Unitil drops request to change benefits accounting
Like most businesses, Hampton-based utility holding company Unitil Corporation has been facing ever-increasing costs for its employees’ retirement plans. And like most businesses, Unitil also has to face the passing of those increasing costs on to the consumer.
But, unlike most businesses — or even other utilities — Unitil sought to account for those costs in a novel way, sparking discussions with the New Hampshire Public Utilities Commission that have lasted nearly two years.
“This issue goes back to the filing late last year when we requested to increase the distribution component of our costs,” said George Gantz, senior vice president for Unitil.
He said the key drivers prompting the distribution rate increase were not only investments made in Unitil’s systems, but the increasing costs in the Hampton-based utility’s health benefit and pension costs.
As early as Dec. 11, 2004, Unitil Energy Systems Inc., Unitil Corp.’s New Hampshire utility subsidiary, filed for a Petition for an Accounting Order for a rate increase to recover certain pension costs through a “reconciling rate adjustment mechanism” that would account for the pension costs by declaring them a regulatory asset.
Typically, costs of this nature are accounted for by a base rate increase as an ordinary expense.
While not employed in New Hampshire, the practice is accepted in other states. Indeed, Unitil’s Massachusetts subsidiary made a similar proposal that was approved in October 2004 by the Massachusetts Department of Technology and Energy.
Unitil’s New Hampshire proposal was rejected by the PUC on April 7, 2005. The commission regarded the pension costs as “an ordinary category of expense included in the revenue requirement for a utility under traditional cost of service ratemaking principles and that the size and impact of increased pension expense is not clear and that a full examination of UES’s income and expenses would be undertaken when UES files a rate case,” according to filings with the Securities and Exchange Commission.
UES filed again on Nov. 4, 2005, again requesting recovery of pension costs through a reconciling method as well as for temporary rates at then-market levels. The PUC this past Feb. 3 approved the temporary rates, but held the accounting request in review.
Gantz said what followed was an “intense process of discussion with a great deal of scrutiny.”
Unitil and the PUC sat down to hammer out an agreement acceptable to both parties, which led Unitil to eventually withdraw its request for the novel accounting method and agree to a permanent distribution base rate increase of $2,266,966, or about 1.5 percent.
The original rate increase request was for $4.65 million.
Kenneth Traum, assistant consumer advocate for the PUC, said Unitil’s “separate reconciling charge to recover 100 percent of their costs” was atypical, but the final outcome of a rate increase, announced Aug. 23, was more typical in the industry.
If approved, which seems likely, Traum said this more common approach to dealing with retirement benefit costs would still allow Unitil to recover its costs.
Gantz said that, since the increase is in the base distribution rate, all of Unitil customers would be affected in some way. He said one of the aspects to the increase is that, because of population growth in its market areas — primarily towns north of Concord and toward the Seacoast — the increase will affect different customer groups differently.
“It’s tilted more towards the residential customer than the business customer, with an increase closer to 2 percent for residential customers and less than 1.5 percent for businesses,” said Gantz.
Assuming the increase’s approval by the NHPUC at the end of September, the new rate would go into effect on Nov. 1, in line with other routine quarterly and bi-annual rate adjustments for large and mid-size consumer contracts, said Gantz.