding he didn't want to "pile on" New York LDCs. NorAm, by the way, had the largest share, 1,800 customers, in Bay State's pilot.

Meath has talked repeatedly to PSC staffers in New York. They recognize they have problems, he admits. To remedy some, Meath says the staff has proposed a fixed-price option. But that has unleashed more power-marketer wrath, including Enron's comments.

Marketers have a list of issues when it comes to nudging LDCs out of the merchant business and unbundling rates without shifting costs. The LDCs, supported either knowingly or unknowingly by state commissions, counter that marketers have yet to provide customers with the sort of service they have come to expect.

"If you take someone like Enron, they don't really have an infrastructure throughout New York state," says one observer. "And that, I believe, is true of most of the marketers."

Adds an LDC executive: "Folks have learned not to trust these marketers and the marketers have a long way to go to show they deserve the opportunity to serve these customers."

Marketers say it's more complicated. Lack of customer participation has more to do with LDC actions than their own. They mention capacity release requirements, cost shifting, utility attitudes and the desire of some gas utilities to stay in the merchant business, even though for nearly every utility, no money is made on commodity sales. Marketers say that LDC enthusiasm for competition runs only skin deep. They say utilities try to set transportation rates as if the only expense for retail sales is the cost of gas, rolling all other charges into the transport tariff. And even then, according to marketers, LDCs peg the gas cost at the lowest possible figure.

The more candid LDCs note that some utilities are concerned about what happens when gas transportation and sales rates are unbundled. Consider another scenario: What if gas marketers start selling gas and electricity?

"Certainly there's some serious issues there with generating capacity and those issues don't exist on the gas side," says Michael A. Bauer of Long Island Lighting Co. "LDCs think they may be opening up the door. ... A lot of marketers don't hide the fact that they're really foaming at the mouth on electric deregulation."

For an LDC to go before a commission to unbundle rates is a big step, utility executives say. The key is to set up tariffs so that they're indifferent to who's selling the commodity. That means telling a commission, "Here's where rates should be." But commissions may think rates are too high and should have come down long ago. The customer-choice debate then turns into a rate debate.

The utility also knows massive changes come with open access. It must have a business "vision." It must