System Replacement Needs Drive Increase for LDC

The New York Public Service Commission has adopted a new three-year rate plan for a natural gas local distribution company (LDC), replacing an earlier three-year plan that had been implemented in 2012.

While the LDC, Corning Natural Gas Corporation, was not awarded all of the $7.51 million in rate relief it had requested, it still received a sizeable increase of a little more than $4.69 million, or about 62% of what it sought. The company's new rate schedules take effect July 1 of this year, with the increases being about equal on a dollar basis in each of the three years of the plan.

The commission reported that participating parties had come to a consensus that the LDC should be allowed to raise its rates by approximately $1.56 million in both Year 1 and Year 3, but with the increase in Year 2 being slightly higher, at $1.57 million. In terms of percentages, the increases will go down each year, with rates rising by around 6.2% in the first year, 5.9% in the second year, and 5.5% in the third and final year.

The new revenue requirement approved for Corning was premised on an authorized rate of return on equity (ROE) of 9.0% and a capital structure composed of 48% equity and 52% debt. The stipulated ROE is in stark contrast to the 10.2% originally recommended by the company.

The capital structure also reflects a lower portion of common equity than the 50.03% suggested by the LDC. The commission related that although Corning had stated that it continued to believe that a ROE higher than 9.0% was justified, it had consented to that value because, while conservative, it still was reasonable and appropriate under current market conditions.

The commission conveyed that the parties' agreement on ROE encompassed an earnings sharing mechanism. Under that plan, the LDC will be permitted to retain all earnings above 9.0% up to and including 9.50%. Earnings in excess of 9.5% but at or below 10.0% are to be shared equally with customers. Should earnings surpass 10.0% but be at or below 10.5%, ratepayers become entitled to 75% of the excess.

The customer proportion climbs to 90% for earnings above 10.5%. In applying for rate relief, the LDC attested that most of its request was aimed at funding ongoing capital projects, particularly those involving upgrades to and replacements of the oldest and most leak-prone segments of Corning's pipeline system.

The company told the commission it had worked hard to adhere to previously established performance metrics requiring a minimum of 8.6 miles of lines being replaced each year in 2015 and 2016. It noted that the minimum objective in 2018 and beyond is 10.6 miles replaced. The LDC stated that its ultimate goal is to eliminate all of its bare steel infrastructure in favor of plastic pipes instead. Indeed, the company informed the commission that it is on pace to have all of its old leak-prone pipelines removed from service within 10 years. 

Stressing its commitment to public safety and protection of the environment, Corning said that its current pipeline replacement schedules place it ahead of all other LDCs in the state in remedying its problems with leakprone infrastructure. The company expressed its commitment to customer service as well, professing that its level of customer service has been "exemplary."

However, to assure that its performance remained so, the signatory parties included in the rate settlement certain terms exposing Corning to "negative revenue adjustments" (NRAs) should its customer service slip. Those NRAs call for a $10,000 penalty if the LDC experiences four escalated customer complaints in a year, a $20,000 penalty for five such complaints, and a $30,000 penalty for six or more complaints in a given year. The stipulation also sets forth requirements for Corning to provide a customer with a $25 billing credit should the LDC fail to keep a scheduled appointment with the customer.

At the same time, certain positive incentives will be available to the company to the extent it reduces its level of uncollectibles and minimizes disconnections of service for nonpayment of bills. Taking account of the proposed rate agreement as a whole, the commission said that the parties had reached a reasonable compromise on the issues in dispute and had provided a record sufficient to support the settlement.

The commission added that multi-year rate plans have proven to be an effective means of assuring rate and revenue stability for customers and the utility alike. Re Corning Natural Gas Corp., Case 16- G-0369, June 15, 2017 (N.Y.P.S.C.).