Office of the Ohio Consumers' Counsel

Home Skip Navigation Go to Section Menu

Natural Gas

Natural gas costs and issues were at the forefront of Ohio’s headlines in 2008. The Office of the Ohio Consumer’s Counsel (OCC) intervened on behalf of the state’s residential natural gas customers in base rate distribution cases filed by the four largest investor-owned natural gas utilities. In these distribution cases, a new concept for Ohioans regarding how bills are paid, known as the “straight-fixed variable,” was advanced by the staff of the Public Utilities Commission of Ohio (PUCO) and vigorously opposed by the OCC. The PUCO has, unfortunately, supported the straight-fixed variable rate.

This concept involves moving most of a natural gas utility’s distribution costs into a fixed customer charge, as opposed to a cost based on a customer’s monthly usage. In each case before the PUCO, the OCC provided expert witnesses who showed that such a change would result in low-usage, low-income customers paying the same flat rate as residents with much bigger homes. Their percentage of the proposed increase would be disproportionately higher than their counterparts who were financially better off. The OCC also maintained that going to a flat rate would hamper efforts to conserve energy because ratepayers would have less incentive to control their natural gas usage to save money. The savings on a customer’s bill for consuming less gas would range from minimal to non-existent depending on each utility and the two-year phase-in of the straight fixed variable rate. It also extends the payback period for energy efficiency investments.

The OCC also succeeded in negotiating a cap to cost-recovery proposals for each of the natural gas utilities, enabling them to move forward with long-range programs to replace their existing pipelines and install meter-reading equipment at less financial impact to the ratepayers of Ohio. The OCC’s goal was to ensure accountability for the expenditure of customers’ hard-earned money. In addition, the negotiated agreements provided additional funds for energy efficiency programs and conservation measures.

As the condition of Ohio’s economy deteriorated in 2008, the OCC also achieved commitments from the natural gas utilities to provide pilot programs to assist customers who had difficulty keeping up with their bills. In addition, the OCC suggested reforms to the Percentage of Income Payment Plan (PIPP) which will go into effect during the 2009-2010 winter heating season. The OCC also was successful in negotiating a waiver with the PUCO, which enabled Columbia Gas to apply a $2.1 million federal refund to customers between 175 and 200 percent of the federal poverty level who are having trouble paying their natural gas bills.

The price of natural gas fluctuated dramatically during 2008, as the perception of an impending supply shortage pushed prices over $13.50 per MMbtu (million British thermal units) in July, according to the New York Mercantile Exchange (NYMEX). A coolerthan- average summer reduced the demand for natural gas at peak periods of electric usage, which combined with the economic downtown to reduce the price to a level in November of $6.31 per MMbtu.

OCC challenges 300-percent customer charge increase at Ohio’s highest court

(Cases 07-589-GA-AIR, 07-580-GA-ALT, 07-591-GA-AAM)

The Office of the Ohio Consumers’ Counsel (OCC) filed an appeal in September with the Supreme Court of Ohio contesting a May 2008 decision by the Public Utilities Commission of Ohio (PUCO) that resulted in a more than 300 percent increase to Duke Energy’s flat-rate customer charge but decrease the volumetric charge. A decision in the case is still pending.

Duke proposed a $34.1 million per year rate increase in July 2007, which would have raised its delivery rates by as much as 33 percent. In addition, Duke sought to restructure its rates which would have increased the monthly flat-rate portion of its delivery charge from $6 to $15, while lowering the volumetric portion of the delivery charge.

In January 2008, the OCC filed testimony opposing the proposed rate increase. The OCC took the position that Duke’s proposed rate increase was unreasonable and that customers should not have to pay for many of the increased costs cited by the utility. For example, Duke included expenses allocated to it from its parent company that were related to electric service and should not be recovered from natural gas customers.

All parties in the case, including the OCC, were able to reach agreement in February to resolve several issues. The compromise reduced Duke’s proposed annual revenue increase by approximately 50 percent, lowering it from $34.1 million to $18.2 million and also reduced costs for a nine-year continuation of Duke’s accelerated main replacement program by capping increases, reducing the projected investment and shifting some costs away from residential consumers while spreading them out over more time. This will save residential consumers more than $100 million throughout the duration of the plan. The agreement also included a proposed pilot low income program to provide a $4 monthly discount for up to 5,000 customers.

The February agreement did not resolve the issue of the rate restructure. In February and March, evidentiary hearings were held at the PUCO. The PUCO held several local public hearings at which customers in Cincinnati and Mason provided public testimony opposing the proposed increase.

In May, the PUCO approved the agreement among the parties but also adopted the Duke and PUCO staff proposal concerning the rate design. As a result, Duke’s flat-rate portion of the delivery charge increased from $6 to $15 through September 2008. Beginning in October 2008, the flat-rate increased again to $20.25 per month for the remainder of the first year. During the 2009-2010 heating season, the monthly customer charge will increase to $25.33 per month. The PUCO also expanded Duke’s proposed pilot low income program, from 5,000 to 10,000 customers.

Dominion customer charge increases 250 percent

(Case 07-0829-GA-AIR)

Residential customers of Dominion East Ohio Gas saw a higher flat-rate charge as part of increased distribution rates after the Public Utilities Commission of Ohio (PUCO) approved a proposal recommended by its own staff that was higher than utility’s initial rate increase request. At the same time, the PUCO reduced the volumetric rate.

As a result of the ruling, which the Office of the Ohio Consumers’ Counsel (OCC) opposed, the fixed customer charge rose by approximately 250 percent from its current level. Dominion’s current customer charge was $5.70 per month in the eastern service area and $4.38 per month in the western service area. As a result of the PUCO’s action, the customer charge was increased to $12.50 per month during 2008-2009 and $15.40 per month during the following year with volumetric rates based on customers’ natural gas usage decreasing proportionately. The PUCO also ordered a review of the low-income pilot program to be conducted after two years to evaluate the effect on low-income users, who may pay a higher total bill as a result of the new rate design.

The decision marked a conclusion to a contentious public debate, which nearly 700 customers attended. Two hundred citizens gave testimony at 10 public hearings held by the PUCO and attended by the OCC. In addition, almost 300 letters from customers were submitted into the record.

Originally, seven public hearings were scheduled by the PUCO during late July and early August. After the initial hearing in Youngstown, at which 57 citizens and some elected officials gave public testimony, the OCC and other consumer advocacy groups filed a request, which the PUCO approved, for additional evening sessions to give customers a better chance to air their concerns.

The OCC, through its Outreach and Education staff, issued letters to consumers and consumer groups alerting them to the issues in the case and encouraging them to either testify at the hearings or write letters to the PUCO. In its Opinion and Order, the PUCO acknowledged that the public participation in the case had contributed to its final decision to lower the final amount of the annual revenue increase.

In August, the OCC signed an agreement with Dominion, the PUCO staff, and additional parties in the case that resulted in a decrease to Dominion’s original increase request of $75 million annually to $40.5 million per year, which the PUCO further reduced to $37.5 million in its final decision. This agreement included an increase of $6 million annually in the funding of the utility’s energy efficiency programs, which will be monitored and evaluated by the OCC, the PUCO staff, Dominion and others to ensure that the goals of energy conservation are met.

The PUCO staff also capped annual rate increases to customers for the utility’s initial five-year implementation of a pipeline infrastructure replacement program. Dominion had originally proposed a 25-year, $2.6 billion replacement program and the PUCO had initially recommended implementation for an eight-year period.

Vectren proposal decreased by half but customer charge increases more than 100 percent

(Case No. 07-1080-GA-AIR)

In September 2008, the Office of the Ohio Consumers’ Counsel (OCC) negotiated an agreement with the Public Utilities Commission of Ohio (PUCO) staff and Vectren Energy Delivery of Ohio and other parties to reduce the amount of the utility’s increase request from $27 million annually to approximately $15 million.

The important issue not resolved in 2008 was the structure of Vectren’s distribution rates. The utility asked that its fixed $7 customer charge be increased, with corresponding decreases in the rate based on a customer’s gas usage, as follows:

• Winter 2008-09 (Nov. 1, 2008 to Apr. 30, 2009): $16.75 per month;

• Summer 2009 (May 1 to Oct. 31, 2009): $10 per month;

• Winter 2009-10 (Nov. 1, 2009 to Apr. 30, 2010): $20.04 per month; and

• Summer 2010 (May 1 to Oct. 31, 2010): $11.96 per month

Consistent with its opposition to higher fixed charges in other natural gas rate cases in 2008, the OCC opposed Vectren’s proposed rate structure. Through its testimony, the OCC showed that loading charges into a fee that stays constant regardless of the amount of natural gas used would have a disproportionate effect on low-income customers and reduce their incentive to conserve energy.

A total of $2.1 million of the annual increase was set aside for low-income customers to weatherize their homes, and another $2.9 million per year will be used to fund energy efficiency programs.

In addition, the OCC successfully negotiated a cap on increases to customers for Vectren’s proposed 20-year, $330 million plan to upgrade and replace its pipeline system and repair or replace defective risers. A riser is the vertical portion of the service line that connects the primary distribution pipeline to a customer’s meter (see diagram, page 28). Based on the cap, customers will see an annual increase of no more than $1 to their monthly bills up to a maximum of $5 per month in 2013.

Several improvements in customer service proposed by the OCC also were agreed to by the parties in the case, such as the elimination of several charges to customers seeking to reestablish service after disconnection.

A decision by the PUCO on Vectren’s rate increase request and the negotiated agreement was pending at the end of 2008.

Auctions set natural gas prices for Dominion, Vectren

(Cases: 07-1224-GA-EXM and 07-1285-GA-EXM)

With a goal of lowering the burden of higher natural gas bills on Ohio citizens, the Office of the Ohio Consumers’ Counsel (OCC) participated in proceedings to establish wholesale auctions held to permit suppliers to compete to provide natural gas to Dominion East Ohio Gas and Vectren Energy Delivery of Ohio.

The new Standard Service Offer (SSO) was established to replace the Gas Cost Recovery system (GCR) as a means of delivering natural gas to retail customers. This new SSO was determined by the monthly wholesale price of natural gas plus an adder, which was the subject of the auctions.

The SSO is available to customers of Dominion and Vectren who did not opt to participate in energy choice by choosing an alternative supplier. A summary of each auction follows:

Dominion East Ohio Gas

Dominion’s auction was held in July 2008 by World Energy Systems Inc., which also conducted the Vectren auction. A total of 14 natural gas suppliers were given the opportunity to bid on up to one-third of 12 portions, called tranches, of natural gas. The final bid accepted was $2.33 per thousand cubic feet (Mcf) above the New York Mercantile Exchange price that would be added together to determine the monthly SSO price. The OCC and the Public Utilities Commission of Ohio (PUCO) concluded that the auction was conducted fairly and that the results were consistent with the current market-determined price.

The adder went into effect in September 2008 and will be in effect until March 2009. At that point, two additional auctions will be held: one to determine a new Standard Choice Offer (SCO) for choice-eligible customers who have not chosen an alternative supplier, the other to set a Standard Service Offer (SSO) for choice-ineligible customers including those on the Percentage of Income Payment Plan (PIPP) and those who have not adhered to a payment arrangement within the previous 12 months.

Vectren Energy Delivery of Ohio

Vectren’s auction was similar to the Dominion proceedings and was held in August 2008. The final bid for the adder was $2.35 per Mcf. Unlike Dominion, the adder will be in effect through March 2010. As in the Dominion auction, the OCC and PUCO found that the results were fair and reflected a market rate. The results will affect Vectren customers who receive their natural gas from the utility and not from an alternative supplier.

The OCC supported both auction processes and believes that going to a market-oriented approach should result in lower prices for Ohio consumers.

Defective natural gas risers to be repaired, replaced

(Cases 07-237-GA-AAM, 07-0831-GA-AAM, and 08-0632-GA-AAM)

During 2008, the replacement of potentially defective natural gas risers was a key component of distribution rate cases filed with the Public Utilities Commission of Ohio (PUCO) by each of Ohio’s four major investorowned natural gas utilities. A natural gas riser is the vertical portion of a customer’s service line connecting the primary distribution line to the customer’s meter.

In the wake of a November 2006 PUCO staff report that found 34 percent of all plastic gas risers in Ohio to be prone to leaks and failures if improperly installed, Columbia Gas of Ohio, Dominion East Ohio Gas and Vectren Energy Delivery of Ohio filed requests with the PUCO in 2007 to collect costs incurred during investigation and replacement of faulty risers as part of future rate cases. The Office of the Ohio Consumers’ Counsel (OCC) argued against these proposals, because these costs had already been included in base rates.

In April 2008, the PUCO approved an agreement among the OCC, the PUCO staff, Columbia Gas of Ohio and other concerned parties that created a resolution of riser safety issues at a substantially reduced cost to customers. The OCC had determined that Duke Energy, another Ohio natural gas utility addressing gas riser concerns in its own distribution rate case, was able to resolve its riser issues using different equipment, which resulted in labor cost savings that Columbia Gas had not originally proposed.

Based on revised cost estimates and the more costeffective solution, the OCC was able to save customers an additional $10 to $15 million. As part of the agreement, Columbia Gas became responsible for the customer service line from the curb to the meter, would reimburse customers who replaced or repaired their natural gas risers on or after Nov. 24, 2006, and would replace all prone to leak risers by 2012.

After signing the agreement with Columbia, the OCC determined that it would not contest cost recovery for riser replacement submitted by either Dominion or Vectren as part of their respective distribution rate cases. However, in both cases, the OCC was able to negotiate caps on how much the utilities would be able to charge their customers. The riser repairs were included as part of Dominion’s and Vectren’s pipeline replacement plans.

 

Home Electric (Continued 2) Water