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