OCA Urges $4 Million Rate Case "Haircut" for Liberty

The Office of the Consumer Advocate (OCA) has asked the Public Utilities Commission to lop four million dollars off the requested distribution service rate increase for Liberty’s electric customers in New Hampshire.  At the same time, the OCA urged the PUC to reject the utility’s request for three additional years of automatic rate increases – and to replace Liberty’s proposed performance incentive mechanisms with ones that will truly benefit customers.

“The massive increase in its electric distribution service rates that Liberty filed for in May is vastly in excess of what is just and reasonable,” said Consumer Advocate Donald Kreis.  “Our written testimony of December 13, from five different expert witnesses, demonstrates that the PUC must reject the utility’s proposal.”

“A key driver in any utility rate case is the return on equity – basically, profit for shareholders – that is embedded in rates,” said Kreis.  “Liberty is demanding a whopping big 10.35 percent return on shareholder investment in distribution facilities.  We think the right answer is 8.45 percent – a return that is still a generous payment to shareholders from captive customers.

“We should not be setting rates of return for this or any other monopoly utility as if it were a high-flying, high-risk venture capital developer of artificial intelligence or medical breakthroughs,” added Kreis.  To develop its proposed return on equity for Liberty, the OCA relied on financial expert Aaron Rothschild, who has testified about utility return on equity in more than 75 such proceedings in 13 separate jurisdictions.

OCA witness Courtney Lane of Synapse Energy Economics was sharply critical of Liberty’s so-called “multi-year rate plan,” which basically amounts to three subsequent years of automatic increases to distribution rates.  “This design significantly reduces the Company’s incentive to reduce costs and unduly shifts risks associated with future costs onto customers,” said Lane in her written testimony.

Noting that Liberty filed a proposed set of performance incentives, which reward shareholders for achieving goals that benefit customers, because the utility had agreed with the OCA to do so, Lane nevertheless expressed disappointment with the incentives Liberty actually proposed.

“The Company should not receive a financial incentive for actions associated with its core public service obligations,” Lane testified.

Liberty proposed that it be awarded bonus return on equity for achieving benchmarks related to reliability, customer adoption of time-of-use rates, and the rate at which it handles requests to interconnect with customer-sited generation (i.e., net metering systems).  Lane asked the PUC to create a “penalty-only” mechanism related to reliability, she criticized the proposed time-of-use adoption incentive as setting too low a bar, and she noted that Liberty is already achieving the interconnection target it for which it is now seeking a reward.

For its assessment of Liberty’s overall revenue requirement – the heart of any rate case – the OCA relies on the financial analysis of John Defever, CPA of the consulting firm Larkin & Associates.  In proposing a ‘haircut’ of $4,005,060 to Liberty’s request to increase distribution rates by $15,487,002, Defever urged the PUC to reign in the amounts in rates covering new investments, vacant employee positions, incentive compensation for employees, special retirement benefits for executives of Liberty’s parent company in Canada, vegetation management, and depreciation (as calculated by the OCA’s staff economist, Director of Economics and Finance Marc Vatter), among other things.

Distribution service charges pay for the poles, wires, transformers, and meters that Liberty (and other electric utilities) use to bring electricity from utility substations to the actual premises of their customers.  Such charges form only part of every customer’s monthly bill, the other charges comprising those for the federally regulated high voltage transmission system, system benefits, and the actual electricity itself.

On the date that testimony was due from the OCA and other parties, including the New Hampshire Department of Energy, the Department filed not just its own testimony but a motion to dismiss the rate case altogether.  The Department noted that it conducted an audit of Liberty’s books and records, which “do not form a reliable basis for setting rates in this case.”  The Department also referred to “numerous and significant discrepancies” between the books and records of the utility and its annual required “Form 1” filing with the Federal Energy Regulatory Commission.  The Department’s dismissal motion also referenced significant “errors and omissions” related to Liberty’s implementation of new billing software last year – a transition that caused widespread problems with customer bills.

“To the best of my knowledge, a dismissal motion is an unprecedented step in a rate case before the New Hampshire PUC,” said Kreis.  “The Department of Energy is responsible for auditing and monitoring the books and records of New Hampshire utilities, so its concerns deserve to be taken very seriously by the PUC and by our office as well.  We will respond to the Department’s motion in due course.”

Liberty’s electric affiliate in New Hampshire is officially known as Granite State Electric Company and serves approximately 46,000 customers in Acworth, Alstead, Bath, Canaan, Charlestown, Cornish, Derry, Enfield, Grafton, Hanover, Lebanon, Lyme, Marlow, Monroe, Orange, Pelham, Plainfield, parts of Salem, parts of Surry, parts of Walpole, and Windham.