S T A T E   O F   N E W   Y O R K
 ________________________________________________________________________
 
                                   6557
 
                        2023-2024 Regular Sessions
 
                             I N  S E N A T E
 
                              April 26, 2023
                                ___________
 
 Introduced  by  Sen.  MAYER  -- read twice and ordered printed, and when
   printed to be committed to the Committee on  Energy  and  Telecommuni-
   cations
 
 AN ACT to amend the public service law, in relation to requiring certain
   utilities to adopt the common equity ratio and rate of return on equi-
   ty authorized by the public service commission

   THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
 BLY, DO ENACT AS FOLLOWS:
 
   Section 1. Legislative intent.  The  legislature  finds  and  declares
 that:
   1.  The  increasing burden of high utility rates leaves New York resi-
 dents with extreme financial  difficulties.  Soaring  electricity  rates
 leave one in five New York residents at risk of having their electricity
 cut  off.   Meanwhile, the long-term trend of utilities receiving record
 profits threatens the livelihood of millions of New Yorkers who struggle
 to afford utility bills.
   2. The current process in which the public service commission (herein-
 after the "commission") and regulated utilities set  rates  for  utility
 bills  to ratepayers has historically been inaccessible and indeciphera-
 ble to the public. The balance of power that  justifies  rate  increases
 more  often than not tilts disproportionately in utilities' favor, which
 runs contrary to the stated goals of the commission to  ensure  afforda-
 ble, safe, secure, and reliable utility service for New York residential
 and business consumers.
   3.  The  generic  financing  guidance  that the commission utilizes to
 establish the common equity ratio and rate  of  return  on  equity,  two
 metrics  that  determine  how  much a utility can recoup through utility
 bills, has not been formally promulgated and adopted through state  laws
 and  regulations, and currently exists as policy guidance, a non-legally
 binding set of interpretations that operate outside the formal  rulemak-
 
  EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                       [ ] is old law to be omitted.
                                                            LBD10360-03-3
 S. 6557                             2
              

 
 ing  process.  This creates too lenient a framework in which the commis-
 sion can justify and approve rate increases from regulated utilities.
   4.  The  generic  financing  guidance  that the commission utilizes to
 establish the common equity ratio  and  rate  of  return  on  equity  is
 currently  drawn  from  the 1994 "Recommended Decision" (Case 91-M-0509)
 (Proceeding on Motion of the Commission to Consider Financial Regulatory
 Policies for New York State Utilities). The generic  financing  guidance
 is outdated and does not reflect current economic realities.
   5.  The determination of a final rate in any rate-case between a regu-
 lated utility and the commission, beginning with the  utility's  initial
 request,  followed  by  benchmarking  against  the  commission's generic
 financing methodology, often, if  not  always,  leads  to  adjudication,
 resulting  in negotiated settlements that disproportionately favor regu-
 lated utilities at consumers' expense.
   6. Regulated utilities are entitled to earn a fair and reasonable rate
 of return on  their  capital  investments,  pursuant  to  Supreme  Court
 rulings  in  Federal  Power  Commission  et  al. v. Hope Natural Gas Co.
 (1944) and Bluefield Water Works and Improvement Co. v.  Public  Service
 Commission  of West Virginia (1923). However, recent trends suggest that
 the "fair and reasonable" legal standard  is  not  reflected  in  actual
 utility rates for consumers.
   7.  Under  ratemaking  theory,  any authorized return must balance the
 interests of ratepayers and shareholders, where the rate  is  just  high
 enough  to  attract  needed capital to maintain service reliability, but
 not set higher than a level to provide shareholders with a profit  above
 what is absolutely necessary to maintain service.
   8.  Aligning  the  incentives of regulated utilities and ratepayers is
 essential to serve the greater interests of all New  York  residents  by
 establishing  a  healthy  balance between a regulated utility's right to
 earn a fair and reasonable rate of return, and New York residents' right
 to have stable utility rates that are as low as possible.
   § 2. The public service law is amended by adding a new section 65-c to
 read as follows:
   § 65-C. SETTING A RATE OF RETURN ON EQUITY AND COMMON EQUITY RATIO. 1.
 DEFINITIONS. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING TERMS SHALL
 HAVE THE FOLLOWING MEANINGS:
   (A) "REGULATED UTILITY" MEANS AN "ELECTRIC CORPORATION",  "GAS  CORPO-
 RATION", "STEAM CORPORATION", OR "WATER-WORKS CORPORATION" AS DEFINED IN
 SECTION TWO OF THIS CHAPTER.
   (B) "GENERIC FINANCING METHODOLOGY" MEANS A STANDARDIZED PROCEDURE FOR
 DETERMINING  THE  AUTHORIZED RATES OF RETURN ON EQUITY AND COMMON EQUITY
 RATIOS OF UTILITIES REGULATED BY THE COMMISSION.
   (C) "AUTHORIZED COMMON EQUITY RATIO" MEANS THE  AUTHORIZED  PERCENTAGE
 OF  A  UTILITY'S  TOTAL CAPITALIZATION, SUCH AS COMMON EQUITY, PREFERRED
 STOCK, AND LONG-TERM DEBT, THAT  CONSISTS  OF  COMMON  EQUITY,  RETAINED
 EARNINGS, AND CAPITAL SURPLUS.
   (D)  "ACTUAL  COMMON  EQUITY  RATIO"  MEANS THE ACTUAL PERCENTAGE OF A
 UTILITY'S TOTAL CAPITALIZATION, SUCH AS COMMON EQUITY, PREFERRED  STOCK,
 AND  LONG-TERM  DEBT, THAT CONSISTS OF COMMON EQUITY, RETAINED EARNINGS,
 AND CAPITAL SURPLUS.
   (E) "AUTHORIZED RATE OF RETURN ON EQUITY"  ALSO  KNOWN  AS  RETURN  ON
 EQUITY  ("ROE")  OR  THE COST OF EQUITY CAPITAL, MEANS THE RETURN ON THE
 EQUITY PORTION OF THE RATE BASE THAT REGULATED UTILITIES ARE  AUTHORIZED
 TO COLLECT IN RATES.
   (F)  "ACTUAL  RATE  OF  RETURN ON EQUITY" MEANS A MEASURE OF FINANCIAL
 PERFORMANCE CALCULATED BY DIVIDING NET INCOME BY SHAREHOLDERS' EQUITY.
 S. 6557                             3
 
   (G) "RATE-CASE" MEANS A LITIGATED AND/OR NEGOTIATED PROCEEDING BETWEEN
 A REGULATED UTILITY AND THE COMMISSION IN  AN  EFFORT  TO  FINALIZE  THE
 AUTHORIZED  COMMON  EQUITY RATIO AND AUTHORIZED RATE OF RETURN ON EQUITY
 THAT DETERMINES UTILITY RATES CHARGED TO CONSUMERS;  WHERE  A  REGULATED
 UTILITY  FIRST  FILES  A RATE PROPOSAL WITH THE COMMISSION, SUPPORTED BY
 EXPERT WITNESSES, EVIDENTIARY DOCUMENTATION, AND EXHIBITS,  FOLLOWED  BY
 THE  COMMISSION'S  EVALUATION  OF  THE PROPOSAL IN COMPARISON TO ITS OWN
 COMMON EQUITY RATIO AND RATE OF RETURN ON  EQUITY,  WHICH  IS  GENERALLY
 FOLLOWED BY ADJUDICATION EN ROUTE TO SETTLEMENT.
   (H)  "RATE  PERIOD" MEANS THE TIME PERIOD IN WHICH A REGULATED UTILITY
 COLLECTS RATES THAT ARE AUTHORIZED AND APPROVED BY THE COMMISSION.
   (I) "PUBLICLY AVAILABLE DATA" MEANS PUBLISHED DATA  THAT  IS  DIRECTLY
 ACCESSIBLE  WITHOUT  CHARGE  VIA  THE INTERNET, OR INDIRECTLY ACCESSIBLE
 WITHOUT CHARGE THROUGH A PUBLIC LIBRARY OR SIMILAR INSTITUTION.
   2. SETTING THE GENERIC FINANCING  METHODOLOGY;  COMMON  EQUITY  RATIO;
 RATE  OF  RETURN ON EQUITY. (A) ON AN ANNUAL BASIS, THE COMMISSION SHALL
 PROMULGATE RULES AND REGULATIONS THAT:
   (I) UPDATE THE GENERIC FINANCING METHODOLOGY SUCH THAT, TO THE  GREAT-
 EST  EXTENT  POSSIBLE,  ALL  OF ITS CALCULATIONS ARE BASED UPON PUBLICLY
 AVAILABLE DATA;
   (II) SET A FAIR AND REASONABLE AUTHORIZED COMMON EQUITY RATIO FOR EACH
 REGULATED UTILITY AND A SINGLE AUTHORIZED RATE OF RETURN ON  EQUITY  FOR
 ALL REGULATED UTILITIES, BASED ON THE GENERIC FINANCING METHODOLOGY; AND
   (III)  RECONCILE  THE PRIOR RATE PERIOD'S AUTHORIZED RATE OF RETURN ON
 EQUITY TO A CALCULATION OF THE AVERAGE MONTHLY RATE OF RETURN ON  EQUITY
 PRODUCED BY THE GENERIC FINANCING METHODOLOGY FOR THAT RATE PERIOD, SUCH
 AS  A  "TRUE-UP MECHANISM". IN MAKING THIS DETERMINATION, THE COMMISSION
 SHALL REQUIRE THAT: (A) ANY REVENUES DERIVED FROM AN AUTHORIZED RATE  OF
 RETURN  ON EQUITY EXCEEDING THE AVERAGE MONTHLY RATE OF RETURN ON EQUITY
 BE RETURNED TO RATEPAYERS IN THE FORM OF A SURCREDIT TO THEIR BILLS  FOR
 THE  FOLLOWING  RATE  PERIOD;  AND (B) ANY REVENUES THAT WOULD HAVE BEEN
 DERIVED FROM AN AVERAGE MONTHLY RATE OF RETURN ON EQUITY  EXCEEDING  THE
 AUTHORIZED  RATE  OF RETURN ON EQUITY SHALL BE RECOVERED FROM RATEPAYERS
 IN THE FORM OF A SURCHARGE TO THEIR BILLS FOR THE FOLLOWING RATE PERIOD.
   (B) THE PROMULGATED GENERIC FINANCING METHODOLOGY,  AUTHORIZED  COMMON
 EQUITY  RATIO, AUTHORIZED RATE OF RETURN ON EQUITY, AND THE PRIOR YEAR'S
 AVERAGE MONTHLY RATE OF RETURN ON EQUITY SHALL CLEARLY STATE THE METHODS
 USED TO JUSTIFY AND EXPLAIN ITS PROPOSED GUIDANCE.
   (C) THE PROMULGATED GENERIC FINANCING METHODOLOGY,  AUTHORIZED  COMMON
 EQUITY  RATIO, AUTHORIZED RATE OF RETURN ON EQUITY, AND PRIOR RATE PERI-
 OD'S AVERAGE MONTHLY RATE OF RETURN ON EQUITY SHALL BE SUBJECT TO TRADI-
 TIONAL NOTICE AND COMMENT PROCEDURES, AS OUTLINED IN THE STATE  ADMINIS-
 TRATIVE  PROCEDURE  ACT,  WHICH SHALL INCLUDE INPUT FROM PUBLIC INTEREST
 ORGANIZATIONS, UTILITY ACCOUNTING EXPERTS,  REPRESENTATIVES  FROM  REGU-
 LATED UTILITIES, AND OTHER ORGANIZATIONS AND INTERESTED PARTIES, INCLUD-
 ING RESIDENTS OF THIS STATE, AS NECESSARY.
   (D)  THE FINAL GENERIC FINANCING METHODOLOGY, AUTHORIZED COMMON EQUITY
 RATIO, AUTHORIZED RATE OF RETURN ON  EQUITY,  AND  PRIOR  RATE  PERIOD'S
 AVERAGE  MONTHLY  RATE  OF  RETURN  ON EQUITY ADOPTED BY THE COMMISSION,
 FOLLOWING THE NOTICE AND COMMENT PERIOD, SHALL GIVE  PREFERENCE  TO  THE
 BEST INTEREST OF THE RATEPAYERS.
   3.  ADOPTING  THE  AUTHORIZED  COMMON EQUITY RATIO, AUTHORIZED RATE OF
 RETURN ON EQUITY AND/OR PRIOR RATE  PERIOD'S  AVERAGE  MONTHLY  RATE  OF
 RETURN  ON  EQUITY.  EXCEPT  AS  PROVIDED  IN  SUBDIVISION  FOUR OF THIS
 SECTION, EVERY REGULATED UTILITY SHALL:
 S. 6557                             4
 
   (A) ADOPT THE AUTHORIZED COMMON EQUITY  RATIO  BASED  ON  THE  GENERIC
 FINANCING  METHODOLOGY FOR THE FOLLOWING RATE PERIOD AS SET SPECIFICALLY
 FOR EACH REGULATED UTILITY BY THE COMMISSION;
   (B) ADOPT THE AUTHORIZED RATE OF RETURN ON EQUITY BASED ON THE GENERIC
 FINANCING METHODOLOGY FOR THE FOLLOWING RATE PERIOD; AND
   (C)  ADOPT  THE  SURCREDIT/SURCHARGE  BASED ON THE PRIOR RATE PERIOD'S
 AVERAGE MONTHLY RATE OF RETURN ON EQUITY, AS OUTLINED IN SUBDIVISION TWO
 OF THIS SECTION, FOR THE FOLLOWING RATE PERIOD.
   4. REBUTTING THE AUTHORIZED COMMON EQUITY RATIO,  RATE  OF  RETURN  ON
 EQUITY,  AND PRIOR RATE PERIOD'S AVERAGE MONTHLY RATE OF RETURN ON EQUI-
 TY. (A) THE BURDEN OF REBUTTING  THE  AUTHORIZED  COMMON  EQUITY  RATIO,
 AUTHORIZED  RATE OF RETURN ON EQUITY, AND/OR PRIOR RATE PERIOD'S AVERAGE
 MONTHLY RATE OF RETURN ON EQUITY SHALL REST EXCLUSIVELY WITH  THE  REGU-
 LATED  UTILITY DURING A PUBLIC HEARING FACILITATED BY THE COMMISSION. IN
 ORDER TO REBUT THE AUTHORIZED COMMON EQUITY RATIO AND/OR AUTHORIZED RATE
 OF RETURN ON EQUITY,  THE  REGULATED  UTILITY  SHALL  FIRST  INITIATE  A
 REQUEST  FOR  PUBLIC  HEARING THROUGH PROCEDURES OUTLINED BY THE COMMIS-
 SION. SHOULD THE COMMISSION FIND A  SUBSTANTIAL  BASIS  FOR  THE  CLAIMS
 OUTLINED BY THE REGULATED UTILITY IN ITS REQUEST, IT SHALL PUBLISH A SET
 OF DATES FROM WHICH A PUBLIC HEARING SHALL TAKE PLACE.
   (B) DURING THE PUBLIC HEARING THE REGULATED UTILITY SHALL:
   (I)  PRESENT DOCUMENTARY EVIDENCE, INCLUDING BUT NOT LIMITED TO EXHIB-
 ITS, WRITTEN AND ORAL TESTIMONY, AND DATA, DESCRIBING WHY THE AUTHORIZED
 COMMON EQUITY RATIO, AUTHORIZED RATE OF RETURN ON EQUITY,  AND/OR  PRIOR
 RATE  PERIOD'S  AVERAGE MONTHLY RATE OF RETURN ON EQUITY IS INSUFFICIENT
 TO MEET ITS CURRENT AND/OR FUTURE OPERATING AND CAPITAL NEEDS;
   (II) PRESENT DOCUMENTARY EVIDENCE, INCLUDING BUT NOT LIMITED TO EXHIB-
 ITS, WRITTEN AND ORAL TESTIMONY, AND DATA, DESCRIBING WHY THE AUTHORIZED
 COMMON EQUITY RATIO, AUTHORIZED RATE OF RETURN ON EQUITY,  AND/OR  PRIOR
 RATE  PERIOD'S AVERAGE MONTHLY RATE OF RETURN ON EQUITY DOES NOT PROVIDE
 A FAIR AND REASONABLE RETURN;
   (III) DESCRIBE WITH SUFFICIENT DETAIL WHY THE AUTHORIZED COMMON EQUITY
 RATIO, AUTHORIZED RATE OF RETURN ON EQUITY AND/OR  PRIOR  RATE  PERIOD'S
 AVERAGE  MONTHLY  RATE  OF RETURN ON EQUITY ADOPTED BY THE COMMISSION IS
 INSUFFICIENT FOR THE REGULATED UTILITY TO ATTRACT CAPITAL AT  REASONABLE
 TERMS; AND
   (IV)  DESCRIBE WITH SUFFICIENT DETAIL WHY THE AUTHORIZED COMMON EQUITY
 RATIO, AUTHORIZED RATE OF RETURN ON EQUITY, AND/OR PRIOR  RATE  PERIOD'S
 AVERAGE  MONTHLY  RATE OF RETURN ON EQUITY IS INSUFFICIENT FOR THE REGU-
 LATED UTILITY TO MAINTAIN ITS FINANCIAL INTEGRITY DURING THE RATE YEAR.
   (C) IF THE COMMISSION DETERMINES, BY A PREPONDERANCE OF THE  EVIDENCE,
 AFTER  THE  CONCLUSION OF THE PUBLIC HEARING, THAT THE REGULATED UTILITY
 HAS SUFFICIENTLY DEMONSTRATED THAT THE AUTHORIZED COMMON  EQUITY  RATIO,
 AUTHORIZED  RATE OF RETURN ON EQUITY, AND/OR PRIOR RATE PERIOD'S AVERAGE
 MONTHLY RATE OF RETURN ON EQUITY IS INSUFFICIENT TO MEET  THE  REGULATED
 UTILITIES'  OPERATING NEEDS, CAPITAL NEEDS, OR BOTH, THEN THE COMMISSION
 AND THE REGULATED UTILITY SHALL THEN ENTER INTO SETTLEMENT  NEGOTIATIONS
 THROUGH ADJUDICATION PURSUANT TO THE PROCEDURES SET OUT UNDER THIS ARTI-
 CLE.
   5.  SETTLEMENT NEGOTIATIONS FOLLOWING SUCCESSFUL REBUTTAL. ALL SETTLE-
 MENT NEGOTIATIONS SHALL TAKE INTO CONSIDERATION  THE  FOLLOWING  FACTORS
 PRIOR  TO  REACHING  A  FINAL AUTHORIZED COMMON EQUITY RATIO, AUTHORIZED
 RATE OF RETURN ON EQUITY, AND/OR PRIOR  RATE  PERIOD'S  AVERAGE  MONTHLY
 RATE OF RETURN ON EQUITY:
   (A)  TESTIMONIES  AND  EXHIBITS FROM EXPERT WITNESSES, INCLUDING THOSE
 FROM OUTSIDE PUBLIC INTEREST ORGANIZATIONS;
 S. 6557                             5
 
   (B) HOW THE NEGOTIATED SETTLEMENT REDUCES DELIVERY RATES  FOR  CONSUM-
 ERS;
   (C)  HOW  THE  NEGOTIATED  SETTLEMENT  IMPROVES  EQUITY FOR, MINIMIZES
 IMPACTS ON, AND PRIORITIZES BENEFITS TO UTILITY RATES FOR  DISADVANTAGED
 COMMUNITIES AS DEFINED IN SECTION 75-0101 OF THE ENVIRONMENTAL CONSERVA-
 TION LAW;
   (D)  WHETHER  THE  TESTIMONY  AND  EXHIBITS  OF  THE REGULATED UTILITY
 REFLECT POSITIONS THAT ARE IN  THE  BEST  INTEREST  OF  THE  PUBLIC  AND
 PROMOTE PRINCIPLES OF EQUITY FOR DISADVANTAGED COMMUNITIES;
   (E) WHETHER THE PROPOSALS OF THE REGULATED UTILITY WOULD RESULT IN THE
 LOWEST POSSIBLE DELIVERY COST TO THE BENEFIT OF THE RATE PAYER; AND
   (F)  WHETHER  THE NEW SETTLEMENT AGREEMENT PROVIDES A JUST AND REASON-
 ABLE RETURN FOR THE REGULATED UTILITY.
   6. REPORTS AND LEGISLATIVE HEARING ON FINDINGS BETWEEN THE  COMMISSION
 AND  REGULATED UTILITIES.   (A) ANNUALLY, THE COMMISSION SHALL PUBLISH A
 REPORT OUTLINING THE FINDINGS AND DETERMINATIONS OF THE FINAL AUTHORIZED
 COMMON EQUITY RATIO, AUTHORIZED RATE OF RETURN ON  EQUITY  AND/OR  PRIOR
 RATE  PERIOD'S  AVERAGE  MONTHLY  RATE  OF RETURN ON EQUITY, WHETHER SET
 THROUGH THE PROCEDURES OUTLINED IN SUBDIVISIONS THREE AND FOUR  OF  THIS
 SECTION  OR  THROUGH NEGOTIATED SETTLEMENTS OUTLINED IN SUBDIVISION FIVE
 OF THIS SECTION, BETWEEN A REGULATED UTILITY AND THE  COMMISSION  DURING
 THE PREVIOUS YEAR.
   (B)  SUCH  REPORT  SHALL  ANALYZE  AND  DESCRIBE  IN CLEAR, ACCESSIBLE
 LANGUAGE HOW THE FINAL AUTHORIZED COMMON EQUITY RATIO,  AUTHORIZED  RATE
 OF  RETURN ON EQUITY, AND/OR PRIOR RATE PERIOD'S AVERAGE MONTHLY RATE OF
 RETURN ON EQUITY HAS CHANGED, REFLECTS NEW  CIRCUMSTANCES,  OR  REMAINED
 THE SAME DURING THE PREVIOUS YEAR.
   (C)  SUCH  REPORT  SHALL  INCLUDE  ALL  MONTHLY  DATA USED FOR GENERIC
 FINANCING METHODOLOGY CALCULATIONS THAT IS NOT PUBLICLY AVAILABLE  DATA,
 TOGETHER  WITH  AN  EXPLANATION OF WHY IT WAS NECESSARY TO USE SUCH NON-
 PUBLIC DATA INSTEAD OF A PUBLICLY AVAILABLE DATA SOURCE.
   (D) THE ANNUAL REPORT SHALL BE PRESENTED  BY  THE  COMMISSION  TO  THE
 LEGISLATURE,  WHERE  LEGISLATORS  SHALL  HAVE  THE  OPPORTUNITY TO ISSUE
 INFORMATION REQUESTS BEFORE, DURING, AND AFTER SUCH HEARING.
   § 3. This act shall take effect one year after it shall have become  a
 law.