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Following energy issues in the state of Connecticut and beyond.

Monday, May 11, 2009

A wise strategy?

New Haven Mayor John DeStefano is angry that one of the city's major corporate players - the United Illuminating Co. - is planning to move its operations to Orange.

DeStefano’s anger is to be expected. After all, the utility is the city's 12th largest employer and leases a large chunk -200,000 square feet - of downtown real estate in the Connecticut Financial Center.

And then there's the prestige factor of a company that has been located in New Haven for 166 years finally deciding to move to the 'burbs.

Being mayor at a time when a major business in your community bolts for the exits is akin to being captain of the Titanic: All of the blame probably shouldn’t rest on you alone, but it’s hardly something you want to put on your resume.

But you've got to wonder about Hizzoner's strategy of linking UI's plans to leave the Elm City with the company's request that the state's Department of Public Utility Control reexamine the 8.75 percent return on equity. The DPUC set that rate for company in February and now UI is claiming it can’t get enough investors to operate the company normally as a result.

It's not that ratepayers won't eventually pay for the cost of building UI's new headquarters because they ultimately will. But UI can't build the cost of what may eventually come to be known as "The Crystal Palace in the Cornfield" into its rate structure until the new headquarters space is largely inhabitable, according to Anthony Vallillo, UI's president and chief operating officer.

And thus far, the DPUC hasn't come out against the new headquarters plan, even though it has been several opportunities to do so.

That's not to say that it won't. But during hearings Monday on whether regulators should reconsider UI's return on equity, several DPUC commissioners raised the question if the headquarters issue should either be considered as part of another proceeding or perhaps another venue: the courts.

Following Monday's proceedings, DPUC Vice Chairman John Betkoski III acknowledged that the regulatory agency often takes a narrow - some would say "focused" - view on what testimony is germane to a given subject and what is not.

"I supposed we could have said that it was not a subject that was central to this matter," Betkoski said of the headquarters issue. "But when we bring people all the way up here (to New Britain, where the DPUC is headquartered) to speak, we like to give them a little leeway."

The city of New Haven's argument against UI leaving is not a weak one by any means, particularly when assessing the impact the company's departure would have on the city.

City planner Karen Gilvarg estimated on Monday that it would take at least two years, given the current rate at which office space vacancies are filled up, for New Haven to find new tenants for the space UI now occupies. And while UI employees can now take a bus or a train practically to the door step of the headquarters, moving the headquarters to Orange is predicated on lots of people driving lots of passenger cars.

"It doesn't make sense," DeStefano sputtered to reporters after delivering testimony to the DPUC. "It's a lack of vision."

It's hard to disagree with that assessment, particularly when Vallillo said last week that the proposed move to Orange is being driven, in part, by UI's lease at the Connecticut Financial Center expiring in 2012. Last time I checked, leases can be renewed and given the current state of the economy, you have to believe that UI's landlord would be willing to negotiate some highly favorable terms rather than having a third of the Connecticut Financial Center left empty.

But lumping the headquarters issue in with the dispute over return on equity seems like grasping at straws.

The burden of proof is on UI officials to convince the DPUC that it should do what is rarely done: reopen the discussions on return on equity. Betkoski certainly didn't seem inclined to support such a move on Monday, even arguing at one point that perhaps UI's rate of return should be reduced even further.

There is a time and place for everything. And the battle over UI's moving its headquarters should either be fought in a court of law or in a separate proceeding before the DPUC, not as part of the current case on return on equity.

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