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
Matt Stoller, among the nation’s most outspoken anti-monopolists, took on the electric industry recently. “Electric utilities used to be some of the most technologically innovative corporations in America, allowing light to shine at night across cities and in homes with just a switch,” Stoller wrote, in a Substack post entitled “Power Moves: How Electric Utility Monopolists Broke Their Bargain with America.”
“Today, the industry wishes to retain an image of dynamism,” Stoller continued. “But just go through a transcript of a utility investor call and you’ll find every single question from a Wall Street analyst is about whether regulators will let them charge higher prices, with nothing on innovation.”
I’ve listened to a few of those calls myself. Stoller is absolutely right.
“So what matters in such a dynamic?,” asked Stoller. “The answer is a certain kind of lobbyist . . . the kind we respect today, the economist, who can weave with numbers and models a story that regulators will buy.”
Stoller then offered an example – expert testimony from a utility rate case in Maryland – but he might just as well have been talking about the big Eversource distribution service rate case now coming to a head before the Public Utilities Commission (PUC) here in New Hampshire.
Four economists have submitted written expert testimony in that docket, in which the PUC is considering Eversource’s request to hike its distribution charges by a whopping 47 percent for residential customers. As Stoller notes, the subject such experts dissect is what return on equity to embed in the utility’s rates.
In other words, what’s a fair return on shareholder investment? “It’s not a particularly difficult economic exercise to come up with a number, but to ballpark it, it’s about what investors expect to get out of the stock market, which is about 6-7 percent a year,” Stoller observes.
“Utility capital investments are not risky, they are as close as you can get to guaranteed outside of government bonds.” But, Stoller notes, the average return on equity allowed by regulators for electric utilities in the U.S. was 9.6 percent in 2023 – the result, he argues, of “systematic over-estimation of the cost of capital for utilities.”
Keep that in mind as you consider what the expert economics are saying in the Eversource distribution service rate case. Eversource’s expert economist, Vincent Rea of Regulatory Finance Associates in North Carolina, thinks the right number is 10.3 percent – well north of the average mentioned by Stoller.
The state’s Department of Energy – the executive branch agency that participates as a party in PUC proceedings – filed testimony from J. Randall Woolridge of Pennsylvania State University recommending a return on equity of 9.5 – close to the national average.
We at the OCA – seeking the best outcomes we can on behalf of the constituency we represent, residential ratepayers – submitted separate written testimony from not one but two economists – our in-house director of economics and finance, Mark Vatter, as well as Aaron Rothschild of Rothschild Financial Consultants of Connecticut.
Our view of a fair and reasonable return on equity for Eversource? A shareholder-generous, but nevertheless reasonable, 8.1 percent.
What does any of this mean, in terms that ratepayers can actually understand? If the PUC adopts our return on equity instead of Eversource’s, it would save the company’s customers in New Hampshire more than $12 million a year.
At the risk of offering a self-serving comparison, the annual budget of the Office of the Consumer Advocate – whose job is to represent the interests of residential utility customers at the PUC and elsewhere – is about $1.1 million.
Stoller writes that he thinks most state utility commissions try “to fit their choices of how to allocate rates within a consensus, which allows for limited ability to introduce new more accurate models. No one in the public really [pays] attention, so why should the commissioners aggressively challenge their powerful local utility on an obscure technical topic?”
We’re paying attention.
“Mr. Rea’s 10.3 percent recommendation is significantly higher than the equity return expectations of major financial institutions which range between 6.0 percent and 8.5 percent for large capitalization companies (e.g., Amazon, Apple, Tesla),” said Rothschild in his written testimony. “There is no good reason for [Eversource’s return on equity] to be hundreds of basis points higher than the equity return expectations for large cap unregulated companies that operate in extremely competitive markets. If there is one, I have not seen it.”
That’s exactly the same point Stoller made in his Substack post. (A basis point is equal to 0.01 percentage points.) Yes, the numbers disgorged above can be mind-numbing, but ultimately the concept is a simple one: We have to stop allowing utilities like Eversource to extract lavish returns for its investors from their struggling, captive customers.
Happily, the Department of Energy has essentially reached the same conclusion we have. They’re gnawing at this bone from a slightly different angle.
In written testimony filed jointly by Jay Dudley, a former banker who works for the Department, along with consulting engineers Ronald Willoughby and Joseph DeVirgilio, the Department has offered a thorough and persuasive call to cut (in round numbers) the proposed rate increase in half.
Of particular note: Messrs. Dudley, Willoughby, and DeVirgilio share our concerns about the huge sum Eversource wants to dump into rates to cover storm recovery costs arising out of bad weather in the winter of 2022-2023. One storm – the one that occurred on March 13, 2023 – is responsible for $30 million in expenses that the Department witnesses want the PUC to disallow for rate recovery.
These guys are really good at picking through Eversource capital projects – basically, new toys the utility has bought that they want to charge to ratepayers – and coming up with costs that should be tossed out. In this case they are recommending $52.3 million of such disallowances.
Sometimes, the smaller ones on the list are the most emblematic. For example, the Department’s witnesses want to disallow $312,000 in capital costs associated with new EV charging stations at various Eversource facilities. They point out that these charging stations are exclusively for the benefit of Eversource’s employees and so they wonder why customers should pay for them.
Hearings in the Eversource rate case are presently scheduled to begin in late March. Will the Public Utilities Commission heed the calls, not just from the Department of Energy and the Office of the Consumer Advocate but also parties like AARP and representatives of low-income customers, to rein in Eversource rate increases that vastly exceed the rate of inflation? Stay tuned!
