CLEARING THE AIR ON UI’S RATE CASE
Following its final decision in the UI rate case (Docket Number 22-08-08), PURA published a Frequently Asked Question (FAQ) document on its website. The FAQ is unusual among PURA’s in that it was not included in the docket, not distributed to PURA’s stakeholders, and did not offer an opportunity for stakeholders to weigh in.
In UI’s view, the document is misleading in its attempt to characterize the scope of UI’s rate application and PURA’s own Final Decision. To correct the record, UI offers the following responses.
The FAQs on page 1 state that “UI requested a base distribution revenue requirement increase of $131 million over the next three years, which is roughly 35% more than it currently charges,” citing to increases to distribution rates and overall bills of 26% and 8%, respectively.
- These numbers misleadingly suggest that customers would have experienced a rate shock due to UI’s proposal, when in fact, the referenced $131 million increase was proposed to be spread over three years to match cost increases that the Company will incur over that timeframe. PURA rejected the three-year plan, so that the appropriate comparison between what the Company proposed for a base distribution revenue requirement and what PURA allowed for that revenue requirement is only the first-year revenue requirement impact, or $91 million.
- These numbers are also misleading for two other reasons. First, $12.2M of the first-year revenue increase was previously authorized by PURA for collection through the revenue decoupling mechanism. As a result, customers would not experience any bill impact from this amount.
- Second, the increase in distribution revenue requirement is an exaggerated bill impact, if the point is to tell customers what the end result is for their individual bills. The Company’s requested $91 million first-year increase and, if granted by PURA, would have caused customers to experience a bill impact of 7 percent. The larger percentage is the increase in the base distribution revenue requirement, which is only one portion of the overall customer bill, making the impact for the customer appear larger. Stated correctly, this increase is calculated as 22%.
The FAQs on page 1 state that “PURA only has jurisdiction to set distribution rates, which is the charge from which UI receives its revenue and profit. But this is only one part of your entire bill, with the actual cost for electricity comprising the remainder” (emphasis added).
- This statement misleadingly suggests that the distribution portion of the bill comprises the entirety of the customer’s bill other than electric supply. The statement ignores other bill components that are also pass-throughs, such as the systems benefits charge and the non-bypassable federally mandated congestion charge.
The FAQs on page 2 state that “PURA applied long-standing standards and well-established legal precedent in reviewing UI’s rate application. These foundational principles of ratemaking are not new, nor have they changed.”
Although PURA cited legal standards in its final decision, the Company has appealed the final decision in part because PURA did not, in fact, apply these long-established standards in assessing the Company’s rate application. In addition, it is misleading to suggest that such ratemaking measures “are not new nor have they changed,” in that the final decision reflected numerous examples of where PURA applied new or different criteria for cost recovery, as outlined in the Company’s appeal.
The FAQs on page 2 state that “the company must provide credible and sufficient evidence and clear explanations that demonstrate that the proposed rate change is just and reasonable and that the costs arise from prudent and efficient management of the utility.”
Although this is an accurate statement, it is misleading because the Authority disallowed substantial amounts of the Company’s operating costs in the final decision without any finding that the costs were imprudent.
The FAQs on page 2 state that “the company must provide credible and sufficient evidence and clear explanations that demonstrate that the proposed rate change is just and reasonable and that the costs arise from prudent and efficient management of the utility.”
Although this is an accurate statement, it is misleading because the Authority disallowed substantial amounts of the Company’s operating costs in the final decision without any finding that the costs were imprudent.
The FAQs on page 2 state that a utility’s “ROE is not guaranteed, but rather constitutes what has been calculated for the purpose of setting rates. The Company may earn more or less than that amount depending on its implementation of the approved rate plan and decisions of its management.”
This statement is misleading because this is only the case where the outcome of the proceeding is a lawful and effective ratemaking process that follows established ratemaking standards, and provides adequate notice of the issues and due process for case participants. In this case, that did not occur. PURA’s numerous mistakes and deviations from rate making standards cause the effective “authorized” ROE to fall to 6.23%, while the write-offs reduce it even further to 2.5%. No “implementation” of the decision can cure this impact.
The FAQs on page 3 suggest that the Company was not denied recovery of any proposed capital investments.
- In fact, as set forth in UI’s appeal, PURA unlawfully disallow approximately $149 million of incremental net plant additions existing through year-end December 31, 2022, purportedly on the basis that these additions were not “used and useful” as of August 31, 2022, a cut-off date just prior to the filing of UI’s initial rate application on September 9, 2022.
- Nowhere in the final decision does PURA disclose that it is applying this arbitrary, retrospective cut-off date, nor does PURA explain why this is an appropriate cut-off date for net plant additions in the proceeding.
- PURA imposed this new, unannounced cut-off date for “used and useful” plant additions without any notice of the cut-off date before or during the proceeding so that UI would have the appropriate opportunity to address the new standard.
- Because PURA effectively applied the new, unannounced standard retroactively to September 9, 2022, the date of the Company’s initial filing of its rate application, UI had no opportunity to adjust its filing to address or meet the new, unannounced standard.
- In fact, this is a primary example of how PURA did not follow “long-standing standards and well-established legal precedent in reviewing UI’s rate application.”
The FAQs on page 3 state “nothing in this decision prohibits UI from continuing to make capital investments in its distribution system going forward.”
This statement is misleading by omission. PURA is well aware that the practical impact of the final decision is to degrade the Company’s investment profile and financial condition given that it sets an exceedingly low return that is inadequate to attract capital necessary to undertake significant capital investments.
The FAQs on page 3 at footnote 1 state: “Indeed, this approach to providing an opportunity for a return on investment is, overwhelmingly, the most common approach used by regulators over the more than 100-year history of public utility regulation.”
This statement is entirely inaccurate. Not only is there no basis for the sweeping assertion that PURA followed standard regulatory practice applied in other jurisdictions, PURA’s final decision deviated in key respects from its own long-standing precedent and regulations in numerous ways without prior notice, for example by rejecting a multi-year rate plan and allowance for capital recovery in the rate years, and disallowing recovery of deferred assets that were previously reviewed and approved by PURA. These actions and others were completely contrary to longstanding precedents and ratemaking principles that were followed by PURA in prior cases. Portraying the final decision as comporting with “more than 100 years” of public utility regulation is not an accurate statement in any way.
The FAQs on page 5 state: “If the decision increases the number of employees, why is UI claiming otherwise?” (emphasis added).
This statement simply has no basis in fact. UI has not taken any public position regarding the number of employee positions funded in the final decision. PURA has not and cannot offer any citation to UI allegedly making this claim. A quasi-judicial decisionmaker should not be engaging in this type of rhetoric, particularly without a citation.
The FAQs on page 5 state: “UI claims the decision adversely impacts the state’s ability to meet its climate goals and investment in renewable energy. Is that true?”; it then answers this question, “no.”
This statement is false and wholly without factual support. The final decision materially degrades the Company’s financial strength and its ability to attract capital necessary for system investments, which is a critical component of achieving the State’s climate goals and “investment’ in renewable energy.
The FAQs on page 5 state: “What about the deployment of EV charging stations? UI claims the decision will adversely impact their deployment.”
This statement is misleading in that UI claimed (correctly) in written exceptions that the draft decision would impair EV charging because it unreasonably denied recovery of a $300,000 regulatory asset for light-duty EV charging program costs that had previously been allowed for recovery by PURA. The FAQs fail to note that PURA changed its final decision.
The FAQs on page 6 state: “First, the approval of a thoroughly vetted, lower rate increase than initially requested is positive for all Connecticut businesses. Economic modeling consistently shows a positive net impact of lower electricity rates as it allows for businesses and individuals to spend more money on other goods and services.”
There is no “economic modeling” on the record for the proceeding, nor referenced in this statement. Connecticut’s businesses also require safe and reliable power to run their businesses and recognize, like any product or service, that there is a cost to having that product or service. PURA has a legal obligation to allow recovery of prudently incurred costs and set a reasonable return. The final decision materially degrades the Company’s financial strength and its ability to attract capital necessary for system investments that are necessary to the provision of safe and reliable service. The reference to “econometric modeling” is not supported by evidence nor does it consider the confiscatory effect of the final decision.
The FAQs on page 7 state: “Further, for perspective, the company and all formal Parties and Intervenors to this proceeding had more than 150 days between when UI submitted its rate application and the close of the record to provide evidence in support of or opposition to UI’s rate application or any factual finding.”
This statement is incorrect and misrepresents the regulatory process. The Authority’s proposed “factual findings” were not disclosed until it released its proposed final decision. This statement is also misleading because it does not account for PURA’s misapplication of legal standards in the final decision, or its imposition of new standards or theories for disallowances in the final decision, which were not known during the “150 days” between the time of the application and close of the evidentiary record.