PRELIMINARY STATEMENT – PART II MULTI – YEAR RATE CAP PLAN

1.Overview
The Company’s Multi-Year Rate Plan (Rate Plan), approved by the MPUC in Docket No. 97-795, replaces traditional cost-of-service regulation for designing utility rates with marketbased rates. Bangor Gas’ Rate Plan establishes the maximum rates (Price Cap Rates), which form the basis for the maximum rates that the Company can charge customers for gas service in each year of the 10-year Rate Plan. The maximum rates were established based on the historic cost of alternate heating fuel in the Company’s service territory. The Rate Plan allows the Company to change the rate element charges and to sub-segment rates within a customer class as long as the average rate of that class does not exceed the Price Cap Rate.  The Rate Plan also allows the Company to establish rates for each or all customer classes that are below these maximums. This market-based approach is intended to ensure that rates charged by the Company are just and reasonable, while also providing the Company with pricing flexibility to compete with existing fuels.

2. Duration
The Rate Plan shall be in effect for all rates charged by the Company beginning with the commencement of service (expected around January 1, 2000) through December 31, 2009.

3. Initial Price Cap Rates and Rate Element Charges
The initial Price Cap Rates are the maximum rates that the Company can charge for delivery of natural gas service. These rates represent the ceiling for the average rate that each customer class will incur for receiving natural gas service, excluding the cost of gas and taxes imposed by any governmental body. The initial Price Cap Rates were established in MPUC Decision 97-795, and are based on the estimated year 2000 cost of No. 2 heating oil and cost of natural gas. Listed below are the Price Cap Rates and resulting rate element charges for the current period and prior periods:

History of Price Cap Rates and Rate Elements

Residential Small C&I Large C&I
Current Period (01/01/09 – 12/31/09)
Average Price Cap Rate ($ per Dth) $ 4.675 $ 3.223 $ 3.087
Customer Charge ($ per month) $ 12.00 $ 16.70 $ 275.00
Transportation Charge ($ per Dth) $ 3.69 $ 2.70 $ 2.98

 

Previous Period (01/01/08 – 12/31/08)
Average Price Cap Rate ($ per Dth) $ 4.54 $ 3.13 $ 3.00
Customer Charge ($ per month) $11.00 $ 16.00 $ 260.00
Transportation Charge ($ per Dth) $ 3.72 $ 2.71 $ 2.98

4. Annual Price Cap Rate Adjustment

A. Filling Procedure
On October 1 of each year beginning October 1, 2000, the Company will make a Price Cap Rate Adjustment filing.  This filing will provide the calculation of the annual adjustment to the Price Cap Rate, and will show the present and proposed rate element charges, including the percentage change to those charges, for each customer class.  The Commission will process the Company’s filing in time for the new rates to become effective by the following January 1.

1.  Customer Notification

The Company will provide notice to its customers that discloses any change to its Price     Cap Rates and the effective date.  The Company will provide notice either by direct mail or with its bill at least thirty (30) days prior to the effective date.

B. Adjustment Formula
Beginning on January 1, 2000, the Price Cap rates will be adjusted annually to reflect the change in inflation. In addition, starting on January 1, 2005, the annual adjustment will also include a 0.5% productivity offset factor. The Annual Price Cap Rate Adjustment shall be calculated based on the following formula:

Price Cap Rate (new) = Price Cap Rate (current) x (1+P-X)
Where:
P = the change in the Price Index.
X = the Productivity Offset.


C. Price Index Change
The Price Index to be used shall be the latest Gross Domestic Product – Price Index (GDP-PI) forecast published by DRI. For any year, the change in the Price Index shall be determined by application of the following formula:

Price Index Change = [(Fn/Fc) x (Fc/Fc) x (Rc – 1/Fc – 1)] – 1
Where:
Fn = the latest available forecasted GDP-PI.
Fc = the latest available forecasted GDP-PI for the current year made in the current year.
Fc = the forecasted GDP-PI for the current year made in the previous year.
Rc-1 = the recorded (actual) GDP-PI for the previous year.
Fc-1 = the forecasted GDP-PI for the previous year.


D. Productivity Offset
The Productivity Offset shall be zero for the period commencing with the effective date of the Rate Plan and ending on December 31, 2004. For the period from January 1, 2005 through December 31, 2009, the Productivity Offset shall be 0.5%.

E. Rate Elements
The Rate Elements do not include taxes or other charges that may be levied by governmental bodies with the exception of the MPUC and Public Advocate annual fee assessments pursuant to 35A M.R.S.A., Section 116. The Transportation Charge ($ per Dth) includes a portion of those annual fee assessments.

1. The company shall include in its annual Price Cap Rate Adjustment filing its separate calculation of the portion of the fee assessments included in the Transportation Charge.

5. Earnings Sharing Mechanism

A. Earnings Account
The Company shall maintain an account (Earnings Account) to record earning balances above or below a 15% return on Equity. If the Company’s Return on Equity is below 15% in any calendar year, the Company shall debit the dollar value of the shortfall to the Earnings Account. If the Company’s Return on Equity is above 15%, it shall credit the dollar value of the excess above 15% to the Earnings Account. Interest will not be accrued on the Earnings Account.

B. Earnings Report Filing
On February 15, 2001, and annually thereafter, the Company shall file an Earnings Report with the Commission stating its anticipated earnings over the previous calendar year using a mix of actual, preliminary, and estimated monthly expenses, revenues, capital structure, and cost of debt figures. The report will include a calculation of the Company’s Return on Equity and resulting entries into the Earnings Account. The Company will then “true-up” it’s Earnings Report by April 1 of each year. The April 1st filing shall be subscribed under oath by the Company's Chief Financial Officer.

C. Processing of February 15th and April 1st Filings; Confidentiality
The February 15th and April 1st filings (Filings) shall be subject to a Protective Order having terms consistent with the Protective Order issued in this Docket. The Company shall, subject to the Protective Order, provide a copy of the Filings to the Public Advocate. The Return on Equity calculation included in the Filings shall be deemed acceptable unless the Commission, after notice and opportunity to be heard within thirty days of the April 1st filing, finds that the return was incorrectly calculated and enters an order substituting a different return calculation prior to September 1st following the April 1st filing.

D. Sharing Feature
In the event that the April 1st filing demonstrates that the Earnings Account has a zero or negative balance, no rate adjustment shall be made. If the April 1st filing shows a positive balance, then (a) the positive earnings balance will be passed back to customers through a reduction in rates, and (b) the Earnings Account balance shall be reset to zero effective retroactively to December 31 of the prior year.

6. Rate Design Flexibility
The Company shall be allowed flexibility in implementing changes to the maximum rates for its rate elements, and shall be allowed to increase a rate element by an amount greater than the percentage increase in the Price Cap Rate, subject to the following constraints:

a) No rate element may be increased by more than 10% or by the percentage increase in the overall Price Cap Rate, whichever is greater; and
b) Increases greater than the Price Cap Rate increase in a rate element for one customer class may not be compensated for by lower-than-average increases in rate elements applicable to another customer class (interclass subsidization).


In addition, the Company shall also be permitted to restructure its rates by, for example, adding additional usage blocks, provided that that the Company’s rates will be subject to the constraints as described above within each customer class.


7. Setting Actual Rates
A. Overview
The Company may set charges for rate elements at levels that do not result in overall average rates that exceed the Price Cap Rates, and that are otherwise consistent with this Rate Plan, Maine law, and MPUC rules and regulation. In addition, the Company can make changes to the rate element charges during the Rate Plan so long as the average rate of each class does not exceed the Price Cap Rate, and complies with the requirements of the MPUC Decision in 97-795.

B. Commission Filing
Prior to implementing any rate changes, the Company is required to make a notice filing with the Commission demonstrating that the rate changes are consistent with the Company’s Rate Plan.

C. Customer Notice
Company must give notice of changes to rate elements prior to the changes becoming effective.

8. Annual Reports
The Company will file annual progress reports for the prior calendar year beginning on October 1, 2000. These annual progress reports shall include:

a) Distribution facilities constructed within the past calendar year;
b) Any correspondence with the US DOT Office of Pipeline Safety;
c) The total number of customers in each rate class being served;
d) The number of new customers in each rate class added in the most recent calendar year;
e) The number of customers in each rate class receiving unbundled service; and
f) A description, including marketing materials, of all promotional programs implemented in the prior calendar year.

9. Amendment to Rate Plan
The Commission may not amend or prematurely terminate the terms of a multiyear rate plan in a manner that prevents or threatens the utility’s opportunity to recover a reasonable rate of return over the entire term of the plan. (35-A M.R.S.A. § 4706-7)