UGI Distribution Companies File to Unbundle Gas Procurement Costs, Increase Price to Compare

UGI Utilities- Gas Division, UGI Central Penn Gas, and UGI Penn Natural Gas have each filed at the Pennsylvania PUC to unbundle certain gas procurement costs from base rates and to include these costs in the bypassable Price to Compare (PTC), as directed by a prior PUC rulemaking.

All three distribution companies said that the changes required by the PUC will have a "substantial" impact on the Price to Compare and will, "create greater headroom for Suppliers' service offerings and should lead to a greater level of customer shopping."

However, the majority of the additional costs to the Price to Compare comes from the inclusion of the annual gas cost reconciliation charge, or e-factor, into the PTC. Notably, this e-factor may in some years be a credit, thereby reducing headroom by lowering the PTC [note that bypassability of the e-factor is independent of its inclusion in the PTC, and depends on whether the customer was on sales service during the prior period being reconciled].

In comparison to the current e-factor, the bypassable Gas Procurement Charge resulting from the unbundling is relatively small.

The proposed bypassable Gas Procurement Charge at each company is as follows:

UGI Utilities: $0.0114/Mcf

Central Penn Gas: $0.0191/Mcf

Penn Natural Gas: $0.0129/Mcf

To put those costs in context, the proposed PTCs for residential customers at each company under the unbundling is as follows:

UGI Utilities, Rate R PTC:
Natural Gas Supply Charge:   $0.58846/Ccf
Gas Cost Adjustment:         $0.04996/Ccf
Gas Procurement Charge:      $0.00114/Ccf
Merchant Function Charge:    $0.01398/Ccf
Total PTC:                   $0.65354/Ccf


Central Penn Gas, Rate R PTC:
Annual C-Factor:             $0.51598/Ccf
Annual E-Factor:             $0.00262/Ccf
Gas Procurement Charge:      $0.00191/Ccf
Merchant Function Charge:    $0.01172/Ccf
Total PTC:                   $0.53223/Ccf


Penn Natural Gas, Rate R PTC:
Annual C-Factor:             $0.50805/Ccf
Annual E-Factor:             $0.01378/Ccf
Gas Procurement Charge:      $0.00129/Ccf
Merchant Function Charge:    $0.01670/Ccf
Total PTC:                   $0.53982/Ccf

The current PTC only includes the Natural Gas Supply Charge (c-factor) and Merchant Function Charge.

When adding both the Gas Procurement Charge (GPC) and e-factor to the PTC, and when including the impact from the previously adopted Merchant Function Charge mechanism, the companies said the residential PTC is impacted as follows:

• UGI: "[I]ncluding the current 'e-factor,' the current MFC and the newly created GPC in the PTC adds 65 cents [per Mcf] or 11.1% to the current residential PTC for UGI."

• CPG: "[I]ncluding the current 'e-factor', MFC and GPC in the residential PTC adds 16 cents per Mcf to the residential PTC for CPG, or 3.1%"

• PNG: "[I]ncluding the current 'e-factor,' the current MFC and the newly created GPC in the PTC adds 32 cents [per Mcf] or 6.3% to the current residential PTC for PNG."

Note that the UGI companies in these excerpts describe, explicitly in one case and implicitly in the others, the addition to the residential PTC in terms of cents per Mcf, though the tariffed charge for the residential PTC is expressed in cents per Ccf.

With respect to unbundling, the UGI companies are not proposing to remove working capital costs associated with gas in storage inventory from base rates. The UGI companies noted that they do not release storage capacity to retail natural gas suppliers, but instead manage storage capacity on behalf of suppliers, in accordance with Commission-approved settlements in respective Purchased Gas Cost proceedings. Therefore, the UGI companies said that they bear all of the working capital costs for gas in storage, and suppliers do not bear separate costs for this working capital. "Therefore, it is appropriate for the UGI NGDCs to keep working capital costs related to storage in base rates," the companies said.

Additionally, the UGI companies are not proposing to remove from base rates any portion of the capital costs related to the IT gas management system used to support the gas procurement function (the "Gastar System").

The UGI companies said that the Gastar System, "is used for many different functions other than gas procurement activities."

"Accordingly, the Gastar System benefits all customers, including both shopping and non-shopping customers. In addition, the Gastar System costs are fixed and do not vary with the level of shopping. Moreover, because the UGI NGDCs utilize the Gastar System for storage gas procurement and management activities, the procurement function of this system is still required regardless of the level of shopping. Therefore, it is appropriate to keep the Gastar System costs in base rates," the companies said.

The dockets are:

UGI: R-2012-2314235

CPG: R-2012-2314247

PNG: R-2012-2314224