The Rate Case: Judgment Day

By
Branko Terzic

Not to be overly dramatic but a rate case filing is a really big deal for a public utility.  I was reminded of this while chancing upon the following random quote by the playwright George Bernard Shaw:

We should all be obliged to appear before a board every five years and justify our existence…on pain of liquidation. (1) 

That pretty much sums up the main issue of a rate case. Ostensibly the rate case filing is usually about changes in rates. But at its core is the issue of justification of the continuation of the utility as a profit-making entity. This is especially true in the case of a long period of time between rate cases.  During that time period the PSC staff, interveners, the press, policymakers and even the staff of the public utility sometimes forget the legal basis and detailed process of regulation of “public service” companies.

Each rate case is important. Each rate case becomes, if you will, a proceeding of justification for the continuation of the utility monopoly and or form of regulation.

Even so, I tend to view an individual rate case as part of a necessary series of proceedings all moving with the facts and circumstances of the times to obtain the best possible outcomes for the consumers and the investors in the long run.  Here is also where I differ with Francis X. Welch, former editor of Public Utility Fortnightly. The regulated utility does not “win or lose” a rate case as Welch described the process. If the resulting order is inadequate to sustain a financially viable entity all parties “lose”.

Thus, any “rate case strategy” must encompass a far horizon with thought and analysis given to the next two or three proceedings not just the current filing. Some regulatory decisions can be made in the instant rate case based upon the record and times. Other decisions require a longer time frame and multiple proceedings to affect changes in regulatory policy. Sometimes regulators need to see pilot studies, other times they seek confirmation of success from other jurisdictions.

It has been my experience that the difficulty of getting an approval for a new policy increases progressively if the new proposed policy has:

1. a) been approved for another utility but not for your utility by this regulator,
2. b) been approved by a regulator in another state but not in your state,
3. c) never been approved anywhere to date.

Obviously, somewhere someone must be the first mover when it comes to new regulatory policies required by the times and circumstances. This first mover usually will be one of the larger states with the resources needed to vet new policies including adequate staff and expertise also with budgets for outside experts. It will also likely be a state where the regulators themselves have a high degree of expertise and confidence in their regulatory abilities.  They will lead and other state regulators and public utilities will note the issues addressed and the progress made. They can then follow as appropriate their own unique facts, conditions and circumstances.

So, when it comes to a “rate case strategy” the necessity to look ahead multiple filings is paramount. Rate case planning must go beyond the immediate proceeding to include the necessary discreet future multi-case steps needed to effect the changes requested and most certainly required. It can’t be any other way.

• John Winokur, The Portable Curmudgeon, New American Library, 1987

More than 1000 outrageously irreverent quotations, anecdotes, and interviews on a vast array of subjects, from an illustrious list of world-class curmudgeons

https://www.amazon.com/Portable-Curmudgeon-Jon-Winokur-ebook/dp/B005BTNSF4