ECO 436 Natural Gas

ECO 436 David Loomis Natural Gas Unbundling in IL for Small Customers 1What are benefits to unbundling? 1What are the costs? 1How is it done?

ECO 436 David Loomis Why Small Customers? All Large Commercial and Industrial customers have the option of purchasing natural gas from suppliers other than LDCs. Small volume commercial customers and residential customers do not have choice.

ECO 436 David Loomis What are the Benefits? 1Lower prices 1consumer choice 1new products and services 1more responsiveness to consumer preferences 1greater cost efficiency initiatives

ECO 436 David Loomis What are the Benefits? (cont’d) 1reduced regulatory oversight 1less cost shifting 1more innovation 1more accurate price signals LDCs - questioned if cost savings significant because of competitive gas supply

ECO 436 David Loomis What are the costs? 1potentially greater price volatility 1add’l supply risk (less reliability) 1new billing system costs 1add’l “supplier of last resort” costs 1potentially higher prices

ECO 436 David Loomis What are the costs? (cont’d) 1consumer exploitation 1new admin. & transactions costs 1potential stranded costs 1higher consumer risk 1public information and education costs 1loss of consumer protections 1marketer-questioned significance of these

ECO 436 David Loomis Features of unbundling: Ômost fundamental principle of small customer unbundling is “aggregation” concept Ômarketer buys gas for many customers within a group w/ no separate accounting for utility provided daily balancing or storage services.

ECO 436 David Loomis Possible Unbundling –transportation –balancing –standby –storage –metering –emergency services –gas supply

ECO 436 David Loomis Remaining Questions Should local utility retain the option of providing fully bundled service? Can reliability be maintained? Do marketers have to use “firm” capacity? Should ICC regulate or license marketers? Should LDC be required to release customer information?

ECO 436 David Loomis Remaining Questions (cont’d) What will be the impact of electric restructuring on gas industry? Should LDCs be required to release capacity to marketers? Is PBR preferable to residential unbundling?

ECO 436 David Loomis Residential Pilot Programs ThermQuest – CILCO – 5 year program started in 1996 Customer Select – NICOR Gas – 3 year pilot started in 1997 Peoples Gas program – 2 year program started in November 1997and extended through June 30, 2000

ECO 436 David Loomis Eligible in IL Pilot Programs TypeTotal 1998Total Eligible Pct of Total Residential3,556,736285, Commercial271,585177, Total3,828,321462,

ECO 436 David Loomis Participation in IL Pilot Programs TypeTotal Participating Pct of Eligible Pct of Total Customers Res25, Com22, Total48,

ECO 436 David Loomis Customer Select in Bloomington/Normal Started Jan. 6, 2000 Enrollment ended March 31, 2000 NICOR expanded program to all customers effective 3/1/02

ECO 436 David Loomis Customer Select in Bloomington- Normal CommunityNumberPct Participation Bloomington4,95020 Normal2,82024 Avg Participation of other Communities 23.4

ECO 436 David Loomis Other States (March 2000)

ECO 436 David Loomis Participation in Other States

ECO 436 David Loomis Participation in Other States

ECO 436 David Loomis Participation in Other States