BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Pennsylvania Public Utility Commission :
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v. : R-00061519
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PPL Gas Utilities Corporation :
:
:
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Office of Consumer Advocate :
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v. : R-00061519C0001
:
PPL Gas Utilities Corporation :
:
:
:
Office of Small Business Advocate :
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v. : R-00061519C0002
:
PPL Gas Utilities Corporation :
RECOMMENDED DECISION
Before
David A. Salapa
Administrative Law Judge
HISTORY OF THE PROCEEDING
On May 1, 2006, PPL Gas Utilities Corporation (PPL) filed its annual purchased gas cost preliminary supporting information with the Pennsylvania Public Utility Commission pursuant to 52 Pa. Code §§53.64(c) and 53.65. On May 11, 2006, The Office of Consumer Advocate (OCA) filed a formal complaint that the Commission docketed at R-00061519C0001. On May 12, 2006 the Commission served the OCA complaint on PPL.
On June 1, 2006, PPL filed and served its annual purchase gas cost tariff, Supplement No. 13 to Gas-Pa. P.U.C. No. 5 with supporting documentation and written testimony of witnesses. The tariff proposes a decrease of $1.0751/Dth, reducing its purchase gas costs from $13.5792/Dth to $12.5041/Dth to become effective December 1, 2006.
By notice dated June 6, 2006, the Commission scheduled a prehearing conference in this matter for June 19, 2006 in Hearing Room 2, Commonwealth Keystone Building. On June 7, 2006, the Office of Small Business Advocate (OSBA) filed a formal complaint that the Commission docketed at R-00061519C0002. I issued a prehearing conference order on June 8, 2006, that required the parties to file and serve prehearing conference memoranda. By notice dated June 14, 2006, the Commission rescheduled the prehearing conference at the request of the parties for June 22, 2006 in Hearing Room 3, Commonwealth Keystone Building.
I conducted the prehearing conference as scheduled on June 22, 2006. PPL, OTS, OCA and OSBA all filed prehearing memoranda prior to the prehearing conference and participated in the prehearing conference. As a result of the prehearing conference, I issued Prehearing Order #2 on June 23, 2006 that established a litigation and briefing schedule for this proceeding. By notice dated June 26, 2006, the Commission scheduled this matter for hearing on August 11, 2006.
On August 7, 2006, the parties informed me that they had reached a comprehensive settlement in this case. Therefore, on August 7, 2006, I issued an order suspending the litigation schedule and cancelling the hearing scheduled for August 11, 2006. On August 31, 2006, the parties filed a signed settlement. I have attached a true and correct copy of the settlement to this recommended decision. Also on August 31, 2006, OTS, OSBA, OCA and PPL filed statements in support of settlement.
TERMS OF THE SETTLEMENT
The terms of the settlement are summarized below:
A. RATES
1. PPL Gas will be permitted to implement, effective on December 1, 2006, a tariff supplement in the form contained in Attachment “A” of the settlement document, except that the rate for recovery of purchased gas costs of $12.4738/Dekatherm, that is calculated in Attachment “B” of the settlement document, will be subject to modification as explained in Paragraph No. 3, below.
2. The Section 1307(f) rate set forth in Attachment “B” of the settlement document reflects actual over/under collections of gas costs through March 31, 2006, the projected over/under collections of gas costs through November 30, 2006, and projected gas costs and sales for the projected period from December 1, 2006 through November 30, 2007.
3. The 1307(f) rate to become effective on December 1, 2006, and every three months thereafter, will be adjusted to reflect actual over/under collections through the month ended one month before the effective date of the quarterly adjustment, pursuant to the quarterly adjustment mechanism set forth in the Commission’s regulations at 52 Pa. Code §53.64(i)(5). Quarterly adjustments also may reflect changes in the projected commodity cost of gas.
B. PROJECTED WITHDRAWALS OF NATURAL GAS FROM THE TIOGA-MEEKER STORAGE FIELDS
4. PPL Gas will adjust its projected withdrawals of gas from the Tioga-Meeker storage fields and related purchased gas costs. The details of the adjustments to projected storage withdrawals and purchased gas costs are set forth below.
5. The volume of gas projected to be withdrawn from the Tioga-Meeker storage fields to serve sales customers during the 2006-2007 winter will be increased. For the 2006-2007 winter, PPL Gas has reserved 899,300 Dth of storage capacity in the Tioga-Meeker storage fields for sales customers. The revised projection is that PPL Gas will withdraw from storage 725,000 Dth of gas from the Tioga-Meeker storage fields for sales customers. This adjustment to projected storage withdrawals results in an increase in the withdrawals compared to the original projection of 497,000 Dth, which is 725,000 Dth less the originally projected volume of 228,000.
The increased withdrawals are projected to be replaced by increased purchases of natural gas during the 2007 injection season. The strip price for the 2007 injection season was $8.7114/Dth as of 12:26 p.m. on August 3, 2006.
6. Using the strip price for the 2007 injection season instead of the average projected price of flowing supplies for the 2006 winter season of $9.333/Dth produces a savings per Dth of $0.6216/Dth and an overall reduction of projected purchased gas costs of $308,935 (497,000 Dth x $0.6216 ($9.333 -$8.7114)) and a rate reduction of $0.0303 per Dth ($308,935 ÷ 10,207,152 Dth).
7. Other parties in the 2007 Section 1307(f) proceeding are not precluded from reviewing and proposing adjustments related to the use by PPL Gas of the Tioga-Meeker storage fields during the 2006-2007 winter based upon actual facts and circumstances and actual operations.
C. HEDGING POLICY
8. With regard to its hedging policy, PPL Gas will increase the minimum volume of winter supplies that it hedges to 30 percent. The timing of the hedged purchases, that is, how long before delivery the hedged supplies are purchased, will remain within the discretion of PPL Gas so that it has some flexibility to adjust purchases based on market conditions. PPL Gas, however, will purchase the minimum percentage of winter supplies at least three months before the commencement of the winter season for which the gas is purchased.
D. MISREPORTING OF STORAGE BALANCES OF DOMINION TRANSMISSION, INC. IN NOVEMBER, 2004.
9. PPL Gas shall have no obligation to commence any action against any natural gas supplier that is not affiliated with Dominion Transmission, Inc., with regard to the Event that is described in OSBA Statement No. 1. PPL Gas, however, shall monitor Jacquet v. Dominion Transmission, Inc., at Civil Docket No. 2:05-cv-00548 (“Jacquet”), which is pending presently in the United States District Court for the Southern District of West Virginia. If another party successfully expands the Plaintiff class in Jacquet to include retail sales customers of local distribution companies that did not purchase natural gas supplies from Dominion Transmission, Inc. or any of its affiliates for December, 2004, but made purchases from other suppliers at prices that were affected by the Event, PPL Gas will promptly seek to intervene in the Jacquet proceeding in a representative capacity on behalf of its customers.
E. PROJECTIONS OF DESIGN DAY THROUGHPUT
10. PPL Gas will canvas the eight other major Pennsylvania natural gas distribution companies (Columbia, Equitable, National Fuel, Peoples, PG Energy, Philadelphia Gas Works, T.W. Phillips and UGI) to ascertain how they project design day customer usage per degree day.
11. PPL Gas will select at least two methods for further evaluation, and PPL Gas will evaluate its current method. The evaluation will consist of statistical analyses to evaluate the accuracy of the methods for determining design day usage.
12. PPL Gas will present the results of its analyses and select a specific method as most appropriate. PPL Gas may present its current method as most appropriate, depending on the results of the statistical analyses.
13. PPL Gas will present a projection of design day customer usage for the 2007-2008 winter for each interstate pipeline on which PPL Gas holds pipeline and/or storage capacity.
14. PPL Gas will present a proposed optimal level of pipeline and/or storage capacity for each interstate pipeline on which PPL Gas holds capacity, giving due consideration to cost, reliability of service and growth.
15. When the optimal level of pipeline and/or storage capacity for each interstate pipeline on which PPL Gas holds capacity has been determined, PPL Gas will promptly undertake all reasonable and cost-effective steps to adjust the amount of pipeline and storage capacity that it holds to the optimal levels.
F. CONDITIONS OF SETTLEMENT
16. The parties acknowledge and agree that this Settlement shall have the same force and effect as if the parties had fully litigated this proceeding only with regard to the historic period ended March 31, 2006.
17. This Settlement is conditioned upon the Commission’s approval of terms and conditions contained herein without modification. If the Commission modifies the Settlement, any party may elect to withdraw from this Settlement and may proceed with litigation. In such event, this Settlement shall be void and of no effect. Any election to withdraw must be made in writing, filed with the Secretary of the Commission and served upon all parties within five (5) business days after the entry of an order modifying the Settlement.
18. If the Commission does not approve the Settlement and the proceedings continue to hearings, the parties reserve their respective rights to present additional testimony, to conduct full cross-examination and to submit briefs, reply briefs, exceptions and replies to exceptions.
19. The Commission’s approval of this Settlement shall not be construed to represent approval of any party’s position on any issue.
FINDINGS OF FACT
1. PPL has fully and vigorously represented the interests of its ratepayers in proceedings before the Federal Energy Regulatory Commission, in accordance with the provisions of 66 Pa.C.S. §1318(a)(l).
2. PPL has taken all prudent steps necessary to negotiate favorable gas supply contracts and to relieve itself from terms in existing contracts with its gas suppliers which are or may be adverse to the interests of its ratepayers, in accordance with the provisions of 66 Pa.C.S. §1318(a)(2).
3. PPL has taken all prudent steps necessary to obtain lower cost gas supplies on both short-term and long-term bases both within and outside the Commonwealth, including the use of gas transportation arrangements with pipelines and other distribution companies, in accordance with the provisions of 66 Pa.C.S. §1318(a)(3).
4. PPL has not withheld from the market or caused to be withheld from the market any gas supplies which should have been utilized as part of a least cost fuel procurement policy, in accordance with the provisions of 66 Pa.C.S. §1318(a)(4).
5. PPL has fully and vigorously attempted to obtain less costly gas supplies on both short-term and long-term bases from nonaffiliated interests, in accordance with the provisions of 66 Pa.C.S. §1318(b)(l).
6. Each contract for the purchase of gas from its affiliated interests by PPL is consistent with a least cost fuel procurement policy, in accordance with the provisions of 66 Pa.C.S. §1318(b)(2).
7. Neither PPL nor its affiliated interest has withheld from the market any gas supplies which should have been utilized as part of a least cost fuel procurement policy, in accordance with the provisions of 66 Pa.C.S. §1318(b)(3).
8. Except for a small amount of locally produced gas, gas supplies for sale to customers of PPL Gas are brought to PPL Gas’ systems through facilities of five interstate pipeline companies, Tennessee Gas Pipeline Company (“Tennessee”), Texas Eastern Transmission Corporation (“Tetco”), Transcontinental Gas Pipe Line Corporation (“Transco”),
Columbia Gas Transmission Corporation (“Columbia Transmission”) and Dominion
Transmission, Inc., (“Dominion Transmission”). PPL Gas has entered into contracts with these
pipeline companies for transportation and/or storage services (PPL Gas Exhibit No. 1, Schedules
3 through 5).
9. PPL Gas will continue to rely principally upon gas supplies transported through facilities of Tennessee, Tetco, Transco, Columbia Transmission and Dominion Transmission, as well as storage, to meet the needs of its sales customers (PPL Gas Exhibit No. 1, Item 53 .64(c)(6)).
10. PPL Gas has obtained sufficient capacity on the five interstate pipelines to meet the design day requirements of sales customers, including provision for near-term growth (PPL Gas Exhibit No. 1, Item 53.64(c)(13; OSBA St. 1, p. 7)
11. Although PPL Gas has sufficient pipeline capacity to meet sales customers’ design day requirements, this level of capacity is not needed to meet sales customers’ requirements during the non-heating portions of each year. To mitigate pipeline capacity costs, PPL Gas uses temporarily unneeded capacity to generate revenues used in part to offset purchased gas costs. PPL Gas uses temporarily unneeded capacity to make off-system sales, or PPL Gas releases such capacity. (PPL Gas Statement No. 3. p. 3; PPL Gas Exhibit No. I, Item 53.64(c)(6), p. 2).
12. PPL Gas releases interstate pipeline companies’ capacity under procedures established by the Federal Energy Regulatory Commission (“FERC”) in Order 636. Generally, PPL Gas initially attempts to release capacity to on-system customers and marketers (PPL Gas
Exhibit No. I, Item 53 .64(c)(6), p. 2). Revenues from releases of pipeline capacity are used in part to reduce purchased gas costs that must be recovered from customers.
13. PPL Gas obtained most of the needed gas supplies to meet sales customers’ requirements by issuing Requests for Proposals (“RFPs”), inviting qualified gas producers and marketers to bid to provide gas supplies for each pipeline segment of PPL Gas’ system. The RFPs are issued to obtain gas supplies for subsequent gas supply periods. PPL Gas’ RFPs typically include a monthly default option related to a three-day NYMEX close, with an option for PPL Gas to “lock in” one or more months in advance at any time using the NYMEX pricing. PPL Gas also issued RFPs for monthly and daily call options. (PPL Gas Exhibit No. 1, Item 53.64(c)(6), pp. 1-2).
14. PPL Gas chooses among qualified natural gas suppliers primarily on the basis of price. (PPL Gas Exhibit No. 1, Item 53.64(c)(6), p. 1).
15. Throughout each year, PPL Gas may purchase “spot” gas supplies on either a firm or interruptible basis for one or more months to supplement the annual supplies obtained though the RFP process explained above (PPL Gas Exhibit No. 1, Item 53.64(c)(6), p.1).