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Peoples Natural Gas Files to Offer Purchase of Receivables in Pennsylvania

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November 3, 2010

Peoples Natural Gas has proposed offering a Purchase of Receivables program as part of its newly filed rate case with the Pennsylvania PUC (R-2010-2201702).

Peoples Natural Gas would purchase receivables at a discount rate equal to the write-off factor used to derive the Merchant Function Charge, plus a temporary administrative cost component.

The write-off factor rate for residential customer receivables is 3.58%. The write-off factor for commercial and industrial customer receivables is 0.74%. The administrative cost component would be 0.1086%, and would be eliminated once actual costs of establishing the POR program are recovered. Peoples estimates that the program administrative costs will be $249,611.

Peoples proposed making POR available to suppliers on January 1, 2012. Peoples is currently relying on the Dominion billing and information system, which it cannot modify. Peoples will by May 31, 2011 implement a new billing system, with the start of POR pushed until 2012 since the focus will initially be on getting core functions of the new system implemented.

POR would only be available to suppliers operating a Priority One (P-1) or Non-Priority One (NP-1) pool; and for NP-1 pools, would only apply to residential and small commercial customers. Suppliers using an NP-1 pool and participating in the POR program must operate a separate NP-1 pool for residential and small business customers to be served under POR (a POR pool), and a separate NP-1 pool for other customer classes not eligible for POR (non-POR pool).

If the supplier opts to participate in the POR program, Peoples shall purchase the basic supply receivables for all of the customers in a participating pool, with all POR customers served on utility consolidated billing. However, should suppliers participating in the POR program wish to offer products that are bundled with non-basic services ineligible for POR, or where Peoples' billing service cannot accommodate the supplier's charge for basic supply, the supplier may issue a separate bill for such service or product for that customer. Suppliers' separately billed products and services will not be included in the POR program.

A supplier's option to participate or not participate in the POR program would be limited to once per year. If an existing supplier elects to participate in the POR program, Peoples will not purchase the accounts receivable balances that existed prior to the supplier's election to participate in the POR program.

Merchant Function Charge, Price to Compare
As indicated in discussion of the discount rate, Peoples is proposing to unbundle the gas cost portion of bad debt cost through the creation of a Merchant Function Charge. The Merchant Function Charge (MFC) would remove the cost of uncollectible expenses applicable to Peoples' current gas cost rates from delivery charges, and would apply it to the Price to Compare.

The write-off factor used to unbundle uncollectibles shall be based on the write-off amounts divided by projected revenues. Because of the differing uncollectible levels for its rate classes, Peoples proposes to utilize a separate write-off factor for residential customers and a separate write-off factor for commercial and industrial customers.

The write-off factor shall then be applied to the current gas cost rates set forth in Peoples' Rider B to derive the class-specific Merchant Function Charges. The Merchant Function Charge amounts will be removed from delivery charges.

The write-off factor used to calculate the Merchant Function Charges and the amounts unbundled from the delivery charges would only be determined in a base rate case.

The Merchant Function Charges would be adjusted on a quarterly basis to reflect gas cost rates effective with each 1307(f) filing by applying the write-off factor to quarterly gas cost charges. The Merchant Function Charges will not be reconcilable.

Peoples proposed that the Price to Compare shall include the gas cost rate, excluding the gas cost adjustment charge, and the Merchant Function Charge. Peoples proposed that the Price to Compare shall exclude a gas procurement component.

"While some gas procurement costs, such as certain gas supply management and supporting A&G costs can be unbundled and assigned directly to sales customers, other similar management and A&G costs can be unbundled and assigned directly to the transportation customers. Such costs include transportation program support for the transportation customer enrollment process and transportation contract administration. Further, some of Peoples' gas supply management and supporting A&G functions are used to support both sales and transportation customers. For example, Peoples' local gas supply purchases and interstate capacity is managed by Peoples' Gas Supply Department. Local gas purchases and interstate capacity are acquired for and used by Peoples' sales customers as well as Peoples' P-1 transportation customers. Additionally, the costs for local gas purchases that are included in Peoples' cash working capital claim support both our retail customers and our P-1 transportation customers. Under our P-1 program, local gas purchases are assigned on a pro-rata basis to P-1 transportation ratepayers. For these reasons, Peoples does not believe that it is appropriate to include a gas procurement component in the PTC and unbundle that component from delivery charges," Peoples testified.

Peoples has also proposed eliminating the transportation rate differential for Pennsylvania produced gas and interstate gas for the large commercial and industrial rate classes. As a result, under the proposed rates, all rate classes would not have a transportation rate differential for Pennsylvania and interstate gas.

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