In the 11 vertically integrated cases, authorized returns have ranged from 9.25% to 10.02%, averaging 9.67% in the first half, with a median of 9.70%. In the nine limited-issue rate proceedings, authorized returns have ranged from 9.20% to 10.42%, averaging 9.69% in the first half, with a median of 9.42%. The generation adjustment clause for Appalachian Power has been in place since 2012 and includes a 100-basis-point ROE adder that is to apply through the first 10 years of the plant's operation. for the utility's 625-MW combined-cycle natural gas Dresden Energy Facility. The highest electric ROE approved for an electric company in a case decided in the first half was 10.42%, which was awarded in a limited-issue rider proceeding for American Electric Power Co. In the first half, 11 of the 27 cases were settled and 16 were fully litigated. Of the 27 ROE determinations in the first half, 11 were authorized in vertically integrated cases, seven were authorized in distribution-only cases and nine were authorized in limited-issue rider proceedings. Only two states awarded an ROE of 9% or below: Maine and New York. ![]() Three states awarded an ROE of 10% or above: California, Iowa and Virginia. There were 27 authorizations in the first half in 16 different state jurisdictions. Looking at recent years, the average ROE determinations for electric utilities have declined from 10.03% in 2013 to 9.55% in the first half of 2020. The ROE determinations authorized by state public utility commissions in the first half ranged from 8.25% to 10.42%, with an average of 9.55% and a median of 9.45%. For further information regarding rate-of-return trends, see RRA's latest Rate Case Decisions Quarterly Update. The difference between the ROE averages including rider cases and those excluding the rider cases is driven by ROE premiums allowed in certain states for riders that address recovery of specific generation projects. ![]() Excluding these cases, the average authorized ROE was 9.47% in electric rate cases decided in the first half, versus 9.64% observed in full year 2019. This data includes several limited-issue rider cases. Calculation of the average electric ROE without the penalty results in a 9.58% ROE for the first half. The PUC ordered that this downward ROE adjustment be lifted when the utility meets all performance benchmarks for all service quality metrics for at least 18 consecutive months beginning March 1 and formally demonstrates to the commission that the problems have been resolved. Included in those authorizations is a decision by the Maine Public Utilities Commission ordering a management inefficiency adjustment that reduced Central Maine Power Co.'s ROE by 100 basis points to 8.25% due to imprudence associated with a new billing system. In addition, the proliferation of automatic adjustment and investment recovery mechanisms that reduce the business risk of a utility have often been cited as a contributing factor by commissions in authorizing lower ROEs. The average allowed ROEs for the electric sector have been trending downward since the 1980s, consistent with the declining interest rate environment. Federal Reserve and the pandemic-induced recession, even lower authorized returns may be on the horizon. The 2020 electric average is at the lowest level ever witnessed in the industry, and with the recent rate cuts by the U.S. There were 27 electric ROE determinations in the first half, versus 47 in full year 2019. ![]() While the economic fallout of this unprecedented pandemic will likely weigh on rate case outcomes this year, rate case decisions issued through the first half have largely been devoid of COVID-19 commentary.īased on data gathered by Regulatory Research Associates, a group within S&P Global Market Intelligence, the average return on equity authorized electric utilities was 9.55% in all rate cases decided in the first half, below the 9.65% average for cases in full year 2019. These recent spikes in virus infection rates across the nation have dampened hopes of a swift economic recovery. While many states have reopened either fully or on a phased approach, several states with pandemic hot spots had to reinstate certain business restrictions. economy to a halt and resulted in record-breaking job losses. Fears of infection and mandated business shutdowns brought large swaths of the U.S. To blunt the spread of COVID-19, most of the U.S. ![]() The overall average authorized return on equity for electric utilities edged downward in the first half of 2020.Ĭommission decisions in several rate cases have been delayed until later this year due to the health and economic crisis triggered by the coronavirus outbreak.
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