Bill Text: DE HB277 | 2009-2010 | 145th General Assembly | Draft
Bill Title: An Act To Amend Title 26 Of The Delaware Code Relating To The Standard Used For Cost Recovery For Public Utilities In Proceedings Involving A Change In Rates.
Spectrum: Slight Partisan Bill (Democrat 3-1)
Status: (Introduced - Dead) 2010-06-08 - Stricken [HB277 Detail]
Download: Delaware-2009-HB277-Draft.html
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SPONSOR: |
Rep. Schooley & Sen. Bunting & Sen. Ennis & Sen. Simpson |
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HOUSE OF REPRESENTATIVES 145th GENERAL ASSEMBLY |
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HOUSE BILL NO. 277 |
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AN ACT TO AMEND TITLE 26 OF THE DELAWARE CODE RELATING TO THE STANDARD USED FOR COST RECOVERY FOR PUBLIC UTILITIES IN PROCEEDINGS INVOLVING A CHANGE IN RATES. |
Section 1.Amend Section 307(a), Title 26 of the Delaware Code by striking the present subsection (a) in its entirety and substituting in lieu thereof the following:
"(a)In any proceeding upon the motion of the Commission, or upon complaint, or upon application of a public utility, involving any proposed or existing rate of any public utility, or any proposed change in rates, the burden of proof to show that the rate involved is just and reasonable, which includes a showing that the rate involved allows for recovery of only those costs or expenses prudently incurred, is upon the public utility.In making the determination of whether a cost or expense was prudently incurred, the Commission shall consider the objective reasonableness of the cost or expense incurred, based on what the public utility knew or reasonably should have known at the time the cost or expense was incurred.The Commission may determine that the cost or expense incurred is only partially prudent, and may adjust the elements of rate base, operating expenses or fuel costs accordingly to reflect that determination.".
Section 2.Amend Section 302, Title 26 of the Delaware Code by striking the phrase "in the exercise of its good faith business judgment" in the first sentence of the second paragraph and inserting the word "prudently" after "all costs which are" and before "incurred by the water utility" in that sentence so that such sentence will read as follows:
"If a water utility is not, pursuant to §122(3)(c) of Title 16, under review concerning its water system's ability to provide adequate service to its customers under its present certificates of public convenience and necessity or subject to a review by the Commission of the appropriate rates to be charged by the water utility in light of the quality of service being provided to its customers, the Commission will include in the utility's rate base, treat as used and useful utility plant, and, accordingly, allow to be fully recovered in the utility's rates without imputation of revenues, all costs which are prudently incurred by the water utility in constructing facilities (including without limitation supply, treatment and transmission facilities) to serve the needs of existing customers or of persons who are reasonably anticipated by the water utility to be its customers within 3 years from the date used by the Commission to recognize rate base in the rate proceeding.".
SYNOPSIS
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This amendment specifies that the standard for assessing whether and to what extent any amount that a public utility seeks to include in its rate base or operating expenses for ratemaking purposes is the "prudent person" standard.This amendment supersedes the Delaware Supreme Court's opinion in Delmarva Power & Light Company v. Public Service Commission and Application of Wilmington Suburban Water Company, in which the Court established the standard for allowance of all utility expenses for ratemaking purposes as "waste, bad faith or abuse of discretion." In a competitive industry, the waste/bad faith/abuse of discretion standard of review, of necessity, takes into account the fact that a customer has the option whether or not to patronize a particular company.Thus, the fact that the company does not have a captive customer base acts as a check on the manner in which the company incurs expenses.In a monopolistic market, the same pressures are not present to act as a check on utility management, because utilities recover all expenses from their customer base.Thus, utilities may incur expenses that may not be prudent, but are not wasteful, done in bad faith or an abuse of their discretion. The majority
of jurisdictions in this country have adopted a prudence standard with
respect to the allowance of public utility expenses for ratemaking purposes,
either by legislative codification, judicial decision or regulatory
policy.This amendment will bring |
