This overview of ratemaking and rate-design principles should ease the myriad tasks awaiting new rate analysts and attorneys, while provoking nostalgia among industry veterans still manning the...
Restoring Financial Balance
With looming mandates and aging infrastructure, utilities need regulatory support.
and utilities. Even as rates increase, there are benefits for customers that need to be identified. Today, electricity remains a relative bargain for consumers, even at the expected higher rates. The service can be provided safely and reliably, both now and in the future, only if the utility is financially healthy enough to undertake the needed investment in the infrastructure that provides such service.
The public policy rationale for the regulatory compact is as compelling as ever. In fact, the public interest arguments for a sustainable regulatory compact have become broader, as governments look to utilities to serve as instruments of public policy in such areas as renewable resources, demand-side management, energy efficiency, and environmental regulation. Utilities can be ordered by regulators to do all sorts of good things, but utilities can’t continue delivering them if they don’t have the ability to recover their costs of providing service and to maintain access to capital.
As the record shows in the U.S. and in many other countries, financially healthy utilities are in a much stronger position to maintain reliable service, invest in technological improvements, and provide superior value for their customers.
1. The Supreme Court Cases, FPC v. Hope Natural Gas Co. and Bluefield Waterworks & Improvement Co. v. Public Service Commission of W. Va. , helped to define the requirements related to a reasonable return.
2. U.S. Supreme Court 1877 decision, Munn v. Illinois .