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PSC’s fuel adjustment review process moves to next phase

During the first of two days’ worth of hearings the Public Service Commission (PSC) held last week in response to Entergy Mississippi raising its rates 28%, PSC chairman Leonard Bentz wanted to make one thing clear.

“This is not a headhunting mission,” he said.

Whatever kind of mission it is, it’s not over.

The investigatory hearings recessed the afternoon of July 8 after commissioners heard testimony from utility company representatives, including those from Entergy, and took into consideration a recommendation from a member of the Public Utilities Staff, which is separate from the PSC, that Entergy be required to submit fuel cost projections annually instead of quarterly. The quarterly fuel cost projections Entergy submits gives the utility’s staff the company’s estimates on what Entergy expects to pay that quarter for the mix of fuel it uses to manufacture electricity. Projections for the third quarter reflected the 120% increase in the price of natural gas the past year, leading to Entergy’s decision to raise rates an average of 28% through September.

The next step in the PSC’s investigation is to hire outside counsel to team with and audit Entergy’s numbers it used to come up with the increase. When the audit is completed, there will be another round of hearings, tentatively set for later this month.

Virden Jones, director of electric, gas and communications for the Public Utilities Staff, said requiring Entergy to file annual fuel adjustments, rather than quarterly, would relieve the volatility in consumer rates. And if there is an under-recovery of costs — meaning if the projections were off and Entergy spent more on fuel than it brought in to pay for it — “it could be made up in one quarter,” Jones said. State law allows utilities to recoup fuel costs dollar-for-dollar, but does not permit them to make a profit off the assessments.

Checky Herrington, communications manager for Entergy Mississippi, shares Bentz’ view that the hearings were not held on suspicion of illegal activity on Entergy’s part.

“It’s been characterized as an adversarial relationship (between Entergy and the PSC),” he said. “But it’s not. (The hearings) were a very good process because the commission has a responsibility to do what’s best for the consumers. And it gave us an opportunity to show what we’re up against.”

What the energy provider is up against is this: When Entergy filed its fuel adjustments for the third quarter May 15, the price of a unit of natural gas was $10. At the close of trading Tuesday, a unit closed at $12.34, down 63¢ from the previous day, according to nymex.com, which tracks the daily closing prices of metals and petroleum futures and options.

Northern District Public Service Commissioner Brandon Presley was less concerned about the price of natural gas, and more interested in the possibility of Entergy profiting from an over-recovery of fuel costs. After Jones told commissioners that Entergy over-recovered approximately $59 million in fuel costs for the fourth quarter of 2007, Presley said, “something is missing the mark.”

An extreme recovery error in the other direction occurred right after Hurricane Katrina, Jones said, when in the fourth quarter of 2005, Entergy under-recovered nearly $80 million in fuel costs. Jones used those two examples to burgeon his case that the company switch to filing annual fuel adjustments. There is not a uniform filing policy for utilities to follow. For example, Mississippi Power files its fuel adjustments annually. The agreement under which Entergy files its numbers quarterly was arrived at, and approved by, the PSC in 2000.

“We’re not averse to filing annually,” Herrington said. “We’re certainly willing to change. Our preference is to remain on the quarterly system because that allows the PSC to review us four times a year instead of just one. If we were seeing gas prices trend downward, that might be a better scenario.

“We’re trying to get the best deal (for our ratepayers). But we are absolutely in the middle of an energy crisis and it’s understandably frustrating for everybody.”

Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .


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