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Northeast Ohio Natural Gas's application to increase distribution rates

Northeast Ohio Natural Gas Corp. (NEO) filed an application with the Public Utilities Commission of Ohio (PUCO) on Dec. 28, 2018 to increase its rates for natural gas distribution service.

On Sept. 28, 2018 Northeast Ohio Natural Gas Corp. filed an application to merge Brainard Gas Corp. (Brainard), Orwell Natural Gas Co. (Orwell), Spelman Pipeline Holdings, LLC, and Northeast Ohio Natural Gas Corp. into NEO as the sole, surviving entity. The Commission approved that application on Jan. 3, 2019.

What are natural gas distribution rates?

Natural gas bills are comprised of two main parts – the cost of the natural gas and the cost of distributing the natural gas.

The cost of natural gas 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 to the utility company.

The distribution rate pays for all the things NEO must do to deliver gas to its customers, including installing and maintaining natural gas pipeline, reading natural gas meters, processing bills and taking customer service calls.

The distribution rate is comprised of two parts – the fixed customer charge and the variable volumetric distribution rate, a charge that varies depending on the amount of natural gas used in a billing cycle.

What is the PUCO’s role in setting distribution rates?

According to Ohio law, a public utility is allowed to recover its operating expenses, plus a reasonable return on its infrastructure investments. When a utility requests a rate increase from the PUCO, several steps are taken to review the company’s financial condition and ensure that the company is fulfilling its obligations to customers.

Learn more about the rate case process.

When evaluating proposed rates, the PUCO staff looks at whether the proposed rates will provide the company with adequate operating revenue according to Ohio law. In general, the cost of providing service to customers includes operating expenses (e.g. labor, supplies, maintenance of infrastructure and equipment, depreciation expense and taxes) and a return on the company’s infrastructure investment, which are used to calculate the company’s revenue requirement. The revenue requirement is the amount of money a company is allowed to collect from its customers during a given year.

What did NEO request in its application?

NEO requested an increase in annual revenues of approximately $3.5 million (10.25 percent), with an 8.66 percent rate of return. To achieve the increase in annual revenues, NEO has requested adjustments to its fixed customer charge and variable volumetric distribution rate, and modifications to its tariff.

NEO also requested a mechanism to refund to customers the rates collected in excess of the corporate tax rate established by the Tax Cuts and Jobs Act of 2017 and the creation of the Infrastructure Replacement Program (IRP) rider. The IRP would allow the utility to establish an accelerated replacement program and recover the costs of accelerated capital investment in bare steel mains and services, prone-to-fail risers, etc.  

Table 1 demonstrates how the increase in annual revenue would affect the monthly fixed distribution rate for residential customers.

Table 1. Monthly Distribution Rate

Brainard

NEO

Orwell

Current charge*

$34.00

$34.67

$46.38

Proposed charge*

$42.43

$42.68

$52.36

Increase

$8.43

$8.01

$5.98

*estimates are based on average residential use of 10 Mcf plus applicable taxes

The monthly distribution rate is comprised of the variable volumetric distribution rate and the fixed customer charge. The requested changes in each rate are outlined in Tables 2 and 3.  

Table 2. Variable Volumetric Distribution Rate

Brainard

NEO

Orwell

Current rate per Mcf

$2.50

$2.49

$3.33

Proposed rate per Mcf

$2.00

$2.00

$2.80

Total change per Mcf

($.50)

($.49)

($.53)

Table 3. Fixed Customer Charge

Brainard

NEO

Orwell

Current charge

$7.00

$6.30

$9.00

Proposed charge

$20.00

$20.00

$20.00

Total change

$13.00

$13.70

$11.00

What did the PUCO staff recommend?

On June 25, 2019, PUCO staff issued a report recommending an annual revenue increase of $500,052 to $877,542. This represents an increase of 1.39 percent to 2.44 percent. Staff also recommended a rate of return in the range of 7.80 percent to 8.45 percent.

Read the staff report.

PUCO staff agreed with NEO’s requested increase in the fixed customer charge, but recommended different rates for the variable volumetric distribution rate as shown in Table 4.  

Table 4. Variable Volumetric Distribution Rate

Brainard

NEO

Orwell

Current rate per Mcf

$2.50

$2.49

$3.33*

Proposed rate per Mcf

$1.510

$1.331

$1.963*

Total change

($.99)

($1.159)

($1.367)*

*Orwell rate based on first 100 Mcf

PUCO staff also recommended the Commission not authorize the proposed IRP. In doing so, staff stated it is not satisfied the rider IRP is necessary to accomplish NEO’s objective of prioritizing and methodically replacing or upgrading the infrastructure identified in the proposed programs.

How will the staff’s recommendations affect a customer’s bill?

The Commission is not bound by the staff recommendations and may implement some of the staff’s suggestions and reject others. However, should the Commission agree with the staff recommendations, customers in the former Brainard and NEO service territories should expect an increase in their distribution rates while customers in the former Orwell service territory may see a decrease in their distribution rates.

Table 5. Monthly Distribution Rate

Brainard

NEO

Orwell

Current bill*

$34.00

$34.67

$46.38

Proposed bill*

$37.29

$35.65

$43.58

Increase

$3.29

$.98

($2.80)

*estimates are based on average residential use of 10 Mcf plus applicable taxes

Does the PUCO consider public opinion?

The PUCO has scheduled three local public hearings to allow the public the opportunity to express their views regarding the company’s application:

Monday, August 12, 2019, 6 p.m.
Fairfield County District Main Library
219 N. Broad St.
Lancaster, Ohio 43130

Tuesday, August 13, 2019, 6 p.m.
Canton City Council Chambers
218 Cleveland Ave, SW, 1st Floor
Canton, Ohio 44701

Wednesday, August 14, 2019, 6 p.m.
Bucyrus City Council Chambers
500 S. Sandusky Ave
Bucyrus, Ohio 44820

Consumers may also submit comments online or by mail addressed to the Public Utilities Commission of Ohio, 180 E. Broad St., Columbus, Ohio 43215. Correspondence should include the case number 18-1720-GA-AIR.

What happens next?

An evidentiary hearing will convene August 20, 2019 where interested parties may provide expert testimony in support or opposition to NEO’s application.

How can I learn more about the rate case?

Learn more about the rate case process.

NEO’s application and the case record can be viewed online by visiting the case dockets for 18-1720-GA-AIR, 18-1721-GA-ATA, 18-1722-GA-ALT.

If you would like to know more about the PUCO or have utility-related questions or concerns, contact the PUCO at (800) 686-PUCO (7826) or visit us online at www.PUCO.ohio.gov.