In its first request for a rate increase in eight years, Chattanooga Gas Co. asked state regulators Thursday for permission to raise natural gas prices in Chattanooga and Cleveland, Tenn., by 13 percent, or another $7 million a year.
If approved later this year, the rate hike could add another $6.47 a month to the average residential monthly gas bill, starting as early as September.
The gas company is proposing to add a new $20 million pipeline from an existing liquefied natural gas (LNG) plant into the Red Bank and Signal Mountain areas and to make pressure improvements to better serve Lookout Mountain.
"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 pperations for Chattanooga Gas, a subsidiary of the Atlanta- based Southern Co.
In its petition filed Thursday with the Tennessee Public Utility Commission, Chattanooga Gas said it needs extra funds to cover the expense of the system improvements for more growth and safety and to cover the costs of ongoing capital investments and higher operating costs since the company was last granted a rate hike in 2010.
The gas utility regularly adjusts the fuel portion of customer bills according to the changing price of wholesale natural gas supplies, but the distribution and delivery charges by Chattanooga Gas are regulated and set by the state's 5-member Public Utility Commission.
Even with the proposed increase, the typical residential gas user would still be paying 20 percent less, or $167 less, on their total annual bill than they were 10 years ago thanks to the drop in the price of natural gas, Dallas said.
Chattanooga Gas said it 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 said its rates would remain in the lower third of all natural gas 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," Dallas said in an announcement of the rate filing.
The higher rates are being sought despite the drop in the top corporate tax rate from 35 percent to 21 percent for Chattanooga Gas, and its parent company, the S0uthern Co.
The Tennessee Public Utility Commission opened a new docket last month to review all regulated utilities for rate adjustments due to the cost savings from the tax changes, but Chattanooga Gas contends that other capital and operating expenses more than offset the reduced income tax burden on the utility.
The Chattanooga Gas petition identifies several reasons for the proposed rate increase, including:
» Investments of more than $100 million in system improvements since the company's last rate case.
» Inflation has climbed 14 percent higher than current rates since the last rate hike in 2010.
» Mild winters (prior to last month) have prevented revenues from keeping pace with increasing costs
» The need for a $29.8 million capital budget, including the new pipeline and replacements of aging and obsolete pipes.
» The need for new regulator stations that more safely control pressure flow within the system and allow for inspection devices to be inserted into high pressure lines.
Dallas also said the company is putting in an updated customer management and billing systems and needs to raise wages to keep competitive with others in the industry to recruit and maintain talent.
"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 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."
To help smooth out 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. That process, which is used by other regulated utilities such as Tennessee American Water, 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," Dallas said.
David Foster, director of utilities division of the Tennessee Public Utilities Commission, said the staff and the Consumer Advocate in the Tennessee Attorney General's office will review the gas company filing and assess the requests and cost projections.
"We'll hold a hearing sometime later this year and the authority will make a decision based upon what th commissioners decide are the best projections of costs and earnings and what is a fair return for the company," Foster said.
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.