The Connecticut Public Utilities Regulatory Authority (PURA), in a Feb. 19 decision, said that Eversource Energy (NYSE:ES) may file with FERC an application for recovery of merger-related costs to be included in FERC transmission rates, in relation to the company’s merger with NSTAR.
As noted on Eversource’s website, Northeast Utilities and its operating companies Connecticut Light and Power (CL&P), Public Service of New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO) and Yankee Gas in 2012 merged with NSTAR Electric & Gas.
PURA noted in its decision that a settlement agreement between Northeast Utilities, the attorney general and the Office of Consumer Counsel (OCC) requires PURA’s review and approval of the CL&P proposed recovery of any post merger-related transaction and integration costs.
CL&P’s affiliate Eversource Energy Services Company last October notified the ISO New England (ISO-NE) Power Pool participants committee and other participants in the region of its intent to file with FERC proposed amendments to existing transmission rates. That intended FERC filing, PURA added, is on an enterprise-wide basis and as such, includes not only CL&P, but also WMECO, NSTAR Electric and PSNH, collectively referred to as the four companies.
The proposed amendments seek to recover, through transmission rates, the transmission-allocated share of the costs that were incurred in order to achieve the merger savings that have already been passed through to transmission customers as a result of the merger, which was approved through the settlement agreement approved by PURA in a decision dated April 2, 2012, PURA said.
PURA said that it reopened the proceeding last December for the limited purpose of reviewing the transaction and integration costs resulting from the merger. CL&P placed its intended FERC filing on hold.
PURA said that after reviewing the transaction and integration costs involved in the Northeast Utilities and NSTAR merger, it finds that the allocation percentages to determine merger-related transmission expenses are calculated correctly.
Discussing the position of the parties, PURA said that CL&P believes the question under debate is whether the provisions of the settlement agreement establish the principle that the settling parties to that agreement mutually agreed to litigate the recovery of the portion of merger-related costs associated with the transmission function through a “pre-approval” process conducted by PURA, before submission of a request for recovery to FERC.
CL&P asserted that the stated terms of Section 5.3 of the settlement agreement do not support the conclusion that a litigation process before PURA must precede a filing to FERC. Nevertheless, PURA added, the company recognizes that the OCC, the attorney general and PURA have a valid interest in assuring that the interests of Connecticut customers are protected.
Section 5.3 notes, in part: “Any future recovery of transaction and integration costs is subject to Authority review and approval in a future rate proceeding. Parties are free to support or oppose such recovery in full or in part.”
The OCC asserted that through Section 5.3, the parties to the settlement agreement have agreed that any recovery of any transaction or integration costs would be subject to PURA review and approval. PURA also said that the OCC asserted that PURA did not previously approve merger cost recovery for the company beyond what was approved in a decision dated Dec. 17, 2014 (referred to as the 2014 rate case decision) in a docket regarding CL&P’s application to amend rate schedules (Docket No. 14-05-06). Specifically, PURA approved CL&P’s full request for about $25.2m in distribution merger-related costs, amortized at a rate of about $2.5m a year for 10 years. Moreover, PURA added, PURA did not expressly or implicitly authorize CL&P to recover any other portion of the $119.4m in enterprise-wide merger costs.
According to the attorney general, CL&P’s proposal violates the letter and spirit of the settlement agreement, which specifically prohibited CL&P’s recovery of any merger-related costs without prior PURA approval. PURA added that the attorney general asserted that CL&P appears to argue that PURA has already reviewed and approved the merger-related costs at issue and that those costs are recoverable from ratepayers without any further PURA review. The attorney general further noted that PURA did not approve recovery of transmission-related merger costs of CL&P, WMECO, PSNH and NSTAR Electric from Connecticut ratepayers.
Regarding the $119.4m of previously reviewed merger-related costs, the attorney general asserted that PURA approved a total recovery amount of $25.2m of merger-related costs, to be recovered at $2.52m per year for 10 years, and without any return in the December 2014 decision. The attorney general maintains, PURA added, that contrary to CL&P’s claims, PURA never evaluated and approved the entire $119m in merger-related costs from ratepayers, and PURA expressly cautioned the company that in the future, there should be little or no claim for merger-related initiatives or cost recovery.
CL&P: FERC filing will request recovery of 13.86% of total merger costs
PURA said that it finds that the plain meaning and intent of Section 5.3 requires CL&P to obtain PURA’s review and approval before recovering any post-merger related costs.
Noting that CL&P argues that the phrase “in a future rate proceeding” at the end of the sentence under debate cannot be disregarded, PURA said that while it agrees that a rate proceeding typically refers to a rate case, the plain language of the sentence under debate means that the company may not seek recovery of transaction and integration costs until PURA first reviews and approves those costs in a rate proceeding. Thus, it is clear that the company must first obtain PURA’s review and approval before recovering any merger-related transaction and integration costs, including its proposed transmission-related costs, PURA said.
In the 2014 rate case decision, as of Dec. 31, 2013, the total merger-related costs for all of Eversource’s affiliates combined was $113.7m, PURA said, adding that CL&P’s transmission and distribution (T&D) functions combined received a 36% allocation of the merger-related costs. In Docket No. 14-05-06, CL&P sought only PURA’s approval to recover in distribution rates the portion of the $113.7m that was allocable to its distribution function, which was 22.14% of the $113.7m, or $25.2m.
As 36% of all merger-related costs were allocated to CL&P’s Connecticut T&D functions combined and 22.14% of that amount was allocated to CL&P’s Connecticut distribution function, the difference between those two percentages of 13.86% is the percentage of the total merger costs allocable to CL&P’s Connecticut transmission function, PURA said.
CL&P said that the FERC filing will request recovery of 13.86% of the total merger costs in transmission rates attributable to the Connecticut transmission function, PURA said.
A FERC merger order gave CL&P the right, within five years of the merger, to petition FERC for approval to recover transmission-related merger costs in transmission rates, PURA said.
PURA noted that in the 2014 rate case decision, it approved the total enterprise-wide merger-related costs of $119.4m as of Dec. 31, 2013, by all of Eversource Energy’s combined affiliates.
CL&P filed an April 30, 2015, compliance filing in the merger decision listing total enterprise-wide merger costs of $130.6m through Sept. 30, 2014, an increase of $11.2m from the 2014 rate case decision, PURA said.
The $11.2m is derived from an update of the estimated 2014 merger costs of $16.8m as of the April 30, 2015, compliance filing, PURA said. In addition, CL&P provided data that the proposed FERC filing would be based on total enterprise-wide merger costs of $138.1m through Sept. 30, 2015, which is an additional $7.5m above what was identified in the April 30, 2015, compliance filing. That $7.5m increase in merger costs, PURA added, was based on an update of the 2014 estimated merger costs to actual.
From that total of $138.1m, $9.15m is the amount that the four companies will collectively seek approval from FERC to recover through transmission rates from CL&P’s customers, PURA said, adding that about $4.8m of the $9.15m is the amount that CL&P seeks to include in transmission rates for its Connecticut customers. CL&P estimated that the proposed FERC tariffs will equate to a monthly increase of 29 cents for a retail customer using 700 kWh, or annual increase of $3.48, PURA said, adding that its review of that calculation shows it to be correct.
To calculate the amount of enterprise-wide incremental merger costs that were related to each business unit, Eversource used gross plant ratios, PURA said, noting that the methodology to allocate merger costs to Eversource’s business units is based upon the percentage of each business unit’s gross plant assets as a percentage of enterprise-wide gross plant assets.
Those allocations are the same allocation methodologies that were used in the state proceedings for determining the amount of enterprise-wide merger-related costs in the 2014 rate case decision, PURA said, adding that it finds the consistent use of allocations between the state proceedings and the proposed FERC merger cost recovery filing is important and necessary to avoid any potential over- or under-recovery of merger costs.
Employing that allocation methodology, 22.14% should be allocated to distribution and 13.86% should be allocated to the transmission business segment, PURA said, adding, “The Authority approves these allocation percentages.”
PURA said that its analysis provides for a reconciliation of the merger costs as determined from expense accounts in the record. The merger costs per the 2014 rate case decision were $113.8m, while the proposed merger costs per the FERC filing are $139.7m for a difference of $25.9m. PURA added that after adjustments for excluded costs of $1.6m, adjusted incremental merger costs – post the 2014 rate case decision – are $24.3m.
Eversource’s actual 2014 and 2015 incremental merger costs are $24.7m and $1.9m, respectively. That total of $26.6m is reconciled to the total $25.9m integration cost by adjusting for non-merger costs of $0.7m in 2013, PURA added.
PURA said that its analysis shows that CL&P is not requesting any distribution-related merger costs but only transmission-related merger costs.