The Washington Utilities & Transportation Commission has authorized Avista Corporation to increase rates by $10.8 million—or 2.19% for its electric operations—and decrease rates for natural gas operations by $2.1 million or 2.41%. These figures include a reduction in Avista’s federal corporate tax rate starting May 1, 2018. The commission left unchanged the company’s return on equity (ROE) at 9.50%. It rejected a proposal by the utility to increase ROE to include an adjustment for flotation cost finding that such expenses are recognized in the underwriting process as part of the monies retained by underwriters at the time of issuance of stock. In setting the ROE, the commission found that current Federal Reserve sentiment and policy will maintain the trajectory of gradual increases in U.S. interest rates in 2018 and 2019, a trend which, on balance, weighs against a decrease to Avista’s ROE at this time. It also said that the new tax law will increase stress on the company’s balance sheet and credit metrics as short-term cash flows are impacted by tax-related customer refunds. Washington Utilities & Transportation Commission v. Avista Corp., d/b/a Avista Utilities, Dockets UE-170485 & UG-170486 (consolidated), Order 07, Apr. 26, 2018 (Wash.U.T.C.).
The Virginia State Corporation Commission has approved a $1.75 million base rate increase for Kentucky Utilities Company d/b/a Old Dominion Power Company. The electric utility had requested an increase of approximately $6.7 million based in part on a 10.42% return on common equity (ROE). The company’s rate filing also included a $4 increase, from $12 to $16, in the monthly customer charge. The commission approved a settlement agreement authorizing the $1.75 million rate hike, but not on a specific determination of ROE, accounting adjustments, or ratemaking methodologies. The stipulation documented, however, that the parties to the settlement recommended that the residential basic service charge remain at $12 per month and that an ROE range of 9% to 10% be used for purposes of annual earnings reviews, beginning with calendar year 2018. Re Kentucky Utilities Co. d/b/a Old Dominion Power Co., Case No. PUR-2017-00106, May 8, 2018 (Va.S.C.C.).
While ordering Atmos Energy Corporation, a natural gas local distribution company, to reduce rates by $2.1 million to reflect changes in federal tax law, the Colorado Public Utilities Commission cut the rate of return on equity (ROE) included in a Recommendation Decision issued at an early stage of the proceeding. The administrative law judge (ALJ) hearing the case had established the authorized ROE for Atmos within the range from 9.3% to 9.9% and set 9.7% as the authorized ROE used for calculating rates. In reviewing the proposed decision the commission agreed with its staff and state ratepayer advocates that the ALJ had failed to give proper weight to the results of established financial models, while focusing to a greater extent on macroeconomic conditions in the U.S. economy and overall corporate earnings trends. The commission found that an ROE of 9.45% better reflected current returns for similarly situated companies and the results of models presented in the case. In his initial ruling the ALJ noted that in the last year, the Federal Reserve has raised the Fed Funds Rate four times by 25 basis points each time and concluded that the interest rates affected by Federal Reserve decisions have a direct impact on the returns to investors who own shares in other businesses having comparable financial characteristics and business risks as utilities regulated by the commission. Commissioner Wendy M. Moser issued a dissented pointing to evidence of increasing interest rates and a concomitant upward trend in ROE for regulated utility companies. Re Atmos Energy Corp., Proceeding No. 17AL-0429G, Decision No. C18-0311, May 3, 2018 (Colo.P.U.C.).
The Pennsylvania Public Utility Commission (PUC) has issued an order requiring a “negative surcharge” or monthly credit on customer bills for 17 major electric, natural gas, and water and wastewater utilities, totaling more than $320 million per year. The refunds to consumers are the result of the substantial decrease in federal corporate tax rates and other tax changes under the Tax Cuts and Jobs Act (TCJA) of 2017, which impacted the tax liability of many utilities. The PUC announced that it will consider the effects of federal tax reform on seven other public utilities as part of the investigations for rate cases which have already been filed or are expected to be filed by Aug. 1, 2018. In those situations, the commission has directed the parties involved to address the impact of any TCJA tax savings as part of the overall rate design for each utility. Depending on the revenue and tax impact on each utility the distribution charges on monthly consumer bills are expected to decrease from 0.56% to 8.55%. Public utilities required to begin returning federal tax savings to consumers include Citizens’ Electric Company of Lewisburg, Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company, Pike County Light & Power Company, PPL Electric Utilities Corporation, Wellsboro Electric Company, West Penn Power Company, PECO Energy Company (Gas Division), National Fuel Gas Distribution Corporation, Peoples Gas Company LLC, Peoples Natural Gas Company LLC—Equitable Division, UGI Central Penn Gas Inc., UGI Penn Natural Gas Inc., UGI Utilities, Inc.—Gas Division, Pennsylvania-American Water Company and Pennsylvania-American Water Company—Wastewater. Re Tax Cuts and Jobs Act of 2017, M-2018-2641242, May 17, 2018 (Pa.P.U.C.).