Ratemaking Special Report
Return on Equity:
Fixing an appropriate rate of return on equity (ROE) for electric utility investors marks a fundamental...
While setting a new gas cost adjustment rate for Delmarva Power & Light Co., a combined electric and gas utility, the Delaware Public Service Commission (PSC) found the utility's unaccounted-for-gas incentive program unnecessary because it had accomplished its objective, as evidenced by a steady decline in the rate of unaccounted-for gas. The PSC approved a $300,000 incentive award for the current adjustment. Re Delmarva Power & Light Co., PSC Dkt. No. 94-123F, March 21, 1995 (Del.P.S.C.).In another case, the PSC allowed Chesapeake Utilities Corp. to shift a major industrial customer from firm to interruptible service to meet changing market conditions despite claims that the customer did not qualify. The PSC cut the purchased gas adjustment rate and obligated the company to initiate negotiations with the industrial customer to convert back to firm service at some time in the future. Re Chesapeake Utilities Corp., PSC Dkt. No. 94-162F, May 23, 1995 (Del.P.S.C.).
The New York Public Service Commission (PSC) has authorized National Fuel Gas Distribution Corp., a natural gas local distribution company (LDC), to recover costs associated with above-market purchases of gas from an instate supplier. The contract price for the supplies had been disputed ever since 1983, when the PSC invalidated the contract's "three pipeline escalator" price formula. The PSC approved $2.6 million in gas-supply payments, including 1) $0.6 million that the LDC incurred by paying the supplier an above-market rate based on oil price increases in 1991-92, and 2) $2 million that the LDC paid to settle a bankruptcy claim by the supplier. The PSC rejected a proposal requiring National Fuel Gas to absorb one-half the costs, finding that proponents of the "equitable sharing" method had neither explicitly alleged nor established imprudence. Re Annual Reconciliation of Gas Expense and Gas Adjustment Clause, Case Nos. 92-G-1004 and 93-G-0352, May 5, 1995 (N.Y.P.S.C.).
The PSC has also approved a Long Island Lighting Co. (LILCO) plan to redesign its natural gas interruptible service tariffs and pricing methods to maximize revenue margins to benefit core firm-service customers. Under the plan, LILCO will cancel two existing specialized service classifications for
interruptible service currently used by about 100 large-volume, noncore customers: 1) seasonal offpeak service, and 2) temperature-controlled interruptible service. The utility will also revise pricing for other interruptible sales and transportation offerings by increasing minimum charge levels and replacing existing prices based on alternate fuels with price scales based on annual thermal energy requirements. The PSC found that the redesign would increase company margins available to support firm-service rates. It added, however, that rate impacts of 15 to 32 percent on smaller interruptible users must be tempered by applying the price changes over a three-year period. Re Long Island Lighting Co., Case No. 94-G-0786, May 12, 1995 (N.Y.P.S.C.).
The Kansas Corporation Commission (CC) has ruled that LDCs should continue to use their
purchased-gas adjustment clauses to account for pipeline capacity costs as well as 50 percent of capacity-release revenues. The CC said that the capacity costs were stabilizing under the new regulatory regime imposed by the FERC, but that the final effect was still uncertain enough