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Rate Case Roundup

ILLINOIS


While granting Utility Services of Illinois, Inc. $1.86 million in additional revenue for the delivery of water service and approximately $535,236 in additional revenue for sewer service, the Illinois Commerce Commission has adjusted downward by eight basis points its figure for rate of return on equity (ROE) to account for the risk-lowering effects of the company’s decoupling rider. It concluded that the company should be authorized to earn an overall rate of return of 7.57% for water and 7.61% for sewer. The rate of return incorporates an ROE of 9.23% for water and 9.31% for sewer. The commission noted that a similar adjustment had been applied in a recent rate ruling for another water utility based on a finding that the operation of a decoupling rider reduced risk to investors by allowing adjustments in rates to account for drops in revenues. The commission found that the company had not provided sufficient reason for change in current regulatory practice. It rejected claims by the company that recently- conducted studies and a statement by Moody’s Investors Service supported elimination of such adjustments. The commission found that the studies specifically conclude that revenue decoupling reduces the investment risk of public utility stocks and merely state that the impact cannot be isolated or measured as of yet due to the myriad of factors that affect investors’ perception of risk. In fact, finding no significant impact of revenue decoupling on required rates of return is not unexpected, as the entire point of such adjustments is to offset the windfall effects on ROE of decoupling, the commission said. Re Utility Services of Illinois, Inc., 17-1106, Sept. 24, 2018 (Ill.C.C.).

MASSACHUSETTS

The Massachusetts Department of Public Utilities has authorized Boston Gas Company to increase annual gas revenues by $100.826 million and Colonial Gas Company to increase annual gas revenues by $17.836 million. Boston Gas Company and Colonial Gas Company, each doing business as National Grid, had filed for a general increase in base distribution rates of $178. 905 million for Boston Gas and a general increase in base distribution rates of $32.113 million for Colonial Gas. National Grid had also proposed to implement a new Gas Safety and Reliability (GSR) Program for targeted capital investments and operation and maintenance processes that the companies expect will enhance the safety and reliability of their gas distribution system.

Citing a persistent pattern of poor management and numerous federal and state pipeline safety violations by the utilities, the department set the Companies’ ROE at 9.5%—a figure within the low end of the range of reasonableness indicated by financial models presented in the proceeding. The department also rejected the proposal to initiate a new rate recovery mechanism to account for system improvement costs on a contemporary basis. According to the department, it had recently allowed Boston Gas & Colonial Gas to issue long-term debt securities in an aggregate principal amount up to $1.25 billion and $200 million, respectively, for the purpose of, among other things, financing capital expenditures.

It found that given National Grid’s demonstrated ability to access the capital markets to finance the planned GSR projects, the companies had failed to show a need for the proposed rate recovery mechanism. The Department said that generally speaking, the filing of base distribution rate cases is preferable to the implementation of the special recovery mechanisms for capital improvements. It explained that traditional ratemaking incentivizes cost containment through the use of regulatory lag and reduces the occurrence of reconciling mechanisms, which typically increase rates for ratepayers on an annual basis. Re Boston Gas Co. and Colonial Gas Co., each dba National Grid, D.P.U. 17-170, Sept. 28, 2018 (Mass.D.P.U.).

OHIO


The Ohio Public Utilities Commission has approved a settlement agreement allowing Dayton Power & Light Company (DP&L) to increase its electric power distribution rates by $29.78 million annually. The agreement states a stipulated overall rate of return of 7.27%, which incorporates a return on equity of 9.999%. The company will also implement a revenue decoupling rate structure that is aimed at reducing its incentive to sell increasing amounts of energy. DP&L had originally requested an increase in its revenues for electric distribution service by $65.7 million annually and entered a proposal to increase the fixed residential customer charge from $4.25 to $13.76 per month, along with a corresponding reduction in usage-based charges. Under the approved agreement, the residential fixed customer charge would increase to $7 a month. The commission rejected a claim that the agreed-upon customer charge would discourage customers from investing in distributed generation and pointed out that DP&L had also agreed to explore, with Commission oversight, opportunities in grid modernization areas such as non-wires alternatives, battery storage, and electric vehicle charging infrastructure. Re The Dayton Power & Light Co., Case Nos. 15-1830-EL-AIR et al., Sept. 26, 2018 (Ohio P.U.C.).

KANSAS

The Kansas Corporation Commission has approved a settlement agreement that will cut electric rates for Westar customers by $66 million dollars annually. The agreement also includes a Tax Cuts and Jobs Act (TCJA) bill credit to Westar customers of approximately $50 million and a separate up-front bill credit of approximately $23 million based on the Commission-approved merger of Westar and Kansas City Power & Light earlier this year. The commission also approved the implementation of a three-part rate structure for distributed generation (DG) customers who installed their own source of electric power generation after October 28, 2015. The Commission found that under the two-part rate design for DG customers currently in place, DG customers are receiving an unduly preferential rate and are being subsidized by other residential customers because they are not paying the same proportion of fixed costs. Under the terms of the settlement agreement, a demand charge of $3 in the winter and $9 in the summer are added to DG residential rates. The service charge remains the same, while the energy charge is reduced by 40%. The commission noted that the new rates do not end the subsidy of DG customers but are a compromise that avoids rate shock for DG customers. Re Westar Energy, Inc., Docket No. 18-WSEE-328-RTS, Sept. 27, 2018 (Kan.C.C.).


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