As deregulation starts, few of your customers are free to choose their suppliers. The selling prices of gas remains regulated, but gas purchases are made through competitive purchasing, and your companies profit is no longer limited or assured though cost-plus pricing. During this phase, you learn to make decisions about cost reduction, marketing, customer retention, and purchasing gas in a competitive supply market. Revenues from gas commodity sales are now separated from distribution revenues and from supply services. Finally, the industry becomes fully deregulated.
All customers are free to choose their suppliers and large amounts of customer migration can occur.
Each of your competitors strives to retain the loyalty of existing customers and attract new ones through managing selling prices, customer services and marketing activity. You still collect distribution revenue from the customers located physically in your distribution area. You also have the opportunity to implement cost reduction programs. The effects of cost reduction programs can make a significant impact on profit margins. Demand for gas fluctuates with the seasons.