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Gas Executives Forum: The New Downstream Dynamic

Gas distributors tell how their business strategies are changing in response to issues such as higher gas prices, electric M&A, LNG, and gas pipeline development. 

Fortnightly Magazine - April 2005

companies, and there have been acquisitions.

The large private equity firms have gotten into the electric power industry in a big way, buying companies and generating assets. There's a lot of speculation in the industry about how that will play out. We haven't seen the same thing happen on the gas side.

Jesanis, National Grid: I think it will happen in parallel with electric industry consolidation. A lot depends on what the economic drivers will be, and whether there will be regulatory pressure to reduce costs.

Fortnightly Will we see greater convergence between retail electric and gas companies? Might electric utilities acquire gas assets to grow their businesses within a back-to-basics strategy?

Bertasi, Southern Company Gas: That's a definite possibility. Many electric utilities have consolidated and cleaned up their balance sheets, and now they are thinking about growth. They might see gas assets as opportunities that are close to their core skills.

Jesanis, National Grid: We saw it in our U.K. operations. National Grid is not only an electric utility, but a gas company. Being part of that larger group has allowed us to improve our New York operation and make it more efficient. We've taken skills and practices that were developed in the UK and found they are effective here as well.

We think it's quite logical for retail gas and electric services to be provided by the same company in the same area. Many of the skills that it takes to be successful in one business apply to the other. But it might not be an area that electric companies pursue to create growth. The barriers are the same as they are for electric-to-electric consolidations. By the time you are done paying a premium, cutting rates and making concessions, there isn't much left to make it worthwhile to your shareholders.

Fortnightly Is deregulation and unbundling complete? How successful has retail competition been in gas markets?

Bertasi, Southern Company Gas: It has worked pretty well. The difference for us came when the Georgia Public Service Commission allowed marketers to decline providing services to high-risk customers. Prior to that, there was no regulated provider of last resort, and marketers were obligated to serve. Now we have pre-screening criteria, and customers who have struggled to pay their bills have gone to the regulated provider.

There is innovation happening now in products and service offerings among retail providers that are benefiting customers. We and other marketers are doing interesting things to handle customer credit risk. For example, different price plans serve different needs, with levelized payment options, credit offerings, and other services that we didn't see in the past.

Jesanis, National Grid: Our customers in New York state have a choice of supplier. Not as many exercise that choice as most of us would like to see over the long term, but there are a couple of initiatives under way to improve the penetration of alternative suppliers. For example, the New York regulator would like to see the marketers assume more responsibility for servicing the customer.

The big barrier to customer switching is that