Retail Unbundling

Status: The state passed legislation in 1999 that allows natural gas utilities to offer choice programs to residential customers, but to date no programs have been proposed.

Overview: Colorado law allows utilities to offer customer choice programs if approved by the public utilities commission, but no utilities have submitted unbundling plans. Public Service Company, with 75 percent of the natural gas customers in the state, and Kinder Morgan have expressed some interest but have not indicated when they might apply. According to legislation in place since August 1999, once an unbundling plan has been approved and one-third of the utility's customers have chosen an alternative supplier (18 percent of the customers must choose an unaffiliated supplier), the utility will no longer be regulated on the sales portion of its business. Gas delivery services will still be regulated by the public utilities commission. Issues such as who will bill customers have not been resolved and will be taken up as each utility files its plans.

EIA State Data: In 2002, the state's 1,412,923 residential and 136,489 commercial customers consumed 129 and 67 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $5.62 and $4.82 per thousand cubic feet, respectively.

Summary: Legislation became effective on August 4, 1999, that allows natural gas utilities to file voluntary plans for unbundling, subject to approval by the Colorado Public Utilities Commission. These plans must include provisions for service reliability, market power safeguards, consumer education, and affiliate participation requirements. When a plan has been approved, utility delivery service will be provided separately from gas sales and consumers will have the option of purchasing gas from an alternative supplier. All utility services will remain regulated until one-third of the utility's customers have chosen an alternative supplier (18 percent of the customers must choose an unaffiliated supplier) and at least five unaffiliated suppliers are operating within the utility's service area. At that point, the PUC will no longer regulate the utility's supply services but will continue to regulate delivery services.

Legislation	8/99	1999 Gas Unbundling Legislation (Senate Bill 99-153), signed on 5/28/99 and effective on 8/4/99. The act allows gas utilities to file unbundling plans with the PUC that give consumers the opportunity to choose their own gas supplier. Plans are to address issues of service reliability, fall-back supply service, affiliate participation, access to upstream capacity, market power safeguards, consumer education, standards of conduct, and marketer certification requirements. If the PUC modifies a utility's plan, the utility can reject it and continue to operate as before but cannot file another plan for 2 years. The utility can recover "prudently incurred" stranded costs, subject to a cap. The PUC is to provide an unbundling status report to the legislature by 12/31/2000 that includes recommendations on further implementation. The PUC is responsible for developing requirements for marketer certification, data reporting, and penalties. Municipalities can approve unbundling plans for their municipal utilities. The legislation also approves funds for a PUC study of the effects of market restructuring on low-income consumers, which is due 2 years after implementation of the first program.
	5/96	Legislation Mandating an Independent Study of Feasibility of Gas Unbundling (Senate Bill 96-138), signed 5/96. The act mandates an independent study of the feasibility of restructuring the state's gas industry, which resulted in the 12/16/96 Hagler Bailly report "The Feasibility of Allowing Nondiscriminatory Access to Retail Natural Gas Distribution Systems in Colorado." The study concluded that retail unbundling in the state is technically feasible but would raise many complex transitional issues. The Legislative Council directed the PUC to review the report.
Regulatory Action	12/00	PUC Status Report on Unbundling (required by Senate Bill 99-153). No utilities have submitted unbundling plans. Public Service Company of Colorado has stated that it intends to file a proposal after "electricity unbundling is complete in Texas and NM." Kinder Morgan has expressed interest but not indicated a possible date. No other utilities are interested at this time. Those companies cited high costs of implementing program, concerns about marketer participation, and disinterest by consumers.
	8/97	Proposed Framework for Unbundling (developed by PUC staff). Natural gas delivery is to continue as a regulated monopoly service, with a single utility certificated for a service area. Customers can choose their own gas supply service with unregulated prices and service offerings. A default supplier will provide service to customers who do not choose one and a "supplier of last resort" will be established for each utility system. Provisions for billing, meter reading, and upstream pipeline capacity and storage will be decided on a case-by-case basis. Utilities are to eliminate fixed charges for residential and small commercial customers, file plans to replace the current nomination and balancing requirements for transportation customers, and to phase in competition for all customers in its service area. To enable price comparisons, competitive gas suppliers are to offer customers a 1-year, fixed price option. LDCs can ask for recovery of "net, verifiable" stranded costs, which if approved would be recovered through a separate charge to all distribution customers. Utility affiliates are to be permitted to participate on the same basis as other suppliers, without benefit of utility customer information etc. Utility filings are to include a "Supplier Code of Conduct," supplier requirements, and sample LDC/supplier contract forms. All suppliers are to be registered with the PUC.
	6/97	Staff Inquiry into Unbundling. On 6/11/97, the PUC approved a plan to develop a framework for moving ahead on unbundling in case an LDC requests permission to unbundle gas services, the legislature mandates unbundling, or the PUC opens a rulemaking docket for gas unbundling. The PUC planned to distribute the framework in 8/99 with written comments due by 9/15/97.
	3/97	Request for Statutory Authority (letter to CO Legislative Council). After review of Hagler Bailly study, the PUC requested that the state legislature grant the PUC statutory authority to implement customer choice for natural gas customers, if found to be in the public interest.
	2/97	Investigation into Gas Industry Restructuring, Docket No. 971-033G. As per directive of the CO Legislative Council, the PUC solicited comments on the Hagler Bailly report on the feasibility of gas unbundling, with hearings to be held 3/97. The report stated that retail unbundling in the state is technically feasible but would raise many complex transitional issues, altering consumers' financial risks and rewards.