Pennsylvania Sets Schedule to Unbundle Gas Procurement Costs from Delivery Rates

The Pennsylvania PUC has established a staggered schedule to consider filings from the natural gas distribution companies to remove natural gas procurement costs from base rates, for inclusion in the bypassable Price to Compare.

As more fully discussed in our prior story, the PUC previously adopted final regulations which establish the bypassable Price to Compare (PTC) as including (1) the natural gas supply charge determined in the distribution company's Section 1307(f) proceeding, including the reconciliation for over and under collections (e-factor); (2) the Gas Procurement Charge; and (3) the Merchant Function Charge.

The Gas Procurement Charge shall consist of natural gas supply service, acquisition, and management costs, including natural gas supply bidding, contracting, hedging, credit, risk management costs, and working capital; as well administrative, legal, regulatory, and general expenses related to those natural gas procurement activities, excluding those related to the administration of firm storage and transportation capacity.

The Merchant Function Charge shall reflect the uncollectibles related to commodity supply, which shall be removed from base rates.

To implement the new Price to Compare mechanism, the PUC had directed the distribution companies to identify and remove, from delivery rates, their natural gas procurement costs in a Section 1308(a) proposed tariff filing. The PUC had directed that these Section 1308(a) tariff filings were to be filed beginning 90 days after the regulations' effective date pursuant to a schedule to be established by the Commission, or in the distribution company's next base rate case, whichever occurs first.

On April 14, 2012, the PUC's final revised rulemaking order adopting the regulations was published in the Pennsylvania Bulletin at 42 Pa.B. 2159, and became effective upon publication.

Accordingly, the PUC has now established the following staggered schedule for distribution companies to file their respective 1308(a) tariff filings to comply with the new regulations based on the effective date of April 14, 2012:

Group One, Filing Date of July 13, 2012: UGI Utilities Inc., and Peoples Natural Gas Company (via rate case filing)

Group Two, Filing Date of September 30, 2012: Peoples TWP LLC, Columbia Gas of Pennsylvania, and PECO Energy Company

Group Three, Filing Date of November 12, 2012: National Fuel Gas Distribution Corporation, Equitable Gas Company, Philadelphia Gas Works, and Valley Energy, Inc.

To avoid the prospect of single-issue ratemaking in which the utility seeks increased rates for a single element of increased expenses without examination of other expenses that may have decreased, the PUC held that only specific natural gas procurement costs will be identified and shifted from delivery rates to commodity rates on a revenue neutral basis in these proceedings. Also, because these costs are being moved from base rates to the distribution company's PTC or commodity rate, they shall not be subject to reconciliation.

As such, the initial gas procurement costs established in these proceedings and to be recovered in the PTC, on a per MCF or DTH basis, shall remain constant until reviewed and updated, after notice and opportunity to be heard, in the distribution company's next base rate case in order to ensure that the distribution company's rate continues to reflect and recover its gas procurement costs.