AGL Cries Foul in GPSC Earnings Review
Upon urgings from its staff, the Georgia Public Service Commission (GPSC) voted unanimously early last week to establish a schedule of hearings regarding an earnings review for Atlanta Gas Light Co. (AGLC), which the Commission staff said is earning between 4% and 7% more than its authorized return on equity (ROE). In response to the commission's action, AGLC said it will file a motion for reconsideration this week.
The hearing dates for the earnings review will be Nov. 5-9 and Dec. 17-21 in 2001 and Feb. 11-15, 2002, with a Commission decision scheduled for March 14, 2002.
"It is surprising that AGLC's rate of return has suddenly become an issue for the commission," said Paula Rosput, AGL Resources CEO. "The detailed monthly reporting provided to the Commission, with information dating back to 1998, is meant to prevent this very issue from occurring. Those reports clearly show AGLC is far from overearning."
Two separate projects submitted by the GPSC staff indicate that AGLC is earning a return on equity (ROE) of 15% to 17%, in excess of "an appropriate ROE" in the range of 10% to 11%. The staff report was based on reviews of AGLC's Grey Book earnings information, which showed a ROE of 13% for the 12-month period through April 1, 2001, combined with an over-allocation of costs from its unregulated affiliates to the regulated utility. Correcting the cost allocation would increase the utility's ROE by 2% to 4%. Combining the excess ROE with the amounts generated from re-allocation of costs mean "the company is over-earning between 4% and 7%," the staff said. "This level of earnings justifies the initiation of an earnings review."
"We are confident that a full and fair review of the facts will show that the company is underearning relative to its allowed return," said Rosput. "Ironically, a rate increase -- rather than a decrease -- is actually warranted. Meanwhile, we have been trying to hold the line and not raise rates by creating operational efficiencies."
AGLC reported a ROE of 9.9% for the 12 months ended May 31, compared with an authorized return on equity of 11% established by the commission in 1998. AGLC contends that the last rate review conducted by the commission established a rate of return for the company that was below the allowed rates for other regulated Georgia companies.
Spokesman Russ Williams said the company had pointed out 88 discrepancies in the report prepared for the PSC by an outside consultant, but the "vast majority were either ignored or disagreed with and were not included in the final report submitted to the PSC." Williams said the company is analyzing its options and may file for reconsideration. The company's attorneys have issues with the time frame in the PSC's investigation. Meanwhile,"we are confident our reporting practices have been accurate and our financials will be found to have been within the authorized rates."
The staff's findings are not based on a projected test year, as required by Georgia law, but instead are based on the findings of the consultant hired by the Commission, the AGLC said. Additionally, the company said the commission issued its decision before receiving the AGLC's formal response, which was to be delivered on or before Sept. 1.
During the last winter season, or the six months ending March 31, 2001, parent AGL Resources reported core earnings were $67.7 million, or $1.25 per share, excluding one-time items, a 70% increase over the $39.8 million, or $0.71 per share, the company earned for the same period in the previous fiscal year. The returns were on operating revenues for the six months of $645.4 million, compared with $342.4 million for the same period in the previous fiscal year.
The results for the six months ending March 31 reflect the acquisition of Virginia Natural Gas on Oct. 1, 2000. AGL's operating income for the six months was $119.9 million, compared to $71 million for the six months ending March 31, 2000. The company's utility segment collected operating income during the recent period of $134.1 million, compared to a minus $14.2 million for its non-utility segment, according to the company's consolidated balance sheet.
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