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State Opens Inquiry Into Utilities' Supply Costs, Rate-Setting Approaches
The Maine PUC has initiated an inquiry to examine current and potential alternative regulatory and rate-setting approaches for natural gas local distribution company (LDC) supply-related decisions and costs (Docket 2015-00155)
The PUC said that gas supply costs currently comprise more than half of total LDC revenues. The LDCs recover these costs through a cost-of-gas adjustment mechanism (CGA) established by M.R.S. Section 4703 and Chapter 430 of the Commission’s rules. CGA rates are set prospectively for a given period based on estimates, or may be indexed, and then are reconciled to actual costs and revenues after the fact. LDCs do not earn a return or profit on gas supply costs. CGAs and similar rate adjustment mechanisms have commonly been used for natural gas and electric utilities to recover particular types of costs. Generally, the costs recovered by such mechanisms are: (1) relatively large; (2) fluctuating; and (3) not within the control of the utility.
The PUC asked for comment on the following:
1. Please identify and discuss to what extent aspects and components of gas supply and procurement are or are not within the control of an LDC, and describe the degree of control associated with each. To the extent certain costs are partially or fully within the control of an LDC, what are the advantages and disadvantages of CGA-type treatment for the costs?
2. Does the current approach whereby LDC supply costs are reviewed in CGA proceedings provide for a sufficient level of regulatory oversight? If not, what alternative approaches should be considered?
3. To what extent do the current regulatory review and rate-setting approaches provide incentives for LDCs to manage and procure supply resources efficiently?
4. Are there alternative rate-making mechanisms that could be designed to provide incentives for LDCs to make more efficient procurement decisions? Should such mechanisms be considered? If not, why not? If so, please describe how alternative mechanisms could be structured.
5. What is the practice in other jurisdictions with respect to pre-approval and cost recovery of gas supply-related costs including for: (1) commodity; (2) pipeline capacity; (3) storage; (4) other?
The PUC also invited comment on, "other related areas." As previously reported, several retail suppliers have raised concerns regarding supply-related issues such as capacity and asset assignments and costs, resource procurement, and gas cost rates at Northern Utilities, Inc. (Unitil)
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June 25, 2015
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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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