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Washington Gas Seeks District Rate Hike, Decoupling and PBR

Citing declining consumption on its system and weather-driven demand variability, Washington Gas Light Co. filed with the District of Columbia Public Service Commission (PSC) to increase rates, implement a mechanism to decouple revenue from system throughput and requested performance-based ratemaking status.

Washington Gas said such measures would encourage energy efficiency by customers and allow them to share in benefits from the utility's "improved business efficiencies." About 151,000 of the utility's customers live in the District.

"The existing rates no longer reflect our business costs in the District of Columbia," said CEO James H. DeGraffenreidt Jr. "A number of factors have emerged in the more than three years since our last filing that have led to a mismatch between the cost of providing natural gas service and revenues currently allowed by the PSC."

Washington Gas said its rates have not increased in the district since 2003 (see Daily GPI, Feb. 11, 2003), despite inflation, rising labor and employee benefits costs, additional compliance-related expenses for new laws such as the Sarbanes-Oxley and Pipeline Safety Improvement acts, and a decline in natural gas usage following an increase in gas prices and subsequent customer conservation.

The proposed rates and charges will increase Washington Gas's overall annual District of Columbia revenues by $20 million, an increase of 7.7% overall. The typical residential heating customer in the district would see an increase of about $101.64 annually, or $8.47 per month.

Washington Gas also is seeking approval for two rate design changes: a revenue normalization adjustment (RNA) and a performance-based rate (PBR) plan.

The RNA would permit billing adjustments to reduce the effects of colder- or warmer-than- normal weather, customer conservation and other factors that affect revenue. It would remove the link between corporate profitability and the quantity of gas sold. Washington Gas implemented an RNA in Maryland in October 2005 and proposed the same mechanism in Virginia earlier this year. Similar proposals have been approved or are under consideration in 13 other states (see Daily GPI, June 14).

The PBR Plan would stipulate sharing of efficiency benefits between shareholders and ratepayers and allow the utility to forego regular rate cases. The utility said its plan builds upon components of the PSC Order in its 2003 rate case. With approval of the proposed PBR Plan, Washington Gas would agree not to request a base rate increase for three years.

Washington Gas proposes the rates and changes begin Oct. 1, 2007.

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