Competition coming to Columbia Gas territory

Though more than half of Virginia's residential natural gas consumers can pick their gas supplier, fewer than a tenth of them do.

But two major gas suppliers hope to change that.

Ohio-based IGS Energy and Richmond's Dominion Resources Inc. intend to start providing their competitive gas supply programs in 2011 to home customers in Columbia Gas of Virginia's far-reaching service territory.

The two providers will offer customers the chance to gain certainty about what their future bills will be and, in some circumstances, to outright lower their bills.

IGS Energy, trading as Columbia Retail Energy, will begin sending out its promotional mailings this week, said Lawrence Friedeman, the company's vice president for choice markets.

Customers will be able to sign up online, by telephone or by mail, he said.

"We are coming to Columbia Gas of Virginia sometime in 2011, probably in the first quarter," said Dan Donovan, a spokesman for Dominion Energy Solutions, the competitive natural gas supplier arm of Richmond-based Dominion Resources.

"Customers like the idea of having a fixed price for the whole winter, rather than have it changing dramatically right in the middle of the winter as it sometime does," Donovan said. "And that's what we'll offer to customers."

The price that consumers pay for natural gas from regulated local distribution companies, such as Columbia Gas of Virginia, fluctuates with short-term changes in the commodity market, but competitive gas service providers can offer fixed — and sometimes cheaper — prices for longer periods than their local gas company.

"We'll offer price certainty for a specific period of time," IGS Energy's Friedeman said. "The consumer can eliminate any price volatility during the fixed-price period."

IGS Energy will charge Columbia Gas of Virginia residential customers at a rate of 63 cents per Ccf — the unit used for 100 cubic feet of natural gas — through their July billing cycle.

In comparison, Columbia Gas of Virginia's price now is 68.2 cents per Ccf.

The service providers sell only the natural gas to customers.

Columbia Gas of Virginia still is responsible for the system's maintenance, customer services and billing for the transmission and distribution of its customers' natural gas supply.

The state's third-largest local natural gas company, Columbia Gas of Virginia serves nearly 243,000 customers statewide. Among other central Virginia localities, it serves Chesterfield, Powhatan and Goochland counties and the Petersburg area. It also serves portions of Northern Virginia, Hampton Roads, the Shenandoah Valley, the Lynchburg region and parts of western Virginia.

Only about 8,500 Columbia Gas customers buy their natural gas from one of three other competitive service providers.

"People have not taken advantage of the program in Virginia," said Carl Levander, Columbia Gas' president. In the t past five years, he said, "it's been consistently about 3 percent of our customer base."

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The U.S. natural gas industry has been transformed by federal legislative and regulatory changes starting in 1978 that have moved the interstate gas market toward price deregulation.

Federal action enabled states to create individual restructuring plans, opening the market to residential and commercial customers who previously were bound to purchase their natural gas from their local distribution companies.

Residential consumers now can buy natural gas from someone other than their traditional utility company in 21 states — including Virginia — and the District of Columbia, the federal Energy Information Administration said.

Nationally, about 5.1 million — or nearly 15 percent — of the 35 million residential natural gas consumers who had a choice were buying their gas from competitive marketers as of December 2009, the latest year for which figures are available from the energy information agency. Enrollment increased in 2009 for the fourth year in a row, reaching an all-time high, the agency said.

Nearly 60 percent of Virginia's 1.1 million residential gas customers are eligible to participate in competitive supplier choice programs.

But of the more than 660,000 residential customers who could choose their natural gas supplier, only 55,700 — 8.4 percent — in December 2009 had opted to use a competitive service provider, according to the U.S. Department of Energy.

A number of reasons underlie that low market penetration in Virginia and the nation.

When choice programs began in the early 2000s, marketers attracted customers with guaranteed low gas costs, said Amy Sweeney, an analyst with the U.S. Department of Energy's Energy Information Administration.

When gas prices spiked in the middle of the decade, the marketers were left holding the bag.

The industry has consolidated since then, she said, with larger, stronger players emerging.

Another impediment for marketers is that when customers sign up with a retail supplier, they are locked into a natural gas price rate for an extended period.

If they guess right about what direction the gas market is going to go, customers can save money. If they guess wrong, they can end up paying more than they would have with their local gas company.

Gas prices have been trending down for the last couple of years, and the Energy Information Administration's 2011 Energy Outlook expects the United States' expanding shale gas resources to lead to increased domestic natural gas production at lower prices.

When the cost of gas is decreasing, customers are not usually attracted to buying at a fixed rate, officials said. On the other hand, it is an opportunity for marketers to lock in customers and make a profit.

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Picking a supplier requires work on the consumer's part.

Customers need to understand their gas usage, including how much gas they use and when.

Another question is whether a longer-term, fixed-price offer presents a better deal than accepting a changing price for gas. For some, low price may be a priority, while for others payment terms could be more important.

The price Virginia consumers pay to their local regulated distribution company for natural gas fluctuates with short-term changes in the commodity market.

Competitive gas service providers can offer fixed — and sometimes cheaper — prices for longer periods than their local gas company.

According to an Energy Information Administration study, U.S. customers purchasing natural gas from competitive marketers usually paid less than local gas distribution customers during 2002-05.

But Sweeney, from the energy agency's and the study's author, said "in 2007, you paid more if you bought your gas from a marketer, but in 2008 you paid less than if you bought from your local utility" in Virginia.

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Virginia law has allowed utilities since July 1, 2000, to offer statewide customer choice programs if approved by the State Corporation Commission.

Marketers must be licensed by the SCC and demonstrate they have the financial and technical ability to deliver services to Virginia utility customers.

Of the state's eight regulated gas companies, only customers of Columbia Gas of Virginia and Washington Gas Light Co. can choose their gas provider.

"We like [Columbia Gas of Virginia's] choice program," said Dominion's Donovan, for reasons that are not obvious to customers: how the billing arrangements work, how payments are made, how Dominion has the fuel delivered to Columbia Gas.

Washington Gas, the state's largest local natural gas distribution company, has about 452,000 residential customers in Northern Virginia and on the Northern Neck.

The state's second-largest natural gas utility, Virginia Natural Gas, has about 275,000 residential customers in parts of eastern Virginia from Virginia Beach to Hanover County, but the company does not offer a customer choice program.

"There really hasn't been a demand for it," said Cathie J. France, the company's director of government relations.

"We are aggregating the purchasing power of 275,000 customers right now," Virginia Natural Gas' director of regulatory affairs John Cogburn said. "Our gas purchasing and asset management plan are able to take advantage of synergies in the market" that a competitive service provider would not be able to.

But Friedeman is confident IGS will be able to perform well in Virginia. In August, IGS Energy entered into a licensing agreement with NiSource Retail Services, Columbia Gas's parent firm, for IGS Energy to use the Columbia Retail Energy name.

"We will rely on our business acumen to succeed in the marketplace," Friedeman said.

pbacque@timesdispatch.com

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