PEG Scores Win in Ontario Gas Proceeding

PEG has had many successes in its productivity and benchmarking research and testimony over the years. Its latest success is in a recently-concluded proceeding that approved a multiyear rate plan for Canada’s largest gas distributor, Enbridge Gas Inc. The plan features a 5-year term and an indexed attrition relief mechanism. The X factor term in the index formula is the sum of a productivity growth target and a stretch factor linked to statistical cost benchmarking research. 

The Enbridge witness proposed a -1.52% productivity factor and a 0% stretch factor (thus, Enbridge’s revenues would rise 1.52% faster than inflation each year).  However, productivity and benchmarking research and testimony by PEG for Ontario Energy Board Staff produced much different results than those of the Enbridge witness. PEG found that the total factor productivity trend of a sample of U.S. gas utilities averaged a 1.26% annual decline, but this was largely due to cast iron and unprotected bare steel main replacement programs in the northeast U.S.  Enbridge replaced such mains years ago.  Enbridge is also not subject to U.S. gas transmission safety regulations.

PEG proposed a -0.20% productivity factor for Enbridge based on a custom productivity peer group consisting of U.S. utilities that were primarily distributors and had less than 5% of their distribution mains composed of unprotected bare steel or cast iron. PEG also proposed a 0.45% stretch factor based on Enbridge’s performance using the latest econometric total cost benchmarking model that PEG has developed using U.S. gas industry data. The Board approved a settlement with provisions that were closer to PEG's positions and features a 0% productivity factor and a 0.28% stretch factor.