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The 1998 Gas Industry Executives Forum Mapping the Universe of Natural Gas: Closed, Shrinking or Expanding?

Fortnightly Magazine - May 1 1998

could serve multiple areas. The coldest day of the year in Philadelphia might not be the coldest day in Chicago, or Buffalo or Washington, D.C. And a marketer who can take advantage of that fact in acquiring supplies can adequately produce some savings.

I think you have to show real care that you've actually produced benefits rather than simply provided a choice that's not very meaningful to consumers.

Initially, consumers are concerned that they won't have a clear understandable choice, that they'll just be deluged with offers, that they'll just throw up their hands and say, "Well, I'm just going to stay where I am." Certainly my main concern as we entered the electric debate was that small consumers would be made worse off (em that we would see cost-shifting and that the large customers who got the benefits of competition would do so at the expense of small customers. There are various ways to deal with that.

In Pennsylvania, for example, we established rate caps, so that existing customers, even if they didn't shop and get benefits of lower rates, at least would not see higher rates (em so they wouldn't be worse off. In addition, competition was opened up to all customers¼ and any stranded cost had to be recovered through a non-bypassable mechanism. A customer that left the system still had to pay his share of stranded costs.

It's true many consumers are rightfully wary of these changes; regulators and public policymakers should take that into account and try to make sure that even as you progress toward competition that you maintain consumer protections.

Here's the key: Determine what portions of these industries are natural monopolies and ought to be regulated very carefully in the public interest. Then try to figure out what portion of these industries would be better off with market forces. The tough question in natural gas is: Where will the benefits of competition outweigh the cost to society of losing the protection of regulation?

And even on the kind of proposals we're talking about, you still have things like supplier of last resort. On the coldest day in February, you need to have a supplier who's there. You can't have someone say, "We can't supply gas [now], but we'll bring you some extra gas in July." You need consumer education. You also need some method of uniform price disclosure.

People ought to be able to have the same information about how much the price is per kilowatt-hour, or the price per Mcf [thousand cubic feet of gas]. Uniform price disclosure doesn't mean uniform pricing, but you need to have some uniform disclosure so that people can make a reasonable choice without having to read a 50-page gas tariff.

Multiple parties are responsible for educating consumers. Certainly the various participants in the market are going to try to tell people what their products are; that's a form of education, but the truth is that's primarily marketing.

There is a government role to let people know what the basic rules are. Pennsylvania established a hotline to answer