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Columbia seeks yet another rate increase

Almost one year to the day from its 2014 rate increase filing, Columbia Gas of Pennsylvania is back before the Pennsylvania Public Utility Commission seeking an additional $46 million in revenue.

Columbia has continued its streak of rate cases, filing almost annually since the General Assembly passed the DSIC bill that was touted as being the antidote for frequent rate cases. In addition to seeking recovery of main replacement costs in excess of the 5% cap imposed by the DSIC statute, Columbia’s rate filing includes an innovative approach to extending its gas infrastructure to reach more customers.

PUC regulars will recall that in its last rate case, Columbia proposed a New Area Service rider (“NAS”) that allowed customers that did not have the ability to pay an upfront deposit for extending Columbia’s facilities to their premises to pay that amount, either the full or partial deposit, over a period of 20 years on a monthly basis. The testimony that was included in Columbia’s filing correctly points out that while the NAS program does help to mitigate one barrier to extending facilities, i.e., the sometimes significant upfront costs, it does not eliminate the cost, and those costs can add to customer’s bills for a long period of time.

In order to help, Columbia has proposed to develop new incentives that would encourage more customers to switch to natural gas service.  The first would be a footage allowance for up to 150 feet of main line extension per applicant without the need of a net present value (“NPV”) analysis that is normally done; the second would be an allowance of 150 feet of service line in normal situations for those portions of Columbia’s service territory where the Company has lines; and third would be reimbursement of up to $1,000.00 for installation of house piping where the projected revenues exceed projected costs by a certain threshold, when the Company does the (“NPV”) analysis.  What this means in real terms is that new customers will have the opportunity to receive gas service with an allowance of 150 feet of main-line extension and 150 of service line—at no charge, which should allow many new customers to connect to Columbia’s facilities.

With all these innovative programs that Columbia is proposing, it seems inevitable that they will have included a few items that parties will not like.  In this case, Columbia has resurrected, yet again, its intention to charge shopping customers for the right to shop, by seeking to impose upon them a substantial charge, Rider CAC (customer access charge) that purports to recover Columbia’s costs of providing choice service.  Columbia proposed the same Rider in its last rate case but withdrew it as part of a settlement.  It is interesting that this charge recovers substantially more dollars than Columbia purports to spend on its own gas acquisition; and, therefore, it is much larger in order of magnitude on a per customer basis than the charge that Columbia is proposing to recover for its gas procurement costs (“GPC”).  This seems a little odd to this observer.

This matter has not yet been assigned to an administrative law judge.  The Pennsylvania Office of Consumer Advocate has filed a complaint, which almost ensures that the rate filing will be suspended and sent for hearings before an administrative law judge sometime this summer.  Stay tuned.

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.

There is no deadline under the PUC’s regulations as to when it must decide if the subject should be examined.  The firm’s contact on these issues is tjsniscak@hmslegal.com.