Utility Removes Fixed Price Option For Default Service

November 17, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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As part of a rate case compliance filing, Nstar in Massachusetts has removed its fixed price option pilot program for default service from its natural gas tariff

Under Nstar's prior tariff, customers in rate classes R-1, R-2, R-3, R-4, G-41 and G51 were eligible to participate in a fixed price option (FPO) pilot program for the winter heating season beginning. Under the pilot, winter heating season beginning November 1st of each year, the default service rate was established in accordance with the provisions set forth in the Company’s retail distribution service rates and its Seasonal Cost of Gas Adjustment Clause (CGAC) for the peak season, as approved by the DPU for effect on or about November 1st of each year, plus $0.02 per therm. The GAF, as initially calculated and approved by the DPU for effect November 1st, remained fixed for FPO Pilot Program customers for the remainder of the winter heating season. The rate for Default Service applicable to customers who have been approved by the Company for participation in the Nstar Gas FPO Pilot Program for the off-peak season was established in accordance with the provisions set forth in the Company’s retail distribution service rates and its Seasonal CGAC.

Under the new compliance tariff, the FPO language is deleted.

The new compliance tariff states, "The rate for Default Service shall be established in accordance with the provisions set forth in the Company’s retail distribution service rates and its Seasonal Cost of Gas Adjustment Clause ('CGAC') as in effect from time to time. The date on which the rate for Default Service becomes effective shall coincide with the effective date of the seasonal Gas Adjustment Factors ('GAFs') as established by the CGAC."

Regarding its proposal to eliminate the fixed price option for default service, Nstar had said in a brief that, "Eversource proposes to eliminate the fixed price option ('FPO') from its Default Service Tariff (Exh. ES-RDC/LMC-1, at 20). The FPO is an option that allows customers to shield themselves from fluctuations in the cost of gas by paying a two-cent premium, per therm, for Default Service during the peak season (Exh. ES-RDC/LMC-1, at 20). The two-cent premium applies regardless of whether the Default Service Price increases or decreases because of an interim cost of gas price change (Exh. ES-RDC/LMC-1, at 20). This option was introduced as part of the settlement agreement approved by the Department in D.T.E. 05-8590 and approved in D.T.E. 06- 66 as a pilot program (Exh. ES-RDC/LMC-1, at 20). The FPO was made available to customers in November 2006 (Exh. ES-RDC/LMC-1, at 20). At that time, gas costs were high due to impacts to the production area spot markets following Hurricanes Rita and Katrina (Exh. ES-RDC/LMC1, at 20-21). The FPO pilot was intended as a tool to allow customers to hedge against potential price increase (Exh. ES-RDC/LMC-1, at 21). However, due to these high gas prices and advanced in hydraulic fracturing ('fracking'), shalegas production has been spurred and put downward pressure on gas prices (Exh. ES-RDC/LMC-1, at 21). Peak period default service price has decreased forty-three percent since 2006 when the FPO was first offered to customers (Exh. ESRDC/LMC-1, at 21). Due to this dramatic change in market conditions, the FPO is no longer in the best interest of customers (Exh. ES-RDC/LMC-1, at 21)."

"Although there have been benefits to customers from the FPO option, the additional security of the FPO program is now largely unnecessary in today’s environment when lower priced gas is more widely available for the service of local distribution gas customers (Exh. ESRDC/LMC-1, at 23). The Company hedges gas price fluctuations through its own portfolio management and is able to minimize price volatility through a combination of storage, contracts, and spot market procurement (Exh. ES-RDC/LMC-1, at 23). As a result, the Company proposes to close the program effective November 1, 2020 when approved distribution rates would take effect for the peak season following an outreach campaign across multiple platforms (letters, website message, bill inserts, and bill messages for active FPO customers) (Exh. ES-RDC/LMC1, at 24)," Nstar said in a brief

D.P.U. 19-120

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