Commissioners press Eversource on carrying-charge method: WACC, debt-only, or a prime-rate proxy?
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Summary
During cross-examination commissioners and staff challenged Eversource's use of its WACC to calculate carrying charges on deferred storm costs, asked for alternative columns (weighted cost of debt; prime-rate proxy) and for calculations tied to invoice-payment dates; the company agreed to late-file the alternate computations.
Commissioners pressed Eversource witnesses for alternatives to the company's proposed carrying‑charge methodology during a lengthy technical exchange at a PURA evidentiary hearing.
Lede: Authority staff and several commissioners asked the company to show carrying‑charge calculations using (a) the company's weighted average cost of capital (WACC; the company's submitted baseline), (b) a weighted average cost of debt-only calculation, and (c) a simple published benchmark used by other states (a prime-rate proxy). The company agreed to provide all three as late-filed spreadsheets so the commission can compare outcomes.
Nut graf: The parties framed the debate along accounting and policy lines. Eversource argued WACC best represents how it financed large deferred balances (a mix of debt and equity) and said the equity portion of financing is an incurred cost under ASC 980 when regulatory assets are probable of recovery. Staff and commissioners noted regulators often use debt-based or published proxies to balance customer and shareholder risk, and asked for calculations that exclude the equity component (debt-only) and calculations using a lower public benchmark (the prime rate) as a point of comparison.
Key technical points: - Company rationale: Eversource witnesses said storm balances were financed through a combination of funds from operations, short‑term debt (commercial paper), long‑term debt and parent equity contributions; hence the company used a WACC grossed up for income taxes in Exhibit ESSFP‑6 column I. - Staff requests: staff asked for the WACC gross‑up inputs for all historical periods (late file 31), a separate column calculating carrying charges at the company's weighted average cost of debt, and an additional modeled column applying a prime‑rate proxy (the latter reflecting approaches used in Massachusetts). - Accrual versus cash timing: commissioners also asked the company to recalculate carrying charges based on cash payment dates (invoice payment) rather than accrual creation dates; the company marked that as late file 33 and said that tethering would slightly lower calculated carrying charges.
Representative quote: "We could absolutely break that out," the company said when asked to show a WACC breakdown and alternative carrying‑charge columns. Steve Capozzi (authority staff) said, "Most, not all, but most of my questions today are about carrying charges," signaling the focus of cross-examination.
Why it matters: The benchmark selection materially affects the dollar amount of carrying charges included in any securitization or rate recovery calculation. A WACC-based approach includes an equity component and, all else equal, yields higher carrying charges than a debt-only or prime-proxy method; commissioners signaled they want transparent, side-by-side numbers to justify PURA's eventual choice.
Next procedural step: Company agreed to provide late-file exhibits breaking out carrying-charge components (late file 31) and a payment-date‑based recalculation (late file 33). PURA will review those exhibits before issuing a decision about whether to include carrying charges and which metric to adopt.
