Special Contract Rate Trend Continues
As regulators continue to investigate industrywide restructuring as an answer to regional electric rate disparities and calls from large consumers for price reductions, the trend of dealing with the problem through rate discounting also remains strong. Regulators have taken steps to ensure that shareholders bear at least some of the risk for revenue shortfalls that might result under the new contracts. In addition, utilities have been careful to avoid asking for current rate increases for services provided to smaller customers.
The California Public Utilities Commission (CPUC) has approved a set of "preapproved generic discount" contract rate options for large industrial and commercial electric users served by Pacific Gas & Electric Co. (PG&E). It rejected allegations by ratepayer groups and representatives of independent power producers in the state that the discount programs would impede the effective restructuring of the state's electric industry. The CPUC emphasized that the programs are consistent with current market conditions, including the economics of cogeneration. It added that as with the overall goals of its industry reform efforts, the utility's shareholders assume the risk for any future costs of uneconomic assets "should there be a restructuring of the California electric industry." Commissioner Jessie J. Knight, Jr. dissented, however, claiming that the new discount rules allow PG&E to advantage itself in the future restructured electric services industry by offering current discounts funded in large part by ratepayer dollars. Knight noted that the terms of the proposed discount contracts apply "well into the restructured era." He also said that the decision contains a bias against direct access in favor of "virtual direct access" that would occur through implementation of a power pool.
The CPUC approved three separate discount programs proposed by the utility for: 1) business attraction, 2) business retention and expansion, and 3) deferral of cogeneration. To gain CPUC approval, the utility was required to accept partial shareholder responsibility for the revenue shortfall resulting from the discounts. Shareholders will bear 35 percent of the shortfall associated with the business attraction option, and 50 percent of the lost revenues under the remaining two programs. According to the CPUC, shareholder responsibility for the lost revenues will increase to 100 percent after "direct access" or other such major industry restructuring is made available to the qualifying customers. The new preapproved contract rate options are designed to allow the "swift execution of individual contracts" necessary to retain customers with competitive alternatives. Ratepayers are protected by system caps of 100 megawatts (Mw) for the business attraction and cogeneration options, and 50 Mw for business expansion customers. Ratepayers are assured of a benefit under each contract as a result of a price floor for each contract set at the customer's specific marginal cost plus 20 percent. Re Pacific Gas and Electric Co., application 91-11-036, Decision 95-10-033, Oct. 18, 1995 (Cal.P.U.C.).
The Michigan Public Service Commission (PSC) has approved a 10-year "special manufacturing contract" negotiated by Consumers Power Co. to supply retail electric service at reduced prices to General Motors Corp. General Motors is the utility's largest electric customer, with a total demand in excess of 400