Retail Unbundling - Pennsylvania

Retail Unbundling - Pennsylvania
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Status: The State has begun to implement comprehensive unbundling for its residential gas customers.

Overview: Competition for gas supply has been allowed in Pennsylvania since enactment of the Natural Gas Choice and Competition Act in 1999. However, as of January 1, 2006, according to the Pennsylvania Office of Consumers Affairs, only 6.4 percent of the State's residential customers purchase natural gas from alternative suppliers, down from about 7 percent in December 2004 and 10 percent in December 2001. Furthermore, the State Public Utility Commission (PUC) has determined that effective competition in the retail natural gas supply market does not exist on a statewide basis at this time. In its report to the General Assembly in October 2005, which was mandated after 5 years of deregulation, the PUC concluded that the number of suppliers and buyers in choice programs across the State was insufficient for effective competition and that the marketplace “lacks accurate and timely price signals.” The report noted that suppliers felt that substantial barriers to market entry exist because of the local distribution companies’ (LDCs) differing and high security requirements, excessive and varying penalties for non-delivery, differing nomination and delivery requirements, and misleading price comparisons. Because of the report’s findings, the PUC called on stakeholders to come together to consider what actions should be taken to encourage competition on a statewide level, such as changes to market structure and operation and to regulatory and legislative guidelines (incentives). The first meeting is scheduled for March 2006.

Customers in five 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 legislation. At a hearing in September 2004, the consumer advocate noted that nearly all the switching to third- party suppliers has occurred in areas that had extensive pilot programs in place before the choice legislation was enacted. 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 noted that participation in choice programs may be hindered by 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.

All marketers must be licensed by the PUC in order to provide natural gas service in Pennsylvania. As of January 2006, 28 marketers were licensed to serve residential customers in the State, but only 4 companies were enrolling new customers.

EIA State Data: In 2004, Pennsylvania had 2,591,458 residential and 231,050 commercial customers who consumed 248 and 143 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 $12.27 and $10.59 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 2005, nearly 1.6 million residential customers have access to competitive suppliers and about 165,000 are participating compared with 181,000 in December 2004.

Status as of December 2005: Number of Customers

Customer Type	Total 2004	Eligible December 2005		Participating December 2005
Customer Type	Total 2004	Total	Percent of 2004 Total	Total	Percent of Eligible	Percent of 2004 Total
Residential	2,591,458	2,591,458	100	164,668	6.4	6.4
Commercial*	231,050	231,050	100	21,858	9.5	9.5
Total	2,822,508	2,822,508	100	186,526	6.6	6.6
Sources: Total 2004 and Estimated Commercial Participation: Energy Information Administration, Natural Gas Annual 2004 (December 2005). Residential Participation: Pennsylvania Office of Consumer Advocate (January 2006).

LDC Residential Customers, January 1, 2006

Local Distribution Company	Number of Residential Customers
Local Distribution Company	Eligible	Participating	Percent Participating
Columbia Gas	347,125	68,354	19.7
Dominion Peoples	327,368	74,531	22.8
Equitable	237,661	17,463	7.4
PECO Gas	430,801	1,569	0.4
UGI Gas	281,907	2,751	1.0
Other (6)	946,279	0	0
Total	2,571,141	164,668	6.4
Sources: Number of Residential Customers: Pennsylvania Office of Consumer Advocate (January 2006). 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 formulated 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 submitted its report to the General Assembly in October 2005. The report concluded that the number of suppliers and buyers in choice programs across the State was insufficient for effective competition and that the marketplace “lacks accurate and timely price signals.” The report also noted that, according to suppliers, substantial barriers to market entry exist because of the LDCs’ differing and high security requirements, excessive and varying penalties for non-delivery, differing nomination and delivery requirements, and misleading price comparisons. Because of the report’s findings, the PUC called on stakeholders to come together by the end of 2005 to consider what actions should be taken to encourage competition on a statewide level.

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	10/05	Report on Competition Submitted to General Assembly. The PUC found that effective competition does not exist in the retail natural gas supply market statewide and that the PUC should reconvene stakeholders in the industry to explore additional ways to increase competition. The group is expected to meet by the end of the year. One commissioner (Shane) objected to reconvening the stakeholders group and instead recommended repeal of the Natural Gas Choice and Competition Act.
	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.