“Unbundling of Small-Customer Gas Services” (with J. Rodney Lemon), Energy Law Journal, Vol. 18, No. 1, 1997.
Original Post
UNBUNDLING OF SMALL-CUSTOMER GAS SERVICES: NEW CHALLENGES FOR STATE PUBLIC UTILITY COMMISSIONS
Energy Law Journal, Volume 18, No. 1. 1997
Kenneth W. Costello
J. Rodney Lemon
(https://www.eba-net.org/wp-content/uploads/2023/02/4-Vol18_No1_1997_Art_Unbundling-of-Small-C.pdf)
The evolution of competition in the U.S. natural gas industry has followed a predictable course. Wellhead deregulation stimulated pipeline restructuring, which in turn has provoked a debate over gas-service restructuring at the retail level. Over the last several years, almost all local gas distribution companies (LDCs) in the U.S. have established stand-alone transportation service allowing industrial customers to purchase gas supplies in the open market. By all accounts, service unbundling to large retail customers has achieved significant cost savings to these customers.
The current focus in the retail gas sector is on small customers – namely, small commercial and residential customers. Increasingly, state public utility commissions (PUCs) are considering service unbundling to small customers. Although much of this activity is concentrated on commercial customers, a full-blown debate over service unbundling to residential customers will soon ensue.
To many observers, service unbundling to small customers, especially residential customers, is not as clear cut in terms of yielding economic benefits as it was for large customers. For example, they question whether residential customers or their agents can procure gas supplies and interstate pipeline services at a lower cost than an LDC. They also argue that the transaction cost for small customers, in terms of per-unit of gas purchased, may be much greater than for large customers. Finally, they believe the high cost of unreliable service to small customers may preclude reliance on market forces and contracts, to assure these customers the high level of reliable service that they demand.
Taking everything into account, it cannot be said with certainty that service unbundling would benefit small customers. Although conveying a message of caution to state commissions, this message should in no way imply that service unbundling to small customers is a bad idea. Comprehensive service unbundling with the correct regulatory rules in place should further enhance competition in the natural gas industry. If past trends in the natural gas industry continue, service unbundling will ultimately be available to all retail customers.
* B.S. Marquette University, 1970; M.S. Marquette University, 1974; Associate Director of the Electric and Gas Research Division, The National Regulatory Research Institute.
** A.B. Monrnouth College, 1964; M.S. University of Illinois, 1967; Ph.D. University of Illinois, 1968; Professor of Economics at Monmouth College.
1. See Stephen L. Huntoon, “Restructuring LDCs for the Competitive Environment,” presented at the 27& Annual Conference of the Institute of Public Utilities at Michigan State University,
Williamsburg, Virginia, December 11, 1995; Stephen L. Huntoon, 636 to the Burnemp? PUB. UTIL. FORT. (July 1, 1994): 22-25; and Stephen L. Huntoon, Barbarians at the City Gate, PUB. U~L. FORT. (September 15, 1995): 54-57.
Read the publication at https://www.eba-net.org/wp-content/uploads/2023/02/4-Vol18_No1_1997_Art_Unbundling-of-Small-C.pdf