Op-ed: More choice could lower natural gas costs
By Dan Bayens
On Oct. 30, Kentuckians woke up to a jarring headline in the Herald-Leader: "Natural gas bills to rise average of 17 percent this winter." This price hike is sure to strain family budgets, already hit hard by the economic crunch. After families have worked hard to cover obligations like mortgages and car payments, many are left with very little margin for error at the end of each month.
The retail price increases are the direct result of large jumps in the wholesale price of natural gas earlier this year, when the prices of all energy commodities reached record levels. During the summer, Kentucky's natural gas utilities purchased large quantities of gas and placed them into storage for use this winter. Purchased at high price points and stockpiled months ago, this gas will soon be used by the state's consumers, who will be paying the same high prices from the summer. By statute, natural gas utilities in Kentucky pass on their commodity costs directly to the consumer. The customer is stuck paying whatever price the utility has paid, with no opportunity to provide input, no advance notice and no choice.
There is a better way for consumers to purchase natural gas. Retail natural gas choice programs, aimed at households, small businesses and schools, allow consumers to purchase gas in advance for longer periods of time from an accredited supplier, as an alternative to their utility. Competition among suppliers stimulates innovation. Consumers benefit, as suppliers who are eager to win business strive hard to provide great value to consumers and give them unique pricing plans that offer price certainty and/or the possibility of saving money. They wind up having options well beyond what a monopoly utility can offer, including a range of service providers, price plans (both fixed and variable) and service features. Consumers have the freedom and ability to purchase gas from the supplier that they believe has the price plan that best meets their needs, much like the decisions they make for other goods and services. Regardless of whether consumers choose a supplier other than their utility, the utility continues to deliver the gas through their existing pipes, make repairs to the delivery system and respond to emergencies.
Several states enjoy the benefits of choice programs, including Georgia, Illinois and Ohio. In Kentucky, a very successful pilot program offered by Columbia Gas allows some consumers to take advantage of natural gas choice right now. Customers in the Columbia service area can compare the various options available from approved natural gas suppliers and choose to purchase gas from an alternative supplier, or stick with Columbia.
Unfortunately, consumers can only take advantage of this choice program if they live in the Columbia service area, which includes parts of Central and Eastern Kentucky. And the program suffers from being stuck in the "pilot" phase. Renewal is required every two years, and some suppliers are reluctant to set up shop in Kentucky, uncertain if the market will exist in the future. Fewer suppliers mean fewer choices for consumers. Despite these limitations, the Columbia natural gas choice program has produced solid results. Consumers have seen significant savings.
Using the Columbia Gas pilot program and other states' programs as models, the Kentucky General Assembly should enact legislation that provides for choice programs with the state's large, regulated natural gas utilities. A statewide, competitive natural gas market would attract numerous suppliers and give our state's gas users an array of pricing options. The benefits for consumers would be ample. Kentucky families should have these options available right now.
Dan Bayens is the executive director of Kentucky Consumers for Energy Competition. More information on KCEC and natural gas choice is available at www.energychoiceky.org.
