Municipalities Urged to Challenge Utility Rate Increase

July 29, 2015 Updated: July 29, 2015

PORT JERVIS—At a July 28 meeting, members of the Orange County Association of Towns, Villages & Cities were given a critical evaluation of Orange & Rockland Utility’s proposed gas and electric rate increases. The municipal consortium was urged to get involved and speak for the ratepayers before the proposal goes into effect.

O&R submitted the rate request in November 2014 in a massive 2,260 page report. A summary given to members of the Orange County Association stated the utility is asking for an 11.5 percent rate increase for electric service and a 35.1 percent rate increase for gas delivery service.

The Public Service Commission (PSC) will discuss the proposal at its October meeting. If approved, the new rates would go into effect on Nov. 1.

In my judgement, they took care of the shareholders a little too well.
— Dan Duthie, attorney

Attorney Dan Duthie, vice president and general counsel for Goshen-based Strategic Power Management, outlined several points of opposition to the O&R proposal.

He urged municipalities to oppose the 35.1 percent gas rate increase, which he said would cause rate shock.

In a press release O&R explained that the “chief goal” of the gas rate increase is “to enhance gas safety by significantly accelerating the gas main replacement program and replacing over 22 miles of pipe per year.”

Duthie also objected to charges for 40 additional employees and for a request for a 9 percent return on equity.

O&R is asking for an additional $2.6 million annual increase for the additional employees. Duthie suggested O&R could use some of Consolidated Edison’s 10,000 employees. Consolidated Edison owns O&R.

Regarding the request for the 9 percent return on equity, Duthie said that the PSC has inappropriately applied the concept of revenue decoupling to O&R.

Revenue decoupling was originally invented, Duthie said, to get utilities into conservation and energy efficiency, so that the utility would not lose income from energy conservation.

But it has also been used during a recession, so that the utility would not suffer any losses.

“They want 9 percent to justify this unbelievable risk that they are taking with this utility,” Duthie said ironically, making the point that without any significant business risk, the utility should not merit this large return on equity.

Part of the low-risk environment in which O&R operates is the lack of competition. “There is no competition,” Duthie said, except for the emerging solar market. “The 9 percent is totally excessive.”

The Big ‘OOPS’

According to Duthie, the utility wants part of the rate increase to cover what he calls a big “OOPS.” The utility failed to submit a $15 million claim for remediation to Travelers Insurance in a timely manner.

Because of the delay, Travelers refused to pay. When O&R sued, the appellate court ruled in favor of Travelers. Duthie said, “That’s a management screw-up” and should be removed from the proposal.

Michael Donovan of O&R media relations said the $15 million claim is not included in the proposal.

Duthie urged members of the Orange County Association of Town, Villages, and Cities to get involved.

Duthie also objected to the five-year amortization schedule—the reduction of the book value of the utilities assets—in the O&R proposal, saying there should be a 10-year tax amortization schedule.

In its press release, O&R said, “To ease the rate impact of the increase resulting from costs associated with the recovery from Superstorm Sandy and increased property taxes—both of which were substantial—O&R has agreed to recover both those costs over a five-year period instead of the customary three-year period.”  

O&R said the proposal provides significant investment “for energy efficiency and for building and upgrading infrastructure, including transmission and distribution lines and facilities, to provide reliable service.”

Also included in the proposal is a demonstration program in the Pomona area of Rockland County aimed at reducing electric demand.   

The proposal will be reviewed on Aug. 3 by an administrative law judge. Duthie urged members of the Orange County Association of Town, Villages, and Cities to get involved.

The rate plans are subject to public hearings and then a vote by the PSC, which can approve, amend, or reject either one or both rate plans, according to an O&R press release. If the proposed new natural gas rate plan is approved, it would be the first O&R natural gas delivery increase in four years.

“The municipal consortium has to be at the table if you want to get a benefit or avoid a debt,” Duthie said. He said the PSC has a “divided allegiance” between ratepayers and shareholders, and “In my judgement, they took care of the shareholders a little too well.”

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