Marketers Slam CT Draft Unbundling Ruling
Gas marketers said last week a preliminary unbundling ruling by
the Connecticut Department of Public Utility Control (DPUC) allows
the state's local distribution utilities to erect "insurmountable
barriers to entry" into the retail gas market and will snuff out
what little competition exists today.
The major areas of concern are the steep penalties for daily
balancing and monthly cash-out provisions in the unbundling tariffs
of Yankee Gas Service (YGS) and Connecticut Natural Gas (CNG).
Marketers say the penalties can be "75 times greater" than those of
upstream pipelines and the cash outs allow the LDCs to charge
basically whatever they want.
"The commission has a stated policy of increasing transportation
and making sure all the customers in Connecticut enjoy the benefits
of competition. We don't think this decision is going to get us
there," Statoil Energy's Martha Duggan said on behalf the marketers
participating in the unbundling proceeding, who include AllEnergy
Marketing, Conectiv/CNE Energy Services, Enron Energy Services and
"All of the marketers are very concerned about the penalty
provisions generally that are related to daily balancing. We find
those proposed by Yankee Energy particularly [onerous]," said Susan
Kovino, director of government affairs for Enron Energy Services.
Yankee is proposing a $30/Dth penalty and a 10% tolerance on
daily deliveries throughout the year. Connecticut Natural is
proposing an initial penalty of $15/Dth for being out of balance on
a daily basis, but the penalty can escalate to $238/Mcf by the
fifth imbalance offense, the marketers noted in an Exception filed
with the DPUC last Wednesday. "That contrasts very sharply with
what other LDCs are requiring," said Kovino. "The kinds of
penalties Yankee is proposing usually are associated with a
critical day, a very cold day in winter. Not only would this be
year-round but it also would apply to over-deliveries."
Yankee's Chuck Goodwin, however, said the penalty levels are
nothing new. They've been in use for two and a half years. "Why do
we have a $30 penalty charge? We've had a $30 penalty charge since
our firm transportation program was approved in April 1996. And
we've had a $30 penalty charge in other rates for several years.
The difference is up until this point there has been no daily
balancing provision in our FT2 rates," which typically are more
economic for mid-sized commercial and industrial customers rather
than the largest customers. Without a balancing penalty in the FT2
rate schedule, however, many larger FT1 transportation customers
have migrated over to the more expensive FT2 service. Over time,
the more expensive FT2 service actually has been more economic
because transporters can avoid paying steep balancing penalties.
But that has meant Yankee's firm bundled sales customers have had
to pick up a growing tab for marketer and large transportation
"All [we're] doing is to take the FT1 balancing and penalty
provisions and applying them also to FT2 rates for the purpose of
eliminating the [subsidy] that is today being paid for by our sales
customers," said Goodwin. Yankee estimates the annual cost of
providing free balancing to FT2 customers over the last 12 months
was $2.1 million, paid for by bundled firm sales customers through
Yankee's purchased gas adjustment mechanism. "It's the DPUC's
objective to see that that subsidy goes away," he said. All of the
revenue generated from penalties will flow back to bundled sales
customers through the PGA.
But marketers claim charging daily balancing penalties to FT2
customers "threatens to eliminate not only the possibility of a
workably competitive marketplace in Connecticut, but also the
economics of the current transportation programs offered by Yankee
Gas Service Co. and Connecticut Natural Gas Corp."
Not true, says Goodwin. Most marketers doing business behind the
citygate currently can avoid paying penalties by buying Yankee's
optional balancing service for a fee based on upstream pipeline and
storage tariffs. The service allows marketers to deliver whatever
quantity they want to the citygate. "That same service will exist
in the future. So the issue they have most disagreement with us
about frankly doesn't impact the majority of the load that they are
serving. I think their comments are somewhat overstated," said
In their exception last week, the marketers said Yankee's
argument about the optional balancing service is what "one would
expect from a protected, regulated monopoly. Essentially, YGS is
saying, if a supplier does not like or cannot take the risk of
incurring YGS's excessive daily balancing penalties, it can
purchase another monopoly service that no other entity can provide.
Therefore, in practice, the 'optional' balancing service is no
option at all." Furthermore, the marketers said, the optional
balancing service fees are nearly as excessive as the daily
The marketers urged the DPUC to reject, modify or at minimum
delay implementation of daily balancing penalties until LDCs file
another unbundled rate schedule next year with different balancing
requirements. If in its final ruling the department allow the LDCs
to go forward with their proposed penalties, it should at least
allow marketers to trade imbalances as FERC has done in the
interstate pipeline transportation market, the marketers said.
Marketers also took issue with the DPUC's preliminary approval
of monthly cash-out provisions for Connecticut Natural and Yankee
that will charge the LDCs' highest monthly commodity costs to
marketers for under-deliveries of more than 5% to the citygate
during the month and will allow the LDCs to pay their lowest
commodity costs to marketers for over-deliveries more than 5%.
Marketers recommended using a well known index for calculating
cash-out payments for imbalances. Goodwin said Yankee chose not to
use the index-based method because Yankee believes it would be more
different from actual costs of service that the high-low method.
Southern Connecticut was the only LDC willing to use an index-based
"Unlike the fair indexed-based cash outs the marketers thought
were required by the department's decision.as adopted by Southern
Connecticut Gas Co., YGS and CNG are able to set their own cash out
prices by running their propane-air peaking systems in off-peak
periods or imprudently buying above-market-priced gas when
market-priced gas is available," marketers said. "If YGS or CNG
buys 1 Mcf of $10 gas in a month, the cash out base will be $10,
even if the published indices throughout the month were in the
range of $2/Mcf."
Statoil's Duggan noted Yankee's cash out provisions are much
more strict and onerous than what the LDCs themselves live under
with the interstate pipelines. "It's a big risk for any marketer to
get into that market. We're hopeful that with a few months of
operational experience under these new rules that we can go back to
the commission and say this isn't working. We would hope the
commission would then take another look at its decision." The DPUC
draft order ruled the LDCs can use the cash-out proposals filed but
also must calculate cash out using a spot market index. The two
methods will be evaluated at a later date.
Oral arguments in this case take place Oct. 26 and a final
department decision on the matter is due Oct. 28.