Many Indiana utilities can raise rates only with the Indiana Utility Regulatory Commission's (IURC's) approval. Rate cases are formal, legal proceedings. The IURC serves as the "judge and jury."
Utilities present rate requests through attorneys and expert witnesses. The Indiana Office of Utility Consumer Counselor (OUCC) - a state agency separate from the IURC - has attorneys and technical experts who participate in IURC cases on behalf of consumer interests, and other parties may intervene under Commission rules.
The OUCC offers a Guide to State Utility Regulatory Proceedings offering more details. Click to learn more https://www.in.gov/oucc/2369.htm.
Consumer comments are invited in all rate cases.
Electric and Natural Gas Base Rate Cases
When a regulated public utility seeks a rate increase, it files an application also known as a rate case. A rate case takes several months to complete and involves thorough analysis by the Indiana Utility Regulatory Commission (IURC) staff and other parties including the Office of Utility Consumer Counselor (OUCC) as mentioned above, discovery, audits, written testimony, hearings, legal briefs, an IURC decision, and possible requests for reconsideration or appeal.
Setting utility rates is a process that involves several key steps:
- Establishment of the revenue requirement. The revenue requirement is the total annual revenue required by a public utility to recover the cost of providing utility service to its customers including a fair return on its investment.
- Determination of the revenue requirement for each customer class (i.e., residential, commercial, and industrial).
- Prices, or rates, must be established for each customer class.
- Rate of return: utility’s cost of capital (includes return on equity, or profit to the utility)
- Rate base: investments related to providing service
- The Revenue Requirement formula below includes the utility’s total cost of providing utility service to its customers.
|Revenue Requirement Calculation Example|
|A||Total Expenses ($)||$1,278,500,000|
|B||Total Rate Base ($)||$1,763,432,000|
|C||Cost of Capital||7.65%|
|D||Return ($) on Rate Base (C x B)||$134,903,000|
|E||Revenue Requirement ($) (A + D)||$1,413,403,000|
Source: Energry Utility Rate Setting by Lowell E. Alt Jr. (2006)
Things to Keep in Mind...
- Utilities with fewer than 8,000 customers can use the small utility filing process. It can reduce a rate case's time and expenses, but the standard of OUCC and IURC review is no different from a typical case.
- Some types of utilities are not under IURC jurisdiction. They include rural electric membership cooperatives and most municipal utilities.
- The OUCC offers:
- Answers to Frequently Asked Questions.
- An overview of advantages and disadvantages of withdrawing from IURC oversight.
- More specific information for customers of municipal utilities and REMCs.