Slow, but steady appears to be winning the race for the retailnatural gas market in the state of Maryland, where some marketershave dropped out — casualties to high prices and billing problems— but others are closing ranks and developing the sophisticationnecessary to weather changing conditions.

Baltimore Gas & Electric’s Mark Valavanis credits thephased-in approach of the Maryland program with allowing changes tomeet market conditions without headline-grabbing disruptions. About20% of BG&E’s customers, or 110,000, have signed on for choiceover the last two years, and current numbers are only down about5,000 from that high, Valavanis said. “I don’t consider that asignificant attrition.” While the program currently is notexpanding, “it’s not declining that much either.” And morerefinements are ahead. “We’re encouraging customers to choose.”

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 willing to sign forunder 60 cents, they’ll be doing well,” Conopask said. BG&E’stariff rates for instance, which are set monthly by a marketformula, were 57.4 cents/th in November, down from 68.16 cents/thin October. The December numbers haven’t been set yet.

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 have asked not to be publicly listedbecause they serve specialized markets, including commercial orindustrial customers.

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. For others who have exited the Maryland retailmarket, such as Delaware-based Conectiv, it was simply a matter ofa change in business strategy to concentrate on its home territory.

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, he pointedout. 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. Other LDCs also are movingtoward this system, but “it will put more of a burden on marketersto manage their supply on a daily basis.” They will have to havemore assets and develop more expertise in managing supply. Thelarger 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.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.