BILL NUMBER: S8213

SPONSOR: HINCHEY
 
TITLE OF BILL:

An act to amend the public service law, in relation to consideration of
capital expenditures in utility rate proceedings

 
PURPOSE OR GENERAL IDEA OF BILL:

To ensure that all proposed capital expenditures by utilities as a part
of a rate proceeding are just and reasonable and are beneficial to rate-
payers.

 
SUMMARY OF PROVISIONS:

Section 1 requires utilities to fully describe their capital expendi-
tures in rate cases and requires the burden of proof to show that a
capital expenditure is just and reasonable be on the utility.

Section 2 is the effective date which is immediately.

              

 
JUSTIFICATION:

The calculation of utility rates is complicated. Rates are determined by
the Public Service Commission (PSC) after a utility makes a request to
increase the rate which it is allowed to charge. The utility must prove
why the rate increase is necessary.

One of the considerations is how maintenance or repairs are calculated
in the utility's rate as opposed to capital expenditures. Generally,
repairs or maintenance are reimbursed dollar-fordollar. A capital
expenditure receives reimbursement plus a guaranteed rate of return
approximately 9% depending on current interest rates. The utility
profits more from capital expenditure so before granting an increase in
rates, the PSC should determine whether the proposed expenditure makes
sense on both a financial and non-financial basis.

For example, the decision on whether to repair a garage roof or put on a
new roof or tear the garage down and build a new one would depend on
many factors beyond the amount of money to be spent. While it might be
cheaper to repair the roof or put on an entirely new roof, it should be
considered how long the repaired roof would last and the overall condi-
tion of the building. Would the building last as long as the repaired
roof or a new roof? Would it be cheaper in the long run to tear down the
garage and build a new one? In order for the public to understand the
process and for the PSC to make the proper decision, there must be tran-
sparency as to what is being proposed and what benefit there is of the
expenditures for the rate paying customers.

It is often unclear what projects are being proposed and their benefits,
so this bill requires that there be a full description of each project
including the purpose, cost and life expectancy, location of the
project, and the anticipated benefits to ratepayers, both financial and
non-financial when the rate increase is proposed.  Further, this bill
requires at anS, r4e,.(figitring involving consideration of a proposed
capital expenditure for purposes of a rate proceeding, a capital expend-
iture shall not be considered, in whole or in part, if the utility does
not show by the preponderance of the evidence that the desired outcome
through such capital expenditures is just and reasonable and beneficial
to ratepayers, with consideration given to both immediate and long-term
impacts. The PSC may give preference to the hearing and decision of such
questions over all other questions pending before it.

This bill would give more transparency to the rate setting process and
will make it easier for the PSC to come to the proper outcome.

 
PRIOR LEGISLATIVE HISTORY:

None. New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This act shall take effect immediate