Supervisor Romaine To Testify Before the Public Service Commission Against National Grid’s Proposed $174 Million Rate Increase For Gas Customers

National Grid’s $174 million rate increase proposal to the Public Service Commission, if granted, could hike the delivery portion of the residential natural gas bill by $16 a month starting next year. This figure represents a 16% total bill increase for average customers when other changes to bills are considered, depending on usage and customer classification.

I understand that natural gas cannot be provided by a competitive market which would keep prices down. However, it is the duty of the Public Service Commission to use firm and fair regulation to compensate for pricing protection which competition would otherwise impose. For example, the profit margin of a monopoly utility company like National Grid is approximately 9-10%. The profit margin of a competitive car rental company like National Car Rental is 4%. Yet both are functioning commercial entities.

National Grid was founded in the United Kingdom in 1990. Its head offices are in Warwick, UK and its US head offices are in Waltham , Massachusetts. National Grid provides utility services to the United Kingdom and to the states of New York, Massachusetts and Rhode Island. As a result of its purchase of Keyspan and its purchase of the New England Gas company, it is the second largest utility company in the United States with eight million customers.

The National Grid /Keyspan merger in 2006-2007 coincided with the last official National Grid rate increase. The current request is the first request from National Grid for a rate increase submitted since that time. That first rate increase was for $60 million in 2008. Surcharges, which are unofficial rate increases, have occurred since that time without the approval of the public service commission.

The proposed rate increase is seeking to recapture the anticipated cost of replacing hundreds of miles of existing pipeline with new, improved leak proof pipeline and meeting other increased costs.

The cost of repairing and replacing such infrastructure constitutes a capital improvement which should be paid for by drawing down funds from profits, or from a bond issue, or from a separately maintained capital improvement reserve fund, not an increase in rates. Rate increases should be limited to the cost of recovering the acquisition costs of the product which is being sold to the customers. The 9-10% profit margin of National Grid should support its present and anticipated costs.

Does Downstate New York require a $175 million dollar rate increase? I don’t think so.

I would urge the Public Service Commission to take all of this information and analysis into consideration when it reviews this request for a rate increase, since this rate increase appears to be designated primarily for the purpose of acquiring capital assets. The dollar value of these capital assets will inure to the benefit of National Grid, which will make National Grid more valuable. But this higher value comes at a price to its customers and our local economy.

Prices for natural gas are at a 14- year low. Last week, for the reporting period July 13-20, the spot price fell nine cents from $2.81 per million British thermal units (MMBtu) the previous Wednesday to $2.72. MMBtu on July 20. The New York Mercantile Exchange (NYmes) reports that the projected contract price for August, 2016 fell by eight cents over the reporting period and ended at $2.658/MMBtu as of July 20. Natural gas prices are low and getting lower yet National Grid wants to raise prices. Incredible!

Now take a look at the cost allocation of distribution costs by National Grid. On page 4 of the testimony of William D. Yates which was submitted to the Public Service Commission in this proceeding on June 10, 2016 on behalf of the Public Utility Law Project (“PULP”, Mr. Yates states: “PULP strongly endorses the UIU’s (Utility Intervention Unit, Division of Consumer Protection, Department of State) recommendation that the

Instead, the Commission should adopt the UIU’s approach to allocation because it properly allocates costs based upon the demands placed upon the distribution system by each customer class.” I would like to see the Public Service Commission focus on correcting this kind of flawed cost allocation when it makes its decision. Fair cost allocation helps the customer, especially the small customer.

National Grid’s proposal advocates the continued use of previously instituted surcharges which allowed National Grid to raise rates without formally coming before the Public Service Commission. It is important to remember that they have been doing this and want to continue to do so.

They currently have two surcharges in place . One is the SIR (Site Investigation and Remediation Surcharge) surcharge which is for site remediation of hazardous waste sites. The other is earmarked for pipeline replacements and repairs. In this 2016 filing before the Public Service Commission, National Grid proposes a surcharge to be called the Gas Safety and Reliability Surcharge to cover the cost of pipeline acquisition. They propose to continue to collect the SIR surcharge at a reduced rate and to transfer some of the SIR costs into base rates. The end result of this restructuring of surcharges will be an increase in rates beyond the capacity of the small ratepayers to bear and it is being done to replace and repair capital assets. The Public Service Commission should reject this surcharge proposal.

This proposal also uses the tracking of customer service performance to squeeze out additional revenue for National Grid. It would inaugurate a system of performance incentive payments. Incredibly, under this system, failure to reach standards in one area of performance while exceeding standards in another area of performance will nevertheless result in incentive payments to National Grid.

This is called an “incentive-only” service quality metric by National Grid. It applies to such aspects of operation as call center performance standards, adjusted customer bills, termination of service with residential customers and dealings with customers in the low income assistance program. National Grid should be self-motivated to meet or exceed its standards in all of these areas. It should not be granted special additional profits for accomplishing what it is already paid to do. That’s just plain greedy!

Changes in National Grid’s Low Income Programs will also take their toll on this vulnerable sector of National Grid’s customer base. It applies to both heating and non-heating customers. According to ARRP , in its submission to this Commission: “With regard to changes to these programs, the Company proposes to increase the discount to the monthly customer charge and the discount to the second rate block for winter months only by 5% for both heating and non-heating customers enrolled in the program.

This will result in an increase in the discount for the monthly customer charge from 83% to 88% of the otherwise applicable amount. The discount in the second rate blocks for the winter months will increase from 41% to 46% for heating customers. For low income non-heating customers, the monthly charge discount level will increase from 50% to 55% However, the result of the higher rate increase is that low income customers will experience higher bills since the changes in the discount levels are lower than the proposed rate increase.”

This Commission should not support a proposal that deliberately increases the utility bills of people who live at a subsistence level when there are alternatives.

The current proposal is for a one year implementation of the rate increase. One of the viable alternatives, which the Commission should consider, is a phased in rate increase over several years.

The Town of Brookhaven opposes this proposed rate increase. It is excessive. It is not justified by increases in the price of natural gas. Capital improvements should be financed by drawing down reserves from a capital improvement fund, profits or a bond issue, not by rate increases. Cost allocation of delivery costs should be allocated fairly among customers. Proposals for new surcharges and a financial incentive proposal for isolated instances of superior performance should be rejected. The inability of low income customers to pay these increased rates should be addressed. An increase in the monthly customer charge for residential customers who do not use gas for heating purposes should be rejected. If an increase is authorized, it should be phased in over a period of years.

When a monopoly increases prices for a necessity of life, the pain is felt solely by the customers.

Cover Photo: Brookhaven News Herald File Photo-Jim Harrison  |  Brookhaven Town Supervisor Ed Romaine.