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. 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. 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. 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. Table 1 provides information, by state, on the 34 residential customer choice programs. 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. Several gas utilities in our survey reported that program participants achieved savings and greater service options with no apparent reduction in service reliability. 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. 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. Observations

Competition for residential and small commercial natural gas users is gradually emerging in the United States.
Why GAO Did This Study

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.

What GAO Found

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.