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Pennsylvania utility seeks system improvements charge

2 July 2004 – PPL Corp. has joined the list of utilities trying to get approval to charge customers monthly for the cost of system improvements without bringing a rate case before the state Public Utility Commission.

Buried in its current request for a $220m increase in transmission and distribution rates is a provision for a distribution system improvement charge, or DSIC. PPL said in testimony submitted to the PUC that the charge would enable it to better finance maintenance of the wires and transformers that carry electricity to existing customers.

PPL argued that without the special charge, it could go years without being able to collect from customers for system improvements, given the paucity of base rate cases since the coming of electric competition in the late 1990s.

“This situation … is becoming increasingly critical as distribution facilities built in the high-growth 1960s, 1970s and 1980s are nearing the end of their useful life,” Douglas A. Krall, manager of regulatory strategy for PPL, said in his testimony.

Pennsylvania-American Water Co., then led by the politically influential Marilyn Ware, argued that it needed the charge to help cover the costs of bringing up to modern standards all the small water companies across the state it was buying. Those acquisitions were encouraged by the PUC.

The natural-gas industry was twice rebuffed by the Legislature last year when it tried for a similar fee. Pennsylvania-American Water’s Wastewater Division won one from the PUC, but it remains under appeal by the state Office of Consumer Advocate in Commonwealth Court.

“Any utility would want it because it allows them to raise their rates every year without looking at countervailing evidence,” state Consumer Advocate Irwin Popowsky said. “It’s only one-half of the equation.”

Both Popowsky and state Small Business Advocate Bill Lloyd have objected to PPL getting the special charge.

Traditional utility rate-making balances all revenues and expenses to achieve an overall, guaranteed return of about 11 per cent to 12 per cent. His argument is complex, but he believes PPL’s request for the improvement money would not pass normal rate-making scrutiny.

Lloyd said his office objects for several reasons to a DSIC for PPL, but if the PUC grants the charge, it should be structured so residential customers – who generate more distribution system expenses — would pay a proportionally higher amount than businesses.