The latest issue of Energy Biz contains a short essay by Pam Radtke Russell on fuel adjustment clauses (“Fuel Surcharge Report Card,” http://energycentral.fileburst.com/EnergyBizOnline/2008-6-nov-dec/Tech_Front_Report_Card.pdf). It’s a very even-handed discussion and worth reading if you are involved in this issue.
I had not paid attention, but I was quite surprised that so many utilities that purchase fuel for resale do not have them. When I was at FERC in the late 70’s and 80’s, until the rules were changed such that interstate gas pipelines no longer purchased gas and resold it to consumers, I spent quite a bit of time on such matters. Almost every interstate pipeline had a “purchased gas adjustment clause,” which, due to the situation at the time, seemed to only go up.
Fuel adjustment clauses are much more controversial than one might think, because the regulated entity is constantly pushing the limits, as well it should, and the customers and regulatory staff are constantly pushing back, as well they should. It does make sense to use such adjustments though, particularly when fuel prices are not stable and the regulated entity buys fuel and “resells” it within its rates, making no profit or taking no loss on the fuel itself, other than the rate of return on the money tied up between the time the utility purchases the fuel and the time it collects the costs from the customers.
If you need any help on fuel adjustment clause issues, I stand ready, willing and able to help.