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Dominion East Ohio Supply Auction Gets Green Light

Over opposition from Ohio Consumers' Counsel (OCC), the Public Utilities Commission of Ohio (PUCO) late last month approved a plan by Dominion East Ohio to eliminate gas-cost-recovery rates in favor of a pricing plan that sets rates based on a more market-based methodology. The OCC said the outcome would "not ensure customer savings."

The first phase of the new rate plan will include a pilot program to test the ability of the market-based methodology to expand competition among suppliers and reduce natural gas rates long term. During Phase One, Dominion will change the way in which it obtains wholesale supplies of natural gas. Instead of obtaining gas via individually negotiated contracts, Dominion will conduct an auction under which interested suppliers can compete for the ability to provide Dominion's supply needs.

Dominion will continue to provide commodity service to its retail sales customers. Dominion's customers will have a choice of receiving natural gas service from a competitive supplier or from Dominion's own utility service. The utility company also will remain the provider of last resort during Phase One.

"This pilot program is a way to test certain aspects of the natural gas market to determine if the market will result in even more competitive price offerings for Dominion's customers," PUCO Chairman Alan R. Schriber stated. "We see little risk to ratepayers during this pilot phase as the program can be discontinued if the results demonstrate that it is not in the customers' best interests to continue with this transition from gas cost recovery rates to purer market-based rates."

Dominion said it will conduct a descending clock auction in which the company will entertain bids from wholesale suppliers based on fixed adjustments to the New York Mercantile Exchange settlement price. The commission directed Dominion to hire an independent auctioneer to conduct the auction and to fund the hiring of a consultant by the commission to oversee the auction process. PUCO further directed Dominion to conduct a pre-bid conference to review the auction process with potential bidders.

Additionally, the commission directed Dominion to conduct the Phase One pilot program over two heating seasons. PUCO will monitor the process and reserves the right to terminate the pilot and return customers to the gas cost recovery pricing methodology at any time.

As the residential utility consumer advocate, the OCC said the approval did not address all of its concerns about the proposal. "The OCC was pleased that the PUCO agreed with us that the proposal should be limited to a Phase One trial period in order to evaluate the program and determine if it is beneficial to customers. We continue to be a strong proponent of natural gas choice that could provide consumers an opportunity to potentially save money on their monthly bills," said Consumer's Counsel Janine Migden-Ostrander. "However, the outcome advocated by the company and approved by the PUCO did not ensure customer savings. Without the modifications recommended by the OCC, consumers will not receive the protection or the benefits that are necessary during a time of rising natural gas prices."

In April 2005, Dominion filed a two-phase proposal with the PUCO to begin the process of no longer selling natural gas to consumers. The OCC said that during Phase One, Dominion would obtain natural gas for customers who have not chosen an alternative supplier through an auction process involving wholesale natural gas suppliers. The new rate that consumers would pay instead of the current regulated gas cost recovery rate would be called the Standard Service Offer (SSO) price. Dominion would continue to deliver the gas. In addition, Dominion would step in and provide gas to customers in the event any supplier did not provide supply.

The OCC had recommended that the following modifications be made to the program to protect consumers:

The OCC also pointed out that at local public hearings held in early April consumers stated that they had not chosen an alternative supplier in the past because it was too complicated. Customers also stated that they had no interest in switching from Dominion. The OCC added that none of the residential consumers who spoke were in favor of Dominion's proposal.

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