The Wisconsin Public Service Commission (PSC) has approved an affiliated interest agreement between Madison Gas & Electric Co., a natural gas local distribution company (LDC), and its subsidiary Great Lakes Energy Corp., an energy marketer, to reflect changing conditions in the retail market for natural gas. The approved agreement separates all gas procurement and sales functions, including physical separation of employees of both companies. In 1993 the PSC had allowed the companies to share gas supplies and transportation capacity, as well as personnel and other resources, finding that the affiliate's marketing of Madison's underutilized transportation capacity would help defray the LDC's monthly fixed charges for firm capacity for its core customers. However, after an extensive audit, the PSC ruled that separation of the companies was necessary to protect ratepayers from financial losses incurred by the marketing affiliate.
The PSC said it must ensure that the transfer price for LDC services adequately covers costs, prevents cross-subsidization, and also prevents the transfer of confidential market-sensitive information. To meet such broad requirements, a market affiliate should be a stand-alone entity receiving only the corporate support associated with joint financial statements, shareholder relations, and miscellaneous overheads. The PSC also ruled that a strong prohibition against joint advertising was necessary because the competitive gas-supply market was "still in its developmental stage." Re Madison Gas and Electric Co., No. 3270-AG-102, Nov. 30, 1995 (Wisc.P.S.C.).