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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

residential customers? Or, conversely, have suppliers been able to take advantage of consumers through price gouging?

To answer these questions, we compared prices for hypothetical customers of each supplier in Georgia with prices for hypothetical customers in five neighboring states: Tennessee, Alabama, Virginia, South Carolina, and North Carolina. 8 The result appears in Figure F.

Understand, however, that the method we used will tend to favor the regulated local distribution companies (LDCs) operating in the neighboring states, relative to the unregulated Georgia marketers. That's because of the typical lag that occurs for increases in regulated rates to adjust for fuel price increases. Under conventional Purchased Gas Adjustment (PGA) clauses, customers will typically see prudent, cost-of-gas increases flowed through to their bills over a period of several months. Because of the complexity of PGA accounting and the possibility of regulators disallowing PGA adjustments, our estimates do not attempt to project future (and possibly substantial) PGA increases in later bills. Thus, our estimates have a downward bias that results in a deliberate underestimation of regulated rates. Reflecting this analysis of winter season bills for hypothetical customers, Figure F shows that Georgia customers fared well overall.

Georgia customers enjoyed a range of pricing options. How they fared last winter depended on the choices they made. Some Georgia customers paid less than the average in these neighboring states, some paid about the same, and a few may have paid more:

  • Paid the Least. Representative fixed rate customers of Georgia Natural Gas and Shell did the best overall, paying up to 26 to 27 percent less than the weighted-average bill of representative customers in the five neighboring states.
  • Paid Somewhat Less. A representative New Power/Columbia Energy customer, even though on a variable rate, paid 8 percent less than the weighted average bill of representative customers in the five neighboring states.
  • About the Same. Representative variable rate SCANA and Georgia Natural Gas customers paid close to the same as the weighted-average bill of representative customers in the five neighboring states.
  • Paid A Good Deal More. Representative variable rate Shell and Energy America customers did not fare so well, paying 13 and 24 percent more than the weighted average bill of representative customers in the five neighboring states. Because Energy America enjoyed a market share representing only 5 to 7 percent of the customer base, few customers were affected by the relatively high variable rates and service charges for that supplier, as reflected in their representative total bill of $1,047.

Customers choosing fixed-rate plans were able to save substantial amounts relative to those that selected variable rate plans. Of course, had wholesale prices decreased rather than increased, the variable-rate plan customers might have had the advantage. Also, risk exposure has a cost and, no doubt, suppliers offering fixed rate plans intended to reflect their risk exposure costs in the prices they charged. Recognizing this, the significant point from a market-performance evaluation prospective is that customers had a choice of how much risk they wished to assume and, for some, their choices turned out to be financially beneficial.

Had Georgia