Alternative Ratesetting Bill for Gas Utilities To Be Studied

Alternative Ratesetting Bill for Gas Utilities To Be Studied  Posted: February 22, 2007
February 21, 2007

Chairman Eddie Ballard
Representative Carolyn Belcher
Members, House Tourism, Economic
Development and Energy Committee

Re: House Bill 261

Dear Chairman Ballard, Representative Belcher and Committee Members:

I am writing to summarize the concerns of the Kentucky Resources Council, Inc. regarding House Bill 261.

Initially, let me express my appreciation to Chairman Ballard and to Representative Belcher for their courtesy in attempting to accommodate all views on this complex issue. While there are marked differences among the interest groups, all parties recognize that the declining sales of natural gas to retail ratepayers has caused a loss of recovery on fixed assets, and that some exploration of regulatory mechanisms to decouple sales from return on investment in transportation and delivery of natural gas is needed in order to make the utilities whole.

Unfortunately, HB 261 seeks to accomplish that goal by lessening oversight, and as currently structured does not adequately protect the interests of customers from overearning by gas utilities between rate cases.

Since the last committee meeting, the parties have met and exchanged positions and explored options. Unfortunately, no consensus was reached. KRC suggested three changes that would restore accountability to the proposed approach in HB 261:

1) Staggering the filing of annual monitoring reports in order to avoid five utilities? simultaneous annual filings under mandatory deadlines, in order to allow for meaningful review by the PSC, Attorney General, and citizen advocates;

2) “Bracketing” the five-year period between full rates cases by requiring that an electing utility have undergone a full rate case within 1 year of electing to opt under this alternative approach rather than 5 years; and

3) Eliminating the initial comment period and “interim order” and restoring the existing procedural approach where a filing opens a case and parties are entitled to intervention, discovery rights, and a hearing followed by a Commission order.

The current regulatory structure requires the utility to justify the increases in return and claimed expenses and profits. Under the bill, the evidentiary hearing would follow the agency decision, and it appears that the burden of proof would be shifted to the party requesting hearing, and that the issue would not longer be whether the utility’s filing was “fair, just and reasonable” but instead whether the PSC decision arrived at under an incomplete record was “arbitrary.”

The three changes suggested above would make the proposal more palatable from a due process standpoint, though the changes would not eliminate the possibility of overearning created by the diminished scrutiny of annual filings. KRC believes the preferable approach is to study the matter during this interim and to look at other states to find the best approach, for both utilities and consumers, to decouple commodity sales from costs of service in order to better align consumer conservation with the interests of the utilities, who under the current approach are actually penalized for customer efforts to conserve energy.

Thank you for your consideration of these concerns.

Cordially

Tom FitzGerald
Director

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