The History of Natural Gas Deregulation in Ohio

Natural gas deregulation in Ohio lets you shop around to find the best price on natural gas supply in your area. Ohio's Natural Gas Customer Choice program gives consumers the choice between purchasing their natural gas supply from their local gas utility or from a Competitive Retail Natural Gas Supplier. Now, you can choose to buy gas at competitive market rates from a licensed retail supplier or continue to buy it at the state-regulated rate from your local utility. Either way, your local utility will continue delivering natural gas through its local distribution pipeline at the standard transmission price set by the Public Utilities Commission of Ohio (PUCO) for both utility and retail supply customers.

The Federal Energy Regulatory Commission (FERC) Order No. 636 of April 1992 was designed to foster competition in the national natural gas market and to avoid shortages that closed schools and factories throughout Ohio in the mid 1970's. Before the FERC Order, pipelines bought gas from suppliers, and sold the gas bundled with pipeline transport costs to local gas utilities (known in the business as "local distribution companies" or LDCs). Now, pipeline companies are required to transport gas in a non-discriminatory fashion, leaving natural gas suppliers to compete for gas purchasers throughout the country.

In June, 1996, Ohio General Assembly passed the Natural Gas Alternative Regulation law which established customer choice as a State policy goal. In 1997, the Public Utilities Commission of Ohio (PUCO) adopted rules that encouraged retail unbundling by the major natural gas utilities in Ohio. While Ohio currently has 24 natural gas Local Distribution Companies (LDC's), customer choice programs exist in areas served by four LDC's. However, these are by far the largest utilities in the state: Duke Energy, Columbia Gas of Ohio, Dominion East Ohio, and Vectren Energy Delivery of Ohio.

Instead of the local gas utilities dictating to you the kind of Ohio natural gas service your family will receive, you now have the option to choose your natural gas supplier, what kind of plan you want to have, how long it will last, and also shop around for the best deal.

Getting It Right — Changes and Fine Tuning

It's true that Ohio's natural gas choice program wasn't completely perfect at the outset. Over the years, several rule changes and fine tuning were required to work out problems and make the program fair to both consumers and businesses. Many regulatory reforms are ongoing and in time will bring about fundamental changes to Ohio's natural gas market.

In March 2001, the amended substituted House Bill 9 was signed into law. It allowed local governments to aggregate for competitive retail gas service and consolidated consumer protection authority over certain retail natural gas transactions. Most importantly, it requires retail gas suppliers to be certified by PUCO instead of leaving it to utilities. This part of the law was later amended in April 2002 to include technical, managerial, and financial requirements that competitive retail natural gas suppliers and natural gas aggregators must meet to be certified to provide service in Ohio.

Between 2005 and 2008, Ohio voters across the state approved local aggregation programs for their towns and municipalities and gave local officials the authority to purchase natural gas on behalf of residents, but left room for local residents to choose not to participate. Local communities are now allowed to join their citizens together to buy natural gas as a group and on the group's behalf, negotiate the terms, conditions, and price of the natural gas supply. Most governmental aggregation programs are "opt-out" programs which automatically enroll all local residents, unless they individually and actively opt-out of the program (choose not to be included).

Beginning in 2006, LDC's began changing over their rate setting methods from Gas Cost Recovery (GSR) to what has become a Standard Choice Offer (SCO). Broadly speaking, The SCO rate is for customers who do not participate in the gas choice program from their local utility. The rate is based on the NYMEX month-end settlement price for natural gas, plus a retail price adjustment determined in annual wholesale auctions. Auctions must be approved by PUCO. Suppliers compete in these auctions to provide gas to the local utility. The retail price adjustment reflects the winning bidders' price to deliver natural gas from the production area to the utility's service area. Since the rate follows the month-end NYMEX price, the rate will fluctuate every month.

Meanwhile, Choice customers who are enrolled with a retail supplier are not affected by the SCO price nor do they affect natural gas distribution rates.

The Differences Between the LDC's

Auctions and service offers differ among utilities. All four LDC's have slightly differing rate arrangements with PUCO:

• Columbia Gas of Ohio sets a yearly Standard Choice Offer (SCO) for customers who do not participate in the gas choice program.
• Dominion East Ohio sets both a yearly Standard Choice Offer (SCO) rate for choice-eligible customers and a Standard Service Offer (SSO) rate for Percentage of Income Payment Plan (PIPP) customers and other customers who are not eligible to participate in Energy Choice.
• Duke Energy continues to use a Gas Cost Recovery (GCR) rate to provide a dollar-for-dollar recovery of costs to purchase natural gas. Its natural gas prices are set on a monthly basis to reflect the current cost of gas. Duke Energy is prohibited by law from making a profit on the Gas Cost Recovery (GCR) Charge.
• Vectren Energy Delivery of Ohio sets a yearly Standard Choice Offer (SCO) and a direct sales service (DSS) rate. Again, the SCO rate applies to customers who do not participate in the gas choice program. The DSS rate applies to Percentage of Income Payment Plan Plus (PIPP Plus) customers and other choice-ineligible customers.

Currently, Direct Energy provides natural gas service in all four LDC areas.

In 2008, PUCO allowed rate increases for Columbia Gas of Ohio, Dominion East Ohio, and Duke Energy Ohio and approved a new levelized residential distribution rate structure. Under the levelized rate, customers pay a flat monthly charge that does not change with gas usage. The remainder of the distribution rate consists of a lower usage-based gas delivery charge. The State consumer advocate opposed the change, pointing out that energy-conserving customers wind up paying extra for using less energy.

Those participating in a customer choice program with an alternative natural gas supplier will see the alternative gas supplier's charge on their bill.

What's Ahead

In January 2013, PUCO approved an agreement to allow Columbia Gas and Dominion East Ohio to end SCO pricing for non-shopping, non-residential customers. All non-residential customers who have not selected a natural gas supplier will ultimately be served by a competitive supplier under a Monthly Variable Rate (MVR). PUCO provides complete information on how to understand the different parts of your Ohio Natural Gas Bill.

Winter Reconnect Order

In the northern US, wintertime cold can be dangerous. PUCO issues a Winter Reconnect Order on an annual basis during each heating season, which runs from mid-October through mid-April. This order allows residential customers who are disconnected or being threatened with disconnection the opportunity to pay a designated amount to have their service restored or maintained. Residential customers are required to pay no more than $175 to maintain service under the reconnection order, plus a reconnection fee of no more than $36.00.

Find your local Natural Gas Distribution Company

Because LDC's do not have exclusive territories in any one county or region, it can be confusing to determine which one you have for your Ohio home. You can find yours here at the PUCO Apples to Apples website or get an idea from PUCO's service area map.

Ohio Natural Gas Choice Is Working

Ohio's deregulated gas market is providing its customers with lower prices, better reliability, and above all - energy choice. Local gas utility companies deliver natural gas to all customers whether they have switched to a competitive retail supplier or are keeping their old local utility. All the same, competition is growing and prices are declining, and Ohioans are paying less than ever before.

Not only is Energy Choice catching on, it's taking off. As of September 2014, Ohio had a total of 1,696,925 Choice customers. Of these, 1,535,895 of which were residential. In the Dominion East Ohio's (Dominion) service area, participation was about 94% of the total gas customers.

While still receiving the same reliable service from their local utility, Ohio's natural gas customers are getting more by choosing their own supplier. They're no longer trapped with the one-size-fits-all approach of the old regulated utilities. Now Ohioans can shop for and choose a supplier that meets their lifestyle needs.