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GEORGIA
Background
Georgia has taken the most unique approach of any state in its move to retail competition
for natural gas service. This market model has not been adopted elsewhere for either
electric or natural competition.
First, under the Georgia approach, all customers
must choose a competitive natural gas supplier: Those who do not choose are
"given" to a competitive marketer. Second, the retail customers have no
relationship with the natural gas distribution company. Rather, customers are billed
directly by the marketer for both unregulated natural gas commodity charges and regulated
distribution charges. Third, Georgia natural gas marketers can disconnect service for
nonpayment of any portion of the bill, thus preventing the customer from obtaining natural
gas service from any default provider or competitive supplier until the bill is paid or
the marketer has agreed to payment terms. Fourth, until recently, there was no
"provider of last resort" in the Georgia model similar to the provision of this
service in other states. As a result, for several years, there was no regulated provider
with regulated rates available to customers unable to obtain service in the competitive
market, such as those disconnected for nonpayment by a marketer and who cannot afford to
pay the overdue amount, security deposit and reconnection fees required by the marketer.
Retail competition for natural gas suppliers and
customers at Atlanta Gas Light (AGL), the state’s largest investor-owned natural gas
utility, began November 1, 1998 under the 1997 Natural Gas Competition and Deregulation
Act.i The law and the Georgia Public Service Commission
(PSC) have implemented a competition model (sometimes referred to as the Single Retailer
Model), in which the retail customer receives natural gas service and bills from the gas
marketer and has no interaction with the local distribution utility. The act required that
when certain market conditions were met, all customers who had not yet chosen a
competitive supplier would be assigned to a competitive supplier based on the market share
obtained by the suppliers in the first several years of the program.
In late 1998 and early 1999, there was not much
activity by customers to choose a natural gas supplier, so AGL pushed for legislation
designed to speed up the competitive process. Customers were told in early 1999, that if
they did not choose a marketer by a certain deadline, they would be assigned to a
marketer. As a result, many customers had signed up for competitive providers by the fall
of 1999. Only 280,000 had to be assigned, because 1.1 million had already chosen a
marketer. This astounding migration during the first year of the program was due in part
to the massive marketing campaigns by various marketers (coupled with upfront prizes and
give-aways, such as the $50 promised by SCANA, and a "free" month of natural gas
by Peachtree) and in part due to the controversy and outrage expressed by customers
against Atlanta Gas Light (the distribution utility), which initiated a new rate design
approach for charging for natural gas distribution service that shifted costs to lower-use
customers. By the fall of 1999, AGL was completed removed from the retail natural gas
business, and every retail customer had chosen or been assigned to a competitive marketer.
Prices and Supplier Activity
There were 24 licensed suppliers seeking retail customers at the time of the most intense
marketer activity during 1999. This number has steadily declined. Several marketers
conducted massive outreach and marketing campaigns, particularly SCANA (an affiliate of a
South Carolina utility), Peachtree (an upstart), the Atlanta Gas Light affiliate, Georgia
Natural Gas, ii and Shell Energy Services. The market share
as of October 1, 1999:
| Georgia Natural Gas |
31.3% |
| SCANA Energy |
30.1% |
| Peachtree Natural Gas |
11.1% |
| Shell Energy |
10.6% |
| Columbia Energy
|
5.8% |
| United Gas Management |
4.6% |
| Energy America |
3.9% |
In October 1999, after it had been assigned its
share of non-choosing customers, Peachtree Natural Gas filed for bankruptcy. The
bankruptcy judge "sold" its customers and assets to other certified marketers.
The publicly stated cause for this bankruptcy was the marketer’s obligation to pay
the local gas utility for its distribution charges upfront, before the marketer had
obtained customer payments. It also experienced significant billing difficulties and
complaints. Another marketer, Gas Key, obtained about three percent market share, but then
sold its assets to Georgia Natural Gas after claiming that it was "overwhelmed"
by the volume of customers who signed up and that it could not handle the billing.
Most importantly, only three marketers now
control 94 percent of the residential market, according to press accounts. iii It is also reported that AGL’s affiliate, Georgia Natural
Gas, has 50 percent of the residential customers.
The PSC maintains a "Certified Gas Marketer
Price List" on its website, published monthly since July 2000. In July 2000, iv 11 marketers were offering
both fixed and variable prices for natural gas supply. These prices were presented on a
per therm basis, along with the following categories of other charges: "interstate
capacity charge," "customer service charge," and "other charges."
In all cases, the prices presented do not include the "base charges" from
Atlanta Gas Light. The price chart did not originally calculate an average customer bill,
and it was not possible to easily compare marketer prices because of the variety of
charges and their method of presentation on the chart. However, as of early 2001, the
price chart includes a calculation of an average customer bill for each marketer’s
product, and this bill calculation include all charges and the AGL base charge as well.
As of March 2001, there was a wide variation in
monthly customer bills among 14 products offered by 11 marketers, ranging from the Georgia
Natural Gas "senior/low income" rate ($118.98) to the highest priced rate
offered by Shell ($161.11). Most marketers offered rates that resulted in a monthly bill
of about $140. By October 2001, there were only seven marketers, offering 11 products, and
the average monthly bill ranged from $54.72 (Georgia Natural Gas senior/low income rate)
to $70.42 (SCANA-variable rate). The average bill was about $68/month, and the range
between the marketers was far less than the prior winter season.
Another feature of the early PSC price
comparison chart was the listing of the "Southeastern States" average price for
residential natural gas service, presumably derived from regulated natural gas utility
rates in nearby states. However, this listing disappeared from the price chart in November
2000.
According to a study by a consultant to AGL
Resources (Atlanta Gas Light’s parent company), published in the Public Utilities
Fortnightly v
some of Georgia’s natural gas customers fared
well in the winter of 2000-2001, particularly those who signed up for fixed rate
contracts. These included most customers who selected Georgia Natural Gas service. Those
who selected variable rate products did not fare well compared to regulated rates in
nearby states. For example, customers of Shell and Energy America (marketers with
relatively small market shares) with variable rate contracts paid 13-24 percent more than
the weighted average bill of representative customers in the five neighboring states.
Prices being offered by marketers in the summer
and fall of 2001 were very high compared to market-based rates elsewhere. By the time the
Governor’s Natural Gas Deregulation Task Force was formed in October 2001, natural
gas prices in Georgia were the highest in the country. vi Based on the October and November 2001 price charts
published by the PSC, it is certainly clear that marketers in Georgia are offering
relatively high prices compared to other utilities. The Commission opened a formal
investigation of this phenomenon and is seeking pricing data from marketers, many of whom
have publicly alleged that the reason for their higher prices is the extremely high bad
debt and collection costs they incurred in 2001.vii
Billing and Collection
Under the Georgia natural gas competition model, all marketers must bill for both the
unregulated natural gas supply charges and the regulated distribution charges provided by
AGL. AGL does not issue any retail bills. Therefore, marketers have had to obtain
significant billing and collection services in order to serve their customers. This has
resulted in a significant level of billing failure, billing error and various other
glitches that have sparked letters to the editor, articles in the newspaper, and high
rates of billing complaints to the PSC.viii
The billing errors and complaints led to
several initiatives. First, the PSC issues a monthly Georgia Gas Marketer Scorecard that
lists the number of complaints received by the PSC for each marketer for three key areas:
Billing; Service; and Deceptive Marketing. This scorecard is also available on the
Commission’s websitex The scorecard does not calculate complaint ratios (which
would allow comparisons among marketer complaint activity).
Second, the Commission enacted billing regulations xi
- To receive a timely bill. The marketer must mail the bill within 45 days from the date
it receives the meter reading and other billing information from Atlanta Gas Light.
- To receive a bill that is substantially correct, that includes charges that are clear
and unambiguous and that contains the marketer’s toll-free number to report a
complaint.
- To receive notice at least 25 days in advance of any customer service charge increases
or additions or any changes in the method by which commodity and interstate capacity
charges are calculated.
- To have the same period of time to pay a late bill, without penalty, as it took for the
bill to be mailed, including, upon request, the choice to make payments in equal
installments.
- To have 90 days from the date any corrected bill is mailed to pay it, without penalty.
- To have the marketer make a good faith effort to promptly resolve a billing complaint.
Exceptions to the Rule
- Bills that are late, incorrect or ambiguous as a result of acts beyond the
marketer’s control. Bills that contain different terms set forth in a contract signed
by the consumer prior to January 25, 2001.
- These rules are modest at best, and the exceptions create major loopholes that are the
subject of dispute between the customer and the marketer and have been difficult for the
PSC to enforce.
Third, the Legislature enacted an amendment to
the Natural Gas Deregulation Act in May 2001 to addresses customer billing and access to
service. Senate Bill 217xii requires several new initiatives by the Commission. This
recent legislation is summarized below in further detail, but there is no evidence on the
PSC website that the Commission has implemented these legislative directives.
Consumer Protection Programs and Policies
The PSC has done very little with respect to proactive consumer protection regulation. The
Commission licensed natural gas suppliers without any investigation into their ability to
conduct large-scale billing and customer service programs and did not require security
bonds or other financial security as a hedge against marketer failure or loss of customer
deposits and prepayments. Nor did the Commission establish basic contractual disclosure
requirements, so marketers were not required to inform new customers in writing of the
material terms of their agreement or give them or a copy of any contractual agreement. As
a result, customers were often confused about the price they had agreed to pay and had to
rely on advertisements or telephone conversations to pursue a complaint about deceptive
pricing or other important terms of the service agreement.
Both Energy America and United Gas Management
(no longer operating in Georgia) garnered publicity for slamming and door-to-door sales
practices. The PSC initiated formal investigations of the marketers and entered into
consent decrees with both, with provisions that required payments to the state and
retraining of their work force. Subsequent to these events, Energy America stopped
marketing in Georgia.
The PSC's rules did not require the marketer to
offer a payment arrangement to any customer, and, until recently, marketers were not
required to put any negotiated payment arrangement in writing. While there is no
requirement that marketers offer budget payment plans, most do so. However, there have
been disputes about how marketers handle the "true-up" when a customer’s
usage deviates significantly from the estimated usage used to set the monthly payment at
the beginning of the payment plan.
The PSC did not regulate marketers' deposit and
credit practices, although there appears to be an unwritten rule that marketers have an
"obligation to serve," since they cannot deny an individual natural gas service,
but can, based on unregulated credit evaluation criteria, demand a deposit. Most
importantly, the natural gas marketers can disconnect service for nonpayment of the bill.
The marketer must issue a notice, and only AGL can actually physically disconnect (and
reconnect) the service. The disconnection activity was very slow in the early days of this
program due to the massive billing failures and billing errors. Once marketers began to
more routinely issue timely bills in early 2001, the pace of disconnections increased
markedly. This occurred at the same time that customers were seeing the true effects of
the large bills from the 2000-2001 winter, one of the coldest on record in the Atlanta
area. The impact of the cold weather on customers who had variable rate contracts that
winter exacerbated the higher bills due to increased usage.
The PSC halted disconnection of service during the latter part of the winter of
2000-01, but when the moratorium was lifted in April, record numbers of disconnections
occurred. As a result, over 125,000 disconnections occurred in the summer and fall of
2001. xiii
While only AGL can physically disconnect a
customer, the prior AGL practice of attempting to contact the customer at the premises and
potentially negotiating a payment plan or accepting payment has ended. AGL field personnel
act merely as agents of the marketers, none of whom are required to contact the customer
and seek to avoid disconnection of service. Furthermore, once disconnected, only AGL can
reconnect the customer, and the backlog of those currently disconnected has taken as long
as eight weeks.
One of the most controversial policies allowed by the PSC has been the "hold"
on reconnection that marketers insist upon so that customers cannot get reconnected with a
new marketer until the old marketer has released the account -- that is, the customer has
paid the overdue bill. This practice was in effect until late in 2001, when the Commission
finally ordered marketers to halt this practice. It is not clear whether all marketers
have done so. xiv
The Legislature has frequently enacted "reforms" for the natural gas program.
With SB 217, enacted in May 2001, the Legislature directed that (1) customers could change
marketers once a year without switching fees; (2) marketers can require a deposit prior to
initiating service, but the amount cannot exceed one month’s service; (3) marketers
must refund deposits after a customer has paid monthly bills on time for six months, when
a customer has changed marketers or discontinue service (after applying the deposit to any
amount owed by the customer to the marketer); (4) authorized and required the PSC to adopt
rules applicable to marketer billing that require certain minimum disclosures and
performance standards; (5) requires the Commission to publish a chart of comparative
pricing information quarterly in the local newspapers; (6) enacts certain restrictions and
prohibitions on how marketers can collect a disputed bill; (7) increases the penalties
that the PSC may impose on marketers for violation of law or rule; (8) expands the purpose
of the Universal Service Fund to statutorily include assisting low-income customers in
times of emergency as determined by the Commission, allowing up to 10 percent of the Fund
to be used for low-income energy conservation programs, and requires the PSC to consider
the needs of low-income customers subject to price increases when setting the amounts
required to be paid into the Fund on an annual basis; and (9) allows the Commission to
establish a provider of last resort using an expedited hearing procedure. The PSC did not
change its rules or implement these procedures in a formal docket or other rulemaking.xv
Universal Service Programs
The Georgia Natural Gas legislation authorizes a Universal Service Fund. The PSC
implemented this fund in 1999.xvi The fund is specific to a
natural gas distribution utility (in this case, AGL) and is administered by the PSC. The
fund was seeded by: (1) rate refunds due the distribution company from interstate pipeline
suppliers; (2) excess earnings under the utility’s performance-based rate plan; and
(3) a surcharge on rates for distribution services paid by marketers. The primary purpose
of this fund was to aid expansion of the natural gas distribution system. A secondary
purpose was to reimburse gas marketers for uncollectible retail accounts.
Since the fund’s creation, the PSC has used almost the entire amount for
low-income assistance. The Commission has not in fact disbursed the fund to any marketer,
although several have filed petitions to seek reimbursement for excess uncollectible
expenses. Rather, the PSC has disbursed funds to the state’s LIHEAP program and to
provide additional funding to low-income (annual income less than $12,000) elderly
customers (age 65 or older), who are eligible for a rate discount -- approximately $10 per
month -- on the monthly customer service portion of their bill. The funding for this rate
discount is through AGL’s rates, and it appears on all customers’ bills as a
line item for distribution services. Approximately 31,000 customers receive this bill
credit.xvii
On October 16, 2001, the PSC announced that $10
million would be released from the Universal Service Fund xviii
to help low-income elderly customers pay for natural gas. The Commission ordered that $8
million be allocated to low-income elderly customers who were already receiving the rate
discount, and that $2 million be distributed to low-income elderly households via LIHEAP,
which starts November 1 in Georgia. It was estimated that the $8 million would result in a
$50 bill credit for those already participating in the rate discount program. The PSC
directed that the $2 million be distributed through the state and local agencies that
implement LIHEAP in Georgia and supplement a $14 million federal LIHEAP grant for the
upcoming winter season.
Governor’s Natural Gas Task Force and Recent
Legislation
In the face of mounting criticism and public complaints about the natural gas program,
Governor Roy Barnes announced the formation of a Natural Gas Consumer Protection Task
Force in the fall of 2001 and stated that he is "strongly persuaded that the state
needs to take steps to protect the individual consumer of natural gas." He cited the
high prices currently charged by natural gas marketers and the record number of
disconnections. The appointments to this Task Force, formally announced on November 13,
included state human service agency representatives,xix a
CAP agency director,xx all five PSC Commissioners,
legislators,xxi and the Office of Consumer Affairs and
consumer utility counsel. There are no marketers or utilit represntatives on
the panel, but the Governor's Executive Order asked the Task Force to appoint an Advisory
Committee to represent these interests.
While the Task Force was getting
underway, the PSC was considering a petition to establish a Provider of Last Resort to
serve customers who are disconnected and facing the potential of no natural gas heating
service. Under the Georgia deregulation model, all marketers have a theoretical obligation
to serve, but these same marketers can disconnect service for nonpayment and impose
deposit, fees, and onerous payment terms as a condition of reconnection. As a result,
there is no real "provider of last resort" as that obligation exists in other
states, because there is no regulated service with regulated rates that customers can turn
to if they are unable to be served in the competitive market. Both AGL and several
competitive marketers filed proposals to serve as the Provider of Last Resort, under a
variety of pricing and reimbursement schemes. In late December 2001, the Commission
appointed Infinite Energy, a natural gas marketer, to act as the Provider of Last Resort.
This marketer had the obligation to offer service to any customer dropped or disconnected
by other marketers at a regulated price. However, the price that the PSC approved for this
service was significantly higher than that offered by other marketers: $150 security
deposit, $11.95 per month customer charge, monthly variable rate prices, plus a 10 cent
per therm "adder" beyond the prices charged other customers.xxii
After the Task Force made its final
recommendations in January 2002, the Governor proposed legislation to correct some of the
defects in the natural gas program. During the following legislative session, an attempt
to completely "re-regulate" natural gas was defeated. However a significant
package of reforms was adopted in the Natural Gas Consumers’ Relief Act (HB 1568).
The final version of the legislation adopted a "Consumer Bill of Rights" and
required the PSC to appoint a Provider of Last Resort.
The Consumer Bill of Rights requires enhanced
regulation of marketer billing and contract procedures and requires marketers to handle
customer complaints in a prompt manner. The legislation also requires the PSC to supervise
AGL's quality of service to the marketers in the form of timely meter readings and
switching procedures.
The Provider of Last Resort program requires
Scana, the chosen marketer (selected by a bidding process), to serve two groups of
customers: consumers who meet the definition of low-income as established by the Georgia
Department of Human Resources and consumers who are unable to obtain service from another
marketer. Under the rates approved by the Commission xxiii
low-income customers will pay about $0.22 per therm
over the wholesale price of natural gas, with a $4.95 monthly charge, low-income
seniors will pay $0.20 over wholesale (not required by the legislation, but offered by the
winning bidder), with a $4.95 monthly charge, and other high-risk customers (those unable
to obtain service from another marketer, but who are not certified as low-income) will pay
$0.36 over wholesale, with a $11.95 monthly charge. Pursuant to the provisions of the new
legislation, the Universal Service Fund (collected from all market participants) will
subsidize the POLR’s uncollectible expenses for at least the low-income customers.
As a result, the Georgia program does not
directly subsidize low-income customers. Rather, the POLR is reimbursed from the Universal
Service Fund for higher than normal uncollectible expenses associated with service to
low-income customers. While it is not clear whether the POLR price will always be
lower than market prices charged by unregulated marketers, the recent prices for this
service announced by SCANA are about 20% lower in cents per therm than prices in effect
for other marketers. Of course, this lower price is accompanied by a per customer subsidy
provided to SCANA and approved by the PSC from the universal service fund. Finally,
customers must affirmatively sign up for this service; they are not automatically
transferred to the POLR service. This sign up procedure has already resulted in
significant delay in serving low income customers because as of early September 2002, only
200 customers had signed up for this service.
Preliminary Conclusions and
Recommendations
The Georgia natural gas model has not been replicated in any other state, either for
electric or natural gas competition. In fact, the significant public dissatisfaction with
the natural gas competition program has led to a widespread consensus in Georgia that
electric competition should not be explored further.
Several aspects of the Georgia program can be identified as models that should not be
emulated elsewhere:
- Default Service or Provider of Last Resort policies and prices should be identified up
front and built into any retail energy competition program. The lack of any POLR in the
Georgia model resulted in a crisis-oriented atmosphere and contributed to the public
dissatisfaction with the overall program
- Customers were "driven" from the utility by a combination of price changes in
the regulated gas service and the policy decision that required customers to leave the
utility by a certain date. This approach may have worked in the sense that customers did
leave the incumbent utility over a very short period of time, but in the long run it
contributed to public dissatisfaction and confusion.
- Consumer protections in the form of required disclosures, effective supplier licensing
and oversight of supplier conduct are vital to assure public confidence and willing
participation in retail energy competition programs.
- The concept of requiring competitive suppliers to bill and collect for the entire retail
customer bill and allowing such entities to disconnect service for nonpayment of
unregulated charges resulted in widespread billing errors and complaints. Suppliers did
not have reliable systems in place to replicate the utility billing system and were
dependent on the utility for meter readings and transmission of customer-specific data
that often did not "work" efficiently. Furthermore, the consumer protection
implications of allowing competitive suppliers (who were not subject to strong consumer
protection oversight in the Georgia program) to disconnect service for nonpayment of
regulated and unregulated charges when there was no POLR required to serve such customers
were not widely understood until very late in the program’s implementation.
- Finally, the Georgia experience demonstrates clearly that a legislature will attempt
"corrections" when the public is dissatisfied with a retail competition program
that goes awry, when complaints soar, and prices increase beyond expectations.
___________________________________________________________________________________________________
i http://www.psc.state.ga.us/gas/sb215.htm
ii The Commission prohibited AGL from allowing its affiliate
to use a similar name, but allowed the affiliate to use AGL’s logo. As a result, most
customers quickly associated the Georgia Natural Gas offers with the former public
utility.
iii Quinn, Matthew,
"Governor to Appoint Natural Gas Task Force", The Atlanta Journal and
Constitution, October 10, 2001.
iv www.psc.state.ga.us/gas
v Bartman, Emily and Hall, George, "After the Shakeout:
Another Look at the Georgia Gas Market," Public Utilities Fortnightly,
September 15, 2001, pp. 38-46. The authors argue that there is no evidence of price
gouging by marketers in the winter of 2000-2001 or that Georgia customers paid more
compared to nearby states. However, the most recent allegations of price gouging have
occurred since this study was done.
vi See fn. 3.
vii Quinn, Matthew, "Gas Marketers Pressured for
Data," The Atlanta Journal-Consitution, October 17, 2001.
viii Greene, Kelly and Brooks, Rick, "Georgia’s
Gas Deregulation is Messy, but Offers a Lesson to Other States," The Wall Street
Journal, January 15, 2001. This extensive article described a number of customers who
had not received a natural gas bill for over a year and others who suffered
"mistaken" disconnections of service due to billing errors and computer snafus.
ix Interview with Phil Nowicki, November 28, 2001.
x http://www.psc.state.ga.us/consumer_corner/scorecard.html
xi http://www.psc.state.ga.us/consumer_corner/faq.htm
xii http://www.ganet.org/services/newleg/legsearch.cgi?year=2001&bill=SB217
xiii Quinn, "Funding Elusive for Natural Gas Safety
Net," The Atlanta Journal-Constitution, November 21, 2001. Note: The PSC
obtains monthly reports on disconnection activity from AGL, but does not publish this
information on a regular basis.
xiv Interview with Phil Nowicki, November 28, 2001.
xv One of the authors of this legislation is on the Natural
Gas Task Force and has already asked the Commission for a report on the implementation of
this legislation to be presented to the Task Force.
xvi http://www.psc.state.ga.us/gas/usfrules.htm
xvii Quinn,
Matthew, "$25 Million to Help Georgians in need pay heating bills," The
Atlanta Journal-Constitution, October 18, 2001.
xviii The Fund currently totals approximately $20 million.
xix Commissioner Brenda Cornelius, Gov. Office of Human
Relations; Commissioner Jim Martin, Dept. of Human Resources.
xx Janice Riley, Director, Ninth District Opportunity Inc.,
Gainsville, GA
xxi Rep. Newt Hudson, District 156; Rep. Jimmy Skipper,
District 137; Rep. Mark Burkhalter, District 41; Senator Nathan Dean, District 31; Senator
Regina Thomas, District 2; Senator Jeff Mullis, District 53.
xxii "Georgia PSC reverses vote on last-resort
provider", Gas Daily, Wednesday, December 19, 2001.
xxiii Georgia
PSC selects SCANA to Be the Regulated Natural Gas Provider Established by the Natural Gas
Consumers’ Relief Act (HB 1568) and Takes Other Actions, June 18, 2002, available at www.psc.state.ga.us .
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