The New York State Public Service Commission last week approved a levelized three-year plan establishing rates for Consolidated Edison Co. of New York Inc.'s (Con Edison) gas delivery service for Oct. 1 through Sept. 30, 2010. Regulators also approved a revenue decoupling mechanism (RDM) intended to encourage conservation.

Under the terms of the levelized joint proposal, the rate level provisions include rate increases of $67.5 million (an average annual increase of 10.2%) for the three consecutive years. The first-year increase is composed of a $36.3 million (6%) increase in base rates, a $14.0 million (2.3%) surcharge for Con Edison's energy efficiency program, and a $17.0 million (2.9%) increase in commodity costs due to the transfer of certain costs from delivery rates to Con Edison's commodity rates. The $67.5 million rate increases for the second and third years of the rate plan are entirely for delivery costs.

Under the rate plan, the commission would require Con Edison to annually submit its computation of return on common equity (ROE) for the preceding year. If the level of earnings exceeds 10.7%, the amount in excess will be shared by deferring 50% for the benefit of customers and allowing the balance to be retained by the company. A transitional, one-year RDM and energy efficiency programs delivered by the New York State Energy Research and Development Authority are provided for under the rate plan.

For rate years two and three, the rate plan includes a collaborative process, beginning no later than Nov. 1, to develop recommended a gas energy efficiency program for years two and three and to evaluate and recommend the design and conditions of an RDM for the last two years of the rate plan. The RDM is considered by the commission to be a primary tool in advancing the efficiency with which the state uses energy. Con Edison's RDM is the first to be instituted in the state since the early 1990s. The RDM is intended to remove a disincentive for the company to invest in energy efficiency, and to reduce the risk to utilities during multi-year rate plans or when faced with significant financial challenges.

The commission determined that the RDM provisions of the rate plan are a significant step forward for the state's environmental policies and efforts to increase the efficiency with which New Yorkers use energy.

The rate plan dedicates $5 million in base rate funding, over three years, to Con Edison's low-income programs. Additionally, the rate plan allows the company to recover an additional $1 million in funding should it have more participation in the program than it currently forecasts.

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