PROVIDENCE – Whether selling the state’s primary utility business to new, out-of-state owners is a benefit or a danger to its 780,000 Rhode Island customers depends on whom you ask.
PPL Corp., the Pennsylvania-based company under agreement to buy Narragansett Electric Co. from National Grid, touted its experience in Pennsylvania and Kentucky to update aging grid infrastructure and cut ratepayers’ costs, according to filings with state utility regulators.
But others, including the Rhode Island Office of the Attorney General and experts hired by the state warned of financial, environmental and service consequences to the transfer of ownership.
Both sides will make their case to the R.I. Division of Public Utilities and Carriers in a series of hearings beginning on Dec. 13.
State law requires the division to give its blessing on any purchase, sale, lease or other transactions for state utilities. The decision hinges upon whether the companies involved can prove the deal will not create “degradation of utility services” or “unfavorable impact the general public interest,” according to state law.
The pending $3.8 billion sale of the Rhode Island power business was first announced in March as part of a larger agreement between the two companies. Per the terms of the proposed agreement, PPL will sell its U.K. utility business, Western Power Distribution, to National Grid for a net gain of $10.4 billion. PPL in turn will use some of those profits to buy Narragansett Electric Co., which at the time of the announcement was valued at $5.3 billion with $1.5 billion in debt.
National Grid and PPL in their May 4 petition to state utility regulators detailed PPL’s expertise running electric and natural gas utilities for 300,000 customers in Kentucky and Pennsylvania: reducing service interruptions, modernizing electric grid infrastructure and replacing natural gas mains, keeping ratepayer costs level. and adopting a “clean energy strategy” that ties in to Rhode Island’s ambitious renewable energy goals.
The two companies have also created a transition agreement in which National Grid will continue to offer certain services for Narragansett Electric for up to two years after the sale.
Federal regulators have already given their stamp of approval, signing off on the deal in October. But the path may not be so easy in Rhode Island.
Ten groups – ratepayer and environmental advocates, renewable energy developers and the attorney general’s office – filed requests asking to be considered as parties to the case, which would allow them to make written and oral arguments as part of the review.
Of the five granted this formal “intervenor” status, three have already submitted written statements urging the division not to approve the sale as currently proposed,
“Rhode Island’s gas distribution utility operations must not be the transaction’s ‘stepchild,’” wrote Bruce Oliver, a Virginia-based utility consultant who was hired by the division’s advocacy section to review the proposal. “PPL’s failure to demonstrate its ability to safely, reliably and cost-effectively operate both Narragansett’s gas and electric utility systems in Rhode Island means the transaction cannot be approved as presented.”
Among Oliver’s concerns was the lack of experience in natural gas planning and management. There is already a dearth of such expertise locally under National Grid’s management and PPL has limited experience, especially with the liquified natural gas facilities integral to Rhode Island.
Oliver also questioned how PPL would be able to operate the state’s power business without running up costs since it loses the “aggregate” buying power that National Grid has enjoyed managing a much larger portfolio that includes utilities in New York, Canada and Massachusetts.
That National Grid intends to retain ownership of all other utilities in the area except for Rhode Island makes the sale an “unusual transaction,” according to written testimony from the attorney general’s office.
The attorney general’s office shared Oliver’s concerns about potential rate hikes for customers, as well.
“Because many utility costs are geographic in nature, a selling utility with adjacent service territories may be able to take advantage of economies of scale associated with (a) conducting electric and gas supply procurement, (b) operating the transmission and distribution operations, (c ) providing various customer services, and (d) performing basic administrative functions. It is unclear whether the purchasing utility, which will not have adjacent operations, will be able to achieve those efficiencies,” the testimony stated.
While PPL said it can run the state’s power business more efficiently than National Grid, thereby cutting costs, the attorney general’s office insisted that “substantial uncertainty remains” and recommended that if state regulators approve the sale, they add protections for ratepayers into the decision. Specifically, the attorney general’s office asked that PPL commit to three years of flat base rates as a condition of the division’s approval.
Further complicating the debate is how the agreement fits in with the state’s ambitious clean energy goals, including the 2021 Act on Climate law targeting net-zero carbon emissions by 2050. While PPL has committed to taking over National Grid’s various renewable energy programs, it has “minimal experience” with renewable energy procurements and offshore wind interconnection projects, according to testimony filed by Kai Salem, a policy coordinator for Providence-based Green Energy Consumers Alliance.
“I believe that the transition costs and unproven experience by PPL poses risks to Rhode Island’s ability to meet its obligations under Act on Climate,” Salem stated, adding that she could not recommend the deal be approved without further assurances.
The R.I. Office of Energy Resources and the Conservation Law Foundation also emphasized the need to consider the state’s climate goals in written submissions, though they did not say whether the sale should be approved.
National Grid and PPL in written responses refuted these concerns, reiterating PPL’s commitment and expertise in managing utility companies and insisting that the estimated $400 million transition costs will not translate to higher bills for customers. However, the companies did not commit to a period of flat rates, stating in the original petition that they would “determine the appropriate time” to apply for new rate calculations. Regarding environmental concerns, the Act on Climate legislation does not set specific decarbonization requirements on utility companies but PPL agrees to obey future “affirmative enforceable obligations,” according to the response from David J. Bonenberger, PPL’s vice president of operations integration.
Hearings on the petition begin Monday, Dec. 13, at 10 a.m. and will include opportunity for public comment. An online schedule for the petition lists Feb. 25, 2022, as its target decision date.
