Federal judge rules that utility profits too high
A federal administrative judge has ruled that New England utilities should receive fewer guaranteed profits for building transmission lines, a decision that could save Massachusetts electric customers more than $50 million a year.
The ruling, by Administrative Law Judge Michael J. Cianci, Jr., comes nearly two years after Attorney General Martha Coakley challenged base return utilities receive on the money they spend on transmission investments, arguing that those profits were excessive given low interest rates, low costs of financing, and general economic conditions. Cianci’s ruling, which called the current return rate “unjust and unreasonable,” still must be affirmed by the Federal Energy Energy Commission, or FERC.
If approved, the base return would be cut to 9.7 percent from 11.1 percent, saving New England ratepayers an estimated $115 million a year. FERC, which regulates interstate transmission and sets the rate of return, is not expected to decide the case for at least several months.
While the savings on individual bills would be relatively small, the cost reductions would take some pressure off Massachusetts businesses, which must contend with some of the highest electricity rates in the country, said Robert Rio, senior vice president at Associated Industries of Massachusetts, the state’s largest employers’ group.
“Any time you can get a break, that’s good news,” said Rio. “These are real, quantifiable savings that will save businesses and consumers money year after year.”
Local utilities don’t agree.
Fred Kuebler, US director of media relations for National Grid, said the utility plans to file a formal response to FERC, outlining why the current rate of return “should remain at its current level.” The main argument: any decrease would hurt the utilities’ ability to make needed transmission investments.
Caroline Pretyman, a spokeswoman for Northeast Utilities, the parent company of NStar, said higher returns are critical to building transmission needed to improve access to wind and solar energy sources, which are often located in remote areas.
“We are hopeful that FERC in its final decision will consider the importance of encouraging investment in transmission infrastructure,” Pretyman said, “especially as the nation strives for more extensive use of renewable energy.”
Massachusetts customers would receive just under half the total New England savings, at least $53 million. Those savings are expected to grow in coming years as utilities increase spending on transmission, rising to about $67 million year in Massachusetts and $145 million per year across New England by 2017.
If upheld by FERC, consumers would also get a credit on their bills. The ruling retroactively cut the returns for utilities to 10.6 percent between October 2011 and the end of last year.
The Edison Electric Institute, an industry group, has argued that cutting returns could hurt utilities’ ability to make needed investments in transmission systems. In 2014 and 2015 alone, investor-owned utilities are expected to spend a total of $26.4 billion on transmission projects.
“Returns need to be predictable and sustainable over the long-term in order for a robust, modernized transmission system to produce savings and to promote many different policy benefits,” said Jim Fama, vice president of energy delivery at the institure. “Over the long term, failure to retain stable and adequate returns for transmission investment likely will prevent the industry from attracting the necessary capital required for a 21st -century transmission grid.”
FERC set the 11.1 percent rate of return in 2006. In September 2011, Coakley filed a complaint with FERC, arguing that the rate of return was no longer justifiable given the changes in the economy, including lower interest costs, that resulted from the recent recession.
Coakley was joined in the complaint by several regulatory agencies across New England.
“Our office has long argued that current electric transmission rates are excessive and place too high a burden on businesses and families.,” Coakley said in a statement. “This decision is a major victory for consumers across Massachusetts and New England.”
Michael Henry, director of the sustainable transmission project at Environment Northeast, an advocacy group that has pushed to lower the rate of return, said the administrative law judge’s ruling is a positive step that needs to be backed by FERC.
“This is definitely a good development for ratepayers in the region but it’s not the end of the story,” he said. “We’re in the early chapters here.”Erin Ailworth can be reached at email@example.com. Follow her on Twitter @ailworth.