Senate Bill S9534A

                                 
BILL NUMBER: S9534A

SPONSOR: SKOUFIS
 
TITLE OF BILL:

An act to amend the public service law, in relation to limiting rate
increases that entail a return on equity for capital projects

 
PURPOSE OR GENERAL IDEA OF BILL:

To limit a utility company's return on equity for capital expenditures
to no more than the Federal 10-year bond rate plus one percent.

 
SUMMARY OF PROVISIONS:

Section 1: Amends the Public Service Law by adding a new section 114-b
as follows:

Section 114-b, Subdivision 1: Sets forth the definition for ten-year
treasury rate.

Section 114-b, Subdivision 2: In determining rates to be charged to
              

customers, the Public Service Commission shall not approve a rate
increase for a return on equity for capital projects that is above the
prevailing ten-year treasury rate plus one percent.

Section 2: Sets forth the effective date which shall be on the 60th day
the bill shall have become a law and shall apply to the rate increases
occurring on and after such effective date.

Effective immediately, the addition, amendment and/or repeal of any rule
or regulation necessary for the implementation of this act on its effec-
tive date are authorized to be made and completed on or before such
effective date.

 
JUSTIFICATION:

Utilities are guaranteed a reasonable rate of return. But the question
to be asked what is proper given the role of utilities.

It is supposed to be based on the cost of money which varies depending
on the market and the length of maturity of the bonds that the utility
issues. Utility bonds currently are generally around 435% although they
would be lower if they were issued today.

Yet despite utilities being almost risk free and low interest rates,
utilities are generally being rewarded between 9.5% and 10% rate of
return on capital expenditures.

For a utility that exists to serve the public interest this makes no
sense.

Utilities are generally reimbursed on a dollar-for-dollar basis for
non-capital expenditures, such as maintenance and every-day expenses, to
do business. Capital expenditures are for longer-term needs such as
updating the grid or replacing a roof or building a new structure.

Capital expenditures should be treated the same way once the cost of
money is taken into account. If the utilities are being reimbursed for
the cost of money, why should they receive a windfall for borrowing to
pay for capital expenditures? Why should utilities receive a windfall
for capital expenditures at all?

One standard metric to measure the cost of money is the 10-year United
States Treasury note. This rate is considered a reasonable rate of
return for those looking to invest with no risk.

This bill would redefine how the Public Service Commission treat capital
expenditures in a rate increase request by prohibiting a rate increase
that entails a return on equity for capital projects that is above the
prevailing ten-year treasury rate plus one per cent. The one percent
wouldòcover the utilities' administrative expenses.

Utilities should not make a huge windfall on their capital expenditures.
This bill would correct this injustice to consumers.

 
PRIOR LEGISLATIVE HISTORY:

None. New bill.

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

None.

 
EFFECTIVE DATE:
This act shall take effect on the sixtieth (60th) day the bill shall
have become a law and shall apply to the rate increases occurring on and
after such effective date. Effective immediately, the addition, amend-
ment and/or repeal of any rule or regulation necessary for the implemen-
tation of this act on its effective date are authorized to be made and
completed on or before such effective date.