Electric Industry restructuring will hurt gas heating and cooling markets the most in the Central and Mid-Atlantic regions of the U.S.

HAUPPAUGE, N.Y.--(BUSINESS WIRE)--Oct. 25, 1995--Natural gas distribution companies (LDCs) located in the Central and Mid-Atlantic regions of the U.S. are at the greatest risk of losing competitive ground in both their heating and cooling markets as a result of electric industry restructuring, according to the results of a study released today by Richard J. Rudden, President of R.J. Rudden Associates, Inc. (RJRA), at an American Gas Association conference dealing with the subject. Although the risks are greatest in these markets, electric restructuring poses a major competitive threat to gas utilities in the vast majority of markets.

RJRA estimated the price at which competitively marketed power could be delivered during the summer and winter seasons to end-use customers in each of three market segments (residential, commercial and industrial), and within each of the nine North American Electric Reliability Council (NERC) regions. Based on this analysis, RJRA determined the degree to which LDCs in each market would lose their energy price advantage relative to electricity in an openly competitive marketplace, i.e., one in which retail wheeling is permitted.

The results of RJRA's analyses are shown on Tables 1, 2 and 3, and a description of the regions is provided on Table 4. The Competitive Price Change Index (CPCI) shown on Tables 1 through 3 measures the relative degree to which the present natural gas price advantage over electricity would be diminished (denoted by an index with a negative value) or improved (a positive CPCI) in an environment of unbridled competition. For example, a CPCI of minus 0.30 means that natural gas would lose 30 percent of its present energy cost advantage over electricity.

"The expectation is that, overall, electricity prices will decline as the electricity industry restructures, and more customers gain access to an open grid," said Mr. Rudden, "making electricity generally more competitive with natural gas. However, the patterns of change will vary according to region, market and season. While there are some exceptions, summer electricity rates will tend to increase and winter rates will tend to decrease. This pattern will create very stiff electricity price competition within natural gas space heating markets, while opening opportunities for natural gas cooling."

According to the study, both summer and winter natural gas markets are at risk in a number of regions. The year-around residential gas markets most at risk are contained within MAIN, MAAC, NPCC and ERCOT. In the commercial sector, the LDCs whose year-around markets are most at risk are within the MAIN and MAAC regions. Thus, MAIN and MAAC appear to be the biggest potential losers within the combined residential and commercial sector.

While winter natural gas loads are threatened in the vast majority of market segments and regions, a number of regions present distinct opportunities for hedging increased winter market risks through summertime natural gas cooling. For example, the summertime gas price advantage in SERC, ECAR, SPP and MAPP could improve by between 12 to 30 percent, thereby substantially enhancing the energy cost component of the life cycle economics of gas air conditioning in these regions. Mr. Rudden stated, "if gas companies could price their summertime rates closer to their marginal supply costs, their summertime price advantage could be improved even more."

Copies of Mr. Rudden's speech before the American Gas Association are available upon request. Please call Ms. Diana Tabacco at [phone].

Founded in 1981, RJRA provides a wide range of services to the energy industry regarding strategic, managerial, operational, economic and regulatory issues. The firm advises organizations in the natural gas, electric and private power industries throughout the world. RJRA is headquartered in Hauppauge, New York (Long Island) and operates offices in Annapolis, Maryland; and Pittsburgh, Pennsylvania. -0-

COMPETITIVE PRICE CHANGE INDEX

Residential Customers

(table 1)

Region Winter Summer

MAIN -0.60 -0.21

SERC -0.56 0.19

ERCOT -0.46 -0.05

ECAR -0.44 0.24

MAAC -0.41 -0.17

SPP -0.30 0.16

WSCC  -0.30 0.05

NPCC -0.22 -0.07

MAPP -0.16 0.12

Commercial Customers

(table 2)

Region Winter Summer

MAIN -0.48 -0.02

SERC -0.45 0.30

ECAR -0.40 0.29

ERCOT -0.37 0.13

MAAC -0.35 -0.12

WSCC -0.28 0.07

SPP -0.25 0.20

NPCC -0.19 0.04

MAPP -0.05 0.23

Industrial Customers

(table 3)

Region Winter Summer

MAIN -0.37 0.20

SERC -0.36 0.55

MAAC -0.28 0.01

NPCC -0.27 0.01

ECAR -0.23 0.74

WSCC -0.07 0.31

ERCOT 0.01 0.73

SPP 0.02 0.58

MAPP 0.25 0.52

Definition of NERC Regions

Northeast Power Coordinating Council (NPCC)

New England

New York

Mid-Atlantic Area Council (MAAC)

Southeastern Electric Reliability Council (SERC)

Virginia and Carolinas

Alabama, Georgia and Eastern Mississippi

Florida

Tennessee Valley Authority 

East Central Area Reliability Coordination Agreement (ECAR)

Indiana and Western Kentucky

Pennsylvania, West Virginia and Virginia

Ohio and Eastern Kentucky

Michigan

Mid-American Interconnected Network (MAIN)

Wisconsin and Upper Michigan

Commonwealth Edison

South Central Illinois 

Eastern Missouri

Mid-Continent Area Power Pool (MAPP)

Southwest Power Pool (SPP)

Northern--Western Missouri and Kansas

Southeast--Western Mississippi, Southeastern Texas, Eastern

Arkansas, Southeastern Missouri and Louisiana

West Central--Western Arkansas, Texas Panhandle, Northeastern

Texas and Oklahoma

Electric Reliability Council of Texas (ERCOT)

Western Systems Coordinating Council (WSCC)

Arizona and New Mexico

Rocky Mountain Power Area--Colorado and Wyoming

Eastern Northwest Power Pool-- Montana, Idaho, Northern Nevada

and Utah

Western Northwest Power Pool--Washington and Oregon

Northern California

Southern California and Southern Nevada -0-

CONTACT: Diana L. Tabacco,

516/348-4090