HOUSE BILL 341: Bad News For Electric, Gas, Water Utility Customers
HB 341, filed by Rep. Jim Gooch and pending assignment to committee by House Leadership, is a recipe for higher utility rates and costs for customers of electric, gas, and water utilities regulated by the Public Service Commission (PSC). HB 341 “streamlines” the rate-setting process, hamstrings the Public Service Commission’s and the public’s ability to question utility rate increases, all but eliminates hearings where the utility claims can be tested, and lessens transparency and accountability to ratepayers on proposed utility rate increases. In doing so, HB 341 threatens higher utility costs for residential, commercial, and industrial customers, and threatens to damage economic development and job creation due to increased rates and charges.
Our Commonwealth has had an “edge” in attracting new economic development because of low electric rates, which is in large part due to PSC oversight of utility earnings and activities. Weakening accountability to the PSC and the public will take Kentucky in the wrong direction, resulting invariably in higher rates and greater costs for residential, commercial, industrial and institutional customers at a time when sharply rising utility fuel and other costs are already placing a significant burden on all ratepayers, and particularly on the working poor and families with fixed and low-incomes.
What does HB 341 change, and what are the impacts?
- The bill includes all PSC-regulated electricity, water, and natural gas utilities.
- This includes non-profit electric co-ops, and for-profit investor-owned water, gas, and electric utilities.
- Any utility with a general rate case within past 5 years can file a streamlined case as often as once a year. The bill is a “solution in search of a problem.” There is no need for annual “mini-rate cases,” and very few utilities that have been seeking such frequent cases. A number of Kentucky utilities have agreed to 3- and 4- year “stay out provisions” under which they have agreed not to return for a new rate case, which they wouldn’t have agreed to if they needed more frequent rate adjustments.
- Yet despite these stay-out agreements, the bill would allow all utilities, potentially even those that agreed to a stay-out, to file new annual cases.
- Less public scrutiny over rate increases will occur because of the bill. No longer would a utility have to publish newspaper notice of filing of a streamlined case. Currently, both bill inserts, and newspaper notice are required.
- The opportunity to seek to intervene as a party in the new streamlined rate cases would be limited to 15 days from filing of application by utility rather than 30 days from issuance of a scheduling order by the Commission.
- Requests for information from intervenors directed to the utility are limited to one round of data requests from intervenors and are limited to 50 questions (including subparts). The ability to ask for additional information through subsequent questions is eliminated.
- The scope of data requests would be severely curtailed, being limited to “clarifying” the application – and stakeholders would no longer be able to require the data and worksheets to support the allegations in the application for rate increases.
- There is no provision allowing the Commission staff to pose any provision allowing the Commission staff to pose any data requests to the utility. Thus, the staff that serve the Commission by scrutinizing the utility information and requests, would be hamstrung and their ability to do so, all but eliminated.
- Involvement by intervenors is limited to filing one set of “comments.” No expert testimony or other evidence on which a decision could rest could be supplied by an intervenor, so that the only evidence on which the Commission could base a decision would be the evidence supplied by the utility.
- Since on judicial review a court asks whether there is “substantial evidence in the record” to support the Commission’s decision, any Commission decision denying the utility request would quite likely be overturned on appeal. No evidentiary hearing could be held unless asked for by the utility. Evidentiary, or “formal” hearings are where the evidence and testimony of witnesses hired by the utilities are scrutinized under oath by the Commission staff and by intervenors. Since it is unlikely that utility would request a hearing, this important opportunity to test the truthfulness and basis for the utility’s claims would be lost.
- Only 1 public meeting would be required per every 250,000 customers of the utility.
- The only role of the Commission in the streamlined rate case is to adjust the utility’s tariff rates to “provide that the utility shall earn the authorized return on equity established in the utility’s most recent general rate case…” This standard makes the PSC nothing more than the guarantor of the utility’s profit. No utility is entitled to earn the authorized return on equity (“ROE”). They are entitled only to the opportunity to recover their authorized ROE. The language here implies that if the company is not receiving the authorized ROE, the Commission is obligated to adjust the rates upwards annually without having any opportunity to scrutinize the proposal or to determine whether, in light of changing circumstances, the authorized ROE remains “fair, just, and reasonable.” What might have seemed so the year before COVID hit, or the year before the 2008 economic collapse, would not a year later seem to be fair, just, or reasonable.
- Section 2 of HB 341 overrides all other provisions of KRS Chapter 278 and allows utilities to propose a host of new “riders,” directing that the Commission “shall” approve them, including recovery of capital and O&M costs, taxes, and a ROI for:
- Electrical infrastructure
- Natural gas pipeline replacement and safety modifications
- Infrastructure improvements for water utilities, including dams, pipelines, treatment, and distribution,
- Enhancements in system safety and reliability above state and federal safety requirements,
- Economic development initiatives relating to EVs, renewables, and
- Foregone revenues from economic development riders.
- The use of a “rider” to allow a utility to recover costs and a return on investment outside of a rate case, has been upheld by Kentucky courts against challenge. Under current law, the Public Service Commission has discretion on whether allowing a “rider” as a way of imposing costs on ratepayers for capital projects, is appropriate, or whether those costs should be recovered in a full rate case. The approval of any rider is currently at the Commission’s discretion, and is subject to evidence and testimony from intervenors, yet HB 341 mandates that the Commission accept any proposed rider, whether or not such a rider is in the public interest.
- “Riders” have traditionally been allowed by the Commission for discrete and limited proposals for capital investment and accelerated recovery that are thought to be in the public interest, such as accelerated replacement of portions of water distribution lines most prone to catastrophic failure, or replacement of gas line risers. Yet HB 341 removes any requirement to justify the need for accelerating cost recovery from ratepayers. The only constraint is that the utility can’t seek to recover costs under the rider and in a general rate case.
- The standard for Commission consideration of these riders is one that has never before been applied by the commission, which is whether the costs are “fair, just, and reasonable.” That is the standard for approval of tariffed rates, and not for approval of costs in riders.
- This “single issue” ratemaking through use of a rider in HB 341 provides no mechanism for involvement by any intervenors (including the Attorney General’s office, which has a mandated right of intervention), and provides no discovery or hearing process. While any current rider proposal is subject to full review by the Commission and any intervenors, this bill would mandate acceptance of the riders with little scrutiny and no public input.
- Finally, increased use of riders and allowance of annual rate cases would be an unworkable and unreasonable strain on the staff and Commissioners at the Public Service Commission. The use of a rider mechanism creates more work than less since it requires at least 2 annual filings and agency reviews – one to “true up” for the past year and the second to project costs to be expended in the coming year. The result will be less scrutiny of each filing due to the volume of filings that are required to be processed under the bill.
In sum, HB 341 is a PSC-regulated utility’s dream, and a utility ratepaying customers’ nightmare. KRC urges you to contact your legislator, and to call toll-free to 1-800-372-7181 to leave a message for “all legislators to please oppose HB 341 as an anti-consumer, anti-ratepayer insult to Kentuckians during a time of rising utility costs.”