Retail Unbundling

Overview: Indiana has one pilot unbundling program for residential gas customers, which is operated by Northern Indiana Public Service Company (NIPSCO)--the largest local distribution company in the state. The program, called "NIPSCO Choice," has been in existence since April 1998 and is open to 610,000 residential and 50,000 commercial/industrial customers, although enrollment caps limit participation to 150,000 residential customers and 20,000 commercial customers. NIPSCO estimates that all its customers will have access to unbundled service by January 1, 2005. Participation had dropped substantially between 2000 and 2002, with more than 12,000 residential customers enrolled in July 2000 but only 4,766 residential customers in September 2002 after the only active supplier stopped enrolling new customers. However, the company made a concerted effort to revitalize the program in late 2002, which led to three new suppliers entering the program. As of December 2003, more than 43,000 residential customers were enrolled and seven suppliers were participating, although one of the marketers was not accepting any new residential customers.

Citizens Gas and Coke Utility (Citizens) filed a request for an alternative regulatory plan in November 1999, to be phased in over a 6-year period with choice available to residential customers in years 4 through 6. In an order issued December 12, 2002, the utility regulatory commission approved a settlement agreement, which along with numerous other items included more options for commercial and industrial customers. The settlement includes redesigned tariffs and bills to facilitate customer choice in the future, but there is no provision for customer choice for the residential sector. The company plans to offer choice options to all its business and industrial customers over the next 2 years. The largest industrial customers have been able to buy natural gas from third-party suppliers for several years.

EIA State Profile: In 2002, Indiana had 1,657,640 residential and 150,095 commercial customers. They consumed 157 and 82 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 $7.68 and $6.83 per thousand cubic feet, respectively.

Customer Type	Total 2002	Eligible*		Participating
Customer Type	Total 2002	Total	Percent of 2002 Total	Total	Percent of Eligible	Percent of 2002 Total
Residential	1,657,640	150,000	9.0	43,014	28.7	2.6
Commercial	150,095	20,000	13.3	5,395	27.0	3.6
Total	1,807,735	170,000	9.4	48,409	28.5	2.7

*Program is open to 610,000 residential and 50,000 commercial/industrial customers, although enrollment caps limit participation to 150,000 residential customers and 20,000 commercial customers. Sources: Total 2002: Energy Information Administration, Natural Gas Annual 2002 (January 2004). Eligibility and Participation: Northern Indiana Public Service Company.

Summary: The Indiana General Assembly passed legislation in 1995 that gives the Indiana Regulatory Commission authority to allow a utility's request for alternative rate regulation if it is found to be in the public interest. Northern Indiana Public Service Company (NIPSCO), the largest local distribution company in the state, filed for alternative rates in December 1995 for a 2-year pilot choice program and some optional service offerings. The pilot program was approved in the fall of 1997 and began in April 1998. Citizens Gas and Coke Utility (Citizens) filed for alternative rates in November 1999, which would allow all its large commercial and industrial customers (using more than 50,000 therms) immediate choice of gas suppliers. The program would be phased in over a 6-year period, with choice available to remaining commercial and industrial customers in the third year, and residential customers in years 4 through 6. The company’s settlement agreement was approved in December 2002 (effective June 1, 2003), but had no provisions for residential choice.

Legislation	10/95	Alternative Utility Regulation. Indiana Code 8-1-2.5, Chapter 2.5 "Alternative Utility Regulation." Gives the Indiana Regulatory Commission authority to allow a local distribution company's request for alternative rate regulation if it is considered to be in the public interest. In approving retail energy services, the commission may establish rates and charges based on market or average prices, price caps, index-based prices, and prices that use performance-based rewards or penalties.
Regulatory Actions	12/02	Citizens Settlement Agreement Approved(Order 41605). The case originally proposed to offer customer choice to the residential sector, but the final order had no provisions for residential choice. More options were made available to commercial and industrial customers, and tariffs and bills are being redesigned to facilitate customer choice (gas supply charge, delivery charge, etc.) in the future.
	10/99	Request by Citizens Gas and Coke Utility for Alternative Regulatory Plan (Cause No. 41695). Citizens proposed an unbundling plan, which would be phased in during a 6-year period. Choice would be available to all large commercial and industrial customers in the first 2 years, the other commercial and industrial customers in the third year, and residential customers in phases during the next 3 years. Citizens would remain one of the supplier choices and would act as the supplier of last resort.
	10/97	Approval of NIPSCO Alternative Regulatory Plan. The commission approved NIPSCO's request for new service offerings and a pilot unbundling program for residential customers, as specified in a settlement agreement (May 1997) between NIPSCO and several interested parties. The pilot will be limited at first to certain residential customers in the South Bend area and 1,500 small commercial/industrial customers in order to assess the issues raised by unbundling and to minimize any transition costs. The company hopes eventually to expand the program systemwide. NIPSCO will retain its merchant function during the transition period with an evaluation of its future role to be made within 6 years. The settlement includes a gas cost incentive mechanism that rewards or penalizes NIPSCO for its gas supply purchase performance when compared to a market benchmark. The agreement also includes standards of conduct for transactions with marketing affiliates. NIPSCO will continue as the supplier of last resort.
	6/97	Rejection of Indiana Gas Co.'s Proposed Pilot. The commission denied Indiana Gas Company's request for approval of a 2-year pilot choice program for 34,000 residential and small commercial customers because the request was made under a 30-day filing procedure that precludes a hearing.