Retail Unbundling - U.S. Summary
|Enrollment in customer choice programs declined in 2005 for the second year in a row, with about 107,900 fewer households purchasing natural gas from third-party suppliers than in 2004 and about 298,600 fewer than in 2003 (Tables 1 and 2). Still, about 11 percent or 3.9 million of the approximately 34 million residential gas customers with access to choice were buying gas from marketers as of December 2005. Georgia has the most comprehensive program in that all 1.4 million residential customers in Atlanta Gas Light Company’s service territory (more than 80 percent of the State’s residential gas customers) purchase their natural gas directly from marketers. Atlanta Gas Light still delivers the gas but no longer provides any sales service. Ohio has the next largest residential choice market, with more than one-third of all households participating and enrollment levels of nearly 1.1 million. Together Georgia and Ohio accounted for nearly two-thirds of the customer enrollment total in 2005.
Participation percentages declined in all States but New York and Indiana in 2005, as concerns about high and variable natural gas prices apparently reduced interest and confidence in marketer pricing options. The largest percentage decline in participation (5.2 percent to 1.3 percent), however, occurred in New Jersey as a result of a marketer’s decision to return about 80,000 choice customers to utility service before the start of the heating season as natural gas commodity prices surged to record highs. Overall, the number of marketers offering services to residential customers in 2005 (Marketer Summary Table) remained about the same as in 2004 (81 vs. 83), but considerably less than the 159 marketers participating in 2001 (Table 3). Some States, such as New Mexico and West Virginia, have had virtually no marketer participation, even though legislation is in place that allows all customers to purchase natural gas from third-party suppliers.
Despite the overall enrollment decline, pilot programs in Indiana and Kentucky were extended and State regulatory agencies continued to refine and evaluate existing programs. In New York, which has the third largest choice enrollment, the Public Service Commission in May 2005 approved a plan by Central Hudson Gas and Electric Company, modeled after Orange and Rockland Company’s successful Power Switch program, in which the utility purchases marketers’ accounts receivable without recourse, which simplifies marketers’ operations and eliminates their need to perform credit checks. In return marketers offer a guaranteed discount to participating customers for a 2-month period and agree to take all residential and small commercial customers referred by the utility. Customers are assigned randomly to participating marketers. In Nebraska, the Public Service Commission opened a docket to investigate and adopt policies for administration of Kinder Morgan Inc.’s choice program, which serves about 73,000 customers. In Ohio, the public utility commission (PUC) is considering a request by Dominion East Ohio (with 49 percent of the State’s choice market) to exit the commodity market and become a distribution-only company in the near future. As part of this plan, the company filed a formal application with the PUC in April 2005 for a two-phase pilot program. In phase one, the gas cost recovery mechanism would be eliminated for its non-choice (sales) customers and replaced by a monthly market price determined through a bidding process. The winning bidders would become wholesale suppliers to Dominion for firm service re-delivery to the end-use customers. Under phase two of the plan, remaining sales customers would be assigned to participating marketers on a pro rata basis. At that point Dominion would become a distribution-only company, but continue its role as the provider of last resort. Hearings on phase one of the proposal are currently underway.
In Pennsylvania, the PUC has scheduled a stakeholders’ meeting to consider further strategies that would encourage competition on a statewide level. The PUC submitted a report to the legislature in October 2005, which was mandated after 5 years of deregulation, that 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.
In Massachusetts, in a report issued in June 2005, the Department of Telecommunications and Energy (DTE) restated its commitment to an eventual transition to a competitive natural gas market in the State. The report concluded that retail markets are not competitive enough to allow LDCs to assign interstate pipeline capacity voluntarily rather than on the currently mandated basis. It determined that the number of alternative contract holders with firm rights to interstate pipeline capacity serving the State is still limited, marketer participation has not increased, and the number of customers moving to transportation service is stagnant or declining, with essentially no participation by residential customers. The DTE directed LDCs to improve performance or implement procedures on: (1) the monthly recall and release of assigned capacity; (2) marketer access to consumption algorithms; and (3) trueups between forecast usage and billed usage.
No significant changes occurred in the States that allow consumer choice but have virtually no participation. Massachusetts, New Mexico, and West Virginia had fewer than 300 residential customers participating. The customer aggregation program continues in California, but accounts for only 0.4 percent of deliveries to residential customers (based on most recent EIA data). Only about 0.5 percent of residential and commercial customers in Montana have chosen alternative suppliers, and only 0.2 percent of South Dakota gas consumers (all sectors) use transportation service. Colorado allows utilities to offer customer choice programs if approved by the PUC, but no utilities have submitted unbundling plans.
As of December 2005, 21 States and the District of Columbia have legislation or programs in place that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company. Seven States and the District of Columbia allow all residential consumers to choose their natural gas suppliers, but a lack of marketer participation has precluded the development of competitive retail markets in three of these States. Six States are in the process of implementing choice statewide with programs available to more than half their residential customers, and five States have pilot or partial unbundling programs in place. An additional 8 States are considering action on customer choice, while 19 States have thus far taken no action and 2 States have discontinued their pilot programs.
Large commercial and industrial consumers have had the option of purchasing the natural gas commodity separately from natural gas services for many years. State regulators and lawmakers, who are responsible for designing and implementing retail restructuring programs, have moved more slowly in implementing choice programs for residential and small-volume commercial customers until they could ensure reliable service.
|EIA State Data: In 2004, the United States had 62,469,142 residential and 5,135,985 commercial customers. They consumed 4,885 and 3,142 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 $10.75 and $9.41 per thousand cubic feet, respectively.|
|Table 1. Eligibility and
Participation in Residential Retail Choice Programs, December
|Table 2. Residential Customers in Customer Choice Programs, 2000-2005
|Table 3. Marketers Serving Residential Customers, 2001-2005