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N.Y. PSC Staff Opposes True-Up to Uncollectible Rate in NiMo MFC Charge

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October 11, 2010

New York PSC Staff have opposed Niagara Mohawk's request to include a true-up of the uncollectible rate included in the electric Merchant Function Charge, which would also be used in setting the Purchase of Receivables discount rate (Case 10-E-0050).

NiMo proposed in its electric rate case that its new Merchant Function Charge (which will replace the backout credit system, see Matters, 2/1/10) contain an uncollectible accounts true-up mechanism.  The mechanism would true-up uncollectible accounts for changes in commodity costs as well as for changes in the actual uncollectible accounts rate.  NiMo would update its POR discount rate to include the commodity-related uncollectible percentage and the commodity-related credit and collections rates contained in the Merchant Function Charge.  Currently, these components are not included in the discount rate.

In an initial brief, Staff recommended that the uncollectible accounts true-up mechanism be limited to commodity cost changes only, and "that the uncollectible rate approved by the Commission in this case be used unless and until it is modified by the Commission in a future proceeding."

"Staff does not support the annual true-up of uncollectibles to the actual rate uncollectible rate [sic] ... [because] an MFC uncollectible rate true-up eliminates a significant portion of the Company's incentive to pursue collection efforts and to minimize its uncollectible expenses," Staff said.

"Moreover, the decision of whether an account should or should not be written off at any given point in time is based upon some degree of subjectivity; the Company's proposed MFC uncollectible rate true-up mechanism is poised to create numerous deferral disagreements between Staff and the Company," Staff added.

Staff noted that in its March 25, 2004 Order on Residential Security Deposits in Case 03-M-0772, the Commission stated that, "the record established that Niagara Mohawk had a significant problem with its uncollectible expense levels."

"This long standing problem remains to this day, and the Company's proposal to true up its actual uncollectible expenses on commodity costs to the rate case allowance would inappropriately shift the responsibility for resolving the problem from the Company to ratepayers," Staff said.

The Retail Energy Supply Association also opposed the uncollectibles true-up as it would apply to the POR discount rate, under which NiMo would incorporate a true-up of forecast to actual uncollectible expense, and apply a concomitant adjustment in the discount rate used for a subsequent period.

RESA argued that NiMo's uncollectibles true-up transforms the POR program from a "without recourse" program to a "with recourse" program, "because the Company's is able to make up any short fall in its actual uncollectible experience in a subsequent period."

"It is also equally clear that through this true up mechanism, National Grid would essentially compel an individual ESCO to bear the impact of the collection experience associated with another individual ESCO," RESA said.

However, NiMo responded that RESA's, "largely semantic argument must be rejected for the simple reason that under the Company's proposal, no change will be made to the POR discount in 2011 as a result of net write-off experience in 2011."

"Rather, any over or under-recovery of net write-offs experienced by the Company will be factored into the calculation of the Company's POR discount for 2012.  Because ESCOs will be free to decide whether or not to continue to participate in the Company's POR program in 2012, the claim that the Company is retroactively assessing ESCOs for differences between actual and forecast net write-off levels is without merit," NiMo said.

Staff and RESA also said that NiMo's commodity-related uncollectible rate should be set at 1.3232% rater than NiMo's original proposal of 1.687%.  NiMo has since amended its proposal such that the net write-off rate would be based on the most recent twelve months of data available just before the Commission renders its decision in the rate case.

RESA requested that the Commission direct NiMo to eliminate the current class-specific all-in/all-out requirement for POR.  RESA noted that NiMo has not prepared any studies to support its claim that allowing ESCOs to dual bill some customers in a class while placing other customers in that class on POR would lead to gaming.  Furthermore, RESA said that the restriction is unnecessary since the POR discount rate is based on system uncollectibles, not those of only ESCO customers in the POR program.

NiMo argued that while it has not performed any studies of the increased credit risk that would arise from the elimination of the all-in requirement, "no such study is needed to determine that the resulting impacts would be both negative and unnecessary."

A stipulation among several parties would defer NiMo's proposed changes in the design of commodity rates for 2012 (see 2/1/10 story) until a separate proceeding after the rate case.  Changes to the pricing of capacity, including the use of capacity tags for hourly priced customers, would also be deferred to a later proceeding.

A stipulation would also reduce the threshold for mandatory hourly pricing from a demand of 500 kW to a demand of 250 kW (Matters, 7/15/10).

   
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