Retail Unbundling- Michigan

Status: The state has begun the process of implementing comprehensive unbundling programs for its residential gas customers..

Overview: Michigan has begun the process of implementing voluntary customer choice programs statewide. In October 2000, the Michigan Public Service Commission (PSC) approved uniform terms and conditions for statewide unbundling (Case No. U-12550), which were developed through a collaborative process. Marketers are required to register with the PSC and comply with codes of conduct in LDC tariffs. Smaller LDCs are to develop choice programs tailored to the operational characteristics of their systems in 2002. In November 2001, the PSC approved uniform terms and conditions for customer choice programs for mid-sized LDCs, which differ somewhat from choice programs being operated by the larger LDCs. Consumer education programs are also being developed, and collaborative efforts are continuing to solicit public input on the future direction of customer choice programs in the state.

According to the PSC, nearly 240,000 residential customers participated in the natural gas customer choice program in 2000 through the three pilot programs underway in the state at that time. However, enrollment was less than 184,000 in August 2001 and about 199,000 in November 2001. Several marketers have exited the program, particularly since they were unable to match the LDC commodity rates, which were frozen during the winter of 2000-2001; for example, six marketers are registered to serve Consumers Energy Company's customers but only two are offering new deals. In October 1999, more than 168,000 of a possible 200,000 were enrolled in Consumers' pilot, but in December 2000, fewer than 139,000 of a possible 300,000 were enrolled. In October 2000, the PSC approved expansion of Consumers' choice program, which operated as a 3-year pilot from April 1, 1998, through March 31, 2001. The cap on the number of customers who can enroll in Consumers' program increased to 600,000 in April 2001, and will increase to 900,000 in April 2002, and to all 1.6 million of the company's natural gas customers in April 2003.

Pilot programs for MichCon and SEMCO Energy Gas began on April 1, 1999, with annual customer caps of 75,000 and 7,000, respectively. MichCon additionally has an annual volume cap for unbundled service to commercial and industrial customers of 10 billion cubic feet, which was reached in 2000. In November 2001, SEMCO withdrew its request to have its pilot program become permanent when the PUC refused to allow the company to continue charging fixed rates. Gas rates of the state's largest LDCs were frozen through the winter of 2000-2001. Consumers Energy's rate expired at the end of April 2001, while MichCon's frozen rate continues through December 2001 and SEMCO's through March 31, 2002.

EIA State Data: In 2000, Michigan had 2,979,832 residential customers who consumed 366 billion cubic feet of natural gas. According to the Michigan Public Service Commission, the number of commercial customers in 2000 were 229,054. EIA data indicate that natural gas consumption by commercial customers in the state totaled 186 billion cubic feet that year. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $5.11 and $4.79 per thousand cubic feet, respectively. The average city gate price in Michigan was $3.23 per thousand cubic feet.

Eligibility/Participation in Retail Choice Programs:

Status as of November 2001: Number of Customers



Customer Type

Total 2000

Eligible

Participating

Total*

Percent of 2000 Total

Total

Percent of Eligible Percent of 2000 Total
Residential 2,979,832 806,137 27.1 199,218 24.7 6.7
Commercial 229,054 60,677 26.5 14,911 24.6 6.5
Total 3,208,886 866,814 27.0 214,129 24.7 6.7

*All customers are eligible until the cap for each participating utility is reached. So far, the caps have not been reached in any year.

Sources: Total 2000 Residential Customers: Energy Information Administration, Natural Gas Annual 2000 (November 2001). Total 2001 Commercial Customers and Total Eligible and Participating: Michigan Public Service Commission.


Michigan: Regulatory and Legislative Actions on Retail Unbundling

Summary: Legislation was introduced in the Michigan House of Representatives during the 1999-2000 legislative session to allow all residential and commercial natural gas consumers in the state (approximately 3 million) to choose their own gas supplier, but the bill died in committee. During 2001, about 867,000 residential and commercial customers were eligible to participate in choice programs through three major local distribution companies (LDCs) in the state. As of November 2001, about 214,000 customers were participating.

Regulatory and Legislative Actions
Legislation 12/99 Unbundling Legislation Proposed, House Bills 5201-5207. The proposed legislation would allow all natural gas consumers to choose their own gas suppliers. The bills also specify licensing requirements for gas suppliers and establish rules and regulations for competitive natural gas services. The bills are to be considered as a package and would not take effect unless all are approved. Hearings on the proposed legislation began before the House Committee on Energy and Technology on January 20, 2000.
Regulatory Action 8/99 MichCon Pilot Choice Program Modified, Case U-12050. The Michigan Public Service Commission (PSC) approved modifications to Michigan Consolidated Gas Company's (MichCon) pilot choice program, changing enrollment and solicitation procedures. The program's name was changed from "MichCon Selects" to "Gas Customer Choice" to reduce confusion with gas supplier plans. Customers will be given a 30-day period to cancel a contract with a gas supplier, beginning 1 day after the contract is signed. Contracts must be clear and include an acknowledgment message that ensures customers know they are switching gas suppliers.
5/99 MichCon Budget Billing Option, Case U-11913. The PSC ordered MichCon to provide the budget billing option to all of its customers by the August 1999 billing cycle. As an alternative, MichCon may amend its customer choice program to allow alternative natural gas suppliers to bill customers directly. Currently, MichCon does not allow suppliers participating in its choice program to bill customers.
9/98 SEMCO Pilot Choice Program Approved, Case U-11776. The PSC allowed SEMCO to extend its aggregation transportation service (ATS) program to 21,000 residential customers in a 3-year pilot program to run from April 1, 1999, through March 31, 2001. Up to 7,000 customers will be eligible in the first year with another 7,000 in each of the following 2 years. The pilot program freezes SEMCO's gas commodity cost at $2.99 per Mcf for the 3 years. Customers will be required to pay a balancing recovery charge of $0.25 per Mcf.
4/98 MichCon Pilot Approved, Case U-11682. The PSC approved a 3-year pilot choice program for customers of MichCon, with enrollment to begin January 1, 1999. Up to 75,000 customers will be eligible during the first year and another 75,000 in each of the next 2 years for a total of 225,000. Customers who continue supply service from MichCon would be charged a flat rate of $2.95 per Mcf over the 3 years compared with the current rate of $3.17 per Mcf. The plan includes an incentive for MichCon to lower its purchased gas costs and share some of the savings with its customers.
12/97 Consumers Energy Pilot Approved, Case U-11599. The PSC approved a 3-year pilot choice program that allows Consumers Energy customers to choose their own gas supplier on a "first-come, first-served" basis, beginning April 1, 1998. Up to 100,000 customers are eligible in 1998, 200,000 in 1999, and 300,000 in 2000. For those customers who choose not to switch suppliers, Consumers Energy will continue to provide bundled service with its gas commodity charges frozen at $2.8364 per thousand cubic feet (Mcf). The company's monthly charges and distribution rates will also remain unchanged during the 3-year period. Customers choosing a new supplier who later change back to Consumers Energy will not be eligible for the flat commodity rate and would pay the higher of $2.8364 per Mcf or the current market price.
10/97 Transportation Service Approved for SEMCO's Business Customers, Case U-11220. The PSC approved expansion of SEMCO's aggregation transportation service program to allow the company's business customers the opportunity to choose their own gas supplier. Previously the program was targeted toward larger commercial and industrial customers.

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File last modified: 06/19/2002