In two recent natural gas rate cases, regulators have split over the question of alleged rate subsidies in favor of residential customers.
In the first, the Rhode Island Public Utilities Commission (PUC) approved a proposal by Providence Gas Corp., a natural gas local distribution company (LDC), to redesign its rates to remedy "the ongoing subsidization of the residential class by commercial and industrial customers."
In Minnesota, however, the state PUC rejected a similar plan by Minnegasco to use an embedded-cost allocation method to shift the revenue burden away from commercial and industrial customers and toward residential users. Minnegasco in that case had urged the move as a necessary preparation for competition.
Providence Gas had employed a newly completed cost-of-service study in its Rhode Island rate case to guide each rate class toward an equalized rate of return on equity. The modifications shifted the overall revenue burden of $2.6 million from the commercial and industrial rate classes to residential customers. The company's new tariffs will also feature other adjustments to help unbundle rates and services.
In Minnesota, the PUC objected that a proposal to realign rates with fully distributed embedded costs would complicate rather than ease the move to a competitive market. Instead, it favored marginal-cost pricing, noting that
embedded-cost strategies would make subsidies more difficult to identify (em raising prices for those customers least likely to have competitive options.