DR 98-015
EnergyNorth Natural Gas, Inc.
1998 SUMMER COST OF GAS ADJUSTMENT
Order Approving the Cost of Gas Adjustment
and Monthly Adjustments
O R D E R N O. 22,890
March 31, 1998
APPEARANCES: McLane, Graf, Raulerson, and Middleton by
Steven V. Camerino, Esq., on behalf of EnergyNorth Natural Gas,
Inc.; and Michelle A. Caraway and Stephen P. Frink for the Staff
of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On February 17, 1998, EnergyNorth Natural Gas, Inc.
(ENGI or the Company) filed with the New Hampshire Public
Utilities Commission (Commission) its Cost of Gas Adjustment
(CGA) for the 1998 summer period. Accompanying its CGA filing
was a Motion for Protective Order and Confidential Treatment,
which was granted February 24, 1998 (Order No. 22,859). ENGI's
filing included the direct testimony and supporting attachments
of Mark G. Savoie, Rate Analyst, and Donald E. Carroll, Vice
President of Gas Supply.
An Order of Notice was issued on February 27, 1998.
ENGI informed customers of the impending change by publishing a
copy of the Order of Notice in the Union Leader on March 2, 1998.
Apart from the Office of Consumer Advocate (OCA) which
is a statutorily recognized intervenor, there were no intervenors
in this docket. A duly noticed hearing on the merits was held at
the Commission on March 23, 1998.
II. POSITIONS OF THE PARTIES AND STAFF
EnergyNorth Natural Gas, Inc.
ENGI witnesses Mark G. Savoie, Rate Analyst, and Donald
E. Carroll, Vice President of Gas Supply, addressed the following
issues: a) calculation of the Firm Sales CGA and the impact on
customer bills; b) factors contributing to the decreased rate;
and c) monthly adjustments to the CGA rate.
A. Calculation and Impact of the Firm Sales CGA
The proposed 1998 summer CGA credit of $0.0192 per
therm was calculated by increasing the anticipated cost of gas of
$13,510,913 by net adjustments of $98,912 and dividing the
resulting anticipated gas costs of $13,609,825 by projected therm
sales of 36,380,746 to arrive at a cost of gas of $0.3741 per
therm, and then deducting the base summer cost of gas of $0.3933
per therm.
ENGI's proposed 1998 summer CGA is a credit of $0.0192
per therm for Firm Sales, representing a decrease of $0.0206 per
therm from the 1997 summer CGA charge of $0.0014 per therm.
The proposed firm sales CGA rate of ($0.0192) will
reduce an average residential heating customer's monthly gas bill
by approximately $1.01, or 2.95 percent.
B. Factors Contributing to the Decreased CGA
Projected gas costs and therm sales for the 1998 summer
period vary only slightly from those forecasted and experienced
during the 1997 summer period. Only two adjusting items changed
significantly, with the net impact being a $0.0200 per therm
decrease in the proposed CGA rate.
The 1998 summer CGA calculation includes a prior period
under collection of $129,425, compared to a prior period under
collection of $2,342,390 in the 1997 summer CGA calculation, a
$2,212,965 decrease resulting in a $.0619 per therm decrease in
the proposed 1998 summer CGA rate.
The 1998 summer CGA calculation does not anticipate any
supplier refunds; the 1997 summer CGA calculation included a
projected supplier refund of $1,500,000.
C. Monthly Adjustments to the CGA Rate
ENGI proposed that it have the ability to adjust the
approved CGA rate upward or downward monthly based on the
Company's calculation of the projected over or under collection
for the period and applied on a bills rendered basis. Under
ENGI's proposal, the adjusted CGA rate would not increase or
decrease by more than plus or minus 10% of the approved unit cost
of gas. Should the projected over or under calculation for the
period exceed 10% of the approved total anticipated cost of gas,
the Company would file with the Commission for a change in the
CGA rate. The filing would be contingent upon Commission Staff's
(Staff) determination that the ensuing procedural schedule would
allow for an order to be issued by the Commission prior to the
first day of the last month of the CGA period.
Company witness Mark Savoie explained that the proposed
change to the CGA mechanism would better match gas cost revenues
with actual gas costs, thereby minimizing over and under
recoveries that are carried forward into subsequent periods. Mr.
Savoie prepared a schedule (Exhibit No. 6) demonstrating what the
likely impact would have been on the average residential heating
customer and the anticipated over recovery for the 1997/1998
winter period if the proposed CGA mechanism had been in place.
Customers would have experienced a rate decrease in each of the
final three months of the winter period resulting in overall
savings of $20, or 3.3%, for the winter period, and the over
collection to be carried forward would have been $123,466 rather
than the anticipated $2,354,316.
ENGI asserts that having the ability to change the
rates on a monthly basis to more accurately reflect market prices
will send proper price signals, reduce carrying costs, reduce
inter-generational subsidies and stabilize rates.
Currently, CGA rates are based on projected gas costs
and volumes, as well as other related items such as supplier
refunds and margins earned on 280 day service. Natural gas
prices are extremely volatile and increases and decreases often
parallel oil and propane prices. Customers are accustomed to
seeing oil and propane prices fluctuate and can respond
accordingly, either through cutting back when prices are high or
purchasing supplies at a fixed price. Currently, natural gas
customers are assigned a fixed rate for the period and unless
there is a substantial projected over or under collection and the
gas company files for, and receives Commission approval of, a
revised CGA, gas customers do not pay the related increase or
decrease until the following related season.
ENGI has proposed revising customer bills to reflect
the total gas cost and non-gas costs portions of the bill. The
new bills and monthly adjustments are designed to help customers
identify the gas portion of the bill and to better recognize the
price fluctuations associated with natural gas. The revised
customer bills and the proposed monthly adjustment may help
educate customers regarding what their actual gas costs are and
the volatility of those costs. As the industry moves further
towards competition, customers will be better prepared to assess
other pricing and supply alternatives that may become available
to them. In a separate filing, ENGI has proposed to offer a rate
stability plan in which customers would have the option of
locking in a rate for the winter period, thereby avoiding period
price risks.
The refund or recovery of any over or under collection
also includes carrying costs, which can be substantial on large
over or under collections. In a scheduled prepared by Mr. Savoie
(Exhibit No. 8), a review of the carrying costs related to the
over and under collections for the past five years was presented
which illustrated the carrying costs ranging from a low of
$11,001 on last summer's under collection of $129,425 to a high
of $324,708 on the 1994/1995 over collection of $3,658,682.
These carrying costs exaggerate the increase or decrease in the
CGA rate associated with over and under collections.
Over and under collections that are carried forward
result in inter-generational subsidies. Customers that have
contributed to the over or under collection and leave the system
do not contribute to the recovery or receive a refund.
Similarly, new customers either pay for costs that were not
incurred on their behalf or receive an unearned benefit through a
refund. Reducing over and under recoveries should reduce these
subsidies.
The price of gas remains the same under either the
current CGA mechanism or the proposed monthly CGA mechanism. The
proposed mechanism could potentially result in more changes of
less magnitude, whereas the current mechanism often results in
larger inter-seasonal swings. ENGI does not intend to change the
monthly rate if the projected over or under collection is not
significant. If the projected over or under collection becomes
substantial, the Company would make a correction in the following
month, thereby recovering a portion of the projected over or
under recovery during that month. If in a later month the 10%
trigger mechanism is exceeded, the Company would have already
refunded or recovered a portion of the projected over or under
recovery which will reduce the amount to be recovered or refunded
over the remaining months. Under the current CGA mechanism, the
entire projected over or under recovery would have to be
recovered over the remaining months.
ENGI would also benefit in the non-gas related area of
being better able to predict its tax liability and make more
accurate estimated tax payments, reducing the risk of tax
penalties. Any associated savings would likely benefit the
ratepayer in a general rate case.
ENGI asserts that use of a monthly CGA mechanism would
be consistent with New Hampshire statutes and administrative
rules. Because the rate could not exceed 10% above the rate in
effect at the start of the CGA period, there is no danger that
ratepayers would be subjected to a new, higher rate without the
opportunity for notice and hearing as provided for in RSA 378:3.
Similar capped rates have been in effect for many years at the
Commission, notably rates for interruptible sales and 280 day
service.
In addition, ENGI notes that N.H. Admin. Rules, Puc
1203.02(f) provides for CGA rates to be adjusted as frequently as
determined by the Commission. While the practice has been for
two CGA changes per year, it would appear that the Commission
envisioned the possibility of a CGA rate being set more
frequently. A monthly adjustment to the CGA, according to ENGI,
therefore, is consistent with the Commission's statutory
obligations and administrative rules.
Staff
After a thorough review of the filing and subsequent
discovery, Staff indicated at the hearing that it believes ENGI's
gas purchasing policies are sound and reasonable and that the
Company is utilizing its available resources in a manner which
minimizes gas costs. Staff also believes that the proposed 1998
summer CGA credit of $0.0192 per therm is reasonable and should
be approved.
Staff supports ENGI's proposal that it be allowed to
adjust the CGA rate on a monthly basis in order to minimize any
over or under recoveries and better match gas cost revenues with
actual gas costs.
OCA
While unable to attend the hearing, the OCA asked Staff
to read the following statement into the record on its behalf:
"Although the OCA has not been heavily involved in this ENGI CGA
filing, we understand that company's proposal to be an automatic,
albeit minor, self-correcting trigger mechanism subject to
reconciliation. As such, we generally support it as a trial as
long as changes are only made when significant over or under
collections are anticipated."
III. COMMISSION ANALYSIS
After having reviewed the record, we conclude that
ENGI's proposed 1998 Summer CGA is consistent with its previous
performance relative to minimizing gas costs. Accordingly, we
accept and approve ENGI's proposed 1998 Summer CGA rate of
($0.0192) per therm. We also find that ENGI's proposed revision
to the CGA mechanism is reasonable and in the public good.
Allowing the Company the ability to make monthly
adjustments to the CGA rate, within a ten percent (10%) limit,
better serves the purpose for which the cost of gas adjustment
was first implemented; i.e., to more accurately reflect seasonal
use patterns and costs and prevent continuous rate increase
filings. Gas costs remain unchanged and continue to be passed
through to ratepayers on a dollar-for-dollar basis under each
mechanism; however, the primary difference is the timing of those
recoveries. By enabling the Company to pass along fluctuations
in gas costs on a monthly basis, the Company will be better able
to match those costs with the appropriate customers and to
minimize the over and under collections and associated carrying
costs.
In recent years, the commodities market has experienced
dramatic price fluctuations in natural gas. Actual gas costs
exceeded projections so drastically during the 1996/1997 winter
period that all of New Hampshire's local distribution companies
submitted revised mid-winter CGA filings to avoid substantial
under recoveries. And even in seasons where the over or under
recoveries have not exceeded ten percent, thereby requiring a
revised CGA filing, substantial over and under recoveries have
resulted in large inter-seasonal swings. We have previously
sought to stabilize gas prices through approval of hedging
policies and believe that allowing monthly adjustments to the CGA
rate will further stabilize gas costs and is consistent with
prior orders.
In a separate filing, ENGI has proposed a price
stability plan that is designed to work similar to "pre-buy" oil
programs, affording customers the opportunity to lock-in fixed
prices for the winter period. Monthly adjustments that reflect
actual gas costs will allow customers the ability to better value
such a service.
Lastly, the CGA mechanism is reviewed at least twice a
year. Once the revised CGA mechanism has been implemented and
observed over a reasonable period of time, it will be re-evaluated to determine if it is achieving the desired results and
should be continued.
Based upon the foregoing, it is hereby
ORDERED, that ENGI's Eighth Revised Page 32 superseding
Seventh Revised Page 32, N.H.P.U.C. tariff of EnergyNorth Natural
Gas, Inc. providing for a Summer 1998 Cost of Gas Adjustment
credit of $0.0192 per therm for the period April 1, 1998 through
October 31, 1998 is hereby approved; and it is
FURTHER ORDERED, that ENGI may adjust the approved CGA
rate of ($0.0192) upward or downward monthly based on ENGI's
calculation of the projected over or under collection for the
period, but the cumulative adjustments shall not exceed ten
percent (10%) of the approved unit cost of gas of $0.3741 per
therm ($0.0374 per therm); and it is
FURTHER ORDERED, that ENGI will provide the Commission
with its monthly calculation of the projected over or under
calculation, along with the resulting revised CGA rate for the
subsequent month, not less than five (5) business days prior to
the first day of the subsequent month. ENGI shall include a
revised tariff page 32 - Calculation of Cost of Gas Adjustment
for firm sales and revised firm rate schedules if the Company
elects to adjust the CGA rate; and it is
FURTHER ORDERED, that the over or under collection
shall accrue interest at the Prime Rate reported in the Wall
Street Journal. The rate is to be adjusted each quarter using
the rate reported on the first date of the month preceding the
first month of the quarter; and it is
FURTHER ORDERED, that should the monthly reconciliation
of known and projected gas costs deviate from the ten percent
(10%) trigger mechanism, ENGI shall file a revised CGA; and it is
FURTHER ORDERED, that the projected over or under
collection in the calculation does not include any increases or
decreases in revenues resulting from prior monthly adjustments;
and it is
FURTHER ORDERED, that filing a revised CGA is
contingent upon the Commission's determination that the ensuing
procedural schedule would allow for an order to be issued prior
to the first day of the last month of the CGA period; and it is
FURTHER ORDERED, that pending a Commission order
revising the CGA rate, the Company may adjust the CGA rate to the
extent that the rate shall not deviate more than ten percent
(10%) from the approved unit cost of gas of $0.3741 per therm
($0.0374 per therm); and it is
FURTHER ORDERED, that ENGI shall file properly
annotated tariff pages in compliance with this Order no later
than 15 days from the issuance date of this Order, as required by
N.H. Admin. Rules, Puc 1603.
By order of the Public Utilities Commission of New
Hampshire this thirty-first day of March, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary