Rate Cases

As the industry resumes major capital-spending programs, utilities and their stakeholders are rightly concerned about the effects on prices. Traditional regulatory approaches expose utilities to risks and costs, and can bring rate shock when capital spending finally makes its way into customers’ bills. Pre-funding investments can provide a smoother on-ramp to bearing the costs of a 21st-Century utility system — but it also raises questions for utilities to address.

Many states have implemented decoupled rate regimes to avoid penalizing utilities for conservation efforts. But ensuring appropriate recovery of costs involved with conservation and green energy requires a careful approach. Cost sharing mechanisms balance the interests of utilities and customers — and provide incentives to invest.

In several recent utility rate cases, regulators have disallowed portions of utility compensation expenses, on the basis that difficult local economic conditions justify pay cuts. However, when utilities begin squeezing their uniquely qualified technical and management staffs, performance can suffer. Analysis Group authors David W. Sosa and Virginia Perry-Failor review experiences at several companies to show how an evidentiary approach will help utilities avoid disallowances of critical compensation for valued employees.

(November 2011) Our annual survey of rate cases shows that despite volatility in financial markets, state regulators are holding utilities to a high standard for boosting their returns on equity (ROE). The latest data is added to Fortnightly.com's exclusive online ROE survey database, the largest free source of rate case information anywhere on the Web.

The balance of stakeholder interests in utility ratemaking has shifted over the past decade toward achieving social policy goals. A more sustainable balance is required if utilities and regulators hope to preserve utility service quality and affordability.

Time-of-use (TOU) pricing might seem like the ultimate solution to ensure electric vehicle charging loads won’t overburden the grid. But will TOU rates guide drivers’ behavior when it’s time to top up their batteries? Early indicators suggest the answer varies among vehicle owners and pricing plans.

Under business-as-usual regulation, electric utilities must file more and more rate cases to keep up with rising costs. New approaches provide for modest but stable recovery of costs outside rate cases, while providing ongoing regulatory oversight and creating strong incentives for utilities to efficiently manage construction projects.

When regulators grant changes to utility rates of return, they estimate growth on the basis of gross domestic product (GDP). But do utilities have any chance of growing at the same pace as GDP? The answer is no — with huge consequences for utilities and their consumers. With equity costs outpacing allowed rates of return, utilities aren’t being valued correctly. As a result, the industry risks falling behind other sectors in terms of infrastructure investments and technology innovation.

With a recent flurry of gas pipeline rate investigations at the Federal Energy Regulatory Commission (FERC), many pipeline owners face the prospect of having their profits scrutinized to ensure their rates are just and reasonable. Understanding FERC’s approach will help companies ensure they’re not falling outside the zone of reasonableness.

John Ferguson, CDP, comments on Joe Rosebrock’s article in April issue and Mr. Rosebrock responds.