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?
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Irwin A. "Sonny" Popowsky, consumer advocate of Pennsylvania and president, National Association of State Utility Consumer Advocates
ELECTRIC DEREGULATION. In Pennsylvania, I think there was a mistaken belief that the electric [restructuring] model could be applied to the gas companies. And what I've been finding is that this issue is even more difficult with respect to natural gas and even in some ways more contentious than the electric debates were.
For one thing, we have a different starting point for gas than we did for electric. In electric we started, at least in Pennsylvania, with a vertically integrated monopoly electric provider. I think there's been a consensus that the continued monopoly regulation of generation had led to bad results in Pennsylvania and should not be continued.
In gas, the comparable breakdown doesn't quite work. We already have competition in the supply function, so we're not starting with vertically integrated monopolies. We're starting out with monopolies at the distribution function, and the LDCs, unlike the electric companies, are already in the business of acquiring supplies for their customers at competitively based prices. The biggest hurdle in electric was to break the link between the monopoly supply and the monopoly distributor. In natural gas, at least in Pennsylvania, we've already broken that link. Now that¼ these LDCs are acquiring gas in a competitive supply market, are there additional benefits or savings that can be obtained by taking the competition even further (em allowing individual small customers to buy gas from other aggregators or other marketers? The remaining debate revolves around the issue of whether the residential customers are better off having their gas needs supplied by a regulated distributor or¼ [by a] competitive market.
Here in Pennsylvania¼ the demarcation between distribution and generation in the electric industry was clearer and cleaner than in the gas industry. The argument has been made that each LDC needs to maintain certain supply functions to maintain their system and¼ that makes it a little bit more difficult to turn over the entire function to a competitive market.
CONSUMER SAVINGS? Yes, there are potential savings. But you certainly don't want to do it just because you've done it in electric. As you unbundle and bring about more competition, you need to be very careful that you're not adding costs to the system that could then eat up those savings or end up increasing rates.
Pilots have shown, at least in the near term, that customers who participate have achieved some savings. Some of them have been 5 or 10 percent. In some respects you have to be careful, because in Pennsylvania, for example, one benefit for pilot participants was [that] they didn't have to pay the gross receipts tax, so that of course was an artificial savings. On the other hand, from what I can see in the Toledo, Ohio pilot, there are savings on the order of 10 or 15 percent.
I can see that there's a potential for savings. For example, for a marketer who