Retail Unbundling - Pennsylvania

Status: The state has begun to implement comprehensive unbundling for its residential gas customers.

Overview: Competition for gas supply is allowed throughout most of Pennsylvania. However, as of November 2001, nearly all residential customers continue to purchase natural gas from their local distribution companies (LDCs). According to the Pennsylvania Office of Consumers Affairs, only customers in three LDC service areas (Columbia Gas of Pennsylvania, Dominion Peoples, and Equitable Gas Company) are choosing to buy gas from marketers at this time. These LDCs had conducted extensive pilot choice programs prior to the enactment of the Natural Gas Choice and Competition Act in 1999. The legislation required all LDCs with annual gas operating revenues of $6 million or greater to file restructuring plans with the Pennsylvania Public Utility Commission (PUC) by November 1, 1999. It also provided for licensing requirements for gas suppliers, which include procedures for ensuring their financial fitness, and initially designated LDCs as "suppliers of last resort." The Act also subjects municipally-owned natural gas distribution systems to regulation by the PUC. This means that all municipal systems in the state, including Philadelphia Gas Works, the nation's largest municipal system, will be required to offer their customers a choice of suppliers. In a related action, legislation was signed on May 5, 1999, that eliminated the state gross receipts tax on the sale of natural gas, effective January 1, 2000.

EIA State Data: In 2000, Pennsylvania had 2,519,523 residential and 227,992 commercial natural gas customers who consumed 263 and 145 billion cubic feet of natural gas, respectively. The average prices paid for natural gas supplied by LDCs to residential and commercial customers were $8.49 and $7.72 per thousand cubic feet, respectively. The average city gate price in Pennsylvania was $5.09 per thousand cubic feet.

Eligibility/Participation in Retail Choice Programs: Retail unbundling in Pennsylvania began in November 1996 with the implementation of pilot programs by Columbia Gas of PA (August 1996) and Equitable Gas Company (September 1996). Approximately 25,000 residential and small commercial customers were eligible to participate in these early programs. In 1997, three additional LDCs initiated customer choice programs (PG Energy, Inc., National Fuel Gas Distribution Corp., and People's Natural Gas Company). The PPUC estimates that over 855,000 residential and small commercial customers currently have the opportunity to choose an alternative supplier and approximately 30 percent of those eligible, or almost 257,000 customers, are participating.

Status as of October 2001 : Number of Customers

Customer Type

2000 Total



Total Percent of Total Total Percent of Eligible Percent of 2000 Total
Residential 2,519,523 2,519,523 100 253,734 10 10
Commercial 227,992 227,992 100 NA NA NA
Total 2,747,515 2,747,515 100 -- -- --

NA = Not available. -- = Not applicable.

Sources: 2000 Total: Energy Information Administration, Natural Gas Annual 2000 (November 2001). Eligible Total and Participation Rate: Pennsylvania Office of Consumer Advocate (November 2001).

Pennsylvania: Regulatory and Legislative Actions on Retail Unbundling

Summary: The Pennsylvania General Assembly passed the Natural Gas Choice and Competition Act in June 1999, which calls for statewide unbundling of the natural gas industry to begin on November 1, 1999, and be completed by July 2000. It directs natural gas distribution companies to file restructuring plans with the Pennsylvania Public Utility Commission that include provisions for supplier of last resort, universal service for low-income customers, and energy conservation. The PUC is in the process of formulating regulations to implement the legislation and has formed working groups to deal with safety and reliability, customer information disclosure, standards of conduct, and consumer education. The PUC also is formulating regulations concerning the licensing of natural gas suppliers. According to the schedule set by the PUC in July 1999, four LDCs were to file their restructuring plans in August 1999, two in October, three in December, and one in February 2000. Columbia Gas of Pennsylvania's restructuring plan was approved in December 1999, and the other LDC plans were approved during 2000.

Regulatory and Legislative Actions
Legislation 6/99 Natural Gas Choice and Competition Act (HB 1331). Provides for restructuring of the natural gas industry so that consumers can choose their own gas supplier. The act also deletes a 5.1-percent gross receipts tax on gas utility sales, effective 1/1/2000. A 6-percent "sales" tax will remain applicable to certain nonresidential customers. LDCs must file restructuring plans that unbundle all natural gas supply services and that specify system reliability standards and capacity contract mitigation guidelines. LDCs must also specify provisions for billing, dispute resolution, customer information, slamming prevention, etc. LDCs can continue merchant services and their affiliates can participate as marketers, abiding by code of conduct rules (interim rules adopted 11/18/99). Until 7/1/2002, an LDC can assign, release, or transfer capacity to licensed gas suppliers who in turn must accept the existing contract terms if they serve customers on the LDC's system. After 7/1/2002, the PUC can prevent assignments if it considers it warranted. Rates charged by LDCs are frozen until 2001, but LDCs can request permission to capitalize and defer costs over an "appropriate" period. LDCs can recover all costs incurred under transportation pilot programs approved before 2/1/99. Costs incurred under these pilots through 10/31/04 may be recovered if the volumetric charge does not exceed 1% of the LDC's approved volumetric charge for residential sales service. In 5 years (2004), the PUC is to evaluate the competitiveness of natural gas supply services in the state and report its findings to the General Assembly. If the market is not sufficiently competitive, further actions will be considered.
Regulatory Action 12/99 Approval of Columbia Gas Restructuring Settlement. The PUC approved customer choice for all Columbia Gas customers, as of November 1999. Customers can enroll over the Internet, by mail, or by telephone. The company will conduct a consumer education program and redesign its bill to allow easier price comparisons. The company also continues its obligation as the supplier of last resort.
11/99 Standards of Conduct. Order Re Binding Interim Standards, Docket M-00991249 F0004. A utility may not give its affiliates any preference in providing regulated services; may not tie regulated service to any other product; and may not disclose any customer-specific information (unless requested by customer). Utilities and affiliates must maintain separate books and records and any use of a utility's logo by an affiliate in the state must be accompanied by a disclaimer stating that the companies are separate entities and that the affiliate is unregulated.
11/99 Slamming Prevention. Proposed Rulemaking Re Procedures To Ensure Customer Consent to Change of Natural Gas Suppliers, Docket M-00991249F0006. Customers need to contact NGSs directly to initiate a provider change. If an intended switch has been verified (oral or written confirmation), the NGS is to notify the LDC by the end of the next business day. By the end of the next business day after receipt of the notification, the LDC is to send a written confirmation to the customer that includes notice of a 10-day waiting period in which the switch can be canceled. If a customer alleges that a switch occurred without consent, the matter is considered to be a customer registered dispute. The utility company must investigate and respond consistent with the PUC's regulations applicable to utility company dispute procedures. Unauthorized switching could result in fines being assessed and/or licenses being revoked. Companies are to keep records related to a switching dispute for 3 years.
10/99 Customer Information. Order Re Customer Information Disclosure Requirements, Docket M-009991249 F0005. Provides interim guidelines on customer information so that prices and services can be compared. Defines terminology to be used and gives guidelines for bill format, marketing materials, and disclosure statements. Companies sending customer bills must first have their sample bills reviewed by the PUC. Bills must separate the gas distribution company (LDC) charges from the gas supplier (marketer) charges and list basic charges (for services required for physical delivery of the gas to the customer) before nonbasic (for optional recurring services) ones. Disclosure statements for residential and small business customers shall include contract's terms of service, including agreed upon prices, start and end dates, specific price terms (such as variable terms), details of any promotions, exclusions, cancellation and renewal provisions, name and phone number of supplier of last resort, penalties, fees or exceptions, and definition of basic charges. Written disclosure statements shall be provided free of charge when a customer asks a company to start service or when a company proposes to change service terms. Customers are entitled to receive historical billing information at no charge at least once a year. Information about a customer cannot be provided to a third party unless the customer has been notified and given the opportunity to restrict the release of information. Customers must also be notified about the process for settling disputes.
10/99 Safety and Reliability. Interim Order on Safety and Reliability Guidelines, Docket L-00990144. Natural gas suppliers (NGSs) must deliver gas according to the LDC's existing tariff terms and guarantee that they have sufficient capacity for their firm service customers. LDCs are the supplier of last resort and function as system operators. They can impose non-performance penalties on NGSs, can set "critical day" procedures, and establish communication protocols. Each LDC is to establish an Operational and Capacity Council in an attempt to achieve consensus on outstanding operational and capacity issues.
8/99 Service Quality. Order Re Guidelines for Maintaining Service Quality, Docket M-00991249F0003. Provides guidelines for maintaining service quality under retail competition at the same level as at enactment date of the Natural Gas Choice and Competition Act and in compliance with mandated standards and billing practices. LDCs are to handle all applications for new service and develop procedures for giving customers a choice of an alternative gas supplier, giving all NGSs equal treatment. LDCs are to provide service in the interim. LDCs and NGSs are to coordinate procedures related to customer requests for the discontinuation of service and account transfers, as per existing legislation. The order also provides guidelines on dispute resolution and the application of partial payments.
7/99 Restructuring Filings. Order: Natural Gas Choice and Competition Act Filing Requirements, Docket M-00991249. Provides framework for LDCs restructuring filings. Requires LDCs to address how supply services will be unbundled and the methodology proposed to identify and separate costs. LDCs are to provide a monthly and annual breakdown of actual throughput volumes by rate schedule for calendar year 1998, or the company's most recent fiscal year, and an annual summary of the 12 months preceding the selected year. LDCs must specify provisions for: (1) billing, including formats for customers who wish a single bill for supply and distribution services and for those who wish separate bills; (2) compliance with supplier of last resort requirements; (3) resolving customer complaints about billing and about NGSs; (4) compliance with safety and reliability standards, including how system's balancing services operate; (5) addressing any limitations associated with receiving supplies at a receipt point; (6) assessing non-performance penalties, (7) proposed standards of conduct for LDC marketing activities; (8) universal service and energy conservation programs; (9) establishing working groups; (10) consumer education programs, including expected costs and proposed cost recovery mechanism; and (11) recovery of deferred costs.
7/99 Licensing of Natural Gas Suppliers. Order: Requirements for Natural Gas Suppliers, Docket M-00991248F0002. All NGSs must have a license issued by the PUC, including those companies operating in pilot programs in the state. Applicants must meet bonding requirements of the LDC in whose delivery area they are providing services and show that they are financially and technically fit to meet system reliability standards "consistent with the public interest" and the LDC's supplier-of-last-resort obligation. NGSs who are currently providing retail service in the state will be considered technically fit. The PUC may limit its oversight of NGSs to bonding, reliability, and consumer services and protections (which include compliance with legislated standards and billing practices for residential utility service). The standards of conduct approved for the state's electric restructuring will serve as a guide for drafting specific interim standards of conduct applicable to the natural gas industry.

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File Last modified: 06/19/2002