Ohio utility wants end to regulated gas pricing

Source: The Columbus Dispatch

A northeastern Ohio gas utility wants to be the first in the state to end regulated pricing, a move that a consumer advocate says will remove a key protection for the people who pay the bills.

Dominion East Ohio, which serves the Cleveland area, has asked state regulators to approve a plan that would eliminate “default service” for natural gas. If approved, the state would no longer oversee a process designed to help assure low prices for customers who choose to buy from the utility.

This would be the next step in gas deregulation, a process that began in the 1990s by offering consumers alternatives to doing business with the utility. Those alternative natural-gas providers, such as IGS Energy and Direct Energy, would become the only option for consumers.

Other regulated gas companies might follow with their own proposals, including Columbia Gas of Ohio. Columbia spokesman Ken Stammen said his company is looking at potential changes to the pricing system, but it is too early to speculate about specifics.

Ohio law says natural-gas utilities can make no profit from the sale of gas. They make nearly all their profit from gas delivery. Because of the nuances of this system, utilities have been willing to step away from sales of gas to residential and business customers and let marketers pick up the slack.

So far, the only opposition to Dominion East Ohio’s proposal is coming from Ohio Partners for Affordable Energy, a group that represents low-income customers. It has concerns that Dominion’s plan is a step toward higher prices and fewer protections for customers. This follows several years when customers have benefited from unusually low gas prices.

“Why change when (the current system) is producing excellent prices?” said Dave Rinebolt, the group’s executive director. “Customers will be forced to pay more if they are forced to buy from marketers.”

But not all consumer groups oppose the plan. The Office of the Ohio Consumers’ Counsel, the state’s advocate for utility customers, agreed not to oppose Dominion’s plan in exchange for a delay in implementation of the change for households. Because of this, Dominion’s proposal would eliminate regulated pricing for business customers as soon as next year, but not until at least 2016 for residential customers.

“The settlement preserves this important option for residential consumers until at least April 2016,” said Amy Kurt, spokeswoman for the consumers’ counsel. “And, the PUCO cannot later end this option for residential consumers without at least hearing evidence in a public process, according to the settlement.”

Dominion’s leaders think customers will be better off when the main competition is between marketers, as opposed to having the default price serve as a competitor with the marketers’ offers. Dominion’s parent company also owns a gas marketer, Dominion Energy Solutions.

“We’ve been trying to move into more of a competitive environment,” said Jeff Murphy, managing director of commercial operations for Dominion. “The filing we made here was intended to tee up the next step.”

He noted that more than 9 in 10 customers in Dominion territory have already signed up with a marketer, either through an individual contract or through a deal negotiated by their local government. That leaves few people using the default, or regulated, price in a territory with 1.1 million customers.

In Columbia territory, which has 1.3 million customers, 4 in 10 customers signed up with a marketer, according to the PUCO. Most of the rest are paying the default price.

Right now, Dominion and Columbia set their regulated prices through a state-run auction in which marketers bid to offer the lowest price. The system has led to prices that are often lower than the ones offered by marketers, whose prices are not regulated.

For example, Dominion’s current default price is 47.7 cents per 100 cubic feet of gas. Of the 16 marketers operating in Dominion territory, the variable-rate offers range from 47.5 to 61.5 cents. Most of the offers are closer to the high end than the low end. The lowest 12-month fixed-rate offer is for 59.1 cents. The figures were taken from the PUCO’s most-recent “Apples to Apples” chart.

Without default service, the marketers’ offers would be the only option. In Dominion’s plan, customers who do not choose a marketer would be randomly assigned to a marketer’s variable-rate offer, including offers that might not be the lowest price.

“The best way to control your own destiny is to make your own selection” of a marketer offer, said Murphy, the Dominion official.

Critics say the result will be higher profit margins for marketers because they will no longer have to compete with the default prices, an allegation that Murphy disputes.

“This is not an attempt to do anything to buttress supplier margins,” he said.