Michigan Gas Utilities Seeks to Impose Capacity Reservation Surcharge on Choice Suppliers

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January 26, 2011

Michigan Gas Utilities Corporation has sought approval from the Michigan PSC (U-16513) to implement a Reservation Surcharge applicable to both non-shopping Gas Cost Recovery (GCR) customers and Gas Choice Customers (GCC).

In a motion to intervene, the Retail Energy Supply Association said that the charge will, "threaten the existence of that [choice] program."

Michigan Gas Utilities said that the charge is necessary to prevent subsidization of competitive supply customers by GCR customers, given that Michigan Gas Utilities no longer assigns capacity to suppliers.  The former capacity assignment program, under which capacity followed the customer, was terminated in January 2009 due to federal changes governing capacity assignment which led to, "numerous difficulties with allocating capacity on both its interstate pipelines, as well as the intrastate distribution company systems that connect to its service territory, i.e. Michigan Consolidated and Consumers Energy, making that aspect of the program no longer workable."

Despite no longer assigning capacity, Michigan Gas Utilities said that it still must stand ready to serve as the supplier of last resort, in the event that an alternative gas supplier (AGS) defaults or the customer decides to return to the utility for gas supply.

"Toward this end, the Company has secured and is holding in reserve, pipeline transportation capacity, various storage and supply arrangements, for which it pays monthly reservation fees.  Up until the time of this filing, these costs have been borne exclusively by GCR customers," Michigan Gas Utilities testified.

"However, as more and more customers move to GCC, the inequities of this arrangement and the ability to fairly compete with the AGS's became readily apparent.  Since these costs are being incurred for the benefit of both groups of customers, it is only right that the costs should be recovered from both GCR and GCC customers," Michigan Gas Utilities argued.

"Further, in order to compete on an even-handed basis with AGS's, the utility must be placed in the position of not permitting customers to switch to GCC service, while at the same time, avoiding costs that are being borne on their behalf.  It is a fundamental matter of equity that GCR customers not be placed in the position of subsidizing the supply and capacity back-up costs necessary to serve both GCC and GCR customers, while certain other customers escape responsibility for paying for them," Michigan Gas Utilities added.

The proposed Reservation Charge applicable to choice and sales service customers would reflect the annual costs of capacity, and would be implemented on a Mcf basis.

The monthly balancing fee applicable to choice suppliers would be rolled into a single Reservation Charge as well.

For GCR customers, the Reservation Charge would be rolled into the base GCR factor.  Revenues received from the payment of the Reservation Charge by competitive suppliers would be credited to the utility's capacity costs reflected in the GCR.

Michigan Gas Utilities is proposing a Reservation Charge of $0.8014 per Mcf for the 12-month period ending March 31, 2012

Michigan Gas Utilities serves approximately 162,421 customers, of which 16,274 are GCC or transportation service customers.

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