Multiple pending water utility rate proceedings are nearing completion, as tracked by Regulatory Research Associates, a group within S&P Global Market Intelligence.
A proposed decision in California Water Service Co., or Cal Water's, general rate case is expected by July 1. A settlement was filed with the California Public Utilities Commission in October 2019. After being postponed multiple times, a ruling by the New York Public Service Commission in SUEZ Water Resources Inc.'s rate proceeding is expected in July. A joint proposal was filed in January 2020.
In addition to the cases in the following table, Essential Utilities Inc. has a small water and wastewater rate case pending in Indiana and a wastewater proceeding pending in New Jersey, which do not follow the parameters of cases followed by RRA. Notices of intent to file rate cases have been submitted in Missouri by American Water Works Co. Inc. and in Virginia by Essential Utilities.
Rate cases nearing completion
• California — A long-awaited proposed decision is expected in Cal Water's general rate case by July 1, the case's statutory deadline. A settlement between the company and the California Public Advocates Office was filed in October 2019. Disputed items that were not covered in the settlement include depreciation rates and continued use of the company's decoupling mechanism and pension and medical cost balancing accounts. Recognition of regulatory assets for these litigated matters was not recorded for the period ended March 31, 2020, which negatively impacted first-quarter earnings.
Most recently, in a May 19 ruling, the PUC partially granted an April 28 joint motion to reopen the record to address the Palos Verdes Project. The parties had requested a deferral in the rate increase associated with the project until Jan. 1, 2021. The ruling granted permission to track the rate impact of the project in the Interim Rate Memorandum Account and stated that "given the significant impact on future bills issued by Cal Water to its Palos Verdes customers, the commission itself will rule on the remaining portion of the motion in its final decision in this proceeding."
In California, general rate cases typically take between 18 and 24 months. The current proceeding was filed in July 2018, with new rates to go into effect Jan. 1, 2020. Once a final decision has been reached, the approved rate change will be retroactive to Jan 1. Cal Water is the largest subsidiary of California Water Service Group.
• New York — Consideration of the joint proposal in the rate case for SUEZ's New York subsidiaries has been pushed back multiple times due to coronavirus-related issues. On June 10, SUEZ agreed to an extension through July 31, 2020, subject to a make-whole provisions. Filed on Jan. 17, the joint proposal establishes a four-year rate plan that would increase rates by $31.5 million, or 19.89%, in the year ending Jan. 31, 2021. The 8.8% ROE agreed upon includes a stay-out premium. The joint proposal also calls for Suez Water Owego-Nichols Inc. and Suez Water Westchester into SUEZ Water New York Inc.. to be combined.
On April 8, the administrative law judges overseeing the proceeding rejected the Public Utility Law Project's motion to withdraw the current joint proposal and reopen the record so SUEZ could provide new data calculations based on the current and potential future economic impact of the COVID-19 public health emergency. The Public Utility Law Project's motion was opposed by SUEZ and PSC staff.
• Virginia — A settlement was expected to be filed on or before June 18 in a small rate proceeding for American Water Works Co. Inc., though no filing is currently publicly available. On Jan. 10, the hearing examiner recommended a $1.7 million increase in water revenues and $1.0 million decline in wastewater revenues based upon a 9.3% return on equity. Interim rates became effective May 1, 2019.
Water utility ROE trends
In a recently concluded water base rate case, the Delaware Public Service Commission authorized a 9.5% return on equity June 3 for SUEZ Water Delaware Inc. In other activity, the Pennsylvania Public Utility Commission approved a generic ROE of 9.9% for the water utilities infrastructure mechanisms; this was a 5-basis-point reduction versus the ROE established earlier this year.
In the first quarter, two water utility rate cases were completed with an average return on equity authorized of 8.48%, a considerable decline from the 9.63% average ROE in rate cases completed in 2019. The downward trend experienced in the water group mirrors the equity returns authorized for electric and gas utilities nationwide, which also edged downward in the first quarter.
Of the 13 water utility rate cases completed in 2019, traditional cost-of-capital parameters were disclosed in just six cases, as monitored by RRA. During this time period, water utility ROEs ranged from 9.2% to 9.8%. Litigated cases in Kentucky and North Carolina resulted in ROEs at the high end of the group's range, at 9.7% and 9.75%, respectively. The lowest ROE was authorized in a small Hawaii rate proceeding in a water, sewer and irrigation proceeding. For additional details on ROE trends, refer to the Feb 4 report "Water Utility Major Rate Case Decisions — January - December 2019"
RRA evaluates water utility regulation in 25 state jurisdictions and monitors rate proceedings involving rate change requests of $0.5 million or greater.
Regulatory Research Associates is a group within S&P Global Market Intelligence.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.