Valley Energy Seeks Confirmation Further Unbundling of Gas Procurement Costs Unnecessary

Valley Energy, Inc. has sought an order from the Pennsylvania PUC finding that, notwithstanding certain "minimal" gas procurement costs which are in base rates, it is currently in compliance with the unbundling requirements of 52 Pa. Code § 62.223, or, in the alternative, sought limited waivers of Section 62.223 to the extent Valley's current practices are inconsistent with this section.

Valley serves approximately 6,045 residential and 760 commercial and industrial customers in and around Sayre, Bradford County, Pennsylvania.

Currently, Valley has approximately twenty-five small commercial accounts purchasing gas from a competitive Natural Gas Supplier ("NGS"). An additional twenty large industrial accounts are supplied by NGSs and take only transportation service from Valley. Notably, 80% of Valley's total throughput is delivered to these large transportation accounts. None of Valley's residential customers receive service from an NGS.

Valley outsources its primary procurement activities, and the cost of such outsourced functions are included in the bypassable Price to Compare, and not recovered in base rates.

Valley's outsourced procurement manager performs the "vast majority" of the procurement-related functions, including the bidding, contracting, nominations, hedging, and risk management identified in Section 62.223(b)(1)(i)-(ii).

Valley's employees perform some limited gas procurement functions, such as processing payments to wholesale suppliers and coordination with NGSs serving on the system. Additionally, some regulatory, litigation, and working capital costs attributable to procurement remain in Valley's base rates.

Further unbundling of theses minimal gas procurement costs remaining in base rates would not "materially" impact the Price to Compare, Valley said. Valley said that regulatory and legal fees for the Annual GCR and 1307(e) filings range between $2,000-$3,000 annually, while employees collectively spend less than 10 hours each month on supply-related issues such as contracts.

In addition, similar to UGI, Valley does not assign storage capacity to NGSs. Therefore, the storage inventory return currently recovered through base rates would remain in Valley's rate base and not be unbundled.

Separately, Valley Energy said that its uncollectible expenses are currently recovered through base rates, but that unbundling uncollectibles and inclusion of such "minimal" uncollectible expenses within a Merchant Function Charge (MFC) would not materially increase Valley's Price to Compare.

Valley maintains an uncollectibles rate of approximately 1% to 1.5% of total revenues. To develop an approximate uncollectible charge for recovery through an MFC, Valley would apply an 80% allocator to its uncollectibles expense over a prior 12-month period, assuming that 80% of Valley's uncollectibles are supply or procurement-related.

Additionally, Valley sought assurance that due to its small size, it may continue with an annual gas cost filing, rather than quarterly filings, consistent with 52 Pa. Code §§ 53.63 and 53.66.