Ratemaking Explained - Public Utility Commission

Report
Regulation of Rates
for Water Utilities
Oregon
Public Utility Commission
Oregon Public Utility
Commission
Telephone
Power
Natural Gas
Water
2
Public Utility Commission
The Commission is charged with the duty to ensure safe and adequate
water service at fair and reasonable rates. The Commission is chartered
as a consumer protection and advocacy body. It is responsible to protect
the customers of any public utility, and the public generally, from unjust
and unreasonable exactions and practices, and to obtain for them
adequate service at fair and reasonable rates.
The Commission balances the interests of the utility investor and the
consumer in establishing fair and reasonable rates. Rates set by the
Commission are sufficient to ensure confidence in the financial integrity of
the utility, allowing the utility to maintain its credit and attract capital.
The utility should be allowed to earn sufficient revenues for reasons of
debt service and capital for reinvestment.
PUC STATUTORY AUTHORITY
° ORS 756.070 – 125
INVESTIGATORY POWERS
° ORS 756.160 – 200
ENFORCEMENT & REMEDIES
° ORS 757.005
DEFINES A PUBLIC UTILITY
° ORS 757.020
DUTY TO SERVE
° ORS 757.061
REGULATION OF WATER UTILITIES
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Public Utility Commission
PUC Authority
 Regulate Rates
 Regulate Service
Regulatory Obligation
 Protect Customers
 Protect Utility
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Rate Case Filing
 Utility Files Application
Brief - summary of application
Direct Testimony - details of application
Tariffs include:
Rate schedules
 Rules & regulations

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Flowchart - Water Rate Case
 1. UTILITY FILING
Utility files application
direct testimony, and
tariffs to PUC
 2. NOTIFICATION
Within 15 days of filing, utility
notifies customers by an
article in the newspaper or
direct customer mailing
 5. PREHEARING CONFERENCE
Adopt schedule
Receive petitions to intervene
Establish issues
Identify Parties
Create service list
 6. DISCOVERY
Data Requests
Data Responses
SUSPENSION
 4. OPEN HOUSE
Public comments taken
Written comments may be
submitted to the
Administrative Law Judge
If
Necessary
10. EVIDENTIARY
HEARING
 3. TARIFF
Commission orders tariffs
suspended to allow time to
review the utility’s proposal
 9. REBUTTAL TESTIMONY
Enter pre-filed testimony
into record
Cross-examination of
witnesses
Identify issues to be briefed
ALJ briefing instructions
 7. SETTLEMENT
CONFERENCE
Staff presents its Preliminary
Results of Analysis to utility &
intervenors who attempt to
reach agreement on as many
issues as possible
 8. WRITTEN
TESTIMONY
Staff & intervenors
responding to utility’s
direct testimony
11. WRITTEN
BRIEFS
Briefs are submitted if
requested by
the ALJ
12. COMMISSION
DECISION
Commission issues order
establishing new rates
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Customer Notification
Within 15 days of utility filing
Utility must provide customer notification
 Newspaper article
 Direct mailing
To receive copy of filing, call the utility
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Suspension of Tariffs
PUC 30-Day Response to Filing
Approve
Disapprove
Suspend tariffs
Generally request a 6-month suspension –
allows investigation of rate proposal
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Open House
 Opportunity to Communicate
 Customer Concerns
 Voice Opinion
 Comments to Staff or Consumer Services
 Phone
 Written by mail or fax
 E-filed to PUC Filing Center
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Consumer Services
1-800-522-2404
Public Utility Commission
Consumer Services Division
P.O. Box 1088
Salem OR 97308-1088
puc.filingcenter
@state.or.us
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Prehearing Conference
Purpose
1)
2)
3)
4)
5)
Petition to intervene
Identify parties
Create a service list
Establish issues
Adopt schedule
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Who are the Players?
How to Participate






Public & Interested Persons
Utility - Party
Interveners - Party
PUC Staff - Party Assistant Attorney General
Administrative Law Judge
Commission
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Discovery Period
Information Exchange
 Burden of Proof
 Gather Information
 Data Requests
 Data Responses
 Develop Position
Verify Facts





Revenues
Expenses
Utility Plant
Service Issues
Other Issues
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Settlement Conference
 Staff presents its settlement case
Only parties may participate
Customers may attend
 Parties attempt to reach agreement
Stipulation
Partial stipulation
 Contested case
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Testimony
 Written Testimony Filed
Stating the Party’s Position
Staff testimony
Intervener testimony
 Rebuttal Testimony
(if necessary)
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Evidentiary Hearing
Contested Case
 ALJ Presides
 Testimony entered into
the record
 Cross-examination of witnesses
 Briefs, identify issues if requested
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ALJ Drafts Order &
Recommendation
 ALJ reviews evidence in the record
 ALJ writes draft order & makes
recommendation to Commission
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Commission Decision
Issues Order Disposing the
Rate Case
 Establishes New Rates
 Sets Effective Date of New Rates
 Resolution of Outstanding Issues
Petition for Reconsideration
 If warranted, Commission will review
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Rate Regulation
 Allows company to recover its prudent and
reasonable cost of service
 Gives company an opportunity for a
reasonable return on its investment
 Establishes rates through rate cases
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Ratemaking Formula
R = E+(v-d)r
Revenues (Revenue Requirement)
Expenses
value of rate base
plant depreciation
rate of return
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Summary: Determining Rates Under the
Rate of Return Regulation Methodology
1. DETERMINE REVENUE REQUIREMENT
The revenue requirement is the amount of annual revenue necessary to recover the annual
cost of providing service and provide an opportunity for the utility to earn a reasonable return
on its investment. The revenue requirement is based upon the formula:
R = E + (V-d) r
R represents revenue requirement. It is the amount of revenue required to generate a
desired return on investment given a specified level of operating expenses and rate base.
E represents expense. This is the reasonable annual expense the utility incurs to provide
utility service (also called the cost of service).
(V-d) represents the value of the utility's capital investment less its accumulated depreciation
(and other required adjustments) necessary to calculate the utility's net plant in service.
Working cash and materials and supplies inventory adjustments are then added to the net
plant resulting in the utility's capital investment, called rate base.
r represents the rate of return that is achieved by adding the weighted cost of debt and the
weighted cost of equity. The rate of return is then applied to the utility's rate base to
produce a return on the utility's investment. The resulting amount is then included in the
revenue requirement.
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Determining Rates
(continued)
2. RATE SPREAD
Rate spread is the allocation of the revenue requirement to the various classes of customers
(residential, commercial, etc.). Customers with common characteristics are grouped into
customer classes. If it is possible to determine the costs associated with the different
customer classes, the costs should be allocated to the customer class that incurs the cost.
3. RATE DESIGN
Rate design is the determination of the rate or price structure for each customer class. The
revenue requirement has already been determined and divided among the different customer
classes. Now the customer service rate must be designed to provide for the recovery of the
allocated revenue requirement within each class. There are several different types of rate
structures that can be used. Rate design is to determine the most appropriate rate structure
for each customer class.
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Water Program Staff
Kathy Willis
Sr. Utility Analyst
(503) 373-1003
[email protected]
Greg Miller
Financial Analyst
(503) 373-7867
[email protected]
Celeste Hari
Utility Analyst
(503-378-6628
[email protected]
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