Michigan Gas Utilities Proposes New Reservation Charge, Expects "Saturation" of Choice in 2012

Michigan Gas Utilities Corporation has proposed a new level for the Reservation Charge applicable to competitive suppliers, as well as an annual true-up of the Reservation Charge revenues with actual pipeline demand, supply, and reservation costs, in an application to implement a gas cost recovery (GCR) plan for the 12-month period from April 2012 through March 2013 (Case No. U-16920).

Certain requests in the application, including the reservation charge and recommended level for the GCR rate, are premised on approval of a Reservation Charge in Case U-16481, where one has been recommended under a proposed order, but awaits final action by the PSC (see 11/23). The Reservation Charge is designed to recover certain fixed Supplier of Last Resort Costs from both Gas Customer Choice (GCC) customers and sales service (GCR) customers.

In its 2012-13 GCR application, Michigan Gas Utilities proposed a Reservation Charge of $0.6731 per Mcf applicable to GCC and GCR customers. This is a decrease from the level of $0.8014 per Mcf proposed in Case U-16481.

Additionally, consistent with the proposed order in Case U-16481, Michigan Gas Utilities proposes an annual true-up of the Reservation Charge revenues with actual pipeline demand, supply, and reservation costs. The true-up would compare the combined Reservation Charge revenue from both GCR and GCC customers with the total pipeline demand, supply, and reservation costs for the same period.

As part of this true-up, any revenue or credits from the release of transportation or storage capacity would be credited toward the pipeline demand, supply, and reservation costs. Assuming the Commission authorizes the implementation of the Reservation Charge, the first such annual true-up will be performed for the 2012-2013 period as part of the 2012-2013 GCR Reconciliation proceeding, and annually thereafter in each subsequent GCR Reconciliation proceeding. Any cumulative over or under-recovery will be rolled in to the beginning balance of the Reservation Charge true-up conducted in the following GCR Reconciliation proceeding.

"This proposed true-up mechanism will ensure that both GCR and GCC customers will share any revenue derived from released transportation or storage capacity assets. Truing-up costs and revenues annually on a cumulative basis will also allow MGUC to continue charging the same Reservation Charge to both GCR and GCC customers and will be consistent with the practice of listing the Reservation Charge as a separate line item on customer bills," Michigan Gas Utilities said.

The GCR filing also addressed a forecast level of choice sales.

"Once again, it is difficult to accurately forecast the number of customers who might switch to GCC service," Michigan Gas Utilities said. "Such decisions will depend, in part, upon the Company's GCR factor compared to the market price of gas and how successful alternative gas suppliers ('AGS') are in their efforts to solicit customer enrollments. As of December 1, 2011, MGUC has six AGS's participating in its GCC program, and their solicitation methods include direct mailings, telemarketing, customer fliers and 'word of mouth.'"

"For purposes of the 2012-2013 forecast, MGUC has continued the current trend of customer migration to GCC based upon its 2011 experience, achieving saturation in December of 2012. Based upon the proposed Base GCR factor in this proceeding and the continued influx of new AGS's, the Company believes that participation in the GCC program will reach its saturation level, i.e. those customers who would switch to GCC service will have already done so," Michigan Gas Utilities added.

As of November 30, 2011, Michigan Gas Utilities served approximately 163,319 customers, including 128,588 residential customers, 8,139 commercial and small industrial customers, 29 large industrial customers and 26,563 transportation and Gas Customer Choice customers