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Special Contract Rate Trend Continues

Fortnightly Magazine - January 15 1996

reduce rates for large general service customers under new tariffs and to further reduce base rates by 20 percent at the end of the rate freeze period.

A freeze in Edison's electric fuel-charge rate, with limited adjustments based on an inflation index (Gross Domestic Product Implicit Price Deflator), is designed to encourage fuel purchasing and operation efficiencies. In addition, the fuel rate is capped at a level tied to the current average of the fuel components of the major electric utilities in the state. To ensure that customers share the benefits from efficiency improvements, the plan includes an earnings cap that requires a customer refund of the entire amount of earnings in excess of the 13.21-percent equity allowance granted in the company's last rate case. Re Ohio Edison Co., Case No. 95-830-EL-UNC, Oct. 18, 1995 (Ohio P.U.C.).

Based on requirements under a new state law seeking to stimulate economic development through changes in electricity pricing, the New Jersey Board of Public Utilities (BPU) has approved a detailed set of regulations for utilities to follow in implementing "off-tariff" rate agreement programs. The rules contain standards for: 1) confidentiality of the discount rate agreements, 2) initial and periodic filing requirements, 3) minimum pricing components, 4) the maximum term for discount agreements, and 5) conditions and terms for exceeding maximum term and marginal-cost pricing restrictions. Under the new rules, utilities are granted expanded flexibility to negotiate discounts with customers, but minimum pricing provisions require that rates cover the marginal cost of service plus numerous specific cost factors, including a BPU-determined contribution to fixed costs as well as existing per-unit charges for costs associated with conservation programs, environmental cleanup, gross receipts and franchise taxes, and nuclear decommissioning trust funds. The rules forbid any recovery of "revenue erosion" attributable to the discount agreements prior to the conclusion of a base rate case. Discount agreements are limited to a period of seven years. Re Standards for Off-tariff Rate Agreements, Docket No. EX95070320, Oct. 27, 1995 (N.J.B.P.U.).

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