Connecticut customers could save as much as $40 million annually, if the Federal Energy Regulatory Commission agrees to lower the threshold on how much money investors are allowed to make with electric transmission companies.
New England officials are challenging federal regulations that allow transmission companies, such as Northeast Utilities and United Illuminating, to earn an 11.14 percent return on equity, while local utility companies regulated by the states like Connecticut are allowed a 9.2 percent ROE.
“For years, New England utilities have been receiving exorbitant returns from customers for transmission lines,” Connecticut Consumer Counsel Elin Swanson Katz said in a statement. “As anyone with a bank account knows, returns of over 11 percent are out of step with current financial conditions.”
Transmission lines are wires on utility poles as opposed to smaller utility-owned wires directly connecting homes. In Connecticut the two wires are usually owned by the same parent company.
Several New England officials, including the Connecticut attorney general and representatives from the Public Utilities Regulatory Authority, challenged the transmission ROE nearly two years ago to limit what they viewed as “excessive” profits.
Earlier this month, a federal administrative judge issued a preliminary decision that said a reasonable earnings rate would be 9.7 percent. However an official ruling from the Federal Energy Regulatory Commission isn”™t expected until 2014.
Connecticut has among the highest energy costs in the nation but was the only state in New England to see rates actually decrease in the first few months of 2013, according to the U.S. Energy Information Administration. The average Connecticut customer pays 15.64 cents per kilowatt hour while the national average is 9.70 cents. State officials from the Gov. Dannel P. Malloy administration have taken credit for price cuts, as the administration pushes for cheaper renewable energy development.
If the regulatory commission does not reduce the ROE for transmission companies, households could expect to see modest savings of about $12 a year, while businesses with high energy costs could expect to see much higher savings.
“We want rates to be just and reasonable,” Robert Luysterborghs, PURA principal attorney, said. “It”™s real money if you”™re a business and electricity is one of your biggest costs. They”™ll see a difference in their monthly bills.”
However Northeast Utilities officials say the company”™s profit margins are aligned with what is both appropriate and necessary to attract investors.
NU”™s transmission segment earned $76.8 million in the second quarter of 2013, representing 45 percent of the company”™s total earnings. Earnings in the segment have increased about 21 percent year-over year, primarily due to continued investments and additional earnings related to the NSTAR Electric merger.
“We continue to believe that our return on equity is reasonable and encourages investment in the region”™s transmission infrastructure,” said Frank Poirot, a NU spokesman, mentioning two projects that have saved customers more than $1 billion. “We have made significant investments in the region”™s transmission system on behalf of our customers and are proud of our record.”
Poirot said it was too speculative to comment on whether a lower ROE would mean the company would have less capital for future investments or if it would mean a rate increase.
“We have to compete for investors,” Poirot said. “We can”™t do that without a competitive rate, which we think we have now. It diminishes our market power for funds.”
Steven Cadwallader, PURA chief of utility regulation, agreed the rate was at one time appropriate for the market, but said things have changed. The rate is too high now, especially since it”™s not a risky investment in an unregulated market, Cadwallader said.
“Investors”™ requirements change overtime,” he said. “They”™ll still be able to attract investors at a lower return.”
