Bill Text: NY S06557 | 2023-2024 | General Assembly | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Requires electric corporations, gas corporations, steam corporations and water-works corporations to adopt the common equity ratio and rate of return on equity authorized by the public service commission unless such utility can successfully demonstrate that such authorized rates do not meet their capital and/or operating needs.
Spectrum: Partisan Bill (Democrat 4-0)
Status: (Engrossed) 2024-03-19 - referred to energy [S06557 Detail]
Download: New_York-2023-S06557-Introduced.html
Bill Title: Requires electric corporations, gas corporations, steam corporations and water-works corporations to adopt the common equity ratio and rate of return on equity authorized by the public service commission unless such utility can successfully demonstrate that such authorized rates do not meet their capital and/or operating needs.
Spectrum: Partisan Bill (Democrat 4-0)
Status: (Engrossed) 2024-03-19 - referred to energy [S06557 Detail]
Download: New_York-2023-S06557-Introduced.html
STATE OF NEW YORK ________________________________________________________________________ 6557 2023-2024 Regular Sessions IN SENATE 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: 1 Section 1. Legislative intent. The legislature finds and declares 2 that: 3 1. The increasing burden of high utility rates leaves New York resi- 4 dents with extreme financial difficulties. Soaring electricity rates 5 leave one in five New York residents at risk of having their electricity 6 cut off. Meanwhile, the long-term trend of utilities receiving record 7 profits threatens the livelihood of millions of New Yorkers who struggle 8 to afford utility bills. 9 2. The current process in which the public service commission (herein- 10 after the "commission") and regulated utilities set rates for utility 11 bills to ratepayers has historically been inaccessible and indeciphera- 12 ble to the public. The balance of power that justifies rate increases 13 more often than not tilts disproportionately in utilities' favor, which 14 runs contrary to the stated goals of the commission to ensure afforda- 15 ble, safe, secure, and reliable utility service for New York residential 16 and business consumers. 17 3. The generic financing guidance that the commission utilizes to 18 establish the common equity ratio and rate of return on equity, two 19 metrics that determine how much a utility can recoup through utility 20 bills, has not been formally promulgated and adopted through state laws 21 and regulations, and currently exists as policy guidance, a non-legally 22 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. LBD10360-03-3S. 6557 2 1 ing process. This creates too lenient a framework in which the commis- 2 sion can justify and approve rate increases from regulated utilities. 3 4. The generic financing guidance that the commission utilizes to 4 establish the common equity ratio and rate of return on equity is 5 currently drawn from the 1994 "Recommended Decision" (Case 91-M-0509) 6 (Proceeding on Motion of the Commission to Consider Financial Regulatory 7 Policies for New York State Utilities). The generic financing guidance 8 is outdated and does not reflect current economic realities. 9 5. The determination of a final rate in any rate-case between a regu- 10 lated utility and the commission, beginning with the utility's initial 11 request, followed by benchmarking against the commission's generic 12 financing methodology, often, if not always, leads to adjudication, 13 resulting in negotiated settlements that disproportionately favor regu- 14 lated utilities at consumers' expense. 15 6. Regulated utilities are entitled to earn a fair and reasonable rate 16 of return on their capital investments, pursuant to Supreme Court 17 rulings in Federal Power Commission et al. v. Hope Natural Gas Co. 18 (1944) and Bluefield Water Works and Improvement Co. v. Public Service 19 Commission of West Virginia (1923). However, recent trends suggest that 20 the "fair and reasonable" legal standard is not reflected in actual 21 utility rates for consumers. 22 7. Under ratemaking theory, any authorized return must balance the 23 interests of ratepayers and shareholders, where the rate is just high 24 enough to attract needed capital to maintain service reliability, but 25 not set higher than a level to provide shareholders with a profit above 26 what is absolutely necessary to maintain service. 27 8. Aligning the incentives of regulated utilities and ratepayers is 28 essential to serve the greater interests of all New York residents by 29 establishing a healthy balance between a regulated utility's right to 30 earn a fair and reasonable rate of return, and New York residents' right 31 to have stable utility rates that are as low as possible. 32 § 2. The public service law is amended by adding a new section 65-c to 33 read as follows: 34 § 65-c. Setting a rate of return on equity and common equity ratio. 1. 35 Definitions. For the purposes of this section, the following terms shall 36 have the following meanings: 37 (a) "Regulated utility" means an "electric corporation", "gas corpo- 38 ration", "steam corporation", or "water-works corporation" as defined in 39 section two of this chapter. 40 (b) "Generic financing methodology" means a standardized procedure for 41 determining the authorized rates of return on equity and common equity 42 ratios of utilities regulated by the commission. 43 (c) "Authorized common equity ratio" means the authorized percentage 44 of a utility's total capitalization, such as common equity, preferred 45 stock, and long-term debt, that consists of common equity, retained 46 earnings, and capital surplus. 47 (d) "Actual common equity ratio" means the actual percentage of a 48 utility's total capitalization, such as common equity, preferred stock, 49 and long-term debt, that consists of common equity, retained earnings, 50 and capital surplus. 51 (e) "Authorized rate of return on equity" also known as return on 52 equity ("ROE") or the cost of equity capital, means the return on the 53 equity portion of the rate base that regulated utilities are authorized 54 to collect in rates. 55 (f) "Actual rate of return on equity" means a measure of financial 56 performance calculated by dividing net income by shareholders' equity.S. 6557 3 1 (g) "Rate-case" means a litigated and/or negotiated proceeding between 2 a regulated utility and the commission in an effort to finalize the 3 authorized common equity ratio and authorized rate of return on equity 4 that determines utility rates charged to consumers; where a regulated 5 utility first files a rate proposal with the commission, supported by 6 expert witnesses, evidentiary documentation, and exhibits, followed by 7 the commission's evaluation of the proposal in comparison to its own 8 common equity ratio and rate of return on equity, which is generally 9 followed by adjudication en route to settlement. 10 (h) "Rate period" means the time period in which a regulated utility 11 collects rates that are authorized and approved by the commission. 12 (i) "Publicly available data" means published data that is directly 13 accessible without charge via the internet, or indirectly accessible 14 without charge through a public library or similar institution. 15 2. Setting the generic financing methodology; common equity ratio; 16 rate of return on equity. (a) On an annual basis, the commission shall 17 promulgate rules and regulations that: 18 (i) update the generic financing methodology such that, to the great- 19 est extent possible, all of its calculations are based upon publicly 20 available data; 21 (ii) set a fair and reasonable authorized common equity ratio for each 22 regulated utility and a single authorized rate of return on equity for 23 all regulated utilities, based on the generic financing methodology; and 24 (iii) reconcile the prior rate period's authorized rate of return on 25 equity to a calculation of the average monthly rate of return on equity 26 produced by the generic financing methodology for that rate period, such 27 as a "true-up mechanism". In making this determination, the commission 28 shall require that: (A) any revenues derived from an authorized rate of 29 return on equity exceeding the average monthly rate of return on equity 30 be returned to ratepayers in the form of a surcredit to their bills for 31 the following rate period; and (B) any revenues that would have been 32 derived from an average monthly rate of return on equity exceeding the 33 authorized rate of return on equity shall be recovered from ratepayers 34 in the form of a surcharge to their bills for the following rate period. 35 (b) The promulgated generic financing methodology, authorized common 36 equity ratio, authorized rate of return on equity, and the prior year's 37 average monthly rate of return on equity shall clearly state the methods 38 used to justify and explain its proposed guidance. 39 (c) The promulgated generic financing methodology, authorized common 40 equity ratio, authorized rate of return on equity, and prior rate peri- 41 od's average monthly rate of return on equity shall be subject to tradi- 42 tional notice and comment procedures, as outlined in the state adminis- 43 trative procedure act, which shall include input from public interest 44 organizations, utility accounting experts, representatives from regu- 45 lated utilities, and other organizations and interested parties, includ- 46 ing residents of this state, as necessary. 47 (d) The final generic financing methodology, authorized common equity 48 ratio, authorized rate of return on equity, and prior rate period's 49 average monthly rate of return on equity adopted by the commission, 50 following the notice and comment period, shall give preference to the 51 best interest of the ratepayers. 52 3. Adopting the authorized common equity ratio, authorized rate of 53 return on equity and/or prior rate period's average monthly rate of 54 return on equity. Except as provided in subdivision four of this 55 section, every regulated utility shall:S. 6557 4 1 (a) adopt the authorized common equity ratio based on the generic 2 financing methodology for the following rate period as set specifically 3 for each regulated utility by the commission; 4 (b) adopt the authorized rate of return on equity based on the generic 5 financing methodology for the following rate period; and 6 (c) adopt the surcredit/surcharge based on the prior rate period's 7 average monthly rate of return on equity, as outlined in subdivision two 8 of this section, for the following rate period. 9 4. Rebutting the authorized common equity ratio, rate of return on 10 equity, and prior rate period's average monthly rate of return on equi- 11 ty. (a) The burden of rebutting the authorized common equity ratio, 12 authorized rate of return on equity, and/or prior rate period's average 13 monthly rate of return on equity shall rest exclusively with the regu- 14 lated utility during a public hearing facilitated by the commission. In 15 order to rebut the authorized common equity ratio and/or authorized rate 16 of return on equity, the regulated utility shall first initiate a 17 request for public hearing through procedures outlined by the commis- 18 sion. Should the commission find a substantial basis for the claims 19 outlined by the regulated utility in its request, it shall publish a set 20 of dates from which a public hearing shall take place. 21 (b) During the public hearing the regulated utility shall: 22 (i) present documentary evidence, including but not limited to exhib- 23 its, written and oral testimony, and data, describing why the authorized 24 common equity ratio, authorized rate of return on equity, and/or prior 25 rate period's average monthly rate of return on equity is insufficient 26 to meet its current and/or future operating and capital needs; 27 (ii) present documentary evidence, including but not limited to exhib- 28 its, written and oral testimony, and data, describing why the authorized 29 common equity ratio, authorized rate of return on equity, and/or prior 30 rate period's average monthly rate of return on equity does not provide 31 a fair and reasonable return; 32 (iii) describe with sufficient detail why the authorized common equity 33 ratio, authorized rate of return on equity and/or prior rate period's 34 average monthly rate of return on equity adopted by the commission is 35 insufficient for the regulated utility to attract capital at reasonable 36 terms; and 37 (iv) describe with sufficient detail why the authorized common equity 38 ratio, authorized rate of return on equity, and/or prior rate period's 39 average monthly rate of return on equity is insufficient for the regu- 40 lated utility to maintain its financial integrity during the rate year. 41 (c) If the commission determines, by a preponderance of the evidence, 42 after the conclusion of the public hearing, that the regulated utility 43 has sufficiently demonstrated that the authorized common equity ratio, 44 authorized rate of return on equity, and/or prior rate period's average 45 monthly rate of return on equity is insufficient to meet the regulated 46 utilities' operating needs, capital needs, or both, then the commission 47 and the regulated utility shall then enter into settlement negotiations 48 through adjudication pursuant to the procedures set out under this arti- 49 cle. 50 5. Settlement negotiations following successful rebuttal. All settle- 51 ment negotiations shall take into consideration the following factors 52 prior to reaching a final authorized common equity ratio, authorized 53 rate of return on equity, and/or prior rate period's average monthly 54 rate of return on equity: 55 (a) testimonies and exhibits from expert witnesses, including those 56 from outside public interest organizations;S. 6557 5 1 (b) how the negotiated settlement reduces delivery rates for consum- 2 ers; 3 (c) how the negotiated settlement improves equity for, minimizes 4 impacts on, and prioritizes benefits to utility rates for disadvantaged 5 communities as defined in section 75-0101 of the environmental conserva- 6 tion law; 7 (d) whether the testimony and exhibits of the regulated utility 8 reflect positions that are in the best interest of the public and 9 promote principles of equity for disadvantaged communities; 10 (e) whether the proposals of the regulated utility would result in the 11 lowest possible delivery cost to the benefit of the rate payer; and 12 (f) whether the new settlement agreement provides a just and reason- 13 able return for the regulated utility. 14 6. Reports and legislative hearing on findings between the commission 15 and regulated utilities. (a) Annually, the commission shall publish a 16 report outlining the findings and determinations of the final authorized 17 common equity ratio, authorized rate of return on equity and/or prior 18 rate period's average monthly rate of return on equity, whether set 19 through the procedures outlined in subdivisions three and four of this 20 section or through negotiated settlements outlined in subdivision five 21 of this section, between a regulated utility and the commission during 22 the previous year. 23 (b) Such report shall analyze and describe in clear, accessible 24 language how the final authorized common equity ratio, authorized rate 25 of return on equity, and/or prior rate period's average monthly rate of 26 return on equity has changed, reflects new circumstances, or remained 27 the same during the previous year. 28 (c) Such report shall include all monthly data used for generic 29 financing methodology calculations that is not publicly available data, 30 together with an explanation of why it was necessary to use such non- 31 public data instead of a publicly available data source. 32 (d) The annual report shall be presented by the commission to the 33 legislature, where legislators shall have the opportunity to issue 34 information requests before, during, and after such hearing. 35 § 3. This act shall take effect one year after it shall have become a 36 law.
