Retail Unbundling - Massachusetts

 

Status: The state has unbundling programs for its residential gas customers, but participation is quite limited.

 

Overview: Massachusetts used a collaborative effort to develop a program of unbundled retail natural gas service for customers of the 10 investor-owned local distribution companies (LDCs) in the state. Participants in the collaborative included the LDCs, marketers, consumer groups, government agencies, and the state regulatory agency, the Department of Telecommunications and Energy (DTE). In October 2000, the DTE approved final rules governing unbundled services and model terms regarding capacity assignment, default service, and peaking service. These rules specify that LDCs will continue to be responsible for assuring upstream capacity on interstate pipelines for the first 3 years of a 5-year transition period. In the mean time, DTE and the collaborative participants will work out the details of capacity assignment and cost recovery for LDCs as interstate pipeline capacity is shifted to marketers.

 

The DTE began an investigation in January 2004 to determine whether retail markets are sufficiently competitive to allow LDCs to assign interstate pipeline capacity voluntarily rather than on the currently mandated basis. The investigation is ongoing, with most LDCs advocating for the status quo and most marketers advocating for changes to the capacity-assignment methodology. Comments from the Attorney General’s office noted the apparent lack of choice for residential customers in that no suppliers are currently offering services to household consumers. As of December 2004, 12 suppliers and 13 retail agents had been approved to provide retail service in the state, but only two retail agents had expressed interest in serving the residential market. According to the DTE, 83 residential customers and approximately 8,500 small and medium-sized commercial customers were receiving unbundled service as of December 2004. Industrial and large commercial customers have had a choice of gas suppliers since 1993.

 

EIA State Data: In 2003, Massachusetts had 1,315,103 residential and 124,019 commercial customers. They consumed 126 and 71 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 $12.46 and $10.48 per thousand cubic feet.

 

Eligibility/Participation in Retail Choice Programs:


Status as of December 2004: Estimated Number of Customers

 




Customer Type

 

 

Total 2003

Eligible 2004

Participating 2004

Total

Percent of 2002 Total

 Total

Percent of Eligible

Percent of 2003 Total

Residential

1,315,103

1,315,103

100

83

 0.01

 0.01

Commercial/Industrial

134,981

134,981

100

13,917

10.3

10.3

Total

1,450,084

1,450,084

100

 14,000

 1.0

 1.0

 

Sources: Total 2003: Energy Information Administration, Natural Gas Annual 2003 (December 2004). Eligibility and Participation: Massachusetts Department of Telecommunications and Energy (January 2005).

 

 

Massachusetts: Regulatory and Legislative Actions on Retail Unbundling

 

Summary: Retail unbundling was scheduled to begin April 1, 2000, although participation was virtually nonexistent. On February 1, 1999, the Massachusetts Department of Telecommunications and Energy (DTE) (formerly the Department of Public Utilities) issued Docket 98-32-B, outlining many of the terms and conditions for the retail choice program, including a 5-year transition period. Because DTE found that the upstream, interstate capacity market is not competitive, local distribution companies (LDCs) were to retain the responsibility for acquiring interstate pipeline capacity, with the situation to be reviewed after 3 years. In January 2004, the DTE launched an investigation into whether the market is sufficiently competitive to change the capacity assignment methodology. The investigation is ongoing as of January 2005.

 

Regulatory and Legislative Actions

Regulatory Actions

1/04

DTE Opens Investigation Re Capacity (DTE 04-1). DTE began a proceeding to determine whether the upstream capacity market is competitive enough to change the current mandatory capacity assignment approach. Currently capacity is assigned to others through a mandatory assignment mechanism at maximum tariff rates (LDCs annual cost) with LDCs having recall rights. The "migrating" customer is assigned its pro rata share of upstream pipeline and storage capacity based on its contribution to peak-day demand.

Regulatory Actions

10/02

DTE Approves Use of Risk-Management (DTE 01-100-A). DTE will allow LDCs to establish risk management plans that (1) allow voluntary participation by customers, (2) have primary goal of reducing price volatility, (3) ensure fair competition in gas supply, (4) allocate costs only to participants, (5) demonstrate what effect plan has on price transparency, and (6) have no incentive mechanisms. DTE concluded that risk management programs would not adversely affect customer choice if they give all customers the chance to obtain more stable prices and costs are allocated only to those who participate and “ensure efficient competition among all suppliers involved in the merchant business.”

 

10/00

DTE Approves Company-Specific Filings for Gas Transportation Service (DTE 98-32-E). These are business rules to govern the administration of customer-choice programs to LDC customers. They also establish procedures for the provision of supplier sales service and LDC distribution and default service.

 

10/00

DTE Adopts Final Rules Governing Natural Gas Unbundling (DTE 98-32-E). (Rules found in section 220 C.M.R §§14.00 et seq.). LDCs are supplier of last resort. Marketers must file articles of incorporation and bylaws with DTE to become an approved supplier. Supplier must give at least 10 days notice before terminating service. Signed and dated request from customer is necessary before supplier can begin service. Marketer cannot require security deposit from customers. Terms of service are to be spelled out clearly, and eligibility for discount rates are to be standardized.

 

2/00

DTE Approves Model Tariff Terms and Conditions re/ Capacity Assignment, Default Service, and Peaking Service (DTE 98-32-D). Companies must submit tariffs within 21 days that comply with approved terms for review by DTE or identify and justify differences. The Collaborative is to file its customer education plan and electronic business transaction report for DTE review.

 

12/99

Proposed Regulations for Unbundled Market. On 12/17/99, DTE opened docket DTE 98-32-E to consider regulations proposed by LDCs to govern unbundled service.

 

11/99

Proposed Model Terms and Conditions. On 11/15/99, DTE opened docket DTE 98-32-D to consider Supplemental Model Terms and Conditions submitted by LDCs. The proposal covers capacity assignment, default service, and peaking service.

 

10/99

Portfolio Auction Contracts. On 10/18/99, DTE approved the 3-year gas supply portfolio auction contract by Boston Gas, Colonial Gas, and Essex Gas. On 10/20/99, DTE approved the 1-year capacity auction of its gas supply resources by Berkshire Gas.  

 

4/99

Agreement on Interim Capacity Assumptions. On 4/2/99, DTE approved a settlement agreement concerning interim capacity assumptions. The settlement was designed to facilitate the assignment of capacity costs during the transition to an unbundled market, pending the completion of model terms and conditions, regulations for the unbundled market, interruptible transportation, and an initial assignment of downstream capacity. 

 

2/99

Retail Unbundling Order, DTE 98-32-B. The Massachusetts DTE ordered that unbundled gas services would begin Nov. 1, 1999, under a 5-year transition period. LDCs will remain responsible for acquiring upstream capacity with review after 3 years. Cost allocation issues will also be reviewed.

Upstream Capacity Allocation. LDCs must provide "default service" to any customer that does not choose an alternative supplier or returns to the LDC for service. Capacity will be assigned to others through a mandatory assignment mechanism at maximum tariff rates (LDCs annual cost) with LDCs having recall rights. The "migrating" customer will be assigned its pro rata share of upstream pipeline and storage capacity based on its contribution to peak-day demand. Once the capacity is assigned to an alternative supplier, the supplier will have the ability to remarket the capacity and serve its customers with any combination of resources it has available.

Downstream Assets. LDCs must unbundle downstream assets (storage facilities for propane or liquefied natural gas) and make them available to competitors to the extent that operations permit. DTE expects that eventually these assets will be available to marketers on a fully competitive basis.

Portfolio Auction. DTE approved the concept of a portfolio auction whereby LDCs would transfer management of their upstream pipeline capacity, storage, and gas supply commodity contracts to marketers for 3 to 5 years. The auction is not mandatory because DTE could not determine that it would benefit all LDCs. However, any LDC that does not institute such a program must justify its decision to DTE. The Massachusetts Gas Unbundling Collaborative (formed in 1997) was asked to "develop standards concerning wholesale and retail marketers' participation in the market area in connection with the Portfolio Auction" and present them to DTE for review. DTE will review any upstream capacity management program auctioned by an LDC and must approve any auction award prior to implementation.  

 

11/98

LDC and Marketer Agreement on Model Terms and Conditions for Unbundled Service. DTE approved the settlement agreement concerning model terms and conditions for unbundled gas distribution services proposed on 7/10/98 by the LDCs and the marketer group (<http://www.magnet.state.ma.us/dpu/gas/98-32-a/98-32-a.htm>) The two groups agreed to most sections of the document. By entering into the agreement, both groups agreed that the settlement "shall serve as the basis for LDC compliance filings" and that individual LDCs may propose, and must fully support, any modifications to the settlement made in these filings.

 

7/98

Proposed LDC and Marketer Agreement. The LDCs and the marketer group proposed a settlement agreement concerning model terms and conditions for unbundled gas distribution services. The proposal was docketed as DTE 98-32-A. 

 

4/98

Notice of Inquiry into Unresolved Issues of Collaborative. DTE issued a Notice of Inquiry (NOI) (docket DTE 98-32) in response to unresolved issues in the March 1998 report of the MA Gas Unbundling Collaborative. The NOI encompassed all issues associated with comprehensive unbundling of natural gas services in the state and focused on (1) capacity disposition, both upstream and downstream and (2) associated cost responsibility. 

 

3/98

Collaborative Report. The Massachusetts Gas Unbundling Collaborative reported its progress in developing a common set of principles for the comprehensive unbundling of natural gas services in the state <http:www.magnet.state.ma.us/dpu/gasunb.htm>. While consensus was reached on many points, there was no consensus on the disposition of capacity and any associated cost responsibility, and DTE's guidance was requested. 

 

7/97

Massachusetts Gas Unbundling Collaborative. The Department of Public Utilities, now the Department of Telecommunications and Energy (DTE), issued "Comprehensive Unbundling of Natural Gas Local Distribution Companies' Services" (<http:www.magnet. state.ma.us/dpu/gasunb.htm>), which directed the state's 10 investor-owned LDCs to initiate an industry-wide collaborative process to develop a common set of principles for the comprehensive unbundling of natural gas services in the state. The Department referred to the principles in its electric restructuring docket (DPU 95-30) as a guide for unbundling in the natural gas industry. As a result of the directive, the LDCs formed the Massachusetts Gas Unbundling Collaborative. One of the LDCs, Bay State Gas Company, had already begun its own collaborative effort related to its company-specific unbundling filing. Other participants were marketers, customer groups, state government agencies, and DTE. 

Investigative Studies

2/98

Bay State Collaborative Closed. Bay State Gas Company brought its company-specific collaborative process to a close after determining that it would be unable to reach a comprehensive settlement. 

 

4/97

Bay State Collaborative Started. Bay State Gas Company began a collaborative to examine unbundling issues related to its pilot project that began in July 1996.  

                                                                                                                                    

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File last modified: 01/31/2005