PA PUC Requested by Statutory Advocates and Two NGDCs to Examine The Practice of Natural Gas Flexible Pricing or Negotiated Discount Rates
Historically the Pennsylvania Public Utility Commission (PUC) has permitted natural gas distribution companies (NGDCs) to use flexible pricing or “flex” contract rates to attract or retain large customers who have other energy alternatives. The reasoning has been that “half a loaf is better than none,” and that such revenues, which cover and exceed marginal cost, contribute positively to overall cost of service. The result is a benefit to the large customer, the utility, and all customers generally. Moreover, in terms of retaining a customer, the argument in favor of the status quo is that other ratepayers benefit as they do not bear the revenue burden of stranded investment or a smaller revenue pot over which to apply costs. The NGDCs have generally been able to recover from other ratepayers the difference between the “flex” rate and what would have otherwise been charged under an ordinary general tariff rate.
Just as historically, the statutory advocates that represent residential ratepayers, small business ratepayers, and PUC prosecutorial rate staff, oppose the practice as uneconomical or inequitable. Specifically, they dislike the PUC’s allowing the NGDC to recover the flex discount from other customers. They are focused, at this point, on the use of flex contracts in portions of western Pennsylvania where NGDCs often have overlapping territories and compete for customers.
The statutory advocates have been able to convince two NGDCs, Peoples Natural Gas Co. and Columbia Gas of PA, as part of rate case settlements, to agree to be parties with them to ask the PUC to institute a generic proceeding to examine whether flex rates should continue in “gas on gas” competition instances. That joint petition has been submitted at PUC Docket No. P-2011-2277868.
While supporters of the request to investigate the practice maintain that it only applies to “gas on gas” competition, the proceeding may have, or at a minimum may lead, to broader implications as the arguments for and against flex rates for “gas on gas” competition could be used by those who oppose the practice to challenge any flex rate situation that was created to address competition by energy options other than from NGDCs. Clearly, this proceeding will impact large customers with energy alternatives, and presents important policy considerations involving Pennsylvania’s ability to attract or retain large customers and the many jobs and contributions to the economy they create.
One would expect any involved NGDC , particularly those who have “gas on gas” based flex agreements in place, and the large customers under those agreements, to defend and support the practice vigorously. It is important to large business and to NGDCs to keep rate flexibility to address competition and avoid loss of customers or to attract new customers or additional usage.