TO DATE, RETAIL NATURAL GAS UNBUNDLING HAS proven to be only marginally successful. In political terms, state legislators and utility commissioners can point to significant progress in passing...
Consumer Choice in Natural Gas: A Hard Look at Savings
processes that are needed to create retail marketing organizations.
This conclusion is based on a multi-client study that my company recently completed. Our study compared the savings potential of residential, commercial and small-volume industrial customers across 100 local distributors located throughout the U.S. We employed a simple method, developing standardized consumption profiles for residential, commercial and industrial customers, as follows:
Residential customers are assumed to burn between 435 and 912 therms annually, depending on the region of the country in which they are located.
Two hypothetical profiles were constructed for commercial customers, reflecting high (70 percent) and low (30 percent) load factors, with each consuming 20,000 therms annually.
Four industrial profiles were reviewed, reflecting high
(70 percent) and low (30 percent) load factors across two different levels of consumption (300,000 vs. 1.5 million therms annually).
Each profile was evaluated at all 100 utilities. We compared the cost associated with the LDC's sales and associated transportation tariffs, using a database of gas tariff data our company has created. City-gate gas prices were developed for all 100 LDC city gates, based on either published indices or NYMEX prices plus basis estimates.
Of the 100 utilities that we analyzed, relatively few had tariff rate structures that allowed customers to save significantly by purchasing from non-regulated suppliers (see Table 1). Only 18 percent of the utilities had residential rates that allowed customers to save any money. Only 5 percent allowed customers to save more than 10 percent against the traditional LDC bundled sales option. If the average cost of regulated residential supply service is $763, this means that customers at only five utilities nationwide can expect to save any more than $76 a year, or about $6 and change per month.
The results for commercial customers appear only marginally better. Approximately 36 percent of the utilities studied had rates that allowed for savings. Only 25 percent allowed for savings greater than 10 percent. Given the load profiles we used in the study, the average annual regulated supply cost for commercial customers totaled approximately $13,600. At only 25 of the utilities could commercial customers save more than $1,400 annually by switching to a non-regulated supplier.
Industrial customers enjoy the greatest potential for savings. We found that 72 percent of gas LDCs charge rates that allow for savings; one-half of them allow for savings above 10 percent. The average annual cost for regulated supply (industrial customers taking 300,000 therms per year) was approximately $821,000. By choosing unregulated marketers, these industrial customers could expect savings at least as high as $82,000 per year as against bundled rates for about one-half the natural gas LDCs analyzed in our study.
While savings potential appears limited, the range of potential savings varies widely, even within a single state (see Table 2).
The accompanying figure illustrates the range for commercial class savings for a particular LDC, Brooklyn Union Gas Co., and how its commercial customers would fare versus opportunities at other LDCs in New York. As the table shows, a commercial customer of one utility who switched to an unregulated marketer would lose