Expressing concern about price volatility in the natural gas market, New Jersey, Virginia and Michigan regulators have directed local gas distribution companies to try fixed-price contracts and...
Preference for Flat Rates Drives Gas Charge Restructuring
While directing PNM Gas Services ( a division of Public Service Company of New Mexico) to reduce rates for gas service, the New Mexico Public Utility Commission has redesigned residential rates to reinstate the once-discredited notion of recovering fixed costs in the commodity charge.
In the same case, the commission also rejected recovery of discount costs and other fees the utility paid and a proposal by the utility to "rebundle" sales and transportation rates by end-use class.
The PUC ordered PNM to reduce gas service rates $6.958 million. The commission also denied recovery of transportation rate discounts granted by the LDC to avoid loss of customers; certain costs associated with reformation of take-or-pay liabilities contained in gas supply agreements; "reservation fees" paid to suppliers during the prior two heating seasons; and losses on reacquired debt financing. It adopted a weather normalization adjustment based on 30 years of data rather than a 10-year adjustment proposed by the utility.
Residential Rate Design. The PUC redesigned rates by moving away from a reliance on volumetric charges for recovery of a major portion of fixed costs. Citing input from residential customers in support of the policy shift away from volumetric charges, the commission allocated 80 percent of the cost of service to a residential "access fee" that will be charged to every residential customer on a monthly basis, regardless of consumption. Using current cost-of-service data would result in an access fee of $14.56 per month.
The commission said residential users did not agree with long-standing policy advocated by consumer advocates to minimize customer charges and shift some cost responsibility to higher volume users. It cited numerous comments from ratepayers
complaining about high gas bills during the winter months under the existing rate design with its $9.00 flat customer charge and $.1403 per therm cost-of-service charge.
Customers perceive the utility's investment and operating costs do not fluctuate significantly with consumption, the commission said. The commission also authorized the utility to offer unbundled distribution service to qualifying residential customers in remote locations, rather than a bundled commodity service.
Cost Allocation; Rebundling. The LDC had argued that once costs were rebundled it could then develop identical "unbundled" transmission and distribution rates for sales and transportation customers in each end-use class. The commission found the proposal ignored "the significant difference in costs and types of services" rendered to sales and transportation customers.
Transportation customers, whether marketers or end users themselves, would fall at a "competitive disadvantage" if forced to subsidize the services provided to sales customers, the commission said. At the same time it rejected another proposal by the utility to institute a new rate rider designed to collect "reliability costs" incurred by the LDC to meet swing and peak winter supply requires of both sales and transportation end-users on its system, rather than from sales customers alone. Re PNM Gas Services, a div. of Pub. Serv. Co. of New Mexico, Case No. 2662, Feb. 13, 1997 (N.M.P.U.C.).
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