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  Gas competition can be a pipeline to savings By Ken Zapinski, Post-Gazette Staff Writer It was supposed to be a simple experiment for 4,000 households in the South Hills suburb of Pleasant Hills. Instead, it turned into a gas explosion. In the fall of 1995, Equitable Resources Inc. suggested that Pleasant Hills residents be allowed to break with decades of regulatory practice and choose their own utility suppliers. For a two-year test period, they would be the state’s guinea pigs, testing out the forces of utility deregulation. But events quickly outran that modest plan. Peoples Natural Gas Co. last year decided to allow all of its 348,000 Western Pennsylvania customers to choose new suppliers if they wished. Columbia Gas of Pennsylvania launched its own choice program, first in Washington County, then in Allegheny County, and finally in Beaver, Butler and three other counties last month. Even Equitable got moving, releasing the 233,500 residential customers on its Western Pennsylvania system to shop for asupplier. In all, some 750,000 Pittsburgh-area residential and small business customers now have the opportunity that big business customers have enjoyed for years — the chance to save money by shopping for a cheaper gas supplier. Here's how it works. Roughly half your monthly gas bill is for the actual methane that you burn in your stove, your water heater, your furnace, maybe even your clothes dryer. The other half is for bringing the gas from the well to your doorstep and for maintaining the underground pipeline system. Customers in choice programs have the option of shopping for someone who will sell them the natural gas for less than the rate charged by their current utility. Reliability isn't an issue; the customers will remain tied to their local utility, which will continue to charge them for delivering the outside suppliers' gas each month. What consumers must decide is whether the hassles of shopping are worth five or 10 bucks a month in savings. Equitable officials compare it to buying a cake. If you want a cake, you can purchase one from a bakery. Or you can purchase the ingredients separately and put it together yourself. Baking your own may save money, but it takes effort. Same with shopping for natural gas. "You may decide it's too much time and effort, and that's your choice," one Equitable customer service official said. The utilities say they don’t worry about losing gas sales. Utilities make their money based on their investment in gas lines, meters and other equipment. Customers will continue to pay for those items even if they switch suppliers. But utility companies are forbidden from making a dime on the gas they sell. That cost is passed along to customers, dollar for dollar, according to a formula set by the PUC. And that doesn’t give utilities any incentive to be aggressive in purchasing their gas supplies. Outside suppliers, unbound by those PUC rules, on the other hand, operate like any other business. They try to buy gas at a low price, resell it to customers at a higher one and pocket the difference. The trick is for the suppliers to buy gas cheaply enough so they can sell it for a discounted price and still make a profit. Consumers already have an advantage in this game thanks to a a tax loophole that for once, works for the little guy. Customers who use outside suppliers do not have to pay the state's 5 percent gross receipts tax on their monthly bills. The loophole has been crucial, because program savings have been relatively modest. Columbia Gas said its customers saved about $8 a month last winter. But $5 of that was from not having to pay taxes. Without the tax loophole, a typical Equitable customer would only save about $1.50 a month — less than $20 a year — by switching suppliers, according to company figures. Those savings have not been big enough to stir up consumers. In the Columbia program, barely one in four customers eligible have signed up. The enrollment rate in the 18-month-old Peoples Natural Gas program is about the same. Since Equitable customers were allowed to switch six months ago, about 17 percent have done so. Suppliers have complained that it is difficult for them to make money because of the way Peoples and Equitable have set up their programs. The companies deny that. At issue is the interstate pipeline capacity that utilities use to bring gas to Pittsburgh from gas fields in Louisiana or Appalachia. The utilities signed capacity contracts back when they were supplying all their customers. Now that they don’t have to supply so many customers, they don’t need as much capacity. Peoples and Equitable have set up their programs so that, in essence, when an outside supplier snags a customer, it must also absorb the pipeline costs associated with that customer. The suppliers say this limits their flexibility and makes it tough for them to sell their gas at a low enough price to attract customers. Columbia's program is somewhat different, with all customers sharing pipeline costs, industry experts said. That has made it more attractive to suppliers. Columbia residential customers have had a choice of 10 outside suppliers. In contrast, only three residential suppliers are approved to deal on the Equitable and Peoples systems, and not all of them are selling anything. The pipeline issue has helped stall efforts to write legislation that would bring natural gas choice to all Pennsylvania customers. Another hang-up in Harrisburg: the Ridge Administration wants to tighten the gross-receipts tax loophole. That ultimately could trim the savings already enjoyed by Pittsburgh-area customers.
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