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

“I don’t know anyone who is adding customers now,” one marketercommented, explaining that all three distributors participating inthe choice program, Consumers Energy, MCN Energy’s MichiganConsolidated Gas, and Semco Energy Gas, have gas commodity ratesfor sales customers frozen for the duration of the program atbetween $2.84/Mcf and $2.99/Mcf. “No one selling gas today cancompete with those rates.”

“We’re continuing deliveries to our current customers, but we’renot signing up any new ones,” another marketer said.

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

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

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

On MichCon, however, customers whose contracts with outsidesuppliers have expired or whose suppliers have dropped service canreturn at the same fixed rate of $2.95/Mcf paid by MichCon salescustomers for the duration of the program. Semco customers also canreturn at that company’s fixed sales rate of $2.99/Mcf. Because ofthe large amount of gas it has already put in storage, MichCon saidit would have no trouble supplying sales customers at the statedrate. The company, however, is in litigation with a marketer, theMichigan Gas Exchange, which turned back customers, to recovercosts associated with serving those customers.

The PSC has scheduled customer choice meetings starting todayand continuing on consecutive Thursdays through Sept. 7. Thediscussion will include: “continuing natural gas customer choice ona permanent and expanding basis; rates charged by localdistribution companies; program features that affect marketers’participation in gas customer choice and program features thataffect customer participation in gas customer choice programs.”

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