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Michigan Customer Choice Faltering

Michigan Customer Choice Faltering

High natural gas market prices, combined with lower fixed commodity prices for gas sold by local distributors, have stalled residential and business customer choice programs in Michigan at current levels and could even cause a reversal on some systems if customers are allowed to return to the LDCs at low fixed prices.

"I don't know anyone who is adding customers now," one marketer commented, explaining that all three distributors participating in the choice program, Consumers Energy, MCN Energy's Michigan Consolidated Gas, and Semco Energy Gas, have gas commodity rates for sales customers frozen for the duration of the program at between $2.84/Mcf and $2.99/Mcf. "No one selling gas today can compete with those rates."

"We're continuing deliveries to our current customers, but we're not signing up any new ones," another marketer said.

The number of customers signing on for the pilot programs run by the three companies peaked at about 255,000 in October 1999, according to the Michigan Public Service Commission (PSC) and has declined to about 217,000 last month. Michael Kidd, director of the gas division in charge of the choice program, said the decline was due to a combination of attrition from customers changing locations (contracts do not transfer to new locations) and the fact there are few new sign-ups in the current market. He also noted that two marketers had folded operations and turned their customers back to the LDCs.

The PSC will be looking at the LDC fixed commodity cost, among other issues, over the next month in a series of public conferences set to explore the results of the pilot programs and institute a new program going forward. While the three-year terms of the MichCon and Semco pilots run until March 31, 2002, that of Consumers Energy, which was initiated a year earlier, expires next April 1. The conferences will determine what kind of new program to put in place for Consumers, Kidd said, and also could consider changes in the others. He noted the PSC already has received comments from two representatives of residential customers advocating keeping the fixed rates in place.

The rules for customers returning to LDC service vary on the three systems. While rates of residential sales customers who stayed on Consumers Energy are $2.84/Mcf through the end of the program, those who moved to another supplier and then returned have to pay the current commodity cost of gas.

On MichCon, however, customers whose contracts with outside suppliers have expired or whose suppliers have dropped service can return at the same fixed rate of $2.95/Mcf paid by MichCon sales customers for the duration of the program. Semco customers also can return at that company's fixed sales rate of $2.99/Mcf. Because of the large amount of gas it has already put in storage, MichCon said it would have no trouble supplying sales customers at the stated rate. The company, however, is in litigation with a marketer, the Michigan Gas Exchange, which turned back customers, to recover costs associated with serving those customers.

The PSC has scheduled customer choice meetings starting last Thursday and continuing on consecutive Thursdays through Sept. 7. The discussion will include: "continuing natural gas customer choice on a permanent and expanding basis; rates charged by local distribution companies; program features that affect marketers' participation in gas customer choice and program features that affect customer participation in gas customer choice programs."

Ellen Beswick

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