Utility Rate Cases

Utility Rate Cases

October 05, 2009

Kate Rowland
Editor-in-Chief
Intelligent Utility Topics

An increase in electric utility rates is always a delicate balancing act: electric utilities must pay for their own investments in new generation, transmission, or distribution, while consumers are focused on electricity reliability and affordable prices. With this year's economic downturn affecting everyone's bottom line, and many consumers finding it increasingly difficult to stay ahead of their bills, electric utilities too are finding the legislated focus on energy efficiency, renewable energy, and new transmission straining their own purse strings.

Typically, new investment is financed by an increase in utility rates, approved by state regulators. But in today's increasingly uncertain economy, any proposed increase in rates is met by growing consumer anger.

"I would say, in general, there's a level of frustration and a level of desperation on the consumer representation side," said David Springe, president of the National Association of State Utility Consumer Advocates (NASUCA) and consumer counsel for the Kansas Citizens Utility Ratepayer Board. "Historically, there was a period of moderate growth, and we were able to keep costs in check. Somewhere along the way, someone flipped the switch."

The switch, in this case, is a combination of fuel costs and the added federal pressure on the smart grid and pending carbon legislation. Kansas, a state in which coal-fired electricity is a prominent part of the energy mix, like much of the Midwest and the Great Plains, will bear a heavy burden if pending federal carbon regulations are passed by Congress. Already, Springe said, Kansas has seen 20- to 30-percent increases in utility rates, and sometimes more.

"I'm concerned that many parts of the country are suffering from rate fatigue already," Springe said, "and are really unprepared for the change coming with smart grid and environmental pressures."

In June, Kansas City Power & Light received permission from the Kansas Corporation Commission to hike its utility rates 11.85 percent, for an annual increase of $59 million, which became effective August 1. KCP&L had originally requested an increase of $71.6 million, or 17.5 percent. To most homeowners, that's an increase of approximately $125 per year.

Other states, too, have seen their utilities being allowed measured increases -- less than they requested, but enough, say state regulators, to keep the utility viable. In July, Duke Energy Corp. was granted approval by the state's public utilities commission to increase electricity rates by 2.9 percent at its Ohio utility. Duke had requested the increase a year ago in order to earn returns on upgrades and maintenance made to its distribution system. The commission's decision, based on a settlement reached in March, will allow Duke to make a 10.6-percent return on equity, which is just shy of Duke's 11 percent request.

Priorities Lacking

Robert Thormeyer, director of communications for the National Association of Regulatory Utility Commissioners (NARUC), says that balancing those needs is never an easy task. "It's always a difficult, delicate balance. Our members are completely aware of the economic downturn. I think we're in an environment of rising rates."

By their charters, utility commissions are responsible for ensuring that the rates charged by utilities are just, fair and reasonable. However, the commissioners are also responsible for ensuring the utilities stay viable.

Utilities, too, are aware of this necessary balance. While it is their responsibility to request rate increases to recoup additional costs in new generation, reliability, or energy efficiency, they are cognizant that the full amount requested may not be approved, especially now.

In the case of June's Kansas City Power & Light rate decision, which came in at about 6 percent less than the utility had originally requested, KCP&L spokesman Chuck Caisley told media afterwards that the process worked the way it was supposed to, and that a good decision was made both for shareholders and for customers.

Certainly, utilities do not always get what they want. In New York, a rate relief filing by Iberdrola S.A.-owned utilities New York State Electric & Gas and Rochester Gas & Electric was turned down in April by the New York Public Service Commission. As a stipulation in the Iberdrola purchase of the two utilities in September 2008, NYSEG and RG&E agreed that they wouldn't seek rate increases for 13 months, unless they could show that financial performance would fall to levels that would jeopardize the ability to provide safe and reliable service.

In late January 2009, the two utilities submitted proposed rate increases on an emergency basis. In its decision, the commission indicated it did not feel the evidence provided by the utilities indicated that safe and reliable service would otherwise be jeopardized.

"The downturn in the national and state economy has dramatically affected many residents and businesses in New York State," said Commission Chairman Garry Brown. Just as households and businesses were implementing austerity measures to curtail discretionary spending, he said, utilities, as part of their obligation to serve customers, should be implementing the same measures "in a manner that does not impact safe or adequate service."

There is no question that we will continue to see utility rate increases across the country as fuel costs continue to increase, and as utilities begin to implement smart grid technologies designed to ultimately save money and increase reliability. But consumer advocates such as Springe are concerned that the nation is rushing to do "everything" and that it has no sense of priorities. While there's a level of optimism, he also says that there's a lot of skepticism.