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Regulatory Activities – Natural Gas – Significant Cases

Public Service Commission (PSC)

WGL Distribution Rates--PSC Case 9267

On April 15, 2011, Washington Gas Light (“WGL”) filed an application for a $30 million, or 5.9%, rate increase. WGL also sought approval for a surcharge to recover pipeline replacement costs, to bypass the normal rate-setting process. OPC challenged WGL’s request for an increase and proposed a slight decrease of $263,000. In addition, OPC’s expert witness provided extensive testimony in opposition to the surcharge proposal.  In a November 14, 2011 order issues after a two week evidentiary hearing and submission of legal briefs, the PSC authorized an increase of only $8,408,128, only 25% of its original request. This will increase the average residential customer’s total monthly bill by $1.27, or about 1.07%. The PSC also agreed with OPC and rejected the pipeline replacement plan.

In substantially reducing the amount of the rate increase, the PSC’s decision accepted a number of revenue and expense adjustments proposed by OPC. The PSC denied WGL’s request to amortize costs relating to its outsourcing of its customer support, IT, purchasing and other functions, because WGL has not demonstrated a financial benefit from the outsourcing. Additionally, the PSC rejected adjustments for non-safety related plant additions, including the Springfield, VA Operations Center. The PSC also rejected certain management pay increases, and allowed only a portion of the long-term incentive compensation for executives, and reduced recovery of rate case expenses

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BGE Gas Distribution Rates--PSC Case 9230

On May 7, 2010 BGE filed requests for increases in both its electric and gas distribution rates.  BGE initially asked for a $42.4 million rate increase from its gas customers, which was later reduced to $30.4 million.  OPC filed expert testimony challenging BGE's proposal and recommending no more than $8 million increase in its gas rates.  Evidentiary and public hearings were held for several days in September and October 2010.  In a December 6, 2010 decision, the PSC granted BGE an increase of only $9.7 million, or only one-third of its request.  For full case information look at PSC web site, PSC Case No. 9230.

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Columbia Gas--PSC Case 9219

Columbia Gas is a natural gas utility serving customers in western Maryland. In January 2010, Columbia sought a $2.2 million rate increase under a “make whole” section of the PUC law available to small utilities. Columbia asked for the increase because of the ongoing costs to replace older gas mains that are deteriorating. OPC retained an expert witness to examine Columbia’s support for its request. Columbia, OPC and the PSC Staff reached a settlement. The Commission approved an increase of $1.65 million on June 14. This will result in a 3.95% increase in the distribution rates of residential customers.  See PSC Case 9219.

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WGL Depreciation Rates – PSC Case 9103

Depreciation may not seem like a very exciting topic, but depreciation rates for utility property can have a significant impact on rates paid by consumers. Washington Gas Light (WGL) filed a request with the Public Service Commission (PSC) to modify its depreciation rates in 2007. After extensive discovery, Office of People’s Counsel’s (OPC) expert witness filed testimony opposing WGL’s request, and recommended changes to WGL’s methods of calculating depreciation rates, particularly to require WGL on a go-forward basis to separate actual depreciation from future removal costs. OPC contended the estimates for these future costs were significantly and inaccurately inflated to the detriment of ratepayers. The main problem arose from the fact that, when lines must be retired from service after their “life” is up, there is a cost to remove them and those costs now exceed the salvage value of the retired lines. Since ratepayers must pay for the removal expense borne by WGL, it is crucial to ensure that the estimates for the cost of that future removal expense are accurately assessed. In an Order on Appeal issued in February 2010, the Commission generally supported OPC’s recommendations as to how to better estimate the future cost of retired plant removal. The Commission also set up a working group to propose a way to implement OPC’s specific recommendations for the accounting treatment of third-party reimbursements (TPRs). These are monies received by WGL from persons who either negligently damaged WGL’s lines or who requested that existing lines be moved for purposes of property or road improvement.  Over years TPRs can amount to millions of dollars.  Approval of the Company’s proposed tariffs will begin to be considered by the Commission in May 2010. Residential customers may see a rate decrease of approximately $2.30 per month as a result of the favorable decisions in this case. See PSC Case No. 9103.

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WGL Distribution Rates – PSC Case 9104

In 2007 Washing Gas Light (WGL) filed a request with the Public Service Commission (PSC) for a $34 million increase in its distribution rates. Office of People’s Counsel (OPC) expert witnesses filed testimony supporting only a $7.5 million increase. The PSC ultimately approved a $20.5 million increase, a substantial reduction from the Company’s request.

During the course of the proceeding, WGL, without any prior Commission authorization, entered into a $350 million outsourcing contract with the consulting firm, Accenture for a period of ten years. It is not unusual for utility companies to enter into outsourcing contracts for specific business operations.  For example, utilities companies sometimes outsource tree trimming services, billing services or even Information Technology services.  What was highly unusual in this case was the scope and extent of the outsourcing by WGL, which encompasses most of WGL’s customer service, human resource, IT, finance, accounting and supply chain business functions.

In a case of first impression, OPC urged the Hearing Examiner in this case to find that WGL was required under Maryland law to seek prior approval of this transaction with Accenture. OPC has argued that the scope of the outsourcing contract is so expansive that it had a “material affect” on WGL’s franchise rights, and required prior approval by the PSC. On October 6, 2008, OPC appealed the Hearing Examiner’s rejection of OPC’s arguments.

2011 UPDATE: In an August 22, 2011 Order, the PSC rejected OPC’s appeal, agreeing with the Hearing Examiner that prior approval was not required in this instance. However, the PSC observed that “the decision should not be interpreted as a license to outsource key core service delivery functions without notifying the Commission in a timely manner in advance of the proposed outsourcing, or to suggest that outsourcing contracts would never require approval.” Order, p. 10.

The PSC also noted that WGL justified its outsourcing on anticipated cost savings, and therefore, that the PSC expected to see and account for them in a pending rate case, Case 9267. In a November 14 order in that case, at OPC’s request, the PSC rejected WGL’s request for recovery of outsourcing costs since WGL had not demonstrated financial benefits from the outsourcing contract.

See PSC Case No. 9104  and OPC Appeal October 16, 2008 (Case No. 9104 Item #136) for more information.

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WGL Purchased Gas Adjustment Charges-PSC Case 9509

This proceeding involves the PSC review of the purchased gas charges for WGL for the period September 1, 2008 through August 31, 2009.  The purpose of the case is to permit a review of the adjusted fuel costs passed on to WGL customers.  OPC presented testimony challenging the collection of a minimum $2.1 million in gas charges from gas customers, and urged a refund.  This amount represents the amounts paid by WGL for over-deliveries of gas supply in the winter of 2009.  The Hearing Examiner agreed with OPC that a disallowance of the charges for these over-deliveries was justified because the excessive cost was never justified as a proper expense to be paid by WGL sales customers.  The Hearing Examiner noted that the primary beneficiary of the payments was WGL's affiliate, Washington Gas Energy Services (WGES).  WGL has filed an appeal, which was opposed by OPC.

2011 UPDATE: The PSC issued an order in September 2011, agreeing with OPC’s position and denying WGL’s appeal. The case was returned to the Hearing Examiner on remand to calculate the excess cost paid to the energy suppliers and to consider a civil penalty. WGL’s request for rehearing on the civil penalty issue was denied in a January 3, 2012 order. OPC will weigh in on the remand issues when a schedule is set.  See PSC Case 9509(d) for more information

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Gas Leaks on WGL Distribution System – PSC Case 9035

Washing Gas Light (WGL) operates a gas distribution system in Prince George’s County and Montgomery County, Maryland.  After the expansion of the Liquid Natural Gas (LNG) facility, WGL began to experience a significant increase in the number of gas leaks on its distribution system, particularly in Prince George’s County.  Since 2005 Office of People Counsel (OPC) has urged both the Public Service Commission (PSC) and Federal Energy Regulatory Commission (FERC), the federal oversight agency, to address safety issues on the WGL distribution system related to the expansion of the Dominion Cove Point LNG facility, located in Prince George’s County, Maryland.  OPC was a party in both the federal and state proceedings, and retained engineering consultants to provide technical assistance and expert testimony in the PSC case.

There was no doubt that the leakage rates increased after the expansion.  However, the parties disagreed about the source of the increase – the LNG expansion, or mechanical couplings and/or tar used when the distribution system was installed. OPC was disappointed by the “hands off” approach taken by both the federal and state agencies over the issue of gas leaks in the distribution system, which presented a potentially significant safety hazard. However, despite the mixed results, we have been able to secure additional safeguards for Maryland households.

In an unusual action, an appellate court required FERC to conduct further proceedings on the gas leak issue, which eventually resulted in an alternative distribution system routing of LNG injections. Further, in light of information that came to light in the FERC case, OPC filed a request to re-open the PSC proceeding in September 2008 to further review the safety issues. OPC reached a resolution with WGL that requires the Company to submit quarterly reviews of its progress in remediation of gas leaks on its gas distribution system. OPC ensured that these reviews incorporate a statistical analysis of leak rates to identify and respond to unusual leak rates as they undergo repairs on its system. This PSC cases remains open, and OPC continues to review WGL’s progress in maintaining a safe distribution system for its customers.  WGL continues to submit quarterly reports to the PSC, which are reviewed by OPC.

See PSC Case No. 9035  for more information.

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