Nebraska Scores High In Getting Customers to Select Natural Gas Suppliers

A December report from Congress' General Accounting Office found a Nebraska natural gas utility's effort to encourage customers to chose natural gas suppliers was one of the most successful in the nation. "...70 percent of the 82,000 residential customers eligible to participate in Nebraska's KN Energy choice program were participating," the report concluded.

Successes and Failures

A survey conducted by the Congressional agency found customer participation rates in other parts of the nation varied markedly. While the only choice program in Nebraska scored highest in the nation, other efforts performed poorly. Coming in second was KN Energy's choice effort in Wyoming where 6,000 of 10,000 customers selected a supplier. At the other extreme, not a single customer among 380,000 customers of a New Mexico utility selected another supplier. The New Mexico utility was unable to find any alternative natural gas suppliers.

KN Energy mailed all Nebraska residential and commercial customers ballots on which suppliers were listed. Customers had two weeks to return the ballots. According to the Congressional survey, more than 57,000 returned ballots. Nearly 25 percent of those participating in the balloting, more than 15,000 customers, chose a supplier other than KN Energy or one of its affiliated companies. In Nebraska, the 15,000 selected PACE as their supplier. PACE, or Public Alliance for Community Energy, is a cooperative venture of 53 Nebraska towns.

Thirty-three of the 38 utilities that participated in the Congressional survey had created affiliated or marketing companies to sell natural gas supplies to utility customers.

Choice in 16 States

According to the report, 43 natural gas utilities in 16 states have customer choice programs for residential and small commercial customers. As of July 1998, only an estimated one-half million residential natural gas customers in the nation were

participating in a program to choose a natural gas supplier out of more than 15 million eligible customers.

By the end of 1999, the American Gas Association projects that one-third, 18.1 million customers of the 54 million households with natural gas service, will be able to choose their gas supplier. The Association estimated that 40 percent of small commercial customers already have that choice.

Most utilities surveyed said they could not provide accurate information on savings realized by customers since the programs were so new. However, PACE reported that on average, its customers should save 12 percent on residential gas bills during the first year.

Also, the utilities noted the reliability of the suppliers to deliver natural gas under adverse conditions remains untested.

Savings and Volatility

The report noted that deregulation has resulted in lower prices for natural gas, but it has also brought greater price volatility. According to a U.S. Department of Energy analysis, before deregulation, utility supply contracts for natural gas were long-term sometimes for 20 years or more and very stable in price. The report noted that since deregulation, the cost of natural gas can spike quite dramatically during times of low supply and strong demand, especially during winter.

The report noted one other trend: a majority of the natural gas suppliers were offering more choices than just which company would supply the gas. Thirty of the utilities were offering to supply natural gas at a fixed price and a few were even offering the option of a fixed monthly bill. Non-gas services such as carbon monoxide detectors, electricity, propane and fuel oil were offered to customers by some of the utilities that participate in choice programs.

A copy of the General Accounting Office Report, "Energy Deregulation: Status of Natural Gas Customer Choice Programs," is available at www.gao.gov/new.items/rc99030.pdf

Return to the Winter 1999 Newsletter