Tools to facilitate changing utility economics.
Michael Schmidt has held senior management positions with electric and gas utilities, consulting firms and a state regulatory agency. He wrote several books on utility issues, including PUR’s Performance-Based Ratemaking: Theory and Practice (2000). Email him at firstname.lastname@example.org.
These are challenging times for the electric and gas utilities. Reliability projects, renewable portfolio standards, greenhouse-gas emissions control, AMI, smart-grid investments, and conservation programs—all these things add to costs, but might bring in no additional revenue. Moreover, there will be unprecedented capital investment in transmission, renewable generation projects, and replacement of old facilities from the 1950s and 1960s. Thus, earnings likely will be more closely watched and traditional general rate cases might not be able to keep up.
There are a number of regulatory tools available to address rapid changes in utility operating and capital costs. First is the possibility of using a projected test year instead of a historical test year; but there’s nothing really new here, and it still requires a general rate case. A full blown general rate case is time consuming and costly for the utility, the regulator, and intervenors. Cost estimates for a projected test year add to disputes among the parties.