Chattanooga Gas on Thursday filed its first general rate request in eight years with the Tennessee Public Utility Commission. The company reports in its petition that a $7 million increase in base rates is necessary for system improvements to accommodate new growth, avoid interruptions in service, install critical safety infrastructure and recruit and cross-train the next generation of skilled workers, among other things. Changes in the corporate income tax rate stemming from the federal 2017 Tax Cuts and Jobs Act are reflected in the filing.
If the Chattanooga Gas rate request is approved, beginning Sept. 1, the average residential monthly bill would increase by approximately $6.47, or a 13 percent increase on a total bill.
The Chattanooga Gas petition identifies several factors contributing to the $7 million revenue deficiency, including the following:
Current base rates do not reflect investments of more than $100 million in system improvements since the company’s last rate case in 2010;
Inflation has climbed 14 percent higher than current rates since the last rate case, and the company’s operational expenses are influenced by inflationary pressure like every other business;
Recent mild winters have prevented revenues from keeping pace with increasing costs; and
Chattanooga Gas is carrying out a $29.8 million capital budget, approximately 67 percent of which is comprised of infrastructure improvements that include the following:
Investments related to Federal and TPUC safety compliance, such as continuation of a program to rid the system of aging and obsolete pipe
New regulator stations that more safely control pressure flow within the system and allow for inspection devices to be inserted into high pressure lines
Capacity supply improvements to replace the pending loss of gas supply sources to ensure that Chattanooga Gas customers have reliable natural gas when and where they need it
The Chattanooga Gas petition seeks to correct a pending gas supply shortage with the addition of a new pipeline from an existing liquefied natural gas plant into the Red Bank and Signal Mountain areas and necessary pressure improvements in the Lookout Mountain area.
“Our analysis indicates we must have new capacity online by 2022 so that we not only can accommodate new prospects like the Volkswagen Plant that came online in 2011, but also ensure we do not have service interruptions on the coldest days of the year for industrial and perhaps even some residential customers,” said Wendell Dallas, vice president of Operations.
Demand would be met by taking advantage of an existing LNG facility to boost overall system capacity through new high pressure lines to Red Bank and Signal Mountain at a cost of approximately $20 million over the next three years.
Workforce development and technology needs, such as updated customer management and billing systems, represent a significant portion of the proposed increase. “With a workforce as small as ours, the loss of one employee with an average 30-year tenure of operational experience could negatively impact the company,” said Mr. Dallas. “We plan to recruit employees to implement cross-training and transition programs so that our customers do not lose decades of irreplaceable experience when one employee retires.”
According to a rate comparison analysis performed by the company, Chattanooga Gas has the lowest service rates of any regulated natural gas utility in Tennessee and lower rates than any utility in the region. Even with the proposed increase, the company’s rates would remain in the lower third of these utilities. “This rate adjustment would reset our rates to a level closer to what they would have been had they consistently tracked inflation for the past decade,” said Mr. Dallas.
To help smooth out the significant swings that can come with rate cases, Chattanooga Gas is proposing to have its rates reviewed annually through the alternative regulatory methods law authorized by the Tennessee General Assembly in 2013. The ARM, a variation of which is being used by the TPUC to regulate rates for other Tennessee utilities, is a transparent ratemaking mechanism that adjusts rates up or down based on annual accounting reviews of historic data, inflation and other real-time changes in business conditions and other factors that influence utility rates.
“We realize the impact that any rate increase can have on our customers, but this is the best time to make these improvements given that natural gas prices are forecasted to stay low for the foreseeable future," said Mr. Dallas. "Our average residential customer, even with the proposed increase, will be paying 20 percent less, or $167 less, on their total annual bill than they were 10 years ago thanks to lower natural gas prices."