Electric customers in Massachusetts may see lower rates in the future.
A ruling by Administrative Law Judge Michael Cianci would reduce the allowed profit on New England transmission projects from more than 11 percent to 9.7 percent. The ruling is a result of a 2011 complaint from the Massachusetts Attorney General’s Office to the Federal Energy Regulatory Commission. Attorney General Martha Coakley says the ruling could save Massachusetts customers $50 million.
“In this economy and given what we’ve seen with some of the performance that for the rate payer to have that kind of guaranteed rate of return on investment was not appropriate," said Coakley.
Dave Tuohey is the director of communications for Massachusetts Municipal Wholesale Electric Company, an organization that supported the Attorney General’s push for lower transmission profit rates. He says the formula used by federal regulators to set the rate is linked to outdated interest rates from 2006.
“There was a misalignment between the rate of return that transmission owners are earning on their investments and the formula that is used to determine what the rate should be," said Tuohey.
Northeast Utilities owns several thousand miles of transmission systems in Western Massachusetts and services many electric providers including Western Massachusetts Electric Company. Spokesman Frank Poirot says a lower profit rate could discourage investors.
"We think it keeps our investments competitive and appealing to financial community and we continue to think that rate is reasonable and encourages investment in the regions infrastructure," Poirot said.
Tuohey says any decrease in investor funding is supplemented by federal incentives for investing in transmission projects.
“When you tack on the incentives some of these transmission owners are earning 13 percent on their investments in transmission facilities," said Tuohey.
Poirot says many of the projects Northeast Utilities seeks investments for actually save customers money by giving them the option to get energy from outside their region—like the Blackstone Valley of eastern Massachusetts and the Connecticut coastline.
“Think about the transmission system as a highway system and with these super highways and off ramps along the way, our customers can shop for power that’s way outside of their region," said Poirot.
Fred Kuebler is the Director of U.S. Media Relations for National Grid and he says on average transmission costs only account for 11 percent of a customer’s bill, but emphasizes the proposed decrease in profit will hurt transmission companies.
“Small number spread over a broad customer base can add up to a significant impact on what we could then turn around and invest back into the transmission infrastructure," said Kuebler.
Robert Rio of the Associated Industries of Massachusetts says the regions consumers are currently paying some of the highest electricity rates in the nation.
“We don’t have any fuels, we have a very old infrastructure that needs updating, we have generally high costs, and we have very, very strict environmental standards," said Rio.
Democratic State Senator from Pittsfield and Chair of the Joint Committee on Telecommunications, Utilities, and Energy, Benjamin Downing, says the business model is out of whack for consumers.
“What frustrates people sometimes is when they see that business model working fine for the executive offices there, and not working as well in their communities whether that’s mills closing because rates are too high, whether that’s extended outages," said Downing.
Kuebler says the current rate is just, reasonable, and where it should be.
“National Grid along with the other New England transmission owners intend to prepare filings to the FERC explaining why the commission should insure appropriate returns to continue to promote a robust electric grid throughout New England," said Kuebler.
Craig Cano, a member of the media relations team for FERC, says there will be a refund period that sets the return on equity rate at 10.6 percent for costs between October 2011 and December 2012. FERC still needs to approve the judge’s ruling.