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.”

Historically, going back to the 1990s when natural gas prices were $2.50-3.00/Dth Washington Gas saw a low level of customer response to price signals, Adrian Chapman, Washington Gas vice president for operations, regulatory affairs and energy acquisitions, told NGI. Still, customers did implement efficiency and conservation measures and the utility saw “more manageable levels of usage changes,” Chapman said.

But over the last five years with the escalation in gas prices increased conservation and efficiency by consumers has impacted utility revenues. In 1990 customer bills were split about 50-50 to commodity and delivery charges; now, commodity costs account for about two-thirds of bills, Chapman said.

Washington Gas said its rates have not increased in the district since 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.

The Washington Gas program in Maryland is based on one previously implemented by Baltimore Gas and Electric, Chapman said. Customers are still billed volumetrically and still realize savings when they conserve. “You still send a price signal to the customer that when they dial back on the thermostat or take any other initiative — invest in a new high-efficiency piece of equipment — they still save on the commodity portion of their bill,” Chapman said.

Similar decoupling proposals have been approved or are under consideration in at least 13 other states (see NGI, June 19).

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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