The West Virginia Public Service Commission (PSC) has criticized a request by Shenandoah Gas Co. to require its residential and commercial customers to pay the lion's share of a newly approved rate increase, citing the utility's cost studies as "flawed" and its cost allocations as having compounded the error.

The company had argued that its cost studies showed that interruptible customers were already generating a 45 percent rate of return, while rates for its firm customers produced a negative return on the investment necessary to serve them. As part of a settlement presented in the case, the company had agreed to require residential customers to pay 30.2 percent of the increase and commercial customers 53.7 percent, while firm industrial users would pay 16.06 percent. The commission accepted the proposed allocation of the rate increase noting that the settlement figures represented a reasonable and gradual realignment of costs among customer classes.

But the PSC found the studies marred by a "serious understatement" of interruptible

purchased gas costs (em an error compounded by an allocation of the remaining jurisdictional gas costs based on revenues, rather than commodity deliveries. Thus, the PSC concluded that although the average weighted cost of gas might be lower for interruptible users than for firm customers, the disparity shown in the company's cost study was "simply unexplainable."

By recasting the class cost-of-service numbers, the commission found that the claimed negative 12 percent return attributable to residential rates was "closer to zero" and that the alleged earnings of 45 percent from interruptible users was actually closer to 10 percent. Re Shenandoah Gas Co., Case No. 96-0113-G-42T, Nov. 27, 1996 (W.Va.P.S.C.).

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