Soaring wholesale gas prices this winter forced two Maryland retail gas marketers to cut services to some or all of their customers, and one of the marketers, Maryland Natural Gas & Electric/Operators Energy Services (OES), is now facing potential penalties for dumping customers without the required 60-day notice.

OES notified its gas customers in February that it was exiting the retail gas business effective March 1. “Unfortunately the cold winter has led to unexpectedly high natural gas usage and a dramatic increase in wholesale prices,” OES President J. Hollis B. Albert told customers in a letter. “The situation in Iraq and the oil workers strike in Venezuela have caused a significant increase in oil prices over the winter that have also put upward pressure on natural gas prices.”

Albert said the company buys all of its winter gas supplies during the previous summer when prices are low, but this time around it underestimated its winter needs. “As out usage projections were based on last winter’s usage, we have been forced to buy large amounts of gas in the daily cash market at prohibitively high prices to keep the requisite amount of gas flowing each day. We have kept our pricing structure intact through the worst of the winter. However we now feel that it is in the best interests of our customers that we turn you back to your local utility.”

The letter was sent out one week before customers were turned back to their utility, and on March 19 the Maryland Public Service Commission filed a show cause order against OES, ordering the company to explain to the commission by last Wednesday why its gas license should not be revoked and why it shouldn’t have to pay penalties and refunds to its 1,200 dumped customers for not giving them the required 60-day notice. The PSC received no response, a spokesman said on Friday.

The Maryland Office of Peoples Counsel (OPC) also filed a complaint against the company two weeks ago, saying that it harmed customers by returning them to utilities who were charging much higher rates than they had been paying Operators Energy.

Although there was no disruption of service, customers were being charged the utility’s higher cost of gas supply, 73.6 cents/therm for Baltimore Gas & Electric and 97.3 cents/therm for Washington Gas Light in March, compared to the 54.5 cents covered under their one-year agreements with Operators, the OPC told the MPSC in its complaint.

“Residential customers, including but not limited to Richard Lelonek, whose gas supply contracts were prematurely terminated, lost the protection against price volatility and price increases that is provided by a long-term fixed price contract,” the OPC told the commission. “These customers not only lost the benefit of entering into long-term fixed price contracts with Operators Energy, but incurred a loss as a result of the higher price charged by the regulated gas company for each therm of gas used by those customers as of March 1, 2003.”

The OPC said the retail marketer also violated a state regulation by failing to formally notify the commission of its plan to exit the business. The company also failed to provide an adequate reason for terminating its service contracts, the OPC added. In return, the company should have its gas and electricity marketing license revoked, and pay civil penalties and refunds to customers, it said.

Hollis told the Baltimore Business Journal last week in an email that he is negotiating the sale of the company to Carroll Independent Fuel Co., a retail heating oil company that has been operating in the state since 1907. Operators Energy Services was started in 1925 as Operators Coal Co. and is located in Baltimore’s Hamden neighborhood.

In contrast to OES, the state’s other marketer ACN Energy, apparently followed the rules when it told its 800 customers in Washington Gas Light’s utility service territory that it planned to exit the business on May 20. ACN plans to continue to serve customers in the Baltimore Gas & Electric service territory, but higher credit requirements in Washington Gas Light’s territory made it less economic to do business there in light of the higher wholesale gas prices it is having to pay.

In its formal notification to the commission last Monday, ACN actually asked if it could turn back its customers to Washington Gas sooner than the required 60 days.

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