Connecticut state regulators recently authorized United Illuminating (UI) to increase electric distribution rates about $45.78m – or 16.5% – over two years, less than the two-year $91m, or approximately 33.6%, revenue increase, for which the company had sought regulatory approval.
The state Public Utilities Regulatory Authority (PURA) also said on Aug. 14 that it reduced to 9.15% UI’s request for an allowed return on equity of 10.25%.
PURA said the company proposed increasing rates by $65m, or 23.8%, in “rate year 1,” or July 2013 to June 2014, and an additional $26m, or 7.7%, in “rate year 2,” or July 2014 to June 2015, above current revenues of $269.41m.
A UI spokesperson told TransmissionHub on Aug. 20 that the company is still evaluating all aspects of the decision and will make a statement on the matter in the future.
According to the company, the additional revenues were necessary to recover capital investments to replace aging infrastructure, maintain reliability, harden its delivery system and meet public service obligations. PURA added that 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 Jan. 1, 2014.
In its decision, PURA made other cuts in requested operations and maintenance expenses including 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 and stock ownership plan, PURA added.
The decision also included changes from a PURA July 30 draft decision including expanding UI’s tree trimming program over an eight-year period instead of four, PURA said.
According to the Aug. 14 decision, PURA established the definition for qualifying a major storm event for which UI may seek recovery of extraordinary expenses incurred between rate cases. The definition eliminated claimed expenses for certain storms that are excused from calculations for reliability reporting but do not rise to the level of a catastrophic storm for which special treatment is provided. Using the $5m expense threshold for Connecticut Light and Power (CL&P), UI at 20% the size of CL&P, was provided with a comparable major storm expense of $1m.
Applying this standard, $7.2m of the $53.3m claimed expenses fall outside the scope to be considered a regulatory asset. Other downward adjustments were made to account for duplication of storm charges. PURA also noted that the decision provides UI with an annual $2m for storm reserves to be used for major storm recovery costs and a mechanism for recovering approved storm regulatory asset costs through the customer’s share of the earnings sharing mechanism and competitive transition assessment overcollections.
PURA further noted in its decision that UI may increase its distribution revenues for rate year 1 by about $20m, which represents a reduction of about $45m from the proposed increase. Furthermore, the decision approves an additional increase of about $26m, which roughly maintains the reduction from that proposed by the company over two years.
“While this represents a total two-year increase in distribution rates of 16.5%, the reductions to the competitive transition assessment and down trending generation service charges more than offset the distribution increase approved” in the order, the PURA added.
At a public meeting finalizing the case, PURA Vice-Chairman John Betkoski III said the approved revenue levels will 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 said in its statement.
UIL Holdings (NYSE: UIL) is the parent company of UI. CL&P is a subsidiary of Northeast Utilities (NYSE:NU).