Retail Unbundling

Retail Unbundling - Michigan
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Status: The State has begun the process of implementing comprehensive unbundling programs for its residential gas customers.

Overview: Michigan has begun the process of implementing voluntary customer choice programs statewide. As of December 2008, four natural gas utilities in the State (Consumers Energy Company, DTE Energy (Michigan Consolidated Gas), Michigan Gas Utilities, and SEMCO Energy Gas Company) offer customer choice programs to residential households, although Michigan Gas Utilities has no one participating. Consumers Energy, DTE Energy, and SEMCO reported that 296,704 residential customers were enrolled in choice programs as of December 2008, about 4 percent less than in December 2007 (309,889) and more than 10 percent less than in December 2002 (332,244). Customer participation had increased sharply in 2002, with more than 167,000 additional customers enrolled between October 2001 and October 2002. The PSC attributed the increased participation in part to the larger number of marketers participating in Consumers Energy and DTE Energy's programs in 2002 compared with 2001 (six vs. four). Several marketers had exited the programs in 2000 and 2001, particularly since they were unable to match the LDC commodity rates, which were frozen during the winter of 2000-2001. Consumers Energy's rate expired at the end of April 2001, while DTE Energy's rate freeze continued through December 2001 and SEMCO's through March 31, 2002.

In March 2003, the PSC established licensing procedures for marketers participating in customer choice programs, which require the companies to demonstrate they have sufficient financial, technical, and managerial capabilities to provide gas service in the State. Marketers also must comply with codes of conduct in LDC tariffs. As of December 2008, 14 marketers are licensed as alternative gas suppliers in the State's choice program, 8 of which are listed as serving residential customers. Consumers Energy has eight marketers serving residential customers in its service territory, DTE Energy has seven, SEMCO has three, and Michigan Gas Utilities only one.

EIA State Data: In 2007, Michigan had 3,188,152 residential customers, 253,139 commercial customers, and 9,728 industrial customers who consumed approximately 328, 164, and 177 billion cubic feet of natural gas, respectively. The average prices residential, commercial, and industrial customers paid for natural gas from local distribution companies were $11.06, $10.02, and $9.47 per thousand cubic feet, respectively. Natural gas sales by marketers are included in the average price paid by commercial customers.

Eligibility and Participation in Retail Choice Programs:

As of June 2005, all customers of Consumers Energy Company, DTE Energy (Michigan Consolidated Gas), Michigan Gas Utilities (Aquila-MGU), and SEMCO Energy Gas Company could participate in choice programs. Consumers Energy's and DTE Energy's 3-year pilot choice programs have been approved as permanent choice programs. The cap on Consumers Energy’s program increased to 600,000 in April 2001, to 900,000 in April 2002, and then to all of the company’s 1.5 million natural gas customers in April 2003. DTE’s program had an enrollment cap of 440,000 customers in 2002 that increased to 660,000 in April 2003 and to all customers in April 2004. SEMCO’s choice program was expanded to 78,000 residential customers and all nonresidential customers in October 2002. Another 39,000 residential customers could participate as of April 2003, and on April 1, 2004, all SEMCO customers became eligible. Despite a lack of participation, Michigan Gas Utilities also has a choice program with all customers eligible to enroll as of June 2005.

Eligibility and Participation by Customer Class, December 2008

Customer Type	2007 Customer Total	Eligible December 2008		Participating December 2008
Customer Type	2007 Customer Total	Total	Percent of 2007 Customer Total	Total	Percent of Eligible	Percent of 2007 Customer Total
Residential	3,188,152	3,152,568	98.9	296,704	9.4	9.3
Commercial*	253,139	250,287	98.9	33,883	13.5	13.4
Total	3,441,291	3,402,855	98.9	330,587	9.7	9.6
Commercial eligibility and participation data include one company's industrial customers. Sources: 2007 Customer Total:* Energy Information Administration, Natural Gas Annual 2007 (January 2009). Total Eligible: Based on company customer counts reported on Form EIA-176, “Annual Report of Natural and Supplemental Gas Supply and Disposition,” which is the primary data source for the Natural Gas Annual. Total Participating: Michigan Public Service Commission (February 2009).

Regulatory and Legislative Actions on Retail Unbundling

Summary: Legislation was introduced in the Michigan House of Representatives during the 1999-2000 legislative session to allow all residential and commercial natural gas consumers in the State (approximately 3 million) to choose their own gas supplier, but the bill died in committee. In October 2000, the Michigan Public Service Commission (PSC) approved uniform terms and conditions for statewide unbundling, developed through a collaborative process. In November 2001, the PSC approved uniform terms and conditions for customer choice programs for mid-sized LDCs, which differ somewhat from choice programs being operated by the larger LDCs. Consumer education programs were also developed, and collaborative efforts are continuing to solicit public input on the future direction of customer choice programs in the State.

Regulatory and Legislative Actions

Legislation	09/08	House Bill 5524 and Senate Bill 213 Passed. HB 5524 reforms the State’s utility framework, including a 10-percent cap (volumetrically) on the electric choice program. SB 213 establishes a standard and a funding mechanism for renewable portfolio/energy efficiency. This requires each utility to create electric and natural gas energy optimization plans per customer class.
	12/02	Public Act 634 of 2002 (effective 12/23/02). The legislation requires that an alternative natural gas supplier doing business in Michigan be licensed by the Public Service Commission (PSC) and directs the PSC to establish licensing procedures. It also directs the PSC to develop standards governing slamming and cramming by alternative suppliers.
	05/02	Consumer Protection Legislation Proposed, House Bill 6039. The proposed legislation would establish new protections for natural gas customers and set provisions covering customer switching, billing, marketer licensing requirements, minimum disclosure standards, and customer release of information rights. The bill was sent to the House Committee on Energy and Technology. No further action was taken.
	12/99	Unbundling Legislation Proposed, House Bills 5201-5207. The proposed legislation would allow all natural gas consumers to choose their own gas suppliers. The bills also specify licensing requirements for gas suppliers and establish rules and regulations for competitive natural gas services. The bills are to be considered as a package and would not take effect unless all are approved. Hearings on the proposed legislation began before the House Committee on Energy and Technology on January 20, 2000. No further action was taken by the legislature.
Regulatory Actions	05/08	Formal Complaint Proceeding Initiated Against Marketer, Universal Gas and Electric Corporation (UG&E). Based on the investigation that started in February 2008, the PSC filed a formal, contested complaint against UG&E regarding its marketing practices. This case, U-15577, is still pending.
	02/08	UG&E's Marketing Practices Investigated. The PSC began an investigation into UG&E because of a disproportional number of complaints in 2007 regarding the company's marketing practices. According to the PSC, many of the complaints centered on alleged misleading depictions of potential savings and overreaching sales tactics.
	10/07	Consumer Standards and Billing Practices Revised. The PSC revised its rules governing consumer standards and billing practices for residential natural gas and electric service to reflect industry and technological changes. According to the PSC, the rules provide customers with more service shut-off protections by clarifying responsibility for bills, prohibiting estimated meter reading, lowering deposit requirements during the winter, and giving customers more time to pay their bills.
	05/07	Companies Ordered to Provide 30-day Cancellation Notice to Small Commercial Customers (Case U-15215). The PSC adopted the consensus position reached during a collaborative meeting of utilities and other parties that there should be a 30-day cancellation notice to all customers that have 200 thousand cubic feet (Mcf) or less annual aggregated usage.
	02/07	Docket Opened to Investigate Customer Choice Tariffs (Case U-15215). The PSC opened a docket in response to a request by Universal Gas and Electric Corp. for a declaratory ruling regarding the need to provide a 30-day unconditional contract cancellation period to customers who purchase more than 2,000 Mcf of natural gas annually. The docket consolidated UG&E's request with an investigation of customer choice tariffs.
	10/05	PSC Issues Emergency Billing Rules (Case U-14668). The PSC set new rules for utility billing during the 2005-2006 heating season (Nov-March). It extended bill due-dates by 5 days, prohibits shutoffs for failure to pay estimated bill by due date, and prohibits shutoffs for customers 65 years old or older, or whose household income is no more than 200 percent of the poverty level, provided the customer pays monthly amount totaling 6 percent of estimated annual bill.
	06/05	License Granted to WPS Energy Services (Case U-14554). The PSC approved WPS Energy Services’ application to be licensed as an alternative gas supplier.
	06/05	License Granted to Direct Energy Services (Case U-14537). The PSC approved Direct Energy Services’ application to be licensed as an alternative gas supplier.
	03/05	License Granted to Presque Isle Co-Op (Case U-14434). The PSC approved Presque Isle Co-op’s application to be licensed as an alternative gas supplier.
	10/04	License Granted to Lakeshore Energy Services (Case U-14286). The PSC approved Lakeshore Energy Services’ application to be licensed as an alternative gas supplier.
	09/04	License Granted to Peoples Energy Services (Case U-13694). The PSC approved Peoples Energy Services’ application for a license as an alternative gas supplier.
	06/04	License Approved for Shell Energy Services (Case U-14162). The PSC approved Shell Energy’s application to be licensed as an alternative gas supplier.
	03/04	Licenses Approved for Proliance Energy, MidAmerican Energy, MXEnergy, and Interstate Gas Supply (Cases U-14036, U-14055, U-14066, and U-14075). The PSC approved applications of Proliance Energy, MidAmerican Energy, MxEnergy, and Interstate Gas Supply to be licensed as alternative gas suppliers.
	10/03	SEMCO and Aquila-MGU GCR Plans Approved(Cases U-13622 and U-13550). The PSC approved SEMCO’s Gas Recovery (GCR) Plan for April 2003-May 2004 and Aquila Networks-MGU plan for calendar year 2003. In both dockets, the PSC rejected the Attorney General’s and Residential Ratepayer Consortium’s (RRC) proposals to change from the current roll-in refund method and return to the historical refund method (HRM, or modified roll-in). The Attorney General had argued that HRM is pro-competitive because it assesses the actual cost to customers who used the gas, while the roll-in method of under-recoveries is anti-competitive as customers would migrate to Choice to avoid paying their share of underrecovered costs. The RRC wanted to create a prior period gas cost charge for billing to any SEMCO customer who chooses an alternative supplier. The PSC concluded that the suggested recovery methods would “amount to an exit fee or cost for leaving the GCR system, and therefore, would undermine Choice.” The PSC may reconsider HRM when there are large numbers of Choice customers in the LDCs’ service territories (currently no Choice suppliers are in SEMCO’s or Aquila-MGU’s areas).
	07/03	License Granted to Cornerstone Energy Marketing, Inc. (Case U-13823). The PSC approved Cornerstone’s application to be licensed as an alternative gas supplier (AGS). The company is the first to be licensed as an AGS in Michigan since procedures were established in March 2003.
	03/03	PSC Sets Licensing Procedures for Marketers (Case U-13694). Licensing procedures were approved that apply to any one selling natural gas at unregulated retail rates in the State and participating in customer choice programs. Applicants must provide proof of the necessary financial, technical, and managerial capabilities to provide gas service and maintain an office in the State. A bond or letter of credit ($100,000) will be required of all applicants that have not demonstrated financial capability (BBB or better rating from a major financial rating service).