Retail Unbundling

Status: The state has begun the process of implementing comprehensive unbundling programs for its residential gas customers.

Overview: Michigan has begun the process of implementing voluntary customer choice programs statewide. As of December 2003, four natural gas utilities in the state (Consumers Energy Company, DTE Energy (Michigan Consolidated Gas), Aquila-MGU, and SEMCO Energy Gas Company) offer customer choice programs, although currently no marketers have chosen to participate in SEMCO’s or Aquila’s service territories. Enrollment in Consumers Energy and DTE Energy’s programs has decreased in the past year, with participation falling from 332,244 residential customers in December 2002 to 247,340 in December 2003. Customer participation had increased sharply in 2002, with more than 167,000 additional customers enrolled between October 2001 and October 2002. The PSC attributed the increased participation in part to the larger number of marketers participating in Consumers Energy and DTE Energy's programs in 2002 compared with 2001 (six vs. four). Several marketers had exited the programs in 2000 and 2001, particularly since they were unable to match the LDC commodity rates, which were frozen during the winter of 2000-2001. Consumers Energy's rate expired at the end of April 2001, while DTE Energy's frozen rate continued through December 2001 and SEMCO's through March 31, 2002. As of December 2003, eight marketers are participating in the state’s choice programs but only one company is enrolling new customers.

In October 2000, the Michigan Public Service Commission (PSC) approved uniform terms and conditions for statewide unbundling (Case No. U-12550), which were developed through a collaborative process. Marketers are required to register with the PSC and comply with codes of conduct in LDC tariffs. In November 2001, the PSC approved uniform terms and conditions for customer choice programs for mid-sized LDCs, which differ somewhat from choice programs being operated by the larger LDCs. Consumer education programs were also developed, and collaborative efforts are continuing to solicit public input on the future direction of customer choice programs in the state.

EIA State Data: In 2002, Michigan had 3,118,457 residential customers and 240,104 commercial customers who consumed 369 and 175 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 $6.32 and $5.97 per thousand cubic feet, respectively.

DTE Energy (Michigan Consolidated Gas) and Consumers Energy companies’ 3-year pilot choice programs have been approved as permanent choice programs. DTE’s program had an enrollment cap of 440,000 customers in 2002 that increased to 660,000 in April 2003 and will increase to all customers in April 2004. The cap on Consumers Energy’s program increased to 600,000 in April 2001, to 900,000 in April 2002, and then to all of the company’s 1.5 million natural gas customers in April 2003. Aquila-MGU also has a choice program for up to 28,000 residential customers and 2,600 general service customers as of June 2003, with enrollment limits scheduled to double in June 2004. All of MGU’s customers can participate in June 2005. SEMCO’s choice program was expanded to 78,000 residential customers and all nonresidential customers in October 2002. Another 39,000 residential customers could participate as of April 2003, and on April 1, 2004, all MGU customers will be eligible.

*All customers are eligible until the cap for each participating utility is reached. So far, the caps have not been reached in any year.

Sources: Total 2002: Energy Information Administration, Natural Gas Annual 2002 (January 2004). Total Eligible and Participating: Michigan Public Service Commission.

Summary: Legislation was introduced in the Michigan House of Representatives during the 1999-2000 legislative session to allow all residential and commercial natural gas consumers in the state (approximately 3 million) to choose their own gas supplier, but the bill died in committee. During 2003, up to 2.3 million residential customers could enroll in choice programs through four major local distribution companies (LDCs). By June 2005, all customers of these four LDCs will be able to participate, regardless of number.

Legislation	12/02	Public Act 634 of 2002 (effective 12/23/02). Requires that an alternative natural gas supplier doing business in Michigan be licensed by the Public Service Commission and directs the MPSC to establish licensing procedures. Also directs the PSC to develop standards governing slamming and cramming by alternative suppliers.
	5/02	Consumer Protection Legislation Proposed, House Bill 6039. The proposed legislation would establish new protections for natural gas customers and set provisions covering customer switching, billing, marketer licensing requirements, minimum disclosure standards, and customer release of information rights. The bill was sent to the House Committee on Energy and Technology.
	12/99	Unbundling Legislation Proposed, House Bills 5201-5207. The proposed legislation would allow all natural gas consumers to choose their own gas suppliers. The bills also specify licensing requirements for gas suppliers and establish rules and regulations for competitive natural gas services. The bills are to be considered as a package and would not take effect unless all are approved. Hearings on the proposed legislation began before the House Committee on Energy and Technology on January 20, 2000.
Regulatory Action	10/03	SEMCO and Aquila-MGU GCR Plans Approved (Cases U-13622 and U-13550). The PSC approved SEMCO’s Gas Recovery (GCR) Plan for April 2003-May 2004 and Aquila Networks-MGU plan for calendar year 2003. In both dockets, the PSC rejected the Attorney General’s and Residential Ratepayer Consortium’s (RRC) proposals to change from the current roll-in refund method and return to the historical refund method (HRM, or modified roll-in). The Attorney General had argued that HRM is pro-competitive because it assesses the actual cost to customers who used the gas, while the roll-in method of under-recoveries is anti-competitive as customers would migrate to Choice to avoid paying their share of underrecovered costs. The RRC wanted to create a prior period gas cost charge for billing to any SEMCO customer who chooses an alternative supplier. The PSC concluded that the suggested recovery methods would “amount to an exit fee or cost for leaving the GCR system, and therefore, would undermine Choice.” The PSC may reconsider HRM when there are large numbers of Choice customers in the LDCs’ service territories (currently no Choice suppliers are in SEMCO’s or Aquila-MGU’s areas).
	03/03	PSC Sets Licensing Procedures for Marketers (Case U-13694). Licensing procedures were approved that apply to any one selling natural gas at unregulated retail rates in the state and participating in customer choice programs. Applicants must provide proof of the necessary financial, technical, and managerial capabilities to provide gas service and maintain an office in the state. A bond or letter of credit ($100,000) will be required of all applicants that have not demonstrated financial capability (BBB or better rating from a major financial rating service).
	10/02	SEMCO Customer Choice Program Expanded. Beginning October 1, 2002, up to 78,000 of SEMCO's residential customers and all of its nonresidential customers can buy gas from a third-party supplier. On April 1, 2003, another 39,000 residential customers can participate, and on April 1, 2004, all customers will be eligible.
	2/02	Permanent Customer Choice Program Approved for Michigan Gas Utilities (Aquila), Case U-13232. Beginning June 1, 2002, up to 14,000 residential customers and 1,300 general service customers can participate in a voluntary customer choice program on a first-come, first-served basis. On June 1, 2003, numbers increase to 28,000 residential and 2,600 general service customers and on June 1, 2004, to 56,000 residential and 5,200 general service customers. All of MGU's customers will be eligible to participate on June 1, 2005.
	2/02	SEMCO Customer Choice Program Extended. PSC approved extension of SEMCO's choice program under the same terrms for the ongoing pilot project. The PSC had rejected the company's original request that rates be fixed at about $5 per thousand cubic feet from April 1, 2002, through March 31, 2005.
	12/01	Permanent MichCon Choice Program Approved, Case U-13155. The Michigan Public Service Commission (PSC) approved a permanent choice program for MichCon gas customers. Beginning April 1, 2002, up to 440,000 customers can participate, and numbers increase to 660,000 on April 1, 2003. All of MichCon's gas customers will be able to participate on April 1, 2004. Enrollment is for a 12-month period. If customers switch back to MichCon they must remain with the utility for 12 months before choosing a new supplier.
	10/00	Consumers Energy Company Choice Program Expanded. In October 2000, the PSC approved expansion of Consumers' choice program, which operated as a 3-year pilot from April 1, 1998, through March 31, 2001. The cap on the number of customers who can enroll in Consumers' program increased to 600,000 in April 2001, to 900,000 in April 2002, and will increase to all 1.6 million of the company's natural gas customers in April 2003.
	8/99	MichCon Pilot Choice Program Modified, Case U-12050. The Michigan Public Service Commission (PSC) approved modifications to Michigan Consolidated Gas Company's (MichCon) pilot choice program, changing enrollment and solicitation procedures. The program's name was changed from "MichCon Selects" to "Gas Customer Choice" to reduce confusion with gas supplier plans. Customers will be given a 30-day period to cancel a contract with a gas supplier, beginning 1 day after the contract is signed. Contracts must be clear and include an acknowledgment message that ensures customers know they are switching gas suppliers.
	5/99	MichCon Budget Billing Option, Case U-11913. The PSC ordered MichCon to provide the budget billing option to all of its customers by the August 1999 billing cycle. As an alternative, MichCon may amend its customer choice program to allow alternative natural gas suppliers to bill customers directly. Currently, MichCon does not allow suppliers participating in its choice program to bill customers.
	9/98	SEMCO Pilot Choice Program Approved, Case U-11776. The PSC allowed SEMCO to extend its aggregation transportation service (ATS) program to 21,000 residential customers in a 3-year pilot program to run from April 1, 1999, through March 31, 2001. Up to 7,000 customers will be eligible in the first year with another 7,000 in each of the following 2 years. The pilot program freezes SEMCO's gas commodity cost at $2.99 per Mcf for the 3 years. Customers will be required to pay a balancing recovery charge of $0.25 per Mcf.
	4/98	MichCon Pilot Approved, Case U-11682. The PSC approved a 3-year pilot choice program for customers of MichCon, with enrollment to begin January 1, 1999. Up to 75,000 customers will be eligible during the first year and another 75,000 in each of the next 2 years for a total of 225,000. Customers who continue supply service from MichCon would be charged a flat rate of $2.95 per Mcf over the 3 years compared with the current rate of $3.17 per Mcf. The plan includes an incentive for MichCon to lower its purchased gas costs and share some of the savings with its customers.
	12/97	Consumers Energy Pilot Approved, Case U-11599. The PSC approved a 3-year pilot choice program that allows Consumers Energy customers to choose their own gas supplier on a "first-come, first-served" basis, beginning April 1, 1998. Up to 100,000 customers are eligible in 1998, 200,000 in 1999, and 300,000 in 2000. For those customers who choose not to switch suppliers, Consumers Energy will continue to provide bundled service with its gas commodity charges frozen at $2.8364 per thousand cubic feet (Mcf). The company's monthly charges and distribution rates will also remain unchanged during the 3-year period. Customers choosing a new supplier who later change back to Consumers Energy will not be eligible for the flat commodity rate and would pay the higher of $2.8364 per Mcf or the current market price.
	10/97	Transportation Service Approved for SEMCO's Business Customers, Case U-11220. The PSC approved expansion of SEMCO's aggregation transportation service program to allow the company's business customers the opportunity to choose their own gas supplier. Previously the program was targeted toward larger commercial and industrial customers.

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Customer Type	Total 2002	Eligible		Participating
Customer Type	Total 2002	Total*	Percent of 2002 Total	Total	Percent of Eligible	Percent of 2002 Total
Residential	3,118,457	2,336,285	74.9	247,340	10.6	7.9
Commercial	240,104	226,903	94.5	22,001	9.7	9.2
Total	3,358,561	2,563,188	76.3	269,341	10.5	8.0