Lone Star Gas-CS 881028 Fi CO?¥
Lone Star Gas Company
Today, gas utilities and other energy suppliers are operating in a
business environment that is increasingly competitive. The drop in the
price of imported oil and the federal government's efforts to develop a
national market for natural gas have resulted in a current energy market
wherein natural gas utilities and pipelines compete with other gas pipelines,
fuel oil, coal and electricity.
Texas law allows various energy forms to compete for industrial and
other large-volume customers. However, the lack of large-volume consumption
and traditional utility regulatory concepts have prevented residential and
small commercial gas customers from sharing in the benefits this competition
has brought to larger customers. These benefits would accrue to smaller
customers if increased volumes of gas could be sold at the residential and
commercial levels.
This problem for small gas consumers has been compounded in recent years
by the fact that most electric utilities in this state offer a rebate program
for the purchase of electrical appliances and equipment. Up until now, a
program of this magnitude was not available to Lone Star's residential and
commercial gas customers.
The preceding explanation brings me to the purpose of this letter--to
introduce you to Lone Star's new Energy Partnership. We feel it will be
of benefit to our customers and the City of Coppell.
MA¥Oil A2~D COUNCIL
DATE- n I ~ I X-~ , ,
2
The Energy Partnership, as described in the attadhed outline, is a
rebate program similar to those allowed by the Public Utility Commission
for electric utilities. Residential and commercial customers will be free
to satisfy their demand for energy fr'om competing suppliers on a more equitable
basis. Lone Star's Energy Partnership allows ths initial cost ef gas appliances
to be competitively balanced with that of appliances using other forms of
energy, and prevents the loss of gas load to less efficient, less economic
fuels due to the inequality in initial appliance cost.
Lone Star Gas Company's Energy Partnership tariff has been filed as
a new rate with the Texas Railroad Commission. However, Lone Star will obtain
Commission approval before implementing the program. The new intracompany
charge between Lone Star's Transmission Division and its Distribution Division
will apply to all residential and commercial customers on Lone Star's system.
The customers will receive the benefit from the monies collected for
rebates. No additional return or indirect cost recovery will be provided
for Lone Star.
Again, I invite your attention to the attached outline which discusses
the need for this program, its objectives and its proposed implementation.
I will keep you informed of the status of our filing at the Railroad Commission
and will notify you when it has been approved. If you require further information,
please let me know.
Sincerely,
District Manager
JDN:sjs
Attachment
ENERGY PARTNERSHIP
OF
LDNE STAR GAS CORPANY
PROGRAN OVERVI~
Lone Star
among the
Gas Company's Energy Partnership is based on a partnership
company, its customers and its regulators:
Customers benefit through lower unit operating costs and
financial assistance when upgrading to high-efficiency gas
equipment.
Customers benefit by maintaining or
resulting in higher sales volumes and,
costs per unit volume.
increasing gas demand,
therefore, lower fixed
Customers benefit from a reduced requirement for additional
pipeline facilities because gas load is leveled by promotion of
"off peak" demand.
Customers also benefit from a lowering of "peak demand"
requirements through use of high-efficiency gas equipment.
State and local governments benefit from increased tax revenues
generated by higher gas sales.
The mechanism that allows the program to work is a rebate for residential
and commercial customers upon the purchase of certain high efficiency gas
appliances and equipment, including cogeneration and other new
technologies for commercial application. The recovery of program costs
is based upon actual, direct rebates and costs. The total charge is
limited by a maximum amount per thousand cubic feet of gas and a specific
maximum rebate for each type of equipment, yet is flexible to meet
competition. Such costs are allocated systemwide to all residential and
commercial customers through a surcharge based upon city gate volumes.
The maximum recovery is 3.5¢ per thousand cubic feet (Mcf), which would
yield a maximum annual program fund at current cons%u~ption levels of
$4,450,000. Each rebate is subject to a specified maximum. The cost
recovery and rebates are limited to residential and commercial customers
of Lone Star Gas Company. Avera§e customer charges at maximum
utilization would be:
Residential:
Commercial:
$ 2.52 per year or $0.21 per month
$15.19 per year or $1.27 per month
%;HY IS THIS PROGRAM NECESSARY?
Six developments have created the necessity for such a program:
· Since 1980, natural gas consumption in Texas has declined by
almost one-fourth (22%).
The gas industry needs competitive parity with electric
utilities wh{ch use rebate programs to compete with gas.
In a competitive energy market environment, gas utilities still
have the oblizatton to serve residential and commercial
customers in spite of the uncertainty of sales load. This
uncertainty creates financial risks for both the company and
the customer and points to the need for the gas utility to
compete in the regulated sales market with suppliers of other
forms of energy, primarily electricity.
Gas customers deserve to be able to select gas equipment, if
they prefer, without having to forego a rebate such as that
offered when electrical equipment is purchased.
A federal government mandate raises minimum central furnace
efficiency standards by 1990. This increase in efficiency will
result in an increase in equipment costs. Customers,
particularly those with lower incomes, may need assistance in
paying this higher initial cost.
Innovative new technology utilizing natural gas, such as
double-effect absorption chiller/heaters and cogeneration,
needs wider acceptance to build economies of scale and,
thereby, lower unit costs and prevent waste.
The Energy Partnership will assist in halting the erosion of natural gas
usage, prevent waste, and serve as a foundation for future growth.
WI{AT ARE THE OBJECTIVES?
The program elements have been designed to:
· Promote energy conservation
Introduce new high-efficiency products and technologies
which promote conservation, prevent waste, and protect
current market share, while lowering consumers' operating
costs.
· Lower the unit cost of delivered mas
Increased utilization of natural gas spread over a fixed
investment base, through gas appliance additions and
commercialization of new technologies, will ultimately
lower the unit cost of gas to our customers.
· Stimulate increased mas usaee
Encourage additional gas appliance usage by promoting
specific appllances, upgrading "low-use" customers to
natural gas heat and hot water, marketing gas applications
in the commercial market and promoting new technology.
Eoualize the competitive market for residential and commercial
Maintain momentum for natural gas in new construction and
equipment replacement markets. Offering rebates for gas
equipment as well as electric equipment allows the
customer to select equipment on an equal basis.
Maintaining gas usage is important to avoid lower sales
volumes and, hence, higher unit costs to customers.
· Recover costs alone with no return
Expenses alone are recovered, on an estimated and
corrected basis, with no element of return on investment,
but with interest to adjust for the time value of money,
subject to monthly reporting.
T° provide the benefits of comnetition to both the utility and
its ratepavers
Competition exists in the large-volume gas utility market
with no present benefit to residential and commercial
ratepayers. The rebate program will help ensure economic
efficiency as a result of competition. This will benefit
residential and commercial ratepayers who do not currently
benefit from competition directly by having a regulatory
program that replicates some aspects of a competitive
market.
HOW WILL IT WORK?
A separate adjustable surcharge cost recovery mechanism based
upon residential and commercial usage measured by city gate
volumes ensures uniformity ~nd implementation systemwide.
An adjustable surcharge with a maximum allows flexibility in
application to meet varying competitive conditions based on
projections of anticipated program costs. The adjustable
charge and recoveries will be reported monthly. A maximum of
3.5¢ per Mci will be applied, ensuring that the cost remains
reasonable.
The cost recovering and eligibility for rebates will be limited
to the residential and commercial markets.
The customers will receive the benefit from the monies
collected for rebates, including interest for any imperfection
in estimates by Lone Star. No return or indirect cost recovery
will be provided for Lone Star.
The key elements of the program are flexibility to freely match market
competition and the limitation on actual costs. This allows quick
adjustments as competitive conditions change. The actual cost to the
customers will vary according to the amount paid out, and the rebates
paid for each appliance will be varied to meet competitive needs.