CUB Wins Big for Customers in Natural Gas Case

The sweetest words in the English language, currently, are: “CUB’s proposal, as modified herein, should be adopted.” So said the Public Utility Commission in its Order earlier this week regarding the Purchased Gas Adjustment case affecting customers of NW Natural, Avista, and Cascade Natural Gas. Excuse us for one moment while we crow.

We’re more than usually pleased by the successful turn of events in the PGA case, even though we cannot (as we often can) claim to have saved customers a specific, large amount of money in this case. Instead, what we’ve done is to protect natural gas customers from having to assume an unreasonable share of risk when natural gas purchase costs are reconciled with forecasts. And we did it more-or-less alone, against an allied opposition of the PUC Staff, the 3 large natural gas companies in Oregon, and the Northwest Industrial Gas Users.

Here’s the scoop: In October of every year, the natural gas companies forecast their rates for the coming year, and that is used to set the rates that go into effect November 1st. The actual cost to the company will be different, based upon actual prices for their “spot market” purchases, amount of gas in storage, and the amount “hedged” (hedging allows a company to purchase at a set price in advance, and a third party agrees to cover the difference in price if it increases between the date of hedge purchase and the date of actually receiving the natural gas). The difference between what is forecast and what the company actually pays could be great or small, an increase or a decrease, but it has traditionally been shared between the company and the customer.

CUB felt that the system was actually fairly functional, especially as compared with the changes proposed in a Stipulation Agreement between the other groups involved. That proposal was convoluted, and unfair in shifting risk onto customers; it is even possible that customers might have had to pay more than the difference between forecasted and actual costs, under the other groups’ Stipulation. This seemed to CUB so patently outrageous that we went out on a limb, opposing all the other groups in the case, and created an alternative proposal of our own. Anyone familiar with the process would have predicted that we would have a very low chance of succeeding against those odds. But we put some time into it, and that effort paid off.

With a few exceptions, the Commission ruled in CUB’s favor, while echoing our argument that “the current mechanism works well enough to fairly balance the risks and opportunities for all of the participants in Oregon’s retail gas market.” The Commission goes on to say that “CUB [unlike some others in the case] largely conformed its proposal to the Commission’s directive.” Sometimes it pays to follow directions.

We would like to make a special note of the storage issue as it relates to NW Natural Gas and its customers. The Company’s proposal would have given the Company a financial reward for using gas from storage, an idea CUB felt was misguided since customers paid for the construction of the storage facility, including paying the Company a rate of return on the cost of the facility; customers should therefore reap any financial benefit, rather than paying that to the company’s shareholders and management. The Commission noted in its Order, “Like CUB, we are concerned with how NW Natural’s storage inventory is accounted for by the proposed Stipulation. NW Natural has been commended for its effective use of its storage asset. The proposed mechanism is not likely to cause NW Natural to do ‘better’ on behalf of its customers. The mechanism is likely to cause NW Natural to do ‘better’ on behalf of its shareholders.”

But what does all of this mean for natural gas customers at bill time? Well, the decision is extremely timely; it is, after all, October and the gas utilities have just released their numbers for the upcoming year, which starts November 1st. NW Natural customers will see a 15% increase in rates; Cascade Natural Gas customers will see a 5.5% increase; and, because of a surcharge in rates that has just been retired, the increase in rates for Avista’s customers will be offset and their rates will actually go down 3%. In hard dollars on an average bill, this means about $20 more on a NW Natural customer’s January bill (the highest usage month), almost $8 more for a Cascade customer, and a reduction of about $5 on the average Avista bill in January. (Customers with Equal Pay will see that difference spread out and will feel less of an impact.) Because of the Commission’s decision in this case, any differences in the actual cost of serving natural gas customers between now and next fall will be shared between customers and their natural gas utility.

We want to thank, again, our former staff members Lowrey Brown and Jason Eisdorfer for the many hours they put in on this case. Bob Jenks, CUB Executive Director, also put in a lot of time, analysis, and negotiation; you may congratulate him if you can get him to stop crowing long enough.

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