Proposed Order Would Impose Reservation Charge on Choice Customers at Michigan Gas Utilities

A proposed order from a Michigan ALJ would conclude that Michigan Gas Utilities Corporation's proposed level for a reservation charge applicable to choice customers, "is the simplest and fairest method to allocate the cost of providing reliable service to each customer class."

Specifically, the proposed order would adopt a reservation charge of $0.8014 per Mcf applicable to Gas Customer Choice [GCC] customers as well as Gas Cost Recovery [GCR] sales service customers (U-16481).

"One of the Company's obligations under the GCC program is to serve as Supplier of Last Resort (SOLR) for GCC customers, which means it must provide service if the AGS [alternative gas supplier] cannot, or the customer opts out of the program and returns as a GCR customer. To meet this obligation, the Company must secure and hold in reserve storage and supply, along with pipeline transportation capacity, which the Company used to assign to an AGS until revised federal regulations made this impractical. As a result, GCR customers have to pay for all of the Company's capacity charges, even those incurred through its obligation to serve as a SOLR. In general, a Reservation Charge will rectify the problem of GCR customers paying for services that should be borne by GCC customers, and remove the competitive disadvantage the Company is faced with the AGS," the ALJ said.

In recommending adoption of Michigan Gas Utilities' proposed reservation charge of $0.8014 per Mcf, the ALJ rejected several alternative levels for the charge, including a level of $0.3807 per Mcf proposed by retail suppliers.

The retail suppliers' proposed level for the charge was not sustained, the ALJ said, because the suppliers' charge is based on the position that supply assets are discrete for GCR and GCC customers, which would allow for the assignment of specific costs to each customer group. However, the ALJ agreed with Michigan Gas Utilities that utility's system cannot be separated into discrete assets serving either GCR or GCC customers.

The ALJ would also allow Michigan Gas Utilities to include the entire costs of the Washington 10 storage in the reservation charge calculation. "The Company entered into the contract in 2007 in order to ensure sufficient service to both GCR and GCC customers, and the agreement was approved by the Commission. However, this record indicates GCC customers have not paid their proportionate share of the costs of that service. Since GCC customers have benefited from the service, they should be responsible for the cost of that service. Therefore, the $2,079,999 cost for Washington 10 storage is properly included in the Reservation Charge calculation."

"Along the same lines, the $549,000 the Company received from a third party for that asset should accrue to the GCR customers that paid for the service since 2007," the ALJ said.

The ALJ rejected a proposal from retail suppliers for a monthly adjustment of the reservation charge based on capacity release credits, "because a mechanism to ascertain the appropriate credit is not possible."

However, the ALJ noted that such capacity release credits would be attributable to both GCR and GCC customers during a reconciliation process proposed by the ALJ. Specifically, the ALJ recommended that Michigan Gas Utilities be required to file a proposal in its next GCR application concerning the handling of revenues/credits from the release of storage and sales, and over-recoveries.

Based on the recommended level of the reservation charge, the Michigan Gas Utilities' GCR factor should be set at $6.6938 per Mcf, the ALJ said.

The reservation charged would be indicated as a single line item on GCR and GCC customer bills.

As only noted by Matters, Michigan Gas Utilities originally sought a moratorium on choice enrollments in the instant proceeding, but later withdrew this proposal (7/15).