Lykes Energy, Inc. and Subsidiaries - Page 7

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          receipts allocable to the FEECA programs on its books and                   
          records.  People's was prohibited by the PSC from separately                
          stating this portion on its customers' bills.                               
               People's collected FEECA funds subject to a statutory                  
          obligation not to expend them for any purpose other than FEECA              
          programs.  It kept separate bookkeeping accounts to record FEECA            
          receipts and FEECA expenditures, and, at fixed intervals of 6               
          months to a year, the PSC conducted in-depth audits of these                
          accounts.  If People's charged an expense that the PSC deemed               
          improper, the charge was disallowed.  These disallowances were              
          not charged back to People's customers.  They were borne by                 
          People's and its shareholders in the form of reduced net income.            
          People's did not segregate the FEECA funds in separate bank                 
               For each period, the FEECA rate factor was calculated as               
          closely as possible to generate just enough receipts to cover the           
          period's anticipated FEECA expenditures.  If People's FEECA                 
          receipts exceeded a period's FEECA expenditures, the excess, plus           
          interest on the excess, was subtracted from the amount the                  
          following period's rate factor was designed to yield.                       
               If and when the FEECA programs terminate, or if and when               
          People's goes out of business, any residual funds in the FEECA              
          accounts must be refunded to the ratepayers.  If People's is                
          acquired by another company, the FEECA account balances pass to             

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Last modified: May 25, 2011