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While authorizing Nashville Gas Co. to increase rates by $4.417 million, the Tennessee Regulatory Authority has modified its existing policy on the treatment of advertising expenses in gas rate cases.

The authority abandoned a past policy limiting advertising recovery to 0.5 percent of the company's gross revenues. It also ordered a 50-50 sharing between ratepayers and shareholders. It granted, however, the LDC's request for full recovery of both payroll and nonpayroll "sales promotion" costs, rejecting allegations the costs should be treated as advertising expenses.

In approving the rate increase, the authority set the company's cost of common equity at 11.5 percent. In doing so it rejected a proposal to adjust the approved cost of equity for monthly compounding of earnings. It ruled that such an adjustment would be inappropriate because it would assume a constant monthly earnings rate atypical of a gas utility, ignore variable dividend payments and conflict with the calculation of annual earnings used elsewhere in the case. Ratepayers and shareholders will share costs associated with a long-term incentive compensation plans for upper management employees.

In setting rate design, the authority directed the LDC to spread the approved revenue increase equally among all customers, including interruptible sales customers, transportation customers and special contract customers. It also authorized several tariff changes designed to permit the LDC to "respond to existing competitive conditions," including provisions for customers to elect sales or transportation service annually to prevent consumers from switching back and forth between the rate schedules based solely on changes in the price for spot market gas supplies. Re Nashville Gas Co. a Div. of Piedmont Natural Gas Co., Inc., Docket No.96-00977, Feb. 19, 1997 (Tenn.R.A.). t

Phillip S. Cross is an associate legal editor of PUBLIC UTILTIES FORTNIGHTLY.

Northeast Utilities Fights Back

Lawsuits Filed, New Bankruptcy Threatened

On March 3, Northeast Utilities and three of its subsidiaries, Public Service Co. of New Hampshire, North Atlantic Energy Corp., and Northeast Utilities Service Co., filed a lawsuit in U.S. District Court in Concord, N.H., against the New Hampshire PUC and its restructuring rules. The companies are seeking a temporary restraining order preventing the restructuring plan from becoming effective.

The utilities' most immediate objection is regarding parts of the order that will trigger a change in accounting rules governing Public Service Company of New Hampshire's and Northeast Utilities' financial statements. The order states Public Service Company of New Hampshire's stranded cost recovery level must be based on market price of electricity in New England.

The company's auditors have concluded that by basing rates on market prices rather than on PSNH's costs, the company could be forced to write off more than $400 million of assets. That, in turn, would violate key provisions of some loan agreements, possibly allowing lenders to demand immediate repayment of more than $1 billion of debt. Such payment demands could force both utilities to default on their loans, and possibly seek Chapter 11 bankruptcy protection, the company alleges.

The Northeast Utilities companies also plan to sue to recover damages resulting from various portions of the order that the companies believe