The Maine Public Utilities Commission (PUC) has approved a new multi-year revenue requirement and rate design plan for Maine Public Service Co. (MPS) designed to serve as "the starting point for MPS and its customers' participation in an increasingly competitive market."
The plan allocates an overall revenue increase of 4.4 percent to produce a 5.5-percent increase in residential rates and a 7.5-percent hike in commercial rates. Other customer groups will see smaller boosts in rates or slight reductions.
The new rate design reflects marginal-cost principles approved by the PUC over the past several years. As the PUC pointed out, however, the marginal-cost results must be adjusted to ensure that the utility recovers its entire approved revenue requirement:
"In the early days of marginal-cost methodology, it may have been expected that future marginal costs would be above average costs. In Docket No. 89-068, calcu-
lating final rates to recover CMP's total revenue requirement required an approximately 30-percent markup over marginal-cost allocation results. In this case, the markup will be close to 100 percent."
The PUC acknowledged that when a reconciliation of such large magnitude is required, the validity of the marginal-cost-based price signal is seriously jeopardized. It concluded, however, that intraclass rate design at least preserves marginal-cost ratios for seasonal and time-of-use periods, "which probably has some merit, even if the absolute level of prices greatly exceeds their marginal costs." Re Maine Pub. Service Co., Dkt. No. 95-052, June 27, 1996 (Me.P.U.C.).