Hot Air Rises with Natural Gas Prices

By Benita M. Dodd

Hindsight being 20/20, the critics who back in 1997 were doomsaying the deregulation of Georgia’s natural gas market are back again, gleefully pointing to high energy bills as a reason to return to the good old days when energy was “cheap” under the watchful reins of Big Brother.  

“When we deregulated natural gas we were told … that it was going to spur competition and that the competition was going to lower the gas [prices],” Democratic state Rep. Georganna Sinkfield complained recently as the House debated legislation involving a new liquid natural gas pipeline. “And therefore our consumers would be so much better off.”

“We found that just the opposite happened and we found that our constituents and consumers were worse off.”

Baseless as they are, such emotional outbursts have fueled the fires in many worried households where energy bills climbed this winter. Some Georgians are even turning their thermostats to a bone-chilling 64 degrees, one news agency reported earnestly. The General Assembly, fortunately, must be warm and toasty, considering the hot air from some energetic legislators seeking the state to declare a state of emergency and re-regulate the gas market. Others want to prohibit utilities from disrupting service for unpaid bills in households that are low-income, or contain a person who is elderly, disabled or under age 6 – in other words, just about any household in Georgia.

As this Foundation has pointed out before, some of the fault for high energy prices lies in shortages due to disruptions of the natural gas supply by hurricanes Rita and Katrina. A whole lot more of the fault lies not in the utilities but in ourselves. Americans have buried their heads in the sand while activists persuaded policy-makers to prohibit drilling and exploration of promising sites. Now that supplies are tight, we’re paying the price for our apathy as a tenuous supply is overtaken by a growing demand.

Wiser heads are prevailing in the General Assembly, fortunately. Legislators are urging the Public Service Commission to facilitate an increase in nuclear power facilities in the state, and asking the Southern States Energy Board to inventory and study the possibility of exploring for natural gas in the coastal areas of Georgia, which has been off-limits since a 1982 federal moratorium. The proposals of a joint Natural Gas Infrastructure Study Committee established in 2005 are likely to yield promising new sources for the state, too. Governor Sonny Perdue’s promise of a comprehensive energy plan, Georgians must hope, will cover conservation measures without stifling mandates.

These are all future prospects, however, and Georgians facing big bills worry now about the wisdom of deregulation, seeking hard evidence that marketers aren’t holding their feet to the fire.

Consumers like consistency, which is one of the attractions of regulation. The question is, are Georgians worse off since deregulation? First, now customers can choose providers. The Web site provides a list of providers in a given ZIP code and offers a comparison of prices. For 30066, Marietta, the site listed six providers – a far cry from the single provider of 1997. Providers offer customers special offers, including a choice in sign-up incentives and no fee for an unhappy customer to switch or terminate services; some waive any monthly charge.

Second, the competitive marketplace has provided Georgians with the choice of locking in a long-term rate in a six-, 12- or 24-month contract or, taking the chance that natural gas prices – and the weather – will remain fairly stable, choose to go with a variable monthly rate.

Much has been made about the high prices in Georgia: Nationally, residential customers paid $14.76 per 1,000 cubic feet in December 2005, according to the Energy Information Administration. Georgians averaged $19.34 per 1,000 cubic feet, which was a 47.4 percent increase over December 2004. Tennesseans averaged $17.23 last December, a 52.9 percent increase. South Carolinians averaged $19.32, a 55.8 percent increase. But customers in those two states were unable to make a choice among marketers or lock in lower rates.

In fact, according to an analysis by Atlanta Gas Light, a Georgia customer in a midsize home using 150 therms of natural gas per month could pay an average of $196 on a fixed rate plan; $242  on a variable rate plan or $273 to a municipality not affected by the deregulation of Atlanta Gas Light. By contrast, the same customer would have paid $269 in Alabama; $256 in Tennessee, $245 in North Carolina; $277 in South Carolina and $282 in Florida.

Conspiracy theorists question how marketers can charge different rates for the same gas, coming in on the same pipeline. Is the provider with the higher price ripping off consumers? The answer lies in the ability to make smart business decisions and act quickly. Natural gas is a commodity, and marketers are able to buy and sell just like an investor in the stock market, banking on a contract being large enough to meet demand while keeping prices reasonable and competitive.

The question is whether Georgians want to keep their freedom of choice and ability to operate in an open marketplace, or allow the wheels of government to grind on their behalf.

Benita M. Dodd is vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (March 3, 2006). Permission to reprint in whole or in part is hereby granted, provided the author and her affiliations are cited.