It is often said that ratemaking is as much art as science.
Phillip Cross is Public Utilities Fortnightly’s legal editor. He also serves on the editorial staff of Utility Regulatory News, published by Public Utilities Reports, Inc., PUF’s publisher. URN reports weekly on ratemaking and regulatory decisions issued by state public utility commissions.
It is often said that ratemaking is as much art as science. That is particularly true in setting the return on equity component of a utility’s revenue requirement.
In this, our annual survey of utility rate cases, we give readers a glimpse into the results of this process as conducted by state utility regulators across the country. The table reports several categories of basic data drawn from electric and natural gas base rate decisions issued during the past year. There is a special emphasis on the rate component that reflects the allowed rate of return on common equity capital. See Figure 1 - Return on Equity in PDF format.
Figures and statistics tell part of the story. But it is the process of setting a return on equity that is fair to both shareholders and consumers that demonstrates the art and science practiced by regulators.
One case reported here provides a good glimpse at the entire range of issues put before regulators. And how they assess the entire record to settle on a single return on equity figure to use in determining a utility’s revenue requirement.