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Again! NY Utility Seeks To Defer Supply Cost Reconciliation To Avoid "Sharp Increase" In Commodity Rates

Utility Would Recover Some Costs a YEAR Later in 2018!

Reconciliation Results From $43 Million Under-collection in 2016 (Default Service Rates Not Reflecting Actual Cost)

September 30, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

KeySpan New York (The Brooklyn Union Gas Company d/b/a National Grid NY) has petitioned the New York PSC for temporary waiver of certain tariff provisions and Section 720-6.5(g) of 16 NYCRR to allow KEDNY to suspend collection of the annual reconciliation of gas costs surcharge/refund mechanism in its Gas Adjustment Clause (GAC).

KeySpan New York explained that because it under-collected commodity costs during the 2016 GAC Year, application of the tariff’s commodity reconciliation provisions would increase the GAC surcharge to $0.51 per dekatherm effective January 1, 2017, which would collect approximately $43 million of gas costs from KEDNY’s customers in calendar year 2017. Absent action by the Commission, this gas costs surcharge will become effective January 1, 2017.

KEDNY’s request is similar to a deferral of supply costs granted to KEDNY’s affiliate Niagara Mohawk in 2014 during the polar vortex (as NiMo was granted a deferral of a $32 million increase in supply costs that were otherwise required to be included as part of a monthly reconciliation in the immediate next month, see story here). Indeed, KEDNY cited the PSC's approval of deferrals at NiMo which occurred outside the normal tariff and rate-setting process as precedent supporting its requested deferral

"Temporarily suspending the annual reconciliation of gas costs surcharge will allow the Company to manage the customer bill impacts associated with recovering $43 million of unbilled gas commodity costs set to be recovered through the annual reconciliation beginning January 1, 2017, thereby avoiding a sharp increase in the commodity portion of customers’ bills that would coincide with an anticipated increase in base delivery rates," KEDNY said

"Specifically, KEDNY requests authority to suspend the annual reconciliation of gas costs surcharge for three months, from January 1, 2017 through March 31, 2017, and to reinstate the surcharge beginning April 1, 2017. The Company would address any gas commodity costs not recovered through the annual reconciliation of gas costs in 2017 in the following year's reconciliation (beginning January 1, 2018)," KEDNY said

Notably, while a joint proposal awaiting PSC decision in a KEDNY rate case would allow for a new Mid-Year Adjustment to the annual reconciliation of gas costs that would allow KEDNY to adjust the surcharge/credit to reflect any residual balances from the prior year, KEDNY also proposes to suspend application of the Mid-Year Adjustment during the period January 1, 2017 through March 31, 2017.

"The Company believes this temporary waiver is appropriate to mitigate customer bill impacts by smoothing recovery of prior period commodity costs over several months after the winter heating season, which will prevent financial harm to customers and is consistent with the Commission’s policy favoring rate gradualism," KEDNY said

"Pursuant to the Company’s tariff, KEDNY performs an annual reconciliation of its actual gas commodity costs and actual commodity revenues collected from customers. An annual surcharge or credit is then established to recover/return any over or under collection through a reconciliation filing made no later than October 15th of the year prior to the year the surcharge becomes effective. KEDNY’s current annual reconciliation of gas costs surcharge is $0.08922 per dekatherm. KEDNY will file by October 15, 2016 its annual reconciliation of gas costs reconciliations to establish the surcharge/credit to be effective during the twelve months beginning January 1, 2017. Because KEDNY under collected commodity costs during the 2016 GAC Year, application of the tariff’s commodity reconciliation provisions would increase the surcharge to $0.51 per dekatherm, which would collect approximately $43 million of gas costs from KEDNY’s customers in calendar year 2017. Absent action by the Commission, this gas costs surcharge will become effective January 1, 2017," KEDNY said

"The impact of the 2017 gas costs surcharge on the commodity portion of a typical residential heating customer’s winter bill would be an increase of approximately 12 percent for KEDNY’s customers as compared to currently forecast bills for 2017. This equates to an approximately 4 percent increase in the total typical bill for residential heating customers (including the impact of anticipated delivery rate increases), 6 percent for non-residential, non-heating customers, 5 percent for non-residential heating customers, and 6-7 percent for multifamily dwelling customers," KEDNY said

"As the Commission is aware, KEDNY filed its base rate case on January 29, 2016, with new rates anticipated to go into effect January 1, 2017. Because it has been nearly a decade since KEDNY has had its base rates reset, the Company requires a significant revenue increase to permit it to recover its costs of providing service. Under the Joint Proposal ('Joint Proposal') filed in Case 16-G-0059 on September 7, 2016, a typical KEDNY residential heating customer in 2017 would see an increase of $9.40 per month, or 9.4 percent, on the total bill (15.2 percent on delivery rates). The 12 percent increase in commodity rates (4 percent total bill increase) from the 2017 annual reconciliation of gas costs surcharge would be in addition to these delivery rate increases," KEDNY said

"The Company believes it is not in the best interest of its customers to increase commodity cost by approximately 12 percent at the same time the new delivery rates go into effect in January 2017. Significant increases in both the commodity and delivery rates, especially during the winter months, could create a financial hardship for KEDNY’s customers. To mitigate the financial impact of the rate increases for its customers, KEDNY requests authority to suspend collection of its annual reconciliation of gas costs mechanism from January 1, 2017 through March 31, 2017. KEDNY would then implement a new surcharge for the remainder of calendar year 2017, from April 1, 2017 to December 31, 2017, with the balance of the under-recovery collected through the 2018 reconciliation filing that KEDNY will make by October 15, 2017. KEDNY projects that its proposal would defer the collection of approximately $21 million not recovered through the annual reconciliation of gas costs in January to March 2017, plus carrying costs, until calendar year 2018," KEDNY said

"The Commission’s authorization of the requested waiver will assist customers by mitigating an otherwise significant financial impact while also ensuring that the Company is made whole for commodity costs already incurred on behalf of those customers. KEDNY submits that its proposal is consistent with the Commission’s longstanding policies that favor gradual revenue changes over abrupt ones and encourage utilities to reduce commodity price volatility. In addition, the Commission has permitted utilities to modify their annual commodity revenue adjustments to mitigate the rate impacts of those adjustments on customers. Recently, the Commission granted a waiver to KEDNY’s affiliate, Niagara Mohawk Power Corporation, to mitigate for its full service mass market customers adverse financial impacts anticipated from a significant and unusual increase in electric commodity prices," KEDNY said

KEDNY proposes to apply carrying costs to the unrecovered commodity costs at the "other customer capital" rate.

Case 16-G-0554

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