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COVID-19 Issues Continue To Dominate Utility Regulatory Sphere In July

COVID-19 reduces U.S. residential smart meter shipments over the short term but long term still looks positive

COVID-19 Issues Continue To Dominate Utility Regulatory Sphere In July

A modest amount of rate case activity took place in July, with a handful of initial filings and decisions occurring. State regulators and utilities continue to grapple with the short- and long-term effects of the coronavirus pandemic, with several states extending moratoriums on service disconnections while other states head in the opposite direction. A handful of merger-related developments occurred during July as well.

State-specific responses to the COVID-19 pandemic in July

With the numbers of coronavirus cases fluctuating from day to day and the ebb and flow varying widely from state to state, policymakers are grappling with decisions on when and how to return to "normal." At the same time, utilities and their regulators are scrambling to decide whether to end or extend moratoriums on service disconnections that have been in place since March and how to address recovery of the related costs.

The Florida Public Service Commission voted July 7 to allow NextEra Energy Inc. subsidiary Gulf Power Co.'s request to track and record costs associated with the COVID-19 pandemic for review for possible recovery. Gulf's actual costs incurred and potential offsets will be reviewed by the commission when the company seeks approval for cost recovery in a future proceeding.

On July 9, the Kansas Corporation Commission, or KCC, made it clear that it is cognizant of the impact that COVID-19 is having on the state's electric and natural gas utilities. In three separate orders, the commission authorized the use of a common regulatory accounting technique known as an accounting authority order to allow the utilities to begin to address certain costs and lost revenues attributable to COVID-19.

The Louisiana Public Service Commission issued an order July 1 permitting the utilities regulated by the commission to resume utility service disconnections for nonpayment effective July 16. The order also allows the utilities to resume charging late fees and requires the utilities to submit a report detailing the payment plans offered to customers.

The Maryland Public Service Commission opened a proceeding, designated Public Conference 53, on July 8 to investigate the impacts of the pandemic on the state's "gas and electric utility operations and customer experiences." In the order, the PSC said that "information related to the impacts of COVID-19, and resulting economic disruption on Maryland utilities and ratepayers is necessary in order to begin post-pandemic planning." Consequently, the PSC has directed the investor-owned electric and gas utilities to provide answers by Aug. 11 to a series of questions.

The Michigan Public Service Commission voted July 23 to reject utilities' recommendations to define, track or defer coronavirus related expenses beyond the deferral of uncollectible expenses, or bad debt, at this time. Utilities seeking to pursue recovery or accounting treatment for additional expenses must include specific information to be filed by Nov. 2 to be considered by the commission. The PSC indicated it would not consider incremental costs in isolation of potential savings by utilities through reduced labor expenses, travel, and lower fuel and operational costs.

Evergy Inc. subsidiaries Evergy Metro Inc. and Evergy Missouri West Inc. reiterated their stance that they should be allowed to defer for future recovery certain costs and "lost revenues" attributable to COVID-19. In testimony submitted July 8 in Case No. EU-2020-0350, the utilities identified specific items they believe are relevant to an accounting authority order that could be issued by the Missouri Public Service Commission.

New Hampshire Gov. Christopher Sununu terminated a March 31 order that temporarily prohibited the state's electric, gas and water utilities and competitive energy suppliers from disconnecting or discontinuing service for nonpayment for the duration of a state emergency declared due to the pandemic. The state of emergency, initiated in early March, was extended for a fifth time June 26. In terminating the order, effective July 15, the New Hampshire governor's office cited the creation of a number of programs designed to ease economic impacts stemming from the pandemic, including the expansion of unemployment benefits and relief fund programs made available to individuals, families and businesses.

The New Jersey Board of Public Utilities issued an order July 2 authorizing the state's utilities to defer "prudently incurred costs related to COVID-19" beginning March 9. The deferrals are to continue until the later of Sept. 30, 2021, or 60 days after Gov. Phil Murphy issues a declaration that the existing public health emergency is no longer in effect.

At the Pennsylvania Public Utility Commission's July 16 meeting, commissioners were evenly divided on whether to adopt a motion by Chairman Gladys Brown Dutrieuille to open a stakeholder proceeding to establish a framework for re-introducing a utility service disconnection policy. Disconnections have been suspended since March in response to the pandemic. In suggesting that the commission begin work on a process to roll back the moratorium, Dutrieuille noted that Gov. Tom Wolf has lifted his shelter-in-place directive statewide and that federal and state policymakers have put in place mechanisms to provide financial aid to individuals and small businesses impacted by the pandemic.

With continuing concerns about the coronavirus pandemic and its related economic and public safety considerations, the Rhode Island Public Utilities Commission issued an order July 15 extending the termination moratorium for National Grid USA subsidiary Narragansett Electric Co.'s low-income and residential electric and gas customers. Narragansett Electric does business as National Grid. Specifically, the PUC ruled that the shut-off moratorium for National Grid's low-income customers be extended to Nov. 1, the start of the winter moratorium. The shut-off moratorium for National Grid's other residential customers was extended through Sept. 30.

Following a decision by Texas Gov. Greg Abbott to slow the state's reopening due to rising coronavirus diagnoses and hospitalizations, the Public Utility Commission of Texas agreed to extend the state's COVID-19 Electricity Relief Program at the commission's July 2 open meeting. The program, which was implemented through a series of orders issued by the PUC on March 26, will now extend to Aug. 31.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Rate case filings

During July, nine rate proceedings, four electric and five gas, were initiated, as shown below.

The rate changes requested in these cases aggregate to a net increase of roughly $347 million. In one proceeding, which is a limited-issue case, the rate of return was not an issue as it had been determined in a prior rate proceeding. In the cases where the companies are seeking new authorized returns on equity, the utilities requested equity returns ranging from 9.2% to 10.3%.

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Resolved rate cases

There were 10 rate proceedings, five electric and five gas, resolved during the month, as shown below.

The rate changes authorized in these cases aggregate to an increase of approximately $130.3 million. In a Missouri case, the commission issued an order; however, it did not specify the approved rate change nor some of the other traditional rate case parameters. Two proceedings were resolved by a black box settlement and the equity return was not specified. In two limited-issue proceedings, the ROE was determined in a prior case. In the decisions where new ROEs were specified, the companies were authorized equity returns of 8.21% and 9.6%.

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Significant other rate case activity

The Colorado Public Utilities Commission on July 8 issued an order on reconsideration upholding in all respects the commission's May 19 final order in Black Hills Corp. subsidiary Black Hills Colorado Gas Inc.'s base rate case. In the instant decision, the commission rejected the utility's request to reconsider the commission's decision to exclude from rate base $35.3 million of capital additions and adjustments placed in service between July 1, 2018, and Dec. 31, 2018.

In a separate proceeding, the Colorado PUC on July 14 issued an order on reconsideration regarding the commission's Feb. 11 electric rate order for Xcel Energy Inc. subsidiary Public Service Co. of Colorado. The instant decision adopts in part and rejects in part various motions for reconsideration that had been filed by parties in the case in response to the PUC's final order.

In Kansas, Evergy Inc. subsidiaries Evergy Metro Inc., Evergy Kansas Central Inc. and Evergy Kansas South Inc. are looking to implement electric base rate adjustments to account for the impact of a new law that exempts electric and natural gas utilities in the state from paying Kansas state income taxes. Evergy Metro, doing business as Evergy Kansas Metro and formerly known as Kansas City Power and Light Co. prior to the 2018 merger of Great Plains Energy and Westar Energy that formed Evergy, proposes to implement an immediate $8.6 million, or 1.49%, rate reduction Jan. 1, 2021. Evergy Kansas Central, formerly known as Westar Energy Inc., and Evergy Kansas South, formerly known as Kansas Gas and Electric Co., propose to implement an aggregate three-phase $21.6 million, or 1.67%, rate decrease. A $5.4 million reduction would become effective Jan. 1, 2021; an additional $5.4 million reduction would take effect Jan. 1, 2022; and a $10.8 million reduction would occur Jan. 1, 2023.

Niagara Mohawk Power Corp., or NMP, filed July 31 with the New York Public Service Commission for $100.4 million, or 3.2%, electric and $41.8 million, or 5.2%, gas distribution base rate increases. If approved by the PSC, the rate adjustments would take effect July 1, 2021. NMP is a subsidiary of National Grid USA, which is a subsidiary of National Grid Inc. The proposed rate changes are premised on a 9.5% return on equity (48% of a hypothetical capital structure) and a 6.33% return on average electric and gas rate bases valued at $6.515 billion and $1.588 billion, respectively, for a test period ending June 30, 2022. NMP also indicated that it is willing to explore a multiyear rate settlement.

The North Carolina Utilities Commission, or NCUC, in an order issued July 28 denied certain aspects of Dominion Energy, Inc. subsidiary Virginia Electric and Power Co., or VEPCO's, request for reconsideration of a Feb. 24 rate case order, including the ratemaking treatment of coal ash disposal costs in Docket No. E-22, Sub 562. VEPCO has appealed to the North Carolina Supreme Court an NCUC rate case decision involving the rate-making treatment of coal ash disposal costs. The company filed a notice of the appeal with the commission July 29, one day after the commission denied certain aspects of the utility's request for reconsideration.

The Public Service Commission Of Wisconsin voted July 9 to open an investigation into MGE Energy Inc. subsidiary Madison Gas and Electric Co.'s request to approve a settlement that would resolve its rate case filing. Madison Gas and Electric on June 8 notified the commission of its intent to negotiate and enter into a settlement agreement with parties to its application for authority to change electric and natural gas rates. The PSC intends to review the settlement agreement and supporting documentation and may hold a hearing as it relates to the settlement request. A hearing on the utility's fuel cost plan will be scheduled at a later date.

Significant non-rate case activity

There was a fairly modest amount of other non-rate case activity during the month.

Ohio's electric industry restructuring saga took its latest turn July 21 when the U.S. Attorney's Office for the Southern District of Ohio and the Federal Bureau of Investigation announced charges associated with more than $60 million in bribes allegedly paid to former Ohio House of Representatives Speaker Larry Householder and his associates to garner support for House Bill 6, a power plant subsidization bill, during the 2019 legislative session. Democrats in the Ohio House of Representatives quickly announced plans to introduce legislation to repeal House Bill 6.

Merger-related activity

Evergy Inc. — In a procedural order issued July 30, the KCC granted Evergy additional time to file a report that addresses the results of the company's strategic review process. As originally contemplated, the report could have been due in late August, which would have preceded by several weeks the company's formal presentation of its plans to the investment community. Also, recognizing that the premature release of sensitive company details could have competitive implications for Evergy, the commission clarified the process that the commission's staff is to adhere to in reviewing sensitive Evergy materials.

Eversource Energy — A much-anticipated settlement was reached by key stakeholders in the transaction involving Eversource Energy's proposed purchase of NiSource Inc.'s Massachusetts gas utility, Bay State Gas Co. The settlement calls for the approval of the asset purchase agreement of Bay State Gas and adoption of an associated multiyear rate plan, with a rate case stayout ending Oct. 31, 2028, for Eversource Energy's newly formed, wholly owned subsidiary, Eversource Gas of Massachusetts, or EGMA. Following approval and consummation of the deal, Eversource Energy would own the assets of Bay State Gas. The parties to the July 2 settlement, which include Eversource, EGMA, NiSource, Bay State Gas, the Massachusetts attorney general, the Massachusetts Department of Energy Resources and the Low-Income Weatherization and Fuel Assistance Program Network, contend that the asset purchase is consistent with the public interest and will result in just and reasonable rates.

Wind Energy Transmission Texas LLC — The Public Utility Commission of Texas on July 24 conditionally approved a purchase agreement under which Axium Infrastructure US Inc. and Teachers Insurance and Annuity Association of America are to acquire transmission-only utility Wind Energy Transmission Texas LLC. The conditions were outlined in a unanimous settlement filed June 22 by the parties to the commission's review of transaction.

Commission composition-related developments

On July 27, the White House announced that President Donald Trump intends to nominate Republican Mark Christie and Democrat Allison Clements to seats on the Federal Energy Regulatory Commission. If their nominations are approved by the U.S. Senate Committee on Energy and Natural Resources and confirmed by the full U.S. Senate, Christie and Clements would restore a full complement of five commissioners at FERC and result in a 3-2 Republican majority on the commission.

Kent Chandler was appointed to the Kentucky Public Service Commission on July 6 by Gov. Andy Beshear. Chandler replaces Robert Cicero, a Republican, whose term had expired. Chandler will serve a term that extends to June 30, 2024.

Regulatory Research Associates is a group within S&P Global Market Intelligence.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.

For a full listing of past and pending rate cases, rate case statistics and upcoming events, visit the S&P Global Market Intelligence Energy Research Home Page.

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