Washington Gas Light Co. reached a settlement in a pending rate case with Virginia’s State Corporation Commission that provides “a modest increase” in distribution rates as well as revenue decoupling and performance-based rates, the company said Monday.

The settlement will increase rates by $3.9 million annually. Washington Gas implemented an interim rate increase on Feb. 13. The company will refund amounts collected from customers that exceed the final, approved rate increase.

As part of the settlement agreement, Washington Gas will freeze its billed delivery service rates in Virginia for the next four years. It also will implement a weather normalization adjustment mechanism and a performance-based rate plan that allows for sharing of cost savings with customers.

The weather normalization adjustment allows Washington Gas to credit customer bills when the weather is colder than normal and gas usage increases. Conversely, Washington Gas will attach a surcharge to customer bills when temperatures are warmer than normal and gas usage decreases. Credits and surcharges would apply to natural gas used between October and May and would be reflected on bills mailed each August.

In October 2005, Washington Gas implemented a revenue normalization mechanism in Maryland that addresses the effect of variances in normal customer usage that can be caused by weather and other factors (see Daily GPI, Dec. 22, 2006). According to the American Gas Association, similar rate design proposals have been approved or are under consideration in 21 states and in the District of Columbia as of June 1 (see Daily GPI, June 14, 2006).

Washington Gas also will implement a performance-based rate plan, which supports the company’s ongoing operational efficiency initiatives as well as its efforts to manage pipeline and storage assets more efficiently. As operational efficiency goals are achieved, the expected savings, less the cost to implement a major outsourcing initiative, could produce earnings above the established target, which, along with additional net revenues from asset management transactions, will be incorporated into an earnings sharing mechanism. The company automatically will share 75% with customers, and 25% with investors.

Other components of the settlement include provisions for the recovery of hexane costs incurred in the company’s gas conditioning facilities and recovery of the gas cost portion of uncollectible expense. These items are addressed separately through the purchase gas adjustment clause.

Headquartered in Washington, DC, Washington Gas is a subsidiary of WGL Holdings Inc.

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