Philadelphia Gas Works Files Rate for Unbundled, Bypassable Gas Procurement Charge and Merchant Function Charge

Philadelphia Gas Works has filed at the Pennsylvania PUC to unbundle certain natural gas procurement costs into a bypassable Gas Procurement Charge (GPC) and unbundle supply-related uncollectibles into a bypassable Merchant Function Charge.

More specifically, labor and benefits costs associated with the procurement of gas supply will be included in the GPC, including the gas procurement related activities of the following functions: gas supply, accounting, internal legal, and management support.

PGW is only unbundling internal legal costs related to negotiating gas procurement contracts. In contrast, the GPC unbundling filings of the UGI natural gas distribution companies (NGDCs) and PECO propose to unbundle legal costs related to annual and quarterly Purchased Gas Cost (PGC) proceedings.

In reaching its decision not to unbundle legal costs related to PGC proceedings, PGW said that the PUC, "has clearly stated that the intent of the rulemaking is to create an even playing field between NGDC's and NGS's [natural gas suppliers]. Unbundling costs related to PGC proceedings would only create a level playing field if NGS's were required to prepare annual and quarterly PGC filings but NGS's are not. PGW prepares an initial PGC filing which generally comprises over 750 pages of data plus the testimony of two or three witnesses. After the initial filing, the PGC process is substantially similar to a rate case (i.e. preparation of legal pleadings, preparation of discovery responses, etc.) and this process demands both legal and non-legal resources from the NGDC. There is not any same or similar legal mandate which requires an NGS to prepare annual and quarterly filings."

"Additionally, annual and quarterly PGC filings are tariff filings and the original draft regulation included in the August 10, 2010 Advance Notice of Final Rulemaking Order (at Docket No. L-2008-2069114) identified 'tariff filing' costs as gas procurement costs to be unbundled from base rates but the revised final regulation in the June 23, 2011 Revised Final Rulemaking Order no longer includes 'tariff filing' costs as gas procurement costs, therefore, the Commission no longer intended to include any costs related to tariff filings," PGW said.

Although PGW is proposing to remove gas supply procurement costs and uncollectible expenses related to natural gas costs from base rates, it is not proposing to remove working capital costs associated with gas in storage inventory. PGW does not release storage capacity to natural gas suppliers (NGS). Instead, PGW manages storage capacity on behalf of the suppliers as established in PGW's restructuring proceeding. As a result of the foregoing, PGW, not NGS's, bears the working capital costs for gas in storage; therefore, these working capital costs will remain in PGW's base rates, PGW said.

The bypassable Gas Procurement Charge is proposed to be $0.0054 per Mcf.

The bypassable Merchant Function Charges are proposed to be the following percentages applied to the quarterly Gas Cost Rate:

GS Residential (GS RES): 5.57%

GS Public Housing (GS PH): 1.09%

GS Commercial (GS COM): 1.45%

GS Industrial (GS IND): 1.58%

MS Municipal Service (MS): 1.59%

PHA Philadelphia Housing Authority Service (PHA): 1.09%

Interruptibles and GTS/IT had no write-offs or Customer Responsibility Program recoveries in the most recent rate case used to establish the uncollectible amounts, and therefore there is no MFC charge for these classes.

With such unbundling, the bypassable Price to Compare will be adjusted on a quarterly basis and will consist of the following elements on a per Mcf basis:

1) the c-factor - the gas cost rate determined in an NGDC's Section 1307(f) proceeding;

2) the e-factor - the reconciliation for over and under collections in accordance with Section 1307(f);

3) the GPC - the Gas Procurement Costs unbundled from base rates; and

4) the MFC - the Merchant Function Charge which represents the uncollectible expense associated with gas supply costs unbundled from base rates.