Opposing Federal Legislation to Establish a Mandatory Surcharge for Natural Gas Research and Development

WHEREAS, The Gas Research Institute (GRI) was established to manage cooperative research and development programs in the natural gas industry,

WHEREAS, GRI has historically been funded through assessments on interstate pipelines approved by the Federal Energy Regulatory Commission (FERC) and recovered through mandatory surcharges on interstate pipeline customers,

WHEREAS, In Resolutions 1989-13, 1991-20 and 1997-01, NASUCA has opposed the funding mechanism for GRI as discriminatory against residential customers and as contrary to efforts to promote the use of competitive market forces to determine natural gas rates,

WHEREAS, In 1998, the FERC approved a settlement that called for the phase out of the GRI surcharge by 2004 in favor of voluntary funding mechanisms,

WHEREAS, The 1998 settlement was supported or not opposed by a wide variety of natural gas industry segments, including representatives of residential natural gas customers,

WHEREAS, The American Gas Association (AGA) is promoting legislation to establish a federally mandated surcharge to be levied at the retail level on customers natural gas utilities for the purpose of funding natural gas research and development,

WHEREAS, The AGA has proposed that a governing body comprised primarily of natural gas utilities be formed to determine the level of the surcharge and the research and development projects to be funded,

WHEREAS, The AGA has proposed that the initial amount to be collected through the mandatory surcharge should be approximately $65 million,

WHEREAS, The level of surcharge funding could increase from the $65 million level since the entities that will be voting on the level of the surcharge will not bear the cost of the surcharge,

WHEREAS, A mandatory surcharge would preempt state ratemaking authority to determine how research and development expenses should be handled in natural gas utility rate proceedings,

WHEREAS, A mandatory surcharge would impose an increase in natural gas rates even if the utility’s earnings are in excess of the commission’s authorized rate of return,

WHEREAS, Research and development activities in the electricity industry are funded through voluntary contributions by electric utilities to the Electric Power Research Institute (EPRI),

WHEREAS, State utility commissions review the level of EPRI expenses for electric utilities and determine the amount to be recovered from ratepayers through traditional ratemaking procedures,

WHEREAS, The majority of state commissions that allow recovery of EPRI contributions treat the expense in the same manner as other operating and maintenance expenses of the electric utility,

WHEREAS, There is no reason why the funding of research and development in the natural gas industry should not also be recovered through the same traditional ratemaking procedures that are used for the recovery of research and development funding in the electricity industry.

THEREFORE BE IT RESOLVED, that NASUCA opposes any legislation that would establish a mandatory surcharge to be levied on natural gas utility customers for the funding of research and development,

BE IT FURTHER RESOLVED, that NASUCA authorizes the Executive Committee to develop positions and take further actions consistent with the contents of this resolution. The Executive Committee shall inform the membership of such positions and actions prior to proceeding with them, if at all possible. In any event, the Executive Committee will advise the membership of any actions taken consistent with the recommendations contained herein.

Approved by NASUCA: Submitted by:

March 31, 2002 NASUCA Gas Committee