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Pa. PUC Commissioner Highlights "Rather High" Utility Supply Cost Reconciliations, Impact On Shopping Decision

Also Questions Whether Certain Costs Should Be In Supply Or Distribution Rates

October 26, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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In discussing the Pennsylvania PUC's approval of a stipulation in the three UGI natural gas utilities' annual purchased gas cost proceedings, Pennsylvania PUC Vice Chair Andrew Place highlighted the "rather high" amounts of reconciliations of prior gas costs and their impact on shopping decisions.

"[T]wo of these proceedings demonstrate rather high under or over collections, which resulted in E-factors [reconciliations] which were approximately 5.0% and 7.4% of the calculated C-factors [base cost of gas], respectively for UGI and CPG. Given the elimination of migration riders, it is critical that the UGI Companies continue to strive to do a better job in reducing these E-factors so that proper cost allocation is achieved, and retail choice decisions reflect accurate market prices," Place said

"In particular, I am interested in what role the November peaking-contract payment provisions, and the truncation/remaining life provisions of the Settlement can do to improve these revenue and expense imbalances," Place said

Place also questioned whether LNG supplies should be allocated to supply rates or distribution rates.

"[T]he UGI Companies have, at times, utilized temporary Liquified [sic] Natural Gas supplies (LNG) to support their distribution systems. Historically, PNG has used LNG to maintain service to certain customers taking service from low pressure mains during severe weather conditions that cause high demand and pressure reductions to those systems. It appears that LNG is being used to 'support' the distribution system -- not to 'supply' the distribution system. In short, LNG is becoming synonymous with distribution pipe. This situation poses the question of whether such costs should be allocated as distribution costs recoverable in distribution rates, or whether these costs should be allocated as supply costs recoverable in PGC rates. While the Settlement for UGI permits the collection of some of these LNG costs related to system support for the Carlisle area from PGC customers, I remain concerned if such cost allocations become mainstream. At this time, it does not appear that the Companies will be relying on mobile LNG facilities to hold up system deliveries for the projected 12-month PGC period," Place said

Place also, "remain[s] concerned about the amount of firm capacity being purchased, how supply is covered, and what methods are used to distribute gas to the Companies' new and expanding load."

"More specifically, for PNG, the design requirement for service to PGC and Choice customers represent a reserve of 19% relative to historic peak day usage, including PNG's proposed reserve margin. For UGI, the calculated peak day capacity reserve, based on actual historical day peak usage, is 33% and 38% for PGC and Choice customers, respectively. I request that the parties examine these high actual reserve margins and provide a comprehensive explanation for the peak day requirements and the corresponding costs associated with these procurements," Place said

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