Agenda Date:  April 24, 1996
Item Number:   


DOCKET:  UG-960453

Company Name: Cascade Natural Gas Corporation 

Staff:   Phillip Popoff, Utilities Rate Research Specialist
Mike Parvinen, Revenue Requirements Specialist
   
RECOMMENDATION:

Issue a Complaint and Order suspending the tariff revisions filed in Docket 
UG-960453 and set the matter for hearing, while allowing the rate reduction to 
go into effect on May 1, 1996, on a temporary basis.

DISCUSSION:

Cascade Natural Gas Corporation (Cascade or the Company) serves approximately 
110,000 customers in various areas situated primarily along Northwest 
Pipeline.  Washington cities served by Cascade include:  Bellingham, Bremerton, 
Yakima, Walla Walla, Aberdeen, Anacortes, Mount Vernon, Arlington, Stanwood, 
Port Orchard, Poulsbo, Siverdale, Shelton, and several others.

On April 1, 1996, Cascade filed to revise tariffs for changes in purchased gas 
costs, with an effective date of May 1, 1996.  The Company's proposed purchased 
gas adjustment (PGA) filing would reduce the annual cost of gas by $2,108,440.  
This corresponds to a decrease of $0.02675/therm for sales customers.  The 
impact on typical residential bills is a reduction of 5.09%, and a reduction of 
5.54% for typical commercial customers.  In this PGA filing, Cascade has 
proposed to increase the allocation of pipeline capacity on Northwest Pipeline 
to its Washington core customers, the cost of which is more than offset mainly 
in lower commodity gas costs.  The Company also proposed a reduction in 
Washington's allocation of PGT capacity.   Cascade has also proposed to include 
additional peaking supply contracts in this PGA filing.

Cascade initially filed to change its PGA rate on December 29, 1995, with an 
effective date of February 1, 1996.  Due mainly to Staff's concerns, the 
Company withdrew that filing, in order to give the parties time to resolve 
these concerns.  During this time the Company was able to alleviate some of 
Staff's concerns; Staff's outstanding concerns are discussed below.  Cascade, 
Public Counsel, and Staff all agree that the Company's current PGA rate is too 
high, but do not agree on the magnitude of the adjustment.  While Staff 
believes the PGA rate should be lower than Cascade proposed in this filing, 
continued application of the current rate will continue to exacerbate the 
problem of accumulating excessive deferral balances, which was discussed in the 
Company's Docket UG-960453
April 24, 1996
Page 1
deferral filing.  Therefore, Staff recommends that the Company's proposed rate 
decrease be implemented on a temporary basis, which may be reduced further, as 
a result of a Commission approved settlement or through the hearing process.  

Staff's main concern with the filing at this point focuses on the Company's 
management of costs associated with excess transportation capacity, similar to 
Staff's concern with Cascade's deferral filing.  Comparing the Company's peak 
design day demand forecast for the 1995-96 heating season with the level of 
transportation capacity Cascade proposes to allocate to Washington core 
customers, reveals that Cascade is requesting to assign Washington core 
customers approximately 33% more capacity than these customers require; the 
increase in excess capacity for the 1995-96 heating season is due to Cascade's 
proposal to increase Washington core customer's allocation of Northwest 
Pipeline transportation capacity and the addition of the two bundled peaking 
supply contracts.  This 33% excess capacity would not be needed to serve core 
customer demand, even under the most severe of Cascade's weather scenarios used 
in the Company's least cost planning process.  While, Staff does not have a 
position regarding the prudence of this level of excess capacity, Staff is 
concerned that Cascade did not include any offsetting revenue from such things 
as capacity releases or offsystem sales, in estimating its prospecitve gas 
costs.  With 33% more capacity than customers need, Cascade should be able to 
obtain offsetting revenues through capacity releases and offsystem sales, which 
would offset the cost of this excess capacity.  Failing to include such 
offsetting revenue to mitigate excess capacity of this magnitude would result 
in PGA rates that would be higher than expected costs, and might contribute to 
accumulation of deferral refunds in the future.  

Therefore, Staff recommends that the Commission issue a Complaint and Order 
suspending the tariff revisions filed in Docket UG-960453 and set the matter 
for hearing, while allowing the rates as filed to go into effect on May 1, 
1996, on a temporary basis.