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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), which became the Department of Public Utilities in April 2007. 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 meantime, 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. In June 2005, the DTE concluded that the natural gas market is not yet competitive enough to change the current capacity assignment system. 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 restated its commitment to an eventual transition to a competitive natural gas market in the State and 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. As part of its ongoing monitoring of the State’s natural gas market, the DTE directed LDCs to provide customer migration data to the DTE on May 31 and November 30 of each year.

As of March 2009, 21 suppliers and 39 retail agents had been approved to provide retail service in the State, but only three suppliers had expressed interest in serving the residential market. According to the Department of Public Utilities, 1,500 residential customers and approximately 16,173 small and medium-sized commercial and industrial customers were receiving unbundled service as of summer 2008. The total number of residential customers is similar to the count in 2007 and 2006 but substantially higher than the 293 residential customers particpating in 2005. In contrast, the total number of small- and medium-sized commercial and industrial customers in 2008 was substantially higher than the level in 2005-2007. According to the Department, the residential participation increases in 2006-2008 were due to developers entering into agreements with alternative suppliers for multifamily dwellings, and the commercial increases were due to strong efforts on the part of commercial marketers to build their businesses. Industrial and large commercial customers have had a choice of gas suppliers since 1993.

EIA State Data: In 2007, Massachusetts had 1,361,470 residential and 128,965 commercial customers. They consumed approximately 115 and 62 billion cubic feet of natural gas, respectively. The average prices residential and commercial customers paid for natural gas from local distribution companies were $16.99 and $15.08 per thousand cubic feet, respectively.
Eligibility and Participation in Retail Choice Programs:
Estimated Eligibility and Participation by Customer Class, December 2008

Customer Type

2007 Customer Total

Eligible 2008

Participating 2008

Total

Percent of Customers

Total

Percent of Eligible

Percent of 2007 Customer Total

Residential

1,361,470

1,335,361

100

1,500

0.1

0.1

Commercial/Industrial*

134,981

134,981

100

14,403

12.0

12.0

Total

1,496,451

1,470,342

100

17,673

1.2

1.2

      *Massachusetts had 128,965 commercial and 12,678 industrial customers in 2007.

      Sources: 2007 Customer Total: Energy Information Administration, Natural Gas Annual 2007 (January 2009). 2008 Customer Total, Eligibility, and Participation: Massachusetts Department of Public Utilities (March 2009).

Regulatory and Legislative Actions on Retail Unbundling
Summary: Retail unbundling began on 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 June 2005, the DTE found that the market is not yet sufficiently competitive to change the capacity assignment methodology.
Regulatory and Legislative Actions

Legislation 02/07 Governor's Cabinet Reorganization Plan Approved, which includes creation of a new public utility commission (House Bill 2034). In April 2007, the functions of the Department of Telecommunications and Energy will be handled by two new agencies: the Department of Energy and Cable (DTC) and the Department of Public Utilities. The DTC will handle telecommunications and cable issues and be within the Executive Office of Housing and Economic Development. The DPU will handle electric, gas, siting, pipeline, water, and transportation issues and be within the Executive Office of Environmental Affairs.
Regulatory Actions 04/07 New Regulatory Agency for Energy, Water, and Transportation Issues. On April 11, 2007, the Department of Telecommunications and Energy was replaced by two new agencies: the Department of Telecommunications and Cable and the Department of Public Utilities (DPU). The DPU will handle electric, gas, siting, pipeline, water, and transportation issues. The DPU is within the Executive Office of Environmental Affairs overseen by the Undersecretary of Energy.
  06/05 DTE Decides To Continue Mandatory Capacity Assignment (DTE 04-1). DTE concluded that the upstream capacity market is not yet sufficiently competitive to change the current mandatory capacity assignment approach. It determined that the number of alternative contract holders with firm rights to interstate pipeline capacity serving Massachusetts is still limited, marketer participation has not increased, and the number of customers moving to transportation service is stagnant or declining. 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. LDCs were directed to provide customer migration data on May 31 and November 30 of each year.
  01/04 DTE Opens Investigation Re Upstream 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.