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
Consider the following scenario:
A tree limb crashes through the roof of your neighbor’s home, causing $500,000 in damage, and he files a lawsuit falsely claiming that you are somehow responsible for the destruction.
The rules of the court provide you with opportunities to gather information about your opponent’s case. In due course, under the rules, there will be a trial, at which each side’s witnesses must testify under oath and submit to cross-examination from the other side.
But: The judge assigned to the case decides to cut through all of that and convene a “pre-trial conference.” At the conference, the judge invites your neighbor to tell his story, and describe his claims in detail – and he does so in an entirely self-serving manner. All of this happens before you have had the opportunity to gather information about why the neighbor thinks you are responsible.
None of what your neighbor tells the judge is stated under oath. You had no agenda to tell you what the judge might ask your neighbor about at this conference.
If a New Hampshire judge were to handle a civil lawsuit in such an outrageous manner, due process and fundamental fairness be damned, there would be howls of protest. But when the state’s Public Utilities Commission (PUC) uses this approach to a rate case – in which the state’s biggest utility, Eversource, is trying to raise its distribution rates for residential customers by almost 48 percent – everyone just shrugs.
On October 2, the PUC convened the first of eight “prehearing technical conferences” scattered across the calendar between now and January. The first four of these events focuses on Eversource’s plan for “performance-based regulation,” often referred to as “PBR” (and not to be confused with Pabst Blue Ribbon).
PBR, if done wrong, is basically an excuse to shovel free money to a utility without the oversight provided by rate cases. In other words, once it gets that 48 percent rate increase, Eversource wants four years of automatic rate adjustments (or maybe more if Eversource decides the PBR is working as the company intends).
How important is this to Eversource? Well, I counted no fewer than 18 representatives of the utility in the PUC hearing room on October 1. They had lawyers, subject matter experts, at least two vice presidents, the president of Eversource’s local subsidiary (Public Service Company of New Hampshire), consultants (including the former Chair of the Alberta Utilities Commission in Canada), and in-house analysts.
A show of this sort is expensive, and ratepayers get the bill. A utility gets to recover the cost of pursuing a rate case via a special rate surcharge.
By some estimates, given all of the meters that were running on October 2, that first day of “technical conferences” alone will end up costing ratepayers something in the range of $40,000 to $50,000.
What, exactly, has the Commission been hearing at these one-sided pseudo-hearings in the Eversource rate case? Lots of self-serving propaganda about how virtuous Eversource is.
There was a long disquisition about how the company is far too public-spirited even to think about “gold plating” its system, and an unsubstantiated soliloquy about how much regulators in Massachusetts love Eversource’s approved PBR plan there.
How does a utility persuade its regulator to give the company free money, extracted from the wallets of the utility’s captive customers? The proposed PBR plan has several moving parts; one key element is known as a “K Bar” adjustment.
Nobody seems to know why it’s called a K-Bar. The “K,” as best I can tell, stands for “Kapital.” Ironic homage to Karl Marx?
According to the written testimony of the Company’s lead witnesses, the K-Bar is an automatic rate adjustment to provide “supplemental revenue” that is “based on actual capital expenditures without involving the administrative burden of an annual capital tracker or step adjustment process.”
Here’s what they mean by “administrative burden:” the annoyance and bother of having regulators scrutinize your capital expenditures – investments in utility infrastructure – to make sure they are prudent and useful. (Capital trackers and step adjustments are examples of rate adjustments that are subject to such scrutiny.)
No, I am not walking back the June 13 edition of column. That’s where I said that Eversource “deserves a lot of credit for making a detailed and serious proposal for performance-based ratemaking.”
In a better world, the PUC would summarily ditch the K-Bar and focus on other, more worthy elements of the Eversource PBR proposal. Specifically, the proposed service quality metrics.
From a ratepayer perspective there’s something attractive about rewarding a utility, financially, for hitting certain benchmarks. Rather than reward a company based on how many new-fangled utility toys it can purchase – basically, what we do now – why not tie profits to how successful the utility is in giving customers what they truly want and need?
Well, for one thing, it’s ridiculous to reward a utility’s shareholders with extra cash for doing stuff they should already be doing. When a utility delivers quality service to its customers that is above and beyond the call of duty – then, perhaps, it’s time for a reward . . . but only if there is a countervailing penalty for falling short.
Here’s an example of a performance metric I could get behind: the achievement, in the homes and businesses, of all cost-effective energy efficiency. Unfortunately, that one isn’t on Eversource’s list (and, indeed, the PUC officially ditched the “all cost-effective energy efficiency” goal in 2021).
Ultimately, a key battle in every utility rate proceeding is how much “return on equity” to build into the company’s prices. The question, basically, is how much – in percentage terms – should shareholders earn on their investment in exchange for devoting their capital to the work of the utility as opposed to something else.
Whether good or bad for ratepayers, PBR plans make utilities look less risky from a shareholder perspective. So, the allowed return on equity should be reduced accordingly.
In fact, I would go a step further and follow the advice of the Regulatory Assistance Project, a respected nonprofit advisor to utility commissions. Rather than give utility shareholders a bonus, I would tie the receipt of their allowed return on equity to the achievement of performance metrics.
There’s nothing like that in the PBR proposal from Eversource. They just want free money.
Meanwhile, as I write, the PUC has completed two of the eight days it has scheduled for allowing Eversource to make entirely one-sided presentations, via “commissioner-attended technical conferences.” I figure that by the end of those eight days, the commissioners’ objectivity and neutrality will have been so fatally compromised that a motion to disqualify them will be in order.
Then, perhaps, we’ll all get a lesson in due process and administrative adjudication in the context of utility regulation from the New Hampshire Supreme Court. The justices, I think, will appreciate the PUC Chairman’s Freudian slips; he kept referring to the conferences as “hearings,” the unsworn statements by Eversource’s team as “testimony,” and the representatives as “witnesses.”
Quasi-judicial, executive branch decision-making bodies like PUCs are supposed to act like courts. Here’s hoping we find a way back to that.
