Sharply higher natural gas prices led to a sudden drop in residential customer choice enrollments and in the number of retail gas marketers actively soliciting customers last year, but most regulators and utilities nationwide affirmed their commitment to customer choice, according to an update from the Energy Information Administration (EIA).
A record 33 million out of the 62 million residential natural gas customers in the United States were eligible to choose an alternative gas supplier last year, which was a 2.5% increase from 2003. However, enrollment dropped by nearly 5%, marking the first decline in participation levels since some states started deregulation in the 1990s, EIA said.
Almost all of the decline (88%) occurred in Ohio, which had 168,173 fewer residential choice customers in 2004 than in 2003. But Ohio remained second only to Georgia in the size of its residential choice market with more than a third of all households participating and enrollment levels of nearly 1.1 million. Michigan, which has the fourth largest choice enrollment, had the next largest decrease with a participation decline of 37,844 and Pennsylvania had a decline of 14,027.
"Apparently, the sharply higher prices for natural gas in the past few years and increased price variability have dampened consumer interest in alternative supply options and reduced the number of marketers interested in serving residential customers," EIA said.
Perhaps the most significant change last year was in the number of active retail marketers soliciting residential customers. "About 30% fewer marketers were authorized to serve residential customers in 2004 than in 2001 (115 versus 165), and the number of marketers actually selling to residential customers has dropped from 159 to 83," according to the EIA. That's a 48% decline in one year.
The agency also reported that many active marketers are no longer enrolling new customers. For example, Michigan has only two marketers enrolling customers, and Pennsylvania has virtually no marketer activity in large areas of the state.
Despite the downturn in enrollment, regulators and utilities are not giving up on retail choice. Kentucky, Indiana, and Wyoming requested pilot program extensions. Florida allowed another utility to exit the merchant function for a two-year trial period and transfer residential and commercial sales customers to aggregated customer pools. In New York, which has the third largest choice enrollment, the Public Service Commission affirmed its commitment to customer choice and outlined strategies to boost participation.
However, there were negative changes in some states. In Pennsylvania, for example, regulators started investigations into the competitiveness of natural gas supply services in the state. Massachusetts began an investigation to determine whether retail markets are sufficiently competitive to allow gas utilities to assign pipeline capacity voluntarily rather than on the current mandated basis. No suppliers are currently offering services to household consumers in Massachusetts.
In other states such as Montana, South Dakota, West Virginia, California and New Mexico, where there is customer choice but little or no activity, no significant regulatory changes occurred. Colorado allows utilities to offer customer choice but no utilities have submitted unbundling plans.
As of December 2004, 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, EIA said. Five 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 two of these states. Eight states have begun to implement statewide programs, and eight states have pilot or partial unbundling programs in place. An additional eight states are considering action on customer choice, two fewer than in 2003, while 19 states have thus far taken no action and two states have discontinued their pilot programs.
The most far-reaching program still exists in Georgia, where all residential customers in Atlanta Gas Light Co.'s service territory (more than 80% of the residential gas customers in the state) purchase their natural gas directly from marketers.
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