Slow but steady appears to be winning the race for the retailnatural gas market in Maryland, where some marketers have droppedout — casualties to high prices and billing problems — butothers are closing ranks and developing the sophisticationnecessary to weather changing conditions.

Baltimore Gas & Electric’s Mark Valavanis credits thephased-in approach of the five-year-old Maryland program withallowing changes to meet market conditions withoutheadline-grabbing disruptions. About 20% of BG&E’s customers,or 110,000, have signed on for choice over the last two years, andcurrent numbers are only down about 5,000 from that high, Valavanissaid. “I don’t consider that a significant attrition.” While theprogram currently is not expanding, “it’s not declining that mucheither.” And more refinements are ahead. “We’re encouragingcustomers to choose.”

The choice program in Maryland for Washington Gas Light also hasseen attrition of close to 7%, “mainly due to Conectiv’stransition,” according to Adrian Chapman, WGL’s vice president ofenergy acquisition. Delaware-based Conectiv recently dropped out ofthe Maryland market saying it was changing its strategy to focus onits home territory.

WGL currently has 85,000 of its 340,000 residential customersenrolled in choice programs. The Washington, DC-based utility has”good participation numbers” in similar programs running in itsDistrict of Columbia and Virginia territories, but deregulationthere has been in operation only two to three years, as opposed toMaryland’s five years. “Our goal is to attract marketers to ourjurisdiction. We’re trying to make the programs similar across allthree areas. We want marketers to look at customers behind theWashington Gas system generally.”

One marketer which is aggressively pursuing customers in the WGLmarket, Powertrust Inc., of Reston, VA, won’t be doing the same inBG&E’s territory because the utility won’t let them do theirown billing. “It’s all about billing,” said Sean Collins,Powertrust’s vice president of industrial relations. “This is atthe top of our list. For us to be truly competitive we have toestablish our brand name with our customers. We aren’t going to beable to do that if everything they get has BG&E’s nameplastered all over it.”

Powertrust also said the matching credit for the retail powermarket was too low. “You want to be able to leverage with theelectric market” and serve dual fuel customers, Collins explained,but it’s impossible to compete with the shopping credit in place.Powertrust, which started out as a service company for billing andmoved over into actual marketing, says it expects to be able tooffer lower rates because of its interactive billing system. “Somemarketers can save on the commodity; we cut costs with our highlyefficient web-based system” that is integrated with back officefunctions.

Powertrust is in the process of buying out a subsidiary of PerryEnergy, currently in bankruptcy court, which has customers inMaryland. It will continue to serve those customers, but it won’tbe adding to their ranks in the BG&E territory. The companyalso will take over Perry’s retail business in Georgia and hasoperations in Ohio and in the heating oil and propane market in theNortheast, where it is planning a rapid expansion into natural gas.

Meanwhile, “there are a lot of happy customers out there rightwith two-year fixed price contracts at 34 cents,” Collins said.Powertrust had hedged when it signed the contracts, so fulfillingthem is not a problem.

The Maryland Public Service Commission (PSC) expects the marketto take some lumps, “but no one is going without service,” said Dr.Jeffrey Conopask, assistant director of rate research and economicsfor the PSC. If a marketer drops out, customers can sign on withanother marketer or revert to service from the regulated utility attariff rates. “Of course, if they had signed on for fixed pricecontracts in the 40 to 45 cents per therm range,” they may havesome sticker shock. “If they find a marketer now willing to signfor under 60 cents, they’ll be doing well,” Conopask said.

BG&E’s tariff rates for instance, which are set monthly by amarket formula, were 57.4 cents/th in November, down from 68.16cents/th in October. WGL’s November gas rate was 63 cents. Bothcompanies have flexible supply contracts which allows them to pickup any customers who want to return to utility service.

One observer pointed out that of the marketers who have droppedout in Maryland, most were able to sell their books of business toother marketers.

While some marketer drop-outs and bankruptcies have made news,there are still plenty of suppliers available. Valavanis said thereare at least 30 marketers serving customers in BG&E’sterritory. “Some are not making offers right now, but they’re stillserving customers.” Some don’t appear on BG&E’s bulletin boardbecause they serve specialized markets, including commercial orindustrial customers, and have asked not to be publicly listed.WGL, which has had as many as 14 marketers participating, now hasdropped to 10 in its Maryland choice program. “This is not unusualfor a new business in any industry.”

There has been a change in tactics, however. “Early in theprogram, we saw a lot of fixed price offers. Now there are moreflexible prices, offering discounts off of our prices.” Valavanissaid he believes most suppliers that have failed have fallen victimto billing problems. Also, some may have had a business plan to getin early, gather customers and then sell out to other marketers,Chapman said. Both noted the tendency of marketers to specialize.For instance, a marketer with a strong retail sales program mayturn to another marketer with a focus on the wholesale market toprovide the supplies.

Collins said Powertrust buys gas from a number of suppliers, but”doesn’t run a trade shop.”

Besides softening the transition, Maryland’s phased-in programhas resulted in more competition because suppliers have had toreally convince customers it was worth it to switch, Valavanismaintained. In Georgia where customers were forced to get anothersupplier, competition has not been as strong.

Valavanis, who is in BG&E’s gas section, believes the shiftsamong suppliers are not over. For one thing the LDC has changed itsbalancing rules from a DQS (daily contract quantity) system, usingannual or monthly average quantities, to a DRS (daily requirementsservice) in which the balancing target changes every day, based onforecasts made five days in advance. “This puts more of a burden onmarketers to manage their supply on a daily basis.” Washington GasLight also is moving toward the DRS system, which will ease thebalancing burden on utilities. Chapman noted WGL also will reduceits balancing charge to marketers.

The larger marketers prefer the new system, while smaller onespreferred the old approach, Valavaris said. The DCQ system,however, also had its problems. “There was trouble last winter. Ifyour balancing was set for an average January day and you had amild day, there was no place to put the gas. No one had enoughstorage.”

Further refinements are in store. A new law passed by theMaryland legislature instructed the PSC to initiate new measures toprotect consumers. The PSC is expected to revisit billing and startexamining and licensing marketers, effective next July.

Ellen Beswick

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