Status: The State has begun to implement
comprehensive unbundling for its residential gas customers. |
Overview: Competition for natural gas supply has
been allowed in Pennsylvania since enactment of the Natural Gas Choice and
Competition Act in 1999. However, as of January 1, 2010, according to the
Pennsylvania Office of Consumer Advocate, only 7 percent of the State's
residential customers purchase natural gas from alternative suppliers,
down substantially from the 10 percent level in December
2001. In an effort to increase "efffective competition" for natural gas supply, the State Public Utility Commission (PUC) in September 2008 approved a 2-year action plan to reduce or eliminate barriers to marketer participation in choice programs. The plan is based on recommendations from a PUC-led task force known as SEARCH (Stakeholders Exploring Avenues for Removing Competition Hurdles). The group formed after the PUC report to
the General Assembly in October 2005 concluded that the number of suppliers and buyers in
choice programs across the State was insufficient for effective
competition and that the marketplace lacked "accurate and timely price
signals." The report noted that suppliers felt that substantial barriers
to market entry exist because of the local distribution companies’ (LDCs)
differing and high security requirements, excessive and varying penalties
for nondelivery, differing nomination and delivery requirements, and
misleading price comparisons.
As a first step in its action plan, the PUC formed the Office of Competitive Market Oversight within the commission to provide an informal forum for resolving disputes between LDCs and marketers. The PUC also proposed three rulemakings. The first rulemaking, issued in December 2008, would change the requirements for marketer licensing and revise the consumer protection guidelines in purchase of receivable programs. (In purchase of receivable programs, the LDC is responsible for billing the customer, collecting payment, and then reimbursing the marketer, even if the customer does not pay.) It would let marketers use accounts receivables in purchase of receivable programs to fulfill some or all of their security requirements. It would also specify standard language for the financial instruments used for security and reasonable criteria for LDCs to use in setting the amount of security marketers need for licensing approval.
The second rulemaking proposal, issued in March 2009, would reformulate the "price to compare" used by consumers to judge whether a marketer's price is better than the LDC's. It would make permanent rules for establishing voluntary purchase of receivables programs, set guidelines for capacity release, assignment or transfer, and change the handling of recoverable costs related to competition activities and regulatory assessments.
The third rulemaking, released for comment in April 2009, would establish a common set of business practices for LDCs in an effort to attract more marketer participation in the State's retail gas market. It would direct LDCs to submit standard coordination tariffs and implement more standardized business practices regarding imbalance trading, tolerance bands, cash out and penalties, nominations and capacity. It also established a working group to develop and implement communication standards.
Customers in five LDCs’ service areas (Columbia Gas of
Pennsylvania, Inc., Dominion Peoples, Equitable Gas Company, PECO Gas Company, and UGI
Gas Utilities, Inc.) buy gas from marketers at this time. The first three
of these LDCs had conducted extensive pilot choice programs prior to the
legislation. At a hearing in September 2004, the consumer advocate noted
that nearly all the switching to third-party suppliers has occurred in
areas that had extensive pilot programs in place before the choice
legislation was enacted. During these pilot programs, customers who
switched to marketers were exempted from paying a 5-percent gross receipts
tax. However, this advantage was eliminated with passage of the choice
legislation, which abolished the tax as of January 1, 2000. The consumer
advocate also noted that participation in choice programs may be hindered
by the difficulty in tracking the “price to compare” since it changes
quarterly and the sometimes long period (up to 48 days or more) it can
take for a switch to occur.
All marketers must be licensed by the
PUC in order to provide natural gas service in Pennsylvania. As of December 2009, 30 marketers had licenses to serve residential customers in the
State, but only 8 companies were enrolling new customers, up from 4 in 2007 and 7 in 2008. |
EIA State Data: In 2008, Pennsylvania had 2,631,340 residential and 233,462 commercial customers who consumed approximately 229 and 145 billion cubic feet of natural gas, respectively. The average prices these customers paid for natural gas from local distribution companies and marketers were $16.22 and $14.30 per thousand cubic feet, respectively. |
Eligibility and Participation in Retail Choice
Programs: Retail unbundling in Pennsylvania began in November 1996
with the implementation of pilot programs by Columbia Gas of Pennsylvania
(August 1996) and Equitable Gas Company (September 1996). Approximately
25,000 residential and small commercial customers were eligible to
participate in these early programs. In 1997, three additional LDCs
initiated customer choice programs (PG Energy, Inc., National Fuel Gas
Distribution Corp., and People's Natural Gas Company, now doing business as Dominion Peoples). As of December
2009, about 1.7 million residential customers have access to competitive
suppliers and about 184,000 have enrolled in choice programs, down slightly from the number (185,000) in 2008.
|
Eligibility and Participation by Customer Class, December 2009
Customer Type |
2008 Customer Total |
Eligible December 2009 |
Participating December
2009 |
Total |
Percent
of Customers |
Total |
Percent
of Eligible |
Percent
of 2008 Customer Total |
Residential |
2,631,340 |
2,633,384 |
100 |
183,641 |
7.0 |
7.0 |
Commercial |
233,462 |
233,462 |
100 |
23,217 |
9.9 |
9.9 |
Total |
2,864,802 |
2,866,846 |
100 |
206,858 |
7.2 |
7.3 |
Sources: 2008 Customer Total and 2009 Estimated Commercial
Participation: Energy Information Administration, Natural Gas Annual 2008 (March 2010). Residential Eligibility and Participation: Pennsylvania Office of Consumer Advocate (January 2010).
| |
|
Residential Customer Eligibility and Participation by Local Distribution Company, January 1, 2010
Local Distribution
Company |
Number of Residential
Customers |
Eligible
|
Participating |
Percent Participating |
Columbia Gas of Pennsylvania |
376,924 |
67,818 |
18.0 |
Dominion Peoples |
328,569 |
93,307 |
28.4 |
Equitable Gas Company |
240,603 |
16,089 |
6.7 |
PECO Gas Corporation |
445,602 |
385 |
0.1 |
UGI Gas Utilities |
299,893 |
6,042 |
2.0 |
Other (6) |
941,793 |
0 |
0 |
Total |
2,633,384 |
183,641 |
7.0 |
Source: Pennsylvania Office of Consumer
Advocate (January 2010). | |
Regulatory and Legislative Actions
on Retail Unbundling
Summary: The Pennsylvania General
Assembly passed the Natural Gas Choice and Competition Act in June 1999,
which called for statewide unbundling of the natural gas industry to begin
on November 1, 1999, and be completed by July 2000. It directed natural
gas distribution companies to file restructuring plans with the
Pennsylvania Public Utility Commission that include provisions for
supplier of last resort, universal service for low-income customers, and
energy conservation. The PUC formulated regulations to implement the
legislation using the input from working groups to deal with safety and
reliability, customer information disclosure, standards of conduct, and
consumer education. The PUC also formulated regulations concerning the
licensing of natural gas suppliers. According to the schedule set by the
PUC in July 1999, four LDCs were to file their restructuring plans in
August 1999, two in October, three in December, and one in February 2000.
Columbia Gas of Pennsylvania's restructuring plan was approved in December
1999, and the other LDC plans were approved during 2000.
The
Natural Gas Choice and Competition Act specified that after July 1, 2004,
the PUC is to initiate an investigation or other proceeding to evaluate
the competitiveness of natural gas supply services in the State and report
its findings to the General Assembly. If the market is not sufficiently
competitive, the PUC is to reconvene the stakeholders to consider
measures, including legislative, for encouraging competition.
The
PUC began its investigation in May 2004 and submitted its report to the
General Assembly in October 2005. The report concluded that the number of
suppliers and buyers in choice programs across the State was insufficient
for effective competition and that the marketplace “lacks accurate and
timely price signals.” The report also noted that, according to suppliers,
substantial barriers to market entry exist because of the LDCs’ differing
and high security requirements, excessive and varying penalties for
non-delivery, differing nomination and delivery requirements, and
misleading price comparisons. Because of the report’s findings, the PUC
called on stakeholders to come together by the end of 2005 to consider
what actions should be taken to encourage competition on a statewide
level. The group released its final report in September 2008, forming the basis for the 2-year action plan currently underway in an effort to increase retail competition. |
Regulatory and Legislative Actions
Legislation |
05/09 |
Proposed Gas Distribution System Improvement Charge (DISC). Proposed House Bill 744 would allow natural gas distribution companies to charge for infrastructure projects through a gas DISC. The bill would bring treatment of natural gas service lines in line with industry practices for electric service lines. The bill was recommitted to appropriations in May 2009. |
|
10/07 |
Special Legislative Session on Energy Policy. Proposed House Bill 40 would provide for low-interest loans to utilities to replace deficient and aging pipeline facilities. House Bill 41 would give the PUC authority to mandate acquisition of Philadelphia Gas Works (PGW) by a capable public utility if considered necessary. It would also establish a distribution surcharge for all LDCs in the State, with a special surcharge provision for PGW. The bills were referred to the Consumer Affairs Committee in November 2007. (No further action reported as of December 2009.) |
|
12/04 |
Responsible Utility Consumer Protection Act (Senate Bill 677). The Act amended Title 66 by adding Chapter 14 (sections 1401-1418), which is intended to
protect responsible bill paying customers from rate increases attributable to the
uncollectible accounts of customers that can afford to pay their bills but choose not to
pay. The legislation is applicable to electric distribution companies, water distribution
companies, and larger natural gas distribution companies (annual
operating income in excess of $6 million). It requires the PUC to report to the
General Assembly every 2 years as to the degree to which the law's requirements are being implemented; the effect upon the utilities' cash flow, uncollectible levels,
and collections; the level of access to utility services by residential customers; and the effect upon the level of consumer complaints and mediations. The report may also
contain recommendations about legislative or
other changes. |
|
06/99 |
Natural Gas Choice and Competition
Act (HB 1331). Provides for restructuring of the
natural gas industry so that consumers can choose their own gas
supplier. The act also deletes a 5.1-percent gross receipts tax on
gas utility sales, effective 1/1/2000. A 6-percent "sales" tax will
remain applicable to certain nonresidential customers. LDCs must
file restructuring plans that unbundle all natural gas supply
services and that specify system reliability standards and capacity
contract mitigation guidelines. LDCs must also specify provisions
for billing, dispute resolution, customer information, slamming
prevention, etc. LDCs can continue merchant services and their
affiliates can participate as marketers, abiding by code of conduct
rules (interim rules adopted 11/18/99). Until 7/1/2002, an LDC can
assign, release, or transfer capacity to licensed gas suppliers who
in turn must accept the existing contract terms if they serve
customers on the LDC's system. After 7/1/2002, the PUC can prevent
assignments if it considers it warranted. Rates charged by LDCs are
frozen until 2001, but LDCs can request permission to capitalize and
defer costs over an "appropriate" period. LDCs can recover all costs
incurred under transportation pilot programs approved before 2/1/99.
Costs incurred under these pilots through 10/31/04 may be recovered
if the volumetric charge does not exceed 1% of the LDC's approved
volumetric charge for residential sales service. In 5 years (2004),
the PUC is to evaluate the competitiveness of natural gas supply
services in the State and report its findings to the General
Assembly. If the market is not sufficiently competitive, further
actions will be considered. |
Regulatory
Action |
12/09 |
PUC expands role of Office of Competitive Market Oversight to cover both electric and natural gas retail choice issues. The office will respond to questions from electric distribution companies, monitor competitive market complaints, and facilitate informal mediation between the default service provider and electric generation suppliers. Rate caps for electricity service have expired for many consumers. |
|
04/09 |
PUC proposes business standards for gas utilities. The proposed rulemaking would direct utilities to submit standard coordination tariffs and implement more standardized business practices regarding imbalance trading, tolerance bands, cash out and penalties, nominations and capacity. It also establishes a working group to develop and implement communication standards. The stakeholder process is to be completed by August 1, 2009. The proposed rulemaking is part of the PUC's 2-year action plan to facilitate competition in the retail gas market. |
|
03/09 |
PUC proposes rules to make it easier to compare marketer and utility prices. The proposed rulemaking would reformulate the "price to compare" used by consumers, make permanent rules for establishing voluntary purchase of receivables programs, set guidelines for capacity release, assignment or transfer, and change the handling of recoverable costs related to competition activities and regulatory assessments. |
|
02/09 |
As directed by the PUC, Philadelphia Gas Works (PGW) explores alternative supply options. PGW entered into a collaborative process with marketers to explore options for switching some of its customers to an alternative default supplier. Currently PGW purchases natural gas for its customers from borrowed funds. |
|
01/09 |
PUC announces establishment of Office of Competitive Market Oversight to oversee competition in the retail natural gas supply market. The office will assume only advisory and informal mediation roles, with help from representatives of the Bureau of Conservation, Economics and Energy Planning, the Law Bureau, the Bureau of Fixed Utility Services, the Bureau of Consumer Services, and the Office of Communications. The office will submit quarterly reports to the PUC as to the issues raised and how they are resolved. |
|
12/08 |
PUC proposes rule changes regarding security requirements for marketer licensing. The PUC asked for comments on proposed rule changes that would revise the consumer protection guidelines in purchase of receivable programs and change licensing security requirements. It would let marketers use accounts receivables in purchase of receivable programs to fulfill some or all of their security requirements. It would also specify standard language for the financial instruments used for security. Comments are due in February 2009. |
|
09/08 |
PUC initiates a 2-year action plan to increase retail competition and reduce or eliminate barriers to marketer participation in choice programs. The plan is based upon recommendations from a PUC-led task force charged with finding ways to create effective competition for natural gas supply. The plan will be implemented in two phases. The first phase will include formation of an Office of Competitive Oversight within the PUC, development of legislative changes dealing with capacity assignment and release, and expansion of the purchase of receivables program. The second phase will include rulemakings to address the respective issues of LDCs, marketers, and business practices. LDC issues include price comparisions, purchase of receivable programs, and mandatory capacity release. Marketer issues include creditworthiness and security requirements, and business practice issues include standardization of LDC operating rules and electronic bulletin boards. |
|
05/08 |
Draft SEARCH report posted for public access. The report of the Natural Gas Stakeholders Working Group called SEARCH ("Stakeholders Exploring Avenues for Removing Competition Hurdles") summarizes the work of four subgroups tasked with examining issues identified as being barriers to effective competition at the retail level and finding possible solutions. The PUC was required to convene the SEARCH group after reporting to the General Assembly in 2005 that effective competition did not exist. |
|
12/07 |
New case and document management system. The system will permit electronic filings, which will require PUC procedural changes. Proposed revisions were published on Nov. 17, 2007, with comments due by Jan. 16, 2008. |
|
09/07 |
PUC rejected PGW's request to remove capacity release credits and off-system sales margins from the PGW rate. The PUC approved an increase in residential rates but rejected PGW's proposal to include certain revenues in base rates to offset long-term debt borrowing. |
|
09/07 |
PUC reported that PPL Corp. intends to sell its distribution company PPL Gas Utilities Corp. in 2008. The company serves about 77,000 natural gas customers in 34 Pennsylvania counties. |
|
06/06 |
Stakeholders working group renamed SEARCH (stakeholders exploring avenues for removing competition hurdles). The PUC-led task force includes natural gas distribution companies (LDCs), marketers, and consumers. The group is examining issues related to mandatory capacity assignments, purchase of receivables, consumer education, consumer protection rules, and costs of retail supply services and also considering possible incentives that might result in LDCs exiting the merchant function. The group's report will be submitted to the PUC sometime in early 2007. |
|
03/06 |
PUC adds fourth subgroup to stakeholders working group: competition monitoring. The PUC confirmed the previously announced subgroups as well as a fourth one, competition monitoring. The subgroups will meet independently and provide updates at meetings of the entire working group. |
|
01/06 |
Stakeholders working group meeting scheduled and subgroups formed. The PUC proposed three subgroups to study specific issues and asked for volunteers to participate in each group. These subgroups are: inter-company activity; customer interface; and cost of service. |
|
10/05 |
Report on competition submitted to General
Assembly. The PUC found that effective competition does
not exist in the retail natural gas supply market statewide and that
the PUC should reconvene stakeholders in the industry to explore
additional ways to increase competition. The group is expected to
meet by the end of the year. One commissioner (Shane) objected to
reconvening the stakeholders group and instead recommended repeal of
the Natural Gas Choice and Competition Act. |
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