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Cascade Plans Decoupling Profitability from Delivered Volumes

Pacific Northwest utility Cascade Natural Gas Corp. said it has withdrawn its application for a Conservation Alliance Plan that was filed on Oct. 31 at the Washington Utilities and Transportation Commission (WUTC) but will pursue implementing a new rate design in its upcoming general rate case. The new rate structure would promote conservation and would not tie the company's profitability to the volume of natural gas that it delivers.

At a time when gas prices are rocketing to record levels and wholesale winter gas prices are likely to jump 20-70% for residential customers nationwide depending on location, the need for conservation has never been more apparent. Yet most gas utility rate designs typically link cost recovery and profitability to the amount of natural gas that utility customers use, creating a disincentive to promote conservation. That has been the case at Cascade Natural Gas, but late last year the company announced plans to come up with a new rate structure that would effectively "decouple" recovery of the cost of providing service from the volume of natural gas that customers use.

State regulators launched a proceeding earlier this year looking into the most effective rate structure to promote conservation. The WUTC issued a proposed rulemaking on the matter and decided that it would deal with utility rate restructuring designs of this type on a case-by-case basis.

Cascade filed its plan in the fall and decided to work out the basic details with WUTC staff and other parties. However, differences over how its baseline rates would be calculated using what were perceived to be outdated cost of service calculations -- it's last general rate case was 10 years ago -- forced the utility to back out of the separate proceeding. It now plans to submit the decoupling structure as part of new general rate case that it will file in the first quarter of next year.

"We listened and learned from the various interested parties, as well as the WUTC staff, during this process," said Jon Stoltz, senior vice president, regulatory and gas supply. "We believe that a general rate case, in association with our Conservation Alliance Plan, will assure all parties that we are working for the ultimate best interests of both our customers and Cascade."

Cascade believes all parties favor a decoupling mechanism that allows the company to continue to expand its conservation efforts without adversely impacting its ability to earn a fair and reasonable return.

The company also continues to work with regulators at the Oregon Public Utility Commission (OPUC) on a similar decoupling plan for Oregon. Cascade expects this process to be completed in January.

Its new rate design would include a deferred accounting type of decoupling mechanism where the utility would set a baseline margin per customer based on normal weather conditions, and then, after examining actual consumption, would assign a portion of the variance of actual and the baseline that would relate to weather and another component that would relate to conservation efforts. "Our earnings would no longer be affected by increasing the transportation of gas," Stoltz said during an interview with NGI.

Cascade serves 225,000 residential, commercial, and large industrial customers in the states of Washington and Oregon.

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