Decision Relieves Retail Suppliers from Paying Excessive Collateral to WGL 

The Maryland Public Service Commission has granted a request by Washington Gas Light and two retail suppliers to lower the collateral for suppliers operating on WGL’s system for the winter season.  Click here for WGL’s initial filing and here for the supplemental filing that proposed an amendment to the WGL tariff.  This is a significant reduction that will help retail suppliers continue to bring competitive natural gas products and services to WGL’s Maryland customers.

A little background:  retail suppliers must post collateral twice per year (winter and summer) to operate on WGL’s system.  The purpose of the collateral is to protect WGL in the event a supplier defaults and does not deliver gas to WGL, and WGL is forced to buy gas on the wholesale market. WGL calculates each supplier’s collateral based on a formula in the tariff.  If a supplier does not post by October 15, it cannot continue to enroll new customers. If a supplier does not post by October 31, it will be booted out of the WGL choice program.

Without getting into a whole lot of boring detail here about the formula used to calculate collateral, I will just say that one of the biggest factors in the formula is the use of Transco Zone 6 Non-New York prices from the past three years.  The problem with employing the formula for this winter season was that last year’s extremely and unusually cold weather caused the Transco Z6 NNY prices to increase dramatically on certain days during the year.  Strict adherence to the tariff formula would have resulted in WGL collecting about $54 million in collateral this year as compared to about $4 million last year.  WGL recognized that $54 million in collateral is excessive.

The “new and improved” formula, which is in effect for this winter season only, reduces the Transco Z6 NNY price by eliminating every day during the past year when the price exceeded $20.00 per Dth.  That eliminated 13 days. Whereas the price last year was around $8.00 per Dth, it would have jumped to $25.21 this year.  Eliminating the 13 days brings the price back down into that $8.00 neighborhood.

How big of a deal is this?  Suppliers who posted $300,000 in collateral for last year’s winter season would have seen their collateral jump to between $2 million and $2.5 million, with no significant increase in customers or throughput. The only suppliers who would not have felt this pain would have been those who attained a certain credit rating from a ratings agency – something that most smaller suppliers have not attained.

Suppliers should be hearing from WGL in the next few days about their reduced collateral requirement.  Since most suppliers have already posted the larger amount, we suspect that they will be afforded a chance to amend their bonds or reduce their letters of credit, etc., to meet the new, lesser amount.

Finally, WGL and Maryland Commission Staff will monitor this year’s Transco Z6 NNY prices to see if last year really was an anomaly.  The Transco Z6 NNY price is actually an average of the past three years, so WGL would need to make a filing next year if last year’s prices continue to skew the formula and result in excessive collateral requirements.  Yes, that is right – the $25.21 is an average of the past three years’ prices, so you can imagine how high the 13 days were thatthrew the entire formula off-kilter.

GreeneHurlocker’s lawyers represented the Retail Energy Supply Association at the Maryland Public Service Commission with respect to this issue.