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 the wellhead, where natural gas is extracted, to the burner tip, where the fuel is used in a home or business. Before customer choice programs, the services shown in figure 1 were arranged for or directly provided by local gas utilities. 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. 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. 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 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. 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. 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. 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. 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. 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. 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. 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. 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 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. 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.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. 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. 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 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 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. 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. 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. 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 residential and commercial customers in order for them to select a gas marketer. Balloting took place during 2-week open seasons. 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. 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 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. 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-thermaggregation minimum in order to be able to offer services in the state’s customer choice programs. In a January 1998 report, the California Public Utility Commission recommended eliminating this aggregation requirement because it hindered marketers’ participation. 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. 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. 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. 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 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. 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. 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.” DOE reported that during the 1996-97 heating year, 37 percent of the nation’s gas pipeline system capacity went unused. 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. 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 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. 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. 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 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. 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. 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. 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 (continued) Apr. 1, 1997 Apr. 1, 1998 Apr. 1, 1997 Apr. 1, 1997 Apr. 1, 1996 Apr. 1, 1997 (continued) Information unavailable. Apr. 1, 1998 Apr. 1, 1997 Mar. 1, 1998 (continued) Information on small commercial customers was unavailable from the gas utility. Pacific Gas and Electric Co. San Diego Gas and Electric Co. Southern California Gas Co. Central Illinois Light Co. The Peoples Gas Light and Coke Co. Northern Indiana Public Service Co. Bay State Gas Co. SEMCO Energy Gas Co.-Battle Creek Div. Michigan Consolidated Gas Co. SEMCO Energy Gas Co. New Jersey Natural Gas Co. Public Service Electric and Gas Co. Public Service Company of New Mexico (continued) Brooklyn Union-Brooklyn, Queens, Staten Island Central Hudson Gas and Electric Corp. Consolidated Edison Company of New York, Inc. Corning Natural Gas Corp. New York State Electric and Gas Corp. Niagara Mohawk Power Corp. Orange and Rockland Utilities, Inc. Rochester Gas and Electric Corp. Cincinnati Gas and Electric Co. National Fuel Gas Co. Peoples Natural Gas Co. Wisconsin Gas Co. Gas utility not offering small commercial customer choice program, as of July 31, 1998. Gas utility not offering residential customer choice program, as of July 31, 1998. Information unavailable from gas utility. Pacific Gas and Electric Co. San Diego Gas and Electric Co. Southern California Gas Co. Central Illinois Light Co. The Peoples Gas Light and Coke Co. Northern Indiana Public Service Co. SEMCO Energy Gas Co.-Battle Creek Div. Michigan Consolidated Gas Co. SEMCO Energy Gas Co. New Jersey Natural Gas Co. Public Service Electric and Gas Co. Public Service Company of New Mexico Brooklyn Union-Brooklyn, Queens, Staten Island (continued) Central Hudson Gas and Electric Corp. Consolidated Edison Company of New York, Inc. Corning Natural Gas Corp. New York State Electric and Gas Corp. Niagara Mohawk Power Corp. Orange and Rockland Utilities, Inc. Rochester Gas and Electric Corp. Cincinnati Gas and Electric Co. National Fuel Gas Co. Peoples Natural Gas Co. Wisconsin Gas Co. Capacity assignment is not an issue in New Mexico, given the location of gas fields in the state. Pacific Gas and Electric Co. San Diego Gas and Electric Co. Southern California Gas Co. Central Illinois Light Co. The Peoples Gas Light and Coke Co. Northern Indiana Public Service Co. Bay State Gas Co. SEMCO Energy Gas Co.-Battle Creek Div. Michigan Consolidated Gas Co. SEMCO Energy Gas Co. New Jersey Natural Gas Co. Public Service Electric and Gas Co. Public Service Company of New Mexico Brooklyn Union-Brooklyn, Queens, Staten Island (continued) Central Hudson Gas and Electric Corp. Consolidated Edison Company of New York, Inc. Corning Natural Gas Corp. New York State Electric and Gas Corp. Niagara Mohawk Power Corp. Orange and Rockland Utilities, Inc. Rochester Gas and Electric Corp. National Fuel Gas Co. Peoples Natural Gas Co. Wisconsin Gas Co. Information not provided. 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. 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 The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. 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Summary: Pursuant to a congressional request, GAO provided information on: (1) initial participation in natural gas customer choice programs; and (2) the effect of these recent customer choice initiatives on residential and small commercial customers. GAO noted that: (1) 43 gas utilities in 16 states have customer choice programs for either or both residential and small commercial natural gas customers; (2) gas utilities in 11 other states and the District of Columbia are beginning or considering customer choice programs; (3) as of July 31, 1998, roughly 553,000 residential gas users were participating in customer choice programs in the United States, representing only about 4 percent of the residential customers eligible to participate in these programs; (4) national figures for participation in small commercial programs could not be determined because data were unavailable; (5) while overall participation in residential customer choice programs is generally low, participation rates vary dramatically among programs; (6) customer participation rates are determined by a variety of factors, such as the customers' potential to save money by purchasing gas from a marketer rather than a gas utility; (7) gas marketers told GAO that their participation in customer choice programs is influenced by their potential to earn a profit on their gas sales; (8) customer choice programs for residential and small commercial customers are relatively new, with most being less than 3 years old and several less than 1 year old; (9) as a result, information on these programs' impacts on customers is limited; (10) gas utilities that responded to GAO's survey reported that customers achieved savings and greater service options with no apparent reduction in reliability; (11) while gas utilities reported few problems with the reliability of gas marketers' deliveries, some noted that since customer choice programs are less than 3 years old, the reliability of gas marketers' deliveries has yet to be tested; (12) most gas utilities did not provide an estimate of customer savings because their programs were in their initial stages of operation and information on savings was unavailable from gas marketers; (13) savings estimates GAO did receive ranged from 1 to 15 percent on total gas bills and were estimated to come from lower transportation and storage costs, lower gas costs, and savings on state and local taxes; (14) most gas utilities in GAO's survey have set up independent gas marketers, called marketing affiliates, to sell gas as a separate service to residential and small commercial gas users; and (15) these marketing affiliates have large market shares, raising concerns among some state regulators about how competitive these programs can be and, thus, their potential to reduce prices.