PURA staff questions UI plan to capitalize LIDAR Tier 2 labor; company details controls to avoid double recovery

Public Utilities Regulatory Authority staff pressed United Illuminating on whether roughly $600,000 in internal labor for the company’s LIDAR Tier 2 implementation could be recovered twice—once through base distribution rates and again through the company’s RAM/GRAMA recovery mechanisms—during a hearing in Docket 20-50104.

Christopher Arpin, staff for the authority, framed the line of questioning by noting that "UI is seeking to capitalize its LIDAR tier 2 implementation costs, which include approximately $600,000 in internal labor expenses," and asked whether those internal labor costs were already being recovered in the company’s base distribution rates.

Why it matters: capitalizing labor shifts costs into rate base and spreads recovery over an asset’s useful life, which affects near-term customer bills and which revenue mechanism ultimately bears the expense.

UI witnesses said the company treats capitalized labor differently from operating payroll in its revenue-requirement calculations. Devang Patel, identified on the record as general manager for UIL Holdings, and other company witnesses explained that the company’s most recent distribution rate case did not include future capital additions from after the evidentiary record and therefore did not already recover the capitalized portion of those later projects in base rates.

UI described internal controls it says prevent double recovery. "Each employee is responsible for charging their time, and their manager is responsible for reviewing their time," said an on-record company witness identified as Andrew (staff member). "Capitalized labor has to be assigned to a certain work order, and then it can only be assigned to 1 work order. So you can't double bill by time." The company said time is input to a work breakdown-structure (WBS) code and that managers and IT general controls (ITGC) review and enforce correct coding.

Company witnesses also told PURA staff that, where labor is capitalized, the related expense is recovered over the asset’s useful life through depreciation and inclusion in rate base—meaning customers pay a return of and a return on the investment over time rather than recognizing the full expense immediately. A company witness explained that the current revenue requirement reflects salaries less expected capitalization through the close of the evidentiary record in the referenced distribution case (identified in testimony as docket number 220808).

Staff and intervenors pressed on how RAM filings present costs. Jonathan Norton of authority staff asked whether RAM recovery reflected the exact portion that would be credited for capitalization in distribution rates or the actual costs incurred; the company replied that RAM shows the actual costs incurred. Company witnesses acknowledged this can create differences between the capitalization carve-out used for setting base rates and the actual costs the company later seeks to recover in a RAM filing.

PURA staff asked for the company’s accounting practice that prevents duplicate recovery across mechanisms. UI reiterated that the WBS/time-entry system, manager review, and work-order controls are the principal safeguards; UI also noted that capitalization practices and thresholds are described in its capitalization policy, which the company filed as a late exhibit.

The office of consumer counsel raised related questions about EV-program labor that was authorized in an earlier distribution decision (referred to in record as docket 220808) but later included in RAM recovery (referenced in the record as docket 241004). UI explained that EV program time is charged to a discrete code and that, where the RAM now captures the EV program cost, the company pulls those charges into the RAM rather than into distribution.

On redirect, company witnesses reiterated that their proposed revenue requirement in docket 220808 "excluded the capitalized labor percentage," and that certain incremental labor for EV programs was not included in the base rates in docket 241004.

What did not change today: there were no final agency rulings at the hearing. The panel adopted the late-file exhibit responses and supplemental interrogatory responses into the sworn record as the hearing concluded. Briefs in the docket are due June 20, after which the authority will issue further directions.

Looking ahead: staff and intervenors signaled they will continue to probe whether capitalization and RAM filings yield consistent results, and whether the company’s internal controls and reporting provide sufficient transparency to guard against double recovery for ratepayers.