John Quain, chair of the Pennsylvania Public Utility Commission, who helped draft legislation to introduce electric competition in his state, predicts that natural gas deregulation is next on the...
The 1998 Gas Industry Executives Forum Mapping the Universe of Natural Gas: Closed, Shrinking or Expanding?
construction opportunities. You just won't achieve this kind of improvement through other sources of electricity generation.
HOURLY PRICING. The electric generation market is moving to place high value on flexibility and response time. Semi-hourly pricing exists already in some markets worldwide. The gas-fired generators will succeed in this market, and the natural gas markets will adapt to these pricing periods, or [the] time and basis differentials in derivative markets will satisfy the need.
CONSUMER SAVINGS? The straightforward answer depends on whether marketers can do a better job of buying and storing natural gas than the local utility, and thereby offer a better price.
For residential customers, it remains to be seen what kind of savings will be available. Much depends on whether regulators choose to allow a level playing field for all competitors, including the utility, or whether they will force subsidization of some residential customers. If unregulated marketers can offer natural gas without the costs associated with these subsidies, the average residential customer can realize significant monthly savings. The question is, how will governments recoup those taxes and the other costs associated with guaranteed service to all residential customers?
Cost savings aren't the only attraction in customer choice. Some customers see benefits from programs that offer new services, such as fixed-price options, that the utility by regulation could not provide. There's a lot of brainstorming going on in marketing departments across the country to develop new products and packages of services that [will] appeal to customers. Americans like to have choice, even if most don't care to exercise their choice to change suppliers. Surveys show that most consumers think their local utility is doing a fine job (em but they'd still like to know there's an alternative.
A PIPES COMPANY? That's a business decision every utility will make individually. Does the utility serve an urban or rural area? Is it large or small? How many pipelines serve the area and how well are they integrated? Who else will be competing in this market? Will unregulated utility affiliates be allowed to compete? In a truly open and competitive market, utilities would be permitted to use their own names and logos when competing. And, will utilities be allowed to earn a profit on marketing?
Already, gas utilities are serving 18 percent more customers with 15 percent fewer employees than they did 10 years ago. Some utilities are seeking even greater efficiencies through mergers and consolidations. Obviously, I've voted with my feet on this one, because a merger seemed to make good business sense for my company. It shored up our weaknesses and strengthened our ability to achieve our long-range objectives.
In Texas, we had a fully competitive gas market at the large-customer level as early as 1985. That experience taught me you've got to stay focused on your core function and on your customers. Every utility by now should already have undertaken a brutally honest review of its strengths and weaknesses and be well on its way to implementing a long-range plan.
TECHNOLOGY TRENDS. Technology is advancing in any number of directions. First,