Vectren Energy Delivery of Ohio will be phasing itself out of the gas commodity supply business in its western Ohio service territory. The utility, regulators and the state’s consumer advocate all expect the net result to be a cost savings for gas consumers.

Vectren will eliminate its gas cost recovery (GCR) rate and obtain and price gas supply through a market-based rate methodology as allowed by the Public Utilities Commission of Ohio (PUCO) on Wednesday. The change affects customers that have not chosen a supplier alternative to Vectren and is expected to result in cost savings, according to the Ohio Consumers’ Counsel (OCC). The process cannot begin until the company receives approval from the Federal Energy Regulatory Commission (FERC).

“Vectren Ohio’s exiting the role as the seller of the natural gas commodity should promote a more competitive market and lead to the entrance of more competitive gas suppliers into Ohio that are expected to offer a number of pricing options and flexibility for our residential and commercial sales customers,” said Vectren Energy Delivery of Ohio President Dan Berry. “Even though eventually we will not be the seller of the gas commodity, we will continue to deliver the product to our customers through our existing distribution system…”

The PUCO approved an agreement among Vectren, the OCC and other parties for a wholesale auction process to determine the rate paid by customers that still depend on Vectren for their commodity supply. PUCO Chairman Alan R. Schriber said the plan is expected to result in savings for consumers. “In addition to cost savings to Vectren customers, the plan includes consumer safeguards to ensure that the welfare of the company’s customers is protected,” he said.

“We hope that a competitive wholesale auction among suppliers will succeed in lowering the natural gas prices that residents would otherwise pay through a monthly regulated rate,” said Consumers’ Counsel Janine Migden-Ostrander.

This summer Vectren is to hold a descending clock auction for a standard service offer (SSO) gas cost rate. The SSO is a sales service to replace the company’s gas cost recovery rate. The SSO is a market-based standard rate. Vectren customers can choose the SSO service or the existing choice service during the SSO period. In February 2009 Vectren is to hold another descending clock auction for commodity supply to establish a standard choice offer (SCO) service to be implemented on April 1, 2009. The SCO is a choice service offer that will be a market-based rate.

During the SCO period customer bills will indicate the responsible retail supplier. Customers will have the choice of the SCO service or Vectren’s existing choice service during the SCO period. Vectren is to conduct at least two SCO auctions during the SCO period and will establish a rider to recover transition costs of its exit from the merchant function. The rider will be collected from all SSO, SCO and choice customers. The PUCO will monitor the SSO and SCO processes and may reject an auction result at any time during the plan’s two phases and return commodity sales customers to the gas cost recovery pricing methodology.

The OCC estimates that 70% of the utility’s residential customers in the Miami Valley still take gas supply from Vectren. The new structure will provide customers gas at the wholesale market price each month, plus an additional amount set through an auction. Customers will see a SSO rate on their monthly bills, which will replace the current GCR rate. They can choose to leave the SSO at any time by choosing an alternative supplier.

“Customers who have not yet selected a Vectren Choice Advantage supplier are encouraged to evaluate doing so this summer to avoid being subject to what could be a very volatile natural gas commodities market this winter,” said Berry. “There are a number of experienced alternate suppliers that are eager to work with customers and have the ability to offer a variety of options to meet their needs.”

With FERC approval, an auction could be held in early summer and impact rates beginning this fall.

A similar auction process is being used by Dominion East Ohio. The Dominion auction has been deemed successful by stakeholders including the OCC, PUCO, Dominion and suppliers (see Daily GPI, Dec. 14, 2006; Aug. 31, 2006; May 31, 2006).

Vectren filed its application with the PUCO on Dec. 31. Public hearings were held on Feb. 28. An evidentiary hearing was held on March 3 at which a stipulation was presented that was reached by Vectren, PUCO staff, the Office of the OCC, the Ohio Farm Bureau Federation, Ohio Partners for Affordable Energy, Integrys Energy Services Inc. and the Ohio Gas Marketers Group.

A copy of the PUCO opinion and order is available at www.PUCO.ohio.gov under case No. 07-1285-GA-EXM in the docketing information system.

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