Kentucky PSC to Examine Transportation Eligibility Thresholds, But Does Not Recommend Statutory Action for Small Volume Choice

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December 29, 2010

The Kentucky PSC will examine the reasonableness of the current eligibility thresholds for non-residential customers to qualify for transportation service at Atmos Energy Corporation, Delta Natural Gas Company, Duke Energy Kentucky, and Louisville Gas and Electric in their next individual general rate proceedings, as the PSC found that expanding transportation service would be more likely to produce customer benefits than introducing small volume choice programs (Docket 2010-00146).

The PSC did not state any intention to examine Columbia's transportation eligibility threshold, given its small volume choice program.

In a report to state legislators, the PSC found that the benefits of either expanded transportation or small volume choice were not established with certainty in the record of its investigation of natural gas competition (11/3), "and is highly dependent upon the cost of natural gas and customer perspective and opinion."

"Having reviewed the evidence, the Commission can only conclude that retail natural gas competition programs that include residential and the smallest non-residential consumers can be crafted to provide opportunities for consumers to benefit based on their unique circumstances.  Furthermore, the Commission finds that consumers can be protected against deceptive marketing practices and loss of gas service if the necessary legislation and regulations are in place.  Certainly, there is no assurance of savings on the cost of gas, but the incurrence of stranded costs, transition costs, and additional regulatory costs is virtually guaranteed," the Commission said.

While the Commission does not advocate mandating or legislating volumetric thresholds for gas transportation service, as it believes the LDCs are best equipped to propose and implement their own systems' products and programs, the Commission did find expanded transportation service to be more likely to produce benefits than small volume choice programs.  In particular, the Commission noted that, unlike for residential customers, Energy Information Administration data shows that average competitive supply prices for commercial customers were lower than average LDC prices in the majority of states.

Current transportation thresholds are as follows:

• Atmos: minimum annual usage of 9,000 Mcf
• Delta: all commercial customers eligible (subject to system operating conditions), residential customers ineligible
• Duke: minimum annual usage of 2,000 Mcf
• LG&E: minimum usage of 50 Mcf per day (which equals at least 18,250 Mcf per year, but the customer must meet daily minimum regardless of annual volume)

Regardless of whether the General Assembly mandates expanded transportation services or choice programs, or simply allows the LDCs to continue to propose expanding transportation when they deem it appropriate for their individual companies and customers, the PSC said that the General Assembly should grant the Commission additional regulatory jurisdiction over retail gas suppliers.  Among other things, the PSC sought the authority to, "[r]equire marketers to file tariffs setting forth their rates, terms and conditions of service."

Additionally, the PSC sought authority to conduct supplier certification, revoke or suspend licenses, penalize marketers for non-compliance, adjudicate competitive supply complaints, and enforce a code of conduct.

"If the General Assembly grants the Commission the additional regulatory authority outlined above, the Commission finds that such authority should apply to Columbia's pilot program and any other existing expanded transportation service or choice program, but that it should not apply to any large-volume transportation service being provided," the PSC said.

The Commission found, "that it would not be reasonable or consistent with its statutory responsibility to mandate that its regulated utilities offer choice programs or expanded transportation services without the additional statutory authority and consumer protections mentioned above and without the opportunity to review each utility's proposed transportation service offerings and its current rate design."

The PSC said that with such expanded authority, and significant consumer protections and safeguards, natural gas retail competition programs -- both expanded transportation services and choice programs -- can be designed to protect customers from deceptive marketing practices and loss of gas service.

While the Commission found that numerous market design issues are appropriately decided on an LDC-specific basis, the Commission did conclude that, [i]t is very important that the LDC remain in the merchant function with the continued obligation to serve customers choosing to receive utility-provided gas service and that the LDC stands ready as the supplier of last resort."  Customers must retain the ability to receive service from their LDC, the PSC said.

"We also find that, in any approved natural gas retail competition program, the utility should be the only entity permitted to disconnect service," the PSC said.

The PSC also updated an earlier report concerning anticipated lost revenues from a reduction in LDC intrastate gas sales subject to an assessment which funds the Commission.  Absent expanding the assessment to cover competitive supply sales, the PSC said that lowering the transportation service threshold to non-residential customers using 2,000 Mcf of natural gas per year at each LDC other than Columbia could result in an estimated $238 million in lost sales receipts subject to the Commission's current assessment rate of .001583, resulting in a reduction of revenue of $377,000.  The Commission estimated that additional personnel expenditures to monitor expanded transportation service would be $171,000.

Link to PSC Order

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