Common Natural Gas Rate Schedules

Actual natural gas rate schedules include many of the same rate-design strategies previously mentioned. These rates are offered to customers who meet specific criteria. Commonly used natural gas rate schedules are:

• Firm sales rates. These are the highest priority of service offered by LDCs. Gas is made available throughout the year, on an uninterrupted basis, to serve customers' needs. Typically, there are several categories of firm sales rates, such as residential, small commercial, and large CI&I. Rate design may include block rates, seasonally differentiated rates, demand charges, etc.

• Firm transportation rates. These provide uninterrupted transportation service, through the LDC's distribution system, of natural gas purchased directly by the customer. The LDC takes on the obligation to deliver to the customers' facilities gas that has been delivered to the LDC's gate station by an interstate pipeline.

• Dual-fuel firm rates. These provide service to customers who have the option of using an alternative fuel source, but who, at any time, may request firm delivery of gas from the LDC. Since the LDC must stand ready to serve, and may have significant investment in, distribution facilities, supply contracts, or storage capacity, it may require purchase of some level of guaranteed volume or include a demand-charge component. Because this type of service has the potential to negatively affect the LDC's load factor if the customer only uses gas services during peak periods, the rate may be expensive.

• Interruptible sales rates. A utility can sell to its inter-ruptible sales customers spot market gas or excess gas that it purchased as a reserve for its firm sales service customers. Selling gas on a commodity basis only allows gas to be priced competitively with oil, propane, and other energy sources. Therefore, customers benefit from lower costs.

Prices are often negotiated competitively and indexed each month to the alternative fuel or energy source (e.g., No. 6 oil, No. 4 oil, No. 2 oil, propane, or electricity). A rate offering, commonly known as the standard offer, may be made to the entire group with the same energy-source alternative. Individual customers with better purchasing capabilities may negotiate price and be permitted to lock in a rate for a longer or shorter period of time. Prices may also vary with notice period. The shorter the notice period the lower the gas cost.

The LDC may have the ability to negotiate downward to a certain floor. In many cases, the floor is set a few cents above the LDC's actual supply cost. This competitive approach is accepted by PUCs because it holds down overall rates by maintaining gas sales that would otherwise be lost to alternative fuels. Rate-case proceedings may include an agreement that a large portion of the marginal revenues from these sales flow back and reduce the rates of firm-rate customers, often via the PGA. In a sense, this flow-back of revenues provides compensation for the use of facilities (fixed costs) that is amortized through cost recovery via firm rate charges.

• Interruptible transportation rates. These services are similar to interruptible sales rates, except they relate solely to distribution rather than to both sales and distribution. The LDC's ability and/or need to interrupt is tied to local distribution constraints, not to supply constraints.

• Cogeneration, air conditioning, and other end use rates. These services are offered for specific equipment applications and, because they have a predictable effect on the LDC's load factor and cost, they are typically grouped under individual rate schedules. These rates are designed to be attractive to customers because they are more closely tailored to actual energy use profiles of the applications, often improving LDC load factor.

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