THE RESIDENTIAL MARKET STANDS AS THE NEXT FRONTIER for natural gas unbundling. In California, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, Pennsylvania and elsewhere, states have introduced pilot programs and other unbundling efforts to target residential gas consumers. %n1%n
These efforts are hardly surprising. The residential market, presently dominated by the regulated local distribution companies, appears lucrative. In 1995, the residential sector of the U.S. natural gas industry consumed 4,736 trillion Btu of natural gas or 32 percent of all natural gas delivered by LDCs in that year. %n2%n U.S. residential consumers accounted for $28.7 billion or 59 percent of the gas utility industry's total revenues. %n3%n
Nevertheless, despite all the enthusiasm industry representatives have recently expressed in trade publications and public forums, the creation of a competitive residential market may prove a very slow process. Marketers appear cautious in taking the responsibility of serving residential consumers, %n4%n and for very good reasons. Gaining a sizable portion of this market requires substantial investment in mass marketing, development of name recognition, acquisition of appropriate technology and employment of skillful personnel. Moreover, residential customers do not behave rationally in a "neoclassical" economic sense. They react not only to a price but to several qualitative factors that have yet to be studied by LDCs and marketers.