New York Public Service Commission Approves New Rates for New York Utility Business

Rhea-AI Summary

National Fuel Gas Distribution (NYSE: NFG) received approval from the New York Public Service Commission for a three-year rate settlement starting January 1, 2025. This marks the company's first base delivery rate increase in New York since 2017. The settlement includes:

- Rate base of $1.04 billion in year one
- Return on equity of 9.7%
- Equity ratio of 48%
- Revenue requirement increases of $57 million (2025), $73 million (2026), and $86 million (2027)

The agreement maintains existing rate mechanisms like weather normalization and revenue decoupling, adds an uncollectible expense tracker, and includes a pipeline replacement target of 105 miles per year. A make-whole provision allows recovery of higher rates from October 1, 2024, through January 1, 2025.

Positive

• First rate increase approval since 2017, supporting infrastructure investments
• Significant revenue requirement increases: $57.3M (2025), $73.1M (2026), $85.8M (2027)
• Higher authorized return on equity of 9.7% vs previous 8.7%
• Increased equity ratio to 48% from 43%
• New uncollectible expense tracker allowing timely collection of customer arrearages

Negative

• None.

Insights

Financial Analyst

The PSC approval represents a significant financial milestone for NFG's utility segment. The $57.3 million revenue increase in FY2025, followed by incremental increases to $85.8 million by FY2027, provides substantial revenue visibility. The 200 basis point increase in authorized ROE to 9.7% and higher equity ratio of 48% (up from 43%) will strengthen NFG's financial position. The $1.04 billion rate base approval, with built-in growth to $1.16 billion by FY2027, ensures stable returns on infrastructure investments. The continuation of weather normalization and revenue decoupling mechanisms, plus the new uncollectible expense tracker, reduces earnings volatility. Think of it as installing both a safety net and a growth ladder - the company gets protection from weather risks while securing predictable revenue increases.

Utility Infrastructure Expert

The settlement's approval of 105 miles minimum annual pipeline replacement represents a robust infrastructure modernization commitment. This systematic upgrade approach allows NFG to enhance system reliability while managing capital deployment efficiently. The regulatory asset recovery of approximately $13 million annually through the system modernization trackers demonstrates regulatory support for infrastructure investments. The rate structure's design cleverly balances decarbonization initiatives with infrastructure resilience - similar to renovating a house while making it more energy efficient. The first base rate increase since 2017 indicates NFG's operational efficiency, having managed costs effectively for an extended period. This rate case outcome provides the financial framework needed to execute long-term infrastructure modernization while supporting state climate goals.

Three-Year Rate Settlement Approved with No Significant Modifications to the Joint Proposal

WILLIAMSVILLE, N.Y., Dec. 19, 2024 (GLOBE NEWSWIRE) -- National Fuel Gas Distribution Corporation (Distribution), the Utility segment of National Fuel Gas Company (NYSE: NFG) (National Fuel or the Company), today received approval from the New York Public Service Commission (PSC) on the terms of a Joint Proposal filed in Distribution’s rate proceeding resulting in a three-year settlement with new rates commencing January 1, 2025.

The incremental revenues will support necessary investments in Distribution’s pipeline infrastructure and workforce, address the rising cost of operating its gas delivery system, and advance more affordable decarbonization initiatives to comply with state climate goals.

This is the first increase to Distribution’s base delivery rates in New York since 2017 and only the second increase in 16 years. The terms of the Joint Proposal, as approved and modified by the PSC, also include several provisions relating to gas safety and customer service that will provide benefits and protections to customers.

Key Financial Outcomes

The rate case settlement reflects a rate base of $1.04 billion (in year one), a return on equity of 9.7%, and an equity ratio of 48% (consistent with the terms outlined in the Joint Proposal filed in September). The settlement also results in an increase in the revenue requirement of $57 million in fiscal 2025, $73 million (or increase of $16 million) in fiscal 2026, and $86 million (or increase of $13 million) in fiscal 2027, with a portion (approximately $13 million per year) relating to the recovery of regulatory assets that were previously recorded to accrue revenues under Distribution’s system modernization trackers. See table below for additional information.

Key Ratemaking Items

The settlement continues previously existing rate mechanisms such as weather normalization and revenue decoupling, which seek to mitigate the impact of weather and align returns with energy conservation goals and adds a new uncollectible expense tracker for the first two rate years, which will allow Distribution to timely collect customer arrearages that have remained elevated due to policies in place during the pandemic.

The rate increase also allows Distribution to recover costs associated with investments needed to support critical resiliency through our long-standing modernization program, such as a pipeline replacement target of a minimum of 105 miles per year.

Timing

The settlement includes a make-whole provision which allows Distribution to recover the impact of higher rates from October 1, 2024, when new rates were requested to take effect, through January 1, 2025, when new rates will commence. The recovery of earnings from the make-whole provision will be recognized in fiscal 2025.

Summary of Key Financial Items

($ millions, except as noted)	Current Rates			Approved (New) Rates
	Fiscal 2024			Fiscal 2025		Fiscal 2026		Fiscal 2027
Revenue Requirement Increase (relative to fiscal 2024)	n/a			$57.3		$73.1		$85.8
Rate Base	$858			$1,044		$1,104		$1,163
Overall Rate of Return	n/a			7.3%		7.4%		7.5%
Authorized Return on Equity	8.7%			9.7%		9.7%		9.7%
Authorized Equity Ratio	43%			48%		48%		48%

The terms and key financial items from the New York rate case, as outlined above, were incorporated into the Company’s previously issued guidance for fiscal 2025.

About National Fuel Gas Company:
National Fuel is a diversified energy company headquartered in Western New York that operates an integrated collection of natural gas assets across four business segments: Exploration and Production, Pipeline and Storage, Gathering and Utility.

Additional information about National Fuel is available at www.nationalfuel.com.

Cautionary Statements
Certain statements contained herein, including statements identified by the use of the words “anticipates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “believes,” “will,” “may,” and similar expressions, and statements other than statements of historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. While National Fuel’s expectations, beliefs, and projections are expressed in good faith and are believed to have a reasonable basis, actual results may differ materially from those projected in forward-looking statements. In addition to other factors, the following are important factors that could cause actual results to differ materially from those discussed in the forward-looking statements: (1) National Fuel’s ability to estimate accurately the time and resources necessary to implement new practices; (2) governmental/regulatory actions and/or market pressures to reduce or eliminate reliance on natural gas; and (3) the other risks and uncertainties described in (i) National Fuel’s most recent Annual Report on Form 10-K at Item 7, MD&A, and (ii) the “Risk Factors” included in National Fuel’s most recent Annual Report on Form 10-K at Item 1A. National Fuel disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. Because of these risks and uncertainties, readers should not place undue reliance on these forward-looking statements or use them for anything other than their intended purpose.

FAQ

What are the revenue increases approved for NFG in the New York rate settlement?

The settlement approves revenue requirement increases of $57.3 million for fiscal 2025, $73.1 million for fiscal 2026, and $85.8 million for fiscal 2027.

What is NFG's new authorized return on equity under the 2025 rate settlement?

Under the new rate settlement, NFG's authorized return on equity is 9.7%, an increase from the previous 8.7%.

When will NFG's new rates take effect in New York?

The new rates will commence on January 1, 2025, with a make-whole provision covering the period from October 1, 2024, through January 1, 2025.

What is NFG's approved rate base for fiscal 2025 under the new settlement?

NFG's approved rate base for fiscal 2025 is $1.044 billion, increasing to $1.104 billion in 2026 and $1.163 billion in 2027.

What pipeline replacement target is included in NFG's rate settlement?

The rate settlement includes a pipeline replacement target of a minimum of 105 miles per year.