1998 ROE Rate Case Survey

Fortnightly Magazine - December 1998
This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.

States continue to set ROE in price cap plans, stranded cost hearings, and some merger reviews.

In spite of a decline in the frequency of traditional utility rate cases, regulators at the state public utility commissions still have occasion to fix a target rate of return on common equity (em or ROE (em as a benchmark to determine what level of earnings is appropriate in a given setting.

And, as regulators in one state will often view an ROE set by a sister commission as the most reliable evidence of what should be reasonable in their own case, Public Utilities Fortnightly here revives a past feature for at least one more go-round: a survey of recent PUC determinations of ROE allowances for electric and gas distribution utilities.

This year's survey covers decisions issued between Jan. 1, 1997 and Sept. 30, 1998. During this period ROE determinations were seen not just in traditional rate cases, but in other proceedings, such as industry restructuring plans, investigations on stranded cost recovery, merger approval cases, and even in decisions approving performance-based regulation or nontraditional price-cap plans. Merger proposals sometimes come with a rate plan designed to win regulator approval, prompting a check on implied ROE to evaluate the new rates. Moreover, in price-cap plans especially, regulators will often rely on an initial ROE-based benchmark as a start point for periodic adjustments based on inflation, productivity changes, and other indexes.

ROE, a fundamental part of utility regulation, represents the amount included in rates to allow the utility to earn a "profit" on capital invested in the form of shares of common stock. It's what attracts investors to utility stock.

This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.