Enacts the "fair authorized investment returns act"; sets a default authorized return on equity equal to the ten year US Treasury rate plus two hundred basis points; provides such default authorized return shall reset annually; establishes a competitive equity auction through which the cost of equity for a covered utility may be determined on a market basis, whether initiated by the utility or ordered by the commission.
Impact
The implications of A11197 are significant for state laws regulating public utilities. By introducing a competitive equity auction mechanism, the bill allows utilities to determine their equity costs in response to market dynamics. This change could enhance the efficiency of investment in utility infrastructure and encourage innovation within the sector. Additionally, resetting the default equity return annually in line with US Treasury rates may make it more responsive to changing economic conditions, thereby creating a more equitable framework for both utilities and consumers.
Summary
A11197, also known as the Fair Authorized Investment Returns Act, proposes to establish a system for determining the authorized return on equity for public utilities. The bill sets a default rate that is equal to the ten-year US Treasury rate plus an additional two hundred basis points, which would be reset annually. This approach aims to provide a consistent and predictable rate for utilities, enhancing their financial planning and investment capabilities. The act highlights a shift towards considering market conditions in determining equity costs, which could lead to improved investment strategies by these utilities.
Contention
While proponents of the bill argue that it will increase transparency and fairness in utility pricing, there are concerns regarding its potential impact on consumers. Critics suggest that linking utility returns too closely to market rates could lead to increased costs for consumers, particularly in times of economic volatility. Moreover, there is a contention around how well the competitive auction process will function and whether it will genuinely reflect the interests of consumers or merely benefit utility companies. The balance between fostering a favorable investment atmosphere and protecting consumer interests is expected to be a point of significant debate.
Directs the public utilities commission to establish a standardized framework for determining authorized common equity ratios and authorized rates of returns on equity for public utilities.
Directs the public utilities commission to establish a standardized framework for determining authorized common equity ratios and authorized rates of returns on equity for public utilities.
Provides that gas, electric, or combination gas and electric corporations shall not be permitted to retain revenues derived from their actual return on equity in excess of authorized rates of return on equity.
Provides that gas, electric, or combination gas and electric corporations shall not be permitted to retain revenues derived from their actual return on equity in excess of authorized rates of return on equity.
Requires certain investor-owned gas or electric corporations to refund ratepayers when their achieved return on equity exceeds authorized rates of return by fifty percent.
Authorizing the state corporation commission to increase or decrease an electric public utility's return on equity based on whether such utility's all-in average retail rate has increased or decreased.
Prohibits the public service commission from approving a rate increase that entails a return on equity for capital projects that is above the prevailing ten-year treasury rate plus one percent.
Prohibits the public service commission from approving a rate increase that entails a return on equity for capital projects that is above the prevailing ten-year treasury rate plus one percent.