Piedmont Gas loses bid to change rate structure

Regulators say plan to charge more for reduced use is unfair By Anne Paine • THE TENNESSEAN • January 26, 2010 Piedmont Natural Gas lost its bid Monday for a plan that would allow the utility to raise rates for residents when less gas is used, after Tennessee Regulatory Authority directors said the proposal as presented was unfair to customers. The panel of directors voted 3-0 to deny the rate structure change, which Piedmont, formerly called Nashville Gas, had unsuccessfully asked the legislature to authorize last year. Piedmont, which offered to fund a three-year conservation program, said less gas use means a cost saving for customers, even though rates would increase to make up for its profit loss. "With this petition it's abundantly clear to me that Piedmont circumvented the Authority last year when it filed legislation in the General Assembly, said Director Mary W. Freeman. "And now after the General Assembly expressed a desire to study the decoupling issue, Piedmont is attempting to circumvent the General Assembly by filing its petition with the TRA." Such "decoupling" plans are intended to give a utility an incentive to encourage energy conservation by compensating it for reductions in use. Different plans can be found around the country, with some providing more protection for customers than others. One tricky point is whether gas use goes down because of a company's conservation efforts or because of other factors. Directors fault plan The way this plan was written fell short on several fronts, according to the three voting directors. "The conservation programs proposed by Piedmont lack specificity and measurements that would allow a determination as to whether conservation would actually be achieved," said Freeman, who made the motion to deny the request. She and Directors Eddie Roberson and Kenneth C. Hill took Piedmont to task for wanting to make 2003 data, which include everything from gas usage to the number of customers served, its starting point for figuring out compensation for lost revenue. "Piedmont's last rate case was filed in 2003, making the information pertaining to Piedmont's revenues stale," Freeman said. A rate case is used by the Tennessee Regulatory Authority to determine how much a utility can charge customers. Frank Yoho, with Piedmont's headquarters in Charlotte, N.C., said the company was disappointed with the decision but hasn't given up on decoupling. "The intent around it is to continue to cover our costs to operate our system safely and reliably, but the real goal is to help customers get their bills down," he said. The Consumer Advocate and Protection Division of the Tennessee Attorney General's Office submitted an analysis of the proposal showing that rate hikes in the first year — if 2003 figures are used — would result in $1.9 million more for the company, while lost revenue from less gas use that year would amount to $20,000. Natural Gas which typically makes up the largest part of a customer's bill, has prices that fluctuate according to the market. Other charges include fees for service and equipment maintenance. A rate hike introduced in North Carolina after Piedmont adopted a plan similar to what it proposed in Tennessee left residents with increases over three years that included $50 million to cover lost revenues from less gas use, without indications that conservation programs caused the decrease. If the plan had been in place in Tennessee since 2003, the company would have brought in an extra $19 million, versus a loss of $20,000 a year for Piedmont, the state consumer advocate division maintains. In a Tennessean story on the issue last week, Yoho called the $19 million figure "fairly high." Safeguards criticized With a monopoly such as Piedmont, special care must be taken, Director Roberson said. "Also, the risk between utility and consumer needs to be more properly balanced," he said in the TRA meeting. Piedmont's decoupling measure "fails to provide adequate safeguards," he added. Much has changed since 2003, so a rate hearing would be appropriate, he said. Rate setting hearings require a utility to open its books and provide current information. "To consider such a dramatic change in rate design as proposed by the company — at a minimum — the TRA needs to have current usage and financial data from the company, not data almost seven years old from a 2003 rate case where conservation was not considered," Roberson said. Director Hill said Piedmont's proposal might actually discourage conservation and has not been proved to be needed. "Declining customer usage is not a new trend," he said. "It's been going on for a couple decades." Mike Hassell, an identity theft risk management specialist in the Priest Lake area, said he was pleased with the TRA's decision "How can you expect us to save, and then they're going to charge us more because they've got to keep their profits up? No, you cut back in your business." Yoho said he didn't know at this point what the company's next step would be. "A rate case clearly — from all directors — was a direction they were pointing us in," he said. The company had opted not to do that so it could more quickly roll out conservation programs that would save residents money, he said. A rate case can cost $300,000 to $500,000. "We thought this was a common-sense approach," Yoho said.