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Lower utility profits urged

Environmentalists and consumer groups are asking federal regulators to dramatically lower profits that New England utilities receive for building transmission lines, a move that could save customers more than $150 million a year.

Environment Northeast and the Boston-based National Consumer Law Center recently filed a formal request with the Federal Energy Regulatory Commission seeking to cut those profits, which have been called “excessive” by Attorney General Martha Coakley, by more than a fifth.

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The state’s investor-owned utilities are allowed make a profit of 11.1 percent on money they spend to build transmission lines — profits that come by charging customers higher rates. The advocacy groups would slash the allowable profit to 8.7 percent. Coakley filed a similar request in the fall of 2011, but it is still being reviewed by regulators.

“We believe that current electric transmission rates are excessive and place too high a burden on businesses and families,” Coakley said in a statement this week. “We applaud the [Environment Northeast] and [National Consumer Law Center ] for taking this similar action and helping push the federal government to set rates at an appropriate level.”

Regulated utilities must receive approval to undertake big, expensive projects like installing new transmission lines because customers ultimately pay the cost of these improvements. If regulators decide the projects are necessary, they typically allow utilities to raise rates to recover the costs, plus a reasonable rate of return, or profit.

The federal agency set the current rate of return in 2006.

National Grid said it is reviewing the filing, but that it views the existing rate of return as reasonable, said spokeswoman Jackie Barry. Northeast Utilities, the parent company of NStar and Western Massachusetts Electric Co., will coordinate with other transmission owners, and file a response by mid-January, said spokeswoman Caroline Pretyman.

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In addition to the two Massachusetts requests, the commission is considering seven others from around the country seeking lower rates of return for transmission owners, said James Fama, vice president of energy delivery at the Edison Electric Institute, a utility trade group. Fama said double-digit returns remain reasonable given the risk of building transmission lines needed to make the power system more reliable and transport power from new energy sources.

“FERC should not go into these lower requested returns,” Fama said. “The risk of building transmission hasn’t lessened.”

In their filing, Environment Northeast and the National Consumer Law Center argue that the current rate of return is too high given the recent recession and resulting changes in financial markets, including lower interest rates.

If the commission adopted the lower rate of return, New Englanders would save an estimated $159 million initially, according to Environment Northeast, and nearly $250 million in 2015. It was unclear what savings individual customers might see.

It would also lessen the incentive for utilities to build costly transmission lines, rather than adopting energy efficiency measures to lower demand and eliminate the need for new transmission, the advocacy groups argued.

“Utilities are getting these rewards for building more and more transmission lines, and the problems we see are when these incentives are at odds with state goals,” said Michael Henry, director of the sustainable transmission project at Environment Northeast.

Henry said his group is asking that its request, made in late December, be consolidated with Coakley’s earlier case, which asked for the transmission rate to be dropped to 9.2 percent. That case has dragged on following a failed attempt to resolve the issue before a settlement judge. A decision is not scheduled until at least September.

Erin Ailworth can be reached at eailworth@globe.com. Follow her on Twitter @ailworth.

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