[BETA] Fortnightly

After the Shakeout: Another Look at the Georgia Gas Market

 

Five suppliers are left. But that works when the utility gets out of the supply business.

Go back a year, to the summer of 2000. Georgia's retail natural gas market was spinning out of control, taking hits in the national press. Some consumers had to wait month after month just to get a bill - if they were lucky. Citing an "utter state of confusion," the state utility commission had to impose new billing rules, to force suppliers to get their act together.

Then came the winter of 2000-2001, with sky-high gas prices that strained pocketbooks for gas customers all across the country, putting even more pressure on Georgia's nascent gas market.

And yet we can say today that retail gas competition is working in Georgia.

After a fierce shakeout, only five retail gas suppliers still survive in Georgia with any meaningful slice of market share. That's out of at least 24 that jumped in at the start of the program. However, as we will show here with some hard numbers, a market with five suppliers appears to be enough to offer meaningful choice to residential consumers, based on our observations of the Georgia experience:

• Price. Georgia's average retail gas prices for the nine-month period from mid-2000 to spring of this year appear comparable to those in neighboring states.
• Choice. The five suppliers operating today in Georgia provide fixed and variable rate plans to consumers that offer real choice on price.
• Reliability. Customer complaints fell markedly from July to December 2000. And though complaints rose again in the spring of this year, we believe we can show that this second round of discontent followed directly from the run-up in wholesale gas prices, which hit consumers nationwide. This fact suggests that quality and reliability of service and billing was not the driving factor for any rise in consumer discontent, as was the case before.

What has made Georgia's plan different from gas and electricity market restructuring plans in California, Pennsylvania, Texas, Ohio, and other states?

First, the utility distribution company, Atlanta Gas Light (AGLC), got out completely from the retail supply business over a 10-month period, opting to become strictly a distributor for competitive suppliers.

Second, the state forced all customers to choose a competitive supplier by the end of those 10 months, instead of allowing them to stick with a standard offer or default plan. Thus, some 80 percent of customers had chosen a supplier by the end of the period, leaving a small portion to be allocated to the suppliers, based on the market shares those suppliers had already attracted.

Third, AGLC acted only temporarily as a "pooler," or provider of last resort (POLR), for customers that no supplier wanted to serve. POLR responsibility was then bid out to competitive suppliers in the market.

Paring Down the Competitors

The Georgia natural gas market has evolved in the usual way of an industry moving through deregulation - with the number of players shrinking way down, illustrated in Figure A. A market