Utilities Watchdog Project In the News

By John Downey

Piedmont Natural Gas Co. Inc. has found an important fan of a controversial rate plan -- the N.C. General Assembly.

A bill that would settle a question over regulators' ability to OK the plan could pass the Senate soon, following House approval in the spring.

Two members of the N.C. Utilities Commission and the state attorney general previously questioned the program's legality. It was likely that would have been an issue next year if Piedmont sought to renew the program.

Piedmont won approval from state regulators in 2005 for the program on a three-year test basis by claiming it is an aid to conservation. The utility contends the program allows it to maintain a reasonable profit without having to encourage higher gas consumption.

The tracker, theoretically, could increase or cut customer rates. But, critics point out, it has increased Piedmont rates every six months since its inception.

Through 2006, the attorney general's office estimates, Piedmont collected $51 million under the tracker program.

The N.C. Utilities Commission was divided in authorizing the three-year test.

And the attorney general's office took the case to the N.C. Supreme Court, contending the commission had no authority to approve it and that the program improperly allows Piedmont to change rates without a full hearing.

The attorney general eventually dropped that appeal and let the pilot program continue through early 2009 in a compromise with Piedmont.

So earlier this year, Piedmont sought legislation that would establish the commission's authority to approve such a program.

Piedmont spokesman David Trusty emphasizes the commission would still get to decide whether to continue the program after the pilot ends.

Rep. Drew Saunders (D-Mecklenburg) introduced the bill in March, and it sailed through the House on a final vote of 105-9 in April. There was no significant opposition to the program then, and Saunders hopes it will have as easy a time in the Senate.

The Senate Commerce, Small Business and Entrepreneurship Committee was to take it up Thursday morning. If approved there, it could go to the Senate floor as early as next week.

The N.C. Public Interest Research Group opposes the authorizing legislation. Consumer groups have been slow to understand the implications of the program because of its stated goal of energy conservation, says Shana Becker, the group's spokeswoman. She contends it penalizes Piedmont customers for conservation and simply serves to prop up its profits.

Consumer groups did not oppose the bill in the House. And Becker recognizes they must organize opposition quickly if they are to have any impact on the Senate.

The attorney general's office has not taken a position on the bill. It is a member of the National Association of Utility Customer Advocates, which this month adopted a resolution opposing decoupling programs such as Piedmont's tracker unless they are directly linked to conservation efforts.

Piedmont proposed the tracker, which it refers to by its acronym CUT, in 2005. The commission adopted it in November 2005, and the first CUT adjustments were made last year.

The design is relatively simple. State regulators allow Piedmont a specified rate of return on its natural gas sales. The company estimates how much gas will be used in the coming year, and its rates are set to allow that margin on the estimated amount of gas.

The problem is that if Piedmont sells less gas than projected, its margins could suffer. For years, gas companies in North Carolina attempted to compensate for that by what was called weather normalization.

If winter days were warmer than normal, companies were allowed to charge a marginally higher rate. If they were colder, the companies would charge a marginally lower rate.

But companies generally have found that a crude method for maintaining allowed margins. The tracker replaced weather normalization for Piedmont. It allows Piedmont to charge a marginally higher rate if customers as a group use less gas, for whatever reason. It would also mandate a marginally lower rate for higher use.

Trusty says that removes any incentive for Piedmont to promote higher use. Compromises negotiated with the commission and the attorney general coupled $1.25 million in annual spending on conservation programs by Piedmont to the three-year pilot of the program.

Two utility commissioners, Sam "Jimmy" Ervin and Lorinzo Joyner, voted against the program. They raised questions about the commission's authority to let rates change without a full hearing. But Joyner also contended it was bad policy. "Rather than promoting energy conservation, (it) will instead impose an additional charge on residential and commercial gas customers when conservation occurs."

Saunders says Piedmont asked him to submit the bill to clear up questions about the commission's authority to approve such programs. The bill is straightforward. It does not mandate the use of a tracker such as Piedmont's. But it says the commission can authorize such a tracker for any natural gas utility that requests it.

It also instructs the commission to prepare a report on Piedmont's tracker program by July 1, 2008, for presentation to the Joint Legislative Utility Review Committee of the legislature.