Ohio could join Georgia as only states where private market controls natural-gas pricing

10/12/2012

Columbia Gas is asking state regulators to free it of rate regulation, which means the last sure-fire, low-cost choice for consumers could go away in the next few years.

Consumer advocates and at least one large gas supplier oppose the idea, which they say would lead to higher costs because unregulated gas marketers no longer would have to compete with the regulated price.

The plan, the result of an agreement between Columbia and a coalition of marketers, now goes to the Public Utilities Commission of Ohio. It lays out a process that would take at least four years and require several stages of review by regulators to complete.

Under the plan, regulated pricing would be eliminated once at least 70 percent of Columbia’s customers have switched to unregulated pricing plans. Right now, 37 percent of the utility’s residential customers are on unregulated contracts, far short of the level needed to trigger the change.

Marketers, which include companies such as IGS Energy and Just Energy, would need to dramatically increase their solicitations if Columbia is to reach the target.

“It’s intended to provide for a measured, reasonable and methodical plan to expand the competitive marketplace,” Columbia spokesman Ken Stammen said.

The company said in a statement that the plan is “in the best interests of everyone,” including customers. The 70 percent threshold means that the regulated prices will not go away until most customers have chosen other options, Stammen said.

This would be the final step in the deregulation of Ohio’s largest natural-gas utility territory, going from a completely regulated monopoly in the 1990s to one in which unregulated companies provide all the options. Other Ohio utilities, including Dominion East Ohio Gas, are looking at making similar changes.

If the proposals take effect, Ohio would join Georgia as the only places in the country where natural-gas pricing is controlled by the private market.

Among the opponents are consumer groups and one of the country’s largest gas companies, Hess Corp.“Consumers should continue to be offered the benefit of competitive choices available in the market, including the option of purchasing natural gas at the standard rate through their local utility,” said Amy Kurt, spokeswoman for the Office of the Ohio Consumers’ Counsel.

“In recent years, this option has saved consumers a lot of money.”

Hess is one of the companies that won the competitive process to provide gas for Columbia’s regulated service. Unlike most of the other gas suppliers in the case, Hess does not directly solicit residential customers. The company said in a filing that the new proposal is “not in the public interest and will cause immediate and substantial harm to Hess’ business interests.”

Some marketers have long sought a system in which all customers must buy from marketers and there is no regulated service.

Right now, if you do not choose a marketer, you automatically get the default service, which is a price set through an auction process overseen by the state. The auction has helped produce some of the lowest prices available in the market.

Columbia’s current regulated price is 51 cents per 100 cubic feet of gas.

The price changes each month based on fluctuations in the market price of gas.If there were no regulated service, customers who do not choose a plan would get randomly assigned to a variable rate from a marketer, according to the proposal. Currently, 14 marketers are offering alternatives to Columbia’s price.

This includes fixed-rate contracts and variable rates.Columbia earns nearly all of its profit from the delivery of gas, so it faces virtually no loss of income if it eliminates regulated service.

But the company does stand to gain from other parts of the 15-page agreement.Among those other provisions: The marketers are agreeing to support the four-year renewal of a pipeline capacity contract with a Columbia sister company, Columbia Gulf Transmission.Ohio Partners for Affordable Energy, a consumer group, said in a filing that regulators should deal with the pipeline issue in a separate case.

The inclusion of unrelated issues makes it look like the marketers are buying Columbia’s support for ending regulated service, said the group’s executive director, Dave Rinebolt.

Five participants signed the agreement: Columbia Gas; the PUCO staff; and three marketers or trade groups for marketers — the Retail Energy Supply Association, the Ohio Gas Marketers Group and Dominion Retail.

The staff’s action is just a recommendation; the agency’s five-member board will have the ultimate say, following a review that likely will last months.

Todd Snitchler, the PUCO chairman, generally has supported deregulation of electricity and natural gas, but he has given no indication of how his panel may rule in this case.

Columbia plan

Columbia Gas of Ohio would eliminate regulated pricing if at least 70 percent of its customers switch to unregulated options. Right now, 37 percent have switched. This is part of a larger plan that sets the pricing terms for the next five years.

How soon might this happen? Regulated pricing would end no sooner than April 2015 for businesses and April 2016 for households, according to the proposal.

How is the regulated price set? Natural-gas marketers compete in a state-run auction to offer the lowest price. The monthly price for customers includes a service fee set by the auction plus the market price for gas on the New York Mercantile Exchange. This is the regulated rate paid by all customers who have not made their own deal with a marketer.

What other options are available? Fourteen marketers offer gas contracts in Columbia territory. Most of the prices are higher than the regulated service, including some that offer features not available with default service, such as a fixed price for an extended term.

What are current prices? The regulated price for October is 51 cents per 100 cubic feet of gas. Marketer offers range from a low price of 42 cents (a promotional variable rate from XOOM Energy) to a high price of 72 cents (a 12-month fixed rate from Just Energy), according to the Public Utilities Commission of Ohio.