August 14, 2013
PURA Issues Final Decision on UI Rate Request
Decision Calls for Two-Year 16.5% Increase in Distribution Rates - Company Sought 33.6% Increase
Connecticut's Public Utilities Regulatory Authority (PURA) today issued a final ruling authorizing The United Illuminating Company (UI) to increase electric distribution rates approximately 16.5% - approximately $45.78M - over two years. UI had sought regulatory approval of a two-year $91M (approximately 33.6%) revenue increase.
UI proposed increasing rates by $65M (23.8%) in Rate Year 1 (July 2013-June 2014), and an additional $26 million (7.7%) in Rate Year 2 (July 2014-June 2015), above current revenues of $269.41M. According to UI, the additional revenues were necessary to recover capital investments to replace aging infrastructure, maintain reliability, harden its delivery system and meet public service obligations. UI proposed timing the rate changes to correspond with the expiring Competitive Transition Assessment, which was set to recover $81.5M in 2013, by not implementing the new rates until January 1, 2014.
Today's decision - which concludes six months of discovery, analysis and public hearings - notes that despite an allowed 16.5% distribution rates increase, the Competitive Transition Assessment reductions and down trending generation service charges are expected to more than offset the overall distribution increase granted for UI's approximately 325,000 customers.
The PURA also trimmed to 9.15% UI's request for an allowed return on equity of 10.25%. The decision made other cuts in requested operations and maintenance expenses such as advertising, membership dues, facilities maintenance, depreciation, travel, education and training, base payroll and overtime. Downward adjustments were also made for multiple claimed expenses including incentive compensation, stock ownership plan, medical expenses, directors’ liability insurance, board of directors expenses, fringe benefits, materials and supplies, and UIL Holdings Corporation corporate service charges. Allowable expenses for The United Illuminating Company’s lease expenses at the Orange central facility were also lowered.
The decision clarifies a prior draft ruling regarding major storm-related issues and recovery of associated costs. UI's request to recover $53.3M as a regulatory asset for extraordinary major storm expenses was cut by $7.2M. The decision set a $2M annual mark for major storm recovery costs and provided a mechanism for recovering approved storm regulatory asset costs through the customer’s share of the earnings sharing mechanism and Competitive Transition Assessment overcollections. Other key changes from the PURA's July 30th draft decision include: modifying UI's Connecticut Financial Center rent expense; changing draft findings to reflect the corporation business tax surcharge extension; changing carrying costs from debt to weighted cost of capital; expanding UI's tree trimming program over an eight-year period instead of four; and clarifying rate decoupling issues.
At a public meeting finalizing the case this morning, PURA Chairman Arthur H. House commended Vice-Chairman John W. Betkoski III's stewardship of the case, and remarked that "the outcome strikes a just balance between the interests of UI ratepayers and providing the company proper incentives and opportunities to continue to provide safe and reliable service."
Betkoski stated that the rates approved are "fair and reasonable" based on the merits of an extensive evidentiary record including fourteen days of technical hearings, two evening public comment sessions, lengthy discovery, and a transcript running more than 3,000 pages. Betkoski added that the approved revenue levels will also be sufficient for UI to undertake significant capital improvements to upgrade its distribution system, and modernize its systems, processes and workforce to provide efficient and reliable service to meet the growing demands and reliability level required by customers.
PURA Commissioner Michael A. Caron concurred that the decision capably weighed the competing needs and interests of all stakeholders. He joined his fellow commissioners in commending the participation and contribution of PURA staff, the Office of Consumer Counsel, and the Office of the Attorney General.
The decision is undergoing final technical revisions and edits, and is expected to be publically available no later than Friday August 16, 2013.