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24
Natural Gas Supply and Costs
NSP-Wisconsin actively seeks natural gas supply, transportation and storage alternatives to yield a diversified portfolio that provides
increased flexibility, decreased interruption and financial risk, and economical rates. In addition, NSP-Wisconsin conducts natural gas
price hedging activity that has been approved by the PSCW. This diversification involves numerous domestic and Canadian supply
sources with varied contract lengths.
The following table summarizes the average delivered cost per MMBtu of natural gas purchased for resale by NSP-Wisconsin’s
regulated retail natural gas distribution business:
2006 ....................................................................... $8.4
2
2005 ....................................................................... $8.6
4
2004 ....................................................................... $7.0
0
The cost of natural gas supply, transportation service and storage service is recovered through various cost recovery adjustment
mechanisms.
NSP-Wisconsin has firm natural gas transportation contracts with several pipelines, which expire in various years from 2007 through
2027.
NSP-Wisconsin has certain natural gas supply, transportation and storage agreements that include obligations for the purchase and/or
delivery of specified volumes of natural gas or to make payments in lieu of delivery. At Dec. 31, 2006, NSP-Wisconsin was
committed to approximately $127 million in such obligations under these contracts.
NSP-Wisconsin purchased firm natural gas supply utilizing short-term agreements from approximately 25 domestic and Canadian
suppliers. This diversity of suppliers and contract lengths allows NSP-Wisconsin to maintain competition from suppliers and minimize
supply costs.
See additional discussion of natural gas costs under Factors Affecting Results of Continuing Operations in Management’s Discussion
and Analysis under Item 7.
PSCo
Ratemaking Principles
Summary of Regulatory Agencies and Areas of Jurisdiction — PSCo is regulated by the CPUC with respect to its facilities, rates,
accounts, services and issuance of securities. PSCo holds a FERC certificate that allows it to transport natural gas in interstate
commerce without PSCo becoming subject to full FERC jurisdiction under the federal Natural Gas Act.
Purchased Gas and Conservation Cost Recovery Mechanisms — PSCo has two retail adjustment clauses that recover purchased gas
and other resource costs:
• GCA — The GCA mechanism allows PSCo to recover its actual costs of purchased gas, including costs for upstream pipeline
services PSCo incurs to meet the requirements of its local distribution system customers. The GCA is revised monthly to allow
for changes in gas rates.
• DSMCA — PSCo has a low-income energy assistance program. The costs of this energy conservation and weatherization
program for low-income customers are recovered through the gas DSMCA.
Performance-Based Regulation and Quality of Service Requirements — The CPUC established a combined electric and natural
gas quality of service plan. See further discussion under Item 1, Electric Utility Operations.
Capability and Demand
PSCo projects peak day natural gas supply requirements for firm sales and backup transportation, which include transportation
customers contracting for firm supply backup, to be 1,816,362 MMBtu. In addition, firm transportation customers hold 534,761
MMBtu of capacity for PSCo without supply backup. Total firm delivery obligation for PSCo is 2,351,123 MMBtu per day. The
maximum daily deliveries for PSCo in 2006 for firm and interruptible services were 1,872,640 MMBtu on Feb. 17, 2006.
PSCo purchases natural gas from independent suppliers. These purchases are generally priced based on market indices that reflect
current prices. The natural gas is delivered under natural gas transportation agreements with interstate pipelines. These agreements
provide for firm deliverable pipeline capacity of approximately 1,618,864 MMBtu/day, which includes 831,866 MMBtu of supplies
held under third-party underground storage agreements. In addition, PSCo operates three company-owned underground storage
facilities, which provide about 40,000 MMBtu of natural gas supplies on a peak day. The balance of the quantities required to meet