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Judge Reduces Transmission Line Charges

by Christine Stuart | Aug 8, 2013 5:29am
(1) Comment | Commenting has expired
Posted to: Business, Energy

A federal judge ruled Tuesday that electric transmission companies in New England should receive less profit from its transmission line projects.

Connecticut, along with the rest of the New England states, challenged the “return on equity” that transmission owners, such as Northeast Utilities and United Illuminating, charge customers for their transmission facilities.

Administrative Law Judge Michael J. Cianci Jr. determined a rate of 9.7 percent profit going forward would be reasonable. The New England states challenged the 11.14 percent “return on equity” in September 2011. The states said a reasonable earnings rate would be 9.2 percent, but after years of arguments Cianci concluded 9.7 percent would be reasonable.

Attorney General George Jepsen, who represented Connecticut, applauded the decision. “Connecticut customers alone could save $30 million to $40 million annually in transmission charges,” he said.

The decision still has to be finalized by the Federal Energy Regulatory Commission.

Connecticut Consumer Counsel Elin Katz noted that “for years, New England utilities have been receiving exorbitant returns from customers for transmission lines. As anyone with a bank account knows, returns of over 11 percent are out-of-step with current financial conditions.”

But the utilities don’t agree. Instead, they cautioned that this is just the first step in the process.

“It’s important to note that this decision is just one part of a multi-step process,” Frank Poirot, a senior media specialist with Northeast Utilities, said. “This decision must still be reviewed by the FERC commissioners and a final order is likely to be issued in 2014.”

Transmission lines are more profitable for utility companies than the distribution projects that bring power to homes and businesses. The decision, if it’s upheld by the Federal Energy Regulatory Commission, could bring Connecticut one step closer to lowering its electric bills. Over the past few years, the distribution portion of consumers bills in Connecticut has dropped while transmission line costs have remained steady since 2006.

Connecticut customers pay about 25 percent of the region’s transmission costs.

“We have made significant investments in the region’s transmission system on behalf of our customers and are proud of our record. New transmission projects are critical when it comes to improving access to renewable energy sources both locally and regionally,” Poirot said. “We continue to believe that our ROE is reasonable and encourages investment in the region’s transmission infrastructure.”

Jack Betkoski, vice chairman of the Public Utility Regulatory Authority, disagreed.

“This action results from our strong and constant focus on doing everything possible to bring down electric rates for Connecticut residents and businesses,” he said. “All costs borne by ratepayers — be they transmission charges or funding for ISO-New England’s budget — must be carefully scrutinized and challenged when they are excessive.”

The decision also was applauded by Gov. Dannel P. Malloy, who believes lowering energy costs will improve the state’s business climate.

“Since taking office, we have made it a priority to bring cheaper, cleaner and more reliable energy to residents,” said Malloy. “I am proud to say that we have made progress, and are now the only New England state to see a significant drop in the cost of electricity.”

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posted by: CoreyS | August 11, 2013  9:40am

These sorts of judgments aren’t really about whether or not a utility needs to invest to serve its customers.  They’re about what level of return it and its investors need to be promised for making needed investments. 
Reading the proceeding, it appears that there is an accepted legal process for doing this that relies on proxies—i.e. what other utilities return to investors on their equity—and then adjusts for changes in market conditions.  The calculations are highly technical and rely on detailed discounted cash flow analysis. The New England utilities will contest the ruling, quite likely on technical grounds (most likely arguing the wrong formulas and wrong proxies were used). 
But don’t these methods amount to “drinking one’s own bathwater” (i.e. looking backward at current rates set through similar regulatory processes to determine rates going forward) and mixing returns provided on investments already made with returns on investments going forward? The relevant question would really seem to be: what rate of return do the utilities need to offer equity investors to attract new capital for future transmission investments?  If we each had the option of earning a guaranteed return on our 401ks of 9.7% (the new, lower rate set through the judge’s decision) wouldn’t we all jump at the chance?  Thinking about it this way makes the rate seem generous.