23 CAR Part 456 — Natural Gas Procurement Plan Rules

Chapter XVI

Subchapter A

Subpart 1

23 CAR § 456-101 Background {#sec-23-car-456-101 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-101}

23 CAR § 456-101. Background.

(a)(1) In Order No. 3 of Docket No. 01-023-NOI styled In the Matter of a Notice of Inquiry into Whether Arkansas Gas Utilities Should Integrate Gas Price Hedging, Fixed Price Options and Other Alternate Mechanisms into Gas Procurement Plans, the Arkansas Public Service Commission adopted Policy Principles for Gas Procurement Plans of Utilities (“policy principles”).

(2) The policy principles provide as follows:

(A) The Arkansas Public Service Commission intends that these will guide gas utilities in their purchasing decisions as such decisions relate to the issues that were under review in the NOI;

(B) The Arkansas Public Service Commission interprets these policy principles as being consistent with Arkansas Code § 23-15-103, the “least cost purchasing statute”; and

(C) Modifications to these principles and/or this part may be required as more experience is gained in these areas.

(b)(1) Each gas utility is expected to take all reasonable and prudent steps necessary to develop a diversified gas supply portfolio.

(2) The portfolio should consist of an appropriate combination of different types of gas purchase contracts and/or financial hedging instruments that is designed to yield the optimum balance of:

(A) Reliability;

(B) Reduced volatility; and

(C) Reasonable price.

(3) In so doing, each utility should take into consideration various factors, including but not limited to:

(A) Its particular circumstances;

(B) The demographics of its customers;

(C) The then-current market projections of both volatility and price;

(D) Supply/demand estimates; and

(E) Other relevant information that is available in the industry.

(c)(1) On an annual basis, each utility should submit its gas supply portfolio plan, along with its contracting and/or hedging objectives, to the General Staff for the General Staff’s review and determination as to whether or not it appears to be consistent with these policy principles.

(2) The reasonableness and prudence of each utility’s contracting and hedging decisions shall be judged by the market circumstances and pertinent information that were available to the utility at the time it made those decisions.

(d) Each gas utility should submit proposed revisions to its Purchased Gas Adjustment Clause (PGA) or Gas Supply Rate (GSR), as appropriate, to reflect the flow-through of any costs associated with hedging transactions.

(e) To the extent that there are fee-based costs associated with a particular financial risk management instrument, as those costs relate to the acquisition of natural gas supplies, such costs may be recovered through the utility’s PGA.

(f) Each gas utility should maintain records for any hedging programs it chooses to utilize that document the following:

(1) The overall risk management plan, including the utility-specific goals and guidelines;

(2) A policy and procedures manual;

(3) Corporate, including management and board of directors, reporting, monitoring, and tracking requirements;

(4) An evaluation mechanism to measure hedging program performance; and

(5) Accounting information to determine the:

(A) Fees, gains, and losses that have flowed through the PGA; and

(B) FAS and Internal Revenue Service accounting treatment for hedging transactions.

(g) Each gas utility should engage in appropriate consumer education efforts to inform as many of its customers as practical concerning the utility’s good-faith estimate of gas prices for each upcoming winter heating season.

(h)(1) Levelized billing or average payment plans should be made available to all residential and small business customers.

(2) Implementation of this principle should include sufficient customer education efforts to encourage maximum customer participation with particular attention to low-income, fixed-income, and elderly customers.

(3) Any gas utility needing assistance with efforts to identify, educate, and inform low-income, fixed-income, and elderly customers should contact the Arkansas Public Service Commission for help and suggestions for designing an education plan designed to reach these customer groups.

(i) The Arkansas Public Service Commission encourages each gas utility to explore and, if appropriate, develop and implement fixed-commodity gas supply options for its customers.

(j)(1) The Arkansas Public Service Commission states in Order No. 3 in Docket No. 01-023-NOI that the purpose of the policy principles was to encourage gas utilities to take reasonable and prudent steps to:

(A) Diversify their supply portfolios;

(B) Procure reasonably priced gas supplies;

(C) Mitigate gas price volatility; and

(D) Increase both educational efforts and supply pricing options for gas consumers.

(2) On November 20, 2001, the Arkansas Public Service Commission issued Order No. 5 in this docket, initiating proceedings to develop rules to implement the policy principles.

History

• Codification Notes: This section was promulgated as Section 1 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules."FAS" means financial accounting standards."NOI" means notice of inquiry. Authority: Arkansas Code § 23-2-305

23 CAR § 456-102 Purpose {#sec-23-car-456-102 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-102}

23 CAR § 456-102. Purpose.

(a) The purpose of this part is to implement the Arkansas Public Service Commission’s policy principles as referenced in 23 CAR § 456-101.

(b) Each gas utility is expected to take all reasonable and prudent steps necessary to develop a diversified gas supply portfolio.

(c) The portfolio should consist of an appropriate combination of different types of gas purchase contracts and or financial hedging instruments designed to yield an appropriate balance of:

(1) Reliability;

(2) Reduced volatility; and

(3) Reasonable price.

(d) In so doing, each utility should take into consideration various factors, including but not limited to:

(1) Its particular circumstances;

(2) The demographics of its customers;

(3) The then-current market projections of both volatility and price;

(4) Supply/demand estimates; and

(5) Other relevant information that is available in the industry.

(e) This part is intended to be consistent with Arkansas Code § 23-15-103.

History

• Codification Notes: This section was promulgated as Section 2 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. Authority: Arkansas Code § 23-2-305

23 CAR § 456-103 Annual submission of gas supply portfolio plan required {#sec-23-car-456-103 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-103}

23 CAR § 456-103. Annual submission of gas supply portfolio plan required.

(a) No later than May 15 of each year, each gas utility shall submit its gas supply portfolio plan, along with its contracting and hedging objectives, to the General Staff for its review and a determination as to its consistency with the policy principles and this part.

(b) Specific minimum filing requirements are listed in 23 CAR § 456-104.

(c) In general, the supply plan should:

(1) Identify projected peak and annual gas supply requirements under various weather conditions; and

(2) Detail how those requirements will be met.

(d) Also, the utility should submit a quantitative analysis demonstrating that the plan will achieve an appropriate balance of:

(1) Reliability;

(2) Reduced volatility; and

(3) Reasonable price.

(e) The utility should describe the options it offers its customers to respond to the prices that are projected to result from its strategy as well as the customer education efforts it will employ to inform customers of the projected prices and customer options.

(f) The reasonableness and prudence of each utility’s gas supply portfolio plan shall be judged relative to the market circumstances, contracting and hedging instruments, and other pertinent information available to the utility at the time it was prepared.

(g) The General Staff contemplates that its review will be completed within sixty (60) days.

History

• Codification Notes: This section was promulgated as Section 3 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. Authority: Arkansas Code § 23-2-305

23 CAR § 456-104 Minimum filing requirements for annual submission of gas supply portfolio {#sec-23-car-456-104 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-104}

23 CAR § 456-104. Minimum filing requirements for annual submission of gas supply portfolio.

(a) Overall gas supply objectives, identifying key strategies and planning parameters and measures of performance, such as:

(1) Weighted average cost of gas (WACOG); and

(2) Volatility of WACOG.

(b) Options offered to customers to respond to the prices projected to result from its strategy, and customer education efforts employed to inform customers of the projected prices and options.

(c) Actuals for prior year:

(1) Performance of strategy in prior year, including comparison of actual to projected levels of requirements and WACOG;

(2) Prior-year bid and contract administration, including RFPs sent and bids received;

(3) Prior-year spot market purchases;

(4) Prior-year cost of purchases by month; and

(5) Prior-year demand forecast compared to actual results.

(d) Projections for plan year:

(1) Projected peak day and annual supply requirements for both transportation capacity and gas supply, and associated projected resource mix;

(2) Market intelligence, such as:

(A) Projections of wellhead prices; and

(B) Costs of various hedging instruments;

(3) Bidding/negotiating parameters as established by each utility; and

(4) Projected gas supply costs by month, including costs for hedging.

History

• Codification Notes: This section was promulgated as Appendix in the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules.This section, as promulgated prior to codification into the Code of Arkansas Rules, contained footnotes to the following: Footnote to 23 CAR § 456-104(c)(3) provided as follows: "1 For purposes of these rules, "spot market purchases" are defined as gas purchased for a term of one month or less."Footnote to 23 CAR § 456-104(c)(4) provided as follows: "2 Commodity cost plus fuel.""RFPs" means requests for proposals. Authority: Arkansas Code § 23-2-305

23 CAR § 456-105 Recovery of hedging costs {#sec-23-car-456-105 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-105}

23 CAR § 456-105. Recovery of hedging costs.

(a)(1) Gas utilities shall have the opportunity to recover reasonable and prudent explicit costs associated with financial risk management instruments used in the acquisition of natural gas supplies.

(2) Utilities have the right to seek recovery of these costs through the Purchased Gas Adjustment Clause (PGA) or Gas Supply Rate (GSR), as appropriate.

(3) Utilities that wish to exercise this right must submit proposed revisions to the provisions of their PGAs or GSRs, as appropriate, to allow for the flow-through of costs associated with hedging transactions.

(b)(1) To the extent that a gas utility reasonably and prudently incurs explicit costs to use financial risk management instruments during the acquisition of natural gas supplies, it may file for recovery of those costs through its PGA or GSR.

(2) On and after the effective date of this part, utilities will be at risk for disallowance of costs associated with hedging transactions that are not incurred pursuant to a gas purchasing plan and hedging program that has been reviewed by the General Staff.

(3) The Arkansas Public Service Commission retains authority for post-implementation investigation to ensure that the practices actually utilized were:

(A) Consistent with the utility’s strategy and program design as reviewed by the General Staff; or

(B) Otherwise consistent with the policy principles and Arkansas Code § 23-15-103.

(4) The reasonableness and prudence of each utility’s contracting and hedging decisions shall be judged relative to the market circumstances, contracting and hedging instruments, and pertinent information available to the utility at the time it made those decisions.

History

• Codification Notes: This section was promulgated as Section 4 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. Authority: Arkansas Code § 23-2-305

23 CAR § 456-106 Recordkeeping requirements {#sec-23-car-456-106 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-106}

23 CAR § 456-106. Recordkeeping requirements.

Each gas utility is required to maintain records for any hedging programs it chooses to utilize that document the following:

(1) The overall risk management plan, including the utility-specific goals and guidelines as more fully described in 23 CAR §§ 456-104 and 456-105;

(2) A policy and procedures manual;

(3) Corporate, including management and board of directors, reporting, monitoring, and tracking requirements;

(4)(A) An evaluation mechanism to measure hedging program performance.

(B) Documentation shall include, but is not limited to:

(i) Price forecasts and quantitative analyses for the selected supply mix of gas in storage;

(ii) Physical contracts; and

(iii) Financial instruments in its portfolio relative to a published index or a referenced mix with no hedging; and

(5) Accounting information to determine:

(A) The fees, gains, and losses associated with the hedging program; and

(B) The FAS and Internal Revenue Service accounting treatment for hedging transactions.

History

• Codification Notes: This section was promulgated as Section 5 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules."FAS" means financial accounting standards. Authority: Arkansas Code § 23-2-305

23 CAR § 456-107 Customer education {#sec-23-car-456-107 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-107}

23 CAR § 456-107. Customer education.

(a) Each gas utility shall engage in appropriate customer education efforts concerning:

(1) The utility’s good-faith estimate of gas prices for each upcoming winter heating season; and

(2) Options available to customers for responding to those prices.

(b) Each gas utility shall engage in appropriate customer education efforts concerning the availability and benefits of levelized billing or average payment plans.

(c) Education efforts regarding customer options should give due weight to the needs of low-income, fixed-income, and elderly customers.

(d) Each gas utility should contact the General Staff for help and suggestions for designing an education plan designed to reach these customer groups.

(e) The customer education efforts should begin on or before October 1 of each year using bill inserts and other appropriate media.

History

• Codification Notes: This section was promulgated as Section 6 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. Authority: Arkansas Code § 23-2-305

23 CAR § 456-108 Customer options {#sec-23-car-456-108 omnilex-key=us-ar-regs-official--title-23-part-456--23 CAR § 456-108}

23 CAR § 456-108. Customer options.

(a) Within sixty (60) days of the effective date of this part, levelized billing or average payment plans shall be made available to all qualified residential and small business customers.

(b) Each gas utility shall assess the demand for, and feasibility of, fixed-price gas commodity supply options for its customers at least once every two (2) years.

History

• Codification Notes: This section was promulgated as Section 7 of the Natural Gas Procurement Plan Rules prior to codification in the Code of Arkansas Rules. Authority: Arkansas Code § 23-2-305