Natural Gas Companies Trying to Shift Risk onto Customers
Posted on July 25, 2008 by oregoncub
Tags, Utility Regulation
NW Natural, Cascade and Avista Natural Gas Companies have been working with the PUC Staff to craft a new mechanism for passing through the purchase cost of natural gas to customers. The proposed mechanism is complicated and unwieldy, with 6 different possible formats, and allows each company to choose a new format every year. But what CUB really objects to, in Direct Testimony filed today, is the fact that the proposed mechanism would shift the risk of higher gas costs onto customers, while also shifting benefits from customers onto the company. Sort of a lose/lose situation for customers.
As it now works, costs are forecast on November 1st for the upcoming year, and any difference in cost between the forecast and the actual costs is shared between customers and the company (customers bear the risk or receive the benefit of 67% of the difference for NW Natural and Cascade, 90% for Avista). While it is not unheard of for natural gas costs to be less than forecast, we are seeing a trend of increasing natural gas costs that has consumers tightening their belts, and gas companies seeking to shed all risk.
How much of the cost of natural gas purchase is passed along to customers has always been an issue to be wrangled with. It is clear that PUC Staff and the gas companies would like to see 100% pass-through of gas costs. CUB believes that a small percentage of sharing from the company’s shareholders is appropriate, since they are being paid a rate of return to manage the company and secure the lowest possible cost. If they have no incentive to prudently and skillfully manage gas purchases, why would they bother, and why should we pay them? However, we were really stunned to find, after 2 weeks of studying the proposal, that this mechanism could actually force customers to pay more than 100% of any natural gas purchase cost that exceeds the forecasted cost. Customers could be absorbing more than their share of any upcoming increases in natural gas costs (and we know they’re coming), and that just isn’t right.
CUB also argued that customers should receive the full benefit of NW Natural’s storage capacity, including the financial benefit of using gas from that storage when costs are down. Customers paid to build and manage the storage, and we should reap the full benefit. However, the mechanism as proposed would allow NW Natural to reap a “reward” for using gas from storage; unfortunately, that reward would come out of customers’ pockets. Again, this change is unfair, and we argued strongly against it in our testimony.
The crowning irony of the situation is that this convoluted, time-consuming, and patently unfair proposal process has not been proved necessary. NW Natural has done a very fine job, according to outside consultants, of managing its gas storage and purchasing, and its credit rating is strong. The system for managing gas purchases in Oregon has been working and CUB believes that adopting the proposed mechanism will seriously weaken the system as it now stands.
We made our argument, and will continue to push for a fair allocation of risk, up until the case closes and the Commission comes to a decision. We hope that Commissioners remain fully cognizant at every step of the decision-making process of the financial stress customers are already going to be bearing from rising fossil fuel prices, particularly - you guessed it - natural gas.
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03/10/17 | 0 Comments | Natural Gas Companies Trying to Shift Risk onto Customers