November 25, 2003

The Michigan Public Service Commission (MPSC) today approved an interim settlement agreement that authorizes Aquila Networks - MGU to implement a temporary gas cost recovery (GCR) factor of up to $6.6434 per thousand cubic feet (Mcf) until the Commission issues a final order in this docket.   The company is also authorized to implement a contingency mechanism that may periodically require adjustments to the temporary factor based on increases in the market price for natural gas.  (The mechanism is indexed to natural gas futures contract prices quoted on the New York Mercantile Exchange.) 

The MPSC found that granting the interim settlement, including the contingency mechanism, is in the public interest.

Aquila filed an application on Sept. 30, 2003 for approval of its GCR plan and factors for 2004, supporting a factor of up to $8.1255 per Mcf and authority to implement a quarterly GCR ceiling price adjustment mechanism.  After a pre-hearing, the parties submitted an interim settlement agreement that provides for the implementation of the temporary GCR factor mentioned above and the contingency mechanism.

The GCR process was created by the legislature over 20 years ago to protect ratepayers from automatic adjustment clauses and to enable utilities to recover their gas costs, but without a markup or profit of any kind.  The MPSC is required to annually review a utility’s entitlement to recovery of such costs.  In so doing, the burden is on the utility to demonstrate that its GCR costs are attributable to reasonable and prudent management decisions.  The Commission has previously disallowed millions of dollars of requested GCR cost recovery because the costs were not attributable to reasonable and prudent management decisions.

In addition, the MPSC today issued an order approving a settlement agreement that authorizes Aquila Networks - MGU to roll into its 2003 gas cost recovery reconciliation a cumulative over-recovery balance of $6,751,560, which includes interest accrued to December 31, 2002.  The Commission found the settlement agreement to be reasonable and in the public interest.

Aquila on March 28, 2003 filed an application seeking a reconciliation of its gas cost recovery (GCR) revenues and expenses for the 12-month period ended December 31, 2002.  The company proposed to roll in a 2002 net GCR over-recovery of $1,395,508 as a decrease to its 2003 GCR cost of gas sold.  Aquila also included the effect of a $3,567,748 over-recovery for the 2001 GCR year, so that the net adjusted GCR over-recovery was $4,963,256, as of December 31, 2002.

After a hearing on the matter, the parties submitted a settlement agreement resolving all issues in this case.  The parties agreed to settle the 2002 GCR reconciliation case on the basis of the MPSC staff’s computation of a cumulative GCR over-recovery of $6,063,259.  With accrued interest, the GCR over-recovery balance is $6,751,560, as of December 31, 2002.  This balance will be rolled into Aquila’s 2003 GCR reconciliation in Case No. U-13550-R.

Aquila Networks - MGU is headquartered in Monroe.

The MPSC is an agency within the Department of Consumer and Industry Services.

Cases Nos. U-13101-R, U-13900

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