[BETA] Fortnightly

To the Editor:

I would like to respond to some of the issues raised in March 1, 2003, "Gas Executives' Forum." While it is admirable that executives featured in this issue, such as Bruce C. Klink, Dominion East Ohio's vice-president of regulation and pricing, and Isaac Blythers, president of Atlanta Gas Light Co., have begun making strides and meeting many of the obstacles of gas deregulation, the reality is that the success of gas choice programs continues to be mixed.

These programs vary widely in terms of size, regulatory rules, the posture of the local gas utility toward choice, and participation by residential customers and third-party marketers. States such as Ohio, Michigan, Virginia, Wyoming, and Illinois have expanded their programs to include more eligible customers. Programs in other states, such as Delaware, Wisconsin, and Iowa, have terminated programs.

As everyone knows, several states have enacted legislation or rules, starting in 1995, that give residential customers the opportunity to purchase their gas supplies from someone other than the local gas utility. Gas choice programs are currently operating in 19 states and the District of Columbia. According to a May 2002 report from the American Gas Association, 3.9 million residential customers are participating in choice programs-an 18 percent participation rate.

A current problem in both the natural gas and electricity sectors has been the lack of interest shown by marketers to enter retail markets serving small customers. Recent experience, starting with the price spikes during the winter of 2000-2001 and aggravated by the energy trading scandal, have cast a shadow over the current and future state of gas choice programs. Something needs to happen to jump-start these programs in reaching the next level.

How these programs perform over the next few years will be critical in determining their long-term viability. Some programs have seen large numbers of residential customers switch from marketers to the gas utility. We have also seen a heavier dosage of regulation imposed upon marketers, which may further discourage marketers from entering residential retail markets. For example, in ensuring consumer protection, stricter regulations on marketers were enacted last year in Georgia, Illinois, and Ohio. Finally, we have seen many marketers leave the residential market because of the lack of profit opportunities.

Unsurprising Apathy

On the consumer side, gas choice programs have been hampered since their inception by the apathy of most residential customers. It seems rational, given the small savings, for residential customers to remain with the incumbent utility. In investigating other suppliers, customers must expend time and effort in collecting information and dealing with the hassle of finding a new supplier. Besides, for the average middle-class residential customer, any benefits received would almost certainty be a small percentage of her income. In any event, it is not surprisingly that about 80 percent of residential customers eligible to switch from their utility have not.

We have accumulated some useful information about residential-customer behavior in gas choice programs. First, it seems that consumers require at least a savings within the range of five to 10 percent off their gas bill to seriously