Utility's "price Protection" Claims Challenged

Attorney General Spitzer has urged the state Public Service Commission (PSC) to reject an electric rate proposal submitted by a Binghamton-based utility.

In formal comments filed with the PSC, Spitzer said the proposal by the New York State Electric & Gas Co. (NYSEG) would keep rates at an unacceptably high level and was not a bargain for consumers.

"In a volatile electric power market, the promise of price stability is certainly attractive," Spitzer said. "But an examination of this proposal shows that the company would lock in excessive rates over a long period of time. This is not acceptable. Stable rates must also be just and reasonable rates."

Spitzer's office reviewed NYSEG's modified "Electric Price Protection Plan," made public in a submission to the PSC on August 3, and determined that the proposal would still provide the company with a current return on equity of over 30 percent, a margin so high that their rates could not be considered "just and reasonable," as required by state law. While the return on equity would go down in succeeding years of the proposed seven-year plan, it would remain inordinately high by normal public utility regulatory standards. Spitzer's staff and the PSC staff have said that a return on equity on the order of 10.5 percent is a reasonable profit for low-risk regulated public utilities such as NYSEG.

Spitzer has asked the PSC to reject the NYSEG proposal, make the company's rates temporary (which would permit future overpayments to be refunded to customers), and institute a hearing process to determine just and reasonable rates.

NYSEG first introduced its "price protection" plan in March. Spitzer's office and others raised concerns about the proposal, arguing that it provided an excessive return to the company and that it perpetuated high rates for an unprecedented seven-year period. The company's August 3 proposal is a modification, but Spitzer concluded that it is still a flawed plan that would not prove beneficial for the state's residential, commercial and business consumers.

The matter is being handled by the staff of the Attorney General's Telecommunication and Energy Bureau, headed by Mary Ellen Burns.


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