Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

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.
Fortnightly Magazine - September 15 2001

have staked out their positions in the market using a variety of marketing strategies and offerings. Competitive positioning ranged from promises of low prices, to tapping on the fear of the unknown with brand names, to commitments of superior products and services. Competition was intense from the start, with sign-up promotions amounting to up to $50 rebates.

New Power Company's national aspirations are clear, with its widely publicized $50 million investment in software for customer relationship management through a partnership with IBM, and 750,000 customers in 10 states. Both Energy America and the New Power Company seem to have a solid hold in the Georgia gas market, but can be expected to expand with dual-fuel offerings when the electricity market is opened to competition, as they have in other jurisdictions.

Georgia Natural Gas, Shell, and SCANA offer both fixed-rate and variable-rate price plans. The first two have offered fixed-rate plans for some time, while SCANA's began in February 2001. As of May 2001, Energy America and New Power have offered only variable rate plans. Thus, the major retailers have differed with respect to the extent that they offer price-risk management along with natural gas. Yet consumers were given the opportunity to make decisions about how much price risk they wished to assume with fixed and variable rate plan options.

Figure D illustrates the range of variable price offerings in the market during the 2000/2001 winter heating season. Widely different pricing strategies were suggested by the behavior of variable price offerings during the period of skyrocketing wholesale gas prices. When prices climbed during the October 2000 through January 2001 period, Energy America's rate increased the most, followed closely by Shell. Georgia Natural Gas and SCANA raised rates moderately, while New Power/Columbia was able to keep offering a fairly stable rate throughout the period. In January 2001, these variable rates were widely divergent, with as much as a 60 cents per therm differential between New Power and Energy America (75 percent higher).

The range of reactions to rising wholesale prices may be attributable to differences in risk management sophistication. New Power was able to remain in the game without the giant price increases of its closest competitor, Energy America. Both companies have backing from large international energy firms, and it is likely they had resources to weather the large winter price increases, but it is possible that New Power's strategy reflected lower energy costs, due to a better managed energy portfolio.

How Customers Fared Last Winter

Gas prices skyrocketed last winter, both at the wellhead and in wholesale spot markets. These unusually high prices flowed through to consumers as high bills across all gas markets in the U.S., whether or not open for competition. Figure E shows the wholesale price of natural gas as measured by the monthly average of daily spot prices at the Henry Hub, La., a major wholesale trading point. 7

How did Georgia's competitive gas suppliers respond to these winter price spikes? And how did the customers fare? Did competition act to mitigate the effect of increasing wholesale prices on