1. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 1 “State Experiences with Gas Unbundling, Gas Deregulation, and Market Restructuring” Presented by: Thomas Pearce Chairman, Staff Subcommittee on Gas National Association of Regulatory Utility Commissioners (NARUC) Natural Gas Specialist Public Utilities Commission Of Ohio ERRA Tariff/Pricing Committee meeting Kyiv, Ukraine 4-5 September 2003

2. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 2 DISCLAIMER The views presented and expressed herein are not those of the State of Ohio, nor the Commissioners nor the Staff of the Public Utilities Commission of Ohio, nor NARUC, nor the Staff Subcommittee on Gas, but are those of the author.

3. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 3 Natural Gas Rate Unbundling Occurred at the federal level and state level over 25 years Borne out of necessity – natural gas shortages of late 1970s Continues to develop and evolve

4. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 4

5. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 5 Ohio’s Unbundling Approach - CHOICE In Ohio, CHOICE programs are transportation programs for residential and small commercial customers Unlike many states, CHOICE did not originally result from a legislative mandate CHOICE evolved from existing LDC collaborative processes formed as a result of prior rate cases & litigated proceedings

6. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 6 Ohio’s Unbundling Approach – CHOICE Tariffs In Ohio, gas transportation tariffs were developed over time; At one time, the rates associated with the natural gas commodity were bundled with the LDC’s delivery charge; Through a series of rate case hearings, the costs associated with the commodity were segregated from the delivery charge;

7. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 7 Ohio’s Unbundling Approach – CHOICE Tariffs (continued) The Gas Cost Recovery (GCR) mechanism was created to reflect and recover the actual cost of gas to the utility without any profit for the LDC; The delivery charge was designed to recover the cost of the LDC’s distribution services and provide the opportunity for the LDC to make a profit

8. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 8 CHOICE and the GCR The GCR has become the benchmark price the marketers are trying to beat The creation of CHOICE removed the requirement that the customer must purchase its natural gas commodity from the utility CHOICE permits the customer to choose the marketer whom the customer desires to purchase the natural gas commodity from The LDC still delivers the natural gas to the customer

9. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 9 Ohio’s Unbundling Approach in General 1970s: Began with “self-help” transportation programs for large industrial customers during the curtailment era 1980s: Local Distribution Companies’ (LDCs’) General Transportation Service for large industrial end-users 1990s: LDCs’ GTS availability expanded to commercial and residential customers (CHOICE)

10. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 10 CHOICE Programs in Ohio 4 Largest Local Distribution Companies: Cincinnati Gas & Electric Columbia Gas of Ohio East Ohio Gas Vectren Energy Delivery of Ohio

11. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 11 Cincinnati Gas & Electric (CG&E) CHOICE Statistics CG&E serves Cincinnati and southwestern Ohio; 28,171 residential participants out of 379,431 customers eligible (7.4%); 4,073 commercial & industrial participants out of 30,613 eligible (13.3%); 6(R)/17(C&I) Marketers participating; http://www.puc.state.oh.us/emplibrary/files/ nga2a/cge_matrix.pdf

12. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 12 Columbia Gas of Ohio (COH) CHOICE Statistics COH serves Columbus, Toledo, and many smaller cities throughout Ohio 521,167 residential participants out of 1,229,435 eligible (42.4%); 48,621 commercial & industrial participants out of 108,248 eligible (44.9%); 18 Marketers participating http://www.puc.state.oh.us/emplibrary/files/ nga2a/coh_matrix.pdf

13. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 13 Dominion East Ohio Gas (DEO) CHOICE Statistics DEO serves Cleveland, Akron, and northeastern Ohio 559,224 residential participants 1,078,716 eligible (51.8%) 38,980 commercial & industrial participants 81,582 eligible (47.8%) 17(R)/50(C&I) Marketers participating http://www.puc.state.oh.us/emplibrary/files/n ga2a/deo_matrix.pdf

14. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 14 Vectren Energy Delivery of Ohio (VEDO) CHOICE Statistics VEDO serves Dayton and southwest-central Ohio 12,836 residential participants 213,304 eligible (6.0%) 1,316 commercial & industrial participants 20,058 eligible (6.6%) 2(R)/5(C&I) Marketers participating http://www.puc.state.oh.us/emplibrary/files/ nga2a/vedo_matrix.pdf

15. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 15 Issues PUCO Has Dealt With Customer education Marketer advertising Consumer protection Enrollment procedures Customer satisfaction surveys Codes of conduct Affiliate relationships

16. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 16 Consumer Education Educational campaign prior to launch of Choice programs Bill stuffers PUCO’s educational efforts Apples-to-Apples marketer comparison charts

17. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 17 Consumer Issues Customer solicitation methods Door-to-door solicitation Slamming Customer ID info

18. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 18 Problems Encountered To Date Door-to-door solicitation PUCO has received over thousands of consumer complaints regarding door-to- door solicitations PUCO, Ohio Attorney General, and Choice Marketers have jointly met regarding Ohio’s Consumer Protection Laws

19. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 19 Marketer Certification Marketers must apply to the PUCO to be approved to do business as a natural gas supplier in Ohio Marketers’ rates are not regulated, but the provision of their services are Analogous to driving down the street and comparing the posted prices for gasoline for your automobile – you choose your supplier based on your needs

20. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 20 LDC Codes of Conduct - Affiliates Non-discriminatory Strict tariff enforcement No preferential treatment No preference or endorsement Separate books & records

21. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 21 Issues Ohio Has Yet To Deal With Obligation to serve Supplier of last resort GCR reform Exiting the Merchant Function

22. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 22 OHIO CHOICE still is a work in progress

23. ERRA Tariff/Pricing Committee Meeting Kyiv, Ukraine September 4-5, 2003 Page 23 Questions? thomas.pearce@puc.state.oh.us (614)466-1846 direct telephone (614)466-6399 facsimile