Pennsylvania PUC I&E Bureau Expresses Concern with Equitable Gas Purchase of Receivables Discount Rate

The Pennsylvania PUC's Bureau of Investigation and Enforcement (I&E) has expressed concerns with the proposed levels for the discount rates in Equitable Gas' purchase of receivables program.

As first reported by Matters, Equitable's proposed POR discount rate for residential customers would be 1.7946%. The commercial and industrial POR discount rate would be 0.4776%

I&E first noted that Equitable does not have plans to implement the POR program at this time because the only retail choice supplier active in Equitable's service territory, Dominion Energy Solutions, has indicated that it will not participate in the program. Rather, Equitable's POR program would be implemented within nine months after a retail choice supplier seeks to participate.

I&E recommended that the discount rate, "be revisited in order to improve uncollectible results."

Equitable determined its discount rate by using a three-year average of net uncollectible expense in 2009, 2010, and 2011. However, I&E noted that Equitable experienced a significant decline in its net uncollectible expense in 2010 and 2011; "therefore, including the 2009 net uncollectibles in the three year average may be too high to attract participants."

Specifically, the 2009 net uncollectibles of $7.3 million declined in 2010 to $4.9 million and decreased further in 2011 to $4.5 million, I&E noted.

"While Equitable's determination of the discount rate using the three year average does not violate Commission regulations, including the 2009 net uncollectibles skews the rate given that Equitable's recent experience is considerably lower. Although I&E does not make a specific recommendation to establish the discount rate based on 2011 net uncollectibles or an average of 2010 and 2011 net uncollectibles, I&E urges the Company to revisit the rate to ensure that it reflects the most current data available and that it is designed to attract participants."

I&E is also concerned about the proposed recovery of IT programming costs in the discount rate. To determine the IT programming costs included in the discount rate, Equitable allocated the estimated $370,000 IT costs 80% to residential customers and 20% to commercial customers, and then amortized the costs over the same three year period utilized for the uncollectible expense (2009- 2011).

"I&E is concerned that a discount percentage for this item on the basis of distribution company revenue will not timely recover the investment from NGSs [retail suppliers]."

"For example, $296,052 of the estimated IT programming costs is allocated to residential customers and, based on Equitable's three year amortization, the Company should recover $98,684 per year. However, Equitable's residential IT cost recovery via the discount rate would be approximately $24,795 in one year, which falls far short of the planned $98,684. The IT programming costs are non-recurring and are not representative of ongoing administrative expenses. Therefore, an alternate recovery method should be established such as a per shopping customer bill charge or establishment of a percentage based on shopping customer count or usage to ensure timely recovery of the investment," I&E said.