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Rate Case Primer
The process by which utility rates are reviewed
A regulated utility may seek a change in rates with 30-days notice to the commission. During those 30 days, the commission can either allow the rate request to go into effect or suspend it for further investigation. If suspended, the commission has an additional 10 months to review the merits of the request.
State law requires that staff be a party to the case with the goal of promoting the “public interest.” The Public Counsel of the Office of Attorney General also is a party to the case, serving as the state-appointed legal representative for the consumer. Other parties with an interest in the case might also be allowed to participate.
During the case, the company must prove that the proposed rate increase is needed by showing what its costs are during a given test year. Often the definition of the test year is a point of contention and adjustments to the test year areconsidered during the case. For example, if the test year included severe storm-related costs, one party might propose an adjustment that would bring the test year costs more in line with an average year’s storm costs. The company’s costs and expenditures are reviewed and possibly challenged during this process.
The case also will consider the company’s rate-of-return on its investment--its profit. The various parties will comment on what would be fair return. Other financing costs, such as construction loans, are taken into account. All these numbers are used to derive the company’s annual revenue requirement.
The rates you ultimately pay are intended to give the company a reasonable chance of earning its revenue requirement.
During the rate case, the commission will hear conflicting views on several dozen issues. It’s up to the commission through the hearing process and its review of the testimony to settle these disputes and come out with an order, defendable in court.
Any of the parties to the case may request clarification or reconsideration of the order. Parties can also appeal the commission’s decision to Superior Court.
Rate Case Steps