Relates to consideration of capital expenditures in rate proceedings

• Democratic1

◆ The sponsor's argument

Why Michelle Hinchey says this is needed

The calculation of utility rates is complicated. Rates are determined by the Public Service Commission (PSC) after a utility makes a request to increase the rate which it is allowed to charge. The utility must prove why the rate increase is necessary. One of the considerations is how maintenance or repairs are calculated in the utility's rate as opposed to capital expenditures. Generally, repairs or maintenance are reimbursed dollar-fordollar. A capital expenditure receives reimbursement plus a guaranteed rate of return approximately 9% depending on current interest rates. The utility profits more from capital expenditure so before granting an increase in rates, the PSC should determine whether the proposed expenditure makes sense on both a financial and non-financial basis. For example, the decision on whether to repair a garage roof or put on a new roof or tear the garage down and build a new one would depend on many factors beyond the amount of money to be spent. While it might be cheaper to repair the roof or put on an entirely new roof, it should be considered how long the repaired roof would last and the overall condi- tion of the building. Would the building last as long as the repaired roof or a new roof? Would it be cheaper in the long run to tear down the garage and build a new one? In order for the public to understand the process and for the PSC to make the proper decision, there must be tran- sparency as to what is being proposed and what benefit there is of the expenditures for the rate paying customers. It is often unclear what projects are being proposed and their benefits, so this bill requires that there be a full description of each project including the purpose, cost and life expectancy, location of the project, and the anticipated benefits to ratepayers, both financial and non-financial when the rate increase is proposed. Further, this bill requires at anS, r4e,.(figitring involving consideration of a proposed capital expenditure for purposes of a rate proceeding, a capital expend- iture shall not be considered, in whole or in part, if the utility does not show by the preponderance of the evidence that the desired outcome through such capital expenditures is just and reasonable and beneficial to ratepayers, with consideration given to both immediate and long-term impacts. The PSC may give preference to the hearing and decision of such questions over all other questions pending before it. This bill would give more transparency to the rate setting process and will make it easier for the PSC to come to the proper outcome.

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.