BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION WASHINGTON UTILITIES AND ) TRANSPORTATION COMMISSION, ) ) DOCKET NO. UG-970932 Complainant, ) ) vs. ) SECOND SUPPLEMENTAL ) ORDER REJECTING TARIFF NORTHWEST NATURAL GAS COMPANY, ) FILINGS AND AUTHORIZING ) REFILING; AND ORDER Respondent. ) APPROVING AND ADOPTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ) SETTLEMENT AGREEMENT SUMMARY PROCEEDINGS: On May 30, 1997, the Northwest Natural Gas Company (NW Natural or the Company) filed with the Commission certain tariff revisions designed to effect a general increase in its rates for natural gas service. The stated cumulative effect of these tariff revisions increases annual revenue by approximately $1,201,404 plus an amount to amortize deferred Financial Accounting Standards (FAS) 106 expense. The operation of these tariff revisions was suspended by order of the Commission issued June 25, 1997. On October 3, 1997, the parties designated below filed with the Commission a Settlement Agreement constituting a complete settlement of all issues raised in this docket by the Company. The Settlement Agreement proposes to increase total annual revenues in Washington by approximately $608,000, effective no later than November 1, 1997. HEARINGS: The Commission held hearings on September 17, 1997 in Olympia, Washington and on October 20, 1997 in Vancouver, Washington. The hearings were held before Chair Anne Levinson, Commissioner Richard Hemstad, and Commissioner William R. Gillis, and Administrative Law Judge C. Robert Wallis. PARTIES: NW Natural was represented by Susan Bergles, attorney, Portland, Oregon; Staff of the Washington Utilities and Transportation Commission by Robert Cedarbaum, assistant attorney general, Olympia; the public by Robert Manifold, assistant attorney general, public counsel section, Seattle; and intervenor Northwest Industrial Gas Users (NWIGU) by Paula Pyron, attorney, Portland, Oregon. COMMISSION: The Commission accepts the Settlement Agreement of the parties as a complete resolution of all issues raised in this docket by the Company’s filing. The Commission rejects the proposed tariff revisions filed May 30, 1997, and authorizes the Company to refile tariffs consistent with the Settlement Agreement and this Order, and reflecting a total increase in annual revenues of approximately $608,000 with a stated effective date of ______, 1997. MEMORANDUM I. PROCEDURAL HISTORY On May 30, 1997, the Company filed revisions to its existing tariffs to effectuate a general increase in rates of $1,201,404 plus an amount to recover deferred FAS 106 expense, with a stated effective date of July 1, 1997. The Commission, suspended the operation of the proposed tariff revisions by order dated June 25, 1997. A prehearing conference on September 17, 1997 resolved preliminary and procedural matters. The parties filed their Settlement Agreement, included in the record as Exhibit 22, on October 3, 1997, as a complete and integrated settlement of all issues raised by the Company’s filing in this proceeding. The Commission held a hearing on October 20, 1997 in Vancouver, Washington to hear testimony on the Settlement Agreement. Company witness Bruce DeBolt and Staff witnesses Henry McIntosh and James Russell testified in support of the Settlement Agreement. Public Counsel and counsel for the NWIGU were available to answer questions from the Commission. ___ members of the public also presented testimony on the Settlement Agreement. II. SETTLEMENT AGREEMENT The parties’ Settlement Agreement is summarized as follows: Revenue Requirement and Rate Spread: The Company’s general revenues in Washington will increase annually by $549,192, to be applied on an equal percent of distribution margin basis. The effective date of tariffs to implement this change is November 1, 1997 at the latest. Rate Design: The therm usage components embedded currently in the customer charge of residential Schedules 2 and 24, and commercial Schedule 3, are removed. Residential customer charges under Schedules 2 and 24 are set at $4.00 per month. Commercial customer charges under Schedule 3 are set initially at $6.00 per month, increasing to $8.00 per month in 1998 and $10.00 per month in 1999. These increases in commercial customer charges will be offset exactly by decreasing Schedule 3 energy charges based upon normalized volumes for the June 30, 1996 test year utilized for this case. Other existing schedules are eliminated or new schedules added, as more fully described in the Settlement Agreement. The Schedule 55 sales rate is replaced with a transportation rate that includes an optional sales service for eligible customers. Main Extension Policy: The Company’s main extension policy is revised to include a construction allowance of 5.0 times base distribution rate. The parties will then seek to develop a customer rate surcharge to reflect the additional cost to serve new residential and commercial customers who desire gas service, but not under the terms of the revised main extension policy. Amortization of Deferred FAS 106 Expense: Previously deferred FAS 106 expense is amortized through a temporary surcharge until the account balance, which will generate interest at the Company’s short-term cost of money, is fully recovered (approximately 5 years). At the time the Settlement Agreement was filed, the annual amount to be amortized was approximately $58,800. Ongoing FAS 106 expense will be included in permanent rates. No further deferrals of FAS 106 expense will be made. III. COMMISSION DISCUSSION AND DECISION The Commission must review the Settlement Agreement pursuant to applicable statutory standards. Under RCW 80.01.040(3), the Commission shall regulate in the public interest, as provided by the public service laws, the rates, services, facilities and practices of all persons engaging in the business of supplying any utility service or commodity to the public for compensation, and related activities, including gas companies. Chapter 80.28 RCW regulates the operation of gas companies; specifically, RCW 80.28.010 provides that charges by gas companies shall be just, fair, reasonable and sufficient. All parties to this proceeding are signatories to the Settlement Agreement. The agreement was presented to the Commission for its approval as an integrated, comprehensive settlement of all issues raised in this case. INSERT BASED UPON HEARING AND COMMISSIONERS’ QUESTIONS The Commission has reviewed the Settlement Agreement and the record generated in this proceeding to date, and is satisfied that the parties’ agreement is in the public interest, and will result in rates that are just, fair, reasonable and sufficient. The Commission will adopt and approve the Settlement Agreement in its entirety, and will order the filing of tariffs to reflect the Company’s new revenue requirement consistent with the Settlement Agreement and this Order. FINDINGS OF FACT 1. The Washington Utilities and Transportation Commission is an agency of the state of Washington vested by statute with the authority to regulate the rates, rules, regulations, practices, accounts, securities, and transfers of public service companies, including gas companies. 2. NW Natural is engaged in the business of furnishing gas service within the state of Washington as a public service company. 3. On May 30, 1997, NW Natural filed certain tariff revisions designed to effect a general increase in its rates for gas service, the cumulative effect of which is to increase annual revenues by $1,201,404 plus an amount to amortize deferred FAS 106 expense. The Commission entered an order on June 25, 1997 suspending the operation of these tariff revisions. 4. On October 3, 1997, the parties filed a Settlement Agreement proposing to resolve all issued raised by the tariff filing in this docket. The Settlement Agreement proposes a general increase in annual revenues in Washington of $549,192 to be applied on an equal percent of distribution margin basis, effective no later than November 1, 1997. The Settlement Agreement also proposes a temporary surcharge to amortize deferred FAS 106 expense of approximately $58,800 annually, as well as changes to residential and commercial customer charges, changes to main extension policy, and the elimination and addition of other identified schedules. In total, the Company’ s annual revenue requirement increases by approximately $608,000 under the Settlement Agreement. CONCLUSIONS OF LAW 1. The Washington Utilities and Transportation Commission has jurisdiction over the subject matter and the parties in this proceeding. 2. The Settlement Agreement contained in Exhibit 22 and resolving all issues in these proceedings is consistent with the public interest. 3. The tariff revisions filed by the Company on May 30, 1997 now under suspension should be rejected. The Company should be authorized to refile tariff revisions consistent with the Settlement Agreement and this Order. 4. The Settlement Agreement should be approved and adopted in its entirety. Tariff revisions prepared in accordance with the Settlement Agreement and this Order will result in rates that are just, fair, reasonable and sufficient. ORDER 1. The Settlement Agreement is approved and adopted in its entirety as a full resolution of all issues in these proceedings. 2. The proposed tariff revisions filed in this proceeding are rejected in their entirety. The Company is authorized to refile tariffs consistent with the resolution of this matter contained in the Settlement Agreement and this Order, and to reflect an increase in the Company’s annual revenue requirement in Washington of approximately $608,000 to become effective on ______, 1997. 3. The compliance filing required by this Order is limited in scope strictly to effectuate the terms of the Commission’s Order. The refiled tariff pages should bear the notation that filing is by authority of the Commission’s SECOND SUPPLEMENTAL ORDER IN DOCKET NO. UG-970932, and should be filed to permit Staff one working day to review the tariff pages prior to their _______, 1997 effective date. 4. The Commission retains jurisdiction to effectuate the provisions of this Order. DATED at Olympia, Washington, and effective this ___ day of October 1997. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION ANNE LEVINSON, Chair RICHARD HEMSTAD, Commissioner WILLIAM R. GILLIS, Commissioner