Energy Deregulation:

Status of Natural Gas Customer Choice Programs

RCED-99-30: Published: Dec 15, 1998. Publicly Released: Dec 15, 1998.

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Victor S. Rezendes
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Pursuant to a congressional request, GAO provided information on: (1) initial participation in natural gas customer choice programs; and (2) the effect of these recent customer choice initiatives on residential and small commercial customers.

GAO noted that: (1) 43 gas utilities in 16 states have customer choice programs for either or both residential and small commercial natural gas customers; (2) gas utilities in 11 other states and the District of Columbia are beginning or considering customer choice programs; (3) as of July 31, 1998, roughly 553,000 residential gas users were participating in customer choice programs in the United States, representing only about 4 percent of the residential customers eligible to participate in these programs; (4) national figures for participation in small commercial programs could not be determined because data were unavailable; (5) while overall participation in residential customer choice programs is generally low, participation rates vary dramatically among programs; (6) customer participation rates are determined by a variety of factors, such as the customers' potential to save money by purchasing gas from a marketer rather than a gas utility; (7) gas marketers told GAO that their participation in customer choice programs is influenced by their potential to earn a profit on their gas sales; (8) customer choice programs for residential and small commercial customers are relatively new, with most being less than 3 years old and several less than 1 year old; (9) as a result, information on these programs' impacts on customers is limited; (10) gas utilities that responded to GAO's survey reported that customers achieved savings and greater service options with no apparent reduction in reliability; (11) while gas utilities reported few problems with the reliability of gas marketers' deliveries, some noted that since customer choice programs are less than 3 years old, the reliability of gas marketers' deliveries has yet to be tested; (12) most gas utilities did not provide an estimate of customer savings because their programs were in their initial stages of operation and information on savings was unavailable from gas marketers; (13) savings estimates GAO did receive ranged from 1 to 15 percent on total gas bills and were estimated to come from lower transportation and storage costs, lower gas costs, and savings on state and local taxes; (14) most gas utilities in GAO's survey have set up independent gas marketers, called marketing affiliates, to sell gas as a separate service to residential and small commercial gas users; and (15) these marketing affiliates have large market shares, raising concerns among some state regulators about how competitive these programs can be and, thus, their potential to reduce prices.

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