Opinion ID: 2284798
Heading Depth: 3
Heading Rank: 1

Heading: Two-Part Rate Structure

Text: Only People's Counsel argued to the Commission in favor of a single volumetric rate rather than a two-part rate structure. [12] A single volumetric rate would embrace both the fixed costs of serving customers (described as customer and demand costs, see pp. 1194-1195 and notes 4-5 supra ), and commodity costs. Dr. Wilson, the witness for People's Counsel, testified that gas supply, rather than delivery capacity, is the limiting factor in the Company's natural gas service area. PC Exh. D, at 13-14. The optimally efficient economic pricing solution, he concluded, would therefore be to attribute a zero weight to the sunk costs of the overbuilt transmission capacity, and to recoup total revenue requirements largely on a volumetric basis. Id. at 13. The effect of the proposed volumetric prices would be to maximize conservation of the scarce resource, gas. Id. at 14. The Commission agreed with People's Counsel that conservation was a major objective, Order 6051, at 85, but noted that gas supply prospects were improving, at least for the near-term future. Id. at 84-85. The Commission questioned Dr. Wilson's assertion that the Company had excess storage capacity, id. at 84, and his testimony concerning marginal cost pricing principles. Id. at 87. Further, the Commission found that the imposition of a volumetric rate structure would aggravate the risk to the Company of under-collection of fixed costs. Fixed costs are incurred independently of the level of gas sales. Id. at 82-83. The fixed cost component of a volumetric rate would be determined on the basis of projected temperatures and fuel usage. The danger of under-collection of fixed costs as a result of unexpectedly warm temperatures and low fuel usage would be aggravated where all fixed costs were recouped through the commodity charge, as they would be under a single volumetric rate structure. [13] The Commission found rather that maintenance of a two-part rate structure, and utilization of a warmer normal weather standard, [14] were desirable to reduce the risk to WGL of under-collection of fixed costs. Id. at 83-84. The Commission also remarked upon the inconsistency of People's Counsel's proposal with modern utility practice. Whereas under the proposal offered by People's Counsel fixed costs would have been recovered entirely through the commodity charge, the Commission noted that the Federal Power Commission has never designed pipeline rates which recover more than 75 percent of fixed costs through the commodity charge. Id. at 84. The Commission agreed, though, that, consistent with modern public utility practice, the majority of WGL's fixed costs would continue to be recovered through the commodity charge. Id.