Explaining gas delivery item

The Baltimore Sun

The Q:

Whether it's the telephone company or electric company, reading utility bills can be a mind-boggling experience. With words like "Interlata Carrier Name" and "Franchise Tax," it can be difficult trying to figure out what you are paying for exactly.

Reader Jennifer of Baltimore was perplexed recently by her Baltimore Gas and Electric Co. bill.

"Can you explain to me what the 'gas delivery' charge on my BGE bill is?" she said. "I have tracked my bills monthly in Excel for the past few years, and the 'gas delivery' seems to vary all the time - even on a per-day or per-therm basis the rate changes every month.

"Why would a delivery fee change month to month?" she wondered.

The A:

These two questions took some doing to answer and not because BGE didn't explain it to us - quite a few times. The easy part of this answer is that a delivery charge is the cost of delivering gas to your home or business. It allows the utility to recover investments in its distribution system for things like gas mains and meters. The second part of this is far more confusing.

First, understand that BGE buys natural gas on the wholesale market. The company passes the cost of that commodity directly on to you, the customers. To deliver that gas, BGE is allowed to earn a certain amount of revenue every year by the Maryland Public Service Commission, which regulates BGE since the utility has a monopoly on distribution.

In order to collect no more or no less than that pre-determined amount based on "normal" weather, BGE uses a "revenue decoupling" mechanism to adjust the delivery service charge from month to month. That combines a fixed monthly customer charge of $13 and a distribution charge based on volume that is determined by multiplying the per therm rate by the amount of gas used by its customers, said BGE spokesman Kelly Shanefelter. BGE calculates this adjustment by using its entire residential customer base.

Phillip Vanderheyden, assistant director of the economics and policy division for the PSC, explained it in plain language this way, using some random, easy-to-understand numbers:

Let's say BGE expects to get $25 a month on average from each customer for gas distribution based on normal weather for each month of the year. Say the assumption that it's delivering an average of 100 therms per customer in December. But if December's warm and the average is only 80 therms, BGE doesn't collect the full $25 per bill for that month. To make up for that loss and ensure that it collects the full amount of its set revenue by the end of the year, BGE would raise the delivery rate in February bills. For example, the utility would charge $28 instead of $25.

It also works the opposite way. If December was an exceptionally cold month and more than 100 therms of gas gets used on average, the utility would charge less for delivery in February.

"The 'decoupling' mechanism disconnects the revenue from the usage," said Vanderheyden. "The decoupling mechanism says no matter what the usage was last month, we will get our average dollars."

There are also metering adjustments based on weather that can affect the delivery rate.

"The per therm rate for distribution is initially based on normal weather. Since the amount of gas used fluctuates with weather conditions, at the end of each month BGE adjusts the per therm rate (25.61 cents) plus or minus a range of 5 cents to 'true up' the authorized revenue amount determined by the PSC," Shanefelter said.

Basically, because gas contracts in cold weather and expands in hot weather, the utility uses a sophisticated formula to determine how much gas you really used in varying temperatures.

Why is this system good for BGE and customers?

"If there's a really cold winter, BGE doesn't make a whole lot more money off the customer," Vanderheyden said. "If it's warm, they don't lose more money. ... The PSC makes sure it sets the return properly so that it's not too much or too little. We're basically saying to the utility, 'We're going to guarantee your revenue so you don't need as much. It's not as risky for you.' It's a system that's good for both the utility and the consumer."

Should the utility feel that it needs to collect more due to labor costs, system costs and repair and maintenance expenses, it can file a request with the PSC to raise its rate. Also, if the consumer advocate, the Office of the People's Counsel, believe that BGE is earning too much revenue, it can ask the commission to lower the set rate.

It's been about three years since the last rate case for gas companies, Vanderheyden said.

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