Investigation of the purchased public service commission

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1¾___«________\0__g_s_t_w_x_x_Y:\WORD5\NORMAL.STY_________________________________________________________y_@_(,Ð_ ™__u_t___v_µ_ORDER NO. 68704



COLUMBIA GAS OF MARYLAND, INC. ÿÿ________________


CASE NO. 8511(h)

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Francis X. Wright, Esq., and John L. Shailer, Esq., for Columbia Gas of Maryland, Inc.
Theresa V. Czarski, Esq., for the Office of People's Counsel.
Ronald E. Alper, Esq., for the Staff of the Public Service Commission of Maryland.

On October 14, 1977, pursuant to Section 54D of The Public Service Commission Law,_ the Commission instituted a continuing investigation of the changes in the purchased gas adjustment ("PGA") charges of Columbia Gas of Maryland, Inc. ("Columbia" or "Company"). Through the operation of its PGA clause, Columbia passes on to its customers any changes in the cost of gas purchased from its suppliers.

Order No. 62662, which instituted the investigation, as supplemented by Order No. 63885, provides that hearings in this matter be held no less frequently than once every six months. Accordingly, a hearing was held on December 8, 1989, in Baltimore, Maryland, after notice of the hearing was published in The Morning Herald, The Daily Mail, The Cumberland Times-News and The Republican, newspapers in general circulation in the service area of the Company.

Marjorie L. Lelli, a Senior Rate Engineer with the Company, submitted testimony and supporting exhibits intended to show that the Company correctly computed, charged and collected its PGA for the May, 1989 through October, 1989 billing months under review in this case. However, Ms. Lelli also testified that the Company had incorrectly computed its 1987/1988 and 1988/1989 Actual Cost Adjustment ("ACA"),_ i.e., the Company erroneously credited its customers twice with the incremental revenues (above the "base" revenues of $.05 per Mcf) derived from sales to special agency customers. The over-crediting amounted to $41,935 and $44,095 for the 1987/1988 and 1988/1989 ACA's, respectively. Ms. Lelli testified that the Company would make a special, one-time adjustment in the ACA which began in November 1989 to correct the past double crediting.

Neither Staff nor People's Counsel questioned or objected to Ms. Lelli's testimony concerning the double crediting or the Company's proposed method of correcting the past errors. For the reasons that the overriding purpose of an ACA is to assure that a gas company's PGA "should ultimately recover not more nor less than the cost of purchased gas,"_ and, based upon Ms. Lelli's testimony, my finding that the double crediting resulted from mere errors of oversight which, it seems to me on its face, were discovered within a reasonable time after the errors occurred,_ I conclude the Company is entitled to recover the $41,935 and $44,095 that were inappropriately credited to its PGA ratepayers, and that the use of the 1989/1990 ACA is an appropriate method to recover those amounts.

David L. Valcarenghi, an Auditor with the Commission's Accounting Investigations Division, testified that his review of the Company's PGA for the period under review disclosed that the Company had overstated the cost of gas applicable to each PGA for the period under review because the Company had incorrectly calculated the weighted cost of gas applicable to field line purchases. Specifically, the Company had incorrectly included the costs of gas purchased for resale to special agency program customers in computing the weighted cost of gas applicable to service to customers that are subject to the PGA._ Pursuant to the Company's tariff, special agency program customers are not subject to the PGA and all gas costs incurred to serve those customers are to be excluded from the calculation of the PGA.

According to Mr. Valcarenghi, PGA customers were overcharged by $14,545 during the four months ending August, 1989. He estimated that overcharges in September and October 1989 amounted to $5,457. Basically, if I understand his testimony, he recommended that these errors be corrected through the ACA's beginning in November, 1989 and November, 1990. Ms. Lelli testified that Mr. Valcarenghi had correctly identified the errors and that the Company agreed with the recommended solution. T. 13.

In response to a request by People's Counsel, the Company produced Mr. Clyde Clay, the Company's Director of Supply Planning. Mr. Clay was primarily questioned about the: (1) participation of the Company in the negotiations that ultimately led to the "global" settlement involving many cases of Columbia Gas Transmission Corporation, the Company's affiliated pipeline supplier, before the Federal Energy Regulatory Commission ("FERC") and the federal courts, (2) some of the details of the settlement, (3) how the Company planned to act under the settlement, and (4) how the Company planned to avoid the gas inventory charges provided for in the settlement if avoidance of the charges was possible and reflected the most economic gas supply choice. No objection was voiced by Staff or People's Counsel with respect to anything said by Mr. Clay.

The Company continued to collect take-or-pay ("TOP") costs from some of its customers during the period under review. The resolution of all issues concerning the incurrence and passthrough by the Company of fixed monthly TOP costs relating to the period under review is subject to the outcome of proceedings in Case No. 8142 (generic TOP case) and Case No. 8148 (Columbia-specific TOP case). See Baltimore Gas and Electric Co., 80 Md. P.S.C. ÿÿÿ, ÿÿÿ (1989), Case No. 8500(f), Proposed Order, issued March 15, 1989, at pages 11-12, aff'd on this issue, 80 Md. P.S.C. ÿÿÿ, ÿÿÿ (1989), Order No. 68476, issued June 22, 1989, at

pages 4-7._ Also, generally, volumetrically incurred TOP costs during the review period were subject to being examined in the instant proceeding. Id.

Although the Company presented no evidence in this case intended to show that it followed competitive and reasonable procurement practices, neither Staff nor People's Counsel suggested that the lack of such evidence warranted a denial of the passthrough of any costs, TOP or otherwise, through the PGA for the period under review -- perhaps because both Staff and People's Counsel were satisfied by the Company's responses to data requests (none of which are in evidence) that the Company had met the requirements of Section 54D. Inasmuch as the other three "large" Maryland gas companies, Baltimore Gas and Electric Company, Washington Gas Light Company and Frederick Gas Company, Inc., routinely submit prefiled testimony concerning their compliance with the requirements of Section 54D and, in particular, their compliance with the requirement that they follow competitive and reasonable procurement practices, I direct the Company to prefile such testimony in all of its future PGA cases. Given the greater gas purchasing flexibility given the Company by the "global" settlement than it arguably had in the past, as detailed by Mr. Clay, I believe the prefiling of such testimony is even more imperative. For purposes of this case, however, given the history of the Company's PGA proceedings_ and the lack of any claim that the Company may not have met all of the requirements of Section 54D, except for the specific exceptions noted in this Proposed Order, I find the Company has met the requirements of Section 54D. Furthermore, I find that with the exceptions of any adjustments associated with TOP issues, not subject to litigation in this phase of this case, that may ultimately be made, and the necessary adjustments to reflect the double crediting errors and the errors identified by Mr. Valcarenghi, it is unnecessary to make any additional adjust­ments to Columbia's PGA charges which were collected during the billing months of May 1989 through October 1989.

IT IS, THEREFORE, this 8th day of January, in the year Nineteen Hundred and Ninety,

ORDERED: (1) That this matter be continued and that a further hearing shall be held prior to July 1, 1990.

(2) That the resolution of certain TOP issues for the period under review is made subject to other proceedings, as more fully described in the body of this Proposed Order, for application to TOP costs incurred during the period under review.

(3) That Columbia Gas of Maryland, Inc., shall correct the double crediting errors and the errors cited by Staff's witness in the manner described in the body of this Proposed Order.

(4) That Columbia Gas of Maryland, Inc., shall prefile testimony in all future purchased gas adjustment cases that it has met all of the requirements of Section 54D during the periods under review, all as more fully described in the body of this Proposed Order.

(5) That this Proposed Order will become a final Order of the Commission on February 8, 1990, 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.


Paul H. Harrington

ÿChief Hearing Examinerÿÿÿÿÿ

Public Service Commission of Maryland

_Md. Ann. Code art. 78, _ 54D (1988 Repl. Vol.).

_Although Ms. Lelli referred to the Company's "calculations" in its September, 1986 through August, 1987, and September, 1987 through August, 1988 ACA's, inasmuch as a particular ACA becomes effective each November (based upon the relevant revenues and costs for the prior twelve months ending August of the same year), I interpret her testimony to say that the ACA's that began in November, 1987 and November, 1988 were incorrectly computed. If I have misinterpreted Ms. Lelli's testimony, i.e., if the incorrectly computed ACA's were those that began in November, 1986 and November, 1987, for the reasons stated in the text I believe the Company's proposed method of correcting the errors should still be approved.
_Re Purchased Gas Adjustment Costs, 71 Md. P.S.C. 358, 366 (1980); see Baltimore Gas and Electric Co., 78 Md. P.S.C. 41, 49 (1986) (Proposed Order), aff'd, 78 Md. P.S.C. 36 (1987).
_Inexcusable and inordinate delay in discovering past errors in PGA calculations and seeking to correct those errors may result in denial of subsequent PGA recognition of undercharges or, as in the instant case what amounts to the same thing, viz., double crediting. See Baltimore Thermal Energy Corp., 80 Md. P.S.C. ÿÿÿ (1989), Case No. 8519(f), June 23, 1989, Proposed Order, which became final by operation of law.
_Although the errors relating to the crediting of special agency revenues discussed earlier in this Proposed Order also concerned sales to special agency program customers, the errors cited by Mr. Valcarenghi relate to a totally different error made by the Company, as Ms. Lelli stated. T. 13.
_Issues relating to the specific fixed monthly TOP costs collected during the period under review may be further compli­cated by the December 28, 1989 decision of the Court of Appeals for the District of Columbia Circuit in AGD v. FERC, No. 88-1385, et al. The effect of that decision upon the Company during the period under review cannot be ascertained at this time and must await future developments at FERC and, perhaps, the Supreme Court of the United States, as well as, perhaps, a further decision by this Commission subsequent to additional actions at the federal level.
_Columbia has, however, been directed in prior cases to pre­file testimony. Columbia Gas of Maryland, Inc., Case No. 7133, Phase XVI, Proposed Order, issued July 1, 1985, at pages 4-5 (not appealed and assigned Order No. 67109); Columbia Gas of Maryland, Inc., Case No. 8511, Proposed Order, issued January 6, 1986, at pages 3-4 (not appealed and assigned Order No. 67283).
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