Perspective

Ratepayers claim a piece of the overfunding, but there are two sides to the question.

The stock market has been kind to many utilities-blessing them with overfunded pension plans. That is not unusual among utilities. In fact, one energy utility reported a "funded" status¹ of almost $1.5 billion at the end of 1999.

One of the results of an overfunded plan may be pension expense credits (or "negative pension expense") flowing through a utility's income statement, contributing to earnings. The same energy utility noted above reported a negative pension expense of $23 million in 1999. The pension credits principally arise when the actual return on plan assets exceeds the expected return or from other factors such as actuarial gains.

So what is the news here?

Ratepayers and regulators may seek the benefit of a utility's overfunded plan in rate proceedings. Utilities filing rate applications using financial "base periods" and "test periods" that include pension expense credits on the income statement can be certain that ratepayers will seek to include those credits in the cost of service upon which rates are set.² Sound fair? Ratepayers think so!