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Utilities and Regulators: A Search for Harmony

Ratemaking Special Report: Survey respondents weigh in with needed actions.

Fortnightly Magazine - November 2005
  • with generally accepted accounting standards and with mainstream methodologies for treatment of ROE, depreciation, ." (Regulator)

More Effective

  • "Tailor the filing to address the concerns of the audience." (Utility)
  • "Streamline the data requirements for rate-case filings. Too much data is required that is never used." (Utility)
  • "Better communication between all parties." (Regulator)
  • "Strict adherence to timelines by all parties and the commission. Resist over-burdensome data requests by parties and resist litany of irrelevant questions by commissioners." (Regulator)

Finally, we asked survey respondents to indicate the single most important change to the rate-case process that would improve stakeholder response to the utility's rate increase request and related proposals. The types of changes they identified focused on areas dealing with the need for better and more open communications, more transparency in the process, greater education, more efficient and understandable rate-case processing procedures, the need for an expedited regulatory decision schedule, reduced and more focused filing requirements, and fostering a better understanding of why the utility's rate increase is necessary.

After cutting through all the perspectives and suggested actions provided by survey respondents, we believe the single biggest obstacle that must be overcome to manage regulatory uncertainty is the lack of trust between utility leaders and regulators. The trust issue affects virtually all of the roles, responsibilities, and best-practice principles of regulators, and it greatly influences their interaction with the utilities they regulate.

In response to the ongoing transformation of the energy industry, it is well understood that the role of regulation-its focus, processes, and resources-must change. However, the correct solution and path to change often lies in the eyes of the beholder and varies considerably among utilities and regulators. Therefore, it is absolutely critical and incumbent upon utility leaders and regulators to ensure their intentions are well known to the other through open, honest communication and complete disclosure of the facts, and that this approach permeate throughout their respective organizations so that interactions at all levels are sensitized. Most important, it must occur at both the commissioner and staff levels. Although the process undoubtedly will be a continuous one, eventually the building of trust should instill a belief that each group will "do the right thing," which should over time enable utility leaders and regulators to focus on performance rather than simply on "one-off" rate case outcomes. The actions of utility leaders and regulators must be compatible so that utilities can continue to provide safe, reliable, and cost-effective services in a financially responsible manner and meet tomorrow's industry challenges.

Endnotes

  1. "Regulatory Uncertainty: The Ratemaking Challenge Continues," , November 2004, p. 52.
  2. The survey was sent to the regulatory officers of North American utilities and to the chairmen and commissioners of each state or provincial regulatory body. Survey respondents represented gas utility companies (43 percent), electric utility companies (13 percent), combination utility companies (22 percent), distribution-only (13 percent), integrated utility - generation/T&D (9 percent), and regulatory bodies (29 percent) from 20 states and one Canadian province.

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