STATE OF NEW YORK
PUBLIC SERVICE COMMISSION

Case 01-E-0965 – Proceeding on Motion of the Commission as to the Rates, Charges, Rules, and Regulations of Village of Freeport for Electric Service.

STAFF STATEMENT IN SUPPORT

OF JOINT PROPOSAL

PRELIMINARY STATEMENT

On July 12, 2001, the Village of Freeport (Freeport or the Village) filed for new electric rates to take effect on August 13, 2001. The proposed amendments to Freeport’s electric tariff schedules provide for an increase of about $1,470,703 or 7.67 percent in total operating revenues on the based on historic data for the twelve months ending February 28, 2001. By order issued August 6, 2001, the Commission suspended the proposed revisions through December 10, 2001, and by order dated December 5, 2001, the Commission extended the suspension period though June 10, 2002.

On November 21, 2001, Staff and the Village entered into discussions to determine whether the parties could develop a joint proposal for resolution of the issues raised in this proceeding. Those negotiations resulted in the development of a Joint Proposal (JP) on November 30, 2001.

The Joint Proposal constitutes a fair resolution of the issues in these proceedings. The parties agree that a revenue requirement increase in base rates, net of Fuel Adjustment Clause (FAC) revenues, of $1,470,703, is justified. In the interest of ameliorating the rate impact to Freeport’s ratepayers, the Joint Proposal provides for a revenue requirement increase in base rates, net of FAC revenues, of $1,385,100 or 7.1%. The rate increase will be recovered across the board, by means of a pro rata increase in base rates to all customer classes.

The Joint Proposal furthers other Commission policy objectives. It includes provisions instituting a low-income program and implementing least-cost planning. Because the Joint Proposal advances the Commission's policies and results in just and reasonable rates, the Administrative Law Judge should recommend approval of it to the Commission.

The Joint Proposal resolves all of the outstanding rate issues raised in this proceeding and the resulting rates are reasonable to both ratepayers and the Village. The rate plan provides for a Rate Year commencing March 1, 2002. The Joint Proposal provides for the Village to increase its revenues from electric base rates by $1,385,100 or 7.1%. The increase in base rates is across the board, pro rata to all three customer classes and net of FAC revenues. The proposed increase in base rates and the current FAC, effective December 10, 2001, when applied to a residential customer’s average summer (700 kilowatt hours (kWh)) and winter (650 kWh) usage, will result in the average summer bill increasing from $61.72 to $65.49, or by $3.77. The average winter bill will increase from $54.15 to $57.43, or by $3.28. For comparison purposes, Freeport’s average residential summer price will be 9.3 cents per kWh or about 40% less than the average price charged by the Long Island Power Authority. This comparison is based on a LIPA rate of 16.8 cents per kWh and LIPA’s fuel surcharge expiring when it recovers $126 million, probably in April/May 2002.

While not a part of this proceeding, the Village has notified staff that new generation is to be developed at Power Plant No. 2 by Freeport and a third-party (New Generation)(JP ¶3). Freeport owns and operates a diesel engine and a diesel-burning turbine at Power Plant No.2. The Village is in the process of developing New Generation consisting of cleaner natural gas fueled turbines. The New Generation may resolve air emissions issues raised by Department of Environmental Conservation and the residents of nearby municipalities. It may also provide sufficient installed capacity to avoid the possibility of substantial penalties imposed by the New York Independent System Operator (NYISO) for failure to meet Installed Capacity (ICAP) requirements.

The proposed New Generation is addressed in the Joint Proposal to the extent that it may result in the filing of another rate increase request. Freeport may not file a rate increase request until it has executed development, interconnection and purchase power agreements for the New Generation and is able to fully detail the impact of the New Generation on its costs and income.

While the details of the New Generation planned for Power Plant No. 2 were not known at the time of the Joint Proposal, it also provides that capacity and fixed operation and maintenance payments received by Freeport in connection with Power Plant No. 2 are to be used to offset costs incurred to develop and operate the proposed New Generation. This provision will allow the Village to proceed with the development of New Generation at Power Plant No. 2 while mitigating the financial impact to ratepayers. Thus, this arrangement will benefit ratepayers while providing needed funds to develop and operate the New Generation.

The Joint Proposal resolves the rate design issues by spreading the revenue requirement increase in base rates, net of FAC revenues, across the board, pro rata. Thus, all ratepayers in all classes will pay their fair share of the $1,385,100 increase (JP ¶4).

The Joint Proposal requires that Freeport make certain technical changes to its tariffs. The Village would file tariff revisions to the FAC to include references to the NYISO, instead of its predecessor, the New York Power Pool, and the Long Island Power Authority (LIPA), which replaced the Long Island Lighting Company (LILCO). Tariff revisions will also be filed to clarify that the FAC may include NYISO charges (JP ¶5).

The Joint Proposal requires the Village satisfy certain requirements prior to filing another request for an electric rate increase. It provides that Freeport may not file another rate case prior to the execution dates of development, interconnection and purchase power agreements for the New Generation planned at and in the vicinity of Power Plant No. 2 (JP ¶6(b)). Freeport is further required to develop details of the impact of the New Generation and associated costs and/or income and to incorporate the data in any request for an additional rate increase (JP ¶6(c)). The Village is also required to provide, in any future rate case, an evaluation of its electric sales forecast, the effect of inflation, and the effect of other regional economic variables (JP ¶7). These provisions are appropriate as they reinforce the requirement that Freeport provide full and complete information to the Commission.

The Joint Proposal further requires that Freeport conduct a depreciation study of its capital assets within six months of filing a future rate case (JP ¶9). The depreciation study will result in up-to-date depreciation schedules for all capital assets, including those assets that may be retired. The purpose of this provision is to require the Village to conduct a long overdue depreciation study to correct and update its depreciation schedules for all capital assets, including those that have been retired since its present depreciation schedules were developed. A period of six months after the filing of a new rate case is allowed in consideration of time required to develop such a study and depreciation schedules and the staffing of Freeport Electric.

A Low-Income Program is implemented under the Joint Proposal (JP ¶10). This program applies to customers, for whom the Village receives direct payment from the New York State Department of Social Services (NYSDSS). Such customers will receive a $2.00 discount on the monthly customer charge. While there are presently thirteen such customers in the Village, Freeport will coordinate with NYDSS to identify any additional customers eligible for this rate and inform them of the existence of this program. Freeport also agrees to continue its practice of assisting low-income customers in seeking additional assistance available from NYSDSS’ Home Energy Assistance Program (HEAP), local community, and house of worship-based outreach programs. The proposed program is in accord with established Commission practices in protecting the interests of low-income customers and should be approved.

The Joint Proposal provides that Freeport will engage in integrated least-cost planning and incorporate the results in its decision-making (JP ¶11). Supply/demand options considered by Freeport will include installing new generating capacity, improving the heat rate of existing units, purchasing power from outside supply sources, and offering demand-side management (DSM) programs and load-shape-affecting electric rates. The DSM programs will include: 1) a redesigned large commercial and industrial energy cooperative program with participation incentives; 2) a Distributed Generation (DG) program where the Village will pay, when necessary, private entities for the use of their emergency generation; and 3) a direct load control program for residential air conditioners, in cooperation with or in parallel with the LIPA Edge program. The Village will determine the least-cost choices by calculating and maintaining the ratios for each supply/demand option of likely megawatts achieved, of capacity increased or demand reduction, per dollar of program expenditure. This least-cost planning provision should be approved, as it will result in logical choices regarding demand and supply costs which will result in the lowest possible costs to ratepayers and the efficient use of resources.

For the foregoing reasons, Staff requests that the Administrative Law Judge and the Commission approve the Joint Proposal. The Joint Proposal furthers the Commission's objectives as it constitutes a fair resolution of the issues in these proceedings, results in just and reasonable rates, institutes a low-income program and implements least-cost planning, furthers other Commission policy objectives, and properly balances the interests of all the parties.

Respectfully submitted,
Steven J. Kramer
Staff Counsel

Dated: January 3, 2002
Albany, New York