PROVIDENCE – The state Supreme Court issued its opinion on Narragansett Electric Company v. R.I. Public Utilities Commission Monday.
The matter began in 2009 when National Grid filed an application with the PUC requesting to raise electric distribution rates to collect an additional $75.3 million in revenue – an increase of 33 percent.
The commission, in an April 29, 2010, decision, reduced the increase to $15.9 million and reduced in half the company’s request to establish a variable pay scheme – through a $2.4 million increase in rates - for some of its employees.
Additionally, the company proposed modifications to its union contract labor expenses, to storm recovery expenses, to outside legal expenses, to vegetation management, and to inspection and maintenance expenses.
Also part of the case was the company’s proposal to revise its capital structure to include a common equity component of 50.05 percent. The commission set the common equity component of the company’s capital structure at 42.75 percent.
The commission used the capital structure of Narragansett’s “twice removed” parent company, National Grid, in determining the appropriate structure.
When the company filed its rate case, it was “overly reliant” on equity, with a ratio of 85.57 percent equity and 14.4 percent debt – “it is undisputed that this structure was not reasonable for ratemaking purposes,” the court’s release said.
The company planned to issue $550 million in long-term debt to improve its capital structure, reducing the common equity ratio to 50.05 percent, since it expected the debt issuance to be approved before new rates went into effect and proposed that the commission accept that capital structure as a placeholder. The commission declined the accept the proposed 50.05 percent as “sufficiently firm.”
An expert for the Division of Public Utilities and Carriers – representing the interest of the public in rate cases – objected to the placeholder as well, saying its was only a “plan or set of intentions."
He recommended that the PUC adopt a capital structure for the company based on a “ ‘proxy group’ of similarly situated utilities” of 47.5 percent equity ratio – which the PUC rejected.
In its conclusion, the Supreme Court affirmed the commission’s decision to disallow 50 percent of the incentive compensation proposed by the company.
However, the part of the order that uses the capital structure of National Gird plc to establish a capital structure for the company was vacated. The PUC was instructed to conduct hearings – within 90 days of the opinion - to determine the “appropriateness” of the company’s current capital structure. The capital structure of similarly situated utilities is appropriate for consideration at hearings, the court said.
“At this point, there should be little question that the company’s common equity component of its capital structure is known and measureable. Therefore, it should be considered by the PUC,” it said.
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