Deregulated natural gas under fire

All controls end as of Nov. 1 but without legislative framework

`There is no competition'

BGE determines who enters market, can fine competitors, critics say

Energy

October 17, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Natural gas sales in Maryland will be fully deregulated Nov. 1, and the rush for customers is on.

With 445,000 gas customers in the Baltimore region still up for grabs, competitors of Baltimore Gas and Electric Co. are beefing up their marketing campaigns with direct mail, newspaper advertisements, telemarketing and even door-to-door sales pitches.

Nearly 90,000 Baltimore-area residents have enrolled with one of the nearly a dozen natural gas suppliers operating in the territory of BGE, which continues to distribute the gas through its pipelines.

The opening of the natural gas market to competition caps two years of pilot programs that saw about 50,000 residential customers sign up with independent suppliers.

While electricity deregulation was prompted by industrial and commercial customers seeking big savings, the Maryland Public Service Commission decided to restructure the state's gas industry with little prompting from the public, said Calvin Timmerman, the PSC's director of rate research and economics.

Instead, it was sparked by the Federal Energy Regulatory Commission eliminating pipeline companies as the sole gas merchants in 1994.

"We thought, why shouldn't we make provisions for suppliers and all customers to come together," Timmerman said.

Maryland was among the first states to look at deregulating its gas market for small businesses and residents. Large industrial and commercial customers were allowed to shop for natural gas as early as 1984.

Gas deregulation "is the quiet evolution as opposed to the noisy electric revolution," Timmerman said. "There were no big doings in Annapolis. It's just here. If you want to buy gas from someone else you can. If you don't want to, you don't have to."

But critics warn that the ad hoc nature of gas deregulation in the state and the lack of a legislative framework have left some competitors hamstrung and customers unaware and unprotected.

"I think we put the cart before the horse," said People's Counsel Michael J. Travieso, whose state agency represents residential customers.

"The pilot [program] turned into total deregulation. I don't have a philosophical objection to opening the gas industry up to competition. But it would be better if we had a plan," he said.

Supporters -- including BGE and the PSC -- say deregulation can be considered a success, considering about 16 percent of residential customers have switched, along with 20 percent of commercial gas customers.

Three-part bill

As part of the deregulation process, charges on consumers' monthly bills will be separated into three parts: a "customer" charge, a distribution charge, and the cost of the gas itself.

The latter, which typically makes up a third of the bill, is the only part being deregulated.

When customers shop for gas, they compare the gas charge, which in Maryland ranges from 31.7 cents per therm to 37.9 cents per therm.

BGE's current gas charge is 39 cents per therm. The utility's natural gas business will remain regulated by the PSC.

BGE's monthly customer charge of $12 pays for the utility's gas pipelines.

The distribution charge pays for the utility's cost delivering the gas to residential customers. BGE's distribution charge, which varies monthly, for October is 29.82 cents per therm.

Last is the gas charge, which is paid to the supplier.

Gas suppliers began soliciting residential customers in June and enrollments began in July.

When consumers enroll with a gas supplier, they must typically sign a contract that binds them to the stated price, usually for one year.

Travieso, the people's counsel, raises concerns about consumer protection. Unlike electricity deregulation, there is no state legislation to guide the restructuring of the natural gas industry, he said.

The Public Service Commission recently solicited opinions from the state's gas industry on whether there should be legislation, but it has yet to issue a decision.

Also, Travieso said, consumer awareness of the changes in the gas industry is negligible, adding: "Consumers may not understand the intricacy of looking for a gas supplier."

Charles McKay of Severna Park agrees.

He signed up for BGE's first pilot program in 1997. He opted for a two-year contract with Keyspan Energy Services, a gas marketer in Stamford, Conn. Keyspan's 33 cents per therm beat BGE's average rate of 45 cents per therm for that year.

McKay now has the choice to renew his contract with Keyspan, which increased its rates to 37.5 cents per therm, or shop around.

With more marketers in the pool as well as incentives -- like free service contracts, or free gas for a month -- in the mix, McKay decided to renew with Keyspan to avoid the hassles of shopping.

`More complicated'

"Just when I'm trying to simplify my life, it has gotten so much more complicated," said McKay, 74. "The average person is not knowledgeable enough to make a decision, so I'm wondering what the impact of multiple choice really will be."

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