T+D Investment Risk. The Maine PUC appeared to take a pro-consumer stance in setting principles it will use to set a revenue requirement for transmission and distribution (T&D) services provided by Bangor Hydro-Electric Co. after the company becomes a wires-only utility on March 1. The PUC downplayed the risk of wires operations, adopting a return on equity of 11 percent and disallowing about $3.5 million of some $71 million in claimed T&D costs.
Overall, the PUC viewed the risk profile of a T&D electric utility as falling somewhere "between that of a water utility on the low end and that of the existing electric utility industry at the upper end." It added that it had yet to see any opinion from the investment community "that would suggest that pure T&D utility operations would be anything but less risky than fully integrated electric utility operations."
The utility had asked the PUC to consider improving shareholder returns to bolster investor confidence, but the PUC declined, describing the major point of industry restructuring as being to insulate ratepayers from generation investment risk.
Nevertheless, the PUC did boost the wires equity return to 30 points above the 10.7 percent midpoint indicated by approved financial models: "Psychologically, the 11 percent threshold may provide an additional measure of comfort for equity investors as we restructure."
Also, the utility had asked for $40 million for stranded costs on the T&D plant, but the PUC declined to set a specific figure, saying that any estimate would vary greatly, depending on the outcome of a mandated auction of generating assets and contracts with qualifying cogeneration facilities. Docket No. 97-596, Nov. 24, 1999 (Me.P.U.C.).