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. In Oklahoma, the regulatory agency is the Oklahoma Corporation Commission (OCC), which has three elected Commissioners.
In Oklahoma, when a utility wants to increase its rates, the utility must first file an application with the OCC, along with substantial supporting documentation justifying the requested increase. The application must show the utility's costs and rationale in support of the proposed rate increase.
The utility's revenue requirement documentation will include the following:
- costs of labor
- costs of materials
- taxes
- depreciation on plant used to provide and deliver services
- interest for debt issued by the utility to finance construction of the plant
- reasonable return on investment made by shareholders
These costs produce the revenue requirement that needs to be collected from customers.
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 of a rate case may be handled directly by the Commissioners, by an administrative law judge (ALJ), or both. The process involves witnesses on all sides of the issues filing testimony and being cross-examined on their positions. Once all the evidence is filed and heard, the ALJ will file a report with the Commissioners.
The Commissioners will deliberate the issues 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 represents the interests of all Oklahoma ratepayers, commercial and industrial customers or their associations, and public interest advocates, such as AARP or community action groups. Private citizens may participate as well.
A rate case takes several months to process from the time a utility makes its initial filing and ultimately concludes with an open meeting at which the Commissioners deliberate and vote on the matter.
