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Fortnightly Magazine - February 1 1998

exercise, however, I was struck by anonymous comments from LDCs in New York, which seem to tell the whole story:

"Price is driving electric competition, [but] it isn't driving gas. Electric restructuring will blow right by gas."

Three States, Three Paths

The current policy debates over retail gas unbundling in Illinois, New York and Massachusetts show the extent of both issues and positions. In fact, the three states show very little consensus on the one key issue in gas restructuring: Should LDCs exit the merchant business? Should they abandon the idea of selling gas, in favor of marketers, who will remain largely unregulated? What about reliability?

Many issues have emerged, running the gamut from stranded costs to low-income subsidies to taxes:

•  Can LDCs offer sales service after retail unbundling?

•  If marketers take over merchant sales, how is reliability maintained?

•  Who serves as supplier of last resort?

•  What happens to the LDC's obligation to serve?

•  Should unbundled LDCs operate as a sort of independent system operator, controlling gas pipes?

•  If LDCs exit merchant sales, how should they assign their unused pipeline capacity?

•  Must marketers accept such capacity?

•  Would performance-based regulation work better than a deregulated merchant function?

Take the question of unused pipeline capacity. LDCs claim it's a question of reliability (em that firm capacity must stay tied to customers when they leave the regulated distribution system and migrate to unbundled service and unregulated merchant sales. Pipelines say much the same thing. In reality, however, the question isn't reliability, but the fate of stranded costs. LDCs want marketers to pick up their firm capacity rights. Marketers say they don't need all that steel to fashion reliable commodity service.

In late July, six days apart, the Illinois Commerce Commission and the staff of the New York Public Service Commission mailed requests for comments on gas restructuring to LDCs, marketers, pipelines and other stakeholders. Armed with replies, the New York PSC staff filed a position paper on Sept. 4, 1997, recommending in the strongest terms that LDCs should exit the merchant business entirely. In Illinois, having concluded a series of workshops in August, the commission followed up on Oct. 22 with its formal report to Gov. Edgar and the Illinois General Assembly. By contrast however, the Illinois report fails to provide much guidance. Rather than offer any concrete policy direction, it cites a lack of consensus among stakeholders on nearly every issue and simply throws the whole question in the lap of the governor and the state Legislature.

Massachusetts presents a somewhat different case. There, the Department of Telecommunications and Energy has formed a working group known as the Massachusetts Gas Unbundling Collaborative, chaired by facilitator John B. Howe, the former chairman of the commission. The collaborative submits periodic status reports to the DTE, identifying key issues and positions. A calendar of "milestones" has the collaborative filing a final report with the DTE by March 15, to guide regulators in deciding on the nature and extent of any formal investigation.

George Yiankos, gas division director at the