The Ratemaking Process
When a regulated utility files for a rate increase, the Missouri Public Service Commission typically has 11 months from the filing date to make its decision.
Once the case is filed, the PSC staff -- a group of engineers, accountants and economists -- reviews the utility’s books and records. This usually takes several months to complete and allows the staff to provide a non-binding recommendation to the five-member Public Service Commission. Interveners, such as consumer groups or industrial customers, may also file recommendations. This is done through the filing of testimony.
Parties will meet to discuss the issues. In some cases, agreements are reached that can settle all or some of the issues of the filing. The Commission must approve any proposed agreements.
Ratemaking is a two-step process. The first step is to determine the utility’s annual “revenue requirement” -- the amount of money it should get from its retail customers each year. The second step is to design rates that will equitably collect that revenue requirement from the utility’s customers.
The determination of revenue requirement focuses on four factors: (1) the “rate of return” or profit the utility has an opportunity to earn; (2) the total investment or “rate base” upon which a return may be earned; (3) the accumulated and on-going depreciation of plant and equipment; and (4) the company’s reasonable and prudent operating expenses.
Facts of a rate case are presented during formal evidentiary hearings. Expert witnesses testify and answer questions. Written testimony is also submitted by the utility, PSC staff, the Office of the Public Counsel and the other parties.
The five members of the PSC read the written testimony, review exhibits and briefs, hear the cross-examination, ask the witnesses questions and weigh the evidence in order to reach a result.
The Commission also holds local public hearings in the utility's service territory -- giving customers an opportunity to express their opinions on the rate request and report any service-related or billing issues.
Reviewing The Record
After the hearings are completed, a transcript of the case is prepared, and attorneys prepare briefs outlining their positions. The Commissioners review the record and the facts of the case to make their decision.
The Commission will only authorize rate changes that are fair and reasonable. The company must be allowed the opportunity to make enough money to meet reasonable expenses, pay interest on debts, and provide a reasonable return to stockholders.
When a decision is made, the Commission announces it through a written report and order. That order is subject to court review which may be initiated by anyone except the PSC staff.