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LDCs: That Giant Sucking Sound

The consequences of short-sighted rate making.
Fortnightly Magazine - July 2005
  1. only LDC delivery costs. The discussion that follows remains applicable to LDC base rate structures that include recovery of some gas costs because, in these instances, gas costs intended to be recovered through base rates are trued-up through the operation of LDC cost of gas clauses.
  2. Customer class delineations differ among LDCs, but a typical class breakdown distinguishes among residential, small commercial (or small general service), large commercial, and industrial customer classes. Volumetric charges may be single per unit charges for all units delivered, or they may be stepped charges in which per unit rates vary with the level of consumption. The units of delivery for LDCs are either volumetric, i.e. hundred cubic feet or thousand cubic feet, or heat-based, i.e. therms. Some LDCs have rate structures that contain demand charges in addition to customer and volumetric charges, although these rate structures are typically applicable to large, non- residential customers.
  3. Missouri Gas Energy, Missouri Public Service Commission, Case No. GR-2004-0209 ; Texas Gas Service Company, Railroad Commission of Texas, GUD No. 9465 ; and CenterPoint Energy, Arkansas Public Service Commission, Docket No. 04-121-U .
  4. Some LDCs face the additional problem of declining customer counts, a problem that exacerbates earnings inadequacies through continuing customer charge revenue shortfalls.
  5. Weather normalization clauses have been approved for various LDCs in states that include Alabama, Arkansas, Connecticut, Georgia, Kansas, Kentucky, Maryland, Mississippi, New Jersey, New York, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, and Wyoming.
  6. While weather normalization clauses may eliminate rate case controversies concerning the definition of normal weather, a state commission should make every effort to select a measure that best reflects conditions that can be expected, on average, when rates are in the effect. This effort is needed to promote customer acceptance and understanding of weather clauses. For example, if a commission uses an unrealistically cold measure of normal weather in setting base rates, weather clause surcharges will appear on customer bills even during periods that most people would consider to be quite warm. In these warm periods, customers will complain about perceived overcharges resulting from the weather clause and will not understand how they benefit from the clause when, in fact, the problem lies in the base rate setting process.
  7. The use of forecasted periods for developing base rate delivery volumes may delay, but will not eliminate these earnings consequences.
  8. Two exceptions are worth noting. In California, Southwest Gas Corp. defers and recovers through rate adjustments the difference between recorded delivery charge revenues and rate case revenue levels [Core Fixed Cost Adjustment Mechanism, Cal. P.U.C. Sheet Nos. 6001-G and 6002-G]. In Oregon, Northwest Natural Gas Co. recovers 90 percent of lost residential and commercial delivery revenue through its Partial Decoupling Mechanism [Schedule 190, P.U.C. Or. 24, Sheet Nos. 190-1 through 190-3]. In order to address the more limited issue of usage declines resulting from implementation of conservation and efficiency programs, some state commissions allow recovery of lost delivery revenues associated with commission-approved programs outside of base rate cases. See, for example, Louisville Gas and Electric Co.'s Demand-Side Management Cost Recovery Mechanism