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Dominion Base Rate Hike Challenged in Ohio

The Office of the Ohio Consumers' Counsel (OCC) has asked the Public Utilities Commission of Ohio (PUCO) to dismiss a Dominion East Ohio (DEO) application for an increase in gas distribution rates because the utility has failed to publish complete public notices of its application, which has since been consolidated with an infrastructure replacement program, the OCC said. Also last week, an auction for gas supply raised the rate that standard service offer (SSO) customers will pay if they buy their gas supply from DEO.

The OCC says Dominion East Ohio's rate case proceeding has been transformed from a "straightforward traditional request" to a "more complex proceeding that now contemplates potential future rate increases for a $2.6 billion Pipeline Infrastructure Replacement [PIR] program. In the rush to making this transformation, the company and the commission have not provided DEO customers with the notice specifically required..."

The OCC wants the rate case dismissed or, in the alternative, wants the PUCO to dismiss the PIR application from the rate case. DEO filed its PIR application in February. Over a 25-year span, DEO hopes to replace nearly 20% of the company's 21,000-mile pipeline system.

DEO filed its base rate increase application one year ago (see NGI, July 23, 2007). Last month the OCC said DEO has failed to prove its need for a base rate hike and its request should be rejected (see NGI, June 30).

"It must go without saying that customers could use -- and would, in fact, expect -- information regarding a future $2.6 billion program that will result in hundreds of millions of dollars in revenue requirements in future cases to customers as part of the substance of the application," OCC said in its filing last Monday with the PUCO.

"The potential magnitude of the Pipeline Infrastructure Replacement application eclipsed the already significant base rate increase requested in the Aug. 30, 2007 rate case application. The $2.6 billion in Pipeline Infrastructure Replacement costs is equivalent to hundreds of millions of dollars in revenue requirements over the next 25 years."

With regard to the gas supply auction, beginning Sept. 1, DEO sales customers will pay the national market price for gas, plus $2.33/Mcf. The new $2.33 adder is significantly higher than the $1.44/Mcf adder established by an auction held in August 2006.

"The new retail price adjustment demonstrates that the wholesale natural gas market remains capable of providing a better commodity price for Dominion's customers than the gas cost recovery mechanism did in the past," said Public Utilities Commission of Ohio (PUCO) Chairman Alan R. Schriber. The commission agreed with PUCO staff's post-auction conclusions that a retail price adjustment of less than $2.50/Mcf above the monthly Nymex settlement price for gas futures was a reasonable benchmark by which to evaluate auction results.

Names of the winning bidders will not be provided for 60 days or until gas transmission pipeline agreements are completed in order to protect the bidders' positions in negotiations with pipeline companies for the incremental capacity necessary to meet their obligations as SSO suppliers.

World Energy Solutions, the auction manager retained by Dominion, conducted a descending clock auction last Tuesday. Bids were entertained from 14 wholesale suppliers based on fixed adjustments to the Nymex settlement price. Five suppliers agreed to provide the gas needed to serve the 400,000 of Dominion East Ohio's 1.2 million customers that do not already buy gas from competitive suppliers under Energy Choice or municipal aggregation programs. About 800,000 of the company's customers buy gas from competitive suppliers under the Energy Choice program.

The auction extends the first phase of Dominion East Ohio's planned transition to a more competitive market for gas service, a pilot program that began in October 2006. Last month Dominion was cleared to enter the second phase of its transition (see NGI, June 23).

Through March 31, 2009, Dominion East Ohio sales customers will continue to pay an SSO price that varies monthly based on the New York Mercantile Exchange (Nymex) month-end settlement price -- plus the new retail price adjustment of $2.33/Mcf. This adjustment includes the cost of transporting gas from producing areas to Ohio. An auction held Aug. 29, 2006, set the previous retail price adjustment of $1.44/Mcf.

Two new auctions, to be held in February 2009, would kick off Phase 2 of the program.

One auction would set the SSO retail price adjustment covering April 1, 2009 to March 31, 2010. The SSO would include only those customers participating in the company's percentage of income payment plan and others not eligible to participate in Energy Choice.

The second auction would determine the retail price adjustment for a new Standard Choice Offer (SCO), covering the same period. Under the SCO, the company would continue buying gas for choice-eligible customers but would assign them to a specific supplier and identify that designated supplier on the customer bill. Customers that do not wish to receive service from their designated supplier would be free to enroll with a different Energy Choice supplier or participate in a governmental aggregation program.

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