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Transportation Customers at NYSEG Due $6 Million Refund, Recovery Under Sales Service Addressed in Future

August  25, 2011
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The New York PSC has ordered NYSEG to refund to transportation-only customers $6.03 million, representing amounts due to these customers which had been inappropriately applied to the Gas Supply Charge paid by sales service customers (10-G-0467).

Recovery, from firm sales service customers, of the amounts paid under the refund will be considered in NYSEG's 2011 gas adjustment clause annual reconciliation.

The refund relates to errors in the calculation of the stranded capacity component of NYSEG's Transition Surcharge (TS) between January 2006 and February 2011 (see 12/17).

In the fall of 2010, during PSC Staff's review of a NYSEG customer bill inquiry, as well as the review of the company's annual gas cost reconciliation filings, Staff questioned why NYSEG's stranded gas capacity charge had been increasing for the past several years rather than declining as Staff had anticipated. It was determined that NYSEG had failed to properly reflect capacity release credits in its calculation of its Transition Surcharge (TS). Specific errors included:

- Beginning January 2006, migration capacity release credits were not applied to the capacity component of the TS, for both sales and transportation customers, but instead were applied, in error, to the Gas Supply Charge (GSC) applicable only to firm sales customers. The misallocation resulted in an understatement of the GSC and an overstatement of the TS.

- The market area stranded cost formula contained a capacity release input value that should have been updated with more recent data

- There was a formula error in the pro-rata calculation of the production supply area stranded cost component.

- Upon implementation of the Commission's mandatory capacity assignment program in November 2007, the amount of capacity that NYSEG declared as being stranded was overstated

These errors resulted in the Transition Surcharge being $6.03 million higher than the correct level, with the Gas Supply Charge understated by the same amount.

"[T]he sales service classes paid a higher TS unit rate but benefited from the understated GSC, while the transportation service classes paid a higher TS unit rate with no credit to offset the error," the PSC noted.

Accordingly, NYSEG was ordered to credit its transportation customers, through the Transition Surcharge, $6.03 million, plus interest. Refunds shall be paid over three years starting September 1, 2011.

Interest, retroactive to the date at which the company errors occurred, shall accrue at the "Other Customer Capital Rate."

"Assessing NYSEG interest against the retroactive portion acts as an incentive to the company to discover errors as timely as possible, and even avoid them by exercising due care when calculating credits that are to be applied against customer bills," the PSC said.

Although NYSEG has since consolidated its Gas Supply Areas into two regions, the credits shall be applied to customers in NYSEG's three historic Gas Supply Areas, since three areas existed when most of the overcharges were incurred.

The $6.03 million in customer credits erroneously passed on to firm sales customers through NYSEG's Gas Supply Charge shall be addressed as part of the company's 2011 gas adjustment clause annual reconciliation.

"[T]he magnitude and length of time for correction requires further consideration," the PSC said of the cost recovery from sales customers.

The Commission stressed, however, that because the charges are for NYSEG's gas adjustment clause, they are not subject to the back-billing regulations under the Home Energy Fair Practices Act (HEFPA), and specifically, are not subject to the 12-momth limit on the back-billing of customers.

"[C]harges in the GSC are made with the understanding that they are subject to future reconciliation," the PSC noted.

Additionally, the Commission found that NYSEG should be barred from recovering from sales service customers any costs from interest paid to transportation customers.

"[B]arring recovery of interest on the company's retroactive under-collection through its GSC is appropriate as an incentive for the company to avoid this type of computational error or misallocation in the future," the PSC said.

 

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