Eversource explains how internal labor on LiDAR and IT projects is capitalized and how RAM/Grama interacts with base rates

Eversource witnesses told the Public Utilities Regulatory Authority that internal employee labor charged to capital work orders for IT projects such as LiDAR implementation is recorded as actual hours and capitalized when it meets accounting rules; base distribution rates are adjusted using a representative amount in rate cases and RAM/Grama recovery is calculated using depreciation as part of a full revenue requirement.

Nut graf: The exchange addressed how internal labor is treated for capital projects, how much of those costs appear in base distribution rates versus RAM (reconciliation) filings, and the company’s rationale for using representative percentages drawn from the most recent rate case test‑year data.

Key testimony and context: An Eversource witness explained that "the capitalized costs associated with internal labor are actual. Every hour incurred...that gets charged to that job." The witness distinguished actual capital charges from the representative amount used in rate cases: the representative amount removes capitalized labor from operating expense when setting base distribution rates.

Staff highlighted a hypothetical to illustrate potential divergence: if 1 FTE earns $100,000 and a prior rate case used a 50% capitalization percentage, $50,000 would flow to O&M in base rates and $50,000 would be capitalized. If RAM later reports that 100% of that FTE's time was capitalized for a project, the company said discrepancies can occur in either direction year to year; such variance is "natural, ordinary course of business in the utility industry." The panel confirmed the company does not track these discrepancies on an employee‑by‑employee basis for RAM.

How costs show up in RAM/Grama: Company witnesses said RAM includes a full revenue requirement calculation for incremental capital dollars, which will include depreciation, return, property tax and uncollectible expense. "So that would be the return of the capital investment, but there will also be a return on as well as property taxes and uncollectible expense," one witness said when describing how a hypothetical $1 million project with five‑year useful life would be reflected in RAM.

Decisions or directions: No formal regulatory action resulted from this exchange. Staff questioned whether the company should more closely track potential mismatches between base distribution assumptions and actual capitalization, and the company said its current practice is to use best estimates from the prior rate case test year and to reconcile actuals through RAM/Grama filings.

Ending: The testimony clarified accounting practice: internal labor posted to capital work orders are recorded as actual hours; representative amounts in base rate settings are estimates used to avoid double recovery, and RAM/Grama reconciliations include the depreciation and revenue‑requirement impacts of capitalized projects.