Gearino

(c) 2010 F. Bruce Abel

Reading the blog No Hot Air led me back to my back yard here in Ohio.

Gearino, for the Columbus Dispatch, is the best source out of Columbus. This article augers well for the anti-aggregator camp.



Columbia Gas
Did gas company leave money on the table?
Analysis shows old pricing plan hurt customers
Thursday, February 25, 2010 2:54 AM
By Dan Gearino
THE COLUMBUS DISPATCH


How would you like an extra $450 in your pocket?
That's the amount that a typical Columbia Gas household could have saved from 2005 to 2009 if the company had used the purchasing practices that it will begin in April, according to a Dispatch analysis of newly available pricing data.
The figure is the estimated difference between Columbia's past prices and what the prices would have been under a new system that includes an annual auction and rates tied directly to changing commodity prices.


"There could be something systematically wrong," said Ken Costello, chief of the natural-gas section of the National Regulatory Research Institute, after reviewing the data. "The numbers suggest that the company was consistently paying more than the market price for gas."
Critics of Columbia have long said that the company's pricing was uncompetitive. Now, at the moment when that system is ending, this evidence supports the critics' case.
The new system is an improvement on one that did not create enough incentive for utilities to seek the best prices, said Ohio Consumers' Counsel Janine Migden-Ostrander.
"We're very pleased that it has been done now, especially in this economy where customers need the savings," she said.
Columbia Gas objects to looking at how the new system would have affected past prices, saying that each time period has its own unique market conditions.
"We just can't know with any certainty what the (results) would have been" in previous years, said company spokesman Ken Stammen.
Columbia has long set its pricing using a process called "gas cost recovery," in which the company estimated its costs for each month, then did an adjustment in subsequent months to account for the difference between the estimate and the actual costs. The gas purchasing was done in-house by Columbia.
Under the new system, called a "standard service offer," outside wholesalers bid for the right to supply Columbia with natural gas. The price has two components. First is a service fee that is set through a reverse auction, meaning the lowest bidders win. Second is the price of gas on the New York Mercantile Exchange on the last trading day of the previous month.
In essence, the price is set by the market, rather than how it was before when Columbia had more control.
The first auction for the new system was held on Tuesday, and the amount of the service fee was set at 19.3 cents per 100 cubic feet of gas. That price will remain in effect for the next year. The PUCO approved the result yesterday.
Based on the current NYMEX price of gas, 49 cents per 100 cubic feet, plus the service fee, the cost for customers would be 68 cents. The NYMEX price is unusually low right now because of the economic downturn, and it could be higher or lower by the end of March when the Columbia price is set.
The prices do not include taxes and fees, which are the same under the old and new systems.
In the short run, this new system likely will lead to a price increase for Columbia customers, who are paying 42 cents this month and will pay 44 cents in March. Columbia's price has been artificially low for the past few months because of low commodity prices and quirks from the changeover to the new pricing method.
And yet, a longer view shows that the new approach is a dramatic improvement over the past system. From 2005 to 2009, the new system would have yielded a better price in 36 out of 48 months.
Based on average monthly usage during those four years, the price differences meant that a typical household paid about $450 more than it would have under the new system. For Columbia's territory as a whole, this adds up to hundreds of millions of dollars.
There are some significant caveats to this analysis. Most important is that the service fee, now 19.3 cents, will change every year, and there is no way to know what it would have been in past years.
However, even if the fee was much higher - say, for example 23.5 cents, which is the highest the fee has ever been for any of the three Ohio utilities that use this system - it still would beat the Columbia price in 32 out of 48 months.
The price differences only apply to customers who buy their gas from Columbia. More than 45 percent of customers in the territory, which includes 1.4 million households, get gas from unregulated providers called gas marketers. Marketers offer a variety of rate plans that may be more or less than Columbia's price.
Regulators and consumer advocates are praising the results of Tuesday's auction, which they say will lead to lower prices in the long run.
"The auction netted a positive result with the new retail price adjustment and demonstrated that the natural gas market will provide a better commodity price for Columbia customers," said Alan Schriber, PUCO chairman, in a statement.
Dave Rinebolt, executive director of the consumer advocacy group Ohio Partners for Affordable Energy, thinks the new system is good for customers. He is reluctant, though, to criticize Columbia's practices.
"They erred on the side of caution," he said.
By that, he means that Ohio's regulatory system placed a premium on stability of service and pricing, rather than holding companies accountable to outside benchmarks.
And stability may be one thing that is lost, or at least reduced. Columbia's old system allowed it to spread out cost increases over several months. Now, the volatility in the commodity markets will pass right through to customers.
Looking further ahead, this new system is scheduled to last for only two years. The next auction will be held next year at this time. Then, in 2012, the PUCO plans to change the system again to what is called a "retail auction," which would mean that the outside suppliers are directly serving customers, rather than merely serving as wholesalers to Columbia. Columbia would continue to transport the gas and handle billing.
Some observers, including Migden-Ostrander, think the current wholesale auction is the best method for customers and oppose the proposed change to the retail auction system. The PUCO will monitor the wholesale auction system for the next two years and decide whether to move ahead with its plans.
While all this is happening, customers will likely notice few changes. Their bills will still come from Columbia. Their gas will come from the same pipe. The only difference is the method used for the pricing.
dgearino@dispatch.com