Fossil in Your Future? A Survival Plan for the Local Gas Distributor

Fortnightly Magazine - April 1 1996
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LDC Minimus, LDC Insipidus,

LDC Robustus? Which Would You Rather Be?

Post-Order 636 evolution depends on aggressive regulatory and legislative reform.

"Get out of the gas business. Drop the merchant function. We can't make any money selling gas and we are constantly at risk to having gas costs disallowed. It's a no-win situation. Our only hope of moving the ball forward is to set up a nonregulated gas marketing affiliate in the end zone."

I believe such opinions may overlook future opportunities. The nay-sayers assume an intransigent regulatory environment; their advice may prompt actions that jeopardize earnings for stockholders. Unfortunately, however, many local distribution companies (LDCs) have already set this course. Higher earnings, increased customer satisfaction, and lower rates are achievable, but only by reversing direction. Above all, it will take a courageous effort at state regulatory reform.

Three major obstacles stand in the way of a truly competitive natural gas industry, as envisioned by the Federal Energy Regulatory Commission (FERC). All three involve state law and regulation:

s Inconsistencies in state and local taxes assessed on LDC and third-party sales1

s Price distortions between customer classes, stemming from rules on gas-cost allocation

s Rules barring LDCs from realizing corporate profits on gas commodity sales in competitive markets.

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