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Consumers' Counsel: All Large Gas Utilities Should Use Competitive Auction For Default Service

November 14, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Ohio Consumers' Counsel has filed comments in a Public Utilities Commission of Ohio rulemaking concerning the natural gas GCR (Gas Cost Recovery) rules recommending that all large natural gas utilities should use a competitive auction to procure default service supplies

Duke Energy Ohio is the only natural gas utility in Ohio with choice that uses a traditional GCR process for default service, rather than a competitive auction

OCC said that, "All larger gas utilities (those serving 100,000 or more customers) in this state should procure and price natural gas supply for consumers through a wholesale auction and standard service offer ('SSO'), except that the PUCO may allow natural gas utilities that currently have a standard choice offer ('SCO') to continue with that offer."

"OCC’s recommendations will, among other things, help protect consumers from paying higher than just and reasonable prices for natural gas service," OCC said

OCC noted that Duke in 2009 had recommended maintaining the GCR process, based largely on evidence that its then-recent (2009) and historical GCR rates were lower than the auction prices obtained by Dominion and Vectren (Columbia was not utilizing an auction at that time)

However, OCC said that now, "Recent and historical evidence suggest that customers pay less for natural gas through competitive auctions."

OCC cited a comparison of Duke's GCR rates from 2013-15 versus the other LDCs in Ohio using an auction, with Duke's rate being, on average, $0.3333/Mcf higher for such period than the aggregate average of the other three LDCs

"While the GCR may have provided slightly lower prices on average than the auction prices for the other large gas utilities in 2014, Duke customers paid on average considerably more in 2013 and 2015," OCC said

More recently (2015-Nov 2018), OCC said, "Duke’s GCR rates in all years but 2014 has exceeded the average SSO rate for the other natural gas utilities in the state," with Duke's average GCR rate for the period being $0.8851/Mcf higher than the aggregate average of the other three LDCs, per OCC's data

OCC specifically recommends that large LDCs be required to use a "wholesale" auction for default service, except where the SCO is already implemented.

OCC suggests the following language: "Each gas or natural gas company subject to the jurisdiction of the commission that provides service to 100,000 or more customers shall procure and price gas supply service through a wholesale auction and related standard service offer under policies and procedures adopted by the commission, except that the PUCO may allow natural gas utilities that currently have a standard choice offer to continue with that offer."

OCC said that the wholesale auction is preferable to the more retail-like SCO auction because, "The reason to move away from wholesale-type auctions was to facilitate movement of customers into the retail market where marketers, ostensibly, would offer customers better prices and value-added services. The problem is that these better prices and value-added services have largely not materialized. A review of the PUCO’s Apples-to-Apples price comparison chart reveals that only a small handful of marketer offers to customers are lower than the local utilities SCO rate. And, of the offers that are lower than the SCO price, almost all are short term 'teaser' type rates that offer consumers no long-term assurance that the offered price will continue to be better than the SCO price."

"Further, if customers are enticed into these short-term contracts, then they must specifically contact their local utility to return to the SCO or, in Dominion’s service area they are randomly placed on a market variable rate that can be considerably higher than the SCO rate. To protect customers, the competitive SSO wholesale auction is preferable to the SCO approach and should be adopted by the PUCO in the rules in this case," OCC said

Case No. 18-1291-GA-ORD

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