Recent declines in natural gas bills would have been evengreater if it hadn’t been for one-time LDC restructuring charges,according to a Gas Research Institute study. Still LDCs have cutnon-gas costs substantially.

The study, “Historical Cost Trends and Regulatory Initiatives inthe Local Gas Distribution Industry” (GRI-99/0031), concludes thatcommission-approved utility restructuring costs mask actualdeclines in a utility’s main costs of doing business-delivering andstoring gas. The study, compiled by GRI and Energy andEnvironmental Analysis Inc. of Arlington, VA, based its findings ona detailed analysis of cost data from 1981 to 1995.

“Local distribution companies have been undergoing a sea-changein the way they do business,” said Marie Lihn, GRI project manager.”This study underscores just how sweeping those changes have beenand confirms that utilities have been successful in aggressivelyreducing and controlling their costs in the new, competitiveenvironment. The data also suggest that gas consumers might expecta decline in burnertip prices once utilities complete therestructuring transition.”

The study found:

All components of non-gas operations and maintenance expenses(distribution, storage, customer accounts, sales, and otherexpenses) declined on per-customer basis, except for administrativeand general expenses, which increased slightly;

Most of the increases in administrative and general expensesoccurred near the end of the 15-year period and were largelyattributable to one-time events, such as restructuring and othernon-recurring costs-especially salaries and benefits associatedwith work force-reduction packages;

The growth in administrative and general expenses largely offsetthe across-the-board declines in all other areas of operations andmaintenance costs;

Even with the restructuring costs, the distribution charge tocustomers was relatively stable during the 15-year period;

The distribution-charge component of retail prices contributesto lower burnertip prices, but it plays a much smaller role thandoes the decline in transmission rates;

Increased revenue from the residential and commercial sectorshave offset declining revenues from the industrial andelectric-generation sectors;

Traditional cost-of-service remains the dominant method of costrecovery for local distribution companies; and

Most incentive- and performance-based ratemaking programs andprice-cap regulations are modifications rather than replacements ofthe cost-of-service ratemaking concept.

In its analysis, GRI examined the components of burnertip pricesby industry segment and end-use sector, local distribution companycost and revenue data from 1980 to 1995, detailed cost data from 55gas utilities between 1990 to 1995, and state-regulatedcost-recovery mechanisms, including traditional cost-of-servicesratemaking and alternative regulatory models.

For information on the report or to order a copy, call KellyMurray at the GRI Baseline Center, (703) 526-7832.

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