A decision on Wednesday by the Public Utilities Commission of Ohio has started what could be a slippery slope for residential consumers who have been benefiting from low natural gas rates.
The regulators allowed Dominion East Ohio and Columbia Gas of Ohio to eliminate the monthly default price, or price determined by an auction, for its commercial or nonresidential customers. For Dominion business or commercial customers, that change is likely to happen in April.
The decision does not immediately affect residential customers. In fact, Dominion has agreed not to apply for any changes to residential markets until April 2015.
But it begins the process of what the industry calls “exiting the merchant function.” In plain English, that means taking away the Standard Choice Offer (SCO) now at Dominion. It is the rate determined by taking the wholesale natural gas price at the end of the previous month and including an approved charge called an “adder” (currently at 60 cents per thousand cubic feet or mcf) that is set by an auction of competitors.
Dominion doesn’t provide the gas for the SCO and got out of the gas-buying business several years ago. It doesn’t make money on the SCO. But by providing the SCO, Dominion provides a benchmark for customers to know whether competitive offers by marketers are good.
For the last two years, I have been on the SCO monthly variable price for my house and have advocated that price over offers from natural gas marketers who are providing their own variable and fixed prices. (Readers can go online to www.tinyurl.com/bettyadvice to find previous advice on natural gas and electricity choices.)
That’s been a departure from previous years when I was looking for a low fixed rate with a low cancellation fee.
The natural gas industry has dramatically changed along with prices. Production is booming — including in Ohio — and the industry is no longer reliant on the Gulf of Mexico, which was susceptible to hurricanes and weather-related price fluctuations.
Because the supply is so high, prices have dropped and long-term estimates say it is expected to stay that way. In earlier years, I avoided the default rate because it had the danger of dramatic price swings, which moved around after several hurricanes. Also, natural gas marketers had been doing a good job of competing and offering good rates.
But competitors today aren’t beating the SCO.
For instance, the December to January SCO rate was $4.30 per mcf and the rate after Jan. 14 for the month will drop to $3.95/mcf. As of last Thursday afternoon, the PUCO comparison of prices, called Apples to Apples, was showing fixed rates between $4.93/mcf through March and $6.24/mcf for a four-year contract with a $100 cancellation fee. Variable rates were anywhere from $3.96/mcf to $5.99/mcf. There are times when a variable rate can be lower than the given SCO of the month, but hardly any of the marketers are transparent in how they come up with their monthly rate or guarantee to beat the rate (one marketer does promise to beat the rate for the first month only).
If Dominion’s SCO or default rate is taken away, then there’s no benchmark for the marketers to beat or for consumers to know they are getting a good rate.
It could be argued that looking at today’s market isn’t a fair assessment of what might happen if the residential default is taken away because the market hasn’t been forced to compete in a true sense, or that the marketers can’t compete with the SCO.
Staff at the Office of the Ohio Consumers’ Counsel, the state’s residential utility advocate, say they are in favor of preserving the standard offer or benchmark.
“There is no need to fix something that isn’t broken,” said Amy Kurt, OCC director of public affairs. “The standard offer is not broken.
“Currently, Dominion and Columbia determine the standard offer for their natural gas through a competitive auction. The auction has been very successful in lowering the price that many Ohioans pay for natural gas,” she said.
In testimony in the case before the PUCO, the OCC pointed to the one state in the country that has eliminated a standard offer from its utility — Atlanta Gas and Light Co. in Georgia.
“The experience for consumers in Georgia has not been good,” Kurt said. “Natural gas rates in Georgia were previously below the national average. Shortly after the standard offer in Georgia was eliminated, customers’ rates increased and are now much higher than the national average.”
Eliminating the standard offer for commercial residents will give Dominion, the PUCO and industry several years to see what happens and whether it will work for residential customers and no decision has been made, said Jeff Murphy, Dominion East Ohio managing director for commercial operations. Murphy oversees the regulated utilities’ Customer Choice Program for residential customers.
“Over time, as we’ve talked to suppliers, the general notion is that if the utility steps out of the merchant function role, then the market will become more purely competitive,” said Murphy. “Frankly, that’s what time will tell if we exit the merchant function on the nonresidential side.”
The utility entered into what it called pro-active settlement negotiations with the OCC and other parties this summer to discuss how it might exit the merchant function. Part of the settlement negotiated by the OCC was for Dominion to pledge not to apply to exit the merchant function until 2015 (Columbia’s commercial and residential customers would all be one year behind Dominion’s plan).
“We’re effectively four years off that first possible date [for residents],” said Murphy, explaining that it could take a year or two to go into effect, if approved. “It’d be helpful for me to emphasize it’s really going to be dependent on how all of this unfolds in the next couple of years.” Murphy said the PUCO staff has made it clear that there would be nothing from preventing the commission “from basically putting the genie back in the bottle. If things don’t go smoothly, we could be back to an SCO even for nonresidential customers.”
This isn’t a situation where anyone should be panicking about what is happening. But it’s an opportunity for people to be aware of what may be coming, to express their opinions and make sure they currently have a good gas rate.
Kurt also noted that the PUCO is inviting comments on another matter, a commission-ordered investigation into a similar issue for electric utilities. No electric utilities have formally asked to eliminate their standard offers, but the commission is investigating the possibility.
The case number for the electric matter is 12-3151 and for Dominion’s case is 12-1842. More details can be found at www.puco.ohio.gov or by calling 800-686-7826.