September 15, 2019
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Regulatory staff proposes cutting CMP profits for poor performance

Lori Valigra | BDN
Lori Valigra | BDN
The Maine Public Utilities Commission

Maine Public Utilities Commission staff have proposed that Central Maine Power Co.’s allowable profit be cut because the utility’s service has lagged in recent years.

The proposal, made in a Feb. 22 PUC filing called a bench analysis, is part of the regulatory body’s investigation into the rates and revenue requirements of CMP.

The PUC determines how much money a regulated utility can bring in to provide adequate service to customers and adequate returns to shareholders.

CMP has been under heavy scrutiny for its poor response to the October 2017 wind storm, which knocked out electricity to nearly half a million Mainers, some for up to a week.

At the same time, it was switching to a new billing system, after which customers complained of high bills, double or more than for same months in previous years.

An independent auditor found some anomalies in the billing system, but blamed the storm rather than CMP’s system for the high bills. However, the auditor also blamed CMP management for failing to respond adequately to customer complaints.

In reviewing the rate and revenue requirements, PUC hearing examiners agreed with the poor customer service and proposed that CMP’s profit level be decreased with a “management efficiency adjustment” for poor service that started in 2016 and continues through today.

“CMP’s performance has significantly and consistently fallen below standards reasonably expected of a utility to provide adequate service, and substantially departs from the regular and accepted practice of both the company itself as well as other utilities in general,” the filing said.

“Based on these substantial shortcomings, the staff is proposing that a management efficiency adjustment be made as part of the rate setting process in this proceeding,” they wrote.

PUC hearing examiners Charles Cohen, Katie Gray and Brian George signed the filing on behalf of advisory staff Faith Huntington, Derek Davidson and Christine Cook.

PUC spokesperson Harry Lanphear said this is not the first time the commission has considered imposing a management efficiency adjustment. The regulator imposed a penalty most recently in 2016 on Emera Maine to reduce its return on equity to reflect management inefficiencies.

The proposed management efficiency decrease for CMP’s return on equity is $4.8 million to $6.5 million.

Depending on which number is used, the regulatory commission’s staff figured CMP’s total revenue requirement is between $262.6 million and $264.3 million. Those figures represent a revenue decrease of between $1.98 million, or minus 0.74 percent, and $3.6 million, or minus 1.35 percent.

“It is premature to say how rates might be impacted when the [CMP] case is fully adjudicated,” Lanphear said.

CMP has received the bench analysis and intervenor testimony in the rate case, said spokesperson Catharine Hartnett.

“The company will fully cooperate with the commission’s process and procedural schedule and will file its written response in April 2019,” she said.

“CMP wishes to take the opportunity to emphasize again that we regret that some customers experienced challenges with the roll out of the new [smart meters],” she said.

Hartnett said the company has made progress in addressing the backlog of customer bills that were held for manual accuracy review.

“We expect this queue to be eliminated by March,” she said.

It also hired more than 20 new employees in the customer service organization and improved call responsiveness, she said. The utility hired experienced call center managers to provide additional expertise, conducted more extensive training on the SmartCare information system and recorded improved performance in monthly customer service satisfaction surveys.

The utilities commission will hold a technical conference on the bench report and the independent auditor’s report March 21-22. The staff’s final recommendations to the commission on revenue requirement issues will be contained in an examiners’ report scheduled to be issued Sept. 12, 2019.

The investigation into rates and revenue requirements for CMP was approved by the PUC in July 2018 after commissioners said the utility’s returns on investment exceed its allowable amount.

The July ruling came in response to a complaint filed May 29, 2018, against CMP by former legislator Herbert C. Adams of Portland and 16 other individuals holding a total of 10 separate accounts. It asked the commission to investigate whether CMP and its parent companies were capitalizing on excessive returns on investment.

Other parts of the complaint asked the PUC to investigate whether CMP benefited from the inordinate costs associated with the October 2017 wind storm. CMP said in January 2018 that the storm cost the company about $69 million to restore power after the wind storm, while Emera Maine put its total cost at $8.6 million.

CMP responded in a June 8, 2018, filing that, among other things, asked for the requests by Adams and the other individuals to be dismissed.

In their ruling, PUC Chairman Mark Vannoy and commissioners R. Bruce Williamson and Randall Davis agreed to deny two of the three requests. They said they already ruled on the October windstorm damages. They also ruled that CMP’s parent, Avangrid, does not fall under the state regulatory commission’s auspices as a public utility.

However, they did grant the request for a general rate investigation.

The commission directed CMP to make a Chapter 120 filing by Oct. 15, 2018, to explain the utility’s rates, terms and conditions.

A CMP spokeswoman at the time said the utility’s last regulatory rate review was filed in 2013 with new distribution base prices set in September 2014.

One issue that emerged in the rate case is the difference in the way CMP and the PUC calculate return on equity. CMP used a ratio that is higher than the 50 percent rate used by the PUC, according to Vannoy.

That resulted in CMP saying its average return on equity was 9.43 percent over the four years from 2014 to 2018. The PUC, however, calculated the return on equity at 10.53 percent over those years, which Vannoy said is too high.

In the Feb. 22, 2019, filing, the PUC said that CMP’s Oct. 15, 2018, filing claimed the company was underearning rather than getting too much money back.

While the PUC staff is considering those figures, it decided to launch another investigation: the independent audit of high electricity bills and customer complaints that coincided with and followed the October 2017 wind storm.

While the audit by Liberty Consulting Group of Pennsylvania did not blame CMP’s new billing system, but rather the weather, for unusually high bills for thousands of CMP customers, it did find CMP management at fault for substandard customer service.

And because high bill complaints continued, Maine’s Office of the Public Advocate in early January asked the PUC to continue investigating the high rates.

Separately, the PUC in early February threatened sanctions against CMP, including a $500,000 fine and the profit reductions because of the utility’s billing and other problems.



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