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NGVs -- Are Ratepayer Subsidies Appropriate?

Fortnightly Magazine - May 1 1995

may request prudence reviews, rate design reviews, and rate level reviews while the plan is in effect. Re Central Maine Power Company, Docket No. 92-345 (II), January 10, 1995 (Me.P.U.C.).

In a later decision, the PUC granted Bangor-Hydro Electric Co. pricing flexibility while eliminating its fuel adjustment clause. The PUC ruled, however, that a full-fledged price-cap and incentive rate plan submitted by the utility was not fully developed. It adopted a series of incentives to ensure Bangor-Hydro's efficient operation and pointed out that without the automatic rate adjustments shareholders must absorb any revenue loss associated with rate discounting until the utility's next rate case.

The Bangor-Hydro plan includes similar but somewhat broader pricing flexibility than allowed Central Maine, subject to a 10-percent revenue delta cap. To further protect existing customers, the PUC required the utility to use three separate cost-benefit tests to screen new permanent load attracted under the long-term discount offers. The tests are designed to make sure that: 1) the utility earns more net revenues with the discount than without (revenue test), 2) the discount benefits the individual customer in the long-run (participant test), and 3) the discount produces overall economic efficiency (total resource cost test). The PUC rejected, however, a proposal to include external environmental costs in the discount-program testing requirements, finding no reason to "saddle [the utility] with external environmental costs that its competitors do not shoulder as well."

The commission also approved the utility's proposal to cap existing rates for five years, subject to periodic review to ensure that the utility does not earn more than its 10.6-percent return on equity. Re Bangor-Hydro Electric Co., Docket Nos. 94-125, 94-273, Feb. 14, 1995 (Me.P.U.C.).

The Pennsylvania Public Utility Commission (PUC) has suspended for further review a proposal by Pennsylvania Electric Co. to modify its existing tariffs to allow greater pricing and service flexibility. In a separate statement, however, Commissioner John Hanger warned of the potential for cost-shifting among customer classes if shareholders are not placed at risk for part of the revenue lost under the proposed discounting measures. He also viewed the proposal as an indication that mere opposition to retail wheeling will not protect core customers from such cost-shifting and that it is time to consider a major structural change in the state's electric industry. Given some of the "preemptive noises recently emanating" from the Federal Energy Regulatory Commission, the opportunity to devise a "Pennsylvania way forward may be getting slimmer all the time," Hanger warned. Pennsylvania Public Utility Commission v. Pennsylvania Electric Co., Docket No. R-00943280, Feb. 24, 1995 (Pa.P.U.C.).


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