Georgia News and Analysis

March 2003

Highlights

Regulated Natural Gas Provider Now Offering Lower Rates for Low-Income Households

State PSC Backs Off on Industrial Tax to Pay for Regulated Provider Program

Rate Caps May Be Considered For Residential Natural Gas

Background
Georgia's 1997 Natural Gas Competition and Deregulation Act, which allowed Atlanta Gas Light to offer choice to its 1.4 million customers, required the "random assignment" of all of the company’s customers by May 1999: Customers had to select a marketer, and if they did not, they were randomly assigned to a company. (United Cities, the state’s only other large investor-owned natural gas utility at the time, decided not to open up its territory.)

Nineteen marketers entered a field previously dominated by two companies, bringing with them new pricing methods, delayed billings, erroneous billings and, in some cases, illegal practices such as slamming. The results were increases in consumer gas bills and consumer complaints. The Georgia Public Service Commission (PSC) responded with regulations outlawing slamming and rules that addressed record-keeping and sign-up verification requirements.

To complicate matters, Georgia consumers were hit with increased prices for natural gas during the winter of 2000-01, an unusually cold winter after a series of mild winters. In response to public outcry over high heating bills, the PSC voted in January 2001 to prohibit natural gas marketers from disconnecting residential customers for nonpayment until April 1, 2001. However, when that moratorium expired, natural gas marketers disconnected 124,000 customers.

About 64,000 customers remained disconnected as the winter of 2001-02 began, and many did not have the means to have their gas turned back on. Governor Roy Barnes announced that he had appointed a task force to investigate how to protect natural gas customers from high prices and disconnection. He also proposed that the PSC designate an emergency natural gas supplier for people whose service had been shut off. This supplier of last resort would offer service to customers with payment problems without requiring that arrearages be paid before service was restored.

This change violates the sprit of the law. If they [the Public Service Commission] don’t bring the relief we promised the residential customers, the Legislature will come back and make it crystal clear.
State Representative Mark Burkhalter commenting on the PSC’s decision not to uphold a surcharge on large industrial natural-gas customers, November 2002

People are scuffling trying to pay their bills. Consumers are the people who keep these utilities in business.
State Representative David Lucas, Chairman of the newly formed House Utilities Commission, January 2003

Market power is the ability to raise and sustain the price of a good at a level above the price that would be set by a truly competitive market . . . Marketers can use a number of tools to help them exercise market power, including capacity withholding, deceptive marketing and anti-competitive contracting, and collusion.
Proposal for Monitoring the Competitiveness of the State’s Natural Gas Market, Georgia Public Service Commission Staff, February 2003

After initially rejecting the governor's proposal in early December, the PSC reversed itself later that month. After the second vote, the PSC designated Infinite Energy of Florida as the supplier of last resort. For its last-resort service, Infinite Energy did not require customers to pay off arrearages before it would begin providing service, but the company charged 10 cents more per therm of natural gas than its standard rates and required a $150 deposit and $11.95 monthly fees.

The regulated natural gas provider
In February 2002, the Governor's Blue Ribbon Task Force on Natural Gas released its final report, calling for a "multi-pronged approach" that neither dismantled deregulation nor relied on the free market. The task force dismissed the increasingly popular idea of returning to a natural gas monopoly because of serious financial and legal barriers. Its report noted, for example, that legal claims from marketers could run as high as $500 million if the state were to put them out of business.

Instead, the task force recommended that the PSC designate a provider with regulated rates that could serve low-income and other residential consumers who want an alternative to competitive marketers.

The state legislature rated the natural gas issue a top priority for its 2002 session. In May, the state General Assembly passed the Natural Gas Consumers Relief Act. The new law required the Georgia Public Service Commission to select a natural gas provider, to be regulated by the Commission. The regulated natural gas provider would serve two groups of consumers: low-income customers and customers who can't get service from a marketer because of payment problems. The regulated provider's rate would establish a price to beat for other, unregulated marketers.

In June, the PSC selected Scana, one of three marketers to bid, as the regulated natural gas provider. (The other two bidders were Southstar Energy, the retail affiliate of Georgia Natural Gas, and Infinite Energy, the original provider-of-last-resort). The company began accepting customers August 15, 2002 and began selling gas to the two customer groups on September 1.

As of March 2003, the following issues are of importance to Georgia consumers:

Scana offers the lowest gas price for low-income consumers and a special discount for low-income senior citizens. Households with incomes at 150 percent or less of the federal poverty level qualify for the company's low-income rates, which are 10 to 14 cents less per therm than other variable residential rates, plus a $4.95 monthly service charge. (In Georgia's deregulated natural gas market, all residential consumers pay rates that vary with changes in the wholesale prices). Low-income seniors receive an additional discount of two cents per therm.

Consumers with a risky credit history pay considerably higher rates: 71 cents per therm, based on current wholesale prices, plus a monthly customer service charge of $11.95.

Scana has a two-year contract with the PSC that guarantees the company a one-cent per therm profit on each monthly bill. Scana receives $77 per year per low-income customer to cover any unpaid arrearages.

Money for the arrearage guarantee and per-customer fee comes from the Universal Service Fund (USF), as does $275,000 for the company's customer education programs.

The Universal Service Fund was established by the original deregulation law and funded through distribution charges, paid mainly by residential consumers and certain kinds of profits from Atlanta Gas Light (AGL), the deregulated natural gas company. Originally, the USF was designed to reimburse marketers for uncollectible accounts and pay for extension of natural gas service into new territory; any balance at the end of the fiscal year was to be reimbursed to customers.

The Natural Gas Consumers' Relief Act changed the law so that low-income energy assistance is now the primary goal of the universal service fund. It also directed the PSC to establish a surcharge on about 600 large industrial customers so that they pay "an equitable share" of gas distribution costs. The provision was intended to shift more of these costs from residential consumers to the large industries.

A group of large industrial gas users that had bitterly opposed the surcharge during the legislative session filed suit in September, asking that the PSC's designation of Scana as the regulated provided be declared "null and void." The lawsuit, brought by the Georgia Natural Gas Group and Georgia Textile Manufacturers Association, described the PSC-ordered programs as a "gross abuse of discretion and an arbitrary, capricious and unreasonable exercise of its authority."

In October, the PSC capitulated to the industrial groups’ demands. Basically, the industrial gas users will not be charged the surcharge for one year; the charge will then be restricted to the amount necessary to cover losses for the regulated provider and to pay for gas line extensions.

As of March 1, 2003, Scana had signed up about 17,226 customers. As of February, the USF stood at about $23 million.

Consumer protection, rate caps and competition
In addition to a regulated gas provider, the Natural Gas Consumers Relief Act required the PSC to develop consumer protections, including more notice before termination of service (previously, a five-day written notice was standard). Among the new rules adopted in August: Marketers must give consumers 15 days written notice before disconnecting, late fees cannot exceed $10 or 1.5 percent of the past-due amount (whichever is larger), and charges can't exceed the marketers' prices published at the start of the billing cycle for variable rate plans.

Since issuing the consumer protection rules, the PSC has begun considering rate caps. PSC staff research has found that natural gas prices are higher in Georgia than in surrounding states that have regulated gas utilities. This is of particular concern since the number of natural gas suppliers has dwindled to four. The Natural Gas Consumers Relief Act allows the Commission to consider rate caps if 1) three or fewer marketers are supplying more than 90 percent of customers in any of the state's nine delivery zones, or 2) if the PSC finds that prices are "not constrained by market forces and are significantly higher than such prices would be if they were constrained by market forces."

A February PSC staff proposal recommends that the Commission consider rate caps when retail natural gas prices have been higher than competitive prices by: 1) 50 percent for one month, 2) 30 percent for three months, or 3) 20 percent for 12 months.

To determine what competitive retail prices should be, the PSC would have to take into account the wholesale prices, the costs of transporting natural gas and providing service to customers, and what retail customers pay in other parts of the Southeast and in other states that have retail competition.

The PSC is waiting for marketers’ comments on the proposal and has not yet set a hearing on the possibility of rate caps.

Below is a history of residential natural gas rates in Georgia since 1995:

Georgia Average Annual Price per Thousand Cubic Feet

	1995	1996	1997	1998	1999	2000	2001	2002
Residential	6.17	6.68	7.41	6.78	4.37	7.83	10.33	9.92

Source: Energy Information Administration

Other resources

National Center for Appropriate Technology, The Transition to Retail Competition in Energy Markets: How Have Residential Consumers Fared?, September 2002. A study of the impacts of electric and natural gas markets restructuring on low- and moderate-income consumers in five states including Georgia. The study termed Georgia's natural gas program the model for what can go wrong when well designed consumer protection measures are either not adopted or not enforced at the onset of the retail competition program. The Georgia natural gas restructuring legislation had several unique features that no other state has replicated, chief among them its requirement that all customers switch natural gas providers or be assigned to a competitive provider. This requirement resulted in a situation marked by confusion, complaints, unexpectedly high prices, an unprecedented number of disconnections, high arrearages, large scale public dissatisfaction, and finally, corrective actions by the state’s governor and legislature.

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Last Updated: 08/08/2003