DR 98-162
EnergyNorth Natural Gas, Inc.
1998/1999 Winter Cost of Gas Adjustment
Order Approving Cost of Gas Adjustment
O R D E R N O. 23,051
October 29, 1998
APPEARANCES: McLane, Graf, Raulerson, and Middleton by
Steven V. Camerino, Esquire, on behalf of EnergyNorth
Natural
Gas, Inc.; and Stephen P. Frink and Michelle A. Caraway for
the
Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On September 15, 1998, EnergyNorth Natural Gas,
Inc.
(ENGI) filed with the New Hampshire Public Utilities
Commission
(Commission), its Cost of Gas Adjustment (CGA) for the
1998/1999
winter period. Accompanying its CGA filing was a Motion for
Protective Order and Confidential Treatment, which was
granted
September 21, 1998 (Order No. 23,021). ENGI's filing
included
the direct testimony and supporting attachments of Mark G.
Savoie, Rate Analyst. On September 25, 1998, ENGI filed a
letter
informing the Commission of the Company's Natural Gas winter
period price Stability Rate (fixed price).
An Order of Notice was issued on September 22,
1998
setting the date of the hearing for October 20, 1998 at
10:00
a.m. at the Commissions's office in Concord, New Hampshire.
On
October 15, 1998, ENGI filed a letter with the Commission
stating
that due to an administrative error the Order of Notice was
not
published on or before September 29, 1998 and requested that
the
Commission waive the publication date noticed in the order.
The
Order of Notice was published in the Union Leader on October
16,
1998, and the Commission granted a waiver of the noticed
publication date at the hearing.
On October 19, 1998, ENGI filed revised testimony
and a
revised proposed CGA. ENGI's revised proposed 1998/1999
Winter
CGA is a credit of $0.0227 per therm for Firm Sales. ENGI's
filing proposed updating the projected therm sales used in
calculating the winter surcharge to recover the 280 Day
Sales
margin, resulting in a surcharge identical to last winter's,
of
$0.0012 per therm. The filing proposed a $0.0041 per therm
surcharge to recover unamortized Gas Street relief holder
costs
and a $0.0045 per therm surcharge to recover other
environmental
remediation costs related to the former manufactured gas
plant 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 20, 1998. At the hearing, ENGI
filed a
revised proposed Firm Transportation Cost of Gas Adjustment
(FTCGA) rate, a charge of $0.0021 per therm.
II. POSITIONS OF THE PARTIES AND STAFF
EnergyNorth
EnergyNorth witnesses Mark G. Savoie, Rate
Analyst, and
Donald E. Carroll, Vice President of Gas Supply addressed
the
following issues: a) calculation of the Firm Sales CGA and
the
impact on customer bills; b) factors contributing to the
decreased rate; c) hedging costs and the fixed price plan;
d)
calculation of the FTCGA; e) environmental remediation
surcharges; and f) elimination of the trigger mechanism.
A. Calculation and Impact of the Firm Sales CGA
The proposed 1998/1999 Winter CGA credit of
$0.0227 per
therm was calculated by reducing the anticipated cost of gas
of
$31,940,105 for net adjustments of ($2,936,172) and dividing
the
resulting anticipated costs of $29,003,933 by projected
therms
sales of 75,369,311 and deducting the base winter cost of
gas of
$0.4075 per therm.
ENGI's proposed 1998/1999 Winter CGA is a credit
of
$0.0227 per therm for Firm Sales, representing a decrease of
$0.0826 per therm from the 1997/1998 Winter CGA charge of
$0.0599
per therm.
The proposed firm sales CGA credit of $0.0227 will
decrease an average residential heating customer's monthly
bill
by $11, or 10 percent, compared to last winter's CGA rate.
B. Factors Contributing to the Decreased CGA
Two factors were primarily responsible for the
decrease
in the proposed CGA rate: a decrease in projected gas costs
and
prior period over collections. The 1997/1998 winter CGA
rate was
largely based on futures prices in effect at the time of the
filing. Mr. Carroll explained that last winter's warmer
than
normal weather resulted in decreased demand and natural gas
prices fell. The result was a substantial over collection
for
the 1997/1998 winter period of $2,049,737, which is being
used to
offset the 1998/1999 projected gas costs. This over
collection
accounts for approximately 3 cents of the 8 cent decrease in
the
per therm price.
Additionally, the drop in gas costs has reduced the
cost of
storage gas purchased during the summer for this winter and
the
future prices used in calculating the 1998/1999 winter CGA
costs
are substantially lower than last year's. The reduction in
actual and projected gas costs for the 1998/1999 winter
period
accounts for approximately 5 cents of the 8 cent decrease in
the
proposed winter CGA rate.
C. Hedging Costs and the Fixed Price Plan
NHPUC Order 22,699 (September 2, 1997) approved
ENGI's
Natural Gas Price Risk Management Policy (hedging) designed
to
mitigate natural gas price volatility that had substantially
increased gas costs in the past. The policy allowed for the
purchase of call options which could be used to offset gas
costs
paid above a set price, establishing a "ceiling" on how much
ENGI
would have to pay for hedged gas supplies. Due to the drop
in
prices during the 1997/1998 winter period, most of those
options
were not exercised and resulted in a net cost of
approximately
$250,000.
NHPUC Order 22,915 (April 30, 1998) approved
modifications to ENGI's hedging policy to allow for the sale
of
put options for which a premium is received by ENGI and can
be
used to offset the cost of purchasing call options. The
sale of
put options sets a minimum price, establishing a "floor"
below
which ENGI would be unable to benefit on hedged supplies.
The
purchase of call options and sale of put options in
conjunction
with each other is known as a "collar" because it
essentially
establishes the maximum and minimum price at which ENGI will
buy
gas contracts on the commodities market. ENGI has used the
collar to hedge 90% of its gulf coast supplies at a net cost
of
$9,830.
NHPUC Order 22,953 (June 8, 1998) approved ENGI's
Natural Gas Price Stability Plan to enable customers who
desire
price certainty the ability to purchase gas at a set price
for
the winter period. Approximately 8.6% of the estimated
weather
normalized firm therm sales have been offered under the plan
and
ENGI has contracted at a fixed price for such therms. The
price
offered under the plan is $0.3927 per therm, or $0.0079 per
therm
more than the current proposed Firm Sales CGA rate of
$0.3848 per
therm, and is available to customers until the end of
October.
As of the date of the hearing, customers had contracted for
slightly more than 50% of the available supplies.
D. Firm Transportation Cost of Gas Adjustment
ENGI proposed a FTCGA charge of $0.0021 per therm
based
on anticipated costs of $14,818 for the winter period
increased
by prior period over collections of $3,714. The net amount
of
$18,532 to be collected from transportation customers was
divided
by projected firm transportation throughput of 8,709,299
therms
to arrive at the proposed rate.
ENGI's proposed 1998/1999 Winter FTCGA charge of
$0.0021 per therm represents an increase of $0.0043 per
therm
from the 1997/1998 Winter FTCGA credit of $0.0022 per therm.
E. Environmental Remediation
NHPUC Order 21,710 (June 26, 1995) approved
recovery of
environmental remediation costs associated with the Gas
Street
Relief Holder over seven years and to make any necessary
adjustments to the surcharge during its winter CGA
proceeding
each year. The annual increase needed to recover the
remaining
costs was determined by dividing the unrecovered costs as of
September 30, 1998 by the remaining 3.75 years and dividing
by
124,668,889, the weather normalized therm sales for the 12
months
ended September 30, 1998. A substantial increase in therm
sales
resulted in a decrease from last year's surcharge of $0.0045
per
therm to $0.0041 per therm.
NHPUC Order 22,943 (May 19, 1998) approved
recovery of
additional environmental remediation recovery costs
associated
with the site and established a cost review mechanism and
step
adjustment for recovery of future costs to be filed during
its
winter CGA proceeding. Net additional costs of
approximately
$1.4 million (costs were offset by third party recoveries)
resulted in a surcharge of $0.0045 per therm, an increase of
$0.0020 per therm over the current surcharge of $0.0025 per
therm.
F. Elimination of the Trigger Mechanism
The "trigger mechanism" was implemented in 1985
and
requires the Company to file a revised CGA if the actual and
projected revenues and costs deviate by 10 percent or
greater.
ENGI 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.
ENGI believes that it now has the tools to effectively
control over and under recoveries and that the trigger
mechanism
is no longer necessary. With Commission approval, ENGI has
implemented hedging policies, monthly adjustments and more
stringent reporting requirements. These changes enable ENGI
to
recognize and react to situations which might otherwise
result in
large deviations between gas costs and revenues during the
period, thereby, obviating the need for the trigger
mechanism.
Staff
Staff stated that after a thorough review of the
filing
and subsequent discovery, Staff believes ENGI's gas
purchasing
and hedging policies are sound and reasonable and that ENGI
is
utilizing its available resources in a manner which
minimizes gas
costs and limits price fluctuations. Staff recommended
approval
of ENGI's proposed CGA.
Staff also recommended, after having reviewed the
environmental remediation costs and supporting documentation
submitted by ENGI, that the Commission find that those costs
were
prudently incurred and should be recovered through the
proposed
surcharge.
Staff supported 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 ENGI 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 state reasons.
IV. COMMISSION ANALYSIS
After reviewing the record, we conclude that
ENGI's
proposed 1998/1999 Winter CGA is consistent with its
previous
performance relative to minimizing gas costs. Accordingly,
we
accept and approve ENGI's proposed 1998/1999 Firm Sales
Winter
CGA credit, the proposed 1998/1999 Firm Transportation
Winter CGA
charge, the proposed 280 Day Margin Recovery Surcharge and
Environmental Cost Recovery Surcharges, as being just and
reasonable.
With the new mechanism that allows ENGI 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 suggested by ENGI and supported by
the
Staff and OCA.
We instruct ENGI to file appropriate tariffs in
accordance with this Order.
Based upon the foregoing, it is hereby
ORDERED, that EnergyNorth Natural Gas, Inc.'s
Eleventh
Revised Page 32 Superseding Tenth Revised Page 32, providing
for
a Revised Firm Sales Winter CGA credit of $0.0227 per therm
for
the period of November 1, 1998 through March 31, 1999, is
approved, effective for bills rendered on or after November
1,
1998; 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 ENGI may adjust the approved
CGA
rate of ($0.0227) upward or downward monthly based on ENGI'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 $0.3848
per
therm ($0.0385 per therm); and it is
FURTHER ORDERED, that ENGI 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. ENGI shall include a
revised tariff page 32 - Calculation of Cost of Gas
Adjustment
for firm sales and revised firm rate schedules if the
Company
elects to adjust the CGA rate; and it is
FURTHER ORDERED, that EnergyNorth Natural Gas,
Inc.'s
First Revised Page 31 Superseding Original Page 31,
providing for
a Fixed Firm Sales Cost of Gas Rate of $0.3927 per therm for
the
period of November 1, 1998 through March 31, 1999, is
approved,
effective for bills rendered on or after November 1, 1998;
and it
is
FURTHER ORDERED, that EnergyNorth Natural Gas,
Inc.'s
Sixth Revised Page 33 Superseding Fifth Revised Page 33,
providing for a Firm Transportation Winter CGA charge of
$0.0021
per therm for the period of November 1, 1998 through March
31,
1999, is approved, effective for bills rendered on or after
November 1, 1998; and it is
FURTHER ORDERED, that EnergyNorth Natural Gas,
Inc.'s
Fourth Revised Page 73 Superseding Third Revised Page 73,
providing for a winter period surcharge to recover the 280
Day
Sales Margin of $.0012 per therm for the period of November
1,
1998 through March 31, 1999, is approved, effective for
bills
rendered on or after November 1, 1998; and it is
FURTHER ORDERED, that EnergyNorth Natural Gas,
Inc.'s
Fourth Revised Page 74 Superseding Third Revised Page 74,
providing for a surcharge of $0.0041 per therm to recover
the
cost of the closure of the Gas Street relief holder costs,
is
approved, effective for bills rendered on or after November
1,
1998; and it is
FURTHER ORDERED, that EnergyNorth Natural Gas,
Inc.'s
First Revised Page 79, providing for a surcharge of $0.0045
per
therm to recover the cost of environmental remediation and
pursuit of third party claims related to the former
manufactured
gas plant in Concord, NH, is approved, effective for bills
rendered on or after November 1, 1998; and it is
FURTHER ORDERED, that ENGI 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 twenty-ninth day of October, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary