Retail Unbundling - Massachusetts

Retail Unbundling - Massachusetts
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Status: The State has unbundling programs for its residential gas customers, but participation is quite limited.

Overview: Massachusetts used a collaborative effort to develop a program of unbundled retail natural gas service for customers of the 10 investor-owned local distribution companies (LDCs) in the State. Participants in the collaborative included the LDCs, marketers, consumer groups, government agencies, and the State regulatory agency, the Department of Telecommunications and Energy (DTE), which became the Department of Public Utilities in April 2007. In October 2000, the DTE approved final rules governing unbundled services and model terms regarding capacity assignment, default service, and peaking service. These rules specify that LDCs will continue to be responsible for assuring upstream capacity on interstate pipelines for the first 3 years of a 5-year transition period. In the meantime, DTE and the collaborative participants will work out the details of capacity assignment and cost recovery for LDCs as interstate pipeline capacity is shifted to marketers.

The DTE began an investigation in January 2004 to determine whether retail markets are sufficiently competitive to allow LDCs to assign interstate pipeline capacity voluntarily rather than on the currently mandated basis. In June 2005, the DTE concluded that the natural gas market is not yet competitive enough to change the current capacity assignment system. It determined that the number of alternative contract holders with firm rights to interstate pipeline capacity serving the State is still limited, marketer participation has not increased, and the number of customers moving to transportation service is stagnant or declining, with essentially no participation by residential customers. The DTE restated its commitment to an eventual transition to a competitive natural gas market in the State and directed LDCs to improve performance or implement procedures on: (1) the monthly recall and release of assigned capacity; (2) marketer access to consumption algorithms; and (3) trueups between forecast usage and billed usage. As part of its ongoing monitoring of the State’s natural gas market, the DTE directed LDCs to provide customer migration data to the DTE on May 31 and November 30 of each year.

As of February 2008, 13 suppliers and 26 retail agents had been approved to provide retail service in the State, but only two suppliers had expressed interest in serving the residential market. According to the Department of Public Utilities, 1,474 residential customers and approximately 14,403 small and medium-sized commercial and industrial customers were receiving unbundled service as of summer 2007. The total is similar to last year's count but substantially higher than the 293 residential and 9,699 commercial customers particpating in 2005. According to the Department, the residential participation increases in 2006 were due to developers entering into agreements with alternative suppliers for multi-family dwellings, and the commercial increases were due to strong efforts on the part of commercial marketers to build their businesses. Industrial and large commercial customers have had a choice of gas suppliers since 1993.

EIA State Data: In 2006, Massachusetts had 1,348,848 residential and 126,713 commercial customers. They consumed 104 and 52 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 $17.66 and $15.74 per thousand cubic feet.

Eligibility and Participation in Retail Choice Programs:

Estimated Eligibility and Participation by Customer Class, December 2007

Customer Type	2006 Customer Total	Eligible 2007		Participating 2007
Customer Type	2006 Customer Total	Total	Percent of 2006 Customer Total	Total	Percent of Eligible	Percent of 2006 Customer Total
Residential	1,348,848	1,348,848	100	1,474	0.1	0.1
Commercial/Industrial*	139,169	139,169	100	14,403	10.3	10.3
Total	1,488,017	1,488,017	100	15,877	1.1	1.1
Massachusetts had 126,713 commercial and 12,456 industrial customers in 2006. Sources: 2006 Customer Total:* Energy Information Administration, Natural Gas Annual 2006 (October 2007). 2007 Customer Total, Eligibility, and Participation: Massachusetts Department of Public Utilities (February 2008).

Regulatory and Legislative Actions on Retail Unbundling

Summary: Retail unbundling began on April 1, 2000, although participation was virtually nonexistent. On February 1, 1999, the Massachusetts Department of Telecommunications and Energy (DTE) (formerly the Department of Public Utilities) issued Docket 98-32-B, outlining many of the terms and conditions for the retail choice program, including a 5-year transition period. Because DTE found that the upstream, interstate capacity market is not competitive, local distribution companies (LDCs) were to retain the responsibility for acquiring interstate pipeline capacity, with the situation to be reviewed after 3 years. In June 2005, the DTE found that the market is not yet sufficiently competitive to change the capacity assignment methodology.

Regulatory and Legislative Actions

Legislation	02/07	Governor's Cabinet Reorganization Plan Approved, which includes creation of a new public utility commission (House Bill 2034). In April 2007, the functions of the Department of Telecommunications and Energy will be handled by two new agencies: the Department of Energy and Cable (DTC) and the Department of Public Utilities. The DTC will handle telecommunications and cable issues and be within the Executive Office of Housing and Economic Development. The DPU will handle electric, gas, siting, pipeline, water, and transportation issues and be within the Executive Office of Environmental Affairs.
Regulatory Actions	04/07	New Regulatory Agency for Energy, Water, and Transportation Issues. On April 11, 2007, the Department of Telecommunications and Energy was replaced by two new agencies: the Department of Telecommunications and Cable and the Department of Public Utilities (DPU). The DPU will handle electric, gas, siting, pipeline, water, and transportation issues. The DPU is within the Executive Office of Environmental Affairs overseen by the Undersecretary of Energy.
	06/05	DTE Decides To Continue Mandatory Capacity Assignment (DTE 04-1). DTE concluded that the upstream capacity market is not yet sufficiently competitive to change the current mandatory capacity assignment approach. It determined that the number of alternative contract holders with firm rights to interstate pipeline capacity serving Massachusetts is still limited, marketer participation has not increased, and the number of customers moving to transportation service is stagnant or declining. The DTE directed LDCs to improve performance or implement procedures on: (1) the monthly recall and release of assigned capacity; (2) marketer access to consumption algorithms; and (3) trueups between forecast usage and billed usage. LDCs were directed to provide customer migration data on May 31 and November 30 of each year.
	01/04	DTE Opens Investigation Re Upstream Capacity (DTE 04-1). DTE began a proceeding to determine whether the upstream capacity market is competitive enough to change the current mandatory capacity assignment approach. Currently capacity is assigned to others through a mandatory assignment mechanism at maximum tariff rates (LDCs annual cost) with LDCs having recall rights. The "migrating" customer is assigned its pro rata share of upstream pipeline and storage capacity based on its contribution to peak-day demand.
	10/02	DTE Approves Use of Risk-Management (DTE 01-100-A). DTE will allow LDCs to establish risk management plans that (1) allow voluntary participation by customers, (2) have primary goal of reducing price volatility, (3) ensure fair competition in gas supply, (4) allocate costs only to participants, (5) demonstrate what effect plan has on price transparency, and (6) have no incentive mechanisms. DTE concluded that risk management programs would not adversely affect customer choice if they give all customers the chance to obtain more stable prices and costs are allocated only to those who participate and “ensure efficient competition among all suppliers involved in the merchant business.”
	10/00	DTE Approves Company-Specific Filings for Gas Transportation Service (DTE 98-32-E). These are business rules to govern the administration of customer-choice programs to LDC customers. They also establish procedures for the provision of supplier sales service and LDC distribution and default service.
	10/00	DTE Adopts Final Rules Governing Natural Gas Unbundling (DTE 98-32-E). (Rules found in section 220 C.M.R §§14.00 et seq.). LDCs are supplier of last resort. Marketers must file articles of incorporation and bylaws with DTE to become an approved supplier. Supplier must give at least 10 days notice before terminating service. Signed and dated request from customer is necessary before supplier can begin service. Marketer cannot require security deposit from customers. Terms of service are to be spelled out clearly, and eligibility for discount rates are to be standardized.
	02/00	DTE Approves Model Tariff Terms and Conditions re/ Capacity Assignment, Default Service, and Peaking Service (DTE 98-32-D). Companies must submit tariffs within 21 days that comply with approved terms for review by DTE or identify and justify differences. The Collaborative is to file its customer education plan and electronic business transaction report for DTE review.
	12/99	Proposed Regulations for Unbundled Market. On 12/17/99, DTE opened docket DTE 98-32-E to consider regulations proposed by LDCs to govern unbundled service.
	11/99	Proposed Model Terms and Conditions. On 11/15/99, DTE opened docket DTE 98-32-D to consider Supplemental Model Terms and Conditions submitted by LDCs. The proposal covers capacity assignment, default service, and peaking service.
	10/99	Portfolio Auction Contracts. On 10/18/99, DTE approved the 3-year gas supply portfolio auction contract by Boston Gas, Colonial Gas, and Essex Gas. On 10/20/99, DTE approved the 1-year capacity auction of its gas supply resources by Berkshire Gas.
	04/99	Agreement on Interim Capacity Assumptions. On 4/2/99, DTE approved a settlement agreement concerning interim capacity assumptions. The settlement was designed to facilitate the assignment of capacity costs during the transition to an unbundled market, pending the completion of model terms and conditions, regulations for the unbundled market, interruptible transportation, and an initial assignment of downstream capacity.
	02/99	Retail Unbundling Order, DTE 98-32-B. The Massachusetts DTE ordered that unbundled gas services would begin Nov. 1, 1999, under a 5-year transition period. LDCs will remain responsible for acquiring upstream capacity with review after 3 years. Cost allocation issues will also be reviewed. Upstream Capacity Allocation. LDCs must provide "default service" to any customer that does not choose an alternative supplier or returns to the LDC for service. Capacity will be assigned to others through a mandatory assignment mechanism at maximum tariff rates (LDCs annual cost) with LDCs having recall rights. The "migrating" customer will be assigned its pro rata share of upstream pipeline and storage capacity based on its contribution to peak-day demand. Once the capacity is assigned to an alternative supplier, the supplier will have the ability to remarket the capacity and serve its customers with any combination of resources it has available. Downstream Assets. LDCs must unbundle downstream assets (storage facilities for propane or liquefied natural gas) and make them available to competitors to the extent that operations permit. DTE expects that eventually these assets will be available to marketers on a fully competitive basis. Portfolio Auction. DTE approved the concept of a portfolio auction whereby LDCs would transfer management of their upstream pipeline capacity, storage, and gas supply commodity contracts to marketers for 3 to 5 years. The auction is not mandatory because DTE could not determine that it would benefit all LDCs. However, any LDC that does not institute such a program must justify its decision to DTE. The Massachusetts Gas Unbundling Collaborative (formed in 1997) was asked to "develop standards concerning wholesale and retail marketers' participation in the market area in connection with the Portfolio Auction" and present them to DTE for review. DTE will review any upstream capacity management program auctioned by an LDC and must approve any auction award prior to implementation.
	11/98	LDC and Marketer Agreement on Model Terms and Conditions for Unbundled Service. DTE approved the settlement agreement concerning model terms and conditions for unbundled gas distribution services proposed on 7/10/98 by the LDCs and the marketer group () The two groups agreed to most sections of the document. By entering into the agreement, both groups agreed that the settlement "shall serve as the basis for LDC compliance filings" and that individual LDCs may propose, and must fully support, any modifications to the settlement made in these filings.
	07/98	Proposed LDC and Marketer Agreement.The LDCs and the marketer group proposed a settlement agreement concerning model terms and conditions for unbundled gas distribution services. The proposal was docketed as DTE 98-32-A.
	04/98	Notice of Inquiry into Unresolved Issues of Collaborative. DTE issued a Notice of Inquiry (NOI) (docket DTE 98-32) in response to unresolved issues in the March 1998 report of the MA Gas Unbundling Collaborative. The NOI encompassed all issues associated with comprehensive unbundling of natural gas services in the state and focused on (1) capacity disposition, both upstream and downstream and (2) associated cost responsibility.
	03/98	Collaborative Report. The Massachusetts Gas Unbundling Collaborative reported its progress in developing a common set of principles for the comprehensive unbundling of natural gas services in the state . While consensus was reached on many points, there was no consensus on the disposition of capacity and any associated cost responsibility, and DTE's guidance was requested.
	07/97	Massachusetts Gas Unbundling Collaborative. The Department of Public Utilities, now the Department of Telecommunications and Energy (DTE), issued "Comprehensive Unbundling of Natural Gas Local Distribution Companies' Services" (), which directed the state's 10 investor-owned LDCs to initiate an industry-wide collaborative process to develop a common set of principles for the comprehensive unbundling of natural gas services in the state. The Department referred to the principles in its electric restructuring docket (DPU 95-30) as a guide for unbundling in the natural gas industry. As a result of the directive, the LDCs formed the Massachusetts Gas Unbundling Collaborative. One of the LDCs, Bay State Gas Company, had already begun its own collaborative effort related to its company-specific unbundling filing. Other participants were marketers, customer groups, state government agencies, and DTE.
Investigative Studies	02/98	Bay State Collaborative Closed. Bay State Gas Company brought its company-specific collaborative process to a close after determining that it would be unable to reach a comprehensive settlement.
	04/97	Bay State Collaborative Started. Bay State Gas Company began a collaborative to examine unbundling issues related to its pilot project that began in July 1996.