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Mass. attorney general seeks inquiry into rate-setting process

Massachusetts' Attorney General wants regulators to investigate and explain why ratepayers in the state are paying more for energy than the rest of New England even as utility companies' allowed profits continue to rise.

State Attorney General Maura Healey in a Dec. 19 letter called on the Department of Public Utilities, or DPU, to launch a "comprehensive and public review of utilities' allowed profits and to bring more clarity and openness to the rate-setting process." Healey said regulators have failed to provide a transparent understanding of how it determines the allowed rate of return on common equity, or ROE, for regulated utilities and final rate rulings appear inconsistent.

"Massachusetts customers should not be paying millions more towards utility profits than customers in neighboring states," Healey said in a news release. "As the ratepayer advocate for the state, we must ensure best practices and a transparent process that is understandable to the public."

Healey said in her letter that "small changes" in the allowed ROE for base distribution rate cases for electric and gas companies "can be worth millions of dollars." She contrasted the Dec. 14 decision by Connecticut regulators to limit the allowed ROE from a requested 9.92% to 9.1% for Avangrid Inc. subsidiary United Illuminating Co. with the Massachusetts DPU's October ruling that allowed a 9.9% ROE for National Grid USA as part of a $101 million rate hike. National Grid had originally requested an even higher $133.2 million increase.

According to SNL Energy data, the average allowed ROE for electric utilities in rate cases across the U.S. in 2015 was approximately 9.6%.

According to the Massachusetts Attorney General's office, ratepayers could have saved approximately $12 million a year if National Grid's ROE had been limited to 9.1%. Likewise, the DPU recently approved allowed ROEs of 9.8% for Unitil Corp. and Eversource Energy's gas distribution service. Healey's letter also comes as Eversource Energy subsidiaries NSTAR Electric Co. and Western Massachusetts Electric Co. prepare to file requests with the DPU in January 2017 to increase rates.

Michael Durand, a spokesman for Eversource, responded to Healey's call for an investigation, saying in a statement that the DPU sets an "appropriate" rate of return to ensure regulated utilities "are able to raise sufficient capital to make improvements to infrastructure and provide reliable service to customers."

Durand continued: "As the energy and utility landscape continues to change — with factors like declining load growth, emerging customer needs, new investments needed to modernize the grid, and government policies supporting private generation — an allowed ROE is crucial to ensure the smooth operation of our grid now and into the future."

Katie Gronendyke, a spokesperson with the governor's Executive Office of Energy and Environmental Affairs, which includes the DPU, said in a statement that the DPU is reviewing Healey's letter. Gronendyke also affirmed the DPU's commitment to its mission of ensuring the delivery of "the most reliable service at the lowest possible cost while protecting ratepayers' rights."

SNL Energy is an offering of S&P Global Market Intelligence.