Gas LDC’s proposal deemed insufficient incentive for conservation.

Weekly update courtesy of URN #3976: Following the trend seen in several other states recently, the Tennessee Regulatory Authority (TRA) has become the latest governing body to deny a utility’s petition to institute a revenue decoupling mechanism.

In the case before the TRA, a natural gas local distribution company (LDC), Piedmont Natural Gas Co., had requested permission to implement a decoupling program, claiming that absent the ability to break the link between actual sales and revenues, it would have no impetus for promoting conservation, energy efficiency, and other usage reduction measures. According to the LDC, decoupling would provide it with the means for aligning its own financial objectives with the best interests of its customers.

Piedmont’s proposal was premised on a decoupling program with a true-up mechanism that would allow full recovery of the average per-customer margin. However, in looking at the LDC’s earnings statistics that underlie its plan, the TRA observed that such earnings were based on a benchmark from the company’s last rate case, which had been in 2003. Using a reference point from that long ago could translate into a disincentive for customers to lower their consumption levels, the TRA said.

The TRA explained that Piedmont had structured its decoupling mechanism in such a way that a consumer could reduce usage but not see any decrease in the amount billed. To address its concerns that the LDC’s outdated rate-making data could skew customers’ bills, regardless of their conservation efforts, the TRA ruled that it would be imprudent to authorize a decoupling program in a stand-alone proceeding. Instead, it determined that decoupling should be considered within the context of a full-blown rate case. Subscribe to Utility Regulatory News for the full story.