Wednesday, September 20, 2000

Natural gas choices dwindle

Suppliers drop out of CG&E program

By Mike Boyer
The Cincinnati Enquirer

        Just as Cincinnatians are facing sharply higher natural gas prices this winter, they'll have fewer choices on who supplies their gas.

        At least two of the alternative suppliers in Cincinnati Gas & Electric Co.'s 3-year-old customer choice program in Ohio have left. Another that dropped out has since been bought out and is trying to re-establish itself in the market, CG&E said.

        The gas choice program, monitored by the Public Utilities Commission of Ohio, gives residential and commercial gas customers the ability to shop for their own gas supplier.

        While customers continue to receive gas through and are billed by CG&E, the gas itself is purchased from a competing supplier.

  The average Cincinnati Gas & Electric Co. household consumed 91,500 cubic feet of natural gas in 1999.
  Based on that average, here's how the Public Utilities Commission of Ohio estimated in August — the last month for which an estimate is available — the annual cost for that household from the gas marketers in the Cincinnati market.

  The prices for CG&E's competitors include monthly service and distribution fees paid to CG&E, but exclude sales tax.
  • CG&E: $734.26.
  • DPL Energy: $758.72.
  • Stand Energy Corp.: $744.17.
  • First Energy: $690.83.
  An individual's actual total cost may be more or less than this estimate. If you have questions, call the PUCO's hot line at (800) 686-PUCO, or the Ohio Consumers' Counsel at (877) PICK-OCC.

        CG&E, a unit of Cinergy Corp., said the decline in gas marketers reflects the volatility of the gas market, which has seen wholesale prices more than double in the last year because of tighter supplies and heavier demand.

        “The trend this year is for suppliers to drop out,” CG&E spokesman Steve Brash said. “Our anticipation is that some marketers are waiting to determine what to do this winter.”

        Customer participation in CG&E's choice program also is down from last winter.

        There were 31,693 residential customers voluntarily signed up with alternative suppliers on Sept. 8, CG&E said. That compares with 40,109 in January.

        Commercial customers totaled 4,322, down from 4,723 last winter. CG&E has about 390,000 gas customers in Ohio.

        There had been half a dozen alternative suppliers in CG&E's gas choice program for residential customers, but the list is down to three in the latest price comparison published by the PUCO.

        The two marketers that have dropped out are ACN Energy Services Inc., a McLean, Va., electric and gas supplier, and Rich Energy, a Mariemont propane and energy supplier. Neither returned phone calls for comment.

        United Gas Management, which had been in CG&E's gas choice program and had about 15,000 customers, also withdrew from the program. It has since been acquired by Titan Energy Inc. and is attempting to re-establish itself in the market by re-enrolling about 9,000 customers, Mr. Brash said.

        “There's been a significant increase in gas prices over the last year,” Mr. Brash said, explaining the decline in participation.

        “The other thing is the volatility in the market,” he said. “In mid-August the price jumped 50 cents (per thousand cubic feet) just on the potential of a hurricane in the Gulf of Mexico — a hurricane that didn't develop.”

        The higher cost for natural gas will get some high-level attention today when the Interstate Oil & Gas Compact Commission, a voluntary organization of oil and gas producing states, holds a regional summit on the natural gas market in Columbus.

        The daylong session hosted by Gov. Bob Taft and commission Chairman Gov. Tony Knowles of Alaska will include panel discussions and speeches by industry executives and other experts. The summit will examine the pos sibility of a long-term natural gas shortage as demand for the fuel continues to rise.

        Over the summer, the wholesale price of natural gas reached $5 per thousand cubic feet; that compares with $2.07 in 1999, the commission says. The higher price will mean sharply higher gas bills when consumers start firing up their furnaces this fall.

        CG&E, which buys gas from suppliers and passes the cost on to customers, last month estimated its customers through November will pay about 26 percent more this fall than they did last year for gas. CG&E adjusts its gas cost quarterly in what's known as the gas cost recovery rate, or GCR.

        A typical CG&E residential customer using 10,800 cubic feet of gas a month will pay $83.33 just for the gas, versus $66.23 for the same period last year.

Difficult to compete
        CG&E said its gas cost recovery rate is one of the lowest in Ohio or Kentucky. Some independent gas marketers agree, saying that makes it difficult to compete with CG&E.

        “They have a very low GCR, but you can't fault them for that. It's hard for a lot of out-of-town firms to compete with that,” said Spence Faxon of Energy Alliances of Sycamore Township, which markets to commercial accounts and has limited its residential customers to a few hundred accounts.

        CG&E's current GCR is $4.983 per thousand cubic feet, excluding taxes. That compares with $6.259 per thousand cubic feet for Columbia Gas of Ohio, the state's largest gas supplier. The rate for Dayton Power & Light, a unit of DPL Inc. in Dayton, is $5.435. East Ohio Gas Transmission is $6.145.

        Union Light, Heat & Power Co., Cinergy's Northern Kentucky subsidiary, will have a gas cost recovery charge starting Oct. 1 of $5.156 per thousand cubic feet. That compares with $6.838 per thousand cubic feet for Columbia Gas of Kentucky.

        The biggest reason CG&E's gas rates are relatively low, Mr. Brash said, is the utility's proximity to several gas pipelines, which also gives it access to the best prices on the wholesale market.

        “CG&E's GCR historically has been very low. It only takes one pipeline to get the gas from Texas and Louisiana,” said Robert J. Korandovich, former president of Volunteer Energy, an independent gas marketer, and now director of NewEnergy Midwest Ohio of Columbus, a unit of AES Corp.

        By contrast, he said “to get the gas into Columbia Gas' territory might take two pipelines” — with resulting higher charges for transmission.

        Columbia's higher gas costs provide enough room for independent marketers to enter the market at a lower price and still make a profit, he said.

        Robert Tongren, Ohio consum ers' counsel, said the volatile gas market is taking its toll on gas marketers across Ohio, although not to the degree that CG&E's choice program has been affected.

        “In a maturing market, with gas prices rising, you need financial stability. The large marketers may be the only ones able to withstand these price spikes,” he said.

Lowest rates in state
        The good news for CG&E customers, he said, is their gas prices are still among the lowest in the state, thanks to the proximity of gas pipelines to CG&E's service territory.

        Columbia Gas, which serves 64 of Ohio's 88 counties, has had one of the most successful gas choice programs in the country. More than 500,000 Columbia customers in Ohio have signed up for alternative suppliers.

        Steve Jablonski, spokesman for Columbia Gas of Ohio, said the number of independent marketers in the program has stayed between 25 and 30.

        “We've seen some marketers change their approach,” he said. “A few have left due to gas prices or other reasons, but we haven't seen a huge drop in marketer participation.”

       The Associated Press contributed to this report.

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