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The Background and History of
Energy Choice


Recent Developments



In January 2013, Dominion East Ohio received approval from the Public Utilities Commission of Ohio (PUCO) to eliminate the Standard Choice Offer (SCO) commodity service as an option for large volume and nonresidential customers who have not selected an Energy Choice supplier or a community aggregation program.  These customers will be assigned to retail suppliers at the respective supplier’s Monthly Variable Rate (MVR) beginning April 1, 2013.  Also beginning April 1, 2013, large volume and nonresidential customers whose contract with a retail supplier or community aggregation program expires will default to Dominion East Ohio’s Standard Service Offer (SSO) service for up to two billing periods.  If by the end of that time the customer has not selected a new supplier or joined an aggregation program, the customer will be assigned to a retail supplier at that supplier’s MVR.

In October 2006, Dominion East Ohio replaced the existing Gas Cost Recovery (GCR) rate with the Standard Service Offer (SSO) rate in accordance with approval received from the PUCO. Under the SSO structure, Dominion East Ohio buys wholesale gas supply under terms determined by an auction in which interested natural gas suppliers bid for the ability to provide Dominion's gas supply for customers who purchase their gas from Dominion East Ohio.  The gas purchased in this manner is sold to customers at the same SSO rate.

In April 2009, changes approved by the PUCO became effective and the SCO and MVR commodity services were introduced.  Under the SCO program, customers who are eligible to participate in the Energy Choice program but have not selected a retail supplier are assigned to a supplier.  The supplier provides gas to the customer at the SCO rate.  If the contract of a customer who has participated in Energy Choice or an opt-in aggregation program expires and the customer does not renew it or select a new supplier, that customer will be assigned to a supplier at that supplier’s MVR rate, unless the customer specifically requests to be placed on SCO commodity service.

Since then, Dominion East Ohio has conducted annual auctions to establish the new SSO and SCO rates and suppliers.

With the change effective April 1, 2013, large volume and nonresidential customers will no longer be able to choose the SCO service.  Eligible large volume and nonresidential customers can participate in Energy Choice by selecting a retail natural gas supplier from a list of certified suppliers or by participating in a community aggregation program, if one is available to them.  If large volume and nonresidential customers do not make a choice, they will be assigned to a retail supplier’s Monthly Variable Rate plan. 

Residential Dominion East Ohio customers who use less than 3,000 MCF a year can participate in Energy Choice by selecting a retail natural gas supplier from a list of certified suppliers or by participating in a community aggregation program, if one is available to them.  Customers can also elect to be assigned a supplier through the Standard Choice Offer plan.



Origins of Deregulation



These most recent changes and developments are the outcome of a process that has spanned decades.

The Natural Gas Policy Act (NGPA) took the first steps towards deregulating the natural gas market, by instituting a scheme for the gradual removal of price ceilings at the wellhead. However, there still existed significant regulations regarding the sale of gas from an interstate pipeline to local utilities and local distribution companies. Under the Natural Gas Policy Act, pipelines purchased natural gas from producers, transported it to its customers and sold the bundled product for a regulated price. Instead of being able to purchase the natural gas as one product, and the transportation as a separate service, pipeline customers were offered no option to purchase the natural gas and arrange for its transportation separately.

Several events led up to the 'unbundling' of the pipelines' product. In the early 1980s, noticing that a significant number of industrial customers were switching from using natural gas to other forms of energy, several pipelines instituted what they called Special Marketing Programs. Essentially, these programs allowed industrial customers with the capability to switch fuels the right to purchase gas directly from producers and transport this gas via the pipelines. Nevertheless, the courts ruled that these Special Marketing Programs were discriminatory in that no other customer of the pipelines had the ability to purchase their own natural gas and transport it via pipeline. As a result of this, they were eliminated on October 31, 1985. However, the practice of allowing customers to purchase their own gas, and use pipelines only as transporters rather than merchants, was not abandoned.

In 1985, the Federal Energy Regulatory Commission issued Order No. 436, which changed how interstate pipelines were regulated. This order established a voluntary framework under which interstate pipelines could act solely as transporters of natural gas, rather than filling the role of a natural gas merchant. This order provided for all customers the same possibilities that the Special Marketing Programs of the early 1980s had afforded industrial fuel-switching customers, thus avoiding t discrimination problems. Essentially, pipelines were allowed, on a voluntary basis, to offer transportation services to customers who requested them on a first come, first served basis. The interstate pipelines were barred from discriminating against transportation requests based on protecting their own merchant services. Transportation rate minimums and maximums were set, but within those boundaries the pipelines were free to offer competitive rates to their customers. Although the framework established by Order 436 was voluntary, all of the major pipeline systems eventually took part.

This policy had a number of immediate effects, including:

  • Pipelines began offering transportation service to all customers
  • Pipeline customers realized cost savings, in that the spot market prices of natural gas were much lower than the prices offered for natural gas by the pipelines (due to the long term 'take-or-pay' contracts that the pipelines were bound under)
  • The payments necessary under these 'take-or-pay' contracts increased for pipelines, as few customers were willing to purchase higher priced gas from the pipelines
  • Pipelines and producers were often forced into litigation to resolve issues surrounding 'take-or-pay' contracts
  • FERC Order No. 436 also had a number of longer term effects, including:
  • The transportation function became the primary function of pipelines, as opposed to offering the bundled merchant service
  • A wide variety of natural gas purchasing and transportation patterns and practices emerged due to the availability of choices to the end user
  • New pricing patterns emerged, known as 'netback' pricing, in which a reasonable price was set at the point of consumption, and that minus the cost of distribution, minus the cost of transportation, gave the 'netback' price to the producer at the wellhead

The movement towards allowing pipeline customers the choice in the purchase of their natural gas and their transportation arrangements became known 'open access'. Order No. 436 thus became generally known as the Open Access Order.

The deregulation of natural gas producers’ sale prices at the wellhead had begun. However, it wasn't until Congress passed the Natural Gas Wellhead Decontrol Act (NGWDA) in 1989 that complete deregulation of wellhead prices was carried forth. Under the NGWDA, the NGPA was amended and all remaining regulated prices on wellhead sales were repealed. As of January 1, 1993, all remaining NGPA price regulations were to be eliminated, allowing the market to completely determine the price of natural gas at the wellhead.

While the Federal Energy Regulatory Commission’s Order No. 436 made the unbundling of pipeline services possible, the establishment of transportation-only services by a pipeline continued to be only voluntary. FERC Order No. 636 completed the final steps towards unbundling by making pipeline unbundling a requirement. Issued in 1992, the Order states that pipelines must separate their transportation and sales services, so that all pipeline customers have a choice in selecting their gas sales, transportation, and storage services from any provider, in any quantity. Order 636 is often referred to as the Final Restructuring Rule, as it was seen as the culmination of all of the unbundling and deregulation that had taken place in the past 20 years. Essentially, this Order meant that pipelines could no longer engage in merchant gas sales, or sell any product as a bundled service. This Order required the restructuring of the interstate pipeline industry; the production and marketing arms of interstate pipeline companies were required to be restructured as arms-length affiliates. These affiliates, under Order 636, could in no way have an advantage (in terms of price, volume, or timing of gas transportation) over any other potential user of the pipeline.

FERC Order No. 636 is the culmination of deregulating the interstate natural gas industry. Distilled to its main purpose, the Order gives all natural gas sellers equal footing in moving natural gas from the wellhead to the end-user or local distribution companies. It allows the complete unbundling of transportation, storage, and marketing; the customer now chooses the most efficient method of obtaining natural gas.

For Dominion East Ohio customers, that means participating in Energy Choice and by selecting a natural gas supplier from a list of certified suppliers, participating in a community governmental aggregation program, or being assigned a supplier through the Standard Choice Offer plan is now squarely in the hands of natural gas customers.