Price Discovery Not a Shock to Maryland Consumers
Slow but steady appears to be winning the race for the retail
natural gas market in Maryland, where some marketers have dropped
out --- casualties to high prices and billing problems --- but
others are closing ranks and developing the sophistication
necessary to weather changing conditions.
Baltimore Gas & Electric's Mark Valavanis credits the
phased-in approach of the five-year-old Maryland program with
allowing changes to meet market conditions without
headline-grabbing disruptions. About 20% of BG&E's customers,
or 110,000, have signed on for choice over the last two years, and
current numbers are only down about 5,000 from that high, Valavanis
said. "I don't consider that a significant attrition." While the
program currently is not expanding, "it's not declining that much
either." And more refinements are ahead. "We're encouraging
customers to choose."
The choice program in Maryland for Washington Gas Light also has
seen attrition of close to 7%, "mainly due to Conectiv's
transition," according to Adrian Chapman, WGL's vice president of
energy acquisition. Delaware-based Conectiv recently dropped out of
the Maryland market saying it was changing its strategy to focus on
its home territory.
WGL currently has 85,000 of its 340,000 residential customers
enrolled in choice programs. The Washington, DC-based utility has
"good participation numbers" in similar programs running in its
District of Columbia and Virginia territories, but deregulation
there has been in operation only two to three years, as opposed to
Maryland's five years. "Our goal is to attract marketers to our
jurisdiction. We're trying to make the programs similar across all
three areas. We want marketers to look at customers behind the
Washington Gas system generally."
One marketer which is aggressively pursuing customers in the WGL
market, Powertrust Inc., of Reston, VA, won't be doing the same in
BG&E's territory because the utility won't let them do their
own billing. "It's all about billing," said Sean Collins,
Powertrust's vice president of industrial relations. "This is at
the top of our list. For us to be truly competitive we have to
establish our brand name with our customers. We aren't going to be
able to do that if everything they get has BG&E's name
plastered all over it."
Powertrust also said the matching credit for the retail power
market was too low. "You want to be able to leverage with the
electric 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 and
moved over into actual marketing, says it expects to be able to
offer lower rates because of its interactive billing system. "Some
marketers can save on the commodity; we cut costs with our highly
efficient web-based system" that is integrated with back office
Powertrust is in the process of buying out a subsidiary of Perry
Energy, currently in bankruptcy court, which has customers in
Maryland. It will continue to serve those customers, but it won't
be adding to their ranks in the BG&E territory. The company
also will take over Perry's retail business in Georgia and has
operations in Ohio and in the heating oil and propane market in the
Northeast, where it is planning a rapid expansion into natural gas.
Meanwhile, "there are a lot of happy customers out there right
with two-year fixed price contracts at 34 cents," Collins said.
Powertrust had hedged when it signed the contracts, so fulfilling
them is not a problem.
The Maryland Public Service Commission (PSC) expects the market
to take some lumps, "but no one is going without service," said Dr.
Jeffrey Conopask, assistant director of rate research and economics
for the PSC. If a marketer drops out, customers can sign on with
another marketer or revert to service from the regulated utility at
tariff rates. "Of course, if they had signed on for fixed price
contracts in the 40 to 45 cents per therm range," they may have
some sticker shock. "If they find a marketer now willing to sign
for under 60 cents, they'll be doing well," Conopask said.
BG&E's tariff rates for instance, which are set monthly by a
market formula, were 57.4 cents/th in November, down from 68.16
cents/th in October. WGL's November gas rate was 63 cents. Both
companies have flexible supply contracts which allows them to pick
up any customers who want to return to utility service.
One observer pointed out that of the marketers who have dropped
out in Maryland, most were able to sell their books of business to
While some marketer drop-outs and bankruptcies have made news,
there are still plenty of suppliers available. Valavanis said there
are at least 30 marketers serving customers in BG&E's
territory. "Some are not making offers right now, but they're still
serving customers." Some don't appear on BG&E's bulletin board
because they serve specialized markets, including commercial or
industrial customers, and have asked not to be publicly listed.
WGL, which has had as many as 14 marketers participating, now has
dropped to 10 in its Maryland choice program. "This is not unusual
for a new business in any industry."
There has been a change in tactics, however. "Early in the
program, we saw a lot of fixed price offers. Now there are more
flexible prices, offering discounts off of our prices." Valavanis
said he believes most suppliers that have failed have fallen victim
to billing problems. Also, some may have had a business plan to get
in 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 may
turn to another marketer with a focus on the wholesale market to
provide 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 program
has resulted in more competition because suppliers have had to
really convince customers it was worth it to switch, Valavanis
maintained. In Georgia where customers were forced to get another
supplier, competition has not been as strong.
Valavanis, who is in BG&E's gas section, believes the shifts
among suppliers are not over. For one thing the LDC has changed its
balancing rules from a DQS (daily contract quantity) system, using
annual or monthly average quantities, to a DRS (daily requirements
service) in which the balancing target changes every day, based on
forecasts made five days in advance. "This puts more of a burden on
marketers to manage their supply on a daily basis." Washington Gas
Light also is moving toward the DRS system, which will ease the
balancing burden on utilities. Chapman noted WGL also will reduce
its balancing charge to marketers.
The larger marketers prefer the new system, while smaller ones
preferred the old approach, Valavaris said. The DCQ system,
however, also had its problems. "There was trouble last winter. If
your balancing was set for an average January day and you had a
mild day, there was no place to put the gas. No one had enough
Further refinements are in store. A new law passed by the
Maryland legislature instructed the PSC to initiate new measures to
protect consumers. The PSC is expected to revisit billing and start
examining and licensing marketers, effective next July.