Staff Says NiMo Recommended Decision Inconsistent on True-Ups for MFC, POR Rates

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December 15, 2010

A recommended decision in Niagara Mohawk's rate case needs to reconcile disparate treatment of true-ups for the Merchant Function Charge (MFC) paid by full service customers and the POR discount rate, New York PSC Staff said in a brief on exceptions (10-E-0050).  Staff did not opine on its preference for fixing this inconsistency.

As previously reported (11/18), the draft decision recommends reconciling on an annual basis the MFC commodity procurement costs and commodity-related credit and collections costs, but not the MFC uncollectible factor or the working capital associated with commodity costs factor.

The proposed decision also recommends, however, that the POR discount rate, which Staff said is meant to reflect the ESCOs' portion of commodity-related uncollectibles and credit and collection costs, should not be reconciled.

"Thus, the RD is internally inconsistent in that it recommends a true-up of MFC credit and collection costs but not a true-up of the POR discount rate, a portion of which reflects the credit and collection costs to be paid by ESCO customers," Staff said.

"It is also unfair to full-service customers because failure to reconcile in the POR discount rate each previous year's commodity-related credit & collections amount would result in the difference being borne entirely by the utility's full service customers.  This result would not be justifiable since the Company fully performs the credit and collection function for ESCO customers as well as full service customers," Staff continued.

"Further, the Commission has allowed for full reconciliation of credit and collections in the POR discount rate for other utilities.  For instance, in the recent New York State Electric and Gas Corporation and Rochester Gas and Electric Corporation cases, the Commission adopted the Joint Proposal which recommended that all delivery customers be subject to full reconciliation of credit and collection costs via a reconciliation in the following year's MFC for non-ESCO billed customers and the POR discount rate for ESCO billed customers," Staff added.

Staff argued that the recommendation not to reconcile charges reflecting credit and collection costs in the POR discount rate "must be reconciled" with the RD's MFC recommendation, but did not opine on how this should be accomplished (i.e., either allowing a true-up for the POR discount rate, or eliminating the MFC true-up).  

NiMo sought clarification of its proposal to calculate the uncollectible bill expense for both the MFC and POR discount rate on a monthly basis using current commodity pricing data.  NiMo said that no party objected to this proposal, but the proposal was not addressed in the recommended decision.

"This proposal will have no impact on the Company's incentives to improve collections because changes in commodity costs are completely beyond the Company's control.  Nor will this proposal create a new cost that will be difficult for ESCOs to manage, as ESCOs already manage the cost of the commodity they supply to their customers," NiMo said.

The Retail Energy Supply Association submitted exceptions arguing that the continuation of the all-in/all-our requirement in the NiMo POR program is not justified by evidence or policy.  The recommended decision denied RESA's request to remove this requirement.

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