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Price To "Compare": NY PSC Allows Utility To Defer Collection of Supply Costs

PSC: "Appropriate" To Mitigate Full Service Customers' Supply Bill In Light Of Simultaneous Delivery Rate Increase

Demand Costs Had Been Set "Too Low" For Full Service Customers

December 20, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The New York PSC has approved a deferral of certain supply costs that would have otherwise been required to be reflected in default service rates at KeySpan New York (The Brooklyn Union Gas Company d/b/a National Grid NY) starting on January 1, 2017, citing, in part, the need to temper the bills of full service customers due to the simultaneous impact of a reconciliation-driven supply rate increase and a separate delivery rate increase.

EnergyChoiceMatters.com was first to report that KEDNY was seeking to defer $43 million in reconciled supply costs, with none of the reconciliation applied during January through March 2017, $22 million recovered over the rest of 2017, and $21 million recovered in 2018

Absent any deferral, a reconciliation adder of $0.051 per therm, would have been required to be reflected in supply costs effective January 1, 2017

The PSC approved mitigation of the supply reconciliation increase, though not in the manner proposed by KEDNY.

Instead, the PSC ordered that a reduced reconciliation rate of $0.025000 per therm shall be implemented in January, February and March 2017, and a rate of $0.073841 per therm shall be implemented for the remainder of calendar year 2017.

The PSC said that such design shall allow all of the deferral to be collected in 2017

In discussing the deferral, the PSC said in its order that, "KEDNY appropriately requests that the Commission address the coincident impact of the delivery rate increase and the commodity rate increase that would otherwise result from the Company’s gas cost reconciliation."

"The circumstances surrounding KEDNY’s request are unique and require action to lower full service customers’ bill impacts during the winter heating season, the first three months of calendar year 2017," the PSC said in its order

"If the Company followed the regulations and implemented the full surcharge rate beginning January 1, 2017, it would implement a surcharge that would have a total annual bill impact of 3.7 percent on full service residential heating customers. Those customers would experience this increase at the same time new delivery rates go into effect that have a total annual impact of 8.8 percent.14 Thus, residential heating customers would face increased rates on January 1, 2017 with a combined total annual impact of 12.5 percent," the PSC said in its order

"The Commission is concerned about the projected bill impacts the delivery rate change will have on customers, and this concern is compounded with the projected impact the annual reconciliation surcharge would have on full service customers. Both the delivery rate change and the annual reconciliation rate are scheduled to become effective on January 1, 2017, at a time of high usage," the PSC said in its order

While KEDNY's proposal has, "appeal," the PSC was concerned with the deferral of some of the reconciliation costs into 2018, when further delivery rate increases and surcharges are to take effect.

As such, the PSC adopted the design noted above which contemplates full recovery during 2017.

"Shaping the surcharge rate in the first three months of 2017 will appropriately temper full service customers’ bill impacts," the PSC said in its order

"Utilizing a rate of $0.025000 per therm in January, February and March 2017 will produce annualized total bill impacts for a typical residential heating customer of less than 10.0 percent during those months. Under normal weather conditions, the entire annual reconciliation balance can be recovered during 2017 by increasing the surcharge rate to $0.073841 per therm on April 1, 2017 and retaining that surcharge rate for the remainder of 2017," the PSC said in its order

The PSC noted that the required reconciliation of supply costs were driven, in part, by what were ultimately incorrect utility assumptions concerning load factors for full service and transportation customers, under which demand costs were set "too low" for full service customers.

"The current demand cost allocation methodology, which was the major driver in this year’s under recovery, relied on the assumption that the load factors for full service and transportation customers were equal. The load factors for transportation customers were actually higher than those for full service customers and, therefore, the allocated demand costs were set too low for full service customers. The result was that the difference in actual costs are recovered through the annual reconciliation imbalance," the PSC noted

The PSC noted that KEDNY will make modifications to its demand cost allocation factors, and the improved methodology will rely on actual transportation load factors from the prior year to determine the demand cost allocations between full service and transportation customers

The PSC also noted that the removal of a cap on interim reconciliation adjustments, as approved under a recent rate case, should prevent large reconciliation balances in the future.

The PSC noted that deferral of supply costs reconciliations is not, "unique."

"These actions are not unique, as the Company points out, the Commission has shaped commodity reconciliations to temper customer bill impacts in the past," the PSC noted in its order. Indeed, KEDNY’s request is similar to a deferral of supply costs granted to KEDNY’s affiliate Niagara Mohawk in 2014 during the polar vortex (as NiMo was granted a deferral of a $30 million increase in supply costs that were otherwise required to be included as part of a monthly reconciliation in the immediate next month, see story here).

The PSC in its order said that comments from ESCOs concerning failings in the reconciliation process were outside the scope of the instant proceeding addressing KEDNY's petition and shall be addressed in an open generic proceeding.

The deferral of supply costs that would otherwise be billed to default service customers occurs as the PSC increasingly relies on cost comparisons between full service customer bills and competitive supply bills in judging the retail market.

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