Public Service Enterprise Group’s (NYSE:PEG) Public Service Electric and Gas (PSE&G) on Jan. 12 filed with the New Jersey Board of Public Utilities a petition seeking approval to increase rates, with the new rates to go into effect by Oct. 1.
The company said that it requests the approval of electric and gas rates based upon the test year ending June 30, 2018, as adjusted for known and measurable costs with respect to rate base, O&M expenses, revenues, and capital structure.
The company added that its petition demonstrates the need for an annual overall electric and gas revenue increase of about $95m, or about 1.2% relative to overall revenues.
PSE&G also noted that it proposes that its overall return on equity (ROE) should remain at 10.3%, reflecting current market and business conditions, the company’s operating performance, and its long-standing, investment-backed commitment to New Jersey’s environmental and energy policy goals.
In a Jan. 12 statement, PSEG said that if the petition is approved as filed, the typical combined residential electric and natural gas customer would see an approximate 1% increase or about $19.70 in their annual bill.
The company said in its filing that the proposed tariff for electric service is designed to produce about $27m in additional operating revenue on an annual basis, resulting in a total bill increase of about 0.5% for all electric distribution customers, taking into account a one-time credit for estimated excess income taxes collected Jan. 1 and the time of new rates, in light of recently enacted federal tax reform; as well as certain additional tax benefit flow back.
The company added that the proposed tariff for gas service is designed to produce about $68m in additional operating revenue on an annual basis, resulting in a total bill increase of about 3% for all gas distribution customers, taking into account the one-time credit related to federal tax reform and flow back of the additional tax benefit.
In subsequent years – after the initial rate year and cessation of the one-time credit for excess income taxes collected between Jan. 1 and the time of new rates due to federal tax reform – the company proposes to increase the amount of tax credits flowed back to customers, resulting in rate decreases over the subsequent three years, which would offset other proposed increases, such as those resulting from the company’s pending Gas System Modernization Program (GSMP) II capital investment program.
The company also noted that its filing is being made, in part, under the terms of the board-approved settlement of PSE&G’s Energy Strong proceeding, as modified by a Nov. 21, 2017, board order requiring the company to make a base rate case fling by Feb. 1. The filing seeks to finalize certain rates associated with Energy Strong electric and gas investments related to the company’s GSMP.
The company also said that it has invested a substantial amount of capital to maintain, upgrade, and harden its electric and gas distribution systems that has not been reflected in rates. The company said that at this time, its current electric and gas rates do not reflect an adequate return on invested capital dedicated to its electric and gas customers.
Gross plant approved in PSE&G’s last electric distribution base rate case has increased by about $2.5bn through June 30, 2017, with an additional $1bn of investment planned through Dec. 31, inclusive of Energy Strong and other accelerated infrastructure investments, the company said.
PSE&G’s current electric rates do not reflect an adequate return on the company’s invested capital dedicated to the service of its electric customers, the company said.
Similarly, gross plant approved in PSE&G’s last gas distribution base rate case has increased by about $2.3bn through June 30, 2017, with an additional $1.2bn of investment planned through Dec. 31, inclusive of Energy Strong, GSMP, and other accelerated infrastructure investments.
The company added that its current gas rates do not reflect an adequate return on its invested capital dedicated to the service of its gas customers.
PSE&G noted that other drivers of the proposed rate increase include the insufficiency of the company’s current depreciation rates, which is largely due to the fact that the rates are not permitting the company to recover fully its appropriate cost of removal; flat sales, as compared with sales at the time of the company’s most recent base rate case in 2009; PSE&G’s unrecovered incremental storm costs of about $240m, the majority of which has already been reviewed by the board and determined to be prudent; and PSE&G’s return to customers, prior to the beginning of the rate year (Oct. 1, 2018) of about $90m of cost of removal in excess of the amount deemed to have been over-recovered in a prior rate case.
Among other things, the company further discussed the impact of the federal tax reform, saying that it was enacted in December 2017, and has a material impact on the company’s costs and therefore customer rates. The most direct and largest impact was the reduction in the federal income tax rate for corporations from 35% to 21%, the company said.
PSE&G said that it has lowered its revenue requirements to reflect the lower federal income tax rate, resulting in an estimated reduction of about $130m, and that it has estimated the impact of the difference in the federal income taxes from Jan. 1, the effective date of the new federal tax rate, through Oct. 1, or the company’s new base rate effectiveness date.
That difference would be deferred each month from January 2018 until new rates from the proceeding are effective, as a regulatory liability, the company said, adding that it proposes to return that amount – currently estimated at about $100m – to customers during the first year after rates from the proceeding are implemented.
Of the tax benefits flow-back, PSE&G said that to mitigate the rate increase, it proposes to flow back to customers certain tax benefits related to a deduction for repair costs that are reflected in the company’s accumulated deferred income tax (ADIT) balance.
The company said that it proposes to offset recovery of storm costs of about $240m, as well as other, smaller regulatory assets, with a portion of the available, historical ADIT associated with repair deductions. To the extent that the board accepts the company’s flow-through proposal, the company said that it would not seek to recover storm costs from customers, and deferred storm costs and other regulatory assets have therefore not been included in the revenue requirement calculation in the petition.