Don’t call me Ishmael. Rather, in the spirit of my favorite book, Herman Melville’s “Moby-Dick,” and its famous opening line, call me Captain Ahab.
Just as Captain Ahab sacrificed his life and that of his whaling crew to his obsessive quest to slay the 1851 novel’s eponymous white whale, I sail the Earth in pursuit of bloated utility return on equity — or, in regulatory parlance, ROE.
As Consumer Advocate, tasked with pursuing the interests of our state’s residential utility customers, I can’t help but aim my harpoon at ROE, as embedded in utility rates, since this reflects the shareholder profit that regulators decide is just and reasonable for ratepayers to fork over. And it is always too huge. Regulators everywhere succumb to pressure from utilities to award free money to the owners of these companies.
When Ishmael and his sidekick Queequeg signed onto the Pequod and embarked from Nantucket, they expected to be gone for three years. That’s a long time at sea, until you consider how long it took to get the Federal Energy Regulatory Commission (FERC) to issue its ruling on ROE applicable to the whole region’s high-voltage transmission system.
Way back in September of 2011 — two consumer advocates ago, and before NStar in Boston and Northeast Utilities in Connecticut (parent company of Public Service Company of New Hampshire) merged and became Eversource — our office joined with our state’s Public Utilities Commission and others throughout New England to challenge what was then an approved ROE of 11.14%.
That 11.14% was even worse than it sounds. This was the “base” number, to which the regulators added what has come to be known as “FERC candy” — various boosts to the allowed ROE to reward the transmission owners for doing nice things — that brought the ROE in some instances as high as 13.5%.
A mere four years after receiving the original challenge, FERC agreed with the complaining parties and ruled that the base ROE should have been 10.57%. That’s still a whale of a number, yielding a blubbery mass of free money to Eversource, National Grid and the other transmission-owning utilities in the six states. Both sides appealed to the U.S. Court of Appeals for the District of Columbia Circuit.
Meanwhile, the plot thickened. Three more complaints to FERC ensued, covering subsequent time periods. And in 2017 — a mere three years after the appeal — the Court of Appeals declared that FERC’s initial decision on the first complaint was wrong and the case required a do-over.
As with “Moby-Dick,” where nothing much happens until the very end when the Pequod finally encounters its target, all was quiet until March 19, when FERC issued a 304-page order. The correct ROE, ruled the federal regulators, is 9.57%.
Those of you who love that Melville devoted entire chapters of “Moby-Dick” to the Book of Job, legal history, the sperm whale’s male sex organ, a soup recipe and, most famously, whale taxonomy, might also enjoy that 304-page order from FERC. There you can read all about discounted cash flows, the capital asset pricing model, risk premiums, proxy groups and various other arcane principles of metaphysics that govern ROE determinations.
FERC’s decision, known as Opinion No. 594, is roughly 150,000 words long. That still falls short of “Moby-Dick,” which clocks in at 209,117 words. But, and you will have to trust me here, “Moby-Dick” is funnier.
So, as generations of students have done with “Moby-Dick,” I recommend going straight to the Cliff Notes version. Here it is: If FERC’s decision stands, New England’s transmission-owning utilities could end up refunding a billion dollars to the region’s electric customers, according to the estimates I’ve seen.
That’s an “if” as big as a giant sperm whale. With so much money at stake, do you think Eversource and its fellow transmission owners will simply shrug and ask where to send the check? The U.S. Court of Appeals for the District of Columbia Circuit, and potentially even the U.S. Supreme Court thereafter, await their pleadings.
FERC deserves the gratitude of every electric customer in New England. At a time when the Trump administration calls for “American energy dominance” and embraces ideas worthy of the era of lighting with whale oil, FERC is quietly focused on what matters. And what matters, at a time of affordability challenges, is free money being awarded to utilities via lavish return on equity embedded in utility rates.
Indeed, our state Public Utilities Commission should take some inspiration from — to name names — FERC Chairman Laura Swett and FERC Commissioners Judy Chang, David LaCerte, David Rosner and Lindsay See. These five could easily have let the New England transmission ROE continue to languish. Instead, they chased down this particular whale and harpooned it.
But, just as Captain Ahab was angry enough to set out after Moby Dick for a second time, to avenge the whale for having bitten off one of his legs, I am brazen enough to say this: Even 9.57% is too high an ROE with which to reward our utilities’ owners for their investment in the high-voltage transmission system.
Our PUC awarded Eversource an ROE of 9.5% last year, covering assets subject to state rather than federal regulation. We think the right answer was 8.1%, and our Melvillian quest is taking us not to the South Pacific — where the Pequod sank — but to the New Hampshire Supreme Court.
After all, where can you earn 9.5% on your investments? And you are probably not providing an essential public service on a monopoly basis to captive customers. Maybe Peleg, Bildad and the other owners of the Pequod were entitled to a return that high, given how risky the whaling business was, but not Eversource.
Attorney Donald M. Kreis is the state’s Consumer Advocate, representing the interests of residential utility customers.