Retail Unbundling - Maryland


Status: The state has partially implemented comprehensive unbundling programs for its residential gas customers.


Overview: Almost all of Maryland's residential customers may select their gas supplier under comprehensive programs in place for the state's three largest local distribution companies (LDCs): Baltimore Gas & Electric (BGE), Washington Gas Light (WGL), and Columbia Gas of Maryland (CGMD). Originally the programs had participation caps, but now all residential customers of these three LDCs can participate. As of September 2003, the Maryland Public Service Commission (PSC) estimated that 151,233 residential customers in the state were buying gas from nonutility suppliers, down from the 162,889 enrolled in September 2002 and the 173,282 enrolled in September 2001. However, current participation is more than double the number in 1999 (81,500), and represents nearly 16 percent of those eligible to choose. All commercial and industrial customers may choose their gas suppliers.


In accordance with the Natural Gas Supplier Licensing and Consumer Protection Act of 2000, all suppliers must be licensed by the PSC. Applicants must provide proof of financial integrity, post a bond if they collect deposits from customers, and establish procedures for billing practices. The PSC is investigating whether its strict creditworthiness standards for marketers have limited marketer participation and whether LDCs should discontinue retail sales service in the future. In August 2002, the PSC stated its support of both regulated gas service and continued development of the state's existing competitive commodity market. The PSC directed that utility-specific roundtables report on specific issues identified by the PSC, including ways to facilitate fixed-price commodity service by licensed suppliers to low-income customers. If roundtables are unable to reach resolution, they may file a formal complaint or request mediation. If requested, the PSC will establish proceedings to address current customer choice issues.


Three marketers stopped serving Maryland customers during 2003. Operators Energy Services exited the retail gas market in WGL and BGE service areas, and ACN Energy and Energy America discontinued service in WGL’s area. In March 2003, the Office of People’s Counsel filed a complaint against Operators Energy Services, stating that the company had failed to give adequate notice before terminating services. A hearing was scheduled for December 2003. As of December 1, 2003, nine marketers were serving Maryland residential customers–eight in BGE’s distribution area, five in WGL’s and two in CGMD’s.


EIA State Data: In 2002, Maryland had 978,319 residential and 71,824 commercial natural gas customers. They consumed 80 and 64 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $9.61 and $6.83 per thousand cubic feet, respectively.


 Eligibility/Participation in Retail Choice Programs:


Status as of September 2003: LDC Customer Data

Local Distribution Company

Number of Residential Customers

               Eligible

Participating

 Percent of Eligible

Baltimore Gas & Electric

572,709

 70,492

12.3

Columbia Gas of MD

28,247

1,277

4.5

Washington Gas Light

 367,389

 79,464

 21.6

Total

968,345

151,233

15.6

Source: Maryland Public Service Commission (December 2003).



Maryland: Regulatory and Legislative Actions on Retail Unbundling


Summary: In February 1995, the Maryland Public Service Commission (PSC) began a "roundtable" collaborative process with the state's three largest local distribution companies -- Baltimore Gas and Electric (BG&E), Washington Gas Light (WGL), and Columbia Gas of Maryland (CGMD) -- to unbundle natural gas services. Since then, the PSC has approved several customer choice programs developed by the LDCs. The first programs extended choice only to commercial and industrial customers, but now all three LDCs have choice opportunities for residential customers. The first programs for residential customers had participation caps, but now all customers of these three LDCs may choose their own gas supplier. The programs include customer protection requirements and require that participating marketers be financially sound and have sufficient upstream capacity to ensure reliable service. The LDC is the supplier of last resort. Utility-specific roundtables have been formed to discuss several issues, including ways to facilitate fixed-price commodity service by licensed suppliers to low-income customers. In August 2002, the PSC determined that LDCs should continue providing retail sales service and ruled it premature to order otherwise.



Regulatory and Legislative Actions

Legislation

4/02

Utility Standards of Conduct Rules. Legislature amended HB 135 to allow PSC to continue to apply standards of conduct rules for gas and electric companies. The Court of Appeals (4-8-02) had overturned rules that were part of Order 76292, which implemented, in part, the restructuring and partial deregulation of the state's electric and natural gas utilities.

 

10/00

Natural Gas Supplier Licensing and Consumer Protection Act of 2000 (Section 7-601 et seq. of the Public Utility Companies Article of the Maryland Annotated Code). Directs the PSC to adopt licensing requirements and procedures for natural gas suppliers and to set consumer protection requirements for suppliers.

Regulatory Actions

8/02

Retail Gas Sales Service To Continue. PSC ordered utilities to continue retail sales service (Order 77987) and stated its support of both regulated gas service and continued development of the state's existing competitive commodity market. The PSC directed that utility-specific roundtables report by December 6, 2002, on specific issues identified by the PSC, including ways to facilitate fixed-price commodity service by licensed suppliers to low-income customers. If roundtables are unable to reach resolution, they may file a formal complaint or request mediation. If requested, PSC will establish proceedings to address current customer choice issues.

 

12/01

Gas Choice Enrollment Report. As of September 2001, about 173,282 residential customers were enrolled, accounting for 18.7 million decatherms (Dth) in annual volumes (BG&E-- 85,759 customers, 10.3 million Dth; WGL-85,535, 8.2 million Dth; CGMD-1,998, 224,415 Dth). Volumes delivered under choice accounted for nearly one-fourth of annual volumes to eligible residential customers (82.6 million Dth).

 

9/01

Retail Gas Market Conference. Included discussion on the future of the state's retail gas market and whether the PSC has authority to require utilities to discontinue tariffed retail sales service. PSC will consider comments in future policy decisions.

 

6/01

Gas Roundtable Report on Supplier Exits. Best result when supplier notifies all applicable parties in advance and also arranges shift to alternative supplier. No notice exits and bankruptcy require further review. Appendix includes case studies of supplier exits in 2000 and 2001.

 

6/01

Gas Choice Enrollment Report. The PSC reported on the status of the state's three LDC customer choice programs: As of June 2001, about 166,800 residential customers were enrolled, accounting for 19.4 million decatherms (Dth) in annual volumes (BG&E-- 91,000 customers, 11.1 million Dth; WGL-73,039, 8.0 million Dth; CGMD-1,998, 224,415 Dth). Volumes delivered under choice accounted for nearly one-fourth of annual volumes to eligible residential customers (82.6 million Dth).

 

12/00

Gas Supplier Licensing (Order No. 76643, Case 8846). The PSC adopted application and licensing procedures recommended by the gas roundtable in its 10/00 report. Regulations proposed by the roundtable will be used by the PSC on an interim basis, pending review by regulations coordinator and subsequent publication. All suppliers must be licensed by the PSC. Applicant must provide proof of financial integrity, post a bond if it collects deposits from customers, and establish procedures for billing practices.

 

9/00

Removal of Participation Cap in CGMD's Customer Choice Program (Order No. 76473, Case 8683). The PSC approved continuation of Columbia's pilot program until October 31, 2002, with certain changes. The cap on participation numbers was lifted and marketers can make their own arrangements to bring gas to CG's city gate. The PSC also approved a competitive transition cost mechanism and the selling of customer lists. The company will need further PSC approval to charge and collect stranded costs and to set the fee for customer list sales.

 

10/99

Status of Customer Choice Programs in MD. The PSC reported on the status of the state's three LDC customer choice programs: As of July 1999, about 81,500 residential customers were enrolled, accounting for 8.3 million decatherms (Dth) in annual volumes (BG&E-- 45,000 customers, 4.5 million Dth; WGL--34,000, 3.6 million Dth; CGMD--2,500, 235,000 Dth). Pilot phase of WGL's program ended Oct. 31, 1998, and pilot phase of BG&E's on Oct 31, 1999. Effective 11/1/99, all BG&E's residential customers (485,000) can choose their own supplier. All customers in BG&E's and WGL's choice programs pay a stranded cost surcharge. All BG&E, WGL, and CGMD industrial and commercial customers can choose their own supplier. As of 7/99, 17,135 smaller volume commercial customers were participating with an annual throughput volume of 22.6 million Dth. Two other LDCs (Chesapeake Utilities and NUI/Elkton) are in the process of developing customer choice programs.

 

2/98

Affiliate Transactions. Order 74038 Re Affiliate Transactions and Standards of Conduct, Case 8747. Establishes code of conduct governing relationships between a utility and its affiliates, differentiating between standards to be applied to all affiliate activities and those applicable only to energy-related ("core-service") affiliates. A utility may not give its affiliates (or affiliates' customers) 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). Any utility information disclosed to its affiliates must be simultaneously given to nonaffiliated suppliers. Joint use of equipment and certain personnel by affiliates and utilities is allowed as long as costs are allocated on a fully distributed cost basis. Asset transfers will be governed by asymmetric pricing principles (asset transfers from parent to affiliate at the greater of book cost or market value, while those from affiliates to utility at the lesser of book cost or market value). Asymmetric pricing not required for the transfer of services between a utility and affiliates. In a sale or transfer, utility assets are the tangible property included in a utility's rate base. Utilities can guarantee the indebtedness of an affiliate but cannot receive a fee for the service. Utilities must inform the PSC about all new nonutility activities on a "time-concurrent basis" and indicate the level of assets involved. Utilities must offer billing services to nonaffiliated energy marketers (but not to other nonaffiliates) so that customers can have a one-bill option. Startup costs of affiliates are supported by stockholders. Affiliates can borrow funds from the utility at market rates upon review and approval by the PSC. Promotional materials can identify associations between utilities and affiliates (including logos) but joint promotions are prohibited unless offered to other competitors. When an affiliate uses a utility's name or logo, it must include a disclaimer that the companies are separate entities.

 

7/96

Pilot program for CGMD residential customers. Approved 2-year pilot program for CGMD residential customers in western Maryland beginning 11/1/96. The program is limited to 10,000 households, on a first-come, first-serve basis. The program was developed in cooperation with the Maryland People's Counsel and several gas marketers.

 

6/96

Pilot program for WG&L residential customers. Approved 2-year pilot program for Washington Gas residential customers beginning 11/1/96. Program will be limited to 6,000 customers and/or a maximum of 2,000 decatherms per day (dth/d). Marketer pools must have a minimum of 300 customers, or 100 dth/d.

 

4/96

Code of Conduct for BG&E Affiliate Transactions. Ordered separation of BG&E utility and marketing operations and detailed 12 standards of conduct. BG&E cannot give its marketing affiliate any preference with respect to gas delivery, capacity assignment or release, contract administration, capacity allocation, customer information, discounts, etc.

 

4/95

Cost Allocation Issues. Investigation into Allocation of Costs Between Regulated and Unregulated Business Activities of the Baltimore Gas and Electric Company, Case 8577. Adopts four cost allocation principles: •Costs must be allocated on a fully distributed basis. •In transactions in which BG&E provides benefits to its affiliate, the cost of services are to be based on the full cost, including direct and indirect.•For services that BG&E could market to the public, their fair market value is to allocated as the imputed cost to the affiliate for these services. •Asset transfers will be governed by asymmetric pricing principles (see2/98 order).

 

2/95

Roundtable Collaborative. Directed the formation of a collaborative LDC roundtable process to develop unbundled services for customers of the state's three largest LDCs (BG&E, WGL, and CGMD). Consensus on unbundling issues would allow the LDCs to file unopposed restructuring plans with the PSC.

 

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File last modified: 01/31/2004