Retail Unbundling - U.S. Summary

Overview: Enrollment in existing "customer choice" programs increased by less than 1 percent (36,118) in 2003, although the number of eligible customers increased by nearly 4 percent, or 1.2 million. Almost all the increase in participation is attributable to gains in Ohio (171,523), which is second only to Georgia in the size of its residential choice market (Table 1). Three utilities in Ohio have had choice programs underway since 1997, and a fourth company began its program in January 2003 with 51,530 residential customers enrolled as of December 2003. Participation also increased in New Jersey (20,943), Illinois (21,320), and Indiana (2,526) (Table 2). The most far-reaching program exists in Georgia where all residential customers in Atlanta Gas Light Company’s service territory (more than 80 percent of the residential gas customers in the state) purchase their natural gas directly from marketers. Atlanta Gas Light still delivers the gas but no longer provides any sales service.

In total, more than 30 million of the approximately 60 million residential customers in the United States have access to choice programs and more than 4 million are participating (13 percent of eligible). Overall, however, sharply higher prices for natural gas in 2003 and increased price variability seem to have dampened consumer interest in alternative supply options and reduced the number of suppliers interested in serving the residential market (see Marketer Summary Table). Since December 2001, the number of marketers authorized to serve residential customers has dropped from 165 to 121 and the number of marketers actively serving customers has dropped from 159 to 92 as of December 2003 (Table 3). Furthermore, many marketers are not enrolling new customers. For example, Michigan has eight marketers licensed to supply residential customers but only one company is enrolling new customers.

No state has changed its unbundling status in the past year, although state regulatory agencies are continuing to refine and evaluate existing programs. The Kentucky Public Service Commission (PSC) rejected Columbia Gas Company’s request to terminate its pilot program 7 months before its scheduled termination date of October 31, 2004. The PSC determined that program participants, in the aggregate, have saved on their gas bills and the program should be extended through March 31, 2005. In Wyoming, the Wyoming Public Service Commission concluded that Kinder Morgan’s choice program was in the public interest and could continue, but with some modifications. Customers were given the option to choose a “pass-on rate (regulated rate),” which also becomes the default rate for customers who make no selection, rather than being forced to switch to a supplier. About 44 percent of Kinder Morgan’s customers have chosen the pass-on rate. In Pennsylvania, the public utility commission has begun the process of identifying which issues should be considered in its upcoming evaluation of the competitive retail gas market in the state. Legislation passed in 1999 specified that after 5 years the commission is to evaluate the competitiveness of natural gas supply services in the state and report its findings to the General Assembly. If it is determined that the market is not sufficiently competitive, further actions are to be considered, including legislation.

No significant changes occurred in the states that allow consumer choice but have virtually no participation. As in 2002, Massachusetts had fewer than 300 residential customers participating, West Virginia fewer than 20, and New Mexico had no participants. The customer aggregation program continues in California, but accounts for less than 0.7 percent of deliveries to residential customers (based on most recent EIA data). Only about 0.5 percent of residential and commercial customers in Montana have chosen alternative suppliers and only 0.2 percent of South Dakota gas consumers (all sectors) use transportation service. Colorado allows utilities to offer customer choice programs if approved by the public utilities commission, but no utilities have submitted unbundling plans.

As of January 1, 2004, 21 states and the District of Columbia have legislation or programs in place that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company. Five states and the District of Columbia allow all residential consumers to choose their natural gas suppliers, but a lack of marketer participation has precluded the development of competitive retail markets in two of these states. Eight states have begun to implement statewide programs, and eight states have pilot or partial unbundling programs in place. An additional 10 states are considering action on customer choice, while 17 states have thus far taken no action and two states have discontinued their pilot programs.

Large commercial and industrial consumers have had the option of purchasing the natural gas commodity separately from natural gas services for many years. State regulators and lawmakers, who are responsible for designing and implementing retail restructuring programs, have moved more slowly in implementing choice programs for residential and small-volume commercial customers until they could ensure reliable service.

EIA Data: In 2002, the United States had 61,140,021 residential and 5,059,734 commercial customers. They consumed 4,890 and 3,103 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 $7.91 and $6.64 per thousand cubic feet, respectively.

Table 1. Eligibility/Participation in Retail Choice Programs

Status as of December 2003: Number of Residential Customers

-- = Not applicable. (*) = Less than 0.05 percent.

* Based on Energy Information Administration, Natural Gas Annual 2002 (January 2004).

Note: Colorado law permits unbundling if approved by the state public utility commission, but no utilities have submitted unbundling plans. Also, two other states (Montana and South Dakota) have pilot programs or partial unbundling but residential data are not available (see state information pages).

Sources: Total 2002: Energy Information Administration, Natural Gas Annual 2002 (January 2004). Eligibility and Participation: State public utility commissions, utility company web sites, and Energy Information Administration estimates.

Table 2. Historical Overview:

Number of Residential Customers in Customer Choice Programs, 2000-2003

  -- = Not applicable. (R) = Revised. NA= Not available.

*Pilot program was discontinued.

   (*) = Less than 0.05 percent.

   Note: Colorado law permits unbundling if approved by the state public utility commission, but no utilities have submitted unbundling plans. Also, two other states (Montana and South Dakota) have pilot programs or partial unbundling but residential data are not available (see state information pages).

Sources: 2003: State public utility commissions and Energy Information Administration, Natural Gas Annual 2002 (January 2004). 2000-2002: Energy Information Administration, Historical files. http://www.eia.doe.gov/oil_gas/natural_gas/restructure/restructure.html.

Table 3. Historical Overview:

Number of Marketers Serving Residential Customers, 2001-2003

   -- = Not applicable. (R) = Revised.

*Total Marketers: Number of companies that have been authorized by the public service commission to provide gas service in the state, even if not actively serving customers.

   **Active Marketers: Supplier has been authorized by the public service commission to provide gas service in the state and is actively serving customers in the state.

   ***Unclear which marketers are active.

   ****Totals do not equal sum of state totals because some companies are licensed and operate in multiple states. Also note that the December 2002 Total differs from data in the historical file in that the number of PA active marketers (4) was inadvertently listed as total marketers for the state, rather than 29 (estimated). The revision results in an additional 8 marketers in the United States in 2002.

Sources: 2003: State public utility commissions and utility company web sites. Energy Information Administration, Natural Gas Annual 2002 (January 2004). 2001-2002: Energy Information Administration, Historical files. http://www.eia.doe.gov/