N.Y. Approves Move to Market-Based Rates at Penelec

The New York PSC has adopted, with one substantive modification, a joint proposal under which Penelec will move its New York customers to market-based default service rates effective June 1, 2012, with the rate increases mitigated in a competitively neutral manner (Case 11-E-0594).

Penelec and PSC Staff had entered into the joint proposal, as first reported by Matters, to address default service at Penelec's Waverly Electric subsidiary, which serves about 3,800 customers in Tioga County, New York and whose transmission assets are connected to PJM.

The generation and transmission component of Waverly Electric's rates has been fixed since they were unbundled in 2001. For most of this period, Waverly Electric was served under an allocation of several bilateral energy contracts and a partial service contract with FirstEnergy Solutions which were serving Penelec Pennsylvania customers during the rate cap period.

However, since the start of 2011, Waverly Electric has been served through market-based, competitively sourced contracts which constitute the Penelec Pennsylvania default service portfolio.

Under the adopted joint proposal, Penelec will charge New York customers for default service provided under the competitively sourced contracts through a Price To Compare (PTC) Default Service Rider that will recover the cost of energy and capacity, transmission, ancillary services, and Network Integration Transmission Service charges. The Price To Compare also includes a component to recover administrative costs.

The company will calculate separate PTC rates for the residential (SC 1, SC2), commercial (SC3, SC6, SC7), and industrial (SC4, SC5) classes. Additionally, the adopted tariff indicates that the industrial classes will be served on hourly pricing.

For non-hourly customers, new PTC rates will be calculated to become effective June 1 of each subsequent year, and be fixed for 12 months. The actual cost to provide default service will be reconciled with the default service revenue billed to retail customers over the prior twelve-month period. Over- and under-collections, including carrying charges, will be refunded, or recovered, over the following twelve-month period.

The PSC's sole substantive change related to the interest rate applied to any difference between the actual costs to provide default service and revenue under the Price to Compare.

The joint proposal called for a 6% interest rate, which is the statutorily-prescribed interest rate adopted in Pennsylvania, but the PSC the found the rate unsupported and inconsistent with New York policy.

The PSC instead adopted its other customer capital rate, which is currently 3.4%, as the rate of interest that will apply in situations where Penelec's billed Price to Compare revenues differ from its actual default service costs. The other customer capital rate is updated annually.

Other adopted terms of the joint proposal include a requirement that Penelec unbundle Private Outdoor Lighting Service and Municipal Street Lighting Service so that those customers may elect to purchase their commodity from an ESCO instead of Penelec. This will be accomplished in a manner consistent with the unbundling of similar Penelec customers as set forth in a compliance filing the company made in its Pennsylvania 2006 Transition Rate Case before the Pennsylvania PUC in Docket No. R-00061367.

Penelec will phase in the transition to market-based rates by implementing a nonbypassable Default Service Support (DSS) Rider in the tariff that will provide a per-kWh credit to all distribution service customers for the first two years (through May 31, 2014), and then will be a positive rate for recovery of the total deferred balance, to include carrying charges, over the subsequent four years. This mitigates immediate rate shock without impacting the bypassable PTC or customer's shopping decision.

For residential customers, the nonbypassable credit will be $0.0126 per kWh for June 1, 2012 through May 31, 2013, and $0.0004 per kWh for June 1, 2013 through May 31, 2014.