USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner, Dennis W. Elsenbeck and Zachary R. Hirschfeld, Phillips Lytle LLP
State Utility Commission For utilities with rates that are regulated by a state util- ity commission, rates are generally set through regu- latory proceedings following submission of a request to increase base rates, along with written supporting testimony and evidence. The state utility commission, along with interested parties that seek to intervene, may propound interrogatories and/or requests for information on the utility, and vice versa. Generally, parties will brief their positions, and the rate case may settle if a sufficient number of parties agree to a joint settlement, or the case may proceed to formal hear- ings. In most states, the utility rate case documents are posted on a public docketing database, unless they are confidential or protected pursuant to state regu- lations and state utility commission rules. The pro- cess, frequency, duration and timeframe for rate cases depend on the state in which the distribution facility is located and the utility tariffs sought to be modi- fied, but the process generally ranges from eight to 12 months and results in an order covering one or more years. Cost-of-Service Regulatory Model Most states operate under a cost-of-service regulato- ry model whereby the regulator determines the utility’s revenue requirement that reflects the total amount that must be collected from customers in rates for the util- ity to recover its reasonable and necessary expenses, as well as to earn a reasonable return on investment. The revenue requirement is generally derived from a formula that accounts for the utility’s rate base, a fair rate of return, operating costs, depreciation expens- es, taxes and other costs. The treatment of electricity supply, among other items, will vary depending on the degree to which states have restructured their elec- tricity market.
While states may have different approaches to cal- culating a rate of return, the rate should be sufficient to maintain the financial integrity of the utility, enable the attraction of additional capital and be equal to that earned by other companies with comparable risk profiles. Depreciation rates are approved by state utility commissions upon review and consid- eration of depreciation studies, which are generally performed by depreciation consultants and supported with expert testimony in rate case proceedings. Some states have adopted alternative rate-making method- ologies that are focused on incremental rate recov- ery, performance-based metrics and other adjustment Following issuance of a formal ruling or order on a utility’s rate request, a utility or interested party may request a rehearing or reconsideration depending on state law and regulation. Once a final agency deter- mination has been reached and all administrative remedies have been exhausted, an entity may appeal the decision to the applicable state court for judicial review. mechanisms that vary by state. Reconsideration of Utility Rates
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