RE: GA Gas: Did Deregulation Work?

Based on my knowledge of Ga market, C&I have been more satisfied than RES customers, however the "billing" problems that have been talked about in Ga were across all classes. RES customers had never been accustomed to disconnects for Non payment before.

-----Original Message-----
From: Steffes, James D.
Sent: Monday, November 05, 2001 6:01 PM
To: Montovano, Steve; Shapiro, Richard; Kingerski, Harry
Subject: FW: GA Gas: Did Deregulation Work?

This story appears to be about residential.

Do we know if C&I has feared so poorly? What are the problems with entering the market for those customers? Have these customers been angry or pleased?

Jim

-----Original Message-----
From: Barnes, Lynnette
Sent: Monday, November 05, 2001 4:46 PM
To: Ferris, Frank; Hinrichs, Lance; Lawner, Leslie; Miller, Terri; Rishe, Frank; Ross, Derrick; Schoen, Mary; Snyder, Brad; Sullivan, Kathleen; Suttabustya, Buranit; Thome, Jennifer; Truxillo, Wayne; Wininger, James; Ader, Jeff; Anderson, Andy; Bachmeier, Rick; Bernstein, Eitan; Bernstein, Mark; Bertin, Suzanne; Duda, Geoff; Galow, Gary; Hammond, Pearce; Jackson, Robert; Keene, Patrick; Kingerski, Harry; Kosnaski, Andrew; Meigs, Mark; Ogenyi, Gloria; Steffes, James D.; Boston, Roy; Landwehr, Susan M.; Lassere, Donald; Migden, Janine; Stroup, Kerry; Covino, Susan; Magruder, Kathleen; Martha Duggan; Merola, Becky; Reichelderfer, Thomas; Sandherr, Cynthia
Subject: GA Gas: Did Deregulation Work?

Gas deregulation: unfulfilled promises It was meant to foster competition, lower bills and improve customer service for Georgians. It hasn't.
MATTHEW C. QUINN
STAFF

Nov. 4, 2001
Atlanta Journal/Atlanta Constitution
Home
Page E.1
(Copyright, The Atlanta Journal and Constitution - 2001)

Three years after Georgia deregulated natural gas, there's widespread sentiment the landmark law has failed to live up to its promise and needs to be fixed.

When the state allowed unregulated marketing companies to sell natural gas to 1.5 million homes and businesses, the goal was to drive prices down and improve service.

Instead, here's what resulted: A relentless wave of billing errors, confusion and customer service complaints. Residential gas prices that remained high even as wholesale prices plunged. Tens of thousands of customers whose service was disconnected for nonpayment of bills dating to last winter's record cold. Marketing companies saddled with millions of dollars in debt resulting from unpaid bills. Three marketers have gone bankrupt, reducing competition. Some survivors appear to be barely hanging on.

The situation is so strained that players on virtually all sides of the debate now agree that deregulation has gone very wrong. No easy fixes are at hand.

"No responsible executive in the world would have ever subjected customers to what they've had to go through," said Paula G. Rosput, chief executive of AGL Resources, parent of Atlanta Gas Light Co., which pushed the Legislature to enact deregulation in 1997 and remains a monopoly distributor of gas sold by marketers.

Rosput, who joined the company in 1998 when deregulation was already under way, now says that deregulating natural gas in Georgia was probably "swimming against the tide."

Georgia's relatively short heating season offers limited opportunity for profit, she said. Rosput faults the Public Service Commission for meddling and the marketers for lacking the expertise to do the job properly.

"There's plenty of blame to go around here," she said, noting that "never in the history of Georgia" has the gap between wholesale and retail prices been so wide.

Gov. Roy Barnes has stepped into the morass. He plans to name a consumer protection task force to come up with solutions before the Legislature convenes in January. Barnes said deregulation has been good for many industrial and business customers, but he has "profound concerns" about the impact on consumers.

Barnes said he's not out to scrap deregulation. That's a problematic option that nonetheless is expected to be discussed by the task force and the Legislature, along with more limited steps to prop up the existing system with consumer protection measures.

The most immediate problem is households without gas as winter cold sets in. According to Atlanta Gas Light, more than 50,000 consumers who were shut off for nonpayment have still not been reconnected.

The top marketers are insisting that balances be paid in full before service is restored, except in certain hardship cases.

The PSC has allocated $10 million to help low-income senior citizens pay their bills, and the federal government has kicked in $15 million for low-income families --- but those measures will help only a small fraction of consumers.

As a result, social services agencies are overwhelmed with pleas for help from gas customers. The Sullivan Center, a southwest Atlanta nonprofit, is holding weekly classes to help advise people having trouble paying their bills.

Many of them haven't paid since last winter's frigid temperatures sent bills soaring in Georgia and across the country.

The PSC responded in January by slapping a moratorium on shut- offs --- but that actually may have exacerbated the situation in the long term. When the moratorium expired in April, more than 220,000 customers were targeted for disconnection, and marketers were stuck with a reported $100 million in bad debt. Since then, 142,000 homes and businesses have been shut off; 87,500 of those were reconnected after paying their bills.

Nancy D. Coveny, executive director of Buckhead Christian Ministry, which offers assistance to low-income residents, said deregulation has made it more difficult to help people straighten out their accounts because of the multitude of marketers and policies. Before deregulation, "it was a lot easier" to straighten out problems, Coveny said. "We would call Atlanta Gas Light. We had relationships."

High prices

Jessie Champion, 54, of southwest Atlanta, said she had her gas cut off after failing to pay a $2,081 bill dating back months.

Champion said she had been making budget billing payments to Georgia Natural Gas Services, the state's top marketer and an affiliate of Atlanta Gas Light, and was told by the company that "the computer messed up." She's been using an electric heater for her household, which includes three grandchildren and a disabled son.

Catherine Land-Waters, vice president/customer service at Georgia Natural Gas, said Champion's service was shut off after she failed to keep up with her payments. She said the company has no record of a disability claimed by Champion but added that the company will work with her to get her service restored.

Denise McGregory of Norcross had her gas shut off two weeks ago after confusion over bills from two marketers for two apartments she briefly had during a move. She said Infinite Energy turned off her gas, even though she sent a check. Service was restored two days later, but only after she "yelled and screamed" and complained to the PSC. "I have to have gas," she said. "I have seven children."

Dave Benfield, a spokesman for Infinite, said McGregory had been notified that she faced disconnection. The small, Florida-based marketer approved her account for reconnection the same day it received payment.

"If people don't pay us in 45 days, they get a notice," Benfield said. "In most cases they pay."

The PSC has logged more than 12,000 complaints about natural gas service since January over such things as pricing, billing inaccuracies, disconnection notices sent in error and demands for payment of hefty overdue balances. That dwarfs the number of complaints the PSC gets about electricity and telecommunications.

"People aren't being treated right," says PSC member Stan Wise, a supporter of deregulation who wants to save the system.

Marketers say many billing problems have been straightened out, and complaints to the PSC have tapered off.

What remains a major concern for virtually everyone involved is the price consumers are paying for natural gas. When the wholesale price of gas dropped substantially in recent months, residential prices charged by marketers remained high. Last week, wholesale prices shot up 75 percent in advance of cold weather but are still much lower than last year.

Marketers say prices have remained high in part because of bad debt they are carrying from nonpaying customers. The PSC is expected to launch an inquiry this week into whether bad debt is the reason retail and wholesale prices have been out of synch.

It's not clear "how much is bad debt and how much is marketers taking advantage of the situation," said state Consumer Utility Counsel Kristy Holley.

Reeling from bad debt

Residential consumers enjoyed rebates and lower prices at the outset of deregulation. Those who locked in fixed prices benefited when prices shot up last winter and their gas costs did not.

But relatively few customers opted for a fixed price, which was not heavily promoted as an option.

A recent analysis by the PSC staff shows typical monthly residential gas bills between April and September have been higher than those in neighboring states with regulated utilities. The average September bill for customers served by Georgia marketers was $37.12, compared with an average of $27.03 for six regulated utilities in nearby states. Even the lowest Georgia bill was higher than the regulated average.

But the Georgia bill includes marketer charges for natural gas and customer service, plus Atlanta Gas Light's distribution charges. PSC member Robert Baker says AGL's charges, which account for 40 percent of typical bills, may be partly to blame for high bills.

On the basis of a PSC staff finding that the utility has been earning up to $52.5 million a year above what's authorized, the commission has launched an earnings review that could lead to reduced rates. AGL, meanwhile, claims it's entitled to a rate increase of up to $48 million.

With the exception of large industrial customers that had distribution costs slashed and got more leeway to shop for gas from competing wholesale suppliers, it's hard to find anyone who gives deregulation high marks.

Marketers flocked to Georgia with hopes of getting in on the ground floor of an expanding national deregulated business for electricity and natural gas. What was supposed to be Georgia's gradual transition to an exciting new market with lower prices and superior customer service moved faster than anyone predicted. That touched off an array of billing problems and errors. When unusually cold weather hit last winter and prices skyrocketed, many consumers, already angered by the billing problems, blamed deregulation --- and didn't pay their bills.

While those problems were evolving in Georgia, California had its electricity implosion. Many marketers had based their investment in Georgia on an expectation they'd recoup by expanding into other markets and offer new services, including electricity and telecommunications. But the California debacle dashed hopes for a national deregulated market for natural gas and electricity. "California did for electricity deregulation what Three Mile Island did for nuclear power," said Warren Darby, retired senior vice president of Scana Energy and now a consultant in Columbia, S.C.

When Georgia's moratorium on shut-offs expired in April, marketers found themselves reeling from an estimated $100 million in bad debt. Instead of building market share, they had to focus on disconnecting nonpaying customers.

"You went from an invasion to an occupation mentality," Darby said.

Shell Energy, an affiliate of Shell Oil Co., recently aborted its entry into the newly deregulated electricity market in its home state of Texas. The crash program by Georgia's No. 3 marketer to recoup bad debt by disconnecting nonpaying customers in the state has triggered an outpouring of complaints. Darby said Shell is "circling the wagons."

Shell Energy President Alan Raymond concedes that Georgia "has not been an exciting profit picture for us," but he insists his company has no plans to pull out. He added, however: "Unless things get better, no company can survive this."

Georgia Natural Gas Services, the state's top marketer, has been one big headache for AGL Resources, its parent, which recently took a $13.5 million pretax charge related to accounting discrepancies at the marketing affiliate and is engaged in messy litigation with a minority partner. "It's not been a good business for us," said Rosput of AGL.

No. 2 marketer Scana Energy has reported $4 million in profit from its Georgia operations so far this year, or about $1 per month per customer after accounting for bad debt. The South Carolina-based company had hoped to sell its Georgia customers wireless telephone and home security services but has gotten out of both businesses. The company says it's in for the long term.

New Power Co. made a late and aggressive entry into Georgia's natural gas market this year as part of a national push into deregulated gas and electricity markets. Wall Street didn't like the idea. The company's stock has plunged from $21 a year ago to less than $1. Its top financial backer, Enron Corp., last month wrote down about $270 million of its investment. But New Power President Eugene Lockhart insists Georgia is profitable for the company and that it's not planning to pull out.

Still, there's concern about the impact on competition if Shell or New Power quits. The PSC has designated New Power as emergency backup supplier if another company goes out of business.

The ranks of marketers has already thinned from 19 three years ago to eight. The top four control 94 percent of the market.

PSC member Baker already sees an "oligopoly" with limited competition. Consumer choice "is supposed to be the hallmark" of deregulation, said Commissioner David Burgess. Instead, he said, "consumers have less and less."

'Re-regulation' calls

So far, no one has come forward with a solution to the deregulation problems.

Calls for "re-regulation" are expected to grow when the General Assembly convenes in January. Already, a key backer of the 1997 deregulation law has jumped ship.

"We can't let Georgia consumers suffer for another year," said state Sen. Sonny Perdue of Bonaire, who said he will introduce legislation to re-regulate natural gas. Perdue, the main Senate sponsor of the 1997 deregulation law, is expected this week to announce his candidacy for the Republican nomination for governor. He would oppose Barnes.

State Rep. Jimmy Skipper (D-Americus), the main House sponsor of the '97 law, said he's concerned about gas prices, but he's not sure re-regulation is "doable at this point."

Marketers are pressing for more time to give deregulation a chance.

"We believe a year from now, weather permitting, that this will be a much calmer market and people will value the choices they have," saId Scana spokeswoman Cathy Love.

Returning to regulated natural gas would present a whole new host of problems, including dilemma No. 1: "If it's re-regulated, who takes the ball?" says PSC Chairman Lauren "Bubba" McDonald Jr.

Returning Atlanta Gas Light to the role of regulated utility would require the very expensive proposition of reconstructing billing and customer service systems for 1.5 million customers, which was turned over to marketers.

Then there's the question of whether marketers would be entitled to a "bailout" to recover their costs if forced from the market Georgia invited them into.

One option being discussed is to have Atlanta Gas Light --- or even a marketer --- offer a regulated gas service alongside unregulated marketers. That would make Georgia more like other states that have deregulated.

Other measures could include new standards for billing, customer service and meter reading; more authority for the PSC, including emergency power to regulate prices; reducing the sales tax for gas bills; and increasing competition by allowing nonprofit electric cooperatives to become gas marketers.

But there are significant problems associated with every option that has been floated for "fixing" deregulation. In fact, there may be no good fix.

Rosput said she's "prepared to get to a solution," but like everyone else, she doesn't have an answer.

"It is my job to do the best I can to guide this ship," she said, "and there's no safe shore or good place to land."

713-853-9287
888-703-0309