For PGW customers, the table is set for competition, but the menu is bare
Philadelphia Gas Works has notified 500,000 customers that it is open to competition. But it's the public-utility version of setting a table, inviting guests for a banquet, then offering them nothing to eat.
Philadelphia Gas Works has notified 500,000 customers that it is open to competition. But it's the public-utility version of setting a table, inviting guests for a banquet, then offering them nothing to eat.
Despite years of preparation and millions spent to remove obstacles to competition, no other gas suppliers have extended offers to PGW's residential customers.
"Residential-market conditions are not ideal for competitive suppliers in PGW territory," said Bernie Tylor, a spokesman for WGL Energy Services, a District of Columbia supplier active in other parts of Pennsylvania.
Yet the city-owned utility's million-dollar education campaign makes it seem as if good deals are ripe for the picking.
"Pennsylvania's Gas Choice program allows customers to choose a natural gas supplier other than PGW, and potentially save money!" exclaims the letter that was sent out.
The letter explains the details of choosing a competitive gas supplier, and closes with a referral to the Pennsylvania Public Utility Commission's website, PaGasSwitch.com, for available offers for PGW customers.
Enter any Philadelphia zip code, and you get this response: Zero suppliers are making offers.
The story is different in other parts of the state, where 414,000 customers, including 350,000 residential users, have switched to competitive gas suppliers. That's 14 percent of all customers, but they account for more than half the gas utilities deliver.
In Philadelphia's suburbs, nearly 70,000 Peco residential-gas customers have switched to competitive suppliers. More than two dozen suppliers have posted offers for Peco customers on the PUC's website.
Two factors keep them out of Philadelphia's residential market, suppliers say: Record low natural-gas prices make the overall residential market commercially unattractive, and PGW's high rate of uncollectible bills is too big a burden.
"Suppliers just can't make the numbers work," said Tony Cusati, state gas caucus chair for the Retail Energy Supply Association (RESA).
PGW's poor collection record and high administrative costs will claim nearly 6.7 cents of every dollar the municipal utility bills a residential customer on behalf of a supplier, a process known as "purchase of receivables."
In Peco gas territory, those overhead costs amount to a little more than a penny on the dollar.
"The conditions that we evaluate include PGW's purchase-of-receivable rate, which is currently significantly higher than other Pennsylvania utilities, impacting our ability to profitably serve the residential market in this territory," said WGL Energy's Tylor.
PGW officials say that suppliers were involved in negotiations to set up its Gas Choice program and that they were surprised by their complaints.
"We haven't heard anything from suppliers about this, complaining about this," said Denise Adamucci, PGW vice president of regulatory compliance and customer programs. She said several suppliers were testing PGW's systems before launching residential-marketing efforts.
PGW says its high costs for uncollectible accounts are shared equitably among all customers, so there is no disadvantage to suppliers.
"There's absolute parity between shopping and nonshopping customers with respect to the bad debt," said Gregory Stunder, PGW vice president of regulatory and legislative affairs. "There's no winners, no losers."
He suggested that suppliers might be slow to enter PGW's market because of low energy prices. (Indeed, few current offers in other competitive markets are lower than those utilities' rates.) Consumers may not be in the mood to shop after a mild winter and modest gas bills.
Pennsylvania's Gas Choice program shares its origins with the more broadly embraced Electric Choice program. Utilities were unbundled to include only the distribution networks, while customers could choose separate electricity or gas suppliers. For customers who choose not to shop around, the utilities remain the suppliers of last resort.
PGW's campaign to promote Gas Choice is the culmination of an effort that began when the utility went to the PUC in 2008 for an emergency rate increase amid the nation's financial meltdown.
The commission granted the rate hike on the condition that PGW remove barriers to competition. That launched negotiations toward a 2013 settlement between PGW and gas suppliers, consumer advocates, and the PUC.
The settlement required PGW to upgrade its billing system so it could take over billing and collecting on behalf of suppliers. PGW also agreed to educate customers about competitive markets.
PGW customers would pay for 90 percent of the $1.7 million cost of system upgrades and for half the $1 million education campaign. Suppliers would pay for remaining implementation costs through a 2 percent administrative "discount" PGW assesses to all funds it collects.
But suppliers say they are put off by the discounts for administrative costs and uncollectible accounts.
Under the settlement, PGW is allowed to discount the amount it collects by 4.68 percent, reflecting its rate of uncollectible residential billings. Adding in the 2 percent administrative discount, a supplier would receive only 93.3 cents for every dollar it billed.
"In some jurisdictions, you get a zero percent discount because the utilities do - I don't know if I should say this - a good job on their collection process," said Cusati, the RESA spokesman. He is also the director of regulatory affairs for IGS Energy, an Ohio retail supplier active in Pennsylvania.
Peco, which serves 506,000 gas customers in suburban Philadelphia, assesses a 1.07 percent uncollectible discount for residential billings, said spokesman Ben Armstrong. It also charges suppliers 25 cents a month per customer for billing costs, significantly lower than PGW's 2 percent administrative fee.
The high delinquent-customer rate is beyond its control, PGW says - it serves a far larger low-income population than any other utility in the state. It says it has stepped up collection efforts and even finds itself in federal court defending its aggressive dunning of landlords for tenants' debts.
By comparison, PGW's uncollectible rate for commercial and industrial customers, about 0.3 percent, is similar to Peco's, so competitive suppliers are actively pursuing larger PGW customers. More than half PGW's commercial sales and 99 percent of its industrial demand are served by competitive suppliers, comparable to other state utilities.
Cusati believes PGW's residential market would show more activity if the utility were in private hands, though he acknowledged that privatization was unlikely after City Council declined in 2014 to vote on a proposal to sell PGW for $1.9 billion.
The PUC says its job is done since the 2013 settlement cleared the major obstacles to competition. Now, it's up to suppliers to respond, said spokesman Nils Hagen-Frederiksen.
"We can't order customers to switch," he said, "and we can't order suppliers to get into a particular market."
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