Regulators weigh interest rate climate and future Fed policy in setting allowed return on equity.
Phillip S. Cross is Fortnightly’s legal editor, and serves on the editorial staff of PUR’s Utility Regulatory News, reporting weekly on state ratemaking and regulatory decisions.
By the term “anomaly,” we don’t mean “Armageddon.” With the government shutdown recently lifted as this issue was going to press, we offer no prediction on how the continued sense of budget uncertainty and risk of future U.S. credit default might affect utility rate making and cost recovery.
Rather, this year’s annual survey of retail rate case orders and the rates of return on common equity (ROE) authorized therein prompts a question much less worrisome, though no less urgent:
Should the historically low interest rates of the past several years require a haircut to the ROEs authorized for regulated electric and natural gas distribution utilities in rate cases now being decided, or does this credit climate represent an historical anomaly – one that should call into question whether today’s rate-making methods, which for years have remained largely unchanged, are still producing the right answers?
Here, as in every survey, we provide data from all major electric and natural gas rate case orders. But we also take a look at three new rate case opinions from the past year that address the question of Anomaly vs. Normal: one from Connecticut, one from Alabama, and one from the Federal Energy Regulatory Commission (FERC).