Agenda Date: March 25, 1998 Item Number: Docket: UG-980439 & UG-980440 Company Name: Puget Sound Energy (Gas) Staff: Hank McIntosh, Regulatory Consultant James M. Russell, Revenue Requirements Specialist Thomas MacLean, Rate Research Specialist Winnie Wong, Rate Research Specialist Recommendation: Approve the filings in Dockets UG-980439 and UG-980440 and issue an Order approving the Company’s request for Less than Statutory Notice effective April 1, 1998. I. Discussion: On February 24, 1998, Puget Sound Energy (PSE) filed its Purchase Gas Adjustment (PGA) and Deferred Gas Cost Adjustment (DGCA) filings with tariffs carrying an effective date of April 1, 1998. These filings are made to pass through to customers actual natural gas costs incurred by the Company. The original filings made on February 24, 1998, would have resulted in an increase of approximately $639,000 to the Company’s annual revenues. On March 16, 1998, the Company agreed to withdraw and refile its PGA/DGCA on Less Than Statutory Notice to incorporate several revisions (discussed below). After making these changes the Company’s refiling in these Dockets will result in an overall decrease of approximately $528,000. PSE gas serves approximately 542,000 customers in parts of Western Washington including King, Snohomish, Pierce, Thurston and Lewis Counties. Service is provided using resources from two interstate pipelines, two underground storage fields, as well as gas supplies from Canada, the Rockies, and the Southwest. II. PGA (Estimated Future Gas Costs): The purpose of the PGA filed in Docket UG-980439 is to set in the Company’s rates the estimated costs of natural gas purchases from its various suppliers for the upcoming year. This heating season has had moderate winter heating degree days compared to those in recent memory. The current commodity (mixed average) expectation for the near term is about $0.14/Thm and this compares reasonably with the estimates PSE uses here. The PGA filing will reduce the Company’s annual revenues by approximately $2.2 million. Proposed rate design changes in FERC Docket RP 96367 (which has been held open for further consideration as of January, 1998) has an interesting impact on the matter before us in these filings. The straight fixed variable design has been restructured to allow more recovery of fixed cost in the commodity component price. Docket UG-980439 & UG-980440 March 25, 1998 Page 1 This relieves the risk of ownership of firm capacity somewhat and at the same time reduces the value of released capacity. In the case of owned capacity, the pipeline’s bill is dependent more on usage, and has less of a fixed cost impact. In the case of releases, the capacity release revenue is reduced because the commodity component revenue flows to the pipeline, not the utility. Thus, other things equal, the same release will now bring fewer dollars to reduce fixed sunk costs than before this FERC decision. This impact shows itself as a smaller capacity release credit in the expected gas costs in this filing. III. Deferred Gas Cost Amortization (Historical Deferrals) Docket UG-980440 revises Supplemental Schedule No. 106, Deferred Account Adjustment, to return to customers approximately $15 million in historical natural gas cost over collections accumulated since May 1995. The net over collections result from offsetting over collections of gas supply commodity costs of approximately $25 million and under collections of gas supply demand costs of approximately $10 million. The Company is proposing to refund these amounts over a two year period. The Company’s original filing has been revised in this Docket to correct several minor findings which the Company has agreed to make. Among them are revisions to correct the deferrals to include the recovery of upstream storage costs from transportation customers for daily balancing service. This correction is required so that the Company’s deferred balances are calculated in accordance with the Company’s last general rate case and cost of service orders. The refiling also corrects the allocation of interest in the deferred accounts and includes the effect of interest during the future amortization periods. The refiling also includes January and February actual deferred amounts rather than estimates that were included in the original filing. Finally, there is a slight correction to the calculation of the demand cost amortization increments. Currently in effect are amortization rates designed to refund approximately $18.4 million over two years. The net effect of removing the current refund amortization and applying the new refund rates will result in a net increase to the Company’s annual revenues of approximately $1.7 million. IV. Summary The net effect of the PGA and deferral amortizations will result in the following per unit and overall revenue decrease for the following sales schedules: Per Thm. Revenue Percent Change Change Change Residential -$.00010 -$49,000 -.02% Comm. & Ind. -$.00056 -$133,000 -.12% Large Volume -$.00432 -$347,000 -1.70% Total -$528,000 The net effect of these filings on an average residential customer’s bill will be a reduction of $0.01 per month. V. Conclusion: This is the first PGA/Deferral filing from PSE since May 1995, and the first since the merger of WNG and Puget Electric which formed PSE. The amortization activity and magnitude reflects reasonable accounting of the gas merchant activity during the deferral period. The short term forecast of average prices is reasonable and in line with Staff expectations and recent experience. Staff therefore recommends that the filing be approved with Less Than Statutory Notice effective April 1, 1998.