KCC Approves Settlement Agreement Allowing KGS to Recover Last Winter’s Gas Costs: Third-Party Marketers, Large Transportation Customers

Topeka, Kan. — The Kansas Corporation Commission (KCC) has approved a settlement agreement outlining how Kansas Gas Service (KGS) will recover costs incurred to meet the demand of the company’s transportation customers during last February’s winter storm. Unlike sales customers, who contract directly with KGS for gas, transportation customers purchase gas from gas producers or through a gas marketer. The purchased gas is then provided to KGS and delivered through KGS pipelines to transportation customers. Examples of transportation customers include some municipal utilities, businesses, schools and churches.
What is normally a straightforward transaction was complicated by the high demand and limited supplies during the winter storm. Some gas marketers did not provide adequate gas to KGS in order to ensure uninterrupted service to transportation customers threatening the integrity of KGS’s entire system. Under an emergency order from the KCC designed to protect the health and safety of Kansans, KGS was obligated to make up the difference to ensure gas was available to all customers, including transportation customers.
Under the settlement agreement, KGS will recover approximately $52 million of the $58 million of calculated supply shortfalls in the negotiated gas cost penalty payments from marketers and transportation customers. Due to the extraordinary costs from the winter storm, KGS also requested a waiver from a provision in its tariff that would have allowed a multiplier penalty to be applied to the amount owed. The Commission granted the waiver.  In the absence of the waiver, penalties could have been as much as $888 million, potentially sending many entities into bankruptcy and resulting in great harm to the State’s economy.
Had KGS been unable to recover costs from marketers and transportation customers, those costs would have fallen to residential and small commercial customers. The settlement also avoids costly litigation and further delays.
Today’s order makes clear that the Commission’s decision to waive penalties is not to be viewed as precedential and not to assume penalties will be waived again if a similar situation occurs in the future. In addition, the order states that any proceeds received by KGS from ongoing federal or state investigations into market manipulation, price gouging or civil suits will be passed on to customers.
The order is available at:  http://estar.kcc.ks.gov/estar/ViewFile.aspx?Id=6378bf46-4736-4fc7-bbfb-47a48bba916d
A recording of today’s Business Meeting featuring comments by Commissioners on this order, is available on the KCC YouTube channel.