Columbia Gas of Ohio’s Distribution Rate
In December 2008, the Public Utilities Commission of Ohio (PUCO) adopted an agreement, arrived at between the parties in the case that allows Columbia Gas of Ohio to increase the rates it charges for natural gas distribution service. The PUCO also approved the company’s proposal to implement a new “levelized” residential distribution rate structure that better reflects the fixed cost nature of delivering natural gas.
What are distribution rates?
Natural gas bills are comprised of two main parts – the cost of the gas and the cost of delivering the gas to homes. The cost of natural gas, which annually makes up 75 to 80 percent of customer bills, is not a part of this rate case. This cost is passed through to customers on a dollar-for-dollar basis with no mark-up or profit going to the utility company. The PUCO monitors and audits this price to ensure that the utility is not making a profit on the cost of natural gas. The distribution rate pays for all the things that Columbia must do to deliver gas to its customers, including the cost of installing and maintaining gas pipelines, reading gas meters, processing bills and taking customer service calls.
How did Columbia bill customers for the distribution rate in the past?
Previously, a fixed monthly customer charge paid for a portion of the gas delivery costs. This fee only covered things like meter reading, billing and customer service. The rest of the cost of delivering natural gas, including the cost of installing, maintaining, and repairing Columbia’s pipeline system, were billed to Columbia customers based upon the amount of gas they used each month. This often resulted in customers paying for more of the costs of delivery during the winter, when bills are at their highest.
How does the new “levelized” distribution rate work?
Customers will pay a flat monthly charge to cover their share of the fixed distribution costs that do not change with natural gas usage. The flat monthly charge will help balance out, or “levelize,” between the summer and winter, allowing customers to better predict and budget for bills from month-to-month.
What did Columbia request in its application?
Columbia proposed rates that would generate annual revenue increase of $87.8 million. In its application, Columbia proposed a new residential distribution rate structure under which customers would be charged nearly all of the distribution costs that do not change with natural gas usage in a flat monthly fee. The usage-based part of the distribution rate would be lower in year one and reduced to zero thereafter. Columbia also proposed to introduce an accelerated distribution system replacement program to replace its aging pipelines as well as an expansion of its customer energy conservation program.
What agreement did Columbia, PUCO staff, and the Ohio Consumers’ Counsel reach?
On Oct. 24, 2008, Columbia, PUCO staff, the Ohio Consumers’ Counsel and other parties reached an agreement in the case that would allow Columbia to increase rates for natural gas distribution service. In the agreement, the parties recommended rates that will generate $47.1 million of additional annual revenue for the company.
How will this affect the average customer’s bill?
Columbia’s first distribution rate increase since 1994 will be phased in over two years. An average residential customer using 850 hundred cubic feet (ccf) of natural gas each year will see their bill increase by $2.47 per month in year one and an additional $0.05 in year two.
Columbia will also implement an infrastructure replacement program rider that will allow the company to recover costs for maintenance, repair and replacement of hazardous customer-owned service lines and certain prone to failure gas risers. This new charge will provide cost recovery for distribution service line improvements and the installation of automatic meter reading devices on all residential and commercial meters. The company will also establish a rider to recover costs associated with the implementation of conservation programs.
How does the agreement protect customers?
Customers at or below 175 percent of the federal poverty guidelines who are not enrolled in the Percentage of Income Payment Plan (PIPP) will be eligible for a 4-year pilot program to reduce their flat monthly charge. Columbia shareholders will fund the program that will provide the first 6,000 eligible customers who enroll with a $4 monthly discount. Those who choose to remain enrolled in PIPP will continue to pay 10 percent of their gross monthly household income on each monthly bill.
Columbia will also provide $1.85 million over the next five winter heating seasons to assist low income customers with the payment of bills when all other assistance funds have been exhausted. In addition, Columbia will allow new customers to pay their security deposits in three monthly installments.
Will any of this affect the cost of natural gas itself?
No, the cost of natural gas, which annually makes up 75 to 80 percent of bills, will continue to be passed on to customers through Columbia’s gas cost recovery rate or a gas marketer’s rate. Either way, Columbia makes no profit on this part of the bill.
Will the new rate structure impact customers’ energy conservation efforts?
The cost of natural gas remains the biggest part of a customer bills. Customers who make conservation efforts and energy efficiency investments will continue to see cost savings on this part of their bill. Under the agreement Columbia will also establish four new programs to promote conservation and energy efficiency
Did the PUCO consider public opinion in making its decision?
Yes, the PUCO held local public hearings in Salem, Springfield, Mansfield, Columbus, Athens, Toledo, Parma and Lorain. A total of 45 witnesses provided testimony. The Commission took this testimony into consideration when reviewing the rate case.