§ 69.342. Gas procurement following restructuring of interstate pipeline services.
(a) The implementation of Federal Energy Regulatory Commission’s (FERC) Order No. 636 changes the environment in which the natural gas industry operates. While interstate pipeline sales gas has played an increasingly diminishing role within Pennsylvania local distribution company (LDC) supply portfolios in the years following FERC Order No. 436, Order No. 636 has now totally ‘‘unbundled’’ the services provided by interstate pipelines and they no longer provide a city-gate sales service to their customers. LDCs now secure gas supplies and arrange for the transportation and storage of the gas on one or more pipeline systems, as well as provide contingencies for back up supplies and services. This new environment increases the responsibility for supply, transportation and storage that LDCs manage, and each LDC’s supply portfolio shalladdress the reliability and flexibility required in replacing pipeline sales service. As a result, LDC fuel procurement strategies shall adapt to reflect this change.
(b) The Commission’s procurement review process will factor in this change. Each LDC should have as an objective the achievement of optimum burner tip rates favorable to retail customers consistent with customer demand requirements. In this regard, attention shall be given to gas supply costs associated with retail service.
(c) The Commission encourages LDCs to build effective and diverse supply portfolios in order to continue providing consumers with reliable service at reasonable prices under the Commission’s least cost fuel procurement criteria. These portfolios should include an optimum mix of suppliers, production areas, transporting pipelines, storage options and contract terms that may include varying pricing mechanisms, contract lengths and flexibility in quantities of gas taken. The Commission recognizes fixed prices, storage carrying costs, hedging costs and other pricing mechanisms not directly tied to the spot market,in addition to spot market pricing, as acceptable tools in developing a portfolio and a cost of gas, under the Commission’s least cost fuel procurement criteria. The Commission also recognizes a comparison of gas supplies priced, as delivered, to the LDC’s city gate as a useful tool in evaluating purchase options when an LDC considers renewing a contract for capacity on interstate gas pipeline or when it considers purchasing additional capacity. A comparison is consistent with a least cost fuel procurement as mandated by 66 Pa.C.S. § § 1307(f), 1317 and 1318 (relating to sliding scale of rates; adjustments; regulation of natural gas costs; and determination of just and reasonable natural gas rates). Furthermore, the Commission recognizes that each LDC’s service area and customer base is unique and, therefore, LDC supply portfolios will differ.
Source The provisions of this § 69.342 adopted October 27, 1995, effective October 28, 1995, 25 Pa.B. 4616.
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