Order 15509 - Newport Elec.: Performance Based Rate Factor

 

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

PUBLIC UTILITIES COMMISSION

REPORT AND ORDER

On November 13, 1997, the Newport Electric Corporation ("Newport" or "Company") filed with the Public Utilities Commission ("Commission") a compliance filing under the Utility Restructuring Act ("URA") of 1996. Pursuant to R.I.G.L. Section 39-1-27.4, the Company proposed to increase its rates by $0.00185 per kilowatt-hour ("kWh"), as the Performance Based Rate ("PBR") factor to be applied to consumption on and after January 1, 1998. The URA authorizes electric distribution companies to increase base rates per kWh by a factor equal to the average revenue per kWh received during the twelve months ending September 30, 1997, excluding the cost of fuel and demand-side management programs, multiplied by the rate of inflation as measured by the change in the Consumer Price Index ("CPI") over the most recent twelve months for which data are available.

The URA also requires that, on or before November 15, 1997, each electric distribution company shall file a report with the Commission detailing the earned return on common equity ("ROE") from intrastate operations for the twelve months ending September 30, 1997. Newport filed its earnings report which reflected an earned return on equity of 12.23%. The Company's allowed ROE is 11.40%.  [1 Under the URA, electric distribution companies that earn less than six percent on common equity are authorized to implement a surcharge to collect over twelve months the revenue necessary to make up the difference between the return on common equity earned and six percent. Also, earnings exceeding the level currently allowed by the Commission shall be refunded to customers on a shared basis. The sharing formula returns 100% of earnings in excess of 1 1/2% above the allowed rate of return, and 50% of earnings between the allowed rate of return and 1 1/2% above that rate.]  Since the earned ROE is above the authorized return, Newport calculated a refund to customers which totals $135,680. This amount spread over 1998 forecast sales of 543,140,354 kW hours results in a refund factor of $0.00024 per kWh, net of gross receipts tax.

The Commission held a public hearing on December 15, 1997 at 100 Orange Street in Providence. The following appearances were entered:

FOR NEWPORT:                                David A. Fazzone, Esq.

FOR THE DIVISION OF PUBLIC

UTILITIES AND CARRIERS:("Division")

Alan M. Shoer, Esq.

Special Assistant Attorney General

FOR THE COMMISSION:                 Adrienne G. Southgate

General Counsel

Newport presented its PBR proposal through Mark Sorgman,  [2 Mr. Sorgman sponsored Newport Ex. 1, the filing package.]  Supervisor of Rate Administration for the EUA Service Corporation. The witness testified he used a 2.15% value for the CPI, which was the twelve month change in the All Urban Consumer Index for all cities as of September 30, 1997. Using this CPI value and the test-year base revenues and kilowatt-hour sales, Newport proposed a PBR increase of $0.00185 per kWh. The CPI adjustment results in an increase in revenues of approximately $1,031,223.

David J. Effron, [3 The Division presented the prefiled testimony of David J. Effron as DPU Ex. 1.]  the Division's expert witness, testified that he had recalculated the Company's excess earnings and the associated refund factor to account for adjustments he made to taxes and other income and expense deductions. Mr. Effron stated that after making these modifications, his recalculated factor was identical to that presented by Newport. This temporary refund factor, applicable only during calendar 1998, will reduce the PBR increase. Mr. Effron agreed with the Company's calculation of its PBR increase.

There was considerable discussion as to the peculiar results of the URA's application to the instant case. The URA compels the Commission to pass along a performance-based rate increase to customers at the same time that the Company's overearnings compel Newport to refund excess earnings to customers. Since the amount of the overearnings credit is less than the amount of the PBR increase, rates will rise. It is anomalous to award a rate increase to a company which is exceeding its authorized rate of return, but that is the regulatory treatment compelled by the URA.

The agreed-upon PBR and refund factors were calculated as follows:

Adjusted base revenue $47,964,320

CPI increase 2.15%

Gross revenue increase 1,031,233

kWh sales [divided] 533,350,623=

PBR factor .00193

PBR factor, net of gross receipts tax .00185

Rate reduction for overearnings

($135,680 [divided] 543,140,354 forecast kWh sales) (0.00025)

Refund factor, net of gross receipts tax (0.00024)

PBR factor less credit factor $ .00161

The CPI adjustment under the URA will increase revenues by approximately $1,031,233. This amount will be offset by the refund of $135,680, excess revenues earned in the twelve months ended September 30, 1997, for a net revenue increase to the Company of $895,553. For the typical residential customer using 500 kWh per month, the PBR factor will add $0.92, or 1.45%, to the monthly bill.

For the Division, Mr. Shoer recommended approval of the PBR increase and the refund credit factor.

In light of the record before us, the Commission finds that the PBR factor of $.00185 per kWh is supported by the evidence and in compliance with the URA. We also find the excess earnings credit factor of $0.00024 per kWh is likewise supported and in compliance.

Accordingly, it is

(15509) ORDERED:

1. That the Newport Electric Corporation's proposed Performance Based Rate factor of $.00185 per kWh is hereby approved for application to consumption on and after January 1, 1998.

2. That the Newport Electric Corporation shall refund to customers approximately $135,680 through a refund credit factor of $0.00024 per kWh, to be applied to all kilowatt-hour sales from January 1, 1998 through December 31, 1998.

EFFECTIVE AT PROVIDENCE ON JANUARY 1, 1998 PURSUANT TO AN OPEN MEETING DECISION ON DECEMBER 17, 1997. WRITTEN ORDER ISSUED FEBRUARY 12, 1998.

PUBLIC UTILITIES COMMISSION