Discussion
of Issues
Issue 1:
Should the Commission approve Peoples Gas System’s
request for approval to establish a regulatory asset for recording costs
attributable to COVID-19?
Recommendation:
Yes. The Commission should approve Peoples’ request
to establish a regulatory asset for recording costs incurred due to COVID-19.
The approval to establish a regulatory asset, for accounting purposes, does not
limit the Commission’s ability to review the amounts, recovery method, recovery
period, and other related matters for reasonableness in a future proceeding in
which the regulatory asset is included.
Peoples should be required to track any assistance or
benefits received by the Company in connection with COVID-19, regardless of
form, that would offset any COVID-19-related expenses. This would include, but
is not limited to, any cost savings directly attributable to the suspension of
disconnections or other activities during the emergency declaration. The
regulatory asset costs and offsets should be recorded and maintained in a
detailed manner that will allow incremental costs and any benefits and savings
to be readily identifiable in a future proceeding. In addition, Peoples should be prepared to
explain what actions and efforts it has undertaken to reduce or minimize these
costs and to maximize the receipt of any available COVID-19 assistance or
benefits. Finally, Peoples should be required to file monthly reports
identifying the amounts of the costs incurred, any assistance or benefits
received, and any cost savings realized which have been recorded in the
regulatory asset. The first COVID-19 regulatory asset report should be filed on
October 1 and every month thereafter until the Company presents the regulatory
asset for Commission consideration. (Sewards)
Staff Analysis:
The Commission is charged with the duty of ensuring that utilities
provide safe, adequate, and reliable utility service at reasonable rates. By
law, such rates must allow utilities the opportunity to recover the prudently
incurred costs and a fair rate of return on capital invested by utilities for
the purpose of providing such service. In turn, utilities have a responsibility, and are expected, to
manage their business in a manner that addresses changes in costs and
variability in sales.
On July 2, 2020, Peoples filed a petition for approval to
establish a regulatory asset to defer certain costs incurred due to COVID-19.
Peoples has requested approval to record incremental bad debt expense and
safety-related costs attributable to COVID-19 in the requested regulatory
asset.
Peoples states aged accounts receivable of 60 days or more
exceeds 12 percent of its total accounts receivable balance, or approximately
$2.3 million, exceeding the Company’s normal level. Peoples anticipates that
COVID-19-related bad debt expense will continue to increase in future months.
An allowance for bad debt expense is included in base rates. In Peoples’ last
rate case, this allowance was based on a four-year average and was set at
approximately $1.6 million per year.
Peoples has stated incremental safety costs attributable
to COVID-19 related to the Company’s efforts to follow all necessary guidelines
and protocols include, but are not limited to, personal protective equipment,
materials and supplies to protect employees’ and customers’ health and safety,
additional cleaning and sanitization, employee health monitoring, COVID-19
testing of employees, transportation expense, and overtime expense related to
safety preparations.
The concept of deferral accounting allows companies to
defer costs due to events beyond their control and seek recovery through rates
at a later time. If the subject costs are significant, the alternative would be
for a company to seek a rate proceeding each time it experiences an exogenous event.
The costs in the instant docket are attributed to the COVID-19 pandemic. Due to
the uncertainty of this situation, Peoples states that it is not possible to
fully anticipate the scope or timeframe of the financial impact on the Company
and its customers related to COVID-19. Because of the unique circumstances
resulting from the global pandemic, staff recommends that the Commission
approve Peoples’ request to establish a regulatory asset for recording costs
incurred due to COVID-19 and defer Commission consideration of the potential recovery
of the amounts recorded in the regulatory asset to a future proceeding. For the
same reasons, it is too early to determine if the total amount and/or all types
of the proposed costs will be permissible for recovery. The approval to establish
a regulatory asset, for accounting purposes, does not limit the Commission’s
ability to review the amounts, recovery method, recovery period, and other
related matters for reasonableness in a future proceeding in which the
regulatory asset is included. If staff’s recommendation herein is approved, the
order that issues will be procedural and preliminary in nature. An adversely affected party’s point of entry
to request an evidentiary hearing before the Commission will be afforded in a
future proceeding addressing cost recovery of the regulatory asset.
In addition, staff recommends that Peoples be required to
track any assistance or benefits received by the Company in connection with
COVID-19, regardless of form, that would offset any COVID-19-related expenses.
This would include, but is not limited to, any cost savings directly
attributable to the suspension of disconnections or other activities during the
emergency declaration. The regulatory asset costs and offsets should be recorded
and maintained in a detailed manner that will allow incremental costs and any
benefits and savings to be readily identifiable in a future proceeding. In
addition, Peoples should be prepared to explain what actions and efforts it has
undertaken to reduce or minimize these costs and to maximize the receipt of any
available COVID-19 assistance or benefits. Finally, Peoples should be required
to file monthly reports identifying the amounts of the costs incurred, any
assistance or benefits received, and any cost savings realized which have been
recorded in the regulatory asset. The first COVID-19 regulatory asset report
should be filed on October 1 and every month thereafter until the Company
presents the regulatory asset for Commission consideration.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. The docket should be closed upon the issuance
of the procedural order. (Stiller)
Staff Analysis:
The docket should be closed upon the issuance of the
procedural order.
