Investigation of the purchased public service commission

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CASE NO. 8509(j)

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Monte R. Edwards, for Washington Gas Light Company.

Theresa V. Czarski, for the Office of People's Counsel.
Robert H. McGowan and Allen M. Freifeld, for the Staff of the Public Service Commission of Maryland.
Pursuant to the provisions of Section 54D of The Public Service Commission Law ("the PSC Law"),_ the Commission on October 14, 1977, instituted a continuing investigation of the changes in the purchased gas adjustment ("PGA") charges of Washington Gas Light Company ("WGL" or "Company"). Order No. 62600, which instituted the investigation, as supplemented by Order No. 63883, issued on July 30, 1978, also provides that hearings on this matter will be held no less frequently than once

every six months. Accordingly, a hearing was held on November 30, 1990 in Baltimore, Maryland, after notice of the hearing was provided to the customers by means of a bill insert.

At the hearing, the following people testified: CarlÿL. Claytor, Manager, Rates and Regulatory Affairs, Depart­ment of Maryland Natural Gas ("MNG"), a division of WGL;_ FrankÿJ. Hollewa, Vice President, Gas Supply, WGL; Howard G. Jenkins, Manager, Wholesale Rates and Federal Regulation, Gas Supply division, WGL; Daniel M. Ives, Director, Maryland Rates and Regulatory Affairs, WGL; and David L. Valcarenghi, Public Utility Auditor for the Staff of the Public Service Commission.

Mr. Claytor sponsored various exhibits showing the calculation of the PGA charges for the billing months of June 1990 through November 1990, including the Actual Cost Adjustment factor ("ACA") and Purchased Gas Take-Or-Pay Adjustment ("TOP"). He concluded that the PGA, TOP, and ACA were determined in accordance with the Company's tariff. Mr. Claytor also testified that beginning with the PGA for the billing month of November 1990, the Company implemented the single weighted average commodity cost of gas ("WACOG") into the PGA calculation as approved by the Commission at its August 27, 1990 Administrative Meeting. The differences in the calculation are as follows: (1)ÿthe allocation factor used to allocate Maryland commodity costs of gas now include Special Contract therm sales; (2) Other Pipeline Purchases (Field Line) now include total WGL purchases, and (3) the net credit re "I" sales includes flex "I" and Special Contracts volumes calculated at the single WACOG rate. He also discussed the benefits which accrue to firm customers through the operation of the Firm Credit Adjustment ("FCA") provision. Specifically, the November FCA reflected $10.1 million in credits to firm customers because of special contract and flexible interruptible sales during the 12 months ended September 1990. Mr.ÿClaytor further testified with respect to gas purchases included in MNG's adjustment charges during the period under review where such gas purchase costs were not determined by regulation._ Mr. Claytor identified these non-regulated purchases, and stated that such purchases resulted in cost savings, because the unregulated gas is less expensive than the pipeline supplies displaced. Specifically, Mr. Claytor noted that the commodity rates of its pipeline supplies ranged from $2.2652 to $3.2610 per dekatherm. In contrast, the average cost of the non-regulated purchases for system supply was $1.84 per dekatherm.

Mr. Hollewa's testimony addressed the Company's practice of allocating all demand charges to firm customers only. He testified regarding the reasons for this practice in the past and why it is still appropriate for the future.

Mr. Jenkins' testimony described WGL's conversions of Contract Demand ("CD") to Firm Transportation ("FT"), its current estimate of direct-bill take-or-pay exposure and amounts actually paid during the period April through September 1990; and WGL's ongoing participation in FERC cases.

Mr. Ives was called to testify by the Company in order to respond to Staff Counsel's questions regarding the operation of the Company's FCA, the computation of margins, in particular within the context of WGL's contract with Potomac Electric Power Company for the sale of gas at Chalk Point.

Mr. Valcarenghi, testifying for the Commission Staff, stated that he has audited the PGA, including the ACA component, of Maryland Natural Gas for the billing period of June 1990 through November 1990. Mr. Valcarenghi also discussed the operation of the FCA provision, which provides that net margins from interruptible sales are shared monthly with firm customers. The FCA provides that firm customers receive 50 percent of the first $6 million of accumulated net margins during the 12-month period beginning in May of each year, while 92 percent of net margins in excess of the $6 million benchmark are distributed to firm customers. Mr. Valcarenghi also noted that MNG has been authorized to flow through direct-billed TOP costs, subject to refund, pending the resolution of Case Nos. 8142 and 8153.

The witness next testified that the Commission, at the Administrative Meeting of August 29, 1990, approved the use of a single WACOG. He noted that MNG's November 1990 PGA application reflects the use of this methodology. He next stated that the PGA and FCA computations for the month of November reflect the necessary charges for implementing a single WACOG.

Mr. Valcarenghi further testified that pursuant to a Stipulation and Agreement in Case No. 8281 Phase II, the Commission approved the consolidation of rates of Frederick Gas Company and MNG for purchased gas purposes.

Mr. Valcarenghi concluded that except for a minor error that was corrected through the FCA reconciliation factor for the 12 months ended August 31, 1990, the Company calculated its PGA, FCA, and ACA properly during the period under review.

It is noted that on January 14, 1991, Staff filed a brief in this proceeding arguing that MNG had not calculated its FCA in the manner set forth in its tariff. On March 7, 1991 MNG filed a reply brief and on March 13, 1991 Staff filed its response to MNG's reply brief. Subsequently, by letter dated Mayÿ23, 1991, Staff withdrew its initial brief and reply brief thereby ending any issue during the period under review in this proceeding.

Based upon a review of the evidence on the record in this proceeding, I find and conclude that MNG properly calculated its purchased gas adjustment charges and properly charged its customers for the billing period of June 1990 through November 1990, subject to reservation of issues regarding TOP costs. Accordingly, it is not necessary to make any adjustments at this time to the monthly charges which were collected by the Company during this period. However, the Company shall maintain records of any TOP costs which were billed during the period under review in this case, which charges shall be subject to refund or retroactive adjustments pending the decisions in Case Nos. 8142 and/or 8153.

IT IS, THEREFORE, this 12th day of June, in the year Nineteen Hundred and Ninety-one,

ORDERED: (1) That this matter is hereby continued and that a further hearing shall be held prior to July 1, 1991.

(2) That the Company shall maintain records of any take-or-pay costs which were billed during the review period; and those charges shall be subject to refund or retro­active adjustment.

(3) That this Proposed Order shall become a final order of the Commission on July 13, 1991, unless before that date an appeal is noted with the Commission by any party to this proceeding as provided in Section 20(c) of The Public Service Commission Law, or the Commission modifies or reverses

the Proposed Order or initiates further proceedings in this matter as provided in Section 86(d) of The Public Service Commission Law.

Thomas E. Dewberryÿÿÿÿÿÿÿÿÿ

Hearing Examinerÿÿÿÿÿÿÿÿÿÿ

Public Service Commission of Maryland
_Md. Ann. Code art. 78, _54D.
_WGL reorganized its operations on August 5, 1985, and has placed its Maryland operations into the Maryland Natural Gas Division.
_On July 24, 1984, the Commission granted WGL authorization to include certain gas purchase costs in PGA charges pursuant to the so-called "waiver" procedure, whereby the Commission has waived the requirement that non-regulated purchases must receive prior review before inclusion in the PGA charges. Such prior review is waived by the Commission if the purchase contract delivered price of gas is equal to or less than the commodity charge for the displaced gas, subject to further review in Section 54D proceedings. At its July 15, 1987 Administrative Meeting, the Commission approved MNG's June 3, 1987, request to retain gas purchase contracts (available for review by the Commission's Staff) and, instead, file confidential monthly summaries of gas purchased pursuant to the waiver provisions. These modifications were sought, and granted by the Commission, in order to ease compliance with the waiver provision.

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