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PUCs in 1997: Managing the Competition?

Fortnightly Magazine - January 1 1998

by the East Ohio program, which assigns firm storage and firm pipeline capacity rights to marketers enrolled in the program.

Nevertheless, this emphasis on customer choice for small users coincided in 1997 with a period of extreme volatility in the natural gas market, dampening enthusiasm for market pricing for both consumers and regulators. With prices soaring during the winter heating season, regulators were quick to step in to see what they could do to cushion the effect on the average consumer. They found that the increasing reliance by distribution companies on a spot market, once highlighted as a positive outgrowth of earlier industry reforms, caused price uncertainty for which the average consumer was unprepared. Ironically, in certain cases, any cost savings to be had by residential customers came only from "fixed-price" options offered by suppliers in pilot programs. %n25%n

In June the New York commission directed all gas utilities in the state to file plans to reduce gas cost volatility and to develop alternative gas purchasing mechanisms. It said that due to "perceptions of another long, cold winter" gas prices had increased to levels not experienced since the mid-1980s. The commission ruled that all gas utilities should submit proposals for fixed-price offerings to consumers for the 1997-98 heating season. It also directed gas utilities to review existing gas procurement practices and develop acquisition strategies built both on cash market and financial transactions designed to increase price stability for New York gas consumers. %n26%n

Motivated by many consumer complaints regarding substantial and unexpected increases in consumer bills for natural gas service, the New Mexico Public Utility Commission fined Public Service Company of New Mexico $2.2 million for knowingly understating gas cost data in prior adjustment clause filings to avoid commission review of an ongoing gas price crisis.

For the past several years, PSNM had been "playing Russian roulette with its portfolio strategy," pointing the gun at its customers rather than itself, the commission said. The commission concluded that "simple common sense and accepted business standards of business conduct" should have led the company to pursue methods such as price hedging to limit the risks to ratepayers. %n27%n

Besides encouraging a return to fixed-price transactions and to reform adjustment clause rules, regulators in several states have directed LDCs to experiment with hedging instruments to protect residential ratepayers from winter heating season price swings.

The New Jersey Board of Public Utilities, for instance, authorized a plan by Public Service Electric and Gas Co. to "lock in" the cost of its residential gas supply portfolio for 12 months with fixed-price transactions with gas suppliers and financial hedging instruments. The board found that while the hedging/lock-in plan proposed by the company would risk the opportunity to save ratepayers money if market prices drop, it would adequately protect customers against price run-ups, such as the ones experienced during the past two heating seasons. %n28%n

Local Phone Competition:

Discounts and Mark-ups

While industry restructuring in the long-distance telephone market has been under way for some time, state regulators are just now beginning to launch carefully laid plans to open