Concentric Energy Advisors
The Concentric Connection • September, 2020 www.ceadvisors.com
Concentric Energy Advisors
Join Team Concentric in Our Support of Abby’s House

So, 2020–what is left to say about this year that has not already been said? The upheaval, the small blessings, and the importance of support for and service to others that are in needWe have borne witness to it all 

The hardships of 2020 are acutely felt by the women and children served by Abby’s House. Abby’s House provides women with or without children with shelter, affordable housing, and the support they need to get back on their feet. The women who arrive on the doorstep of Abby’s House come from many different circumstances, such as leaving an abusive relationship or a job loss resulting in the inability to pay for housing and food. The common thread is fear for what the future holds 

On behalf of the Concentric Energy Advisors family, we are proud to support Abby’s House by sponsoring the Abby’s House Virtual 5k Walk/Run. The virtual 5k eliminates geographic boundaries and brings together the entire Concentric family as Team Concentric. On behalf of Team Concentricplease consider donating to Abby’s House on the Team Concentric fundraising page. All proceeds raised directly support the organization’s shelter, housing, and advocacy programs. Together, we can help those facing homelessness reclaim and rebuild their lives.  

On behalf of Abby’s House and Team Concentricthank you for your consideration of this opportunity. Please contact info@ceadvisors.com if you wish to join Team Concentric and participate in the virtual 5k. We would be honored to have you on our team. 

Respectfully, 

John J. Reed
Chairman and Chief Executive Officer
Concentric Energy Advisors 

Concentric Energy Advisors
In Case You Missed It...

Concentric’s consulting staff was hard at work this summer writing on a variety of topics ranging from utility valuation to the impacts of COVID-19. If you missed a story, catch up here.

Pipe Replacement for a Decarbonized Future
By: Alexander Cochis, Project Manager and Javier Sola, Consultant

Environmental advocates are challenging whether it makes sense to continue with existing pipe replacement programs, arguing that the industry is investing in rate base that will be stranded long before it is fully depreciated. Should a gas company continue, accelerate, or reprioritize its pipe replacement program? If regulators place shareholders at risk for new pipe investment, how can local gas distribution companies (LDCs) manage that risk? Should the company propose a change to depreciation rates for existing or new pipe?

COVID Impacts Depend on Sales Trends and State Ratemaking Policies
By: Bickey Rimal, Senior Project Manager

The most recent electricity consumption data from the U.S. Energy Information Administration (“EIA”) reveals that the COVID-19 pandemic is significantly impacting electric utilities throughout the country. A continuing decline in sales during the peak summer period coupled with misaligned rate design and structures does not bode well for the utilities. The most adversely impacted utilities are those that possess rate structures that recover a disproportionate share of fixed costs through volumetric rates; lack rate adjustment/revenue stabilization mechanisms (e.g., revenue decoupling, formula rate plans, multi-year rate plans, etc.); and/or have a higher proportion of sales from the commercial and industrial customers relative to the residential customers.

FERC’s Evolving ROE Methodology in a Period of Market Uncertainty
By: Josh Nowak, Assistant Vice President

The Federal Energy Regulatory Commission (FERC) recently issued an Opinion which represents its latest iteration in its evolving methodology to determine just and reasonable returns on equity (ROE).  Opinion No. 569-A, issued on May 21, 2020, was a response to requests for rehearing on Opinion No. 569 in the Midcontinent Independent System Operator (MISO) proceeding.  In this decision, several changes were made to the methodology previously adopted in Opinion No. 569.

Are Utilities Over-Valued?
By: James Coyne, Senior Vice President; Carrie O’Neill, Assistant Vice President; and Peter Hoegler, Senior Analyst

Investor-owned utility (“IOU”) valuations have increased over the past decade. As measured in the context of merger and acquisition (“M&A”) transactions, price-to-earnings ratios increased from 2010 through 2019 with an average of 25x and a median of 21x. Acquisition premiums over the same time period averaged 28.1% with a median of 25.6%. Excluding the economic downturn years of 2007–2009, there is a clear upward trend, and some industry observers and analysts have questioned whether utilities are overvalued.

Are Demand Charges Appropriate for Sending Price Signals for Electric Distribution Systems?
By: Ralph Zarumba, Vice President and Tom O’Neill, Jr., Consultant

Demand charges have been a component of electric utility pricing design for many decades. However, industry experts are now debating whether demand charges are an appropriate pricing mechanism, in particular for smaller customers (e.g., residential customers). In this article, we limit the debate to electric distribution systems. We will assess the arguments for and against demand charges and determine if demand charges are an appropriate mechanism in an electricity pricing design.

Serving the Customer of One: Looking Beyond the Meter
By: Paul Rice, Vice President

Utility customers are transitioning from passive recipients of utility services to active participants in the market. So, what are the implications for utilities and how they do business? In order to develop a cohesive strategy that aligns with their goals for overall revenue growth and risk tolerance, utilities must redefine who is their customer in this new energy market.

It’s no longer about serving “rate payers” that are members of a “customer class.” Nor does the utility’s interest in customers terminate at the meter. The “customer of one” has multiple options when it comes to purchasing and managing their energy, as well as greater expectations for service offerings.

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