New York Staff Support Further Unbundling at NiMo; Recommend Level for Uncollectibles

Staff of the New York Public Service Commission have filed testimony supporting the further unbundling of rates at Niagara Mohawk, and proposed updates to the uncollectibles rates in the Merchant Function Charge (MFC) and purchase of receivables discount (12-G-0202 et. al.).

Specifically, for gas rates, NiMo proposed to implement a new component of MFC to allow the company to recover the return requirement on working capital for purchased gas. Staff agrees with this proposal, though recommends use of a different interest rate than that proposed by NiMo.

NiMo proposed to unbundle the return on working capital associated with gas commodity from base rates by implementing it as a fifth component of the MFC. The return requirement would be calculated by multiplying the lead lag rate determined from NiMo's lead lag study, the company's proposed pretax weighted costs of capital, and the monthly gas supply charge. This would make the gas MFC consistent with the electric MFC, which already includes a return on working capital component.

NiMo proposed to use the company's pre-tax rate of return to determine the return requirement for commodity-related working capital. Staff recommended that this proposal be rejected, and that the return requirement be determined using the lower, Commission-issued "Other Customer Capital Rate," because NiMo, "has virtually no risk of not recovering its costs," under the working capital return component due to an annual reconciliation process.

While varying by customer class, Staff's proposal results, using an illustrative example of forecast 2013-14 gas costs, in a commodity-related working capital return component in the MFC equal to about 1 mill per therm.

Additionally, Staff supports NiMo's proposal to apply a Merchant Function Charge to SC-3 Large Supply gas customers. Prior to a 2008 rate case, gas supply costs were included in the SC-3 rate, and therefore an MFC was not applied to such customers. However, supply-related costs were removed from base rates for SC-3 customers in the 2008 case, but an MFC was not introduced for SC-3 customers at that time. NiMo said that an MFC should now be applied to SC-3 customers given that rates for SC-3 customers are fully unbundled.

Staff also presented testimony for the uncollectibles components of the MFC, which also serve as the uncollectibles rates for Purchase of Receivables.

First, Staff agreed that uncollectible rates for residential and non-residential customers should be separate. Staff also proposed setting uncollectible rates using an average of the latest three years of data, versus solely the test year.

Staff's recommended uncollectible components, for gas, are 2.83% for residential customers and 0.55% for non-residential customers.

For comparison, NiMo's proposal had been an uncollectibles rate of 2.9% for residential customers and 0.6% for non-residential customers.

For electricity, Staff's proposed uncollectible rates for demand, non-demand, and street lighting customers are $0.00010/kWh, $0.00097/kWh, and $0.00005/kWh, respectively.

NiMo's proposed electric uncollectible rates had been, for demand, non-demand, and street lighting customers, $0.00011/kWh, $0.00099/kWh, and $0.00009/kWh, respectively.