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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

question is based on a comparison of fuels, I don't think that gas will be at a disadvantage. And then you get to the generation side (em by and large, natural gas is more efficient in the generation of electricity than either coal or oil, and operationally speaking, it has a lot more flexibility in terms of taking on load swings, peaking, that sort of thing.

CONSUMER SAVINGS? I think that there are savings out there and it really becomes a matter of not if, but when. It's pretty clear to me that we are going to see a transition period in just about all the states, [as there is] in electricity as well. That transition period usually deals with overcoming stranded or transition costs. For gas it's the capacity contracts that need to expire. To the extent that LDCs are held harmless for those contracts, we're looking at a perhaps three- to five-year period where they will be transitioning. And it's during this transition period that there may not be a whole lot of savings for customers.

Once we get beyond the transition period and LDCs are no longer in the long-term market for capacity (em they're either not buying as much or buying on a shorter-term basis (em I think that's where there will be opportunities for savings. The LDCs do a pretty good job of buying natural gas, so I don't think there's a lot of savings that can be extracted from the commodity portion. But I think there are savings that can be extracted on capacity, probably some savings that can be extracted if marketers have the opportunity to choose what services they want to purchase from the LDC to serve customers.

A PIPES COMPANY? I believe the LDCs eventually, by choice, will get out of the merchant function. We typically talk about the 'obligation to serve' and I believe there are two components: one is the obligation to deliver and the other is the obligation to supply. Right now LDCs are under the obligation to both deliver and supply.

I think what will happen over time is the LDCs certainly will keep the obligation to deliver (em they will be responsible for maintaining the distribution system, probably maintaining the meters, maybe even reading the meters. They will have the obligation to keep the pressure in the system. But they will not have the obligation to find the supply. That function will probably be bid on a competitive basis. The utilities will maintain a regulated function of delivering natural gas, but they won't be responsible for bringing that natural gas into the city gate.

The way that I envision this functioning, is that the LDC will be in close communication with whatever suppliers are serving customers on its system. When it's colder than normal and more gas is needed for the LDC to maintain system pressure, reliability and integrity, the LDC will go to the suppliers and tell them to bring more gas onto the system. If a supplier defaults, even for a short time, the LDC will