The sweeping regulatory reform implemented in Michigan over the past year is often couched as a response to the economic crisis. Decoupling rates from utility profits, the reasoning goes, will...
2009 Regulator's Forum: Walking A Tightrope
The economy forces tough decisions.
The commission also encourages new technologies by conducting pilot programs such as the deployment of smart grid and smart meters, which along with time- and demand-sensitive rate plans give customers more control over their billing, while reducing operating costs such as truck rolls and meter reading.
Garry A. Brown, New York: We generally provide for recovery of costs associated with capital projects; however, we’re asking utilities to take a long, hard look at their capital budgets, and to seriously assess the potential to defer some capital expenditures on projects that are discretionary or could be slipped without compromising safety and reliability. Also we’re adopting a ‘downward reconciliation’ rate mechanism for capital expenditures so customers receive the benefit of any under-spending by the utilities.
Staff meets routinely with utilities to assess capital programs, stressing the need to continue high-priority capital projects and scale back lower-priority projects. Management audits are being performed of utility construction program planning and these audits stress the importance of linking capital expenditures to achievement of long-term goals.
The commission instituted a proceeding in May requiring utilities to file austerity plans and explain what actions they have already taken to control costs in this economic environment and what additional actions can be taken.
Fortnightly: Is the regulatory compact changing in your state to accommodate increased market risk?
Anthony, Oklahoma: Yes, although market risk has always been a part of the regulatory process. Staff reviews current market conditions when recommending allowed rates of return. This consideration includes modified risk premiums, the current bond market and rating systems. Alternative regulation through riders allows the company to recapture some expenditures in real time rather than waiting for rate-case adjustments, while at the same time helping hold down carrying costs and decreasing consumer rate shock. A greater utilization of competitive bidding and independent evaluators for fuel, generation, capital improvements and transportation ensures a price closer to true market valuation. The commission also has approved pilot programs in financial hedging to reduce ratepayers’ exposure to risks in the commodities markets, and staff reviews utility integrated resource plans as a means of longer-term planning and reduced speculation.
Beyer, Oregon: No, we haven’t made any changes to the regulatory compact.
DelGobbo, Connecticut: The department is keenly aware of the implications of a utility provider that doesn’t get a rate relief sufficient to maintain cash flow needed to procure energy portfolios, which unlike ratepayer bills, are due immediately upon being acquired. There is the additional pressure utilities face of receiving a lower credit rating due to a level of uncertainty in rate proceedings, which adds to their cost of capital. The department is currently evaluating the desirability and efficacy of establishing a more standardized return-on-equity methodology.
Our department also has been active in several gas and electric dockets in implementing decoupling of electric and natural gas distribution revenues from sales volumes and instituting long-term resource planning for Connecticut. The department remains open to evaluating any other new or innovative proposals the industry or legislature wish to submit for our review.
Everett, Georgia: In 2009, the legislature