Tuesday, June 11, 2013

Parties Respond to Central Hudson/Fortis Revisions to Merger Proposal and Rate Plan Extension

With the time for a PSC decision on the Fortis proposal for takeover of Central Hudson approaching, and facing a Recommended Decision of DPS Administrative Law Judges urging disapproval, Central Hudson and Fortis filed a revised proposal with dubious "enhancements."  See After Final Submissions on Prior Proposal, Fortis, Central Hudson File New Plan With PSC for Fortis Acquisition, May 30, 2013.

Parties have filed responses to the revisions.  PULP maintains that continuing the rate plan is actually more of a benefit to the utilities, and not customers, because it allows an excessive return on equity (ROE) of ten per cent at a time when the PSC is allowing less.  Earlier this year, the PSC allowed a 9.3% ROE in the Niagara Mohawk d/b/a National Grid rate case, and DPS staff has testified in support of an 8.7%S ROE in the pending Con Edison case.  Also, the Central Hudson/Fortis proposal continues "single issue" ratemaking, where an item of cost that may go up (storm damage cost) is allowed to be "deferred" for future collection from customers, while other items of cost, such as interest on debt may go down and the utility is allowed to keep the benefit of that cost reduction.  Normally, as a narrow exception to the general rule against retroactive rate making and the filed rate principle, "deferral" of unexpected costs during a rate plan are disfavored, and are not allowed to be recovered later if the utility is overearning or would overearn if customers paid the deferred cost.

PULP demonstrated in its Response to Petitioners' May 30 letter to Commissioners and in an attachment to them that Central Hudson's ROE for the past three years has been well over what would be allowed now if there were full review of the rates, which would be in the range of 9%.
PULP’s analysis, based on Central Hudson’s filings with the Securities and Exchange Commission (SEC), finds that Central Hudson’s earnings have generally been well above 9.3% over the course of the current Central Hudson rate plan.  These SEC filings, which can be used to calculate ROEs on a trailing four quarter basis that generally agree with DPS regulatory calculations to within +/- 30 basis points, show that during the implementation period of the Company's current rate plan to date (the eleven quarters from July 1, 2010 through March 31, 2013), Central Hudson’s four quarter trailing ROE has exceeded 10% six times.  Four of these times the Company achieved an ROE at-or-above the 10.5% threshold for sharing.  
Thus, PULP argues, extending the flawed rate plan beyond its term is not in the interest of customers.  PULP pointed out that there is no evidence in the form of testimony to support the reasonableness of a 10% ROE for Central Hudson after its rate plan expires at the end of this month, because there were no evidentiary hearings in the case.

PULP also cited the pending National Fuel Gas Distribution Company (NFG) case in which the Commission is considering temporary rates and lowering rates due to that company's apparent excessive earnings.  In that case, DPS staff is seeking a 9% ROE. Also, Multiple Intervenors, representing large business customers,  is urging even lower rates for NFG and an end to mounting deferrals of single item costs that have risen whose recovery from customers would increase over earnings. Inexplicably, Multiple Intervenors filed a letter supporting further extension of Central Hudson's rate plan with a 10% retrurn and additional deferral liability for customers - rate flaws it objected to in the NFG case.

Citizens for Local Power filed extensive documentation of financial risks from the takeover, widespread community and local government opposition to the merger, and supplemental information regarding Fortis operations elsewhere, in further opposition to the merger.  Robert F. Kennedy, Jr. also filed a letter in opposition based on Fortis' environmental record in Belize, and an additional letter was submitted by Assemblyman Kevin A. Cahill, who asked the Commission not to rule on the matter until a Commission vacancy is filled by a newly appointed Commissioner.

The case is on the PSC Agenda for June 13, 2013.

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