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Rate Case Digest

While authorizing Liberty Utilities Corporation, a natural gas local distribution company, to increase rates, the New Hampshire Public Utilities Commission has approved for the first time a decoupling mechanism that allows rate adjustments for weather, energy efficiency, economic effects, and other variables. According to the commission, the mechanism justifies a reduction in fixed customer charges to the benefit of most customers, because decoupling lowers the risk that the utility will not receive its expected revenue. (In its original filing, Liberty had proposed significant increases to all its fixed customer charges based on a marginal cost study.)

The commission also found that the risk reduction allows for a small reduction in the approved return on equity (ROE). While the settlement called for a return on equity of 9.4%, a figure that the commission Staff had agreed would be appropriate, the reduction in risk associated with decoupling led the commission to reduce the ROE to 9.3%, the commission said. Modifying the settlement revenue figure proposed by the parties, the commission approved a permanent rate increase for Liberty Utilities effective May 1, 2018, of $8,060,117 in distribution rates, with a step increase effective the same date estimated to be $4,729,953, for certain non-revenue-producing investments made during 2017, offset by a $2,394,065 reduction due to tax reform. Re Liberty Utilities (EnergyNorth Natural Gas) Corp. d/b/a Liberty Utilities, DG 17-048, Order No. 26,122, Apr. 27, 2018 (N.H.P.U.C.).

The New Hampshire Public Utilities Commission has also approved a settlement agreement authorizing an increase in distribution rates for Northern Utilities, Inc., a natural gas local distribution company. The increase includes a step increase in rates effective May 1, 2018, to allow the company to begin to recover recent investments, with the option of a second step increase effective May 1, 2019. The settlement calls for increased revenue requirement of $2,602,918, and an offsetting annual revenue decrease of $1,664,189 to reflect the effect of tax rate changes for a net annual revenue increase of $938,730. The utility is also authorized to begin recovery of the 2018 step adjustment in the amount of $2,337,446 effective with services rendered on and after May 1, 2018.

The settlement states a return on equity of 9.5% and provides that the revenue adjustment resulting from the first step increase would not be reflected in customer charges, but in increased usage charges, instead. Northern Utilities, Inc. is a wholly-owned subsidiary of Unitil Corporation (Unitil), a public utility holding company.  Northern’s New Hampshire Division distributes natural gas to approximately 32,000 customers in the seacoast region. Re Northern Utilities, Inc., DG 17-070, Order No. 26,129, May 2, 2018 (N.H.P.U.C.).

The Kentucky Public Service Commission has directed Atmos Energy Corporation, a natural gas distribution company, to lower rates by $1,890,792.  In setting rate of return on common equity (ROE) at 9.7 percent, the commission said that economic data indicates a healthy outlook for steady growth, low unemployment, and inflation. Specifically, it pointed to an increase of the Federal Funds’ interest rate to 1.75% this past March, the highest level in a decade, and that while bumping up the rate, the Federal Reserve had also signaled that two to three more rate hikes are possible in 2018.  In addition to an upward movement in interest rates, the commission pointed to increased government spending, the possible impact of the current tariff policy on net imports, and the Tax Cut and Jobs Act of 2017 as macroeconomic inputs that point to a robust economic outlook.

At the same time, the commission also said that notwithstanding these improvements, interest rates are still historically low, the impact of interest rate changes is unpredictable, and increases in the Federal Funds’ rate are not guaranteed awards. Balancing the effect of capital markets, the economy in general, and expected returns from similar utilities, the commission concluded that the 9.7 percent ROE will best allow the utility to attract capital at a reasonable cost while keeping rates reasonable for consumers. The company operates in eight states and serves roughly 3 million customers. In Kentucky, Atmos serves approximately 176,000 customers in 38 central and western counties.  Re Atmos Energy Corp., Case No. 2017-00349, May 3, 2018 (Ky.P.S.C.)

 


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