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Return on Equity: A Survey of Recent Rate Cases From State PUCs

Ratemaking Special Report
Fortnightly Magazine - November 2004

in the early years of the new century. According to the Connecticut commission, CL&P had reinforced that notion by its own testimony regarding the cost of its pension plan. The decision notes that the company had testified that long-term expectations of returns for its pension plan (with assets devoted 70 percent in equities) should be lowered from 9.25 percent (as in 2002) to 8.75 percent, for the rate case test year.

How the Survey Was Conducted

This year's survey covers determinations of the cost of equity capital as made by state PUCs during the period from Oct. 1, 2003, through Sept. 15, 2004. The survey method remains similar to past years. Requests for information on the results of recent rate proceedings were sent to both regulators and utility financial officials. Direct examination of the commission rate orders, where available, provides additional information.

The traditional cost-of-service rate case remains the most obvious source of information on how utility regulators view the issue of shareholder earnings requirements. Nevertheless, other proceedings may contain findings relative to ROE, and those rulings are reported here as well, including cases that deal with performance-based rate plans, periodic earnings reviews, and special proceedings to determine revenue requirements for restructured electric "delivery-only" utility operations.

Explanatory notes accompany most entries, and citations (volume and page number) are provided for orders published in .


* Approved settlement agreement.

  1. Settlement presented as basis for bankruptcy reorganization plan provides a $7.2 billion ratepayer contribution to utility's unrecovered costs of utility service. Approved agreement also creates a $2.21 billion regulatory asset to be amortized over 9-year period.
  2. Reflects reduction to business risk attributable to implementation of balancing account rate mechanism, attrition year rate plan, and accelerated pipeline replacement program.
  3. Application for approval of four-year rate plan for distribution and transmission services.
  4. Utility requested increases of $140.1, $168.8, $195.6 and $226.3 million for rate plan years 2004 through 2007.
  5. Department approved rate increases of $1.9, $25.1, $11.9 and $7 million for rate plan years 2004 through 2007.
  6. ROE reflects reduced operating risk following industry restructuring and the divestiture of generation.
  7. Utility's prior rate case decided 11/23/93.
  8. PSC imputed short-term debt rate of 3.9% even though actual short-term loan rate was 7% to account for financial losses attributable to non-utility operations.
  9. Approved ROE, which is greater than the 11.25% rate approved by the PSC in two other recent gas rate proceedings, is warranted by the small size and risk profile of the LDC.
  10. Authorized ROE reflects finding by commission that utility faces financial risk due to numerous rate adjustment trackers that allow for periodic cost-based adjustments between rate cases.
  11. Utility seeks temporary increase as shown and permanent increase of an additional $149.2 million. Board grants temporary increase as shown.
  12. ROE from prior rate decision adopted for purpose of calculating temporary revenue requirement. ROE of 12.23% applied to investment in new generating plant pursuant to prior certificate ruling. Iowa UB issues binding rate findings as part of new plant certification process.
  13. Utility authorized to reverse a write-down to equity resulting from adoption of Statement of Financial Accounting