RATE UNBUNDLING: ARE WE THERE YET?
FEBRUARY 15, 1996
that once was fragmented among 24 certified suppliers has settled to a point where five surviving retailers now control 99 percent of share, as tabulated in Figure B. This typical evolutionary process took place in three distinct phases:
- Swarm phase , where many new suppliers typically seek a profitable position in a new market. In Georgia, the state public service commission (PSC) originally certified a total of 24 suppliers to sell natural gas at retail.
- Consolidation phase , where "winners" emerge as market share leaders. In Georgia, after the enrollment period ended, the industry consolidated into four significant players - Georgia Natural Gas, SCANA Energy, Peachtree Natural Gas, and Shell Energy - plus another 8 smaller suppliers competing for a position.
- Shakeout phase , where "losers" fall away - either they get bought up by the winners, go out of business, or become only marginally involved in the market. In Georgia, over the past year, five suppliers have exited the market completely. Two suppliers are focusing on niches. One new supplier (the fifth of the five players) now has emerged.
Nevertheless, despite the consolidation of competitors in the market, consumers still have a wide choice of suppliers and pricing options. As of May 2001, five significant competitors remained in the market, with nine distinct price offerings: five variable, three fixed, and one low-income rate plan. Several smaller suppliers also exist in the market, with offerings targeted to niche customer segments, including larger C&I customers.
When suppliers exited the market, they were able to sell their customer books. Over 340,000 customers, about a quarter of the market, were sold by exiting suppliers, some at fire-sale prices. Here are but some of the transactions:
- Peachtree Natural Gas declared bankruptcy, citing insufficient cash flow due to billing problems. 1 Shell Energy doubled its market share by purchasing Peachtree's 170,000 customers for $19 million. 2
- Energy America , a subsidiary of the British retail energy giant Centrica PLC, almost doubled its share by acquiring the 50,000 Georgia customers of another bankrupt supplier, Titan Energy, for $2.2 million. 3 Titan blamed its bankruptcy on a dispute with its wholesale supplier, that required the purchase of gas supply from another wholesaler at nearly double prior prices, while serving a large fixed-price customer base. 4
- New Power Co. , a publicly held joint venture of Enron, IBM, and America Online, established itself in Georgia through the purchase of Columbia's book of 85,000 customers. 5 Columbia's new owner, NiSource, had refocused on the pipeline business. 6
All five of the remaining large suppliers are affiliates of major energy companies. Independent energy companies waged major efforts to succeed in the new natural gas market, but most were not able to make it through the consolidation phase, most notably Peachtree Natural Gas and Titan Energy, which had a combined total of 230,000 customers. This shakeout shows how important it was for suppliers to make the right decisions on billing and risk management. Whether this is a capabilities issue, or a deep-pockets requirement, is up for debate.
Staking Out a Pricing Strategy