Discussion
of Issues
Issue 1:
Should the Commission approve UIF's request for
approval to establish a regulatory asset for recording the deferral of certain costs
attributable to COVID-19?
Recommendation:
The Commission should approve UIF’s request to establish a
regulatory asset for the accounting purpose of recording the deferral of costs
associated with (1) incremental bad debt expense incurred due to COVID-19, and
(2) safety-related costs incurred due to COVID-19; however, the Commission
should expressly limit the inclusion of safety-related costs to those expenses that
are directly and solely attributable to the health and safety of UIF’s
employees and its customers during the COVID-19 pandemic. Additionally, the
Commission should deny the deferral of lost revenue for inclusion in the
regulatory asset. The approval to establish a regulatory asset, for accounting
purposes, does not limit the Commission’s ability to review the amounts, recovery
method, scope of financial impact, recovery period, specific types or subsets
of proposed costs within an approved category of costs, and other related
matters for reasonableness in a future proceeding in which the regulatory asset
is included.
UIF should be required to track any assistance or benefits
received by the Utility in connection with COVID-19, regardless of form or
source, 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 as a result of the pandemic. 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, UIF 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, UIF should be required to file monthly reports
identifying the amounts of the costs incurred, any assistance or benefits
received, and any cost savings realized that have been recorded in the
regulatory asset. The first COVID-19 regulatory asset report should be filed on
December 1, 2020, and every month thereafter until the Utility presents the
regulatory asset for Commission consideration. (D. Andrews)
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 August 3, 2020, UIF filed a petition for approval to
establish a regulatory asset to defer certain costs incurred due to COVID-19. UIF
has requested approval to record and defer categories of costs in the
regulatory asset including incremental bad debt expense and safety-related
costs attributable to COVID-19. UIF has also requested approval to record a
wide range of other costs, all of which are claimed to be attributable to the
COVID-19 pandemic.
UIF states that it receives approximately $39,045 less in
monthly customer payments due to foregone late payment fees and customer
reconnection fees. UIF anticipates that COVID-related bad debt expense will
continue to increase due to higher levels of write-offs for uncollectable
accounts. UIF estimates that its bad debt expense attributable to COVID-19 will
continue to increase over the coming months.
The Utility states that it has incurred additional costs
associated with actions to preserve the health and safety of its employees, contractors,
and customers. UIF states its actions have included the following types or
subsets of safety-related costs: monitoring the health of employees and contractors
at its facilities, testing for COVID-19 and antibodies, modifying facilities to
ensure clean access, obtaining personal protective equipment, and adding
signage on buildings to encourage COVID-related safety protocols. UIF also
suggests it be allowed to record costs associated with servers, software,
computer equipment, and communications equipment.
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, staff believes that it is not
possible to fully anticipate the scope or timeframe of the financial impact on
UIF and its customers related to COVID-19. Because of the unique circumstances
resulting from the global pandemic, staff recommends that the Commission
approve the Utility’s 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 or subsets of proposed costs within an approved
category of costs will be permissible for recovery. Therefore, it is staff’s recommendation
the Commission approve the recording of incremental bad debt expense associated
with COVID-19, and safety related costs that are limited to those expenses that
are directly and solely attributable to the health and safety of UIF’s
employees and its customers during the COVID-19 pandemic. By way of example, staff
believes that safety-related costs could consist of expenditures associated
with testing and monitoring employees, purchase of personal protective
equipment, and incremental amounts related to sanitization efforts and other
safety protocols.
On the other hand, staff recommends that the category of
lost revenue is not an appropriate category to be included within a regulatory
asset. This is because an inherent risk for any company is the loss of revenue
due to reasons such as economic downturns, competition, conservation,
alternative suppliers, and other events. The return on equity includes a
component to compensate equity investors for business risks such as lost
revenue. It would be unreasonable for customers to potentially be charged extra
to make a company whole for lost revenue. As such, staff recommends that lost
revenue not be permissible for inclusion in the regulatory asset. The approval
to establish the regulatory asset, for accounting purposes, does not limit the
Commission’s ability to review the amounts, recovery method, scope of financial
impact, recovery period, specific types or subsets of proposed costs within an
approved category of costs, and other related matters for reasonableness in a
future proceeding in which the regulatory asset is included.
In addition, staff recommends that UIF be required to
track any assistance or benefits received by the Utility in connection with
COVID-19, regardless of form or source, that would offset any COVID-19-related
expenses. This would include, but is not limited to, any costs savings directly
attributable to the suspension of disconnections or other activities as a
result of the pandemic. 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, the Utility 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, the Utility should
be required to file monthly reports identifying the amounts of the costs
incurred, any assistance or benefits received, and any cost savings realized that
have been recorded in the regulatory asset. The first COVID-19 regulatory asset
report should be filed on December 1, 2020, and every month thereafter until UIF
presents the regulatory asset for Commission consideration.
Issue 2:
Should this docket be closed?
Recommendation:
If no protest is filed by a substantially affected
person within 21 days of the issuance of the order, a consummating order should
be issued. If the Commission approves the staff recommendation in Issue 1, the
docket should remain open for the filing of the required monthly reports. (Trierweiler)
Staff Analysis:
If no protest is filed by a substantially affected
person within 21 days of the issuance of the order, a consummating order should
be issued. If the Commission approves the staff recommendation in Issue 1, the
docket should remain open for the filing of the required monthly reports.
