Assembly Actions -
Lowercase Senate Actions - UPPERCASE |
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Mar 19, 2024 |
referred to energy delivered to assembly passed senate |
Feb 05, 2024 |
advanced to third reading |
Jan 31, 2024 |
2nd report cal. |
Jan 30, 2024 |
1st report cal.296 |
Jan 03, 2024 |
referred to energy and telecommunications returned to senate died in assembly |
May 18, 2023 |
referred to energy delivered to assembly passed senate |
May 17, 2023 |
advanced to third reading |
May 16, 2023 |
2nd report cal. |
May 15, 2023 |
1st report cal.883 |
May 11, 2023 |
print number 6557a |
May 11, 2023 |
amend and recommit to energy and telecommunications |
Apr 26, 2023 |
referred to energy and telecommunications |
Senate Bill S6557A
2023-2024 Legislative Session
Requires certain utilities to adopt the common equity ratio and rate of return on equity authorized by the public service commission
download bill text pdfSponsored By
(D, WF) 37th Senate District
Current Bill Status - In Assembly Committee
- Introduced
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- In Committee Assembly
- In Committee Senate
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- On Floor Calendar Assembly
- On Floor Calendar Senate
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- Passed Assembly
- Passed Senate
- Delivered to Governor
- Signed By Governor
Actions
Votes
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Floor Vote: Mar 19, 2024
aye (54)- Addabbo Jr.
- Bailey
- Breslin
- Brisport
- Brouk
- Canzoneri-Fitzpatrick
- Chu
- Cleare
- Comrie
- Cooney
- Felder
- Fernandez
- Gallivan
- Gianaris
- Gonzalez
- Gounardes
- Griffo
- Harckham
- Helming
- Hinchey
- Hoylman-Sigal
- Jackson
- Kavanagh
- Kennedy
- Krueger
- Lanza
- Liu
- Mannion
- Martinez
- Martins
- Mattera
- May
- Mayer
- Murray
- Myrie
- Oberacker
- Parker
- Persaud
- Ramos
- Rhoads
- Rivera
- Rolison
- Ryan
- Salazar
- Sanders Jr.
- Scarcella-Spanton
- Sepúlveda
- Serrano
- Skoufis
- Stavisky
- Stec
- Stewart-Cousins
- Thomas
- Webb
excused (1)The following Member(s) participated via videoconferencing: Murray
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Floor Vote: May 18, 2023
aye (51)- Addabbo Jr.
- Bailey
- Breslin
- Brisport
- Brouk
- Canzoneri-Fitzpatrick
- Chu
- Cleare
- Comrie
- Felder
- Fernandez
- Gallivan
- Gianaris
- Gonzalez
- Griffo
- Harckham
- Helming
- Hinchey
- Hoylman-Sigal
- Jackson
- Kavanagh
- Kennedy
- Krueger
- Lanza
- Liu
- Mannion
- Martins
- Mattera
- May
- Murray
- Myrie
- Oberacker
- Parker
- Persaud
- Ramos
- Rhoads
- Rivera
- Rolison
- Ryan
- Salazar
- Sanders Jr.
- Scarcella-Spanton
- Sepúlveda
- Serrano
- Skoufis
- Stavisky
- Stec
- Stewart-Cousins
- Thomas
- Walczyk
- Webb
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Jan 30, 2024 - Energy And Telecommunications Committee Vote
S6557A6Aye2Nay1Aye with Reservations0Absent0Excused0Abstained -
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Bill Amendments
2023-S6557 - Details
- See Assembly Version of this Bill:
- A7502
- Current Committee:
- Assembly Energy
- Law Section:
- Public Service Law
- Laws Affected:
- Add §65-c, Pub Serv L
2023-S6557 - Summary
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.
2023-S6557 - Sponsor Memo
BILL NUMBER: S6557 SPONSOR: MAYER TITLE OF BILL: 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 equity authorized by the public service commission PURPOSE: To require regulated utilities to adopt the rate of return on equity and common equity ratio as promulgated by the Public Service Commission by using an updated generic financing methodology when setting final utili- ty rates, which will provide the lowest possible delivery rates for ratepayers. SUMMARY OF SPECIFIC PROVISIONS: Section 1 outlines the legislative intent, emphasizing the inaccessible and outdated nature in which regulated utilities and the Public Service Commission set final utility rates for consumers.
Section 2 amends the public service law by adding a new section 65-c, which includes six new sections. First, it sets forth definitions to be applied in this section, including: regulated utility, generic financing methodology, authorized and actual common equity ratio, authorized and actual rate of return on equity, rate case, rate period, and publicly available data. Second, it requires the commission, on an annual basis, to promulgate rules and regulations that: first, update the generic financing method- ology such that, to the greatest extent possible, all of its calcu- lations are based upon publicly available data; second, set a fair and reasonable authorized common equity ratio for each regulated utility and a single rate of return on equity for all regulated utilities based on the generic financing methodology; and third, reconcile the prior rate period's authorized rate of return on equity produced by the generic financing methodology for that rate period (i.e. a "true-up mechanism"). In this true-up process, the commission shall require that any revenues derived from the authorized rate of return on equity that exceeded 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 that 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. The promulgated 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 shall include input from outside experts, utility representatives, interested organizations, and the public. The final regulations shall give preference to the best interest of the ratepayer. Third, it requires every regulated utility to: adopt the authorized common equity ratio for the following rate period as set specifically for each regulated utility by the commission; adopt the authorized rate of return on equity for the following rate period; and adopt the surcredit/surcharge based on the prior rate period's average monthly rate of return on equity. Fourth, it outlines the procedures in which a regulated utility may rebut the commission's authorized common equity ratio, authorized rate of return on equity, and/or prior rate period's average monthly rate of return on equity. It must first initiate a request for public hearing. If the commission finds substantial basis for the regulated utility's claims, it shall publish dates from which a public hearing shall take place. During the public hearing, a regulated utility must: present documentary evidence, testimony, and exhibits indicating why the author- ized common equity ratio, authorized rate of return on equity, and/or prior rate period's average monthly rate of return on equity as set by the commission is insufficient to meet its current and/or future operat- ing and capital needs, does not provide a fair and reasonable return, describe why it is insufficient to attract capital at reasonable terms, and why it is insufficient to to maintain financial integrity during the rate year. If the commission determines, by a preponderance of the evidence, that the regulated utility has successfully met its burden, then it shall order settlement negotiations via commission-led adjudi- cation. Fifth, it sets out the standards from which settlement negotiations shall take place. Specifically, it requires the commission to consider: testimony and exhibits from expert witnesses, including those from public interest organizations; how the negotiated settlement reflects the lowest possible delivery rates for consumers; how the negotiated settlement improves equity for disadvantaged communities as defined in the environmental law, how the proposed rates reflect the best interest of the public and promote principles of equity for disadvantaged commu- nities; whether the proposals result in the lowest possible delivery cost to the benefit of the ratepayer; and whether the new settlement agreement provides a just and reasonable return. Sixth, it requires the commission to publish, on an annual basis, 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. The report must describe its findings in clear, accessible language and describe wheth- er, if at all, the final determinations changed, reflect changed circum- stances, or remained the same during the previous year. The report must also include all monthly data used for generic financing methodology calculations that is not publicly accessible data, together with an explanation why it was necessary to use non-public data instead of a publicly available data source. Section 3 sets forth the effective date. JUSTIFICATION: Ratemaking represents one of the most fundamental undertakings between regulated utilities and the New York Public Service Commission (i.e. the commission). This intricate and protracted process leads to the determi- nation of final rates that a utility can charge to their customers in the form of utility bills. As a result, decisions made in ratemaking can have enormous economic impacts on consumers.(1) But the ratemaking process is in dire need of reform. Existing proce- dures are inaccessible, outdated, and more often than not disproportion- ately benefit utilities at the ratepayers' expense. Millions of New Yorkers have difficulty understanding their utility bills, let alone making clear determinations on how a utility ends up justifying its rates. One core reason underlies this problem: the very manner in which final rates are decided is driven by the utility rather than the commis- sion. Under the current ratemaking process, a utility begins by submitting a "rate case," a formal proceeding before the commission requesting new rates to cover the cost of operating and capital expenses. The utility's request includes detailed information about its current delivery system and financial accounts, in addition to the proposed rates it requests for the upcoming "rate period," the time frame in which the utility can collect rates from consumers based on the amount approved by the commis- sion. Once a rate case is filed, the commission reviews the utility's docu- ments and rate requests, and develops a counter-proposal. Generally, two percentages drive this evaluation: the "common equity ratio" and the "rate of return on equity." The common equity ratio is the percentage of a utility's total capitalization, which consists of common equity (i.e. shares), retained earnings, and capital surplus. The rate of return on equity is the return on the equity portion of the rate base that utili- ties are authorized to collect in rates.(2) When combined, these deter- minations make up the ceiling from which a utility can charge customers through monthly utility bills. Herein lies the challenge. To explain, both the utility and the commission provide their own common equity ratios and rates of return on equity. The utility uses its own accounting determinations, while the commission bases its on the "gener- ic financing methodology," a standardized formula driven by its staff. Notably, the commission's methodology is based on a 1994 recommended decision (3) that exists as "policy guidance," a non-binding administra- tive statement of general applicability used by the commission to direct its policies or determinations. While the generic financing methodology operates to serve the common good, its inputs are outdated and subject to change due to its non-binding nature. Because of the disparity between the percentages proposed by the utility and the commission, settlement negotiations are typically held through an administrative law judge tasked with hearing evidence and recommend- ing a final decision. It is during this highly drawn out process that the utility and commission typically propose a settlement to decide final rates.(4) The debates over percentages and fractions of percentages can have enor- mous financial implications. As one expert noted from his 2022 testimo- ny: setting a common equity ratio at 48% rather than the utility's proposal of 50% would save ratepayers $64.2 million in the rate year, while setting a rate of return on equity at 8.75% rather than the utili- ty's proposal of 10% would save electric ratepayers $225.1 million and gas ratepayers an additional $85.5 million.(5) The combined savings in a one-year rate case resulting from a 48% common equity ratio and an 8.75% return on equity would total $374.8 million.(6) This legislation aims to modernize the manner in which regulated utili- ties and the commission come to set final rates. (7) First, it requires the commission to promulgate regulations that: update the generic financing methodology to reflect new economic reali- ties which are, to the greatest extent possible, based upon publicly available data; set a fair and reasonable authorized common equity ratio for each specific regulated utility and set a single rate of return on equity for all regulated utilities; and reconcile the prior rate peri- od's authorized rate of return on equity produced by the generic financ- ing methodology for that rate period (i.e. a "true-up" mechanism). This true-up mechanism is a flexible approach that operates to reconcile the previous rate period's rates by requiring that revenues that exceeded 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 that revenues that would have been derived from an average monthly rate of return on equity exceeding the authorized rate of return on equity are recovered from ratepayers in the form of a surcharge to their bills for the following rate period. Each of the proposed regulations shall include input from accounting experts, utility representatives, outside organizations, and the public. The final regulations must give preference to the best interest of the ratepayer. Second, it requires every regulated utility to: adopt the authorized common equity ratio as set specifically for each regulated utility for the following rate period; adopt the single authorized rate of return on equity for the following period; and adopt the surcredit/surcharge based on the prior rate period's average monthly rate of return on equity. Third, it sets out processes and standards from which a utility can rebut the commission's authorized common equity ratio, authorized rate of return on equity, and/or prior rate period's average monthly rate of return on equity. This shall take place at a public hearing, in which the regulated utility must present detailed evidence explaining why the commission's regulations are insufficient. The regulated utility must meet its burden by a preponderance of the evidence. If it does then the commission shall order adjudication. Fourth, it outlines the standards in which settlement negotiations through commission-led adjudication shall take place. It requires the adjudicator to consider: testimony from expert witnesses and public interest organizations; and how the settlement reflects the lowest possible delivery rates for consumers, improves equity for disadvantaged communities as defined in the environmental law, promotes principles of equity, is in the best interest of the public, and provides a just and reasonable return. Finally, it requires the commission to publish, on an annual basis, a report that describes in clear, accessible language 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. The report must include all monthly data used for generic financing methodology calculations that is not publicly available data, with an explanation of why it was necessary to use non- public data instead of a publicly available data source. By requiring utilities to begin with the presumption of adopting the commission's authorized common equity ratio, authorized rate of return on equity, and surcrdit/surcharge determination based on the prior rate period's average monthly rate of return on equity, and making explicit its requirement to prioritize the lowest possible utility costs for consumers and principles of fairness, New York will return power back to the public institution whose primary mission is to ensure affordable, safe, secure, and reliable access to utility services for New York State's residential and business consumers, at just and reasonable rates, while protecting the natural environment.(8) This legislation recognizes that regulated utilities are entitled to make a fair and reasonable return,(9) while emphasizing that the existing process of ratemaking must be fundamentally restructured. PRIOR LEGISLATIVE HISTORY: New bill. FISCAL IMPLICATIONS: To be determined. EFFECTIVE DATE: This act shall take effect one year after it shall be enacted into law. 1 For example, the Bureau of Labor Statistics reports that New York area electricity costs have exceeded the national average by at least 40% over the past five Decembers, and in December 2022, electricity costs in New York were 40.8% higher than the nation. 2 As one writer notes, "the process of setting an allowed ROE has consistently proven to be the most contentious and subjective part of a rate case proceeding." Phillip S. Cross, Public Utilities Fortnightly, Equity Returns: 'Allowed' vs. Earned (Nov. 2015). 3 1994 "Recommended Decision" (Case 91-M-0509) (Proceeding on Motion of the Commission to Consider Financial Regulatory Policies for New York State Utilities). 4 As of April 2023, for example, the commission and ConEdison have submitted a request for public comments regarding its "joint proposal" for their ongoing rate case. https://dps.ny.gov/event/con-edison- comments-due-regarding-joint-proposal-submitted-con-edison-rate-case 5 Direct Testimony of William D. Yates for the Public Utility Law Project of New York, Inc. before the New York Public Service Commission (May 20, 2022). 6 Id. 7 Regulated utilities means an "electric corporation," "gas corpo- ration," "steam corporation," or "water-works corporation" as defined in section two of the Public Service Law. 8 New York State, Department of Public Service, About Us, https://dps.ny.gov/about-us 9 For decades, the Supreme Court has recognized that regulated utilities are entitled to a reasonable opportunity to recover their "prudently-in- curred costs," and earn a "fair and reasonable rate of return on their capital investments." see Federal Power Commission et al v. Hope Natural Gas Co. ("Hope"), 320 U.S. 591, 603 (1944); Bluefield Water Works and Improvement Co. v. Public Service Commission of West Virginia ("Bluefield"), 262 U.S. 679 (1923).
2023-S6557 - Bill Text download pdf
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.
co-Sponsors
(D) 26th Senate District
(D, WF) 31st Senate District
(D, WF) 52nd Senate District
2023-S6557A (ACTIVE) - Details
- See Assembly Version of this Bill:
- A7502
- Current Committee:
- Assembly Energy
- Law Section:
- Public Service Law
- Laws Affected:
- Add §65-c, Pub Serv L
2023-S6557A (ACTIVE) - Summary
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.
2023-S6557A (ACTIVE) - Sponsor Memo
BILL NUMBER: S6557A SPONSOR: MAYER TITLE OF BILL: 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 equity authorized by the public service commission PURPOSE: To require regulated utilities to adopt the rate of return on equity and common equity ratio as promulgated by the Public Service Commission by using an updated generic financing methodology when setting final utili- ty rates, which will provide the lowest possible delivery rates for ratepayers. SUMMARY OF SPECIFIC PROVISIONS: Section 1 outlines the legislative intent, emphasizing the inaccessible and outdated nature in which regulated utilities and the Public Service Commission set final utility rates for consumers.
Section 2 amends the public service law by adding a new section 65-c, which includes six new sections. First, it sets forth definitions to be applied in this section, including: regulated utility, generic financing methodology, authorized and actual common equity ratio, authorized and actual rate of return on equity, rate period, and publicly available data. Second, it requires the commission, on an annual basis, to promulgate rules and regulations that: first, update the generic financing method- ology such that, to the greatest extent possible, all of its calcu- lations are based upon publicly available data; second, set a fair and reasonable authorized common equity ratio for each regulated utility and a single rate of return on equity for all regulated utilities based on the generic financing methodology; and third, reconcile the prior rate period's authorized rate of return on equity produced by the generic financing methodology for that rate period (i.e. a "true-up mechanism"). In this true-up process, the commission shall require that any revenues derived from the authorized rate of return on equity that exceeded 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 that 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. The promulgated 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 shall include input from outside experts, utility representatives, interested organizations, and the public. The final regulations shall give preference to the best interest of the ratepayer. Third, it requires every regulated utility to: adopt the authorized common equity ratio for the following rate period as set specifically for each regulated utility by the commission; adopt the authorized rate of return on equity for the following rate period; and adopt the surcredit/surcharge based on the prior rate period's average monthly rate of return on equity. Fourth, it outlines the procedures in which a regulated utility may rebut the commission's authorized common equity ratio, authorized rate of return on equity, or prior rate period's average monthly rate of return on equity. It must first initiate a request for public hearing. If the commission finds substantial basis for the regulated utility's claims, it shall publish dates from which a public hearing shall take place. During the public hearing, a regulated utility must: present documentary evidence, testimony, and exhibits indicating why the author- ized common equity ratio, authorized rate of return on equity, or prior rate period's average monthly rate of return on equity as set by the commission is insufficient to meet its current or future operating and capital needs, does not provide a fair and reasonable return, describe why it is insufficient to attract capital at reasonable terms, and why it is insufficient to to maintain financial integrity during the rate year. If the commission determines, by a preponderance of the evidence, that the regulated utility has successfully met its burden, then it shall order settlement negotiations via commission-led adjudication. Fifth, it sets out the standards from which settlement negotiations shall take place. Specifically, it requires the commission to consider: testimony and exhibits from expert witnesses, including those from public interest organizations; how the negotiated settlement reflects the lowest possible delivery rates for consumers; how the negotiated settlement improves equity for disadvantaged communities as defined in the environmental law, how the proposed rates reflect the best interest of the public and promote principles of equity for disadvantaged commu- nities; whether the proposals result in the lowest possible delivery cost to the benefit of the ratepayer; and whether the new settlement agreement provides a just and reasonable return. Sixth, it requires the commission to submit to the Governor and legisla- ture, a report outlining the findings and determinations of the final authorized common equity ratio, authorized rate of return on equity, or prior rate period's average monthly rate of return on equity. The report must describe its findings in clear, accessible language and describe whether, if at all, the final determinations changed, reflect changed circumstances, or remained the same during the previous year. The report must also include all monthly data used for generic financing methodol- ogy calculations that is not publicly accessible data, together with an explanation why it was necessary to use non-public data instead of a publicly available data source. Lastly it shall be published online on the commission's website and made publicly available. Section 3 sets forth the effective date. JUSTIFICATION: Ratemaking represents one of the most fundamental undertakings between regulated utilities and the New York Public Service Commission (i.e. the commission). This intricate and protracted process leads to the determi- nation of final rates that a utility can charge to their customers in the form of utility bills. As a result, decisions made in ratemaking can have enormous economic impacts on consumers.(1) But the ratemaking process is in dire need of reform. Existing proce- dures are inaccessible, outdated, and more often than not disproportion- ately benefit utilities at the ratepayers' expense. Millions of New Yorkers have difficulty understanding their utility bills, let alone making clear determinations on how a utility ends up justifying its rates. One core reason underlies this problem: the very manner in which final rates are decided is driven by the utility rather than the commis- sion. Under the current ratemaking process, a utility begins by submitting a "rate case," a formal proceeding before the commission requesting new rates to cover the cost of operating and capital expenses. The utility's request includes detailed information about its current delivery system and financial accounts, in addition to the proposed rates it requests for the upcoming "rate period," the time frame in which the utility can collect rates from consumers based on the amount approved by the commis- sion. Once a rate case is filed, the commission reviews the utility's docu- ments and rate requests, and develops a counter-proposal. Generally, two percentages drive this evaluation: the "common equity ratio" and the "rate of return on equity." The common equity ratio is the percentage of a utility's total capitalization, which consists of common equity (i.e. shares), retained earnings, and capital surplus. The rate of return on equity is the return on the equity portion of the rate base that utili- ties are authorized to collect in rates.(2) When combined, these deter- minations make up the ceiling from which a utility can charge customers through monthly utility bills. Herein lies the challenge. To explain, both the utility and the commission provide their own common equity ratios and rates of return on equity. The utility uses its own accounting determinations, while the commission bases its on the "gener- ic financing methodology," a standardized formula driven by its staff. Notably, the commission's methodology is based on a 1994 recommended decision(3) that exists as "policy guidance," a non-binding administra- tive statement of general applicability used by the commission to direct its policies or determinations. While the generic financing methodology operates to serve the common good, its inputs are outdated and subject to change due to its non-binding nature. Because of the disparity between the percentages proposed by the utility and the commission, settlement negotiations are typically held through an administrative law judge tasked with hearing evidence and recommend- ing a final decision. It is during this process that the utility and commission typically propose a settlemenet to decide the final rates.(4) The debates over percentages and fractions of percentages can have enor- mous financial implications. As one expert noted from his 2022 testimo- ny: setting a common equity ratio at 48% rather than the utility's proposal of 50% would save ratepayers $64.2 million in the rate year, while setting a rate of return on equity at 8.75% rather than the utili- ty's proposal of 10% would save electric ratepayers $225.1 million and gas ratepayers an additional $85.5 million.(5) The combined savings in a one-year rate case resulting from a 48% common equity ratio and an 8.75% return on equity would total $374.8 million.(6) This legislation aims to modernize the manner in which regulated utili- ties and the commission come to set final rates.(7) First, it requires the commission to promulgate regulations that: update the generic financing methodology to reflect new economic reali- ties which are, to the greatest extent possible, based upon publicly available data; set a fair and reasonable authorized common equity ratio for each specific regulated utility and set a single rate of return on equity for all regulated utilities; and reconcile the prior rate peri- od's authorized rate of return on equity produced by the generic financ- ing methodology for that rate period (i.e. a "true-up" mechanism). This true-up mechanism is a flexible approach that operates to reconcile the previous rate period's rates by requiring that revenues that exceeded 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 that revenues that would have been derived from an average monthly rate of return on equity exceeding the authorized rate of return on equity are recovered from ratepayers in the form of a surcharge to their bills for the following rate period. Each of the proposed regulations shall include input from accounting experts, utility representatives, outside organizations, and the public. The final re gulations must give preference to the best interest of the ratepayer. Second, it requires every regulated utility to: adopt the authorized common equity ratio as set specifically for each regulated utility for the following rate period; adopt the single authorized rate of return on equity for the following period; and adopt the surcredit/surcharge based on the prior rate period's average monthly rate of return on equity. Third, it sets out processes and standards from which a utility can rebut the commission's authorized common equity ratio, authorized rate of return on equity, and/or prior rate period's average monthly rate of return on equity. This shall take place at a public hearing, in which the regulated utility must present detailed evidence explaining why the commission's regulations are insufficient. The regulated utility must meet its burden by a preponderance of the evidence. If it does then the commission shall order adjudication. Fourth, it outlines the standards in which settlement negotiations through commission-led adjudication shall take place. It requires the adjudicator to consider: testimony from expert witnesses and public interest organizations; and how the settlement reflects the lowest possible delivery rates for consumers, improves equity for disadvantaged communities as defined in the environmental law, promotes principles of equity, is in the best interest of the public, and provides a just and reasonable return. Finally, it requires the commission to publish, on an annual basis, a report that describes in clear, accessible language 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. The report must include all monthly data used for generic financing methodology calculations that is not publicly available data, with an explanation of why it was necessary to use non- public data instead of a publicly available data source. By requiring utilities to begin with the presumption of adopting the commission's authorized common equity ratio, authorized rate of return on equity, and surcrdit/surcharge determination based on the prior rate period's average monthly rate of return on equity, and making explicit its requirement to prioritize the lowest possible utility costs for consumers and principles of fairness, New York will return power back to the public institution whose primary mission is to ensure affordable, safe, secure, and reliable access to utility services for New York State's residential and business consumers, at just and reasonable rates, while protecting the natural environment.(8) This legislation recognizes that regulated utilities are entitled to make a fair and reasonable return,(9) while emphasizing that the existing process of ratemaking must be fundamentally restructured. PRIOR LEGISLATIVE HISTORY: A-print updates the report to be submitted to the Governor and legisla- ture. FISCAL IMPLICATIONS: To be determined. EFFECTIVE DATE: This act shall take effect one year after it shall be enacted into law. 1 For example, the Bureau of Labor Statistics reports that New York area electricity costs have exceeded the national average by at least 40% over the past five Decembers, and in December 2022, electricity costs in New York were 40.8% higher than the nation. 2 As one writer notes, the process of setting an allowed ROE has consistently proven to be the most contentious and subjective part of a rate case proceeding." Phillip S. Cross, Public Utilities Fortnightly, Equity Returns: 'Allowed' vs. Earned (Nov. 2015). 3 1994 "Recommended Decision" (Case 91-M-0509) (Proceeding on Motion of the Commission to Consider Financial Regulatory Policies for New York State Utilities). 4 As of April 2023, for example, the commission and ConEdison have submitted a request for public comments regarding its "joint proposal" for their ongoing rate case. https://dps.ny.gov/event/con-edison- comments-due-regarding-joint-proposal-submitted-con-edison-rate-case 5 Direct Testimony of William D. Yates for the Public Utility Law Project of New York, Inc. before the New York Public Service Commission (May 20, 2022). 6 id. 7 Regulated utilities means an "electric corporation," "gas corpo- ration," "steam corporation," or "water-works corporation" as defined in section two of the Public Service Law. 8 New York State, Department of Public Service, About Us, https://dps.ny.gov/about-us 9 For decades, the Supreme Court has recognized that regulated utilities are entitled to a reasonable opportunity to recover their "prudently-in- curred costs," and earn a "fair and reasonable rate of return on their capital investments." see Federal Power Commission et al v. Hope Natural Gas Co. ("Hope"), 320 U.S. 591, 603 (1944); Bluefield Water Works and Improvement Co. v. Public Service Commission of West Virginia ("Bluefield"), 262 U.S. 679 (1923).
2023-S6557A (ACTIVE) - Bill Text download pdf
S T A T E O F N E W Y O R K ________________________________________________________________________ 6557--A 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 -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee 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 and often runs contrary to the stated goals of the commission to ensure affordable, safe, secure, and reliable utility service for New York residential and business consumers. 3. 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 always reflected in actual utility rates for consumers. Aligning the incentives of regu- lated utilities and ratepayers is essential to protect the interests of EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD10360-04-3
S. 6557--A 2 all New York residents by establishing a more accurate standard for a regulated utility's right to earn a fair and reasonable rate of return. § 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. (G) "RATE PERIOD" MEANS THE TIME PERIOD IN WHICH A REGULATED UTILITY COLLECTS RATES THAT ARE AUTHORIZED AND APPROVED BY THE COMMISSION. (H) "PUBLICLY AVAILABLE DATA" MEANS PUBLISHED DATA THAT IS OPENLY ACCESSIBLE VIA THE INTERNET, OR INDIRECTLY ACCESSIBLE 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. S. 6557--A 3 (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: (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, OR PRIOR RATE PERIOD'S AVERAGE MONTHLY RATE OF RETURN ON EQUITY IS INSUFFICIENT TO MEET ITS CURRENT 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, 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 OR PRIOR RATE PERIOD'S AVER- AGE MONTHLY RATE OF RETURN ON EQUITY ADOPTED BY THE COMMISSION IS INSUF- FICIENT 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, OR PRIOR RATE PERIOD'S AVER- S. 6557--A 4 AGE MONTHLY RATE OF RETURN ON EQUITY IS INSUFFICIENT FOR THE REGULATED 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, 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, 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; (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 SUBMIT TO THE GOVERNOR AND THE LEGISLATURE, 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 PUBLISHED ONLINE ON THE COMMISSION'S WEBSITE AND BE MADE PUBLICLY AVAILABLE. § 3. This act shall take effect one year after it shall have become a law.
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