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 January 1, 2005, according to the Pennsylvania Office of Consumers Affairs, less than 8 percent of the state's residential customers purchase natural gas from alternative suppliers, down from 12.5 percent in December 2001 and 11 percent in December 2002. Customers in five local distribution companies’ (LDCs) service areas (Columbia Gas of Pennsylvania, Dominion Peoples, Equitable Gas Company, PECO Gas, and UGI Gas) are choosing to buy gas from marketers at this time. The first three of 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 subjected municipally-owned natural gas distribution systems to regulation by the PUC. This meant that all municipal systems in the state, including Philadelphia Gas Works (PGW), the nation's largest municipal system, are required to offer their customers a choice of suppliers. The company began a pilot program for 100 commercial and industrial customers in September 2002. All of the company's customers became able to choose their natural gas supplier in September 2003.


The Natural Gas Choice and Competition Act specified that after 5 years (July 2004) the PUC was to initiate an investigation or other proceeding to evaluate the competitiveness of natural gas supply services in the state and report its findings to the General Assembly. The PUC launched its investigation in May 2004 and held a special hearing on September 30, 2004. According to testimony from the state’s consumer advocate, nearly all the switching to third-party suppliers has occurred in areas that had pilot programs in place before enactment of the 1999 choice legislation. During these pilot programs, customers who switched to marketers were exempted from paying a 5 percent gross receipts tax. However, this advantage was eliminated with passage of the choice legislation which abolished the tax as of January 1, 2000. The consumer advocate also cited the difficulty in tracking the “price to compare” since it changes quarterly and the sometimes long period (up to 48 days or more) it can take for a switch to occur. Other stakeholder comments included recommendations for LDCs to purchase account receivables at an appropriate discount rate, proposals to have LDCs exit the supply function, and recommendations for consumer aggregation programs. The PUC is expected to report its findings during the next legislative session. If it is determined that the market is not sufficiently competitive, further actions are to be considered, including legislation.


EIA State Data: In 2003, Pennsylvania had 2,572,746 residential and 227,708 commercial customers who consumed 265 and 150 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 $10.87 and $9.32 per thousand cubic feet, respectively.



Eligibility/Participation in Retail Choice Programs: Retail unbundling in Pennsylvania began in November 1996 with the implementation of pilot programs by Columbia Gas of Pennsylvania (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). As of December 2004, nearly 1.6 million residential customers have access to competitive suppliers and about 181,000 are participating.


 

Status as of December 2004: Number of Customers

Customer Type

Total 2003

Eligible Dec 2004

Participating Dec 2004

Total

Percent of 2003 Total

Total

Percent of Eligible

Percent of 2003 Total

Residential

2,572,746

2,572,746

100

180,863

7.0

7.0

Commercial*

227,708

227,708

100

  22,313

9.8

9.8

Total

2,800,454

2,800,454

100

203,176

7.3

7.3

Sources: Total 2003 and Estimated Commercial Participation: Energy Information Administration, Natural Gas Annual 2003 (December 2004). Residential Participation: Pennsylvania Office of Consumer Advocate (January 2005).

 

 


LDC Customer Data as of January 1, 2005, from the PA Office of Consumer Advocate

 

            Local Distribution Company

Number of Residential Customers


Number of Suppliers

Eligible

Participating

Percent Participating

Columbia Gas

345,100

74,448

20.5

4

Dominion Peoples

326,583

82,410

25.0

2

Equitable

239,104

19,105

8.0

1

PECO Gas

423,893

 1,819

 0.4

1

UGI Gas

274,054

3,081

1.1

1

Other (6)

947,249

0

0

0

Total 

2,555,983

180,863

7.1

4

Sources: Number of Residential Customers: Pennsylvania Office of Consumer Advocate (January 2005). Number of Suppliers: Local distribution company web sites.



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 called for statewide unbundling of the natural gas industry to begin on November 1, 1999, and be completed by July 2000. It directed 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 formulated regulations to implement the legislation using the input from 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.


The Natural Gas Choice and Competition Act specified that after July 1, 2004, the PUC is to initiate an investigation or other proceeding 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, the PUC is to reconvene the stakeholders to consider measures, including legislative, for encouraging competition. The PUC began its investigation in May 2004 and held a hearing in September 2004, which included testimony from LDCs, marketers, consumer advocates, and industry representatives.


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

09/04

Special Hearing Held to Determine Competition Level. The PUC heard comments from natural gas suppliers, natural gas distribution companies, consumer advocates, and industry representatives as to the status of competition in the retail natural gas market. In general, companies cited a falloff in the number of participating marketers and customers.

 

05/04

Investigation Launched into Status of Retail Competition. The PUC directed LDCs and suppliers to provide data on gas sales, transportation volumes, and the number of customers served since 1999, as part of its investigation into the competitiveness of natural gas supply services in the state. The data and any comments are due by August 27, 2004, and a hearing is scheduled for September 30, 2004. At the conclusion of the investigation, the PUC is to report its findings to the General Assembly.

 

10/03

Interagency Coordination Working Group Formed. The PUC voted to create a working group for enhanced interagency coordination on natural gas matters. The PUC is also joining with the Council for Utility Choice to educate consumers about rising gas prices and payment plan options.

 

09/03

Permanent Standards of Conduct Proposed. The PUC adopted an order to start the formal rulemaking process for permanent standards of conduct to govern relationships between LDCs and affiliated suppliers. The proposed standards are essentially the same as the interim standards adopted in November 1999. If approved by the PUC, the standards will be reviewed by the General Assembly and the Independent Regulatory Review Commission before becoming effective.

 

03/03

Approval of Pennsylvania Gas Work’s (PGW) Restructuring Settlement. The PUC approved customer choice for all PGW customers, as of September 2003.

 

01/00

Hearing Set on Approval of National Fuel Gas Distribution Corporation’s Restructuring Settlement. Public hearing scheduled on customer choice program for all National Fuel Gas customers, which is set to begin on July 2000.

 

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: 01/31/2005