NGI The Weekly Gas Market Report / NGI All News Access

Virginia Regulators Warily Approve VNG Rate Decoupling Plan

Acknowledging that customers' natural gas bills could be going up in difficult times, Virginia's State Corporation Commission (SCC) in late December approved a conservation and rate decoupling plan for Virginia Natural Gas (VNG) that provides incentives for residential customers to reduce consumption. VNG is guaranteed a certain level of revenue under the approved rate decoupling plan whether or not customers use less gas.

Under the program, initially approved for three years, VNG expects to spend around $6.6 million for various conservation programs to provide monetary incentives to customers to replace furnace filters, purchase efficient water heaters and conduct seasonal home energy audits. Incentives also would be provided for customers to install programmable thermostats.

All of VNG's residential customers will see a new line item on their monthly bills that represents a sales adjustment. The revenue normalization adjustment rider approved for residential customers -- whether or not they decrease their individual natural gas use -- will allow VNG to receive around 25% more for the nongas portions of their customers' bills. However, customers participating in the conservation programs could achieve savings on the gas portions of the bills if they reduce consumption, the SCC noted.

VNG estimated that customers could save $39.5 million over a 10-year period. According to the utility, "widespread conservation would diminish gas demand and, if significant enough, could dampen natural gas commodity prices."

Still, the SCC acknowledged that the conservation program may cause some pain for certain customers. "While we approve the plan herein pursuant to [law], we must acknowledge that the ultimate price that VNG's residential customers will pay for nongas service under the plan may be higher than the frozen rates established by the commission" in a 2006 performance-based rate case, which SCC approved to ensure "rate certainty" as represented by VNG (see NGI, Jan. 30, 2006; July 11, 2005).

"If a customer's bill goes up, calling it a sales adjustment -- as opposed to a rate increase -- does not change the fact that the customer's bill is higher than it otherwise would have been," SCC stated. "This is especially relevant at a time of economic hardship when many of VNG's customers are struggling to pay their monthly bills and may be facing tremendous uncertainty about their employment security."

The commissioners noted that when VNG filed its application last July, the price of natural gas at Henry Hub was $13.31/MMBtu; by Dec. 1, the price had fallen to $6.43. "Whether prices will remain this low, go even lower, or skyrocket in the future is unknowable," SCC stated. "The quantity of savings to customers on the volumetric portion of their bills from reduced consumption obviously moves in concert with gas prices..."

The SCC stipulated that it could modify the plan after the first year. VNG also has to reapply to continue the program after three years. The 27-page order is filed under Case No. PUE-2008-00060 at www.scc.virginia.gov.

©Copyright 2009 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.