Agenda Date:                  May 10, 2000
  Item Number:                  
   Docket:                  UG-000597
  Company Name:          Cascade Natural Gas Corporation
  Staff:                            Yohannes Mariam, Rate Research Specialist
                              Merton Lott, Gas Industry Coordinator
                                      Mike Parvinen, Policy Research Specialist
                          
Recommendation :
Issue an order allowing the proposed tariff to become effective on Less Than 
Statutory Notice (LSN) in Docket UG-000597, to become effective May 11, 2000, 
as filed.
Discussion: 
On April 20, 2000, Cascade Natural Gas Corporation ( "CNG" or  "Company" ) 
filed tariff sheets in Docket UG-000597 to establish Schedule 687. This filing 
replaces a similar filing made by the Company on March 30, 2000, in Docket 
UG-000470 which was withdrawn to incorporate Staff's recommended changes. 
The proposal in Docket UG-000597 establishes an optional gas management service 
for customers who purchase their own gas supply and transportation agreements. 
CNG will manage the transportation and delivery of natural gas on the 
interstate pipelines, for customers who opt for this service. These services 
include daily pipeline nominations, review of all nomination confirmations, 
pipeline balancing, and monthly management reports. Furthermore, CNG will 
attempt to mitigate unused firm transportation costs for these customers by 
utilizing the natural gas capacity release market.
CNG proposes to implement two charges under this schedule - a management fee 
and a mitigation fee. The management fee covers the general services provided 
under this schedule. The mitigation fee is charged when CNG actually releases 
customer-owned (controlled) capacity securing revenue to offset firm capacity 
costs incurred by the customer.
The management fee has a minimum rate $0.005 per MMBTU and maximum rate of 
$0.10 per MMBTU. The mitigation fee is indicated to be some percentage, 
variable rate to be set in contract, of the capacity release revenue obtained 
by CNG for the customer. The maximum mitigation fee is 100% of the capacity 
release revenue with a minimum fee of $50 per transaction. Both of these 
charges will be negotiated and stated in the contract with each customer. 
While not clearly stated in the cover letter, the proposed tariff represents a 
request by CNG for a banded tariff rate. Pursuant to RCW 80-28-075, upon 
request by a natural gas company, the Commission may approve a tariff that 
includes a banded rate (i.e., rate with a minimum and maximum) for any 
non-residential natural gas service that is subject to effective competition 
from energy suppliers not regulated by the Commission.
Staff believes the proposed tariff rates meet the requirements of the statute, 
and would agree that it is appropriate for these services to be provided under 
banded rates. The proposed services are subject to effective competition from 
energy suppliers not under the regulation of this Commission. The competitors 
to CNG for this service include the many marketers that provide capacity and 
commodity services to transportation customers. 
Staff has examined the appropriateness of the tariff bands included within this 
schedule. Staff would note that the analysis of the bands should concentrate on 
the floors set for each tariff rate, the $0.005 per MMBTU for the management 
fee and the $50 per transaction for the mitigation fee. With respect to the 
ceilings, it needs to be pointed out that these services are competitive and 
CNG would be unable to charge rates above a reasonable competitive level. In 
review of the floors proposed by CNG, Staff analyzed costs submitted by the 
Company to justify the rates. Staff believes that the proposed tariff floors 
must be at least equal to the long-run incremental cost of providing the 
service. Review of the provided cost data reveals that the proposed rate will 
cover the cost incurred to provide the services listed in Schedule 687. 
While the proposed tariffs are optional services served under banded rates, and 
while the Company has provided analysis that the proposed rates will cover all 
incremental costs, Staff believes that the CNG should bear the burden of proof 
that revenues from each service contract agreement is at least equal to the 
long-run incremental cost. Further, the Company is responsible to demonstrate 
that revenues generated under this tariff are optimized in favor of the core 
services provided by CNG, and that the results of providing these services do 
not increase costs to CNG's core customers. 
Conclusion: 
The proposed rate schedule is a request by CNG for banded rates. The services 
covered by these rates are subject to effective competition and therefore the 
use of a banded rate is appropriate. The floor prices proposed by CNG for both 
the management fee and the mitigation fee are above Company's incremental costs 
of providing these services. CNG should be held responsible for ensuring that 
its operation of this tariff Schedule optimizes benefits to the core customers. 
Finally, because the rates are appropriate, and they constitute a refiling of 
rates proposed to become effective May 1, 2000, the Commission should issue an 
order allowing rates to become effective on Less Than Statutory Notice (LSN) 
permitting the tariff filings in Docket UG-000597 to become effective May 11, 
2000, as filed.