Thursday, February 07, 2013

PULP Opposes Central Hudson Request for $9.7 Million Storm Damage Recovery

Yesterday Central Hudson (CH) petitioned the Public Service Commission (PSC) for expedited approval of its request to recover its total $9.7 million in Tropical Storm Sandy costs from ratepayers. To protect the interest of consumers from an increase in rates and to ensure that ineffective storm preparation and response is not needlessly recompensed PULP filed an immediate response in opposition.

The $9.7 million deferral request was questioned on several grounds by PULP in its opposition filing, which also pointed out flaws in PSC performance regulation:

- the PSC approved rate plan may have created financial incentives for CH to trim maintenance budgets (instead of trees), to glean short term profits, and then later request additional funds to be paid by ratepayers, in addition to the more than $5 million covered by current rates, when the lack of adequate preparation for storms results in foreseeable damage to utility lines.
- the PSC-approved "revenue decoupling" further weakens the incentive to restore power quickly, because it guarantees CH the same revenue whether meters are spinning or not, meaning consumers are insulted twice by rules that incentivize slow storm recovery while forcing consumers to pay for energy they are not receiving.
- the  PSC "performance regulation" metrics have no measurement or economic sanction for inadequate prophylactic measures to avoid storm damage or for slow recovery from major storms, thus removing any financial disincentive for poor performance
- when storms knock down untrimmed trees and weak poles, which can be a result of skimping on maintenance, the PSC approves deferral of 100% of storm costs, placing the burden of such inaction on ratepayers and rewarding poor utility practices.

PULP states that Central Hudson should show that the damage was not forseeable and not included in the $5 million allowance for storm costs  when existing rates were set, and argues that the utility has not met its burden to show that the costs and outages could not have been avoided or reduced by trimming more trees before lines came down instead of after, that CH has not addressed whether or why costs cannot be defrayed by insurance or government assistance, and that CH has not shown that it is earning less than its allowed return on investment.

The Joint Proposal for the merger of CH and Fortis is currently under review by Administrative Law Judges and includes $35 million allocated towards the “public benefit adjustment” as a sweetener to the deal, which is supposed to act as a cushion to mitigate against future rate increases.  These funds, however, may be illusory in that $22 million are consumed by liquidating CH claims for customer reimbursement of storm damage cost recovery, which may be questionable, and the remainder is not paid in cash but is reserved to be credited in the next rate case, when in all likelihood far larger numbers will be compromised in rate case litigation and negotiation.

The utility is asking customers to pay all costs from Tropical Storm Sandy a) without showing that absent such an award they would not receive a reasonable rate of return on their capital investment, b) without exhausting efforts to obtain reimbursement of storm damage from insurance or government aid, and c) without proving that all these costs were unusual or unavoidable through better utility practices.

Yesterday's $9.7 million request for deferral of Sandy costs would bring the total CH storm cost deferrals to about $22 million, as envisioned in the merger settlement proposal now under review, thus leaving a smaller cushion to ratepayers and a drastically reduced “public benefit.” If the sweeteners in the Central Hudson / Fortis deal are artificial and will likely leave a bitter aftertaste for consumers, one must seriously wonder if the whole deal isn’t sour and should therefore be rejected outright.

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