Is the Sky Blue?

A call to public action for utility rate case intervention

Photo by uriel on Unsplash

When I started as the chief regulator at the Connecticut Public Utilities Regulatory Authority—or PURA for short—in the spring of 2019, our consumer affairs unit received lots of calls from wrong numbers inquiring about a “Pura” fragrance line. Other states’ commissions are more opaquely named “[state] Public Utility Commission” or “Georgia Public Service Commission” and likely aren’t getting calls about fragrance pricing, but these days their phones are definitely ringing.

Increasingly, as energy prices rise faster than inflation, these PUCs and PSCs, which are responsible for setting rates for the investor-owned utilities (IOUs) they regulate, are fielding calls from customers—the ratepayers—demanding to know why their bills are so high. Ratepayers want to know why, if the government is responsible for regulating these IOUs, prices are being set at increasingly unaffordable levels.

For over six years I was one of the 200 people in the country who oversee more than $200 billion in utility spending each year, a time that overlapped the three-year period where the cost of electricity rose at a rate 49% higher than inflation for customers of IOUs—a statistic so jarring that energy prices are finally getting their overdue 15 minutes of fame. The questions that many people want to know the answers to are: how are these IOUs’ energy prices determined, and what can we do about it?

What is an Investor-Owned Utility and why does the government regulate them?

Investor-owned utilities, or IOUs, are government-sanctioned monopolies that function as the sole distributor of electricity (or natural gas and sometimes even water) in a designated geographic area. Across the country, IOUs serve approximately 70% of U.S. households with electricity, while the remainder receive power from publicly-owned utilities or cooperatives. As monopolies, these utilities serve a captive customer base while also maintaining fiduciary duties to maximize profits for their investors. Because of these competing interests, the IOUs must file an application, known as a rate case or general rate proceeding, with the state’s PSC any time the IOU wants to raise rates.

It’s important to understand that a lot of aspects of utility regulation are counterintuitive and inconsistent with regular businesses’ financial principles. For example, it’s generally more favorable to customers for an IOU to carry a sizable amount of debt in its capitalization structure, as the debt is often more affordable than equity when translated into customer rates. Other interesting aspects include a ratemaking structure that inherently encourages investment in new physical assets (like new poles and wires) even when an operational expenditure (like maintenance) would suffice, since a utility earns a return on all “reasonable and prudent” capital expenditures.

So who determines what is “reasonable” and “prudent”? The members of the state PSC do, but within the strict confines of state statute, significant legal precedent, and crucially, the evidence submitted into the record of a specific proceeding. When it comes to determining those rates, a state PSC is legally required to set the rates at a level deemed sufficient to cover operating expenses (including pass-through taxes, personnel costs, bad debt, and more!) plus a “reasonable” return on the utility’s investments. The revenue requirement (what the utilities make), and by extension the rates (what customers pay), deemed necessary for an IOU to recoup these costs from its customers is determined in a legal proceeding known as a “rate case” held before the state’s PUC.

What’s a rate case?

A rate case is almost always initiated by the IOU itself when the utility believes that the rates it is charging are not covering its costs, and can be driven by factors such as increases in operating costs, infrastructure investments, and more. In these instances, the IOU will submit an application to the state’s PUC along with evidence it believes supports the request to raise customer rates. After the application is received, it kicks off a lengthy evidentiary process that can last on average between 10 and 12 months.

A rate case looks and feels a lot like a court proceeding—there are lawyers, expert witnesses, evidentiary hearings, and lots of paperwork. The parties to the proceeding—such as the utility—can sponsor expert witnesses who must respond to written discovery questions in advance of a hearing and must also be available for cross-examination during the hearing.

As an aside, unless you’re in a state like Connecticut, which passed legislation to prohibit this activity, the utility’s costs incurred to put on this rate case—including lawyers, experts, lobbyists, and more—are then passed through as a recoverable expense to ratepayers at the end of the rate case. In other words, in most cases, the customers pay for this process too. (You can check this recent Energy Bar Association study for information on your state’s status).

The “judges” are the regulators—also called commissioners. There are usually between three and seven per state, sometimes elected but usually appointed by the governor. At the conclusion of the proceeding, the commissioners vote on a final decision that approves, denies, or modifies the IOU’s original rate case application. After the issuance of these legally-binding decisions, an IOU can adjust the rates it charges customers—subject to any appeals by parties to the proceeding.

Oh, okay. So the commissioners are to blame for my bills going up?

Well, let me walk you through a simple example I often used when pitching folks on engaging in rate cases: If the PSC was tasked in a rate case with determining the color of the sky, and the utility submitted evidence that the sky was green, and another party—say, the state environmental agency—submitted evidence that the sky was orange, an available outcome to the commissioners is somewhere on the spectrum between orange and green—not blue (or gray, if you’re in New England this winter). Full stop. In other words, if there isn’t someone participating in that hearing room, on that specific rate case, who is actively representing your interests and interrogating the assumptions and evidence submitted by the utility, the commissioners legally cannot say the sky is blue—or in this case, that the utilities’ requested rates are too high. Like the saying goes, if you’re not at the table, you’re probably on the menu.

So who will say the sky is blue?

Ratepayers should, elected officials should—pretty much anyone who knows the sky is blue and doesn’t have a fiduciary responsibility to squint and see green. But you have to do more than simply say that the sky is blue—you need to show up with facts, figures, data…anything that can either support your argument or refute the claims made by the utility.

Individuals can and should take full advantage of any and all opportunities to provide public comment on proposed rate increases. The PSC in your state is likely required to hold at least one public comment opportunity in the community where you can share your perspective directly with decision-makers. Unfortunately, though, very few states have existing frameworks that allow the regulators to consider public comment as evidence in the proceeding. This is not meant to discourage you from showing up! Use the opportunity to raise issues and pose questions that commissioners should ask on your behalf during the evidentiary hearings. Just know that your public comment stating that the sky is blue may not count as “evidence.” That’s why direct intervention in a rate case, particularly if you represent a unique perspective or underrepresented or marginalized viewpoint, is so critical.

Elected officials at any level in the state—as well as individuals—can become intervenors. Intervenors become official parties in the rate case proceeding and also often get appellate rights to ask a court to review the PSC’s decision later. Remember, PSC commissioners can only make decisions based on the evidence in the record in front of them, so there’s a pretty clear loser (and winner) if that evidence is lopsided. The good news is that there are an increasing number of resources and case studies emerging that offer a step-by-step guide to getting involved as a rate case intervenor, including this one from my organization the American Economic Liberties Project.

As my colleague and I explain in a recent op-ed for Governing on this topic, intervening in a rate case as an elected official is a vastly underutilized tool. The same holds true for heads of community organizations or even other state or municipal agencies. For example, states with transportation electrification targets may consider whether the state’s department of transportation has an interest in the utility’s rate design offerings that its electrified bus fleet may wish to utilize, or perhaps the state’s department of economic development has an interest in economic development rates being offered as a means to retain or grow local businesses.

Second, anyone can advocate that their state’s PSC/PUC, as well as the state’s utility consumer advocate, be appropriately resourced, e.g., staffing levels, consulting budgets, etc. Rate cases are almost always filed at a cadence and scope dictated by the utility, and only a handful of states set their own parameters around when such a filing can take place—including in scenarios where multiple utilities are operating in the state across several regulated sectors. In Connecticut during my tenure, for example, two major utilities filed their respective rate cases on the same day. The utilities know those filings start a shot clock—or deadline by which a decision must be reached by the regulator. So you can imagine how the simultaneous or close-in-time filing of multiple major rate cases would strain the finite resources of a state agency. For context, a 2024 filing by the utility Eversource in New Hampshire, in which they sought a 42% distribution charge increase, totaled almost 20,000 pages in its initial filing. Further, if we support the notion that more intervenors bringing more perspectives into the rate case will generally result in more robust decision-making, we need to also acknowledge that it will generate a larger case file for the regulators and their staff to review. This is not a time to be penny-wise but pound foolish in terms of appropriately resourcing our regulators (or at least critically reviewing their scopes—did you know that some PSCs even regulate taxi cabs and railroads?).

Ultimately, rate cases boil down to the question of whether the IOU has met its burden to demonstrate that an investment—an outlay of ratepayers’ money—was “prudent” and that the resulting rates—your bills!—are “just and reasonable.” Let’s make sure that our regulators have a fuller record in front of them, that we let the sunshine in, and, over the next several years, have nothing but blue skies.

If you’re looking for more resources to understand and demystify the world of public utility commissions, make sure you also check out this great resource from The Chisholm Legacy Project.

Marissa Gillett is a senior fellow at the American Economic Liberties Project and a former chair of the Connecticut Public Utilities Regulatory Authority.