Power to the People is a column by Donald M. Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere.
By DONALD M. KREIS, Power to the People
In the last installment of “Power to the People,” I explained how Eversource is attempting to force its New Hampshire customers to foot the bill for a $1.6 million mistake the company made in connection with the state’s Renewable Portfolio Standard. But, in fairness to Eversource, it’s not the only public utility that is deploying such tactics.
In fact, Liberty Utilities is asking the Public Utilities Commission (PUC) to force customers to cover a $4 million error committed by its natural gas subsidiary in 2019 and 2020. And if you thought the flub committed by Eversource was a convoluted mess, wait till you get a load of this.
In late 2018, in the course of settling a natural gas rate case at the PUC, Liberty embraced a technique known as “revenue decoupling.” Who deserves the credit or blame for revenue decoupling? I do.
By that I mean: After I took office in 2016, the Office of the Consumer Advocate (OCA) began pressing all of the state’s electric and natural gas utilities to “decouple.” Revenue decoupling severs the connection between how much electricity or natural gas a utility sells and how much revenue it receives.
Why do that? Because a utility that no longer makes more money by selling more of its product has shed the so-called “throughput incentive” and can become a robust supporter of energy efficiency and other measures calculated to help us use less energy. That’s good for customers.
A utility that is subject to revenue decoupling is routinely adjusting its rates to compensate for fluctuations in sales. Was it cold last month, so natural gas customers needed lots of heat? Then there was a revenue windfall and, next month, rates go down in response.
Decoupling is a complicated mechanism, the details of which are set forth in the utility’s published tariff. What’s a tariff? Basically, all of the terms and conditions that form the PUC-approved contract between a utility and its customers.
If you look at Liberty’s natural gas tariff, you will see that its decoupling mechanism takes up more than four pages of dense, single-spaced verbiage. (Do a word search or just go to “Original Page 35.”) The resulting rate fluctuations occur via the Local Distribution Adjustment Clause (LDAC) charge on monthly bills.
Utilities are responsible for getting their tariffs right but, when it comes to decoupling, Liberty has been having trouble. In particular, it turns out that Liberty did not adequately take into account the fact that some residential customers get a discount because they qualify for low-income assistance. (A similar program is available for eligible electric customers.)
Because we like decoupling, we helped Liberty solve this problem. Two smart people from my staff, Al-Azad Iqbal and Christa Shute, spent hours upon hours on revised tariff language for inclusion in the settlement agreement we signed earlier this year to resolve Liberty’s latest natural gas rate case.
(Alas, Iqbal now works for the PUC and Christa is executive director of NEK Broadband in Vermont. I guess others noticed their capacity to work on complicated regulatory problems like decoupling.)
The new and improved tariff went into effect on August 1. So, what about the four million bucks Liberty would have collected from customers in 2019 and 2020, via the decoupling mechanism, if only the tariff had correctly taken into account the revenue effects of the low-income discount?
The answer is in the New Hampshire Constitution: too bad. It’s right there in part 1, article 32 – the clause about how “retrospective laws are highly injurious, oppressive and unjust.”
In other words, because a utility tariff has the force and effect of law, a utility cannot go back in time and collect money it could have previously collected if only they had gotten the PUC to approve the right tariff language. Imagine buying a box of breakfast cereal at your local supermarket for $4 only to get billed for another dollar a few weeks later because the grocer charged you the wrong price.
The principle that applies to the $4 box of cereal applies to the $4 million Liberty wants to collect from its natural gas customers, regardless of the fact that Liberty’s prices are approved by a regulator.
How do you know a utility is in desperation mode? One sure sign is when they stop relying just on their in-house counsel and bring in the hired guns from a law firm in Boston. That’s exactly what has occurred here.
With the help of those big-city lawyers, Liberty has applied some very clever argumentation to support its quest for that $4 million. This isn’t retroactive ratemaking, they claim, it’s a “reconciling mechanism.”
The Boston lawyers dredged up a case from Massachusetts in which that state’s utility regulator declared that a fuel adjustment mechanism (in which rates move up or down to account for fluctuations in wholesale commodity prices) “lies outside the retroactive ratemaking structure.”
What does a Massachusetts case tell us about how to interpret language from the New Hampshire Constitution? Exactly nothing.
What does a mechanism allowing rate adjustments when fuel prices change – a process spelled out in tariffs – tell us about the situation when the tariff itself is wrong? Also nothing.
One silver lining is that the controversy offers proof that creating a state Department of Energy on July 1, mostly by repurposing former PUC employees, was a great idea.
Before July 1, lawyer Mary Schwarzer worked for the PUC, she would have had to remain silent because her agency’s statutory charge is to serve as the arbiter between the interests of utility customers and the interests of utility shareholders. Now that she is with the Department, she and her colleagues are free to say, publicly, what’s right.
“[A]s a matter of black letter law, Liberty is not entitled to the ‘do-over’ it seeks,” Schwarzer wrote in a pleading recently filed with the PUC. She correctly points out that, apart from the tariff argument, there’s the small problem of the PUC having twice examined decoupling-related rate adjustments (the ones made in 2019 and 2020) and found them to have been prudent, without a peep of objection from Liberty.
We asked the PUC to dispatch the issue forthwith. The Department of Energy adopted a different strategy, suggesting the Commission take “additional time to consider the arguments” outside of a looming rate increase proceeding related to soaring wholesale natural gas costs.
Either way, Liberty screwed up and customers should not pay for the mistake. So enjoy your corn flakes; you have already paid for them.
