Senate Environment and Energy Committee

March 15, 2013

Jeff Daugherty Director, Regulatory Affairs

Interim Rates Sound Public Policy

Customers and utilities are treated fairly no winners or losers.

Created to solve a problem a utilitys need to get timely recovery of investments without filing rate cases on top of each other.

If eliminated or severely restricted, will punish utilities in short run and harm customers in the long run.

Natural Gas Bills The Big Picture

70% to 60% of customers bills are related to the cost of gas.

Gas costs are automatically passed through dollar-for-dollar (no profit to the utility!), with annual PUC reviews for prudence and CenterPoint Energy customers have realized in excess of $2 billion of savings due to the reduction in gas prices since the highs of 2008.
The other 30% to 40% of customers bills are related to the utilitys investments in infrastructure (about $140-$150 million each year for the foreseeable future in Minnesota) and the other costs of providing safe, reliable service. These other direct utility costs are primarily recovered through the litigated rate case process.
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Why Interim Rates?

Meets the basic regulatory bargain utilities accept the obligation to provide safe, efficient and reliable service and the state allows them an opportunity to earn a reasonable return on their investments.

Utilities file rate cases when rates no longer provide that reasonable return.
Rate cases take a long time 18 to 22 months to completion.

Through this time, utilities retain their obligation to provide safe and reliable service -- requiring investment, and providing jobs and tax revenues to Minnesota communities.
Without interim rates, a utility will lose millions of dollars while the regulatory process works its way through violating the regulatory bargain.
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Interim rates How Do They Work?

Interim rates go in place 60 days after a rate case is filed.

Formulaic based on Statute and what costs the PUC has previously approved.

Includes a refund feature with interest to customers if interim rates end up being greater than final rates.

If interim rates are less than final rates, utility cannot surcharge to make up the difference.

Interim rates in action

In CenterPoint Energys last rate case (2008), interim rates were in place for 18 months.

After an 18 month litigated process, final rates ended up being set lower than interim rates.

Average residential customer received a refund of about $12.00, including interest.

Without interim rates, CenterPoint Energy would have lost $62 million while this case was being litigated.
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Ramifications of SF 92

Increased costs to customers for every rate case since interim rates would now be fully litigated. In its last rate case, without timely recovery of prudently incurred costs, CenterPoint Energy would have been significantly harmed by $62 million. As a consequence, CenterPoint Energy would realize increased cost of capital going forward costs customers would ultimately pay. The company would also face difficulty attracting capital for investment in Minnesota at a time when we plan to invest about $150 million per year in the State.
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Current Law: A Balanced Approach

Ensures fairness for customers by requiring refunds with interest. Allows utilities opportunity for timely recovery of their prudently incurred costs while meeting their obligation to serve.

For over 30 years PUC has exercised the implementation of interim rates with relatively few issues being raised.
Changing this hold harmless approach will harm utilities, customers and the State.