Rate Cases and the Ratemaking Process
Unlike prices charged by private companies, prices regulated utilities charge for their products and services are generally set by a state regulatory agency often referred to as a public utility commission, public service commission, or utility board. Each state regulatory agency usually has three to five commissioners whose responsibility it is to oversee the prices charged by utilities in their state. In Oklahoma, the regulatory agency is the Oklahoma Corporation Commission (OCC), which has three members.
In Oklahoma when a utility wants an increase in its prices, also called rates, the utility must first file an application with the OCC, along with substantial supporting documentation justifying the requested increase. In a nutshell, the application shows the utility's costs and rationale in support of the proposed rate increase, which the utility believes it needs to provide service and earn a reasonable return on investment.
The utility's documentation will include the costs of labor, materials, taxes, and depreciation on plant used to provide and deliver services, as well as the interest for debt issued by the utility to finance construction of that plant. The utility's proposed rates must also allow a reasonable return on investment made by shareholders. When added together, all of these costs produce the revenue requirement that needs to be collected from customers. Establishing the company's overall revenue requirement is normally the first phase in the rate case process.
In the next phase, rates must be designed in a way that will allow the utility the opportunity to recover the established revenue requirement. This involves allocating the overall revenue requirement among the various classes of customers. There can be many varied classes of customers; however, residential, commercial and industrial customers are generally the largest classes of customers. Rates are often designed to encourage conservation of resources or to ensure that prices reflect the specific costs of providing service.
The hearing phase of a rate case may be handled directly by the Commissioners, by an administrative law judge (ALJ) or both. In any case, the process involves witnesses on all sides of the issues filing testimony and being cross examined on their positions. Once all of the evidence is filed and heard, the ALJ will typically file a report with the Commissioners. The Commissioners deliberate in open court and ultimately decide the outcome of the utility's application, including the rates to be paid by customers. Parties to a rate case typically include OCC's Public Utility Division Staff; the Attorney General's office, which primarily represents the interest of residential consumers; commercial and industrial customers or their associations and public interest advocates, such as AARP or community action groups. Private citizens often participate as well.
A rate case takes several months to process from the time a utility makes its initial filling and ultimately concludes with an open meeting at which the Commissioners deliberate and vote on the matter.
You may enter public comment to be considered by the ALJ and Commissioners. Use the link below to find out how.
