Settlement Slashes Niagara Mohawk’s Rate Request

In adopting a new three-year rate plan for an electric and natural gas utility, the New York Public Service Commission praised the efforts of the nearly 20 parties involved in crafting a settlement in the proceeding, which agreement produced a rate increase dramatically lower than that for which the utility had first applied. The company, Niagara Mohawk Power Corporation d/b/a National Grid, had originally asked for a total of $407 million a year in rate relief, with $326 million of that allocated to electric operations and $81 million sought for natural gas operations. Pursuant to the schedules stipulated to by the signatory parties, however, the utility's proposed rate increases were shaved by more than three-fourths. 

On the electric service side, the rate settlement provides for an increase of $43 million, or 1.7%, in Year 1 of the new plan. Rates will rise by substantially more in Years 2 and 3, at $88.64 million (3.4%) and $89.64 million (3.4%), respectively. But the commission drew attention to the fact that the total cumulative increase for the three years ($221.28 million) is still substantially lower than the three-year total increase of $978 million under the company's initial proposal. 

The pattern was much the same for Niagara Mohawk's natural gas rates, where the stipulation authorizes a rate hike of $13.2 million, or 2.4%, in Year 1, but greater increases in Years 2 and 3, at $20.74 million (3.5%) and $21.53 million (3.5%), respectively. Again, though, the commission highlighted the difference between the total cumulative increase under the new three-year plan ($55.47 million) versus that reflected in the utility's first proposal of $243 million over three years. 

In reviewing the proffered rate agreement, the commission found it to comport with New York's energy policies and directives. More specifically, the commission deemed the rate plan's terms to be consistent with those set forth in the state's Reforming the Energy Vision (REV) initiative. 

The commission explained that the REV program is aimed at encouraging greater deployment of conservation and energy-efficiency measures, as well as other "non-wires" alternatives, as a means of reducing the state's carbon footprint, improving the environment, and mitigating energy costs for all consumers. The commission added that the REV endeavor also promotes greater development of renewable sources of generation, for the same purposes. 

The commission reported that the Niagara Mohawk settlement showcases the utility's strengthened commitment to meeting the REV policy's objectives for both energy efficiency and renewables. It likewise appropriately stresses continued dedication to assuring electric grid resiliency and enhancing gas system safety, the commission said. 

Elaborating on those commitments, the commission cited provisions in the rate plan calling for massive capital investments by the utility over the next few years. For electric operations, the commission noted that the settlement requires the company to expend $613 million in fiscal year (FY) 2019, $644.56 million in FY 2020, and $674.5 million in FY 2021. The commission said that the three-year total of $1.93 billion is earmarked for projects designed to reinforce and modernize the company's transmission and distribution facilities. Some of the monies will go toward the testing and development of non-wires alternatives as well. 

For Niagara Mohawk's natural gas operations, the stipulation lists a threeyear total of $541 million in system improvements and upgrades. That sum is broken down as follows: $149.36 million in FY 2019, $186.47 million in FY 2020, and $205.17 million in FY 2021. Among other items, such funding is targeted at removal of 150 miles of the company's most leakprone pipes as well as completion of a project known as the Albany Loop. The Albany project relates to construction of a new seven-mile-long, 16-inch pipeline designed to relieve supply congestion in an area near that city that has been experiencing rapid growth. 

The new rate agreement also touched on meter-related capital improvement projects. To that end, the utility must update and refine the business plan upon which its proposed deployment of advanced metering infrastructure (AMI) had been based. The revised AMI plan is due by October 1 of this year and must incorporate a specific customer engagement strategy as well as the most recent cost/benefit data available. 

Under the settlement, Niagara Mohawk also must create a system of "deferral credits" which would relate, in part, to the retirement of pre-AMR (automated meter reading) equipment. The credits were envisioned as likewise tracking bonus depreciation taken on certain capital investments from 2013 to 2016. The credits would further cover lost and unaccounted-for gas associated with inactive customer accounts. The signatory parties arrived at a deferral credit level of $44.88 million for electric service and $28.42 million for natural gas operations. 

Unlike in many recent rate cases, Niagara Mohawk's proposal for a significant increase in its revenue requirement had not been predicated on a rise in its existing residential customer charges, for either its electric or natural gas ratepayers, and the stipulation states that both the fixed residential customer charge for electric service and the minimum service charge for residential natural gas service will remain unchanged. As per the utility's own recommendation, its fixed monthly charges will increase only for certain large-volume customer classes. 

Despite residential customer charges being maintained at their current levels and a much lower overall rate increase than requested being instituted, the settling parties included in the stipulation provisions requiring enhanced bill-paying assistance for qualifying low-income customers. The terms direct the company to assure augmented funding going forward for its low-income energy affordability program. 

On the electric side, the utility's annual budget for the plan will increase more than five times over, from $10.874 million a year to $56.594 million per year. While funding for the low-income gas plan will not see a comparable rise, it still will go up by a not insubstantial 61%, from $9.254 million to $14.905 million annually. 

The commission concurred with the settling parties that additional funding for low-income programs is vital to achievement of a policy goal that energy costs not represent more than six percent of a low-income customer's total household income. Moreover, the commission noted that the stipulation further tasks the company with developing and implementing new "moderate income" offerings targeted at energy efficiency for both electric and natural gas customers. 

Finally, with regard to the rate of return on common equity (ROE) for the utility, the rate agreement is premised on an ROE of 9.0% for all three years of the plan. The settlement also presents an earnings sharing mechanism for the company. 

Under the plan, should Niagara Mohawk attain an ROE above 9.5% but at or below 10.0%, the excess must be shared on a 50/50 basis with ratepayers. For earnings surpassing 10.0% but at or below 10.5%, customers are to get 75% of the surplus. If the utility's earnings exceed an ROE of 10.5%, ratepayers will be entitled to 90% of the excess. 

Upon reviewing the proffered stipulation, the commission concluded that the provisions therein, both individually and as a whole, were reasonable and appropriate. It again commended the parties for coming to a consensus on a new three-year plan that will simultaneously minimize cost increases while also advancing "progressive" outcomes in terms of affordability, energy efficiency, and environmental stewardship. Re Niagara Mohawk Power Corp. d/b/a National Grid, Cases 17-E-0238 et al., Mar. 15, 2018 (N.Y.P.S.C.).