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Gas Customers Pay the Price

Fortnightly Magazine - April 1 1995

costs on to their customers, including LDCs. It found that some pipelines billed their LDC customers as a demand surcharge, while others included a lump-sum amount on the monthly bill. Some Tennessee LDCs aggregated the costs and spread them evenly over their entire customer base; others spread the demand surcharge Order 636 costs to firm customers only, and allocated the lump-sum charges to all customers. The PSC also noted that one utility had recently negotiated an agreement to change its flow-through method so that interruptible transportation customers pay approximately one-half of the transition cost amount paid by other customers. Finding such wide variance in collection methods troubling, the PSC opened a proceeding to investigate the issue. Re Nashville Gas Co., 158 PUR4th 387 (Tenn.P.S.C.1995).

Indiana allowed LDCs to recover Account 191 balance costs from sales customers only, but directed them to spread the stranded and GSR costs among all customer classes on a volumetric basis. The URC explained that Account 191 balance costs are related to recent gas contracts entered into solely for the benefit of the LDC's current sales customers. The GSR and stranded investment costs, on the other hand, are related to gas-supply contracts "which clearly benefitted the transportation customers who were then solely sales customers." Re Northern

Indiana Public Service Co., 157 PUR4th 206 (Ind.U.R.C.1994).

The Illinois commission had to try twice before settling on a solution. The commission's original order permitted state LDCs to allocate GSR transition costs solely to sales and transportation customers with firm standby service. The Illinois commission said it would be inappropriate to allocate transition costs to customers that do not impose demand requirements on an LDC's system, and unfair to allocate the charges evenly since transportation customers already pay transition costs directly to pipelines. Re FERC Order 636 Transition Costs, 150 PUR4th 181 (Ill.C.C.1994).

On rehearing, however, the commission found it had incorrectly relied on statements that the FERC made when it approved full recovery of transition costs for pipelines. At that time the FERC said that absent Order 636 the pipelines would likely have continued, through a purchased-gas adjustment or gas inventory charge, to bill LDCs for gas costs associated with above-market contracts in the same manner as demand-related gas costs (em that is, through their adjustment-clause tariffs from sales and transportation customers with firm standby service. On rehearing, the commission upheld its earlier finding that GSR costs are gas costs, but rejected the conclusion that the LDCs should recover them from ratepayers on a demand basis. It noted that despite its speculations about how things might have turned out absent Order 636, the FERC spread transition costs at the wholesale level among all participants, including interruptible transportation customers. According to the commission, the "FERC recognized that all customers stood to benefit as a result of the industry's restructuring." It concluded that a uniform volumetric charge to recover GSR costs would not penalize transportation customers as long as LDCs credited those who could show that they paid the GSR charges to a pipeline that was also billing the costs to the LDC.