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Citing Additional Costs, Columbia Gas Favors Ending Choice Program Versus Supplier-Offered Funding
October 3, 2011
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Calling a proposal from retail suppliers inadequate, Columbia Gas of Maryland has again recommended the termination of its choice program, reporting that the supplier proposal fails to include the costs of Purchase of Receivables, and that total expended costs have increased by over 20%.
As previously reported, Columbia Gas has recommended ending the choice program due to the prohibitive costs of complying with COMAR 20.59 (which requires POR and other market enhancements) and low choice participation levels.
See our July 6 and March 30 stories regarding Columbia's recommendation to end the choice program.
As only reported by Matters (9/9), IGS Energy, MXenergy, Maryland Gas and Electric (U.S. Gas & Electric), and Washington Gas Energy Services proposed paying $160,000 of the costs incurred to-date to bring Columbia Gas' choice program into compliance with the main provisions of COMAR 20.59 (POR and uniform electronic transactions), with other requirements being deferred. The $49,847 balance of the $209,847 in COMAR 20.59 costs incurred to date by Columbia would be paid by all distribution customers.
The suppliers stressed that their offer was based on the unique situation at Columbia, and that it does not represent precedent. As part of their proposal, suppliers also sought the introduction of opt-out customer lists at Columbia, and a collaborative on capacity assignment issues.
The suppliers believed their offer represented 75% of COMAR 20.59 compliance costs incurred to date, and that no additional costs were required to implement POR with a blended discount rate (suppliers agreed to waive class-specific rates for the time being due to programming costs).
However, Columbia reported that to implement POR, $50,468 in additional costs must be incurred.
In response, the suppliers informed the PSC that, "Suppliers had been under the impression that costs to implement POR were included in the previously expended funds, and that any compliance waiver would be limited to the separation of individual POR rates for residential and commercial customers."
"In fact, Suppliers provided detailed spreadsheets to the Company on two different occasions which outlined the Suppliers' proposed ideas for working with Columbia to move forward, and which included an itemized list of what we believed would be remaining items to seek Commission waiver on in order to allow a minimum Choice Program – complete with all remaining components of POR – to move forward. The Company never commented on those itemized lists nor gave any indication that POR implementation was also on hold along with the other items currently on waiver," the suppliers said.
Furthermore, Columbia reported that the costs already incurred to comply with COMAR 20.59 have increased by $45,184 to $255,031. These costs stem from problems in testing XML-based uniform electronic transactions. While the PSC had previously required Columbia to cease all work on COMAR 20.59 implementation pending resolution of cost recovery, the PSC did allow work to continue to test XML transaction implementation. Columbia reported that it identified a problem with two of the uniform electronic transactions, necessitating the additional expenditures to modify the two uniform electronic transactions so that they worked as intended.
Columbia did not report when these XML problems were identified. While Columbia did have explicit authority to continue work on XML testing, given that Columbia first proposed ending the choice program in a March 29, 2011 filing, if the costs were incurred after that date (or a period right before when Columbia was obviously contemplating its position to cease the choice program), it is reasonable to question whether expending the costs to fix the XML problems was prudent, if the company knew it was going to recommend cessation of the choice program.
In any event, Columbia reported that, as a result of the added expenditures, the supplier offer of $160,000 would only cover about 60% of the incurred costs, with the balance of $95,000, if it were applied to all distribution customers, representing a monthly charge of 8.3 cents on customer bills for three years. And this charge would still not cover implementation of POR.
"It should be noted that the suppliers were assured by Columbia on more than one occasion during the series of discussions that took place between the May 4, 2011 and July 6, 2011 hearings, that no additional costs would be introduced," the suppliers told the PSC.
If POR implementation were completed, the supplier contribution of $160,000 would be just over 50% of total costs, with the balance of $145,000, if it were applied to all distribution customers, representing a monthly charge of 12.71 cents on customer bills for three years.
Columbia said that recovering such costs from all distribution customers is inconsistent with the Commission's prior orders directing that COMAR 20.59 costs shall be incurred by suppliers, or their customers through charges on customers participating in choice.
Frank Caliva of Strategic Communications, LLC, which is representing the retail suppliers, responded that Columbia is, "not interested in considering any option," that maintains the choice program.
If the sunk costs of $95,000 not covered in the supplier offer (excluding POR implementation) were recovered via a surcharge on current choice customers, the monthly surcharge would be nearly $2.90. If the $95,000 were contained a POR discount rate, the discount rate would be 11.4% for such costs, plus uncollectibles of 1.63%, plus a discount rate (or some other mechanism) to recover the $50,000 in added costs needed to implement POR.
Columbia said that customers would not continue to participate in the choice program under such surcharges, especially as Columbia said that choice customers have paid more than non-choice customers 80% of the time since 2003, citing its prior analysis (discussed in our 3/30 story)
"Columbia again notes that neither Maryland law nor COMAR 20.59 requires Choice to be available in every territory in Maryland and COMAR 20.59 is premised on the assumption that 'each household saves 10 percent on their monthly gas commodity bills.' Recognizing that this assumption has not been realized for Columbia's customers, and recognizing the mathematical reality that modifying its Choice program to comply with the remaining COMAR 20.59 requirements (let alone the additional changes sought in the Supplier Proposal) is too costly for a gas utility with Columbia's limited customer base, the most reasonable solution is to terminate the Choice program," Columbia said.
"The Supplier Option would have all eligible customers contribute to a program that results in participating customers spending more than necessary, and they would have those participating customers pay more to spend more," Columbia added.
Furthermore, should the choice program continue, Columbia said that, in response to, "statements made by the Commission at the July 6, 2011 Administrative Meeting," Columbia will remove current administrative costs of the choice program from base rates. These costs would be charged via a monthly rider applicable to customers participating in the choice program, amounting to $13.75 to $27.50 per month.
Because Columbia has already spent $255,000 to implement COMAR 20.59, and it is entitled to recover such costs, suppliers again noted that ceasing the choice program will not allow customers to avoid these costs, and will only mean Columbia spent $255,000 for no customer benefit.
Columbia attempted to address this in its comments by stating that it would not have to increase rates to collect the sunk $255,000, as it would merely direct the current revenue from base rates collected to administer the choice program (which will no longer be necessary with the program terminated) to pay down such sunk costs. Columbia expects that sunk costs would be eliminated within two years under this approach.
However, Columbia's argument ignores the fact that all distribution customers are still paying the sunk $255,000 -- the costs Columbia says should be paid by choice customers only, which is why Columbia says the program must be terminated. While Columbia will not increase costs per se to recover the $255,000, it is also not lowering rates as quickly as it otherwise would if it ended the choice program and immediately removed the revenue requirement for choice administration from base rates -- so customers are, in fact, paying more.
Indeed, ignoring for a minute any ongoing administrative costs, Columbia's proposal has all distribution customers paying 100% of the sunk $255,000 in costs, whereas the supplier proposal is offering to relieve customers of responsibility for $160,000 of the total, with the added benefit of maintaining the choice program.
Now, Columbia's entire benefit from eliminating the choice program is solely from avoidance of ongoing administrative costs of $132,000 to $276,000 per year. Such costs existed when Columbia began expending money on COMAR 20.59 compliance costs, and, as noted by Columbia, have been in base rates since the 1990s.
Whether the Commission believes such costs must be removed from base rates is one matter, but the bottom line is that the costs have nothing to do with COMAR 20.59 cost recovery, which is the matter the Commission originally directed Columbia to address in its March 2011 filing. Instead, Columbia has shoe-horned into the proceeding the future of the choice program, when, frankly, the decision regarding the choice program's future has nothing to do with COMAR 20.59 costs, because Columbia concedes that under any scenario (other than the supplier option which maintains choice), all distribution customers will pay the full amount of sunk COMAR 20.59 costs of $255,000, either because (1) the Commission allows a direct surcharge on all distribution customers as originally recommended by Staff; (2) a high POR discount rate or surcharge on choice customers is used for cost recovery, which drives customers back to default service, thereby leaving no choice customers from which to recover the costs (meaning the costs must fall on all distribution customers); or (3) if choice is eliminated, Columbia has no other alternative but to collect the $255,000 from all distribution customers.
Clearly, eliminating choice does nothing to shield customers from COMAR 20.59 costs.
The PSC is to address the future of the Columbia choice program on October 26
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