Assuring Cost Recovery and Customer Affordability Claudia J. Earls, Chief Counsel, Northern Indiana Public Service Company NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES NOVEMBER 10, 2015
Jan 19, 2016
Assuring Cost Recovery and Customer Affordability
Claudia J. Earls, Chief Counsel, Northern Indiana Public Service Company
NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES
NOVEMBER 10, 2015
Customer Affordability
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Regulatory Compact
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Regulatory Compact & Public Interest
Utility Benefits
• Cost of service pricing
• Regulated return
• Timely cost recovery
Customer Benefits
• Safe & Reliable Service
• Just & Reasonable Rates
• Adequate Resources deployed
• Transparent process with Adequate oversight
Transparency in Electric Rates
• In general, residential customers see a customer charge and an energy charge.
• They don’t understand that the energy charge recovers both fixed and variable costs.
• They believe that if their consumption decreases, their utility’s costs should also decrease in a linear fashion.
• That assumption is false but is caused by the method by which electric rates are established.
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Example of Typical Bill
The following chart illustrates a breakdown of a typical NIPSCO residential customer
Unit Rate Charge % of Bill
Customer Charge
1 $11.00 $11.00 12.1
Energy 688 kwh $0.033554 $23.09 25.3
Gross Margin 688 Kwh $0.069107 $47.55 52.1
Incremental Environmental Charge
688 kwh $0.005679 $3.91 4.3
Misc. Charges 688 kwh $0.00818 $5.63 6.2
$91.18 100.0
Customer Charge
Energy
Gas margin
Incremental Environmental Charge
Misc. Charges
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Breakdown of Fixed and Variable Costs
fixed Costs vs. variable Costs
Fixed Cost Recovery
Customer Charge $11.00
Gross Margins $47.55
Incremental Environmental Charge
$3.91
Misc. Charges $5.63
$68.09
Fixed Costs 75%
Variable
Energy $23.09
$23.90
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Residential Customer Usage Distribution
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25100
200300
400500
600700
800900
10001100
12001300
14001500
16001700
18001900
20002100
22002300
24002500
26002700
28002900
30000%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
% of Customers % of Low IncomekWh/month
Residential Customers Average Monthly Usage 679 kWh≤ 679 kWh = 178,913 customers (54%)≥ 680 kWh = 152,151 customers (46%)
Low Income Customers Average Monthly Usage 726 kWh≤ 726 kWh = 9,202 customers
≤ 679 kWh = 8,505 customers (56%)≥ 680 kWh = 6,706 customers (44%)
TRACKERS DO NOT CAUSE COST INCREASESINCREASING COSTS CAUSE RATE INCREASES
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Examples of Costs That Have Increased• Labor Costs - Predominantly Union work force -
contracts contain escalation clause• Pension costs - still offer defined benefits
pension plans - as interest rates remain low and return on equities remain volatile - pensions must still be funded
• Environmental compliance - NIPSCO has invested $800 million in environmental scrubber projects - rates must provide a return of and on these investments and O&M expenses to operate and fuel for the parasitic load
Customer Affordability
As we look at the breakdown of costs – what would we have the utility not
perform:
• Procure fuel
• Maintain generation, transmission and distribution assets
• Ensure environmental compliance
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Pros and Cons of Frequent Rate Cases
Pros•Frequent rate cases allow for the re-setting of Return on equity and cost of service allocation.•Allow for review of all of utility’s expenses and sources of revenues
Cons•Costly and time consuming •Utility’s customers pay the cost incurred by the utility for preparation and litigation of a rate case as well as any representative that they chose to retain to protect their interests
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One Alternative: Formulaic Rates
• FERC has used Formulaic Rates for Decades• A few states have begun to experiment • You have annual updates to rate base, expenses
and volumes – recognizing any cost savings from any reduction in volumes.
• Projected expenses are reconciled in a subsequent period
• Issues such as ROE and cost allocation are reserved for rate cases
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Questions?
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NIPSCO Chief Counsel
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EMPLOYMENT•Claudia Earls joined NiSource in June of 2010 as Assistant General Counsel in its Indianapolis office. She currently serves as Chief Counsel for Northern Indiana Public Service Company. She manages complex, high risk matters, working with clients to develop strategies to effectuate business plan goals and to reduce potential areas of risk.•Prior to working for NiSource she was a member of the Energy, Telecommunications and Utilities Department for Barnes & Thornburg LLP, Indianapolis, where her concentration was on the energy industry.•Claudia is a former administrative law judge with the Indiana Utility Regulatory Commission (“IURC”). She presided over cases involving ratemaking, financing, mergers and acquisitions, the Telecommunications Act of 1996, fuel and gas cost adjustments, inter-connection agreements, and the appointment of receivers for troubled utilities. She is the former chair of the National Association of Regulatory Utility Commission’s Administrative Law Judge Section. She also is the former editor of Indiana Utility Reports, a weekly newsletter, which reports on the orders issued by the IURC.
PRESENTATIONS AND PROGRAMS•Rate Case 101 – Utility Law Section, Indiana State Bar Association, 2010•Pipeline Safety and Underground Facilities, National Conference of Regulatory Attorneys, 2012•Graduate Harvard Executive Program on Negotiation, 2012•Recovery of Investments in Infrastructure, Southern Gas Association, 2014
EDUCATION•J.D., Indiana University of Law•M.B.A. and B.A. in Economics, Indiana University
MEMBERSHIPS/LICENSES •Former President, Utility Law Section of the Indiana State Bar Association
Based in Indianapolis