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Retail Supplier Proposes Utility's Full Exit From Merchant Function, In Testimony Before PUC

September 9, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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In a proceeding addressing Duke Energy Ohio's proposal to implement a wholesale Standard Service Offer (SSO) auction for natural gas default service, with Duke proposing to transition away from the current gas cost recovery mechanism (GCR), Interstate Gas Supply (IGS) has proposed that the Public Utilities Commission of Ohio should require Duke to transition to a fully competitive market, first via a commercial exit of the merchant function, and then a full exit of the merchant function

IGS says that Duke's proposed wholesale SSO auction is not truly an exit of the merchant function by the utility (nor is a retail Standard Choice Offer auction a true exit, IGS says). IGS proposed a full exit in which customers without a retail supplier would be assigned to a supplier under a Monthly Retail Rate Commodity Service tariff, similar to the current process at Dominion East Ohio for commercial customers, as further explained below

See background on Duke's proposed transition to an SSO, from the current gas cost recovery mechanism for default service, here

IGS's proposed transition to a full merchant exit is as follows: For large non-residential customers (i.e., customers whose consumption is greater than 400 Mcf during the prior calendar year), Duke would exit the merchant function no later than one year after a final order is issued approving an exit in the current proceeding. For residential and small non-residential customers (i.e., customers whose consumption is less than or equal to 400 Mcf during the prior calendar year), Duke would complete the transition from the GCR to a full exit no later than two years after a final order is issued approving an exit in the current proceeding.

IGS recommends that Duke establish a Monthly Retail Rate Commodity Service tariff (MRR) to serve as the default commodity service option for all customer classes.

IGS proposes that customers be declared ineligible to receive natural gas commodity service under the GCR (except for a one-month transition for customers who reach the end of a supplier/aggregation term and are still without a new supplier, noted below). Aside from the MRR, which would be used to serve customers without a supplier, customers would retain the option to participate in a governmental aggregation program (if eligible) or contract with a CRNGS [retail supplier] for supply service

Under the MRR construct, customers returning to the GCR after termination of their CRNGS [retail supplier] contract or participation in a governmental aggregation program will receive at least one GCR bill, after which they may elect to participate in an applicable governmental aggregation program or select and enroll with a CRNGS. If they do not make one of the foregoing elections, then those customers will, after their second GCR bill, be assigned to a CRNGS participating in the MRR program.

MRR suppliers with a posted monthly variable rate equal to or below a monthly median MRR price (whose calculation is described below) would be assigned and provide supply to those assigned customers at the lower of the supplier’s posted monthly variable rate price or the median MRR price in the next service month as determined by Duke’s billing cycles. Customers remaining on the same MRR supplier would be re-assigned after 12 months, as further described below

Under the proposal, an MRR supplier taking assignment of customers must serve those assigned customers each month until at least the end of the following March billing cycle.

The MRR supplier would be required to post on the Commission’s Energy Choice Ohio website a monthly variable rate offer each month during the period of its participation in the MRR program.

The monthly median MRR price used to determine a supplier's edibility to receive customer assignments would be determined each month using the lowest submitted monthly variable rate from each qualifying MRR supplier, required to be disclosed on the Apples-to-Apples section of the Commission’s Energy Choice Ohio website. For example, if 21 MRR suppliers submit a variable rate, then the median MRR price for that month shall be determined using the 11th-lowest rate submitted by an MRR supplier. In the event that the monthly median MRR price is based on an even number of suppliers, then the average of the two middle prices should constitute the median.

IGS proposes that each MRR customer who has been assigned to the same MRR supplier for 12 consecutive months should be reassigned by Duke. The identification of customers would take place annually and reassignment would be effective with the April billing cycle.

IGS proposes that, aside from the obligations noted above, a CRNGS interested in participating in the MRR must satisfy the following criteria: a CRNGS must have at least 100 non-MRR, GCR Choice customers under contract for competitive retail natural gas service or must be serving at least 10,000 Mcf of non-MRR, GCR Choice annual load.

IGS proposed a suite of customer notices and education activities concerning the transition to a fully competitive market.

IGS proposed that such customer education be funded through a new fee in the amount of $0.02 per Mcf. That fee would be assessed to, and recovered from, the following entities: all suppliers participating in Duke’s Energy Choice program, all suppliers participating in the MRR program, and Duke so long as it provides the GCR.

To the extent PUCO does not adopt IGS's proposed full merchant exit, IGS proposed that Duke retain the GCR mechanism rather than adopting an SSO auction. To the extent PUCO seeks to implement an auction for Duke default service, IGS recommended an SCO auction rather than the proposed SSO auction, but said that the SCO is not a long-term solution for achieving Ohio's statutory policy goals of encouraging innovation and market access for cost-effective supply, and the stated goal that natural gas supply be provisioned, "in a manner that achieves effective competition and transactions between willing buyers and willing sellers to reduce or eliminate the need for regulation of natural gas services and goods under Chapters 4905. and 4909. of the Revised Code." IGS cited a prior PUCO finding that the SCO model was, "negatively affecting all Ohioans by hindering the development of a fully-competitive marketplace."

Case No. 21-903-GA-EXM


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