Gas Utility Will Open Market To Choice

March 26, 2002
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Customers of Michigan Gas Utilities can begin shopping around for a better deal this summer, although they may have a hard time finding a better price, as the utility implements another rate cut in the wake of falling wholesale prices.

State regulators have given the Monroe-based utility permission to implement a program that, for the first time, allows MGU customers to select their natural gas supplier. The customer choice program, approved by the Michigan Public Service Commission on Feb. 25, will gradually bring MGU’s exclusive service territory into a competitive marketplace that other natural gas utilities began venturing into three years ago.

SEMCO Energy Gas Co., for instance, is working under a temporary choice program that the Public Service Commission last month voted to extend past its March 31 expiration date until the utility can submit a plan for a permanent program. SEMCO has more than 40,000 customers in the Holland-Zeeland area.

MGU opted against implementing customer choice three years ago because it did not have a billing system in place that could handle the change. After addressing that issue a year ago, MGU formulated a choice plan and submitted it to state regulators in late 2001.

The idea is that allowing customers to shop around for another natural gas utility will lead to lower natural gas prices. Customers who sign with another supplier would still receive the natural gas through MGU transmission lines and continue to use the utility for service calls.

“It’s going to work the same way it does now, only somebody is going to be out there marketing gas to the customer at a rate competitive to what MGU charges,” said Paul Livernois, the utility’s community relations director.

The question now is whether MGU has a large enough customer base to interest third-party marketing companies that would search for lower-cost suppliers and enroll customers.

As the smallest of the four largest gas utilities in Michigan, and with individual service territories in pockets spread across the state, marketers may not find MGU’s customer base very appealing, Livernois said.

The utility, however, only needs a handful of marketers to make the choice program viable, Livernois said.

“If there’s one out there that’s willing to do it, then that’s fine. If there’s 20, that’s great, too,” Livernois said.

MGU has more than 156,000 residential and commercial customers in Michigan, about 37,500 of them in northwest Ottawa County around the Grand Haven-Spring Lake area, as well as in Allegan County and a small portion of southern Muskegon County.

Under the program approved by the Public Service Commission, up to 14,000 residential and 1,300 commercial customers can enroll in the choice program beginning June 1 on a first-come, first-served basis. That increases to 28,000 residential and 2,600 commercial customers as of June 1, 2003, and to 56,000 residential and 5,200 commercial customers on June 1, 2004.

All customers can opt into the voluntary choice program beginning June 1, 2005.

Livernois is unsure how many MGU customers may actually go with another gas utility, although a recent rate reduction may stem the number of defections.

On March 1 MGU cut its natural gas rate 11.6 percent, from $4.45 per thousand cubic feet (Mcf) to $3.93 per Mcf. The rate decrease was the second implemented in as many months and represents a near return to what MGU charged before natural gas prices nationwide rose dramatically beginning in September 2000 in response to high demand and low supply.

The wholesale market has since stabilized and pushed rates back down, with increased exploration raising supply as the recession brought down demand.

“We’ve watched the big ugly price spike come and go,” Livernois said.

MGU does not foresee another rate adjustment for the foreseeable future, with wholesale natural gas prices expected to remain steady, Livernois said.

“We can see it staying relatively stable for awhile,” he said. 

Key Dates

Here are the key dates for Michigan Gas Utilities’ customer choice program that begins in June, with the number of residential and commercial customers eligible to participate:

June 1, 2002:   14,000 residential and 1,300 commercial

June 1, 2003:   28,000 residential and 2,600 commercial

June 1, 2004:   56,000 residential and 5,200 commercial

June 1, 2005:   All 156,000 customers may participate

Rate Changes

Here’s a look at Michigan Gas Utilities’ rate adjustments since September 2000:

Prior to Sept. 28, 2000:  $3.81 per Mcf

Sept. 28, 2000:  $5.30 per Mcf

Jan. 1, 2001:  $5.95 per Mcf

May 1, 2001:  $6.84 per Mcf

Jan. 1, 2002:  $4.45 per Mcf

March 1, 2002:  $3.93 per Mcf

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