Originally created 07/30/00

Analysts debate future of prices



ATLANTA - A growing number of experts are beginning to say that the promises of Georgia's natural gas deregulation - many suppliers to chose from, lower prices and improved service - may never fully materialize.

As recently as six months ago, utilities insiders and regulators across the country were pointing to the way Georgia opened its market to competition and relaxed controls as the model other states should follow. Since then, a second marketer has gone bankrupt and a second marketer has been fined for improper sales practices.

And the Georgia Public Service Commission is considering a rule that would force marketers to give up revenue if they continue to send bills more than 90 days after services are rendered.

"Gas deregulation has been an unmitigated disaster for residential consumers," said commission Chairman Bob Durden. "I believe that other states are beginning to view Georgia as a cautionary tale."

Mr. Durden, a former economics instructor at Emory University, warns that, as the number of marketers shrinks from the original 19 certified to do business in Georgia when deregulation began to just five significant players today, they are beginning to behave like an oligopoly, a market in which a small number of sellers control prices regardless of what consumers do.

"We are moving rapidly toward an unregulated oligopoly, which is potentially as damaging to consumers as an unregulated monopoly," he said. "You can rest assured they'll start to behave that way, and they won't have to be colluding to do that."

One company will raise its prices, he predicted, and the others will follow.

Part of the problem is the speed of deregulation here, the very factor that has made the process so interesting to others nationwide. Customers switched from Atlanta Gas Light Co. to new marketers faster than anyone was prepared for, leading to billing errors and administrative problems.

That speed of conversion also put latecomers to the market at a disadvantage, according to Dennis Smith, editorial director for Chartwell, an Atlanta-based publisher of energy-market analyses. For those who missed the initial rush of switching customers, soaring commodity prices and uncertain regulatory conditions in other states are keeping managers too off balance to consider entering Georgia's market any time soon, he said.

"I don't think they're totally going to say it is a failure yet," Mr. Smith said. "They are just taking a second look. Before it unfolded, there were a lot of people saying it was going to be the greatest thing. .ƒ.ƒ. Now residential consumers are not going to think of it as a success because they are not seeing a savings."

Savings may not have shown up in residential bills, but customers have gotten some benefits, such as a choice of variable or fixed contracts. Supporters of deregulation continue to maintain that eventually additional companies will come, driving prices down as they struggle for customers.

"There are going to be some tough days before we see everybody benefit from this model," Commissioner Stan Wise said.

One oft-quoted economist disagrees. Jeff Humphreys, economic forecaster with the Selig Center at University of Georgia, says prices aren't likely to ever drop because of competition in this state's market.

Months before deregulation, Dr. Humphreys forecast that gas costs would eventually end up pretty much the same at every company as a result of competition, for two reasons. First, the Public Service Commission and Atlanta Gas already had squeezed out most of the excess costs, leaving marketers little to cut as they tried to compete.

And second, there are few opportunities for marketers to add services that customers would value enough to pay extra for. The twofold essence of the service is delivery, which Atlanta Gas still performs and which is still regulated, and the actual fuel, which has been unregulated for years and is governed by the world market for the commodity.

"There was never the possibility of huge cost savings for the average consumer," Dr. Humphreys said.

Actually, prices could go even higher, he said. With five companies conducting the same sales operations one company did under regulation, there are redundancies that could eventually prove expensive.

Most observers don't expect a call for complete reinstitution of government regulation. Mr. Durden, for example, is alone on the commission in wanting some type of price cap for residential customers.

But the experience has convinced most officials here and in many other states to go slow about any future plans to deregulate energy utilities.

Reach Walter C. Jones at (404) 589-8424.