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Regulatory Uncertainty: The Ratemaking Challenge Continues

Ratemaking Special Report
Fortnightly Magazine - November 2004

of these parties would take a balanced position in the rate case is easier to conceive of in theory, but much harder to achieve in practice. In certain jurisdictions, most notably in Canada, regulators have been working hard to implement Alternative Dispute Resolution (ADR) and other less adversarial processes in an attempt to minimize the often polarized positions of parties that drive the review and ultimate resolution of rate case issues. At the same time, it is in the public interest that there be a more complete recognition of the delicate balance that must be struck between protecting the utility customers' energy interests and ensuring that the utility has a reasonable opportunity to achieve financial health if it manages its business in an effective and responsible manner. A more complete disclosure to the regulator of the "facts that matter" by the utility, both in and outside of rate cases, can foster the open discussions and eventual building of trust that can make these ideals a reality.

Regulatory Uncertainty: Here to Stay

The message heard loud and clear from survey respondents is that the concept of regulatory uncertainty is real, that it is here to stay for the foreseeable future, and that it must be better managed. Managing regulatory uncertainty will involve finding new ways to promote: (1) greater clarity in the energy policies of the state and federal governments; (2) more specificity and consistency in how regulators implement such policies, and in their related decisions that impact the operations of regulated utilities; and (3) continuing efforts of utilities to interact with regulators and other stakeholders outside the rate case environment to communicate, educate, and build trust.

And with the increased frequency of rate-case filings expected in the next few years, there will be ample opportunity to explore such remedies. Therefore, the utility, regulator, and other stakeholders must all work hard to establish collective objectives that will point the process in the right direction. With all the other major business uncertainties that exist today in the energy industry that cannot as easily be influenced and managed, it is incumbent upon all interested parties to address this most important issue now to ensure the continued viability of gas and electric distribution utilities to meet the future energy needs of their customers.

Endnotes

  1. Survey respondents represented gas utility companies (52 percent), electric utility companies (13 percent), and combination utility companies (35 percent) from 26 states and 2 Canadian provinces.
  2. For example, see the Resolution on Gas and Electric Energy Efficiency adopted by The National Association of Regulatory Utility Commissioners (NARUC) board of directors on July 14, 2004, and the Joint Statement of the American Gas Association and the National Resources Defense Council submitted to NARUC in July 2004.

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