Chesterton Tribune                                                                                   Adv.

Big rate case year for NIPSCO

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By KEVIN NEVERS

Call it a triple-witching hour.

Sometime this year, probably by the end of the June, the Indiana Utility Regulatory Commission (IURC) will issue an order in response to NIPSCO’s request for a hike in residential customers’ base electric rate of 15.6 percent.

At roughly the same time, however—possibly also in June—the Northern Indiana Public Service Company expects to file a second, brand-new electric base rate case.

And several months before that—possibly in March—NIPSCO will probably already have filed a third base rate case, this one for natural gas.

It’s still too early to know the specifics of either the second electric rate case or the natural-gas rate case, NIPSCO spokesman Nick Meyer told the Chesterton Tribune on Wednesday. But Meyer conceded that the NIPSCO’s timing isn’t great. The problem, he said, is twofold. First, NIPSCO hasn’t filed for a natural-gas rate case since 1987 and “over time the cost of business goes up.” Going forward, Meyer noted, “Instead of trying to avoid rate cases, we will likely file them a little more frequently so any changes will be gradual and minimal. We’ll be trying to minimize the impact by not waiting 20 years to do another one.”

Second, Meyer said, the original electric rate case was “based on a completely different test year, an atypical year,” prior to the economic crisis which has seen industrial demand for electricity plummet and the company’s pension expenses skyrocket due to a weak stock market. The second rate case, accordingly, is intended to address the atypicality of the first one.

Meyer emphasized that NIPSCO’s natural-gas base rates “are the lowest in the state” and that its electric base rates are “below the national average and not the highest in the state.”

Meyer made one other point about the timing of the three rate cases. Few utility customers in Indiana besides NIPSCO are “combination customers”—that is, few receive both electric and natural-gas service from the same utility—so NIPSCO’s customers “experience the fact of rate changes a lot more.”

First Electric Rate Case

Should the IURC grant NIPSCO the full 15.6 percent hike which the company wants to impose on residential customers, the average household’s monthly bill would increase by $12.76, from $81.68 to $94.44.

In fact, under NIPSCO’s proposal, residential customers would shoulder the greatest part of the hike, as the overall rate increase—when spread among NIPSCO’s residential, commercial, and industrial customers—would total only 9.8 percent.

Nearly 88 percent of NIPSCO’s customer base in August 2008 was comprised of residential households. But those households consume only 20 percent of NIPSCO’s generated electricity.

For its part the Indiana Office of Utility Consumer Counselor (OUCC) is actually recommending a $135.2 million reduction in NIPSCO annual electric revenues, to be achieved, however, not by a slash in the rate paid by customers but by the expiration of monthly residential rate credits totaling $55 million per year, as order by the IURC in a 2002 investigation of the company’s electric rate.

Under the OUCC’s recommendation, “base electric rates paid by NIPSCO residential customers would remain at or near their current levels,” the OUCC has said.

The OUCC is also recommending to the IURC an authorized return on equity of 10 percent, as opposed to NIPSCO’s request for a 12-percent return. At the moment, NIPSCO authorized return on equity is 9.06 percent.

The Second Electric Rate Case

Meyer said that, at the moment, the details of the second electric rate case proposed by NIPSCO will not be known until the company actually files it with the IURC, likely this summer.

But this second case is intended to address the rapid increase of pension costs, which since 2006 have spiked by a total of $55 million and which “the company has been absorbing,” Meyer said.

“It’s all very much tied to the stock market and what’s been happening to the economy,” he added, “but I don’t know how the pension expenses will be treated by the rate case.”

When asked by the Tribune what might happen to any second electric rate ordered by the IURC when the economy rebounds and pension expenses return more nearly to normal, Meyer said that this rate case may make provision for “adjustments.”

But Meyer did say that the IURC would prescribe a maximum earning level. “If you’re setting the bar at a certain level and then the stock market rebounds and you earning above your authorized level, you’re over-earning,” Meyer observed.

The Natural-Gas Rate Case

Meanwhile, Meyer said, the “driver” behind the natural-gas rate case—again, no details about that case will be known until it’s filed with the IURC—is the company’s continued support for the Winter Warmth program for low-income customers and for an energy-efficiency program under which customers would receive rebates for the installation of more energy-efficient appliances. That energy efficiency program, he said, costs NIPSCO customers around $6 annually and is funded not just through the natural-gas rate but by the company itself.

Last year, as Meyer noted, the IURC told NIPSCO that if the company wants to continue the Winter Warmth program, it must include a funding mechanism for it in its next natural-gas rate case.

“The natural-gas rate case isn’t about the cost of service so much as it’s about the rate design itself,” Meyer said.

Around two-thirds of a customer’s natural-gas bill is for the natural gas itself, the commodity, Meyer said, and that cost is passed directly to a customer with no mark-up. The remaining one-third or so is for the delivery of the gas, and that’s the only portion of the rate which would be affected by the case.

When asked by the Tribune why the average residential natural-gas customer would want to subsidize either the Winter Warmth or the energy-efficiency program, Meyer said that NIPSCO “sees multiple benefits to the program. Otherwise, we wouldn’t be allowed to offer it by the IURC.”

OUCC spokesman Anthony Swinger, when asked the same question, answered it this way: “One of the goals of the Winter Warmth program is to reduce bad-debt collection and other costs that would be borne by the rate payer.”

Swinger also said that the three largest natural-gas utilities in the state—serving 95 percent of all natural-gas customers—all have some form of assistance program for low-income households.

They’ll Be Watching

Swinger made a point of telling the Tribune that the OUCC will “absolutely” be monitoring NIPSCO’s two new rate cases, when they are actually filed. “Any rate request we will look at very closely,” he said. “I can assure you we will carefully scrutinize any rate request that is filed.”

Kerwin Olson, program director of the Citizens Action Coalition of Indiana (CAC), said the same thing and added that the CAC finds it unusual that NIPSCO would be filing two brand-new rate cases before the pending one is even resolved. “It does raise some questions,” he said. “It’s curious and it is an inopportune time, during a recession, considering all the belt-tightening consumers are doing. It’s an awkward time.”

Olson also called NIPSCO’s first electric rate case filing a “muddled mess,” maintained that it cost NIPSCO around $6 million—“and that’s largely ratepayers’ dollars as well”—and remarked that “its difficult for the CAC and the OUCC to navigate through all of those pages and make sense of them, since we don’t have NIPSCO’s resources.”

Meyer did say that NIPSCO’s customers aren’t the only ones tightening their belts. NIPSCO has and continues to do so as well. “Our workforce has been dramatically reduced from where it was 20 years ago. There was a big workforce reduction last summer. And we’ve been delaying major capital improvement projects. So we’re tightening our belts too.

 

 

Posted 2/4/2010

 

 

 

 

 

 

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