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Unbundling Update: The Northeast

Unbundling Update: The Northeast

When the Natural Gas Choice and Competition Act was signed by Gov. Tom Ridge earlier this week, the foundation was laid for Pennsylvania's gas customers to have gas supplier choice for the upcoming winter. The question now is will other northeastern states follow Pennsylvania's lead.

Ken Malloy, a consultant with PHB Hagler Bailley, said the overall shift to natural gas deregulation has not happened as quickly as many thought it would. "The giddy enthusiasm that was present throughout the industry two or three years ago, when the deregulation effort was new and exciting, has been replaced by the grinding reality of the situation. Unbundling has been slower, more cumbersome and more expensive than most people anticipated."

Malloy said Pennsylvania was on the right track because it already had a deregulated electricity market and integrated gas unbundling into the plan. "The best way to provide those dramatic customer benefits people first imagined when they talked about deregulation is to integrate as many services into an unbundling plan as possible. I know it sounds crazy, but a region with unbundled electric, gas and telecommunications services will have the most to offer its consumers."

Like Pennsylvania, New Jersey also passed a deregulation bill for both its electric and gas customers. Unlike the Keystone state, both industry's unbundling plans were outlined in the same bill, which was enacted last quarter (See Daily GPI, Jan. 29). The legislation set August 1 as the deadline for electric unbundling and Dec. 31 as the deadline for gas unbundling. It did not address major deregulation issues, such as stranded cost recovery, utility affiliate codes of conduct, metering and billing unbundling, and an appropriate rate structure. Instead, it empowered the state's Board of Public Utilities (BPU) to make and enforce the rules for New Jersey's deregulation environment. The BPU has yet to announce what its rules will be.

New York was the first Northeast state to offer customer choice to the residential sector. The New York State Public Service Commission approved plans to allow residential, small business, commercial, and industrial customers the option to start buying their own natural gas supply from sources other than the traditional utility companies in 1996. For most of the state's 11 utilities, New York's open access program began on May 1, 1996. Reports have shown that marketers are concentrating their efforts on small commercial and industrial customers where the margins are greater.

The only other region in the Northeast with full customer choice is the District of Columbia. In late April, The Public Service Commission of the District of Columbia granted a Washington Gas request and expanded the LDC's pilot program tenfold from 13,000 residential participants to 130,000, which encompasses the entire residential market. A total of four marketers are available. The decision by the District's commission to open the residential program to all customers was made, in part, to attract more natural gas suppliers.

Massachusetts formed a collaborative last February to come up with a plan to deregulate the state's gas industry, but the group has not produced anything as of yet. Because of its concerns about reliability, the Department of Telecommunications and Energy (DTE) required any plan recommended by the collaborative to include mandatory capacity assignment. The group told the commission its goal was to issue a proposal by this November. "As far as I know, its still their goal," said George Yianko, a DTE spokesperson. "But they have had trouble setting up the electronic transfer of information between marketers and LDCs, which has slowed them up considerably." Currently, Bay State Gas Co. is the only LDC in the state offering a customer choice pilot program. At last count, over 25,000 customers were being supplied by a third party.

Many other Northeast states are far behind the leaders in the deregulation process. Connecticut, Maine, New Hampshire and Rhode Island, for example, have neither the supply nor the marketers to make gas deregulation a worthwhile endeavor.

"Its not in the immediate future by any stretch of the imagination," said a spokesperson for the Connecticut Department of Utility Control. "We are doing a cost-of-service study right now, and if the results are positive we might move on to the next phase. But access to pipeline capacity is such a problem up here and most people use oil to heat their homes anyway." Two of the state's three utilities, Southern Connecticut Gas and Yankee Gas, are involved in potential mergers (See Daily GPI, April 26 and June 16). "Everything is in flux now and nobody is willing to do anything major until the dust settles."

The prospects for statewide gas deregulation in Virginia are much more optimistic. The state legislature passed a bill last year calling for total customer choice by July 1, 2000. The bill has a reenactment clause, meaning next year's legislature will need to vote on the bill again. "It's not set in stone," said Ken Schrad, Virginia State Corporate Commission spokesman. "The reenactment clause basically means that there are a host of decisions that need to be hammered out. If they don't, the legislature can remove the bill entirely." The state currently has two pilot programs running. Columbia Gas of Virginia, a Columbia Energy Group subsidiary, is now attempting to extend its two-year program. In the two years since the program started, 7,750 or 29% of eligible participants have switched to one of nine suppliers. The program is available to a total of 26,500 customers residing in Manassas, Manassas Park and Culpeper, Fairfax, Greene, Loudon, Louisa, Madison, Orange and Prince William counties. Washington Gas is in the first year of its Virginia pilot. So far, 17,400 people have switched from an eligible pool of 30,000 customers.

Both Washington Gas and Columbia Energy also have active pilot programs in Maryland. Washington Gas' program allows 100,000 of their 320,000 customers to choose a marketer. Columbia Gas of Maryland's program allows for 2,500 customers to choose. The largest LDC in the state, BG&E, recently opened its entire service area of 520,000 customers to customer choice. "There is no mandate from the state or the Commission," said a spokesman from the Maryland Public Service Commission. "We just continue to expand on our own. It is evolving at its own pace, and nobody has decided it needs to be pushed any faster so far."

In Delaware, Conectiv, one of the state's two LDCs, announced the start of a pilot program last May. It enables 15,000 residential and 1,500 small commercial customers to choose their gas supplier as early as July 1. The program will last for two years, and will determine if the freedom to choose a supplier should be offered to all of Conectiv's gas customers in the state, a Delaware Public Service Commission spokesperson said.

West Virginia's Public Service Commission has been investigating gas unbundling since 1996, without result.

(Look for other regional updates in upcoming issues.)

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