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
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
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
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
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
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.
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
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
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
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.
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.