United States General Accounting Office

GAO Report to Congressional Requesters

December 1998 ENERGY

DEREGULATION

Status of Natural Gas

Customer Choice

Programs

GAO/RCED-99-30

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-281423 

December 15, 1998

The Honorable Jeff Bingaman

United States Senate

The Honorable Dale L. Bumpers

United States Senate

In 1996, U.S. residential and commercial natural gas users spent $45 billion

on the fuel to heat and cool homes and offices, cook food, and provide

power to other household and business appliances. Prior to 1978, gas

producers sold gas to interstate pipeline companies, which, in turn, sold it

to local gas utilities,1

 which then sold the gas to end users such as

residential customers and small businesses. The price at which producers

could sell their gas to interstate pipelines and the price at which interstate

pipelines could sell their gas to local gas utilities were regulated by the

federal government. State authorities regulated the price that gas utilities

charged to their end users. Gas utilities held long-term contracts with

interstate pipeline companies, while the latter held long-term contracts

with producers. Both types of contracts were typically for 20 years or

longer and were based on regulated prices.

Under the Natural Gas Policy Act of 1978, the Congress began a process

that ended federal control over the price of gas at the wellhead.2

 This

process also set in motion a series of public policy changes by the Federal

Energy Regulatory Commission (FERC) and state regulators that has

culminated in “customer choice” programs3

 for residential and small

commercial natural gas users.4

 Under these programs, homes and small

businesses can choose their supplier of natural gas, much as they now

choose their long-distance telephone provider. Under a customer choice

program, nonutility gas suppliers, called gas marketers, purchase gas and

1

Natural gas utilities are referred to as local distribution companies in industry publications.

2

For a more complete discussion of the federal laws and regulatory orders since 1978 that have

restructured the natural gas industry, see Natural Gas: Costs, Benefits, and Concerns Related to

FERC’s Order 636 (GAO/RCED-94-11, Nov. 8, 1993).

3

Customer choice programs are also referred to as unbundling programs. Gas service consists of

several separate services—contracting for gas supplies and for interstate transportation and storage

and providing for local gas distribution to homes and businesses—that were traditionally bundled into

one service provided by local gas utilities. Under customer choice programs, customers contract for

their own gas supply, thereby “unbundling” a part of the gas service historically provided by local gas

utilities.

4

Large industrial customers and electric utilities were given access to competitively priced natural gas

from nonutility gas suppliers, or gas marketers, by state regulators beginning in the early 1980s. They

are not a topic of this report.

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B-281423 

arrange for its transportation to the local gas utility. Local gas utilities,

while no longer purchasing gas directly for their customers, continue to

deliver it to homes and businesses. Proponents of customer choice

programs believe that allowing choice will mean competition, thus leading

to lower gas prices and greater service options for consumers. Others are

concerned about the reliability of service and the possible market power

of gas suppliers if regulated gas utilities are no longer responsible for

purchasing gas on behalf of their customers.

As requested, we are providing you with information on (1) initial

participation in customer choice programs and (2) the effect of these

recent customer choice initiatives on residential and small commercial

consumers.5

 In order to respond to these requests, we conducted a survey

of gas utilities that had customer choice programs under way as of July 31,

1998. In addition, we interviewed and gathered information from state

regulators, gas utility representatives, and gas marketers.

Results in Brief Forty-three gas utilities in 16 states currently have customer choice

programs for either, or both, residential and small commercial natural gas

customers.6

 In addition, gas utilities in 11 other states and the District of

Columbia are beginning or considering customer choice programs.

According to the results of our survey of gas utilities with residential

customer choice programs under way as of July 31, 1998, roughly 553,000

residential gas users were participating in customer choice programs in

the United States. This total represents only about 4 percent of the

residential customers eligible to participate in these programs. National

figures for participation in the small commercial programs could not be

determined because data were unavailable. While overall participation in

residential customer choice programs is generally low, participation rates

vary dramatically among programs. For example, in Nebraska, the local

gas utility sponsoring the state’s single program estimated that 70 percent

of eligible residential customers had selected a gas marketer, while in New

York, a local gas utility sponsoring one program reported that no

residential customers had selected a gas marketer in its program.

Customer participation rates are determined by a variety of factors, such

as the customers’ potential to save money by purchasing gas from a gas

5

Residential and small commercial customers are also referred to as small-volume customers. When

they choose to buy their gas from a marketer (either a marketer affiliated with the gas utility or an

independent third-party marketer), they are recorded as having participated in a customer choice

program.

6

The states are California, Colorado, Illinois, Indiana, Maryland, Massachusetts, Michigan, Nebraska,

New Jersey, New Mexico, New York, Ohio, Pennsylvania, Virginia, West Virginia, and Wisconsin.

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marketer rather than a gas utility. Other factors reported to us by gas

utilities, gas marketers, and state regulators include efforts to make

customers aware of programs, and program rules, such as limits on

participation. Gas marketers told us their participation in customer choice

programs is influenced by their potential to earn a profit on their gas sales.

The potential for gas marketers to earn profits can be affected by program

rules, such as whether gas marketers can contract for their own

transportation services to transport gas to a gas utility for local

distribution or whether they must use transportation services previously

contracted for by a gas utility.

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. As a result, information on these programs’

impacts on customers is limited. Several gas utilities that responded to our

survey provided information on how these programs are affecting cost

savings, service reliability, and service options. These gas utilities reported

that customers achieved savings and greater service options with no

apparent reduction in reliability. 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. Most gas utilities in our survey

did not provide an estimate of customer savings, in part because their

programs were in their initial stages of operation and information on

savings was unavailable from gas marketers. Savings estimates we did

receive ranged from 1 to 15 percent on total gas bills and were said to

come from lower transportation and storage costs, lower gas costs, and

savings on state and local taxes. Most gas utilities in our survey have set

up independent gas marketers, called marketing affiliates, to sell gas as a

separate service to residential and small commercial gas users. In several

customer choice programs we surveyed, 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.

Background The costs of natural gas, its transportation and storage, and subsequent

local delivery are incorporated into monthly gas bills. According to the

Department of Energy (DOE), residential customers in 1997 were billed

$34.6 billion for natural gas deliveries, or $617 per customer. Figure 1

shows the separate components of the natural gas delivery system from

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the wellhead, where natural gas is extracted, to the burner tip, where the

fuel is used in a home or business.

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Figure 1: Natural Gas Delivery System From the Wellhead to the Burner Tip

(1) Natural gas is produced by drilling into the earth's crust where

pockets of gas are trapped. Natural gas resources in the United 

States are heavily concentrated in the Gulf of Mexico, while a 

large share of demand comes from the upper Midwest and 

Northeast.

(3) An interstate system of piplines transports natural gas to local markets in the United States. This system is composed of over

300,000 miles of piping, not including local distribution lines. Many pipelines intersect at market centers that provide numerous 

routes to move gas to local markets, in addition to providing related services such as short-term gas storage and gas loaning.

(2) From production wells, gathering lines deliver natural gas to 

processing plants. Here, natural gas is refined to remove impurities,

like water, other gases, and sand.

Page 5 GAO/RCED-99-30 Customer Choice Programs
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(4) When natural gas reaches its local destination from 

a pipeline, it is sometimes stored prior to distribution.

Most existing gas storage in the United States is in

depleted natural gas or oil fields located close to "city

gate" consumption centers. There are more than

400 underground storage sites in 27 states across

the United States and Canada.

(5) Local gas utilities control local distribution of most natural gas. However, many industrial and large

commercial gas users buy gas and other services directly from gas marketers or pipeline companies. 

Unless participating in a customer choice program, small commercial and residential users generally

buy gas and related services from their local gas utility.

(6) Local gas utilities generally bill their customers for bundled services that include natural gas and

transportation costs, the use of utility local distribution lines and gas storage facilities, and additional

costs such as those for metering, system maintenance, and billing.

Source for all pictures: American Gas Association (AGA).

Page 6 GAO/RCED-99-30 Customer Choice Programs
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Before customer choice programs, the services shown in figure 1 were

arranged for or directly provided by local gas utilities.7

 Historically, gas

utilities contracted with interstate and/or intrastate pipeline companies for

the natural gas and transportation services (called upstream capacity)

necessary to transport gas from the producer’s field to the start of the gas

utilities’ local distribution system, called the city gate.8

 To guarantee the

availability of upstream pipeline and storage space, gas utilities contracted

with pipeline companies for priority upstream capacity, called firm

capacity, to meet the peak day requirements of their customers.9

 The

purchasing of firm capacity by gas utilities was often done at the behest of

state regulators, who wanted to ensure that gas flowed to homes, schools,

and businesses on the coldest days of the year, regardless of additional

demands placed on the gas delivery system.

Once gas reached the city gate, gas utilities provided for the local

distribution of gas through their network of local pipelines. Local gas

utilities also provided other gas-related services, such as billing and

metering.

Customer choice programs allow residential and small commercial

customers to choose their own provider of gas within this delivery system.

Under a customer choice program, nonutility gas suppliers, called gas

marketers, purchase gas and arrange for its transportation to the local gas

utility. Customers then purchase, from a gas marketer, gas that is shipped

along the local gas utility’s network of distribution pipes to their home or

business. The gas utility still charges customers regulated rates for the

costs of local gas distribution and the related services it provides, such as

billing and metering.

Until recently, customer choice opportunities were limited to large

industrial and large commercial customers, such as factories and electric

utilities that use gas for power generation. These opportunities allow these

gas users to contract competitively for gas, either directly with gas

7

Natural gas utilities are regulated entities franchised by state regulators to serve customers in a

specific service area.

8

Transportation services include transportation and storage space on interstate and/or intrastate

pipeline systems. These transportation services are termed upstream capacity because they occur

between the source of gas supply and the beginning of a gas utility’s local distribution system. In

industry terminology, the gas utility is often used as a reference point that is between the source of gas

supply and end users such as homes and businesses. Activities occurring between supply sources and

the gas utility are considered upstream activities, while activities occurring between the gas utility and

end users are considered downstream activities.

9

Gas utilities maintain portfolios of the gas supply and transportation contracts necessary to bring gas

to customers.

Page 7 GAO/RCED-99-30 Customer Choice Programs
B-281423 

producers or with gas marketers, as well as with interstate pipelines for

upstream capacity. According to DOE, average gas prices paid by electric

utilities and industrial gas customers have fallen 36 and 24 percent,

respectively, between 1990 and 1995, adjusted for inflation.10 DOE noted

that these customers may have the option of multiple servers as well as

the capability of using fuels other than natural gas, which allows them to

be more aggressive in negotiating contracts and services.

While natural gas deregulation has resulted in lower prices for natural gas,

it has also at times been associated with greater price uncertainty.

According to DOE analysts, prior to deregulation, many gas utilities’ supply

contracts were long-term—often for 20 years or more—with little

variability in price.11 With deregulation, gas utilities began to purchase gas

on the spot market, which can sometimes be highly volatile. For example,

in our report on natural gas price volatility during the winter of 1996-97,

we found that residential gas prices in New Mexico were 68 percent higher

in January 1997 than in December 1996.12 For some gas utilities we spoke

with, price spikes have sometimes resulted in discontented customers and

drawn the attention of state regulatory authorities. While state regulators

allow gas utilities to recover their upstream costs, including those for

interstate transportation and storage and the cost of gas, without profit or

loss, regulators in some states can disallow the recovery of costs when

they believe gas utilities have made imprudent gas-purchasing decisions.

For some gas utilities, extending customer choice programs to their

residential and small commercial customers has given them an

opportunity to reduce their regulatory risk and improve their public image

with their customer base. Other gas utilities view gas marketers’

participation in customer choice programs as a way to increase the

demand for gas and therefore help expand their distribution system. Still

other gas utilities view customer choice programs as part of a process of

change that will result in the increasing importance of nonutility energy

companies that market natural gas, electricity, and even oil-based

products in an increasingly competitive environment. Some observers

believe that mergers, acquisitions, and alliances are bringing diverse

energy companies together across energy markets. Several gas utilities

have established marketing affiliates that are already active in both gas

and electricity markets.

10Natural Gas 1996 Issues and Trends, Energy Information Agency (DOE/EIA-0560(96), Dec. 1996).

11Mary E. Carlson, Joan Heinkel, and John H. Herbert, “Contracting for Natural Gas Supplies,” Energy

Information Agency, Natural Gas Monthly (Feb. 1994).

12Natural Gas Prices During the Winter of 1996-97 (GAO/RCED-98-105R, Mar. 11, 1998).

Page 8 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Overall Participation

Remains Low for

Small-Volume

Customer Choice

Programs

As of July 31, 1998, 43 gas utilities in 16 states had customer choice

programs under way for residential and/or small commercial natural gas

users.13 In addition, gas utilities in 11 other states and the District of

Columbia were beginning or considering customer choice programs for

residential or small commercial gas users. In general, the customer choice

programs under way are relatively new, as most of these programs are less

than 3 years old and several are less than 1 year old. Despite the likelihood

of future growth, participation in current programs is generally low.

According to our survey of gas utilities, roughly 553,000 residential gas

users, about 4 percent of the customers eligible to participate in customer

choice programs, are participating in them. The figures for national

participation in small commercial programs could not be determined

because data were unavailable. Participation rates in customer choice

programs vary dramatically; in some programs, over half of all eligible

customers participated, while other programs are still awaiting their first

participant.

Customer participation rates are determined by a variety of factors, such

as the potential to save money through the purchase of gas from a gas

marketer rather than through a gas utility. Other factors reported to us by

gas utilities, gas marketers, and state regulators as influencing customers’

participation include efforts by these parties to make customers aware of

the program, and program rules, such as caps on participation, that can

limit overall customer participation. Gas marketers told us their

participation in customer choice programs is influenced by the potential

for them to earn a profit on their gas sales. Their potential to earn profits

can be affected by program rules, such as whether gas marketers can

contract for their own transportation services to transport gas to a local

gas utility.

Sixteen States Have

Small-Volume Customer

Choice Programs Under

Way, and More Will Start

Soon

As shown in figure 2, small-volume customer choice programs—allowing

choice for residential and/or small commercial customers—are

concentrated in midwestern and eastern states. As of July 31, 1998, New

York had 10 active customer choice programs, followed by Michigan,

which had 5. New Jersey and Pennsylvania each had four customer choice

programs under way, and Ohio, Illinois, and Maryland each had three

active programs.

13Through interviews with industry experts at DOE, the American Gas Association, and local gas

utilities, we determined that 43 gas utilities offered customer choice programs for residential and/or

small commercial gas users. The American Gas Association represents natural gas utilities. We mailed

questionnaires to all 43 gas utilities and received responses from 38 of them. Information used in this

report on customers’ and gas marketers’ participation is based on these responses.

Page 9 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Figure 2: Small-Volume Natural Gas Customer Choice Programs in the United States

States not considering or beginning small-volume customer choice programs.

States considering or beginning small-volume customer choice programs (includes District of Columbia). 

States with small-volume customer choice programs under way as of July 31, 1998.

3

1

1

1

3

1

5

1

Notes: Numbers indicate the number of active small-volume customer choice programs--both

residential and small commercial--in each state. See Table 1 for the number of participants and

participation rates by state for residential programs.

4

3 1

1 10

4

1

3

Figure 2 also shows that 11 additional states and the District of Columbia

are considering or beginning small-volume customer choice programs.

Among these initiatives, a recent Georgia law allows Atlanta Gas Light to

begin a customer choice program for the 1.4 million residential and

commercial customers in its service area in November 1998. Iowa will

allow a statewide choice of gas suppliers in February 1999. In addition, in

1999, gas utilities in Montana will begin customer choice programs that

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B-281423 

will offer a choice of gas suppliers to most of their residential and

commercial gas users. The other states that are considering or beginning

programs are likely to begin customer choice programs in 1999 or 2000.

In addition, gas utilities and state regulators in Ohio, Illinois,

Massachusetts, Michigan, New Jersey, Virginia, and Wyoming are

expanding existing customer choice programs. The American Gas

Association (AGA) reported that once all these programs are under way, 33

percent, or 18.1 million, of the 54 million households in the United States

with natural gas service will be able to choose their gas supplier. AGA also

estimated that more than 40 percent of the country’s commercial

customers can now, or soon will be able to, buy gas from a nonutility

supplier.14

Status of Residential Customer

Choice Programs

Thirty-four of the 43 local gas utilities we surveyed reported that they had

residential customer choice programs under way as of July 31, 1998.15

Thirty-one of these utilities reported that they began their customer choice

programs in 1996 or later. In California, three residential customer choice

programs began in 1991. Of the 34 residential customer choice programs,

14 had specific ending dates and may be considered pilot programs. Pilot

programs may be limited to one town or county within a gas utility’s

service area and can restrict the number of customers eligible to

participate in the program. State regulators may direct gas utilities to limit

eligibility to less than all customers in their service area so they can gain

experience in administering a choice program before broadening it.

Status of Small Commercial

Customer Choice Programs

Thirty-five gas utilities also reported that they had small commercial

choice programs under way as of July 31, 1998. Twenty-eight of these

programs began in 1996 or later, while 7 began in 1988 through 1995. Of

the 35 small commercial customer choice programs, 15 had specific

ending dates and may be considered pilot programs. Thirty-two gas

utilities reported that they had both residential and small commercial

customer choice programs under way as of July 31, 1998.

14Providing New Services to Residential Natural Gas Customers: A Summary of Customer Choice Pilot

Programs and Initiatives 1998 Update, AGA Issue Brief 1998-03 (July 31, 1998).

15Four gas utilities reported that they did not have residential programs under way as of July 31, 1998.

We did not receive responses from the other five gas utilities.

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Residential Participation

Rates Are Low Nationally

and Vary Greatly Among

Programs

The 34 gas utilities that reported residential customer choice programs

under way as of July 31, 1998, provide over 21 million residential

customers with gas service. Of these customers, over 15 million were

eligible to participate. However, only about 553,000, or roughly 4 percent,

of those eligible to participate had actually selected a gas marketer as their

new supplier of natural gas. Table 1 provides information, by state, on the

34 residential customer choice programs.

Table 1: Overview of Residential

Customer Choice Programs in the

United States State

Number of

programs

Eligible

participants Participants

Percent of

participationa

California 3 8,494,185 44,088 0.5

Illinois 1 10,081 1,705 16.9

Indiana 1 83,000 3,258 3.9

Maryland 3 640,000 44,900 7.0

Massachusetts 1 83,000 23,100 27.8

Michigan 3 145,000 33,903 23.4

Nebraska 1 82,000 57,400 70.0

New Jersey 1 350,000 22,000 6.3

New Mexico 1 380,000 0 0

New York 9 3,336,762 17,888 0.5

Ohio 3 656,000 98,485 15.0

Pennsylvania 4 847,001 194,439 23.0

Virginia 1 23,500 4,243 18.1

Wisconsin 1 10,996 1,500 13.6

Wyoming 1 10,000 6,000 60.0

Total 34 15,151,525 552,909 3.6

Note: Estimates of the number of participants in residential customer choice programs are based

on information we received from 38 gas utilities. Most utilities provided us with estimates based

on information that was current as of July 31, 1998. Reporting dates for other utilities varied

between Mar. 31, 1998, and Oct. 1, 1998. (See table I.1 in app. I for the reporting dates of utilities

included in this table.)

aThe percent of participation was calculated by dividing the number of residential customers that

have chosen gas marketers by the number of eligible participants in a customer choice program.

Table 1 shows that, by state, the number of eligible participants and the

participation rate vary widely among residential customer choice

programs. For example, residential customer choice programs in

California and New York have by far the largest number of eligible

participants, but their programs, collectively, have relatively low

participation rates. Eleven of the 12 residential programs in these states

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B-281423 

had participation rates of under 1 percent. The four residential customer

choice programs in Pennsylvania account for about one-third of all such

participants nationwide. Residential customer choice programs in Ohio,

Michigan, and Maryland also account for a large percentage of the total

participation nationwide.

Across individual programs, participation rates varied greatly. For

instance, as of September 9, 1998, 70 percent of the 82,000 residential

customers eligible to participate in Nebraska’s KN Energy choice program

were participating. In contrast, as of August 31, 1998, none of the 380,000

eligible residential customers were participating in the Public Service

Company of New Mexico’s program because of the unavailability of gas

marketers. (See table I.1, in app. I, for the number of participants and

participation rates for each of the 34 residential customer choice programs

in our survey.)

National figures for participation in small commercial programs could not

be determined. Several gas utilities that responded to our survey kept

information for commercial customers but did not keep separate

information for small commercial customers. Also, several programs had

different gas usage requirements for small commercial participation,

making comparisons among programs unreliable. For instance, some

programs were open to all commercial customers regardless of annual gas

usage, while others set annual limits on gas usage for participation. To the

extent that information was available, table I.2, in appendix I, identifies

small commercial customer choice programs by state, the number of

eligible participants, participants, and participation rates.

Residential Participation

Rates Are Determined by a

Number of Factors

According to state regulators, gas utility representatives, and gas

marketers we spoke with, residential participation rates in customer

choice programs are determined by many factors. An important factor is

the potential of residential customers to save money by purchasing gas

from a gas marketer rather than from a gas utility. Savings are defined as

the difference between what the gas utility would charge and what the gas

marketer charges for gas delivered to a utility’s city gate. As discussed in

the next section, gas utilities told us that customers’ savings come from a

combination of gas marketers’ savings on upstream transportation and

storage costs and on the cost of gas. In some states, customers are also

achieving savings because natural gas sold by marketers is subject to

fewer state and local taxes than gas sold by local gas utilities. To the

extent gas marketers pay lower taxes, they can charge lower prices.

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State regulators, gas utilities, and gas marketers told us that other factors

influencing customers’ participation include efforts to make customers

aware of choice programs through education and outreach activities. In

Massachusetts, Bay State Gas Company was able to achieve a relatively

high rate of customer participation partially through public education

efforts coordinated through a collaborative process with state regulators,

consumer representatives, and gas marketers. Bay State Gas Company

offered customer choice to all its residential customers in Springfield,

Massachusetts, in the summer of 1997. The collaborative promotion

campaign that followed involved direct mail and billing statement inserts

from the gas utility, media advertising in 10 newspapers, four television

stations, and nine radio stations, and individual campaigns by gas

marketers. As of July 31, 1998, almost 28 percent of the residential

customers in the Springfield area had selected a gas marketer under the

program.

Another collaborative effort took place under Columbia Gas of Ohio’s

program. In this program, Columbia Gas of Ohio offered customer choice

to about 160,000 residential and 11,500 small business customers in its

Toledo, Ohio, service area beginning in April 1997. The gas utility also

collaborated with state regulators, consumer representatives, and gas

marketers to find the best way to continue, improve, and expand the

choice program. Public education efforts for this program began with a

14-day advertising moratorium, during which gas marketers voluntarily

refrained from contacting or enrolling customers. During this moratorium,

only Columbia Gas of Ohio, the Public Utility Commission of Ohio (PUCO),

and the Ohio Consumers’ Council could contact customers and inform

them of the choice program.16 The moratorium and subsequent

educational campaigns included print, television, radio, billboard and mail

advertising, news releases, and community events. As of July 31, 1998,

53,985 residential customers, or 34 percent of all eligible customers, had

chosen a gas marketer under the program.

Other programs may have encouraged participation by making it easier for

customers to participate. For example, in Nebraska and Wyoming, KN

Energy allowed customers to select gas suppliers through mail-in

balloting. For these programs, KN Energy sent ballots to all eligible

16Because of customers’ initial confusion over pricing and marketers’ offers, PUCO later extended the

moratorium’s time frame for the first 45 days of the Cincinnati Gas and Electric Company program and

for the first 90 days of the East Ohio Gas program. In addition, PUCO developed and distributed a

price comparison chart to help customers understand the pricing options available to them.

Page 14 GAO/RCED-99-30 Customer Choice Programs
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residential and commercial customers in order for them to select a gas

marketer. Balloting took place during 2-week open seasons.17

While potential savings and customer education and outreach efforts can

increase customers’ participation, program rules, such as caps on

participation, can limit overall participation. For instance, some programs

limit eligibility to less than all the customers in their service area so that

gas utilities can gain experience in administering a program prior to

broadening it. Thirteen gas utilities in our survey reported that eligibility

was limited to fewer than half of all the residential customers in their

service area. For example, under the SEMCO Energy Gas Company’s

Battle Creek Division program in Michigan, participation is capped at

1,000 residential customers, which is only 3 percent of the 32,400

residential customers in the utility’s service area. Under the Baltimore Gas

and Electric Company’s customer choice program, while all residential

customers were eligible, participation was capped at 50,000 residential

customers, which was only 9 percent of the 530,000 residential customers

in the utility’s service area.18

Many Factors Affect Gas

Marketers’ Participation

State regulators, gas utilities, and gas marketers told us that gas marketers’

participation in customer choice programs is influenced by the potential

for the gas marketers to earn a profit on their gas sales. They also said that

limits on customers’ participation in some areas may be such that a

marketer cannot expect to make a profit. For instance, some programs

limit customers’ eligibility, and gas marketers may not offer service in

these programs because they may be unable to recover administrative and

marketing costs. One marketer told us that it will not participate in a

choice program that has fewer than 100,000 eligible customers if the

service area is remote and the marketer cannot combine its marketing

effort for a remote area with its efforts to sell gas to other customers in

adjacent programs. Generally, residential customer choice programs that

had fewer eligible customers had fewer marketers offering gas services.

For example, the Central Illinois Light Company’s choice program limits

participation to 10,081 customers, which is 6 percent of the 183,058

17Aside from the two KN Energy programs, only five other gas utilities in our survey—The Peoples Gas

Light and Coke Company and Nicor Gas of Illinois, Michigan Consolidated Gas, Wisconsin Gas

Company, and National Fuel Gas of Pennsylvania—required customer choice participants to choose

gas marketers during open seasons. Other gas utilities in our survey allowed participants to choose gas

marketers through rolling enrollment.

18The utility reached this cap in Oct. 1998. Data used in this report for Baltimore Gas and Electric are

current as of July 31, 1998.

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customers in its service territory. This choice program is served by only

one marketer.

Geographical factors can also discourage marketers’ participation. For

example, in the New Mexico customer choice program, no gas marketers

are currently active for residential customers. The New Mexico Public

Utility Commission and gas utility representatives in the state reported

that marketers did not see the potential for financial benefit in the

program, given the relatively low cost of gas in the state. One gas marketer

that left the residential choice program in New Mexico told us the

administrative and advertising costs it incurred in attracting residential

customers exceeded the profits it could make in selling gas to these

customers.

The potential for gas marketers to earn profits may also be affected by

program rules, such as whether gas marketers can contract for their own

transportation services to transport gas to the gas utility. Under two

residential customer choice programs in New York—New York State

Electric and Gas and Rochester Gas and Electric—only one gas marketer

was participating in each program, and the marketers were required to

assume existing pipeline contracts. The New York Public Services

Commission reported that gas marketers may not be participating in some

state customer choice programs because their profit margins are too thin.

The commission issued an order on November 3, 1998, that would allow,

by April 1, 1999, gas marketers participating in any customer choice

program in the state to contract for their own transportation services.19

Other program rules and fees may also limit gas marketers’ participation.

For instance, several customer choice programs require gas marketers to

sign up a minimum number of customers, called aggregation requirements,

in order to participate as marketers. If these aggregation requirements are

set at a high enough level, they can limit gas marketers’ participation. For

example, in California, gas marketers must meet a 250,000-therm20

aggregation minimum in order to be able to offer services in the state’s

customer choice programs. In a January 1998 report, the California Public

19Policy Statement Concerning the Future of the Natural Gas Industry in New York State and Order

Terminating Capacity Assignment, State of New York Public Service Commission (Case 93-G-0932 and

Case 97-G-1380, Nov. 3, 1998).

20A therm is a heat measurement for natural gas that is equivalent to 100,000 British thermal units.

Each California residential customer consumed about 532 therms annually in 1996.

Page 16 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Utility Commission recommended eliminating this aggregation

requirement because it hindered marketers’ participation.21

Under the Central Illinois Gas Company program, gas marketers are

required to post a $300 bond per customer served. According to the utility,

a gas marketer complained that the bond is a barrier to marketers’

participation. This program is currently served by only one gas

marketer—the utility’s marketing affiliate. Gas marketers have told us that

other utilities require that marketers post performance bonds or security

deposits per customer served and that these costs can constitute a

financial barrier to entry for them. One gas marketer told us that a $10 per

customer security deposit requirement constituted a $200,000 “entry fee” if

the marketer wanted to supply gas to 20,000 customers in a customer

choice program.

Table I.3 in appendix I lists the number of gas marketers participating in

current small-volume customer choice programs.

Some Customer

Savings and New

Service Options

Reported for

Customer Choice

Programs

Although customer choice programs are relatively new, some information

on the impacts of these programs exists. Several gas utilities in our survey

reported that program participants achieved savings and greater service

options with no apparent reduction in service reliability. While gas utilities

reported few reliability problems with gas marketers’ deliveries, some

noted that customer choice programs are less than 3 years old and the

reliability of gas marketers’ deliveries has yet to be tested. Most gas

utilities in our survey did not provide an estimate of customer savings, in

part because their programs were in their initial stages of operation and

information on savings were unavailable from gas marketers. Savings

estimates ranged from 1 to 15 percent on total gas bills and were estimated

to come from lower transportation and storage costs, the lower cost of

gas, and savings on state and local taxes. Most gas utilities in our survey

have set up independent marketing arms, called affiliates, to sell gas as a

separate service to residential and small commercial gas users. For several

of the customer choice programs that we surveyed, these marketing

affiliates have large market shares, raising concerns about how

competitive these programs are and thus their potential to reduce prices to

customers.

21Strategies for Natural Gas Reform: Exploring Options for Converging Energy Markets, Division of

Strategic Planning, California Public Utilities Commission (Jan. 21, 1998).

Page 17 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Estimates of Savings Vary Twelve of the 38 gas utilities that responded to our questionnaire

estimated savings for residential and small commercial customers

participating in their customer choice programs. These estimates ranged

from savings of 1 to 15 percent on total gas bills compared with the

amounts that would have been paid under the prior regulated rates. Eleven

of these utilities estimated savings of at least 5 percent on monthly gas

bills. Gas utilities in our survey responded that these results likely came

from a combination of marketers’ savings on interstate transportation and

storage costs, savings on the cost of gas itself, and savings that the

marketers experience because state and local taxes are levied on utilities’

gas sales but not on marketers’ gas sales.

Savings Potential May Depend

on Components of Gas Bill

Open to Competition

All customer choice programs allow gas marketers to attract customers

through price competition on the cost of gas. However, not all programs

allow gas marketers to attract customers through price competition on the

cost of transportation services, called upstream capacity.22 Customer

choice programs that allow for price competition on both the cost of gas

and upstream capacity open a larger percentage of a gas bill to potential

price savings than customer choice programs that allow for price

competition only on the cost of gas. Figure 3 illustrates this point by

identifying the service components and their estimated costs in an average

annualized residential gas bill in the Midwest.

22As noted earlier, these costs include ones for pipeline transportation and storage that occur between

the source of gas supply and the beginning of a gas utility’s local distribution system.

Page 18 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Figure 3: Annualized Costs in a

Residential Gas Bill—Columbia Gas of

Ohio

11.1%

30.3%

40.4%

18.2%

Gas utility's local distribution costs

Metering, billing, 

other

Interstate transportation 

and storage costs prior 

to local distribution

$208

$274 $127

$78

 

Total annual costs equal $687.

Cost of 

natural gas

Note: Average annualized costs for residential customers were estimated for May 1997 to

May 1998.

Source: Columbia Gas of Ohio.

In this example, an average residential customer in the Columbia Gas of

Ohio service area pays about $687 annually for natural gas service.23 As

shown in the figure, the cost of gas amounts to 40.4 percent of the

annualized bill, while interstate transportation and storage costs (the

upstream capacity costs) account for another 18.2 percent. These costs,

23Average residential costs vary regionally on the basis of gas usage and transportation costs. Bay State

Gas Company in Massachusetts estimated annual residential costs for gas service to be $1,024 for Nov.

1997 through Oct. 1998. These costs exceed estimated residential costs in the Columbia Gas of Ohio

service area because of greater gas usage and additional gas transportation costs, given the greater

distance from gas-producing areas in the Southwest.

Page 19 GAO/RCED-99-30 Customer Choice Programs
B-281423 

almost 59 percent of the annualized bill, are pass-through costs24 from the

local gas utility to the customer. It is generally in these service

components—the cost of the gas and its delivery to the local gas

utility—that price competition in customer choice programs takes place.

Customer choice typically means a choice in the gas supply to the local

gas utility, called the city gate. The remaining 41 percent of the annualized

bill includes costs that occur after the gas utility receives the gas, such as

costs for local gas distribution through utility-owned pipelines, local gas

storage costs, the salaries of utility employees, return on investment,

billing, metering, and customer service.25

Some gas marketers and gas utilities told us that savings on the cost of gas

are likely to be small. They told us that the national market for natural gas

is competitive and that the commodity can be bought by gas utilities and

gas marketers at similar prices.

However, several gas utilities and gas marketers told us that savings on

upstream capacity can be significant. As noted earlier, to guarantee the

availability of pipeline and storage space necessary for the delivery of their

gas, gas utilities reserve upstream capacity through negotiated contracts

with pipeline companies. These contracts are often long-term—up to 20

years—for priority pipeline and storage space (called firm capacity26). Gas

utilities were often required to purchase firm long-term transportation

contracts by state regulators to ensure that gas would be delivered to

residential and small commercial customers regardless of demand.

In practice, firm capacity contracts have often meant that gas utilities had

unused capacity during off-peak periods, such as the summer months,

when the demand for gas heating is low. In other words, gas utilities

reserved sufficient capacity to meet their maximum loads, although this

meant that for the rest of the year they were paying for unused capacity

and passing these costs to their customers.

24Pass-through costs mean that regulators generally allow the utility to fully recover such costs, with

no opportunity for profit or loss, unless regulators determine some portion of upstream costs to be

excessively high or not prudent. Depending on state law, the utility may be faced with some cost

disallowances. Gas utilities generally earn profits through a regulated rate of return based on their

costs of providing local transportation for the gas and related services.

25On the basis of this example, a customer choice program that resulted in a 10-percent annual savings

for a residential customer on the cost of gas, as well as on transportation and storage costs before

local distribution, would amount to about $40, or about $3.35 a month, for the customer.

26Firm service is defined as gas sold or transported with an obligation for delivery.

Page 20 GAO/RCED-99-30 Customer Choice Programs
B-281423 

In contrast to gas utilities, gas marketers have more flexibility to serve

their customers through a mix of firm and interruptible27 capacity

contracts. In addition, gas marketers can buy capacity released from gas

utilities through a secondary market,28 at rates lower than those paid by

the gas utilities. Several gas marketers told us they believe that they can

deliver gas reliably and at less cost than gas utilities through these

contracting methods. Some gas utility representatives and state regulators

question, however, whether gas marketers have contracted for sufficient

capacity to ensure the reliable delivery of gas during periods of peak

demand. Because of gas utilities’ obligation to serve, they may not have the

flexibility to contract for short-term capacity that gas marketers have.

Figure 3 also highlights the fact that the relative size of these cost

components can limit the amount of potential customer savings. The cost

structure shown in figure 3 varies regionally, depending upon the need for

interstate transportation and gas storage. Small-volume gas users in

southwestern states pay low interstate transportation and storage costs

because of the proximity of gas-producing fields. In these states, any

significant price competition is likely to be limited to the pricing of gas

among gas marketers. However, in midwestern and eastern states,

interstate transportation and storage costs can amount to a significant

portion of a gas bill, making competition on this portion of a gas bill a

larger source of potential savings. For example, Bay State Gas Company in

Massachusetts estimates that its residential customers pay about $293

annually for the natural gas itself and nearly $271 annually for the

interstate transportation and storage of the gas prior to its local

distribution and consumption.

Utilities Report Savings on

Upstream Capacity

Eleven gas utilities in our survey responded that customer choice

programs achieved some savings for customers because gas marketers

have lower upstream transportation and storage costs than do gas utilities.

However, gas utilities were unsure of the amount of savings resulting from

these lower costs, given the unavailability of information on gas

27Interruptible service is defined as a low-priority service subject to interruption when necessary to

serve the needs of firm customers or higher-priority interruptible customers.

28In 1992, FERC Order 636 allowed, among other things, the holders of firm capacity contracts to

release capacity back to pipeline companies for resale to others. At that time, the price of resales of

pipeline capacity contracts in the secondary market were capped at regulated tariff rates, which meant

that the price paid in the secondary market would not exceed what the gas utility had paid for the

capacity, even during peak-use periods. In an Aug. 1998 notice of proposed rulemaking, FERC

proposed to remove this price cap for the resales of short-term (less than 1-year) capacity contracts.

FERC concluded that the price cap on released capacity had given gas utilities a disincentive to release

capacity in this market. Several gas marketers, gas utilities, and state regulators told us that federal

action to release the cap will enhance the efficiency of the secondary market, thereby leading to

potentially greater cost savings and possible gains in reliability.

Page 21 GAO/RCED-99-30 Customer Choice Programs
B-281423 

marketers’ sources of savings. Of the 38 gas utilities in our survey, 26 allow

for savings on upstream capacity because they allow gas marketers to

contract, at least in part, for their own transportation services. Eleven

other gas utilities in our survey do not allow gas marketers to contract for

their own transportation services. These utilities require gas marketers to

use transportation services previously contracted for by the utilities.29 In

these instances, the gas marketer is required to take this capacity at full

regulated rates and use it to deliver the gas to the gas utility.30 (See table

I.4 in app. I for a listing of customer choice programs’ rules regarding the

treatment of upstream capacity.)

As noted earlier, requiring gas marketers to use upstream capacity

previously contracted for by gas utilities is likely to mean lower potential

savings for customer choice participants. Gas marketers told us that

requiring them to use the gas utility’s existing upstream transportation

services at full regulated rates forces them to copy the utility’s gas service

and limits their ability to offer savings to customers. Gas marketers told us

that when they arrange for their own upstream capacity, they can use a

diverse portfolio of upstream capacity contracts, including firm,

interruptible, and secondary market contracts. As a result, they told us,

they can transport gas to customers at lower costs than gas utilities.

Several gas utilities and state regulators told us that if they allow gas

marketers to contract for their own transportation services, gas utilities

may be unable to recover part of the cost of existing upstream capacity

contracts. Gas utilities negotiated many of these contracts on the basis of

estimated volumes and use patterns for existing and future customers

prior to the beginning of customer choice programs. Customer choice

programs that allow marketers to contract for their own transportation

services can result in gas utilities’ having smaller customer bases to

recover their upstream capacity contracts. In other words, gas utilities

must still pay for the upstream capacity contracts they were required to

purchase to serve gas customers that no longer buy their gas and

transportation services from them. This can result in inequities if gas

utilities recover the costs of capacity contracts from only those customers

29Also referred to as mandatory capacity assignment.

30Gas utilities are tied to long-term contracts with interstate pipeline companies at the cost-of-service

regulated rates. These contracts can limit flexibility in bringing the lowest-cost gas to the city gate with

the lowest upstream capacity costs. Even if a choice program does not require mandatory assignment,

it may limit marketers’ options by specifying limited receipt and delivery points for bringing gas to the

city gate.

Page 22 GAO/RCED-99-30 Customer Choice Programs
B-281423 

currently using upstream transportation services contracted for by the

utilities.31

In many cases, gas utilities charge their customers a surcharge in order to

recover costs associated with their customer choice programs. These

costs may include program implementation costs, such as advertising and

customer education expenses, and unused upstream capacity. Nineteen

gas utilities in our survey charge their customers a surcharge in order to

recover these costs. Table I.5 in appendix I identifies whether gas utilities

charge customers to recover transition costs resulting from customer

choice programs. Importantly, such charges are often applied to all

customers that use the gas utility’s local distribution service, whether they

participate in a customer choice program or not. This can result in an

increased cost for gas service for those customers not participating in

customer choice programs.

Utilities Report Savings on the

Cost of Gas

Nine gas utilities in our survey responded that customer choice programs

achieve some cost savings because gas marketers may be able to buy gas

more cheaply than gas utilities can. One respondent noted that gas

marketers are also more likely to purchase futures contracts32 for gas,

which can minimize swings in the price of the fuel. Many gas utilities do

not use these contracts when purchasing natural gas supplies partly

because of concerns that state regulators will not allow them to recover

futures trading costs. As noted earlier, other gas utility representatives and

gas marketers have told us that savings on the cost of gas itself are likely

to be small because gas utilities, like marketers and other major gas

purchasers, can buy gas at competitive prices.

Savings Due to Tax Avoidance Sales taxes and other business taxes differ from state to state and may

even vary by locality. The amount of tax savings would also vary

considerably. Gas utilities in seven states—Illinois, Maryland, Michigan,

New Jersey, New Mexico, New York, and Pennsylvania—reported to us

that sales of natural gas by gas marketers were subject to fewer state taxes

than gas sales by local gas utilities. Thus, to the extent they paid lower

taxes, gas marketers were able to offer residential and small commercial

customers natural gas at a lower price than the local gas utility in these

states.

31Inequities can be mitigated in the short run by selling unused capacity via the secondary market. In

the long run, upstream capacity can be “turned back” to pipeline companies when capacity contracts

expire.

32Futures contracts allow the purchasers of a commodity (natural gas) to lock in a purchase price at

some point in the future. These contracts can be used to guard against unforeseen price increases in

the commodity.

Page 23 GAO/RCED-99-30 Customer Choice Programs
B-281423 

In Pennsylvania, local gas utilities pay a 5-percent gross receipts tax on

both the cost of gas and their local delivery charge. Gas utilities and other

businesses pass this tax on to consumers and often itemize it on their

monthly bills. According to gas utility representatives in Pennsylvania, if

customers purchase gas from gas marketers that do not do business in

Pennsylvania or that are not regulated by the state’s Public Utility

Commission, they avoid the tax on both the cost of gas and the delivery

charge. We were told this tax is avoided even though the local gas utility

charges for local gas delivery whether customers buy the gas from a gas

marketer or the utility. A state regulatory official told us that gas

marketers are passing this tax savings along to program customers, and

this tax savings may amount to more than half of the savings in some of

the Pennsylvania programs.

In Maryland, gas companies pay a 2-percent gross receipts tax on both the

cost of gas and the utilities’ delivery charge. However, according to gas

utility representatives in Maryland, when customers purchase gas from a

gas marketer not subject to the Maryland gross receipts tax, they avoid the

tax on the cost of gas but still pay the tax on the utility’s local delivery

charge. In Michigan, the reverse was reported by a gas utility.

In New York, local sales taxes can affect the amount of savings that

participants can expect in a customer choice program. Residential

participants in Brooklyn Union Gas’s two programs pay different sales

taxes because of local sales tax differences between counties. These

differences can range from 1 to 4 percent on the cost of gas and the local

delivery charge. In Illinois, a gas utility representative reported that gas

marketers’ sales are exempt from the state sales tax.

Until a 1998 tax change, New Jersey residential customers avoided the

state’s 13.5-percent gross receipts and franchise tax by purchasing gas

from a gas marketer rather than a gas utility. Beginning in January 1998,

New Jersey replaced this tax with separate taxes that applied equally to

gas sales from nonutilities and utilities.

As happened in New Jersey, other states may close gaps in tax treatment

between utilities’ and gas marketers’ gas sales in order to preclude the loss

of tax revenues. According to state regulators we spoke with, it is unlikely

that differential tax treatment will continue to be a significant source of

savings in customer choice programs. For the Columbia Gas of Ohio

program, the gas utility itself structured its local distribution charges to

Page 24 GAO/RCED-99-30 Customer Choice Programs
B-281423 

customers to effectively equalize the tax burden for all customers, whether

they purchased gas from the utility or a gas marketer.

Many Marketing Affiliates

Have Large Market Shares

In many states, state regulators permit gas utilities to create their own gas

marketers, called marketing affiliates, to compete with other nonutility gas

marketers for customers in customer choice programs.33 These marketing

affiliates are wholly or partly owned by the gas utility or its parent

company. For several customer choice programs that we surveyed, these

marketing affiliates had large market shares, raising concerns among state

regulators about how competitive these programs are and thus their

potential to reduce prices. Of the 38 utilities that responded to our survey,

33 had marketing affiliates that offer gas services, while 5 did not have

marketing affiliates. Of the 33 gas utilities with marketing affiliates, several

had substantial customer participation, largely because of the customer

sign-ups initiated by the marketing affiliates.

For instance, the concentration of the affiliates’ market share has been

relatively high in three of the four Pennsylvania residential customer

choice programs. The affiliate for the Equitable Gas residential choice

program served all 42,000 residential customers participating in the gas

utility’s choice program as of August 31, 1998. As of July 31, 1998, the

Peoples Natural Gas affiliate served 79 percent of all residential customers

participating in the utility’s program. As of September 10, 1998, the

National Fuel Gas affiliate served 63 percent of all residential customers

participating in the utility’s program. These choice programs account for a

significant portion of residential customers’ participation

nationwide—159,000, or 27 percent, of residential participants in customer

choice programs. Only the affiliate for the Pennsylvania Columbia Gas

program did not have the largest market share.

Another large customer choice program with a relatively high affiliate

market share is the East Ohio Gas choice program. For this program, the

East Ohio Gas marketing affiliate served 83 percent of the 32,000

participating residential customers as of March 31, 1998. All the programs

mentioned above that have high market concentrations also require that

gas marketers use the gas utility’s existing upstream transportation and

storage. The marketing affiliate in the fourth Pennsylvania program—the

Columbia Gas of Pennsylvania program—had only the third largest market

share among marketers in the program, and the program allows marketers

33FERC also prescribes standards of conduct applicable to transactions between interstate pipeline

companies and their marketing affiliates.

Page 25 GAO/RCED-99-30 Customer Choice Programs
B-281423 

the option of using the gas utility’s existing upstream transportation and

storage or contracting for their own.

In our review of the three Ohio customer choice programs, we found the

only program that required gas marketers to use the gas utility’s existing

upstream transportation and storage—the East Ohio Gas program—also

had the highest market concentration by its affiliate. The two other Ohio

programs—the Cincinnati Gas and Electric program and the Columbia Gas

of Ohio program—gave gas marketers the option to use the gas utility’s

existing upstream transportation and storage or to contract for their own.

Anticompetitive factors are a concern among state regulators we

interviewed. Gas marketers and regulators have raised concerns about the

marketing affiliates of gas utilities operating in their parent company’s

service area. Concerns include the potential for a gas utility to subsidize its

affiliate with rate-payer funds or to extend to its affiliate preferential

treatment over other marketers for any services or information. In many

states, regulators have instituted affiliate rules or codes of conduct aimed

at preventing and penalizing abuses in relationships between gas utilities

and their affiliates.

Gas Utilities Report Some

Problems With Marketers’

Reliability and Behavior

Three gas utilities in our survey reported reliability problems with

marketers, and 11 gas utilities reported problems with marketers’ conduct.

In one case, the problem reported was a failure by a gas marketer to

deliver gas to the gas utility for local distribution when required.

While some gas utilities reported few reliability problems with gas

marketers’ deliveries, some utilities and state regulators noted that

customer choice programs are less than 3 years old and the reliability of

gas marketers’ deliveries has yet to be tested. A study by the staff of the

Public Utility Commission of Ohio (PUCO) found that while marketers

demonstrated their ability to deliver directed quantities of gas to city gates

during the 1997-98 winter, that winter was unseasonably warm, and

marketers’ ability to supply quantities of gas at or above peak conditions

was not tested. The report concluded that because of limited information,

the PUCO staff could not state with any certainty that marketers’ ability to

deliver daily quantities under severe weather conditions would mirror

their performance during the 1997-98 winter.34

34Staff Evaluation of Ohio’s Natural Gas Customer Choice Programs: Columbia Gas of Ohio, East Ohio

Gas, and Cincinnati Gas and Electric Companies, submitted by the staff of PUCO (May 1998).

Page 26 GAO/RCED-99-30 Customer Choice Programs
B-281423 

While some gas utilities have concerns about gas marketers’ reliability,

particularly if gas marketers are allowed to arrange for their own

transportation of gas to a utility’s city gate, gas utilities can use

enforcement mechanisms to ensure the reliability of service. All of the gas

utilities responding to our survey reported that they have the authority to

either suspend marketers from programs or levy penalties on marketers

for failing to deliver gas according to set delivery schedules.

In addition to the mechanisms available to gas utilities to ensure gas

marketers’ reliability, the emergence of a secondary market for released

capacity gives gas marketers access to pipeline transportation. As noted

earlier, in 1992, FERC issued Order 636, which, among other things, allowed

holders of firm capacity reservations to release unused capacity back to

pipeline companies for resale to others. While this market has been

somewhat limited because of a FERC-required price cap on the resales of

pipeline contracts, FERC has recently proposed to remove this price cap. In

a May 1998 report, DOE concluded that “the unused capability of the

interstate pipeline system for transportation service appears to be

substantial.”35 DOE reported that during the 1996-97 heating year,

37 percent of the nation’s gas pipeline system capacity went unused.

Gas Marketers Offer

Customers Additional

Service Options

Thirty-one gas utilities in our survey responded that gas marketers were

offering residential and small commercial customers additional service

choices. Most of these choices provide residential and small commercial

gas users with an opportunity to reduce their exposure to wide swings in

the price of gas. Among the service choices, gas marketers most often

offered customer choice participants the option of buying their gas at a

fixed price—30 of the 31 utilities responding to our survey. Six gas utilities

responded that gas marketers were offering customers the option of a

fixed monthly bill. Gas utilities also noted that gas marketers were offering

customers nongas services, such as free carbon monoxide detectors and

the option to buy electricity and other fuels, such as propane and fuel oil.

For 27 of the programs we surveyed, gas marketers were allowed to bill

the customer directly for marketer-provided services.

Observations Competition for residential and small commercial natural gas users is

gradually emerging in the United States. Regulators, gas utilities, and gas

marketers are currently experimenting with ways to create small-volume

customer choice programs that attract gas marketers, offer savings to

35Deliverability on the Interstate Natural Gas Pipeline System, (DOE/EIA-0618(98), May 1998).

Page 27 GAO/RCED-99-30 Customer Choice Programs
B-281423 

customers, and ensure the reliability of service. While efficient,

competitive programs that fully tap the potential for customer savings and

ensure reliable service are taking time to develop, the speed of this

development may be sensitive to certain key features of program design.

Key program design features include customer education efforts, the

removal of barriers to entry for gas marketers, and the arrangement of the

upstream transportation of gas that increases the potential for customer

savings while ensuring reliability. Given geographical limitations and the

savings already achieved through past deregulation efforts, some gas

utilities, state regulators, and state legislatures may struggle with ways to

find additional savings for customers. However, in other states,

opportunities for savings exist, and collaborative efforts among regulators,

utilities, and marketers in a few programs have shown that key design

features can be successfully addressed. Competition for residential and

small commercial gas users may also provide an incentive for those

utilities wishing to continue selling natural gas to find ways to reduce the

prices they charge and offer additional services. In this way, even those

customers choosing not to switch to marketers may benefit.

Customer choice programs provide gas utilities with the opportunity to

position themselves for a more competitive environment. Some observers

believe that the changing regulatory environment and competition across

energy markets will favor utility companies that are creating energy

marketing affiliates or forging alliances with other complementary energy

companies.

Agency Comments We provided the Department of Energy with a copy of a draft of this report

for review and comment. We met with the Director and staff of the Natural

Gas Division, Energy Information Agency, as well as staff of the Policy

Office, to obtain the Department’s comments. The Department agreed with

the facts presented and provided some technical clarifications where

appropriate. The Department’s comments are presented in appendix III.

Scope and

Methodology

Through interviews with industry experts at DOE, AGA, and local gas

utilities, we determined there were 43 gas utilities that offered customer

choice programs for residential and/or small commercial gas users. To

identify the initial experiences of competition in retail gas markets and to

identify the impacts of these initiatives on small-volume customers, we

surveyed all natural gas utilities in the United States that had customer

choice programs under way as of July 31, 1998, for residential or small

Page 28 GAO/RCED-99-30 Customer Choice Programs
B-281423 

commercial customers. We designed and mailed a questionnaire to all 43

utilities that covered areas of customers’ and gas marketers’ participation,

the regulation of gas marketers, customer savings, and quality of service.

We surveyed gas utilities because they were the most available source of

information for the rules of customer choice programs and the levels of

customer’s and gas marketers’ participation.

We received responses from 38 of the 43 gas utilities. Information

presented in the report on customers’ and gas marketers’ participation,

program rules, and projected customer savings are based on these 38

responses. The results of the survey are shown in appendix II. In addition,

we conducted follow-up telephone interviews with questionnaire

respondents to clarify and add to the information gathered in the

questionnaires.36

In addition to the questionnaire, we conducted case studies on individual

programs in Ohio, Massachusetts, and New Mexico. We reviewed

customer choice programs in Ohio because industry observers noted that

the state had among the most developed programs in the country. We

selected programs in New Mexico and Massachusetts for review because

of their proximity to, and long distance from, natural gas production areas,

respectively. We interviewed natural gas utility officials, gas marketers,

state regulators, and industry experts in these states. We also reviewed

existing evaluations of gas utility customer choice programs from state

regulators, DOE’s Energy Information Agency, and AGA.

We performed our review from March through November 1998 in

accordance with generally accepted government auditing standards.

As arranged with your offices, we will send copies of this report to the

appropriate Senate and House committees. We will also make copies

available to others on request.

36Thirty-four of the 38 gas utilities responding reported they had residential customer choice programs

under way as of July 31, 1998.

Page 29 GAO/RCED-99-30 Customer Choice Programs
B-281423 

Please call me at (202) 512-3841 if you have any questions about this

report. Major contributors to this report are listed in appendix IV.

Susan D. Kladiva

Associate Director, Energy,

 Resources, and Science Issues

Page 30 GAO/RCED-99-30 Customer Choice Programs
Page 31 GAO/RCED-99-30 Customer Choice Programs
Contents

Letter 1

Appendix I 

Selected Results From

Survey Questionnaire

34

Appendix II 

Customer Choice

Survey and Results

45

Appendix II 

Customer Choice

Survey and Results

46

Appendix III 

Comments From the

Department of Energy

61

Appendix IV 

Major Contributors to

This Report

63

Tables Table 1: Overview of Residential Customer Choice Programs in

the United States

12

 Table I.1: Participation in Residential Customer Choice Programs 34

 Table I.2: Participation in Small Commercial Customer Choice

Programs

37

 Table I.3: Gas Marketers’ Participation in Customer Choice

Programs

39

 Table I.4: Natural Gas Utility Treatment of Upstream Capacity in

Customer Choice Programs

41

 Table I.5: Natural Gas Utility Treatment of Transitional Costs

Resulting From Customer Choice Programs

43

Page 32 GAO/RCED-99-30 Customer Choice Programs
Contents

Figures Figure 1: Natural Gas Delivery System From the Wellhead to the

Burner Tip

5

Figure 2: Small-Volume Natural Gas Customer Choice Programs

in the United States

10

Figure 3: Annualized Costs in a Residential Gas Bill—Columbia

Gas of Ohio

19

Abbreviations

AGA American Gas Association

DOE Department of Energy

EIA Energy Information Agency

FERC Federal Energy Regulatory Commission

GAO General Accounting Office

mcf 1,000 cubic feet of gas

PUCO Public Utility Commission of Ohio

Page 33 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

The tables in this appendix list selected results from our survey of 43 gas

utilities that had small-volume customer choice programs under way as of

July 31, 1998. Table I.1 identifies participating customers and participation

rates for residential customer choice programs. Table I.2 identifies

participating customers and participation rates for small commercial

customer choice programs. Table I.3 identifies the number of gas

marketers selling gas to small-volume customers in these customer choice

programs. Table I.4 identifies customer choice programs’ rules on the

treatment of upstream capacity. The table identifies whether gas

marketers are allowed to arrange, at least in part, for their own upstream

transportation and storage of gas or whether they are required to use

transportation services previously contracted for by the gas utility. Finally,

table I.5 identifies whether gas utilities with small-volume customer choice

programs charge fees to recover costs associated with their programs.

These costs may include program implementation costs, such as

advertising and customer education expenses and unused upstream

capacity.

Table I.1: Participation in Residential Customer Choice Programs

State and gas utility

Information

current as of

Date program

began

Customers in

service area

Eligible

customers

Participating

customers

Participation

percentage

California

Pacific Gas and

Electric Co.

July 31, 1998 Sept. 1, 1991 3,000,000 3,000,000 2,000 0.1

San Diego Gas and

Electric Co.

Sept. 1, 1998 Aug. 1, 1991 694,185 694,185 288 0

Southern California

Gas Co.

Sept. 1, 1998 Aug. 1, 1991 4,800,000 4,800,000 41,800 0.9

Illinois

Central Illinois Light

Co.

Sept. 11, 1998 Sept. 1,1996 183,058 10,081 1,705 16.9

Indiana

Northern Indiana

Public Service Co.

July 31, 1998 Nov. 1, 1997 602,269 83,000 3,258 3.9

Maryland

Baltimore Gas and

Electric

July 31, 1998 Nov. 1, 1997 530,000 530,000 25,000 4.7

Columbia Gas of

Maryland

July 31, 1998 Nov. 1, 1996 27,600 10,000 2,500 25.0

Washington Gas of

Maryland

June 30, 1998 Nov. 1, 1996 300,000 100,000 17,400 17.4

Massachusetts

Bay State Gas Co. July 31, 1998 Nov. 1, 1996 180,000 83,000 23,100 27.8

(continued)

Page 34 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Information

current as of

Date program

began

Customers in

service area

Eligible

customers

Participating

customers

Participation

percentage

Michigan

SEMCO Energy Gas

Co.-Battle Creek Div.

July 31, 1998 Apr. 1, 1997 32,400 1,000 1,003a 100.3

Consumers Energy Sept. 1, 1998 Apr. 1, 1998 1,400,000 100,000 30,000 30.0

Michigan

Consolidated Gas Co.

July 31, 1998 Apr. 1, 1997 1,100,000 44,000 2,900 6.6

Nebraska

KN Energy Sept. 9, 1998 June 1, 1998 92,000 82,000 57,400 70.0

New Jersey

New Jersey Natural

Gas Co.

July 31, 1998 Apr. 1, 1997 350,000 350,000 22,000 6.3

New Mexico

Public Service

Company of New

Mexico

Aug. 31, 1998 Dec. 1, 1997 380,000 380,000 0 0

New York

Brooklyn Union-Long

Island

Sept. 1, 1998 Apr. 1, 1996 410,922 410,922 608 0.2

Brooklyn

Union-Brooklyn,

Queens, Staten Island

July 31, 1998 May 1, 1996 1,090,800 1,090,800 11,614 1.1

Central Hudson Gas

and Electric Corp.

July 31, 1998 May 1, 1996 55,000 55,000 0 0

Consolidated Edison

Co. of New York, Inc.

July 31, 1998 May 1, 1996 935,301 935,301 4,619 0.5

Corning Natural Gas

Corp.

July 31, 1998 May 1, 1996 12,891 12,891 3 0

New York State

Electric and Gas Corp.

July 31, 1998 May 1, 1996 213,180 213,180 81 0

Niagara Mohawk

Power Corp.

July 31, 1998 Nov. 1, 1996 488,168 488,168 393 0.1

Orange and Rockland

Utilities, Inc.

Oct. 1, 1998 Nov. 1, 1996 104,500 104,500 570 0.6

Rochester Gas and

Electric Corp.

Aug. 20, 1998 Nov. 1, 1996 260,000 26,000 0 0

Ohio

Cincinnati Gas and

Electric Co.

June 30, 1998 Nov. 1, 1997 337,500 337,500 12,500 3.7

Columbia Gas of Ohio July 31, 1998 Apr. 1, 1997 1,200,000 158,500 53,985 34.1

East Ohio Gas Mar. 31, 1998 Dec. 1, 1997 1,100,000 160,000 32,000 20.0

Pennsylvania

Columbia Gas of

Pennsylvania

July 31, 1998 Nov. 1, 1996 380,000 278,000 35,489 12.8

(continued)

Page 35 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Information

current as of

Date program

began

Customers in

service area

Eligible

customers

Participating

customers

Participation

percentage

Equitable Gas Aug. 31, 1998 Apr. 1, 1998 233,500 233,500 42,000 18.0

National Fuel Gas Co. Sept. 10, 1998 Sept. 1, 1997 176,010 18,501 18,501 100.0

Peoples Natural Gas

Co.

July 31, 1998 Apr. 1, 1997 317,000 317,000 98,449 31.1

Virginia

Columbia Gas of

Virginia

July 31, 1998 Oct. 1, 1998 b 23,500 4,243 18.1

Wisconsin

Wisconsin Gas Co. Sept. 22, 1998 Nov. 1, 1996 450,000 10,996 1,500 13.6

Wyoming

KN Energy July 31, 1998 July 1, 1996 10,000 10,000 6,000 60.0

Total 21,446,284 15,151,525 552,909 3.6

aProgram slightly exceeded its participation cap.

bInformation unavailable.

Page 36 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

Table I.2: Participation in Small Commercial Customer Choice Programs

State and gas utility

Information

current as of

Date program

began

Customers in

service area

Eligible

customers

Participating

customers

Participation

percentage

California

Pacific Gas and

Electric Co.

July 31, 1998 Sept 1, 1991 270,000 270,000 9,000 3.3

San Diego Gas and

Electric Co.

Sept. 1, 1998 Aug. 1, 1991 27,540 27,540 657 2.4

Southern California

Gas Co.

Sept. 1, 1998 Aug. 1, 1991 200,000 200,000 8,000 4.0

Illinois

Nicor Gas July 31, 1998 May 1, 1998 162,000 162,000 32,617 20.1

The Peoples Gas

Light and Coke Co.

July 31, 1998 Nov. 1, 1997 86,170 72,616 13,585 18.7

Indiana

Northern Indiana

Public Service Co.

July 31, 1998 Nov. 1, 1997 a a a a

Maryland

Columbia Gas of

Maryland

July 31, 1998 June 1, 1996 3,500 1,000 388 38.8

Washington Gas of

Maryland

June 30, 1998 June 1, 1996 23,000 23,000 4,300 18.7

Massachusetts

Bay State Gas Co. July 31, 1998 Nov. 1, 1997 18,000 16,000 3,450 21.6

Michigan

SEMCO Energy Gas

Co.-Battle Creek Div.

July 31, 1998 Apr. 1,1997 2,100 2,100 411 19.6

Consumers Energy Sept. 1, 1998 Apr. 1, 1998 100,000 100,000 4,000 4.0

Michigan

Consolidated Gas Co.

July 31, 1998 Apr. 1, 1997 90,000 3,000 400 13.3

SEMCO Energy Gas

Co.

July 31, 1998 Mar. 1, 1998 22,000 22,000 3,850 17.5

Nebraska

KN Energy Sept. 9, 1998 June 1, 1998 a a a a

New Jersey

New Jersey Natural

Gas Co.

July 31, 1998 Nov. 1, 1994 a a a a

Public Service

Electric and Gas Co.

July 31, 1998 Feb. 1, 1995 176,000 176,000 17,294 9.8

New Mexico

Public Service

Company of New

Mexico

Aug. 31, 1998 Dec. 1, 1997 30,000 27,000 113 0.4

(continued)

Page 37 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Information

current as of

Date program

began

Customers in

service area

Eligible

customers

Participating

customers

Participation

percentage

New York

Brooklyn Union-Long

Island

Sept. 1, 1998 Apr. 1, 1996 45,987 45,987 3,629 7.9

Brooklyn

Union-Brooklyn,

Queens, Staten Island

July 31, 1998 May 1, 1996 38,500 38,500 5,036 13.1

Central Hudson Gas

and Electric Corp.

July 31, 1998 May 1, 1996 a a a a

Consolidated Edison

Company of New

York, Inc.

July 31, 1998 May 1, 1996 98,146 98,146 6,657 6.8

Corning Natural Gas

Corp.

July 31, 1998 May 1, 1996 901 901 56 6.2

New York State

Electric and Gas Corp.

July 31, 1998 May 1, 1996 25,132 25,132 620 2.5

Niagara Mohawk

Power Corp.

July 31, 1998 Nov. 1, 1996 39,525 39,525 2,508 6.3

Orange and Rockland

Utilities, Inc.

Oct. 1, 1998 Nov. 1, 1996 9,563 9,563 604 6.3

Rochester Gas and

Electric Corp.

Aug. 20, 1998 Nov. 1, 1996 20,000 2,000 584 29.2

Ohio

Cincinnati Gas and

Electric Co.

June 30, 1998 Sept. 1, 1994 a a a a

Columbia Gas of Ohio July 31, 1998 Apr. 1, 1997 94,000 11,500 5,226 45.4

East Ohio Gas Mar. 31, 1998 Dec. 1, 1997 80,000 12,500 2,300 18.4

Pennsylvania

Columbia Gas of

Pennsylvania

July 31, 1998 Nov. 1, 1996 1,514 a a a

National Fuel Gas Co. Sept. 10, 1998 Sept. 1, 1997 7,469 1,271 1,271 100.0

Peoples Natural Gas

Co.

July 31, 1998 June 1, 1988 a a a a

Virginia

Columbia Gas of

Virginia

July 31, 1998 Oct. 1, 1997 a 3,017 480 15.9

Wisconsin

Wisconsin Gas Co. Sept. 22, 1998 Nov. 1, 1996 30,000 1,018 730 71.7

Wyoming

KN Energy July 31, 1998 July 1, 1996 a a a a

aInformation on small commercial customers was unavailable from the gas utility.

Page 38 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

Table I.3: Gas Marketers’ Participation

in Customer Choice Programs

State and gas utility

Gas marketers selling gas

to residential customer

choice participants

Gas marketers selling gas

to small commercial

customer choice

participants

California

Pacific Gas and Electric Co. 2 16

San Diego Gas and Electric

Co. 4 8

Southern California Gas Co. 7 12

Illinois

Central Illinois Light Co. 1 a

Nicor Gas b 11

The Peoples Gas Light and

Coke Co. b 8

Indiana

Northern Indiana Public

Service Co. 3 4

Maryland

Baltimore Gas and Electric 10 a

Columbia Gas of Maryland 4 2

Washington Gas of Maryland 4 8

Massachusetts

Bay State Gas Co. 9 10

Michigan

SEMCO Energy Gas

Co.-Battle Creek Div. 2 2

Consumers Energy 3 9

Michigan Consolidated Gas

Co. 3 3

SEMCO Energy Gas Co. b 3

Nebraska

KN Energy 4 c

New Jersey

New Jersey Natural Gas Co. 8 32

Public Service Electric and

Gas Co. b 46

New Mexico

Public Service Company of

New Mexico 0 1

New York

Brooklyn Union-Long Island 8 21

(continued)

Page 39 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Gas marketers selling gas

to residential customer

choice participants

Gas marketers selling gas

to small commercial

customer choice

participants

Brooklyn Union-Brooklyn,

Queens, Staten Island 23 33

Central Hudson Gas and

Electric Corp. 0 c

Consolidated Edison

Company of New York, Inc. 12 21

Corning Natural Gas Corp. 1 1

New York State Electric and

Gas Corp. 1 8

Niagara Mohawk Power Corp. 8 18

Orange and Rockland

Utilities, Inc. 2 13

Rochester Gas and Electric

Corp. 1 4

Ohio

Cincinnati Gas and Electric

Co. 9 c

Columbia Gas of Ohio 10 10

East Ohio Gas 11 12

Pennsylvania

Columbia Gas of

Pennsylvania 7 7

Equitable Gas 2 a

National Fuel Gas Co. 4 4

Peoples Natural Gas Co. 4 20

Virginia

Columbia Gas of Virginia 5 7

Wisconsin

Wisconsin Gas Co. 2 6

Wyoming

KN Energy 3 c

aGas utility not offering small commercial customer choice program, as of July 31, 1998.

bGas utility not offering residential customer choice program, as of July 31, 1998.

cInformation unavailable from gas utility.

Page 40 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

Table I.4: Natural Gas Utility Treatment

of Upstream Capacity in Customer

Choice Programs

State and gas utility

Marketers assume utility

upstream transportation

and storage costs

Marketers arrange some

or all of their upstream

transportation and storage

California

Pacific Gas and Electric Co. X

San Diego Gas and Electric

Co. Xa

Southern California Gas Co. X

Illinois

Central Illinois Light Co. X

Nicor Gas Xb

The Peoples Gas Light and

Coke Co. X

Indiana

Northern Indiana Public

Service Co. Xc

Maryland

Baltimore Gas and Electric X

Columbia Gas of Maryland X

Washington Gas of Maryland X

Massachusetts

Bay State Gas Company X

Michigan

SEMCO Energy Gas

Co.-Battle Creek Div. X

Consumers Energy Xd

Michigan Consolidated Gas

Co. Xe

SEMCO Energy Gas Co. X

Nebraska

KN Energy X

New Jersey

New Jersey Natural Gas Co. X

Public Service Electric and

Gas Co. X

New Mexico

Public Service Company of

New Mexico f

New York

Brooklyn Union-Long Island X

Brooklyn Union-Brooklyn,

Queens, Staten Island X

(continued)

Page 41 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Marketers assume utility

upstream transportation

and storage costs

Marketers arrange some

or all of their upstream

transportation and storage

Central Hudson Gas and

Electric Corp. X

Consolidated Edison

Company of New York, Inc. X

Corning Natural Gas Corp. X

New York State Electric and

Gas Corp. X

Niagara Mohawk Power Corp. X

Orange and Rockland

Utilities, Inc. X

Rochester Gas and Electric

Corp. X

Ohio

Cincinnati Gas and Electric

Co. X

Columbia Gas of Ohio X

East Ohio Gas X

Pennsylvania

Columbia Gas of

Pennsylvania X

Equitable Gas X

National Fuel Gas Co. X

Peoples Natural Gas Co. Xg

Virginia

Columbia Gas of Virginia X

Wisconsin

Wisconsin Gas Co. Xh

Wyoming

KN Energy X

aMarketers are required to use pro-rata storage assignment for reliability.

bMarketers obtain their own upstream capacity, and they are provided with gas utility storage.

cMarketers can choose from two different delivery options.

dMarketers are required to deliver gas to the utility’s system according to a prescribed schedule.

eMarketers have access to utility-owned storage capacity.

f

Capacity assignment is not an issue in New Mexico, given the location of gas fields in the state.

gMandatory assignment of capacity is for residential customers only.

hAssignment of capacity is part mandatory and part voluntary.

Page 42 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

Table I.5: Natural Gas Utility Treatment

of Transitional Costs Resulting From

Customer Choice Programs State and gas utility

Customer charges to

recover transitional costs

No charges for

transitional costs

California

Pacific Gas and Electric Co. Xa

San Diego Gas and Electric

Co. X

Southern California Gas Co. X

Illinois

Central Illinois Light Co. X

Nicor Gas X

The Peoples Gas Light and

Coke Co. X

Indiana

Northern Indiana Public

Service Co. X

Maryland

Baltimore Gas and Electric Xb

Columbia Gas of Maryland X

Washington Gas of Maryland Xc

Massachusetts

Bay State Gas Co. X

Michigan

SEMCO Energy Gas

Co.-Battle Creek Div. Xd

Consumers Energy X

Michigan Consolidated Gas

Co. X

SEMCO Energy Gas Co. Xd

Nebraska

KN Energy X

New Jersey

New Jersey Natural Gas Co. X

Public Service Electric and

Gas Co. X

New Mexico

Public Service Company of

New Mexico X

New York

Brooklyn Union-Long Island X

Brooklyn Union-Brooklyn,

Queens, Staten Island Xe

(continued)

Page 43 GAO/RCED-99-30 Customer Choice Programs
Appendix I 

Selected Results From Survey Questionnaire

State and gas utility

Customer charges to

recover transitional costs

No charges for

transitional costs

Central Hudson Gas and

Electric Corp. X

Consolidated Edison

Company of New York, Inc. X

Corning Natural Gas Corp. X

New York State Electric and

Gas Corp. X

Niagara Mohawk Power Corp. X

Orange and Rockland

Utilities, Inc. X

Rochester Gas and Electric

Corp. X

Ohio

Cincinnati Gas and Electric X

Columbia Gas of Ohio X

East Ohio Gas X

Pennsylvania

Columbia Gas of

Pennsylvania Xf

Equitable Gas X

National Fuel Gas Co. X

Peoples Natural Gas Co. X

Virginia

Columbia Gas of Virginia g

Wisconsin

Wisconsin Gas Co. X

Wyoming

KN Energy X

Note: These costs may include program implementation costs, such as advertising and customer

education expenses, and unused upstream capacity.

aTransition costs are shared between customers and shareholders.

bBeginning November 1, 1998, there will be a charge for all commercial and residential

customers.

cCharge based on level of therms that have gone to transportation service.

dSurcharge applicable to customer choice participants.

eDual fuel customers (those that can switch between fuels) pay less than firm customers

(residentials).

f

Surcharge applied to all customers using less than 6,000 mcf (1,000 cubic feet of gas) a year.

gInformation not provided.

Page 44 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

We mailed a questionnaire to 43 gas utilities that had either, or both,

residential or small commercial customer choice programs under way as

of July 31, 1998. The questionnaire, reprinted below, contained 41

questions covering customers’ and marketers’ participation, marketers’

certification and regulation, customer savings, and quality of service. We

received responses from 38 gas utilities.

For most of the questions in the reprinted survey, we identified the

number of gas utilities that marked each box in each question. For the

questions on customers’ and marketers’ participation, we included the

results in the tables in appendix I and referred the reader to these tables.

For some questions on marketers’ participation and the estimates of

customer savings, we identified the range of responses. Also, several gas

utilities did not respond to all of the questions, so some questions have

fewer total respondents than others.

Page 45 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 46 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 47 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 48 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 49 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 50 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 51 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 52 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 53 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 54 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 55 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 56 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 57 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 58 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 59 GAO/RCED-99-30 Customer Choice Programs
Appendix II 

Customer Choice Survey and Results

Page 60 GAO/RCED-99-30 Customer Choice Programs
Appendix III 

Comments From the Department of Energy

Page 61 GAO/RCED-99-30 Customer Choice Programs
Appendix III 

Comments From the Department of Energy

Page 62 GAO/RCED-99-30 Customer Choice Programs
Appendix IV 

Major Contributors to This Report

Resources,

Community and

Economic

Development Division

Charles W. Bausell, Jr., Assistant Director

Timothy L. Minelli, Evaluator-in-Charge

Philip G. Farah, Senior Economist

Lynne L. Goldfarb, Publishing Advisor

Lynn M. Musser, Senior Social Science Analyst

(141182) Page 63 GAO/RCED-99-30 Customer Choice Programs
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