Annual Report on Natural Gas Efficiency
to the Utilities and Energy Committee
On Actions Taken by the Commission Pursuant to 35-A M.R.S.A. § 4706
Title 35-A M.R.S.A. § 4706(1) authorizes the
Public Utilities Commission (Commission) to adopt alternative ratemaking
mechanisms for gas utilities “to promote efficiency in operations, create
appropriate financial incentives, promote rate stability and promote equitable
cost recovery." In particular, the
Commission may: adopt multi-year rate-making plans with mechanisms for future
rate changes; reconcile costs and revenues; index revenues or rate changes;
establish financial incentives; streamline regulation or deregulate services
where not required to protect the public interest; approve rate flexibility
programs; and modify cost of gas adjustment requirements.
describes Commission actions taken during 2003 to promote natural gas
efficiency through ratemaking mechanisms, contracts, and unbundling of
transportation and commodity services.
Rate Stability Initiative
spiked to extremely high levels in February 2003 necessitating mid-period gas
cost increases for Northern Utilities and Bangor Gas Company and causing two of
Maine’s Local Distribution Companies (LDCs) to consider changes to their
current existing pricing structures. In
response to this price spike, and to the apparently increasing price volatility
generally in the gas markets, the Commission has continued to work with Maine’s
LDCs to determine whether any of the tools available under § 4706(1) should be
used to provide customers more stable and predictable prices.
In May, the Commission invited Maine’s LDCs to
propose pricing options similar to those offered by the heating oil industry,
such as fixed price or capped price products, that could be offered to
customers to assist them in managing their gas bills. Both start-up LDCs, Maine Natural Gas and Bangor Gas Company,
have filed proposals which include revisions to commodity pricing gas cost
reconciliation, or bill levelization plans, as described further below.
Gas Utility Company Activity
A. Maine Natural Gas Corporation (formerly CMP Natural Gas,
1999, using its authority to enter into contracts that rely on entrepreneurial
resources rather than regulatory oversight, Maine Natural Gas has contracted
with increasing numbers of large customers that serve to “anchor” expansion
into new areas. These customers include the Westbrook Energy Center (WEC)
gas-fired electric generation facility, Brunswick Naval Air Station (BNAS), and
the University of Southern Maine at its Gorham campus. Maine Natural Gas first built facilities to
WEC, then to the Gorham campus. In the fall of 2001, the company completed
installation of its pipeline system to BNAS for service on November 1,
2001. The Company continues to work
toward expanding service in Windham, Gorham, Brunswick, Topsham, and other
municipalities within the state.
Expansion during 2003 includes Windham's Enterprise Business Park on
Route 302, the Topsham Fair Mall and Highland Green development, and BNAS
Brunswick Gardens housing project.
When initially certified, under its rate plan,
Maine Natural Gas agreed not to seek a base rate increase for five years to
counterbalance the degree of entrepreneurial freedom that it was granted by the
Commission. This rate freeze will
expire March 31, 2004. Unlike Maine's two other LDCs, Maine Natural Gas does
not have a cost of gas adjustment to flow its gas commodity costs on to
ratepayers. Instead it employs a
commodity pricing strategy using market price inputs and offers customers
either fixed or flexible pricing options.
The Company reports that market volatility and high gas prices have
strained the financial viability of these mechanisms as currently designed.
Consequently, the Commission is currently considering Maine Natural Gas
Corporation’s proposed changes to its Indexed Price and Fixed Price Options, as
well as its proposal to implement a rolling gas cost reconciliation mechanism.
B. Northern Utilities, Inc.
Unlike the ratemaking procedures of its
competitors Maine Natural Gas and Bangor Gas Company, traditional regulatory
processes govern Northern Utility’s (Northern’s) rates and operations. The
rapid increases in gas prices nationwide in 1999 and 2000 and in the winter of
2002-2003 required frequent mid-term adjustment of Northern’s cost of gas
factor. During 2003, the Commission approved Northern's proposed revised
hedging program for gas supply procurement designed to dampen the effect of
market price spikes on consumers.
In November 2000, Northern’s
ultimate parent corporation, NiSource, Inc., closed its merger with Columbia
Energy Group. The integration of
these two large corporate families has resulted in management and policy
changes and staff cuts at the Northern/Bay State Gas level. The Commission continues to monitor
Northern’s post-merger operations and revenues to ensure that service to
Maine’s customers remains safe, adequate and reasonably priced.
The Commission monitored Northern’s New Hampshire Division
rate case to gather information to assist it in determining whether Maine
should initiate a rate case for Northern in 2003.
Because of ongoing customer complaints regarding
call center and billing operations, in 2002 and 2003 the Commission conducted
investigations of particular operations and a management audit of Northern's
customer services to determine their adequacy.
The audit revealed that certain aspects of Northern's operations had
become substandard following the merger and reorganization. The Commission will
use the information gained by the management audit in considering the
implementation of a service quality performance incentive plan, such as a
benchmark and performance-based mechanism, to help ensure that Northern meets
adequate service standards.
Gas Company, L.L.C.
Bangor Gas Company operates under the alternative
rate plan approved by the Commission in 1998, which includes a 10-year
distribution rate freeze, a rate cap set initially on a 3-year average of oil
prices, indexed rate cap increases, pricing flexibility, and authority to enter
special contracts without prior Commission approval. The rate plan also
includes a seasonal cost of gas adjustment.
To date, Bangor Gas has set its gas commodity price for each winter or
summer period based on gas market futures and has purchased gas from its
affiliate, Sempra Energy, at market prices.
Bangor Gas has made two annual rate cap adjustments, as allowed under
its rate plan.
In 2001, Bangor Gas completed
installation of its main pipeline to the Bangor-Brewer area and, with the many
miles of pipeline and facilities it had already installed in those
municipalities, was poised to greatly expand service. It is adding to its customer base in all categories of
service. Bangor Gas also serves the
Bucksport Energy gas-fired electric generation facility, Georgia Pacific (formerly
Fort James Corporation), and the University of Maine at its Orono campus.
In 2002, the Commission approved a streamlined
mid-period cost of gas adjustment procedure proposed by Bangor Gas to more
efficiently match rates with gas costs.
Bangor proposed these changes to reduce the potential for large accruals
of over-or under-collection gas revenues, as well as to reduce regulatory
expense for making these adjustments.
However, the Company determined, following the price spike in February
2003, that additional mechanisms to mitigate price volatility were
necessary. Accordingly, the Commission
approved a change from a seasonal to a monthly cost of gas rate adjustment to
eliminate accrual of burdensome large seasonal gas cost balances, as well as a
budget payment plan under which customers can elect to spread payment for high
winter heating usage over a longer period of time. Two additional proposed pricing options, a Fixed Price Option and
a Maximum Price Option, are under consideration for effect in the 2004-2005
winter period to provide customers with further bill stabilizing options.
Natural Gas Restructuring
The Commission has moved slowly toward gas
restructuring in Maine, monitoring developments in neighboring New England
states and taking actions that suit Maine’s market and regulatory
environment. While the Commission’s
regulatory actions to restructure gas service have been moderate compared to
actions taken in neighboring New Hampshire and Massachusetts, an informal
survey of selected registered Maine gas marketers revealed no pressing matters
related to gas competition in Maine that warrant immediate regulatory
In 1999, the Commission approved a comprehensive
rate redesign and customer reclassification for Northern Utilities that were
necessary to prepare Northern for gas supply competition that is developing in
the natural gas industry. In addition,
all three gas utilities operating in Maine offer transportation-only
(“unbundled”) service to all commercial and industrial customers. Customers taking this service must purchase
and install telemetering equipment.
At this time, 13 natural gas suppliers are
registered to provide service in Maine.
Numerous medium and large commercial and industrial customers are taking
transportation-only service from their local distribution company, while
purchasing gas from competitive suppliers.
However, because of the upfront costs of equipment required to provide
this service, small commercial customers have not found it economic to
participate in the competitive gas supply market. In 2002, we saw some efforts at aggregation of customer loads in
certain business sectors, such as restaurants.
However, higher gas prices in 2003 have slowed interest in conversions
to gas. To date, the market appears to be developing slowly, with marketer
focus turning to Maine after they secure business in larger markets to our
south. Previous information obtained
from suppliers indicates that further regulatory action to assist market
development is not necessary at this time.
We will continue to monitor gas market activity in Maine and the region,
as well as gas utility response, and to consider whether there are ways to
reduce market barriers and encourage additional market activity for gas supply
in the state.