N.Y. Approves National Fuel Gas Distribution ESCO Storage Level Changes Without Modification

The New York PSC will allow tariff revisions from National Fuel Gas Distribution regarding ESCO storage inventory balance requirements to go into effect without modification (Case 11-G-0272).

Specifically, Distribution filed to change the Start of the Month, and End of the Month, storage inventory levels under S.C. No. 19 - Supplier Transportation, Balancing and Aggregation (STBA). Among these changes were increases to the End of the Month storage inventory targets for the months of May, January, and February. Most notably, the February End of the Month storage inventory level target will increase to 28% from 20%.

Additionally, Distribution proposed that the sale of inventory by the supplier to the utility will be by mutual agreement between the parties, though the rate applied to the quantity sold will remain unchanged.

The changes resulted from experience with S.C. No. 19 and were proposed to enhance reliability, Distribution said.

The National Energy Marketers Association objected to several aspects of the proposal, arguing that a heightened end of winter storage requirement, "effectively forces marketers to 'park' gas in storage through the peak winter months instead of being able to use storage to meet customer demand" (see 7/26).

PSC Staff said that only two winter months were proposed to have higher storage requirements, while December has a lower proposed requirement versus the current tariff.

Moreover, Staff said that, "For the months where an increase is taking place, the most significant change is at the end of February ... where the minimum storage inventory level increases from 20% to 28%. The revised level represents the minimum level that would still provide for full deliverability of storage on the last day of the month due to National Fuel Gas Supply tariff restrictions on its Enhanced Storage Service (ESS). This change ensures full deliverability of capacity assets through the worst winter months avoiding withdrawal restrictions until the month of March. Changes to the March inventory requirements actually improve the marketers' ability to meet varying weather patterns by removing all minimum inventory levels during the month and at month's end."

Staff also dismissed arguments that marketers shouldn't be required to take storage, "since allowing them to do so would undermine the Capacity Release rules established in Case 07-G-0299."

"Storage is an important component of the overall gas system and serves to help supply the demand requirements for customers during the winter season. By offering to price out any deficiencies in storage up to 2% at the market rate, the Company is providing the marketers with a benefit in allowing them flexibility in intra-month storage inventories," Staff added.

"Another change proposed by NFG deals with the sale of storage gas to the Company," Staff continued. "The tariff would allow the sale of storage to take place only if mutually agreed to by the supplier and the Company. This could benefit marketers if their customer enrollment drops. Instead of facing a forced sale of gas to the Company due to dropped enrollment, the marketer can keep the storage gas and use it for its remaining customers or sell it outright on its own at a market price. The issue here becomes the potential for marketers to gain an unfair advantage by signing up customers for the high load winter season only to return them back to the utility during the summer, avoiding storage charges. Allowing this activity to take place would put an inappropriate burden on the sales customers who would be required to pay for these additional costs. For this reason, NEM's suggestion that the rate for assignment of storage capacity to and from the marketer be the same is not reasonable."

Finally, "The Company proposal modifying how end-of-month (EOM) shortfalls are rectified also appears reasonable. Marketers need to ensure that the EOM storage requirements are met. In the proposal, marketers will be provided with a 'buffer' of 2% to account for changes on NFG's system especially in local production supplies. If the marketer is deficient, the Company will provide up to 2% of the deficiency at the market rate. Beyond 2%, cash outs will be the higher of Deficiency Pricing Tier 3 or the SC 11 Rate. These actions are analogous to the methods currently used for city gate balancing and are acceptable," Staff said.

As noted, the Commission accepted Staff's recommendation and the tariff will become effective without modification.