Order 15521 - Blackstone Valley Elec.: Standard Offer Pricing, Last Resort Power Supply

REPORT AND ORDER

On November 7, and 12, 1997, the Blackstone Valley Electric Company and Newport Electric Corporation (the "Companies") filed proposed Standard Offer rates and Last Resort Service rates with the Public Utilities Commission ("Commission") pursuant to R.I.G.L. Section 39-3-10, to become effective January 1, 1998. The filing was made to satisfy the Companies' obligations under the terms of a settlement agreement dated October 17, 1997 amongst the Companies, Montaup Electric Company ("Montaup"), the Division of Public Utilities and Carriers ("Division") and the Commission ("Settlement Agreement"). The Settlement Agreement, which was filed with, and approved by the Federal Energy Regulatory Commission ("FERC"), in relevant part, provides for the termination of the all-requirements wholesale electric power contract between Montaup and the Companies and the implementation of Utility Restructuring Act of 1997, as amended, ("URA"). The general objective of the URA is to implement the deregulation of electric power supply and to allow the development of a competitive market for the purchase of electricity.

On November 19, 1997, the Companies and the Division moved to consolidate Docket 2514 with the above referenced dockets, Electric Restructuring Plan, for the review and approval of a retail settlement agreement among the Division, the Rhode Island Attorney General and the Companies ("Retail Settlement Agreement"). The Commission allowed the motion.

Public hearings were held on December 3, 4 and 9, 1997. The following appearances were entered in this proceeding:

FOR THE COMPANIES                    David A. Fazzone, P.C.

FOR TEC-RI                                       Andrew Newman

Rubin and Rudman, LLP

Alan D. Mandl

Ottenberg, Dunkless, Mandl & Mandl

FOR ENRON CAPITAL

AND TRADE RESOUCES                 Frank P. Pozniak

Rubin and Rudman, LLP

FOR NEV EAST L.L.C.                      Richard W. Benka

Foley, Hoag & Eliot, LLP

FOR THE COALITION FOR

CONSUMER JUSTICE

FOR THE GREY PANTHERS

FOR PARENTS FOR PROGRESS

FOR THE GEORGE

WILEY CENTER                                Hugo Ricci

FOR THE RHODE ISLAND

LEAGUE OF CITIES AND TOWNS Sydney Lima

FOR PROVIDENCE ENERGY

CORPORATION                                Dennis J. Duffy

Partridge, Snow & Hahn

FOR THE DIVISION                          Allan M. Shoer

Special Asst. Attorney General

FOR THE COMMISSION                 Adrienne G. Southgate

General Counsel

Lindsay Johnson

Special Counsel

I. INTRODUCTION

The Companies are wholly owned subsidiaries of Eastern Utilities ("Eastern"), an integrated public utility holding company. The Companies are engaged primarily in the distribution of electricity to customers located in Rhode Island. The Companies purchase all their energy requirements from Montaup, Eastern's wholesale generating and transmission subsidiary. The power has been purchased under the terms of a long-term all-requirements contract, the terms and prices of which have been regulated by the FERC.

The Settlement Agreement terminates the all-requirements contract between the Companies and Montaup and replaces it with a new contract ("New Contract") with lower rates.  [1 The rates are initially lower. See Section II.C.2 for a discussion of the costs under the New Contract.]  The Settlement Agreement requires the Companies, in turn, to reduce their retail rates and implement Retail Access effective January 1, 1998.

The URA allows competition by mandating "Retail Access" to alternative suppliers of electricity. The URA defines Retail Access as "the use of transmission or distribution facilities owned by an electric transmission company or an electric distribution company to transport electricity sold by a nonregulated power producer to retail customers ...".  [2 R.I.G.L. Section 39-1-2(7.6)]  More simply put, the Companies are required to allow their customers to purchase electricity from other suppliers of electricity and are required to transport any such purchases on their lines from the supplier to the customer.

The URA provides for the phase-in of Retail Access as follows: On July 1, 1997, Retail Access was made available to large commercial and industrial customers and accounts in the name of the State of Rhode Island.  [3 On July 1, 1997, Retail Access was made available to (i) all new commercial and industrial customers, including new manufacturing customers .... with an anticipated average annual demand of two hundred (200) kilowatts or greater; (ii) all existing manufacturing customers with an average annual demand of fifteen hundred (1500) kilowatts or greater; and (iii) all accounts in the name of the State of Rhode Island. See R.I.G.L. Section 39-1-27.3(a)]  On January 1, 1998, Retail Access was scheduled to be extended to manufacturing customers with an average annual demand of two hundred (200) kilowatts or greater, and all accounts in the name of the cities and towns in Rhode Island. And finally, Retail Access is scheduled to be made available to all other customers within three months after retail access is available to forty percent or more of the kilowatt-hour sales in New England, including kilowatt-hour sales in Rhode Island, but in no event later than July 1, 1998. Pursuant to the terms of the Settlement Agreement, however, retail access became universal on January 1, 1998.

The URA also requires each electric distribution company to arrange with a wholesale power supplier for a standard power supply offer to sell electricity to all customers at a stipulated rate. More specifically, the URA provides:

Within three (3) months after retail access is available to forty percent (40%) or more of the kilowatt-hour sales in New England and extending through year 2009, each electric distribution shall arrange for a standard power supply offer ("Standard Offer") to customers that have not elected to enter into power supply arrangements with other nonregulated power suppliers. The power supply contract required for the standard offer shall be awarded by public competitive bidding to the lowest priced power supplier ....  [4 R.I.G.L. Section 39-1-27.3(d). (Emphasis added).]

The URA provides compensation to all-requirements wholesale suppliers for costs arising out of the transition to competition. In order to compensate them for such costs, the URA designates as a "Transition Charge" 2.8 cents  [5 All references to rates and charges are for each kilowatthour of usage.] of retail rates to be paid to the all-requirements wholesale suppliers as a contract termination fee to recover these estimated costs. [6 R.I.G.L. Section 39-1-27.4(e).]  The URA provides for subsequent adjustments to the Transition Charge to true up this estimate to reflect the actual gains and losses that are incurred. [7 R.I.G.L. Section 39-1-27.4(g).]  This would include any gains or losses in the value of the utility property [8 See Id.] ("Residual Value Credit"). [9 EUA-7. The Stipulation and Agreement at p. 6 of the Settlement Agreement, provides that "Within three months after the sale of any or all of Montaup's generating facilities or any other property subject to divestiture, Montaup shall implement a Residual Value Credit as a direct offset to the Base Contract Termination Charges authorized under this Agreement."]  In addition, the URA allows the recovery of any "estimated revenue lost by the wholesale power supplier as a result of retail access during the period prior to completion of such valuation" ("Revenue Loss"). [10 See R.I.G.L. Section 39-1-27.4(g).]  The Division's witnesses expected the Residual Value Credit to exceed the Revenue Loss and reduce the Transition Charge below 2.8 cents  [11 Tr. 12/4/97, pp. 184-188, also See Division Ex. 1.]

The major issues presented to the Commission are how and when the Companies' rates should be reduced to reflect the reduced costs under the New Contract.

II. RETAIL ACCESS AND STANDARD OFFER

A. The Companies' Proposal

Under the proposed rates, Retail Access would be available to all customers on January 1, 1998. These proposed rates also reflect the lower purchased power costs experienced under the New Contract. The New Contract with Montaup, before any extraordinary adjustments for changes in fuel prices, reduces Blackstone's and Newport's purchased power costs by 30.52% and 13.7% respectively. The New Contract rates, before any extraordinary adjustments for changes in fuel prices, are as follows:  [12 EUA-1, Letter p. 2.]

The rates under the New Contract were escalated at the rate of 7.5%  [13 Tr. 12/4/97, pp. 115-116.]  to encourage the Companies' customers to purchase energy from alternate suppliers. In other words, the rates were designed to price the Companies' energy services out of the market eventually.  [14 Id., Tr. 12/4/97, pp. 212-214.]

The Companies considered two alternative methods of designing retail rates to reflect the change in wholesale power costs under the New Contract. The Companies first considered charging all customers a flat energy charge per kilowatthour [15 Customer bill impacts were based upon a recent twelve-month period of actual customer usage.] equal to the flat rate it was paying to Montaup (the "Uniform Method"). The Companies rejected the Uniform Method, however, because it produced "unacceptable variations in the bill impacts on the rates and the customers within a rate, especially those on demand/energy rates." [16 EUA-1, Letter p. 3.] For Blackstone, the savings for the rate classes ranged between 7.85% and 17.31%. [17 Id., Attachment 3.]  For Newport, the result ranged from an increase of 1.59% for one rate class and a decrease of 7.03% for another.  [18 Id.]

Second, the Companies designed the proposed rates by reducing the power costs in all rate classes proportionately. In other words, Blackstone reduced the power costs in all rate classes by 30.52% and Newport reduced the power costs in all rate classes by 13.79%.  [19 Id.]  The result was that Blackstone's overall rates were reduced by 12.93% and Newport's overall rates were reduced by 4.56%. This method did not increase any customers' bills.

B. Testimony of the Division

The Division presented the testimony of Dr. John K. Stutz of Tellus Institute. Dr. Stutz recommended that the Companies' filings be accepted, provided that they were modified to allow new customers to become eligible for Standard Offer service.

The Division also presented the testimony of Mr. David J. Effron who explained how the implementation of the proposed rates affected the Revenue Loss adjustment under the terms of the Settlement Agreement. Mr. Effron testified that, all other things remaining equal, the implementation of the proposed rates would produce net savings for ratepayers after allowing for Montaup's Revenue Loss adjustment.

C. Findings

1. "Standard Offer"

While the Companies referred to the proposed rates as the Standard Offer, the proposed rates do not qualify as such under the terms of the URA. The URA provides:

Within three (3) months after retail access is available to forty percent (40%) or more of the kilowatt-hour sales in New England and extending through year 2009, each electric distribution company shall arrange for a standard power supply offer ("Standard Offer") to customers that have not elected to enter into power supply arrangements with other nonregulated power suppliers. The power supply contract required for the standard offer shall be awarded by public competitive bidding to the lowest priced power supplier.  [20 R.I.G.L. Section 39-1-27.3(d). (Emphasis added).]

The Legislature clearly intended that the power supply contract be put out to bid before a Standard Offer was arranged with the wholesale power supplier. The Companies have acknowledged that they have not begun the bidding process for the Standard Offer.  [21 EUA-1, Letter p. 2.]  Accordingly, the Commission finds that the proposed rates do not comply with the public competitive bidding requirement of the URA, and therefor, do not constitute a standard offer within the meaning of Section 39-1-27.3(d) of the URA. To avoid confusion, the Commission directs that such rates shall be entitled "Interim Service Rates".

Our finding that the proposed rates do not constitute a Standard Offer within the meaning of the URA makes it unnecessary to decide at this time how the Standard Offer Price Cap provision of the URA  [22 See R.I.G.L. Section 39-1-27.3(d).] is to be interpreted and applied.

2. Competitive Markets

Several Intervenors maintained that the basic objective of this proceeding is to establish a competitive market for electricity. These Intervenors stressed that the proposed rates would be below existing market rates and thus prevent the development of a competitive market.

These Intervenors argued that the Interim Service Rates could be increased to reflect estimated market prices, without increasing customers' bills. This result could be obtained by first reducing the Transition Charge by an estimate of the Residual Value Credit. The Interim Service Rates could then be increased by an equal amount. The net result would be an increase in the Interim Service Rates that would be offset by the application of the Residual Value Credit.

The basic issue is whether the Commission can order the Companies to apply an estimate of the Residual Value Credit in setting the Interim Service Rates. The essence of the Intervenors' argument is that mere valuation of the Companies' assets is sufficient to trigger the application of the Residual Value Credit as contemplated by the URA  [23 R.I.G.L. Section 39-1-27.4(g).]  and that an actual sale is not required. The Intervenors contend that because the value of Montaup's assets is known, the requisite valuation has been performed and that the Commission should apply the anticipated Residual Value Credit to reduce the Transition Charge as contemplated by the URA.

The Commission is not convinced. The URA provides that the utility "shall meet its obligations under this section by leasing, selling, spinning off or otherwise disposing of the assets ...".  [24 Id. (Emphasis added).]  The Commission construes this to require an actual disposition of the assets. Accordingly, since the actual disposition of the assets has not occurred, the Commission finds that it does not have the authority to require the Companies to apply any portion of the anticipated Residual Value Credit to reduce the Transition Charge.

The Intervenors offered a second proposal to increase the Interim Service Rates without increasing customers' bills. It was argued that the Interim Service Rates could be increased with a corresponding credit to the "wires charge". In other words, the Companies would increase the Interim Service Rates and decrease the wires charge. The problem with this approach is that it is at odds with the URA requirement that utilities unbundle their rates and "separately identify charges for use of transmission and distribution facilities".  [25 R.I.G.L. Section 39-1-27.3(e).]  One objective of unbundling is to separately state the various elements of cost, including cost of power, so that other suppliers can compete against the electric distribution companies' cost of power. This approach would accomplish just the opposite. It would commingle the elements of cost so that the separate charges would be arbitrary in amount. In short, "charges for the use of transmission and distribution facilities" would not be identified as required by the URA.  [26 Id.]  The Commission therefore rejects this approach as being contrary to the requirements of the URA.

Finally, the Intervenors argued that the Companies' Interim Service Rates should be increased with no offsetting adjustments to any other element of the rate, to offset the liability for Revenue Loss. As noted above, the URA allows recovery of the "estimated revenues lost by the wholesale power supplier as a result of retail access during the period prior to [the sale of assets]".  [27 R.I.G.L. Section 39-1-27.4(g).]  All other things remaining equal, given the fact that Montaup is reducing its wholesale rate to the Companies, Montaup will incur Revenue Loss that will be subsequently recoverable from the Companies' ratepayers.  [28 For a more detailed discussion of the adjustment, see Division Ex. 1.]  The Intervenors argued that the Interim Service Rates should be increased so that customers are paying the total cost of the power, including the amount of Revenue Loss that will be payable to Montaup in the future.

While this point is well taken, the proposed solution may exacerbate the problem. In effect, the Intervenors propose to roll the cost of the Revenue Loss adjustment into the Interim Service Rates. Assuming that more customers would then migrate to alternative suppliers with lower rates, this might increase the amount of the Revenue Loss that must be recovered. In this event, it would unfairly shift costs from one group of customers to another. Specifically, customers migrating to new suppliers would not have to pay their fair share of this cost; the vast bulk of these costs would be borne by the customers who continue to purchase power from the Companies. This would be unfair and the Commission rejects this approach.

Essentially, these Intervenors are asking the Commission to set Interim Service Rates at the estimated future market price for electric service. The problem with this approach is that no one knows what future market prices will be. In recognition of this fact, the Commission will not attempt to set rates based upon forecast market prices. If suppliers are able and willing to sell below the Companies' cost-based rates, there will be competition. If not, the Companies will be the low-cost suppliers. The Commission recognizes, however, that this simple paradigm is complicated by the fact that the measurement of costs is a matter of judgment. The FERC approved rates, which are consistent with the provisions of the URA, control both the definition and timing of the power costs incurred by the Companies. While the Intervenors may reasonably take issue with this measure of cost, the Commission is bound by the law to incorporate these costs into rates.

Finally, it must be emphasized that the creation of competition is beneficial only if it produces savings for the ratepayer. The payment of higher prices to create a competitive market, simply for the sake of creating a competitive market, is economic logic turned upside down. The Commission rejects it.

3. Future Rates

The Commission makes no findings as to future rates. For this reason, the Commission rejects the Cumulative Multiplier Provision which would automatically increase rates in proportion to the increases in Montaup's rates. In addition, the Commission makes no commitment to any particular rate design method for establishing future rates.

III. INTERIM REVENUE RECONCILIATION ADJUSTMENT

The Companies filed Revenue Reconciliation Adjustment provisions to reconcile the revenues billed to customers taking service under Interim Service Rates against payments to suppliers of such service and to recover or return any under- or overcollection.  [29 EUA-1, Attachment 1, Blackstone Valley Electric Company, Standard Offer Service, pp. 7-8, Newport Electric Corporation, Standard Offer Service, p. 9.]  The Commission finds that the provision, in relevant part, should be modified to read as follows:

Any revenues billed by the Company for Interim Generation Service in excess of payments to Suppliers of that service shall be accumulated in an account and credited with interest. In the event that the revenues billed by the Company do not recover the Company's payments to Suppliers, the Company shall also be authorized to accumulate the deficiencies in this account together with interest. The Company will notify the Commission and the Division on a monthly basis of the balance of the account. Any excess or deficiency in the account shall be refunded to, or collected from, customers as ordered by the Commission.

IV. LAST RESORT POWER

In a competitive market suppliers may be unwilling to serve all customers, for example, customers with poor credit histories. To deal with this problem, the URA provides that within three (3) months after retail access is available to forty percent (40%) or more of the kilowatt-hour sales in New England, each distribution company shall:

Arrange for a last resort power supply for customers who are no longer eligible to receive service under standard offer and are not adequately supplied by the market because they are unable to obtain or retain electric service from nonregulated power producers. The electric distribution company shall periodically solicit bids from nonregulated producers for such service at market prices plus a fixed contribution from the electric distribution company .... All fixed contributions and any reasonable costs incurred by the electric distribution company in arranging this service shall be included in the distribution rates charged to all other customers.  [30 R.I.G.L. Section 39-1-27.3(f)]

The Companies are presently developing a request for bids.  [31 EUA-1, Letter p. 2.]  In the interim, Montaup has agreed to supply Last Resort Service to the Companies at 3.2 cents per kilowatthour, the same price at which Montaup is providing service for the Interim Service Rates. Under its Last Resort Service Tariff, the Companies have, in turn, agreed to provide service to such customers under the rates approved in this Docket. Accordingly, the Commission finds the proposed arrangement to be reasonable and approves it.

V. COMPETITIVE BIDDING FOR POWER SUPPLY

While the Companies have presented details on their planning to seek requests for power supply bids, the Commission is not approving the bidding procedure because it is beyond the scope of this proceeding. Despite this, some comments are in order.

It is imperative that the quality and reliability of service not be compromised. The bidding procedure must give consideration to the bidder's resources and the bidder's ability to provide a reliable supply of power. Lower prices that come at the cost of reliability and quality of service are unacceptable.

VI. DOCKET 2514 SETTLEMENT AGREEMENT

As noted above [32 Infra at 1.], the Commission consolidated Docket 2514 with the Retail Access dockets for the purpose of reviewing the Retail Settlement Agreement among the Division, the Rhode Island Attorney General and the Companies. In relevant part, the Retail Settlement Agreement contained the following provisions.  [33 See EUA-3]

1. "Newport and Blackstone agree not to seek any distribution charge increase which would be in effect during the years 1999 and 2000." [34 The Agreement provides Blackstone and Newport agree not to seek any distribution charge increase which would be in effect during the years 1999 and 2000. Specifically, after the next distribution charge increase, scheduled for effect on January 1, 1998, Blackstone's and Newport's distribution charges will be capped through at least the period ending December 31, 2000, except for any temporary credit or surcharge that results from the implementation of PBR or the reconciliation of the Standard Offer. Id., p. 3.]

2. The Companies will be required to refund to customers any overearnings for 1998 according to the following formula: "sixty percent (60%) of all earnings up to one percent above the currently allowed rate of return on common equity, eighty percent of all earnings between one percent and two percent above the currently allowed rate of return on common equity, and ninety percent of all earnings in excess of two percent above the currently allowed rate of return on common equity.".  [35 Id.]

3. It was agreed that the Companies shall use approximately $4.5 million of purchased power refunds to mitigate their Contract Termination Charge payments to Montaup.  [36 Id.]  At the hearings, however, Mr. St. Pierre testified that Newport's $1.2 million purchased power refund had been applied to increase the balance of its storm fund. He stated that the remaining $3.3 million of BVE purchased power refunds would be applied to pay the difference between the 2.8 cents Transition Charge in BVE's retail rates and the 3.0 cents transition charge contained in Montaup's wholesale rate. Any refund not used to mitigate contract termination charge payments would be returned to ratepayers through the Revenue Reconciliation Adjustment. Newport will pay the difference between the 2.8 cents in its retail rates and the 3.0 cents Transition Charge in Montaup's wholesale rates from its 1998 PBR increase. [37 Tr. 12/3/97, pp. 191-193.] The Companies submitted a letter dated December 16, 1997 to the Commission which stated the commitment as follows:

[I]f the Commission approves the Retail Settlement Agreement, Newport Electric Corporation has committed to use the 1998 Performance Based Rate ("PBR") increase to mitigate the CTC paid to Montaup and to use its own revenue to mitigate any CTC not mitigated by the 1998 PBR. Additionally, Blackstone Valley Electric Company has committed to use the 1998 PBR increase and its own revenue to mitigate the CTC to the extent that the CTC is not fully mitigated by the PCAC refund.

4. It was agreed that in the event of a sale of the Pawtucket No. 2 Hydro Station and associated properties, the amortization schedule would be reduced by the sales proceeds. At present the amortization schedule is:

5. It was agreed that Interim Service Rates will include a Low Income rate R-2  [38 It was also agreed that the proposed Low Income Rate R-2 shall continue to receive the same discount off the R-1 Rate.] which will include expanded eligibility criteria as follows:

- Must be the head of a household or principal wage earner.

- Must be presently receiving Supplemental Security Income from the Social Security Administration or from one of the following Rhode Island agencies:

- Medicaid

- Food Stamps

- General Public Assistance

- Aid to Families with Dependent Children

The George Wiley Center (the "Center") objected to the Retail Settlement Agreement because the expansion of the availability to the low-income rate did not include individuals who are eligible for Energy Assistance Funds.  [39 Initial Brief of George Wiley Center, et al, p. 1.]  The basis for the objection was that 1) the Companies' affiliate Eastern Edison offers the Low Income Rate to similar individuals, and 2) the Companies could afford to expand the R-2 Rate to such individuals.

The Division argues that the record in this case is not adequate to reasonably evaluate either the need or the cost to expand the availability of the Low Income Rate R-2 to include individuals who are eligible to receive Energy Assistance Funds.  [40 Division Brief, p. 11-12.]  The Division emphasized that the record does not indicate how many people would be eligible or who the eligible people would be.  [41 Id.]

The Commission agrees with the Division and finds that the record is not sufficient to establish the need to expand the availability of the R-2 rate as requested by the Center. The Commission also notes that the Center has not addressed the issue of whether the Commission has the authority to require the Companies to issue a discount of this nature to a select group of customers.  [42 Alternatively, the Center has requested that the Commission order the Companies to provide all interested parties with quarterly statements "indicating how many customers will have been included in their low income protection category and who are continuing to be included for a period of at least three years, but not restrictively". Id. p. 3. There are a number of problems with this request. First, unless the Center establishes the Commission's authority to impose a discount, the information is not relevant. Second, assuming the Commission has the authority, the Center has not established that the Companies have the information that is being requested. Accordingly, the Commission denies the Center's request without prejudice and the Center may pursue this matter in any future general rate proceeding.]  Finally, it should not go unnoticed that the Company is absorbing the cost of the expansion of the eligibility provision of the R-2 Rate and it is not being charged to other ratepayers.

Accordingly, it is

(15521) ORDERED:

1. That the Commission's Order No. 15490, dated December 17, 1997 is hereby incorporated by reference and is attached hereto as an appendix.

2. That the Revenue Reconciliation Adjustment provision shall be modified as directed in the body of this Report and Order and filed with the Commission.

3. That the Companies shall act in accordance with all other findings and instructions contained with this Report and Order.

EFFECTIVE AT PROVIDENCE, RHODE ISLAND PURSUANT TO AN OPEN MEETING DECISION ON DECEMBER 17, 1997. WRITTEN ORDER ISSUED JULY 10, 1998.

PUBLIC UTILITIES COMMISSION

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Appendix - Retail Settlement Agreement

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

PUBLIC UTILITIES COMMISSION

IN RE: BLACKSTONE VALLEY ELECTRIC

COMPANY AND NEWPORT ELECTRIC

CORPORATION

STANDARD OFFER SERVICE

DOCKET No. 2651

LAST RESORT POWER SUPPLY

DOCKET No. 2653

RETAIL SETTLEMENT AGREEMENT

DOCKET No. 2614

ORDER

WHEREAS, On November 7, 1997, the Blackstone Valley Electric Company and the Newport Electric Corporation (jointly, "Companies") filed rates with the Public Utilities Commission ("Commission") pursuant to R.I.G.L. Section 39-3-10, designed to implement retail choice for all customers as of January 1, 1998; and

WHEREAS, On November 12, 1997, the Companies likewise filed proposed rates with the Commission, designed to implement the Last Resort Power Supply as of January 1, 1998; and

WHEREAS, On November 19, 1997, the Companies and the Division of Public Utilities and Carriers ("Division") submitted the Retail Settlement Agreement that embodied a final resolution of the remaining issues presented in Docket No. 2514; and

WHEREAS, Notice of the proposed rate changes was published pursuant to R.I.G.L. Section 39-3-11; and

WHEREAS, Public hearings in all three dockets were held on December 3, 4 and 9, 1997; and

WHEREAS, Briefs were filed by interested parties at the close of the public hearings; and

WHEREAS, On December 16, 1997, the Companies filed a letter with the Commission to clarify their commitment to funds and mitigate the Contract Termination Charges payable to Montaup Electric Company; and

WHEREAS, The Commission reviewed the testimony, exhibits, and briefs, deliberating at an open meeting held on December 17, 1997;

Accordingly, it is

(15490) ORDERED:

1. That the Companies' filing for Standard Offer Service is found not to comply with the provisions of R.I.G.L. Section 39-1-27.3, since it was not subject to public bid.

2. That the Companies' filing will not be considered a Standard Offer filing and shall be filed as a proper "Standard Offer" filing, pursuant to R.I.G.L. Section 39-1-27.3, and provide the Commission a reasonable period of time for review prior to implementation.

3. That the Companies' filing shall be considered "Interim Service Rates" and their Last Resort Service Rates, as filed, are hereby approved for service starting on and after January 1, 1998, with the following:

a. The proposed "Interim Service Rates" shall be made available to new customers, allowing them to receive service under these rates.

b. The Standard Offer Calendar Year Multiplier Table shall not be applicable to the "Interim Service Rates" approved herein..

c. The Standard Offer Revenue Reconciliation adjustment provision shall not be applicable to the "Interim Service Rates" approved herein.

d. The Companies shall reconcile the revenues billed to customers taking "Interim Service Rates" against payments to suppliers of "Interim Service Rates" and file with the Commission an adjustment mechanism to recover or refund any under- or over-collection.

4. The Retail Settlement Agreement, as modified by the parties' December 10, 1997 amendment and as supplemented by the Companies in their letter of December 16, 1997, is hereby approved.

EFFECTIVE AT PROVIDENCE, RHODE ISLAND ON DECEMBER 17, 1997, PURSUANT TO AN OPEN MEETING DECISION; WRITTEN ORDER ISSUED DECEMBER 31, 1997.

PUBLIC UTILITIES COMMISSION

James J. Malachowski, Chairman

Kate F. Racine, Commissioner

Brenda K. Gaynor, Commissioner[* Commissioner Gaynor concurs but was unavailable for signature.]

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