NAWC - National Association of Water Companies


Resources For:

Public Officials divider The Media divider Regulators divider Concerned Citizens

Our IndustryGovernment AffairsState Utility RegulationWater ChallengesKnowledge CenterMembershipNews & EventsAbout NAWCOur Solutions
NAWC NewsFlow
March 24, 2009
     
  State Regulatory Relations  
  Government Relations  
  Member News  
     
 

State Regulatory Relations


Jeanne M. Fox
President Jeanne M. Fox

President Fox of NJ Approved for Second Term

On Monday, March 16, the New Jersey Senate confirmed the nomination of Jeanne Fox to a new six-year term as president of the Board of Public Utilities (BPU).

President Fox was appointed to the NJBPU on January 15, 2002.

Since Fox’s tenure as BPU president, New Jersey’s role in national and regional energy policy has significantly increased. Over the past six years, the BPU facilitated the exponential growth of New Jersey’s solar photovoltaic market, growing from six installations in 2001 to more than 3,100 installations currently — second in the nation only to California — through the simultaneous implementation of the solar rebate program, model net metering and interconnection standards, and the nation’s first Solar Renewable Energy Certificates (SRECs) trading program.

President Fox has also been an integral member of the Regional Greenhouse Gas Initiative (RGGI) Board of Directors since its inception in 2003. This 10-state northeastern coalition negotiated a Memorandum of Understanding (MOU) for reducing carbon emissions from stationary power sources using trading certificates, the first plan of its kind in the United States that will help reduce carbon emissions. As a member of the planning group, president Fox helped the MOU become a more salient agreement by ensuring consumers benefit from the proceeds and low-income consumers are protected.

President Fox is the chair of the state Energy Master Plan Committee, the interagency committee tasked by the New Jersey Governor to work on the Energy Master Plan. President Fox is active with the National Association of Regulatory Utility Commissioners (NARUC) as a member of the Board of Directors, the Committee on Energy Resources and the Environment, the Committee on Critical Infrastructure, Subcommittee on Education and Research, and the Utility Market Access Partnership. President Fox is a member of the Executive Committee and served as president of the Mid-Atlantic Conference of Regulatory Utilities Commissioner. She is chair of the National Council on Electricity Policy (NCEP), a consortium of the National Governors Association, National Conference of State Legislatures, NARUC, National Association of State Energy Officials, the Department of Energy and the Environmental Protection Agency.

President Fox serves as a member of the National Academy of Science Panel on Public Participation in Environmental Assessment and Decision Making; National Leadership Group on Energy Efficiency; Harvard Electricity Policy Group; Consumer Energy Council of America’s Public Policy Initiative Fuels and Technologies Forum; and the Advisory Council to the Board of Directors and the Executive Committee of the Electric Power Research Institute.

She previously served as regional administrator of the United States Environmental Protection Agency where she had jurisdiction over New Jersey, New York, Puerto Rico and the U.S. Virgin Islands. She also serves as commissioner and deputy commissioner of the New Jersey Department of Environmental Protection and Energy. President Fox received a bachelor’s degree from Douglass College, Rutgers and a Juris Doctor from the Rutgers University School of Law.

 

New Hampshire PUC Reaffirms Pennichuck Eminent Domain Order

Pennichuck Corporation announced that on Friday, March 13, the New Hampshire Public Utilities Commission (PUC) issued its order in response to the motions for rehearing or reconsideration that had been filed by the company and by the City of Nashua, New Hampshire, relating to their ongoing eminent domain dispute. In the March 13 ruling, the NHPUC denied the motions of both parties in their entirety on the basis that neither party had presented any new arguments or evidence that the NHPUC had not previously considered. Under New Hampshire law, the parties have 30 days to file appeals to the New Hampshire Supreme Court after denial of a motion for reconsideration.

The effect of the March 13 ruling is to reaffirm the NHPUC’s July 2008 order that the taking of the operating assets of the company’s Pennichuck Water utility subsidiary by Nashua is in the public interest and that, for such assets, Nashua must pay Pennichuck Water $203 million (determined as of December 31, 2008). In the July 2008 order, the NHPUC also established a number of conditions, including that Nashua must pay an additional $40 million into a mitigation fund to protect the interests of the company’s Pennichuck East and Pittsfield Aqueduct utility customers. That brings to $243 million the total amount that Nashua would have to pay; this amount remains unchanged by the March 13 order of the NHPUC.

Commenting on this development, Duane C. Montopoli, Pennichuck’s president and chief executive, said, “On balance, we view this as a positive development since we believed it was unlikely the NHPUC would materially change its prior findings, and the request for reconsideration was a necessary step on the way to the Supreme Court. We continue to believe that the NHPUC’s order authorizing eminent domain taking contains a number of significant legal errors that undermine its validity, and that this outcome would not be in the best interests of our shareholders. Consequently, we plan to file an appeal to the New Hampshire Supreme Court. We have repeatedly stated that we remain open to engaging in settlement discussions with the City aimed at resolving this dispute outside of continued litigation. Such a settlement could involve Nashua’s acquisition of some or all of the assets of Pennichuck Corporation or one or more of its subsidiaries or, alternatively, the shares of Pennichuck Corporation stock. In any event, we continue to oppose a takeover by eminent domain and intend to pursue legal proceedings as necessary to vindicate the company’s position.”

Commenting further on this matter, Montopoli added, “In addition to the legal failings of the City’s eminent domain arguments, we believe that taxpayers will not support an eminent domain taking at a cost of $243 million especially since (1) it would require Nashua taxpayers to pay $40 million that is intended to benefit other communities, (2) the City would still not be getting the 450 acres of undeveloped land near the water supply that was a principal reason for undertaking eminent domain in the first place, and (3) a negotiated purchase of Pennichuck Corporation stock, as an alternative, could allow the City to pay substantially less than the $243 million and yet get substantially more assets, including the undeveloped land. Under these circumstances, it’s hard for me to imagine Nashua would continue to pursue an eminent domain taking.”

In closing, Mr. Montopoli said, “Of course, a comprehensive settlement would require the negotiation and resolution of many complex issues and, therefore, no assurance can be given that Nashua and Pennichuck would ultimately be able to reach a settlement agreement. Moreover, in addition to the approval of two-thirds of Nashua’s Board of Aldermen, a definitive settlement agreement could also be subject to approval by the NHPUC and, depending on the terms of any settlement, Pennichuck shareholders.” Pennichuck Corporation is a holding company involved principally.

 

Florida Sets Generic ROE for Small Companies

As reported in PUR’s Utility Regulatory News, the Florida Public service Commission (PSC) updated the rate of return on equity it will apply in rate cases for small water and wastewater (WAW) utilities over the next year. Based on a review of new financial data, it found that the highest return on equity (ROE) a utility may include in its rates is 12.67 percent. The PSC explained that the state public utility law authorizes it to establish, not less than once each year, a leverage formula to calculate a reasonable range of ROE for WAW utilities. The cap on ROE will apply to all WAW utilities with equity ratios less than 40 percent. The PSC said the policy should discourage imprudent financial risk associated with low equity ratios.

The PSC began by ruling that the discounted cash flow (DCF) and capital asset pricing model (CAPM) continue to be the most appropriate methods to estimate the return on common equity capital for WAW utilities in Florida. It concluded that the following leverage formula methodology shall be applied:

  1. Return on Common Equity = 7.36% + 2.123/Equity Ratio
  2. Range: 9.48% at 100% equity to 12.67% at 40% equity.

The PSC rejected claims calling for a break with past policy allowing a 50-basis point premium when setting the ROE to account for the small size of the companies under consideration. The state consumer advocate had argued that that investors only demand compensation for the risk a company has in relation to the overall market, so risk typically faced by small firms would not be replicated for a regulated public utility. The advocate also claimed that an unregulated, small firm is more likely to have one, or only a few, key products that could be subject to obsolescence or vulnerable to attack from a larger, more powerful competitor.

The PSC acknowledged that such a point might be valid with respect to large, publicly traded companies with investment-grade credit ratings, relative to small, publicly traded companies with investment-grade credit ratings. However, with respect to large, publicly traded companies with investment-grade credit ratings, relative to extremely small companies without access to the public debt or equity markets such as the WAW companies, a small utility risk premium adjustment is appropriate and necessary. The commission explained that the average WAW utility in Florida is significantly smaller than the average company in the natural gas index used to obtain updated financial data for the new leverage formula. As such, the loss of revenues from a few large customers would have a greater affect on a small company than on a much larger company with a larger customer base. Re Water and Wastewater Industry Annual Reestablishment of Authorized Range of Return on Common Equity, Docket No. 080006-WS, Order No. PSC-08-0846-FOFWS, Dec. 31, 2008 (Fla.P.S.C.).