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Ohio Regulators OK Auction for Columbia Gas

December 7, 2009
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Columbia Gas of Ohio will now obtain gas supplies through a market-based auction process, which will replace the company's gas cost recovery pricing mechanism, the Public Utilities Commission of Ohio (PUCO) said last Wednesday. The change is expected to save customers money, according to the PUCO.

"Supplier auctions have led to significant savings for natural gas customers in northeast and southwest Ohio. We anticipate that Columbia's plan will benefit customers in much the same way," said PUCO Chairman Alan R. Schriber.

Columbia agreed in early 2008 to eventually procure gas supplies through an auction as part of a settlement of a gas cost recovery case at the PUCO. The Office of the Ohio Consumers' Counsel (OCC) had called for Columbia to procure wholesale gas supplies through an auction back in 2006, but the utility resisted the idea (see NGI, Dec. 18, 2006). The OCC had cited in its argument a successful auction held by Dominion East Ohio (see NGI, Sept. 11, 2006).

Under the terms of the agreement, Columbia will no longer obtain gas through individually negotiated contracts with producers. Instead, the utility will hold annual auctions for suppliers to compete to provide Columbia with the gas needed to serve its non-Energy Choice customers. Customers who are enrolled with an alternative supplier or a government aggregation buying group will not be affected.

The OCC reacted favorably to the PUCO's approval of the agreement. "The wholesale auction has proven to be the most effective method for providing the cheapest option for consumers," Consumers Counsel Janine L. Migden-Ostrander said. "The rates determined by other Ohio natural gas auctions have produced savings for customers and been lower than the GCR [gas cost recovery mechanism] or what most retailers have been able to offer."

Early next year Columbia is expected to hold its first auction to secure gas supplies for April 2010 to April 2011. This auction will result in the establishment of a standard service offer (SSO) rate that will replace the gas cost recovery rate. Columbia will buy gas from the winning suppliers and pass the price of that gas on to customers at the SSO rate. The SSO rate will change monthly based on the New York Mercantile Exchange (Nymex) month-end gas settlement price, plus a retail price adjustment determined in the auction. A second SSO auction to be held in 2011 will secure supplies for April 2011 to April 2012.

Columbia is to hold a third auction in 2012 to secure natural gas supplies for the period of April 2012 to April 2013. This auction will result in the establishment of a standard choice offer (SCO) rate that will replace the SSO rate. Like the SSO rate, the SCO rate will change monthly based on the Nymex month-end settlement price, plus a retail price adjustment. However, each SCO customer's bill will indicate the specific natural gas supplier assigned to it.

Each auction will be conducted by an independent auctioneer and monitored by the PUCO. The PUCO reserves the right to reject the auction results and order Columbia to return to the gas cost recovery pricing methodology at any time.

"We see little risk in this program since it can be discontinued at any time if the results demonstrate that it is not in customers' best interests," Schriber said. "In addition to the potential for savings, the plan includes safeguards to ensure that customers are protected."

As part of the agreement, Columbia will provide an additional $1.8 million to establish and administer a bill payment assistance fund to help certain customers at or below 200% of the federal poverty guidelines. Columbia will establish a new charge to recover the costs of the company's transition from the gas cost recovery rate to the market-based auction structure. The charge, to be adjusted quarterly, will initially amount to an additional 17 cents each month for a Columbia customer using 80 Mcf of gas annually.

The agreement allowing the change was signed by stakeholders including the OCC, Ohio Partners for Affordable Energy, the Ohio Gas Marketers Group and the Northwest Ohio Aggregation Coalition.

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