PSC Power to Order Refund of Earnings Above Authorized Return at Issue in National Fuel Case

In the pending National Fuel Gas Distribution Company case the New York Public Service Commission  set temporary rates when it found that NFG may be earning more than anticipated when rates were last set in 2007. A proceeding at the PSC is now underway to fix permanent rates, which will be effective as of the date the temporary rates were set.

The Commission observed that in recent years, while National Fuel earned higher returns than the Commission anticipated, at the same time significant costs were deferred, in the expectation that they could be collected from customers in the future, when new rates are set.The Commission stated:

National Fuel’s earnings level indicates that its gas rates may be higher than needed to provide safe and adequate service, particularly in light of the recently allowed ROE and earnings sharing provisions established for other utilities. Further, absent action, National Fuel’s deferral balances may continue to escalate during a period of time that the Company is earning a return in excess of its cost of equity. These circumstances may result in National Fuel customers paying higher rates than are just and reasonable.

The PSC also asked the Department of Public Service administrative law judges to examine whether refunds could be made to customers under a little used provision of the Public Service Law, Section 66(20).  That law gives the PSC power to order refunds when a utility earns more than the profit anticipated when rates were last set.

The statute provides:

Notwithstanding any general or special law, rule or regulation, the commission shall have the power to provide for the refund of any revenues received by any gas or electric corporation which cause the corporation to have revenues in the aggregate in excess of its authorized rate of return for a period of twelve months. The commission may initiate a proceeding with respect to such a refund after the conclusion of any such twelve month period.

The ALJs asked parties to brief the applicability of Section 66(20) to the case.  On September 13, 2013 National Fuel argued in its brief to the ALJs the rarely invoked law should not apply and, alternatively, there should only be a one year look-back period for potential refunds.

Department of Public Service trial Staff argues in its brief that the law does apply, and says "It is up to the Commission to determine where the relevant facts, in combination, compel a finding of past unjust and unreasonable rates such that a refund to customers of excess revenues is necessary as provided for by Article 4 of the Public Service Law."

The Public Utility Law Project of New York, Inc. argues in its brief the statute applies.  The Project also discusses in detail the unusual situation in which deferred pension and OPEB costs, which may be collected from customers in the future, grew rapidly while earnings received by National Fuel were above the anticipated 9.1% return.  The Project argues that rates can be reduced if some of the deferrals are reduced, and for refunding earnings above the authorized return, which are estimated to be approximately $24 million since 2010.

NFG earnings since the last rate case are discussed in the Commission's Order to Show Cause initiating the case:

and in the Commission Order SettingTemporary Rates.  The PSC case file with all the filed papers is here:  13-G-0136  

National Fuel is expected to file a reply to the Staff and Utility Law Project briefs, and the ALJs will then decide whether the refund statute applies.  The exact amount of any refunds would be decided in further litigation.

There is also a court case pending in Erie Co. where NFG is challenging constitutionality of Section 66(20).  PULP is not a party there.  NFGDC v. Public Service Commission, (Erie Co. Sup. Ct. Index No. 20130015148).  

Gerald A. Norlander

Follow the New York Utility Law Project on Twitter