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How are my rates for Natural Gas determined?

Initially, the utility files its proposal for a rate change. Commission staff, the Office of Public Advocate and other intervening parties then review that proposal and make a recommendation for adoption by the Commission.

Rates for natural gas utilities are composed of two components – base rates and cost of gas rates. Base rates represent the cost of installing, operating and maintaining the utility’s pipeline system to deliver the gas to your home. Base rates usually are changed periodically through rate cases. Cost of gas rates can change as frequently as monthly depending on the utility.

Northern's rates are determined on a traditional cost of service basis and involve three basic steps. In the first step the revenue requirement is determined. This is what the total cost is to serve the customer and includes operating and maintenance costs and a return on investment. In the second step, the sales by customer class are estimated for the same period. Lastly, the revenue requirements are then allocated to each customer class based upon the cost to serve each class – this is referred to as rate design. Northern's last rate case was filed in 1983 but its rate design was reevaluated in 1999.

Both Bangor Gas and Maine Natural Gas have operated under alternative rate plans since they began their operations in 1999. Essentially, both utilities base rates are set using price cap methodologies. Initially both utilities set their rates based upon estimates on the cost to serve and estimates for sales. Bangor Gas’s plan allows for an annual rate cap adjustment based upon price indexes. Maine Natural Gas’s plan does not include any price adjustments.