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Second Time is the Charm for Natural Gas Supplier Parties!

In a binding poll of the issues taken at its September 17, 2015 Public Meeting, the Pennsylvania Public Utility Commission (“PUC”) unanimously voted in support of the Natural Gas Supplier Parties’ (“NGS Parties”) request to modify the way Columbia Gas of Pennsylvania (“Columbia”) refunds back to customers’ their share of off-system sales revenue.

In Columbia’s 2014 gas cost reconciliation filing under 66 Pa. C.S. § 1307(f), (Docket No. R-2014-2408268) the NGS Parties raised the issue of the inequity of Columbia’s Universal Sharing Mechanism (“USM”).  The USM flows back to customers 75% of the revenue generated from so-called off-system sales and capacity release activities that allow the company to maximize the return on the assets paid for by rate payers.  Columbia is permitted to retain 25% of the revenue.  The NGS Parties contended that the 75% customer share was allocated disproportionately to default service customers, causing customers who shop—Choice customers–to subsidize default service.  The NGS Parties argued that because sales revenues were such a small portion of the revenue, and that capacity release was a critical component of every type of transaction, that the fairest allocation was that all customers share the revenue on an equal basis.  The Office of Consumer Advocate (“OCA”) and others contended that the current allocation, 60% to default service customers, 40% to all customers (which in reality amounted to 93% to default service and 7% to Choice customers) was fair, and was possibly too generous to Choice customers.  In its decision on the 2014 case the PUC did not decide the merits, but instead required Columbia to provide more detailed information regarding how such revenue is generated as part of its next 1307(f) filing.

In its 2015 filing (Docket No. R-2015-2468056), Columbia included the required study.  The study showed that all off-system sales transactions required the release of capacity, but that the converse was not true, that is, all capacity releases did not involve the sale of gas.  Importantly, there was no evidence that any gas purchased for default service customers was ever sold as part of an off-system sale transaction.  In this year’s case the same basic argument were made, including a new one presented by Columbia and supported by the Bureau of Investigation and Enforcement (“I&E”), that hypothesized that because the sharing mechanism would become more heavily weighted towards default service customers as shopping increased, that the only “problem” with the current allocation was the potential for increased shopping. Thus, it was suggested that an adjustment mechanism that changed the allocation percentages as shopping levels change over time was all that was needed.  The obvious flaws to this approach are that shopping levels have no influence on the way off-system sales revenue is generated, and the starting point for the adjustment would have been the current inequitable allocation.

In the recent binding poll, the PUC sided with the NGS Parties who contended that the I&E proposal was unreasonable; and sided with the NGS Parties on the reasonableness of allocating 100% of the revenue to all customers on the same basis.  The order has not yet been issued, but the poll represents a win for ending subsidies and reducing the current barriers to truly competitive markets.

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