In June 1995, Aquila Networks - MGU (Aquila), Consumers Energy Company, Michigan Consolidated Gas Company (MichCon), and SEMCO Energy Gas Company (SEMCO) initiated the CAP program. The Commission authorized CAP programs for Wisconsin Public Service Corporation (WPSC) in April 1998 and Northern States Power dba Xcel (Xcel) in September 2002. Its purpose is to provide gas utilities a method of expanding their systems to new customers without such expansions being subsidized by existing customers and to provide a financing mechanism for customers to obtain gas services.
New customers are charged for expansions based on costs to install the facilities that are offset by the revenue generated by the customers attached, figured over a 20-year period. If the revenue calculation provides a positive cash flow, there is no charge for the expansion. If the projected positive cash flow does not cover the cost of the project, the attaching customer pays their share of the cost prior to installation or over a period of time, typically a 5-year period, with carrying charges. A developer is required to make payment to cover the entire cost of the expansion.
Costs utilized in the calculation include: direct and indirect labor, materials, depreciation, property taxes, Operating & Maintenance, and carrying charges on plant investment. These costs are based on historical average costs for either the previous year or the costs approved by the Commission in the last rate case.
Revenues include: monthly customer charges, distribution revenues and one-time connection fees. Revenues from distribution charges are based on average use by customer type and expected participation rates based on historical connection data for the individual companies.
The average cost of the project is determined for each home and added to the bill as a monthly surcharge in addition to the then current rates for gas service. Under the Seller Disclosure Act of 1993, the seller of a home that is subject to the CAP surcharge is required to disclose the existence of the surcharge if the home is sold before the surcharge is paid off. If a surcharge remains after the sale of the home, the new person taking gas service at that address is responsible for paying the surcharge.
The cost of obtaining gas service is different from utility to utility. Even though the calculation process of determining customer costs is very similar between utilities, the factors which make up that calculation are somewhat different for each utility. Because factors such as labor rates, property taxes, and carrying charges vary by utility, the utility's cost to provide service varies by utility.
The major benefit of the program is a consumer's ability to obtain natural gas. A downside of the program is that utility financial resources are limited and, therefore, all expansions that customers want cannot be built with utility financing. Expansions can occur without utility financing if the customers pay the upfront cost of building the system.