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are not an indicator of market incentive problems but rather the natural and 

 appropriate consequence of the fact that no single fuel or heating system type is 

 best for all situations. 



In the new manufactured housing and new multi- family home markets, which 

 account for roughly 25 percent of the total new homes, electricity has been the 

 dominant space and water heating fuel for the last three decades. This continues 

 to be true. In many cases, this makes sense. A large fraction of manufactured 

 housing is sited where gas is not available. And, in many cases, the higher cost of 

 installing gas equipment in multi-family housing is not economic given the low 

 annual heating requirements of these homes. 



While we believe current market conditions are generally providing sufficient 

 incentives in these markets, we will be looking at opportunities to improve 

 information and price signals as we review our conservation programs and develop 

 policy options for our 1994 Ten Year Resource Plan. 



In the existing homes market, we are currently seeing 1 to 2 percent of the electric 

 heat being converted to natural gas per year. There is also a significant amount of 

 switching to gas water heat, and there has been a dramatic shift away from fuel oil 

 heat to gas, electricity, and wood over the last two decades. So the market does 

 yield switching of fuels in response to price signals. The question is whether the 

 switching is occurring at the best pace for society's welfare. 



Although there are undoubtedly isolated exceptions, we believe that markets are 

 generally yielding appropriate fuel decisions in the large commercial and industrial 

 markets. The small commercial building market may potentially have some of the 



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