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June 7, 1993


Ronald E. Hawkins, Executive Secretary

Public Service Commission of Maryland

231 E. Baltimore Street

Baltimore, Maryland 21202-3486

RE: Case Nos. 8509(o) and

8510(o)


Dear Mr. Hawkins:
Enclosed are two copies of the Testimony of Staff witness Julian Thomas, Accountant/Auditor, for filing in each of the above-captioned cases. Copies have been delivered to the parties of record and the Hearing Examiner.
Should you have any questions, do not hesitate to contact me.

Very truly yours,


Ronald E. Alper

Assistant Staff Counsel

Enclosure


cc Monte Edwards, Esquire (via Facsimilie & U.S. Mail)

Joel M. Bright, Hearing Examiner

Cynthia Green-Warren, Esquire

G:\mj1\wp\mcd\8509(o).doc

BEFORE THE

PUBLIC SERVICE COMMISSION

OF MARYLAND

IN THE MATTER OF THE CONTINUING

INVESTIGATION OF THE PURCHASED GAS CASE NO. 8509(o)

ADJUSTMENT CHARGES OF MARYLAND CASE NO. 8510(o)

NATURAL GAS AND FREDERICK GAS

COMPANY

TESTIMONY AND EXHIBITS

OF

JULIAN J. THOMAS, JR.



ON BEHALF OF THE STAFF

OF THE


PUBLIC SERVICE COMMISSION OF MARYLAND

JUNE 1993

Testimony of Julian J. Thomas, Jr.

Maryland Natural Gas and Frederick Gas Company

Case Nos. 8509(o) and 8510(o)

Page No. _

Q. PLEASE STATE YOUR NAME AND POSITION WITH THE PUBLIC SERVICE COMMISSION OF MARYLAND.
A. My name is Julian J. Thomas, Jr. I am an auditor in the Commission's Accounting Investigations Division. My qualifications are shown on Attachment A.

Q. WHAT IS THE SCOPE OF YOUR TESTIMONY WITH RESPECT TO THIS PROCEEDING?


A. My testimony will address the results of my review of Maryland Natural Gas' (MNG) and Frederick Gas Company's (FGC) consolidated Purchased Gas Adjustment charges (PGA), MNG's Firm Credit Adjustment (FCA), and the respective Actual Cost Adjustments (ACA) of both companies in effect during the six billing months of December 1992 through May 1993.
Q. WHAT DOES THE PGA REPRESENT?
A. The PGA is the mechanism by which MNG and FGC recover changes in their purchased gas costs from ratepayers on a monthly basis. After twelve months of activity, amounts recovered from ratepayers via the PGA are reconciled with the respective Company's actual purchased gas costs and any variances are recovered or refunded in an ACA for an ensuing twelve month period. The ACA insures that the Companies' realize a dollar for dollar recovery of their purchased gas costs with no profit margin.
Q. HAVE YOU PRESENTED A CONSOLIDATED PGA FOR THE PERIOD UNDER REVIEW?
A. Yes. In Case No. 8281 MNG and FGC were authorized to reflect a combined or unified current cost of gas for determining PGA charges.
Q. HOW IS THE PGA CALCULATED?
A. The PGA, which is developed on a quarterly basis, determines the amount to charge ratepayers based on the most current projection of commodity and demand costs for the respective companies. A combined commodity cost per decatherm (dth) is developed based on throughput necessary to meet the firm requirements for the quarter. A combined demand cost per dth is developed and presented on an annualized basis. Projections of both costs are based on data from Washington Gas Light's (WGL) G.A.M.E.S computer model, filed annually in WGL's Gas Purchase Plan.
For example, referring to Column B of Schedule JJT-1, the calculation of the quarterly PGA for the billing months of December 1992 through February 1993 shows the projected cost to serve ratepayers for that quarter. Total purchased gas costs are segregated into components (commodity and demand) and then divided by applicable sales to derive a component cost per dth as shown on lines 3 and 6. The sum of these two components (line 7) represents the current estimated cost of gas for the month. Next, the cost of gas included in base rates is subtracted to derive the purchased gas adjustment charge as shown on line 9. The PGA is then adjusted to reflect the ACA, Take-or-Pay charges, supplier refunds, and the firm credit adjustment. The net adjustment factors for MNG and FGC are different because the firm credit adjustment does not apply to FGC.
Q. DURING YOUR REVIEW OF THE COMPANY'S PURCHASED GAS PROJECTIONS, DID YOU FIND THEM TO BE REASONABLE?
A. Yes, I did find that the projections for both Demand and Commodity costs were reasonable. In my review of the company's projections of commodity costs, I performed a comparative analysis as reflected in schedule JJT-2. A test analysis of the demand costs projection for the quarter was compared to the actual cost for a test month within the cost period. The final analysis of the difference between the estimates and the actuals for the demand costs for the period in review was less than 3%.
Q. PLEASE EXPLAIN YOUR ATTACHED SCHEDULE JJT-2
A. You will note from schedule JJT-2, a comparison of the projected cost to the actuals for the periods in review. The end result as shown on the bottom line reflects the variance for the quarter. In my opinion, a 5% variance plus or minus a few percentage points allowance for fluctuation in the weather patterns for the region(s) is acceptable. Weather is the key determinant as to how close the actuals are to the projections. Normalized weather conditions will usually dictate a reasonable level of consistency in the prediction of commodity costs. When comparing the actual number of degree days in the period to the normal number of degree days for the same period, the relative difference was less than 1%, so the resulting impact was found to be nominal.
Q. WHAT DOES THE FCA REPRESENT?
A. The FCA is the mechanism approved by this Commission whereby the net margins (revenues less gas costs) from interruptible sales are shared with firm customers. Firm customers receive 50% of the first $6M of margins during the twelve month period beginning May of each year and 92% of the margins exceeding this level. As shown on Schedule JJT-1, the FCA reduces the rates paid by MNG's firm customers.
Q. PLEASE EXPLAIN WHY THERE ARE DIFFERENT PGA FACTORS FOR THE SECOND QUARTERLY FILING.
A. Referring to Schedule JJT-1, the factors under the column entitled March 1993 represent the quarterly factors as filed by the Company for the March through May quarterly period. Subsequently, the factors were changed for the months of April and May. These factors were revised to return overcollections in purchased gas costs brought about by the effects of weather and changes in gas supply mix.
Q. DO YOU AGREE WITH THE REVISED FACTORS?
A. Yes. The revised factors allow the company to flow back to ratepayers overcollections in purchase gas costs during the same season in which they were collected and minimize the total level of overcollections that would have occurred had the original factors remained intact.
Q. HAVE CHARGES BEEN CALCULATED PROPERLY DURING THE PERIOD UNDER REVIEW?
A. Yes. The combined PGA calculation of MNG and FGC, and MNG's FCA calculations were calculated correctly in accordance with prescribed tariff provisions during the period under review.
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes it does.

APPENDIX A

EDUCATION: Graduated from Morgan State University in June 1978 with a B.S. degree in Accounting.
Graduate of Beckers C.P.A. Review Course in April 1991.
Completed the regulatory Studies Program sponsored by the National Association of Regulatory Utility Commissioners at Michigan State University in August 1992.
EXPERIENCE: Auditor for the Dept. of Human Resources in the Food Stamp Issuance Program; Budget Analyst for the Dept. of Social Services; A/P Supervisor in the Office of Business & Finance for the Univ. of Md. Balto. Campus; Accounting Dept. Supervisor for the Court of Common Pleas in Balto. City.
Md. Public Service Commission:
Case No.# 8505 (n) Hagerstown Municipal Electric Company

Case No.# 8506 (n) Thurmont Municipal Light Company

Case No.# 8507 (n) Williamsport Municipal Electric Company

Case No.# 8519 (n) Baltimore Thermal Energy Corp.

Case No.# 8509 (o) Washington Gas Light, Maryland Division

Case No.# 8510 (o) Frederick Gas Company


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