Utilities and state regulators delay rate increases, disconnections to deal with COVID-19

Energize Weekly, May 6, 2020

In the face of the novel coronavirus pandemic, utilities and utility regulators are moving to postpone rate increases and guard against service shutdowns for customers as most states continue to impose stay-at-home orders for their residents.

The moves are also creating some financial risk and uncertainties for utilities, according to industry analysts.

Regulatory commissions in at least four states – New Hampshire, New York, Arizona, and North Carolina – have pushed back regulatory proceedings or rate increases for up to 90 days.

In Washington, the Transport and Utilities Commission approved a $28.5 million electricity rate increase and an $8 million natural gas rate increase for Avista on March 25 – but at the same time fast-tracked customer refunds.

“As a result, Avista electric customers will see no rate increase this year,” the commission said in a statement. “The average gas customer using 66 therms a month will see an increase of about $1.56 per month, less than half the amount authorized in the rate case.”

In addition to the state actions, utilities in Kentucky, North Carolina and South Carolina have voluntarily sought temporary delays in rate increases set for this spring.

“The coronavirus (COVID-19) pandemic is creating logistical and social challenges for U.S. regulated utility rate case proceedings,” Moody’s Investor Services said in a report. “Electric, gas and water utilities will likely see the schedules associated with 2020 rate case proceedings postponed or delayed.”

All fifty states have adopted some sort of program to prevent residential customers who fall behind in paying their bills from being disconnected. In 26 states it has been done by utility commission order, gubernatorial directive or legislation. The rest have voluntary programs.

The moves may offer some relief to customers as many businesses remain shut and unemployment has hit record highs, but they also present financial challenges for utilities.

“It is good that they are deferring bills now, but at some point the utilities are going to seek to collect that money,” said Cindy Schnonhaut, director of the Colorado Office of Consumer Counsel (OCC), which represents residential and small business customers.

In Colorado, five utilities are seeking approval from state regulators to track expenses related to the COVID-19 pandemic and place them in a regulatory asset accounts for recovery in rates.

With many commercial and industrial businesses closed and people house-bound, electricity demand is down to its lowest level since 2003, according to the Edison Electric Institute, the investor-owned utility trade group.

The U.S. Energy Information Administration is forecasting a 4 percent drop in commercial and industrial (C&I) demand for the year.

But the impact on utilities is going to vary depending on the customer mix, since residential use as a result of stay-at-home orders, is up.

“That relative shift between residential and C&I is dependent on the load mix from region to region,” Steve Fine, managing director of distributed grid strategy at ICF, told GTM News. “Lower sales translates into lower revenue if they don’t already have decoupling [of revenues for electricity sales] or some other mechanism in place.”

Moody’s said it considered the short-term credit risks of the delays in cases, rates and deferred expenses as “temporary and not detrimental” as long as  the backlog is quickly addressed.

“We think state legislatures and governors will look to provide regulators with additional flexibility to reduce their docket backlog,” Moody’s said.

Among the states that have delayed rate dockets or rate increases are:

New Hampshire, where a state-of-emergency issued by Gov. Chris Sununu gave the New Hampshire Public Utilities Commission the ability to suspend new rate schedules as well as block the collection of approved rate increases. The commission has the ability to take these actions for up to 18 months. Eversource Energy agreed to up to a three-month extension of a pending rate case.

New York, where the Public Service Commission issued an order delaying rate increases for New York American Water and National Grid. “We thank New York American Water and National Grid for their cooperation in helping customers who are facing the stress and hardship of COVID-19,”Commission Chair John B. Rhodes said in a statement.

North Carolina, where in response to Gov. Roy Cooper’s “stay-at-home order” the North Carolina Utilities Commission has suspended its hearings to May 8. It was the third postponement by commission business since March.

Arizona, where the Arizona Corporate Commission extended the docket on a $114.9 million rate case for Tucson Electric Power by two months.

Duke Energy’s North Carolina subsidiary in March asked the utility commissions to suspend its $467.4 million electric rate case for up to 60 days, while Duke’s Kentucky subsidiary told state regulators in March it would not implement a rate change prior to May 1 “to allow the commission more time to focus upon the immediate impacts of [the pandemic] upon all jurisdictional utilities and the customers they serve.”

In South Carolina, Dominion Energy was set to get a rate increase May 1, but asked the action be pushed back 60 days.

“Rate case delays that help stakeholders are not new for the sector,” Moody’s said. “We see these regulatory delays as a social benefit and view the actions as prudent corporate governance. Over the long-term, these actions often enhance financial strategy, risk management and customer relations.”

One utility moving ahead with a rate request is Xcel Energy’s subsidiary, Public Service Company of Colorado, which is seeking a $145 million natural gas rate increase.

In a March 18 ruling, Colorado Public Utilities Commission (PUC) Administrative Law Judge Steven Denman said he “strongly encourages” Xcel to consider a 90 to 120 day extension in the rate case because of the widespread shutdown caused by the COVID-19 virus.

Xcel, however, is holding to the statutory rate schedule which would put the rate increases – about 16 percent or $6.44 a month on the average residential bill – in place in November.

“Now that we know about COVID-19 and the response to it by government and utilities, the OCC believes that a wise and measured approach would be for Public Service to extend or delay the case” Schonhaut said.

Xcel said that “Keeping the commission process and our operations moving forward is critical as the economy recovers and people return to work. … It’s part of what we’re doing to support our customers and communities at this time.”

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