DR 98-161
Northern Utilities, Inc.
1998/1999 Winter Cost of Gas Adjustment
Order Approving Cost of Gas Adjustment
O R D E R N O. 23,053
October 30, 1998
APPEARANCES: LeBoeuf, Lamb, Greene, and MacRae by
Meabh Purcell, Esq. on behalf of Northern Utilities, Inc.;
and
Robert Egan and Stephen P. Frink for the Staff of the New
Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On September 15, 1998, Northern Utilities, Inc.
(Northern) filed with the New Hampshire Public Utilities
Commission (Commission) its Cost of Gas Adjustment (CGA) for
the
period November 1, 1998 through April 30, 1999 for effect
November 1, 1998 in Northern's natural gas operations in the
Seacoast area of New Hampshire. The filing was accompanied
by
the pre-filed direct testimony and supporting attachments of
Marjorie H. Izzo, Senior Rate Analyst, and Francisco C.
DaFonte,
Director of Gas Control, which explained the filing.
An Order of Notice was issued on September 22,
1998
setting the date of the hearing for October 22, 1998 at
10:30
a.m. at the Commission's office in Concord, New Hampshire.
Apart from the Office of Consumer Advocate (OCA)
which
is a statutorily recognized intervenor, there were no
intervenors
in this docket. A duly noticed hearing on the merits was
held at
the Commission on October 22, 1998. At the hearing,
Northern
filed a revised proposed CGA rate, a credit of $0.0323 per
therm.
II. POSITIONS OF THE PARTIES AND STAFF
Northern
Northern witnesses Marjorie H. Izzo, Senior Rate
Analyst, Francisco C. DaFonte, Director of Gas Control, and
Joseph A. Ferro, Director of Pricing Services, addressed the
following issues: a) calculation of the CGA and the impact
on
customer bills; b) factors contributing to the decreased
rate; c)
changes in the supply portfolio and rate impact; d)
environmental
remediation surcharge; and e) elimination of the trigger
mechanism.
A. Calculation and Rate Impact of the proposed CGA
The proposed 1998/1999 Winter CGA credit of
$0.0323 per
therm was calculated by reducing the anticipated cost of gas
of
$15,223,765 for net adjustments of ($2,224,090) and dividing
the
resulting anticipated cost of $12,999,675 by projected therm
sales of 36,901,214 and deducting the base winter cost of
gas of
$0.3846 per therm.
Northern's proposed 1998/1999 Winter CGA is a
credit of
$0.0323 per therm, representing a decrease of $0.0576 per
therm
from the 1997/1998 winter CGA charge of $0.0253 per therm.
The proposed CGA credit of $0.0323 will decrease
an
average residential heating customer's monthly bill by
approximately $9, or 7 percent, compared to last winter's
rate.
B. Factors Contributing to the Decreased CGA
The 6 cent reduction in the proposed CGA per therm
price compared to last winter's rate can be almost solely
attributed to the prior period over collection of $3,460,772
which is being applied against the 1998/1999 actual and
projected
winter gas costs.
Northern's projected gas costs changed very little
from
the prior year's forecast, although the commodity cost of
gas is
substantially lower. Northern's demand charges and
supplemental
fuel costs offset the commodity savings. Northern has
contracted
for twenty years of pipeline capacity on the Portland
Natural Gas
Transmission System (PNGTS), effective on the PNGTS
in-service
date. Due to the uncertainty of that date, Northern
purchased an
option to continue the lease of the Portland Pipeline Corp.
(Portland), a converted oil pipeline used to ship natural
gas.
The uncertainty of the PNGTS in-service date forced Northern
to
exercise that option, resulting in additional costs of
approximately $1 million for Northern's New Hampshire
customers.
The Portland lease runs through April 30, 1999. Also
included in
the CGA calculation are capacity costs on PNGTS starting on
January 1, 1999, the anticipated in-service date at the time
of
the filing.
C. Changes in Supply Portfolio and Rate Impact
During discovery, discussions with Staff led
Northern
to believe that the projected in-service date for PNGTS
would not
occur during the 1998/1999 winter period. Northern is in
the
process of redesigning its supply portfolio by eliminating
the
PNGTS capacity charges and purchasing additional
supplemental
supplies. Northern will provide Staff with the revised
costs
prior to December 1, 1998, and will calculate a revised CGA
based
on those costs. Northern does not anticipate a substantial
change in the CGA rate and proposed addressing any projected
over
or under recovery through the monthly adjustment mechanism.
If a
material deviation does result, Northern will submit a
revised
CGA filing.
D. Environmental Remediation Surcharge
NHPUC Order 23,046 (October 27, 1998) approved a
mechanism for recovery of environmental remediation costs
associated with former manufactured gas plant sites, such
costs
to be filed during its winter CGA proceeding for review and,
if
approved, recovered over seven years. Northern filed for
recovery of unamortized deferred environmental remediation
costs
of $517,095, incurred from December 1, 1992 through June 30,
1998. The proposed environmental surcharge of $0.0010 per
therm
was determined by dividing the annual expense of $73,871 by
anticipated sales of 71,577,974 therms for the period of
November
1, 1998 through October 31, 1999.
E. Elimination of the Trigger Mechanism
The "trigger mechanism" was implemented in 1985
and
requires Northern to file a revised CGA if the actual and
projected revenues and costs deviate by 10 percent or
greater.
Northern stated that the trigger mechanism was designed to
prevent the carry forward of substantial over or under
recoveries
from one CGA period to the next.
Northern believes that it now has the tools to
effectively control over and under recoveries and that the
trigger mechanism is no longer necessary. Northern stated
that
with implementation of the monthly adjustment mechanism,
approved
in NHPUC Order 22,917 (April 30, 1998), Northern is now able
to
better control over and under collections and the trigger
mechanism is no longer needed.
Staff
Staff stated that after a review of the filing and
subsequent discovery, Staff believes Northern's gas
purchasing
policies are sound and reasonable and that the proposed
1998/1999
winter CGA credit of $0.0323 per therm should be approved.
Staff also recommended, after having reviewed the
environmental remediation costs and supporting documentation
submitted by Northern, that the Commission find that those
costs
were prudently incurred and should be recovered through the
proposed surcharge.
Staff recommended the elimination of the trigger
mechanism, stating that it is Staff's belief that the tools
are
in place to effectively prevent large over or under
recoveries.
Staff did state that if a material over or under collection
were
projected, it would expect Northern to file a revised CGA.
OCA
While the OCA was unable to attend the hearing,
the OCA
asked Staff to represent its support for the elimination of
the
trigger mechanism based on the above stated reasons.
III. REPORT OF THE HEARINGS EXAMINER
The Hearings Examiner reviewed the filing and
supporting testimony presented at the October 22, 1998
hearing
and has stated that the CGA rate and the request to
institute the
Environmental Remediation Cost (ERC) rate coincident with
the CGA
rate appear to be reasonable based on Staff and Northern's
representations.
IV. COMMISSION ANALYSIS
We have reviewed the filing, testimony and the
Report
of the Hearings Examiner and agree that the proposed revised
1998/1999 Winter CGA credit of $0.0323 per therm and the ERC
surcharge of $0.0010 per therm will result in just and
reasonable
rates and is hereby approved.
With the new mechanism that allows Northern to
make
monthly adjustments to its CGA rate in response to projected
over
or under recoveries, it is our belief that the 10% trigger
mechanism is no longer needed. Accordingly, we approve the
elimination of the trigger mechanism as recommended by Staff
and
supported by Northern and the OCA.
Based upon the foregoing, it is hereby
ORDERED, that Northern's Twenty-sixth Revised Page
32,
Sheet No. 1 and Proposed Twentieth Revised Page 32, Sheet
No. 2,
respectively, N.H.P.U.C. tariff of Northern Utilities, Inc.
- New
Hampshire Division, providing for a Winter CGA credit of
$0.0323
per therm for the period of November 1, 1998 through April
30,
1999, is approved, effective for bills rendered on or after
November 1, 1998; and it is
FURTHER ORDERED, that Northern may adjust the
approved
CGA rate of ($0.0323) per therm upward or downward monthly
based
on Northern's calculation of the projected over or under
collection for the period, but the cumulative adjustments
shall
not exceed ten percent (10%) of the approved unit cost of
gas of
$0.3523 per therm (or $0.0352 per therm); and it is
FURTHER ORDERED, that Northern will provide the
Commission with its monthly calculation of the projected
over or
under calculation, along with the resulting revised CGA rate
for
the subsequent month, not less than five (5) business days
prior
to the first day of the subsequent month. Northern shall
include
a revised tariff page 32 - Calculation of Cost of Gas
Adjustment
and revised rate schedules if Northern elects to adjust the
CGA
rate; and it is
FURTHER ORDERED, that the over or under collection
shall accrue interest at the Prime Rate reported in the Wall
Street Journal. The rate is to be adjusted each quarter
using
the rate reported on the first date of the month preceding
the
first month of the quarter; and it is
FURTHER ORDERED, that Northern's Second Revised
Page 35
Superseding First Revised Page 35, providing for a surcharge
of
$0.0010 per therm to recover the cost of environmental
remediation and pursuit of third party claims related to
former
manufactured gas plants, is approved, effective for bills
rendered on or after November 1, 1998; and it is
FURTHER ORDERED, that Northern shall file properly
annotated tariff pages in compliance with this Order no
later
than 15 days from the issuance date of this Order, as
required by
N.H. Admin. Rules, Puc 1603.
By order of the Public Utilities Commission of New
Hampshire this thirtieth day of October, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary